A holding is... Structure, activities of holdings. Holding management

Updated July 23, 2022 238 Author: Dmitry Petrov
Hello, dear readers of the KtoNaNovenkogo.ru blog. The main goal of commerce is to make a profit.

Achieving maximum profit is impossible without optimizing the structure of connections between enterprises (companies, firms, organizations) that work to obtain this profit.

Today we will look at one of these “optimizing” structures, which is called a holding. Let's define what a holding is, what its structure and types are.

What is a "holding"?

There are several definitions of this concept. It is interesting to consider different interpretations in order to more accurately understand the essence of the term. A holding is a system of commercial organizations, which implies the presence of a large management company and smaller subsidiaries. Typically the management company owns a majority stake.

A holding is a corporation that regulates the activities of independent organizations. The corporation regulates through a controlling stake in controlled enterprises that it owns.

The main distinguishing feature of holdings is that such organizations use their capital to purchase shares of other enterprises.

Briefly about how a holding is created

There are several ways to create a holding company. Firstly, it can be horizontal integration. In this case, companies that conduct business in the same industry are united into one structure (for example, it could be agriculture, construction).

Secondly, integration can be vertical. With this unification, an entire production cycle is formed within the structure: raw materials, passing through the holding companies, eventually become finished products. This type of integration can significantly reduce costs and increase the company's value on the market.

The construction of new companies with the aim of their further integration into the structure is another way to create a holding company.

In addition, there are truly complex structures formed by combining several holdings.

The history of the development of entrepreneurial activity in our country proves that a holding structure was often created by breaking up a large company into smaller components with further changes in its structure.

In most cases, the creation of a holding structure occurs by purchasing a controlling stake in companies that are planned to be included in it in the future on the secondary market.

A little about the history of holdings

Holding companies developed with the advent of capitalism. This form of organization originated in the 19th century. Holdings first appeared in the USA. The word “holding” is derived from the English word “to hold”, which means “to hold”. Therefore, such companies were also called holding companies.

At that time, there was the first antitrust law, which prohibited the formation of monopoly organizations and obstruction of free trade in the market. In case of violation, the act established serious penalties, such as fines and a prison sentence of up to 10 years.

To circumvent this law, a holding structure was used, since in this case the formal independence of the subsidiaries from the parent company was maintained. Thus, at the end of the 19th century, most American trusts were reorganized into holding companies. If we return to the present day, we can note that most of the largest corporations in the United States and Europe have a holding structure.

Financial structure

There are 2 types of financial organization of concerns:

1. Coordination scheme. We are talking about the presence in the association of several equal organizations, whose cooperation is built on mutually beneficial conditions. In fact, this process is carried out through the exchange of assets. This is necessary to ensure that each organization is the property of the other. In the future, this makes it possible to make any strategic decisions together during the meeting of shareholders;
2. Subordination scheme. In this case, the concern is headed by the parent company (parent company), and the rest (subsidiaries) are financially subordinate to it. This structure is observed in vertical type associations. The parent organization is developing the basic concept of development, as well as the economic activities of the concern. Other companies must unconditionally follow its instructions of this nature.

Characteristic features of holdings

Such associations have many common features that remain unchanged over the years, changing only in minor details.

The first and most basic feature is the concentration of shares of companies in any industry located in different regions. This provides great opportunities for managing the industry itself; the holding structure allows you to take into account all the nuances when making important decisions.

The second characteristic feature of the holding is its multi-stage nature, which implies the existence of subsidiaries at several levels. Sometimes a holding can be depicted as a whole pyramid, where at the top there are one or two main companies, which can even be located in different countries.

Another feature of such associations is the centralized management of the holding. Companies can develop common policies and coordinate actions in the following areas:

• Establishing connections between organizations.
• Reorganization of companies and establishment of internal structure.
• Directing funds to develop new products.
• Development of a unified strategy and tactics of behavior on a global scale.

Common problems when managing a holding company

The holding is managed on the basis of regulations. Let's look at the most common management problems:

1. Loss of controllability, bureaucratization. The solution to the problem is to reduce centralization.
2. The emergence of significant differences between subsidiaries. This problem leads to the fact that one of the subsidiaries shows good results, but the holding as a whole does not benefit from this. Also, the group of companies is losing its “face”. Firms are becoming fragmented. The solution to the problem is the development of a common policy, the establishment of common goals.
3. Subsidiaries are not independent. This is the result of strict centralization and incorrect delegation. To solve the problem, you need to reduce centralization and also hire professional managers.

For effective management, it is very important to develop a general financial and investment policy. General rules should be established for each daughter. Each organization must be headed by experienced management.

Legal regulation

The activities of holding companies are regulated by tax and antimonopoly legislation.

As for antitrust laws, they do not directly address the definition of “holding”, but they often use the term “affiliates.” This concept is used in many industries, found in documents related to accounting, securities and shareholder activities. If we turn to the very meaning of this word, it means an individual or legal entity that can influence the activities of other individuals or legal entities engaged in business activities.

Horizontal integration

This type of integration involves the accession to an existing holding or a company creating a new holding of enterprises that produce products similar to those produced in the holding (Fig. 2).

The main advantage of horizontal integration is the growth of the holding’s share in its market segment. This means that the main purpose of creating a holding company with horizontal integration is to reduce the level of competition . In this case, the opportunity to set your own prices on the market increases and thus ensure an increase in profits and an increase in the profitability of production and sales.

At the same time, we must not forget about the requirements of the Federal Law of July 26, 2006 No. 135-FZ (as amended on July 4, 2016) “On the Protection of Competition.” In addition, a horizontally integrated holding company can afford to purchase raw materials and supplies at significant discounts by increasing purchase volumes.

Advantages of holdings

A holding is an association that brings with it a lot of advantages. It is worth understanding in more detail what they are.

The main advantage is that the holding, due to the coherence of its actions, can more actively fight competitors and receive visible results from this.

Holdings also have the following advantages:

• serious reputation and image of an influential structure;
• the possibility of attracting qualified personnel (scientific, managerial and others);
• centralization of capital, which allows for more efficient management;
• stable and sustainable position;
• efficiency of tax planning;
• efficiency of financial management;
• the possibility of implementing a coherent investment and credit policy;
• the possibility of combining scientific and industrial activities;
• distribution of commercial risks and much more.

Vertical integration

This is the accession to the holding of enterprises whose main activity fits into a single technological chain of production of finished products of the existing holding, which makes it possible to create a closed production cycle (Fig. 1).

The main advantage of vertical integration is significant cost savings, which for the most part consists of profits included in the price of suppliers of raw materials, materials and components necessary for the production of the holding's main products.

In the event of the merger of supplier enterprises or companies replacing previous suppliers, profits and invoices previously included in the purchase price remain in the holding. In addition, effective management, optimization, rationing and strict control of resource consumption in the process of economic activities of companies merged into a holding can bring additional savings.

Disadvantages of holdings

Holding is not only about continuous advantages. Like any other form of business organization, it has a number of negative features. The disadvantages of the holding model are as follows:

• there is no competition within the holding, which leads to the continuation of unprofitable production, and, consequently, to a decrease in the economic efficiency of the entire holding;
• bureaucratization of the administrative apparatus, complication of all processes;
• lack of a developed regulatory system for regulating holdings;
• complicated document flow;
• the complexity of managing a large association.

Pros and cons of concerns

Once an organization is part of the concern’s unified network, it has the opportunity to take advantage of a number of advantages. In the future, each of them helps to increase the level of competitiveness.

Pros:

• If difficult times come for the market, companies can survive them by receiving financing from some other group entities;
• If any mutual complaints arise between the companies, a third party can intervene and find ways to resolve the problem. We are talking about a company that is the parent company within the concern. Thanks to this, such disputes between association organizations almost never reach legal proceedings, which will also entail financial costs;
• Association entities can take advantage of preferential conditions in the trading process. Thus, some organizations provide themselves with regular customers, and other participants provide supplies at attractive prices. This advantage can also be attributed to the auxiliary types of work of the association. We can talk about insurance or transport companies;
• If one of the companies has achieved scientific progress and invented something, in the future, it will become the property of each of the entities of the concern.

For an organization, joining a concern is not always accompanied by only advantages. Speaking of disadvantages, almost all of them are related to the fact that, regardless of the type of association, they are a form of monopoly. It is also worth considering that the organization’s proximity to monopoly status negatively affects competition within the market, which in the future may negatively affect it in the following way:

Minuses:

• Scientific and technological progress will be slowed down. This is explained by the fact that organizations have no one to compete with, so the pace of technology development slows down significantly;
• Bureaucratization. Due to the huge management apparatus, each decision is accompanied by a large number of approvals, which entails significant time costs;
• If new promising organizations appear on the market, they will not be able to compete with the concern;
• An organization that is part of an association partially loses its independence.

Classification of holdings

Holdings can be divided into several groups according to various characteristics. The first classification that is worth considering is based on the method of control of the management company over its subsidiaries. Highlight:

• property holding – in which a controlling stake in subsidiaries belongs to the management company;
• contractual holding - the management company does not own a controlling stake in the subsidiary, control is exercised on the basis of an agreement between them.

The next method of classification is by type of work and functions of the management company. According to it, all holdings can be divided into:

• pure - these are associations where the management company carries out only management and administrative activities and does not conduct production activities;
• mixed - the management company carries out all types of activities, that is, it produces any products, carries out control measures and manages subsidiaries.

Types of holdings - material and mixed

At the moment, Russian legislation allows the operation of 2 types of holdings:

1. Material;
2. Mixed;

1. Material . In this case, the main part of the capital is the securities of subordinate companies. Speaking about the role of the main association, it is to conduct financial transactions. Other types of activity will be prohibited at the legislative level. This also means that the financial holding will combine cash flows, rather than separately existing organizations.

2. Mixed type of holding. This means that the parent company will have all the rights to manufacture the necessary products and subsequently sell them. This type is designed for organizations united by a technological and research center.

For example, this includes such Russian associations as Agroholding, RosBusinessConsulting, Gazprom, Lukoil and Surgutneftegaz.

Agricultural holdings are groups of legal entities that carry out agricultural activities on the market and sell finished products. In simple terms, these types of associations are necessary to provide the country with food products and food products.

In this case, holdings can be divided into two subtypes:

1. Polysyllabic. In the structure of the association there are secondary organizations necessary for control of lower-level units. For them they are maternal. Speaking about the role of the main company, it controls the activities of all other subsidiaries.
2. Simple type. It combines several subsidiaries and the main company, which is controlled by the head office.

The type of activity of each association depends on the performance of the necessary functions and work. Here we can distinguish the following varieties:

• Combined. In this case, the parent association is engaged in a specific type of work, that is, it produces products or provides services. At the same time, subsidiaries are monitored. If necessary, their work is monitored;
• Conglomerate. This includes various productions that are not interconnected by obligations. Each company conducts a separate type of activity, which cannot be affected by the work of the rest of the association structure;
• Intersecting. This type of holding can be found in Asian countries, where a controlling stake in securities belongs to industrial and banking enterprises. Thanks to this type of merger, shareholders can quickly solve existing problems at the expense of banks. In this way, banking institutions help combat financial difficulties.
• Conservative version. Here the parent company is not the manufacturer of anything. Its main task is to control the work of subsidiaries. In addition, the head office owns the majority of the securities;
• United. In this case, each company is connected by a technological cycle. This type of association can be observed in the oil and gas sector. Here the parent association includes enterprises that are responsible for the transportation, processing, extraction and sale of products;
• Typical version. Here, the main enterprise can manage lower-level divisions, since it controls their shareholding. This means that each subsidiary company has no securities of the parent company at all. But, in this case, exceptions are possible.

Russian holdings: specifics of activity

In our country, such a form of organization as holdings is quite developed. Of course, there are specific features of conducting such activities in Russia. Similar organizations in our country, and in particular Moscow holdings, have a great influence on the state of the market. There are 2 types of holdings on the territory of the Russian Federation:

• financial (where more than 50% of the capital consists of securities of other companies, its main function is to manage and conduct financial transactions);
• mixed (differs in that the enterprise has the right to conduct its own production activities, usually operates in knowledge-intensive areas).

Now it’s worth paying attention to the most influential Russian holdings. As of 2015, their list includes the following companies:

• "Lukoil";
• "Surgutneftegaz";
• "Magnet";
• Vimpelcom;
• X5 Retail Group.

Features of the work of a holding organization

The parent company has the responsibility to monitor the performance of its subordinate companies. The association bears the responsibilities of the main executive body, which controls economic activities. Speaking about the influence on the small firms owned by him, this is carried out based on current legislation.

A holding association may consist of several enterprises that control the transport sector, are responsible for the purchase of equipment or goods, and are also responsible for the sale of manufactured goods.

A large commercial structure is formed through the merger of several enterprises. Abroad, associations may include companies within the country, as well as attract those that operate outside its borders. The main organization is engaged in the control of lower divisions, ownership of assets in the amount of 5%.

Speaking of secondary firms, they do not have the opportunity to obtain shares of the main enterprise. As a result, the association receives the right to manage companies whose value may exceed its existing capital by several. Thanks to the concentration of securities, it is easier for the parent company to deal with issues related to financial and business matters. Thanks to this, the coordinated work of a large number of small firms is ensured.