Large organizations

From CEOpedia | Management online

Large organizations play special role in the modern market economy. They are enterprises grouped in specific relationships and business organizations, i.e. corporations, companies, holding companies, conglomerates, trusts, community of interests, cartels, syndicates and chambers of commerce.

Corporation

Corporation - a legal entity formed by the merger of several entities to achieve a common goal. Characteristics are: the existence of common management, the corporation may include natural or legal persons or entities without legal personality, clustering activity by complementarity or similarity of function, an association of undertakings on the basis of wealth or personal factors. The standard corporation forms include: composite operators (multi-plant companies, joint ventures, joint enterprises), a group of entities with established management center.

Group of corporations - the name of one company is applied to clusters of business units:

  • economically separated (operating in the divisional structure) and also in legal terms (created as separate companies),
  • integrated system of technical relations of production, trade and capital (usually vertical in nature of the relationship),
  • managed by the leading company conducting their own business on the basis of nature of the group.

Company is a business relationship based on a separate capital ownership. It may be a group of companies legally and organizationally separated, with its own financial reporting. The standard forms of companies include: the company integrated economically, holding companies, state-owned companies. Following types of companies can be distinguished: vertical, horizontal and mixed. Creating of company is a tool to assist in managing various markets, increasing economic efficiency and reducing costs. Characteristics of the companies belonging to a common (one) owner, the existence of common management, ownership by the company legal personality, clustering by technological or industry specialization, a significant concentration of capital and production.

Holding

Holding is a special kind of relationship in which one company takes over from the other so-called control package of shares thus gaining economic dominance over the company acquired or taken over. It is a form of clustering, in which the role of the parent company holding shares fully in the capital of other companies, enabling it to exert a decisive influence on the direction of the activities of these companies. Setting up a hierarchical structure of holding companies is usually two-tier (parent-subsidiary),

Subsidiaries, with the full legal personality, are clearly subordinated to parent company (in terms of finance, personnel, and so in fact the general policy). Although their legal position does not change, after all, they maintain all the attributes of appropriate legal entity, however the role of control of the parent company is indisputable. This advantage, however, can not be considered only in terms of the negative traits of subordination, but also from the point of view of the benefits of integration.

The advantages of the holding company include:

  • allocation of capital of one entity to another, in exchange for a fair share of the profits,
  • effective influence on the activities of the subsidiaries through participation in their boards, or indirectly through the supervisory board, concentration of capital,
  • relatively free movement of capital (beyond the control of the bank)
  • ability to flexibly manage the production potential of the holding company.

Weak points of holding companies include:

  • The lack of protection of workers' interests in subsidiaries
  • Loss of competitiveness of subsidiaries
  • Particularism of managers appointed by the holding company,
  • Monopolistic position of holding.

Consortium and trust

Consortium - a temporary association of producers, traders, financial institutions and others, in order to carry out the joint account of the operations of finance, production and commercial construction, which require a capital contribution in excess of the capacity of individual participants. This may also be a contractual agreement with the parent company or independent market partners for joint investment activities, development, etc. There may be construction consortia, trade, supply, etc. The most common form similar to the partnership, while the large consortia may take the form of a joint stock company.

Business Community - a kind of economic arrangements characterized by the following features: a durable economic interaction between companies, significance impact on the development of market relations. They can take the following types of agreements: the exchange of mutual benefits, joint ventures, distribution of spheres of business, coordination of the economic and productive activities performed. Business community is a form of connecting companies in the same industry or industries to interact with each other. Business communities and trusts have a significant impact on the development of market relations. Following forms of organization of Business communities: occasional co-ordination agreement, co-operation agreements

Trust - a form of combining independent companies in the new company as a company whose members lose their legal and economic autonomy. It is generally a horizontal grouping (linking producers of similar products), with a high degree of centralization of management. Trusts are entities acting according to the formula of monopoly. The trusts connect producers in the same industry on the basis of incorporation or merger. Joint venture is a contractual agreement of the central operator and its subsidiaries with foreign partners, based on a common capital (co-investment). The joint venture project is jointly undertaken by the agents based on contract with risk sharing.

See also:

Examples of Large organizations

  • Walmart: Walmart is a multinational retail corporation that operates a chain of hypermarkets, discount department stores and grocery stores. It is the world's largest company by revenue, with US$514.405 billion for the fiscal year ending on January 31, 2021. It is also the biggest private employer in the world, with 2.2 million employees. Walmart operates a huge digital commerce business, and its e-commerce sales for the fiscal year ending on January 31, 2021, totaled US$41.7 billion. Walmart also has a strong presence in physical retail, with over 11,500 stores in 28 countries.
  • Apple Inc.: Apple Inc. is an American multinational technology company headquartered in Cupertino, California, that designs, develops and sells consumer electronics, computer software and online services. It is one of the world's largest technology companies by market capitalization and revenue. Apple's hardware products include the iPhone, iPad, Mac, Apple Watch and Apple TV. Apple's software includes the macOS, iOS, iPadOS, watchOS and tvOS operating systems, the iTunes media player, the Safari web browser, and the iLife and iWork creativity and productivity suites. It also offers services such as Apple Music, Apple TV+, Apple Arcade and iCloud.
  • Amazon: Amazon is an American multinational technology company based in Seattle, Washington, that focuses on e-commerce, cloud computing, digital streaming and artificial intelligence. It is one of the world's largest Internet companies by revenue, and the world's largest provider of cloud infrastructure services. Amazon also sells consumer electronics, software, video games and other consumer goods. The company has separate retail websites for the United States, United Kingdom, Ireland, Australia, Canada, France, Germany, Italy, Spain, Netherlands, Mexico, Brazil, India, Japan, China, South Korea, Singapore, and Turkey.

Advantages of Large organizations

Large organizations play a critical role in the modern market economy, offering various advantages over smaller businesses. These include:

  • Increased buying power - Large organizations are able to leverage their size and buying power to secure discounts and lower prices on their purchases. This allows them to remain competitive in the market and pass on the savings to their customers.
  • Economies of scale - Large organizations can access and benefit from economies of scale, meaning they are able to produce products and services more cost-effectively due to their size. This allows them to remain competitive and offer better prices than smaller businesses.
  • Increased efficiency - Large organizations are able to use their size and resources to create more efficient systems and processes. This allows them to be more productive with their resources and provide better customer service.
  • Access to capital - Large organizations are usually better positioned to access capital from investors and banks. This allows them to fund their operations and expand more easily than smaller businesses.
  • Access to talent - Large organizations are usually better positioned to attract and retain the best talent in their industry. This allows them to stay ahead of the competition and remain competitive in the market.

Limitations of Large organizations

Large organizations play an important role in the modern market economy, but they also have their limitations. These include:

  • Complexity - Large organizations tend to be complex, often involving multiple layers of management, bureaucracy, and a variety of different departments. This complexity can make it difficult to effectively plan and manage the organization.
  • Cost - Large organizations are often expensive to run, requiring significant investments into infrastructure, staff, and other resources. This can make them difficult to sustain in the long run.
  • Lack of flexibility - Large organizations are often slow to adapt to changing markets and customer needs, making them less competitive in the long run.
  • Risk of corruption - The larger an organization is, the more likely it is to experience corruption. This can damage the organization’s reputation and affect its ability to compete in the market.
  • Environmental impact - Large organizations use significant amounts of resources, often leading to environmental degradation. This can have serious long-term consequences for the planet.

Other approaches related to Large organizations

Large organizations play an important role in the modern market economy. Other approaches related to large organizations include:

  • Corporations - legal entities owned by shareholders who have limited liability and the right to transfer their shares. Corporations are run by a board of directors and officers elected by shareholders.
  • Companies - organizations that pursue activities for profit, and are owned by shareholders who are liable to the company’s creditors. Companies are managed by shareholders or directors.
  • Holding companies - companies that either own a number of subsidiaries or own the majority of the voting shares in another company. Holding companies typically provide capital, control, and management services to their subsidiaries.
  • Conglomerates - companies that own a number of different companies in different industries. Conglomerates are run by a board of directors and are typically large, diversified firms.
  • Trusts - legal arrangements where assets are held by one party for the benefit of another. They are typically used to manage assets for the benefit of a beneficiary.
  • Community of interests - organizations formed by individuals or companies with common interests. They are typically used to facilitate collaboration and cooperation.
  • Cartels - organizations formed by companies to control production and prices in a particular industry or market.
  • Syndicates - organizations formed by companies to pool resources and share risks in order to pursue a common goal.
  • Chambers of commerce - organizations formed to promote and protect the interests of businesses in a particular region or industry.

In summary, large organizations play an important role in the modern market economy and there are a variety of other approaches related to them such as corporations, companies, holding companies, conglomerates, trusts, communities of interests, cartels, syndicates and chambers of commerce.


Large organizations — recommended articles
Syndicate — Chain Banking — Stock insurance company — Types of joint venture — Internationalization — Related diversification — Commercial sector — Business group — Advantages of cooperatives

References

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