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Types of Consolidation Model – A Detailed Exposiition

For centuries companies have striven to gain a competitive advantage and a wider reach. With the birth of many start-ups and new ventures the competition started becoming more intense, and yet the companies individually managed to share smaller market shares. Thus, the bigger players started engaging in the Consolidation Model of acquiring smaller companies to ensure a bigger market share, bigger customer base, and wider reach. In this article let’s take a closer look at the concept of consolidation, the various areas and types, and how it has managed to change the business landscape with its benefits and advantages. 

Types Of Consolidation Model

Introduction to the Consolidation Model

The term Consolidation was taken from the Lain term “consolidatus”, which means consolidation of things into a separate new identity. The practice of business consolidation has been practiced throughout the ages but gained popularity in the 18th and 19th centuries. In the year 1950, the US Government made it legal by issuing a legal Consolidation Strategy. The pioneer big names in the business sector are JD Rockefeller from the oil industry and JP Morgan from the banking sector. 

The major areas where the Consolidation Model has been put into practice have been the finance sector and the business sector. In the finance sector, the consolidation is done of the various assets, revenues, profit, and balance sheets. In the business consolidation practice, two or more businesses are combined to give birth to a new business. The year 2000 was the IT boom and many start-ups and Baby Boomers marked their presence in the business landscape. The year 2008 brought recession unrest and made the running of these businesses unviable due to the rising inflation and cost. As these companies had carved a niche in the industry with their innovations and developments, the bigger corporations through mergers and acquisitions and other consolidation methods took over them, created new companies under their flagship, and increased their market dominance. The year 2023 is predicted as a year of major Mergers and Acquisitions and consolidations of businesses.

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Types of Consolidation Model

The Consolidation Model for every sector is different. Let’s first take a look at what does Consolidation mean in different areas : 

  • Consolidation in Finance – Consolidation of the financial position of a parent company and its subsidiaries is done to project a strong financial statement for the parent company. This can be further divided into the following types : 
  • Full Consolidation – In this Consolidation method the parent company combines the financial statements of all its subsidiaries under one main statement. Here the parent company has an ownership of 50% in all the subsidiaries and has the major decision making powers. This is done to represent the financial position, revenues, and cash flows of all the companies under one single entity, the parent company. This method helps in eliminating intercompany transactions and gives a balanced view of only the external transactions and a good financial balance sheet.
  • Proportionate Consolidation –  This Consolidation Method is adopted by companies that have a significant holding in the company and influence, yet they do not enjoy the ownership or the authority of a major shareholder. The parent company combines the financial statements, profits, and accounting in the proportion of its ownership in the subsidiary with its financial statement. The parent company in this process can strengthen its financial position in the market, The financials of the invested company is still printed in its name.
  •  Equity consolidation – The investor company when has a shareholding between 20-50% but does not have a very significant influence in the decision making, then they use equity consolidation. The investor uses the investee’s revenue outcome as a part of its financial position. The investor merges the profits or losses incurred by the investee only as a part of its financial statement. Unlike the proportionate consolidation, the financial statement is not merged or shown as one here.
  • Consolidation in Business – In business, the Consolidation Model follows the merger of two or more companies to give birth to a new company. The difference between a Merger and Acquisition and Consolidation is that in an M&A the parent company absorbs the acquired company and the business runs under the name of the parent company, whereas in business Consolidation a new company is formed with the amalgamation of the companies.
  • Debt Consolidation – In this type of Consolidation all the major debts of an entity are combined to create one new loan which is easier to pay off, has a lower interest rate, and the loanee has a lesser chance of defaulting.
  • Operational Consolidation – Operational Consolidation Model is generally restricted within an organization. Under this consolidation method, the company centralizes certain processes, systems, resources, and procedures to achieve better efficiency, and optimal use of resources, and eliminate duplication of work and processes. This is done within different departments within the company or even at different locations.
  • Supply Chain Consolidation – Companies adopt this consolidation method in the supply chain process by merging and or centralizing various stages, or vendors in the entire Supply Chain Logistic procedure they follow. This method is adopted to reduce the turnaround time, optimize costs and enhance overall performance.
  • Departmental Consolidation – This Consolidation Model is adopted within an organization or when there are Joint Ventures or Mergers and Acquisitions. The departments in the organizations which work towards a similar goal are merged to form one centralized entity. This ensures cost optimization, chances of duplication of work and processes, enhanced efficiency, and better communication.
  • Geographic Consolidation – When companies that have different geographic locations consolidate to create a new much stronger company, it is known as adopting a Geographic Consolidation Model. This method is adopted by companies to capture a consolidated bigger market presence in those specific regions or areas. The companies can then focus their resources and efforts in these areas for a proper optimization of their resources for say customer service, product or service delivery, a bigger customer base for marketing, and the most important aspect elimination of market competition.
  • Market Consolidation- The market Consolidation Model is adopted by bigger companies by consolidating smaller companies that are responsible for division and reduction in their market share by creating single bigger firms. This is undertaken to reduce market competition, increase the market presence, consolidate and retain the experts under one roof, and optimize the operation and functional costs. These companies adopt the Consolidation method to redefine the market landscape which works to their benefit.

Benefits of the Consolidation Model

Adopting the Consolidation Model by Companies has gained a stronger foothold post the pandemic to a greater extent. The unstable market has forced companies to think strategically to not only grow during unforeseen circumstances but also secure their positions strongly in the market. Let’s have a look at what benefits does this approach have 

Strategic Alignment:

Companies adopt the consolidation model with other business entities which work towards the same goal and have the same vision as theirs. This not only compliments the strength of the firm but also strongly increases the capabilities of the company. The new entity works towards aligning the goals, resources, and operations to that of the parent company. This in turn ensures the addition of value for the shareholders and also the owners. There are ensured better organic business growth. The consolidation opens a whole new door to increased business opportunities. There is exponential growth as compared to simple growth for the parent company and the consolidated smaller companies as the market value of a single entity is strengthened as compared to individual smaller entities.

Cost Optimization:

Consolidation of companies especially from the same market segment, or departments within the company, or spread across different geographic locations enables a company to reduce the chances of redundancy and duplication. With a centralized single department, the allocation of resources is more centralized. The company can evaluate the strengths and weaknesses of the departments and as per that allocate resources, bringing in efficient utilization of resources. The operational expenses of running a single department are much lesser. Setting up rational platforms of service, new applications, procedures, and services is simplified and uses less manpower and time. A larger single unit of production means bulk orders, which gives an opportunity for the company to call in for heavier discounts. This in turn reduces the cost of production significantly. All these points result in higher returns on Investments. 

Bigger Geographic Reach:

Consolidation of companies in either the same location with a better global network, or companies in different geographic locations results in faster market expansion in the local markets at a reduced cost. This in turn ensures better market share and visibility. Due to the local entities the acceptance in the local markets is faster and easier. The already present customer base reduces the new acquisition, and conversion cost. The customization of products or services is much easier, faster, and at an optimized cost as the consolidated companies already have a considerable foothold in the local market. This also enables the formation of newer alliances and partnerships in the local market.

Talent Optimization:

Under the consolidation method there is enhanced cross-culture sharing of working methods. This ensures in sharing of knowledge, better collaboration, and teamwork. On the other hand, it also gives rise to healthy competition among the employees. The most important result of consolidation is the expansion of the talent pool with the addition of experts from the consolidated entities. As the experts hail from different backgrounds a diverse group is obtained from which there is further potential of finding new experts. The professional and performance developments are better. This also provides a stronger possibility of employee retention and engagement. There is access to more innovations and developments.

Better Efficiency:

Consolidation offers a substantial advantage in increasing the efficiency of a company. As departments and locations are centralized the flow of information is through shorter channels and that’s why faster. There is better coordination within the company. The setting up of key performance indicators, performance or production benchmarks, and other performance measuring methods can be standardized. Identifying gaps and shortfalls is easier and faster, enabling faster methods for improvement. There is a much better streamlined workflow and better coordination between the parent company and the departments. There is a better utilization of the workforce for innovations and new technological advancements being done.

Streamlined Decision Making:

Centralized decision making is an important benefit of consolidation. A central headquarter with a lower number of departments eases the information channel and removes the multiple channels and layers of decision making. The resources for decision making are more consolidated. Due to the option of a faster and lesser number of channels for data collection, the decisions are more data driven and informed. The strategic alliance of the departments as one enables more focused decision making. The areas of conflicts and divergent decisions are reduced, and so is the time spent on them too. There is a much better clearer reporting structure, and enhanced coordination and collaboration.

Innovation and New Technologies:

With the adoption of consolidation the single firm which is born has a far better advantage in terms of adaption of new technologies and innovations. The expert employee base increases under one roof which facilitates the smoother flow of communication. The firm has stronger and bigger financial resources. The infrastructure becomes better as it is a combination of the good aspects of the collective companies. There is sharing of knowledge among all the employees which enhances the adoption of best practices in the industry. There is no duplication of effort due to collective working. The company has to spend less on matters like training and development. As the investor base increases there is more scope to spend on research and development. 

Stronger Financial Stability:

With the unification of companies the Consolidated independent firm has the advantage of a stronger financial portfolio as the consolidation of the profits of all the companies lowers the loss proportion. The pool of financial resources gets enhanced. The market creditworthiness of the firm increases due to which it has the leverage to demand lower borrowing rates and has access to better financing options. Better financial resources directly lead to better strategic investment plans in new technologies and developments. The diversification of revenues which is gained due to acquiring either new markets, new products, or new customer base mitigates the risk of damages due to market volatility and any specific challenges the company faces. The company can monitor and control its financials in a much more efficient manner.

Less Market Competition:

As the parent company takes over the smaller players in the market this leads to an increased market share. The products, services, or operations within the company which are duplicates are stopped or merged to eliminate redundancy. The new company enjoys a broader and stronger combined distribution network and a larger customer base. This first of all eliminates the potential for competition, and also it helps in barring the entry of new players in the market, thus, reducing the risk of market competition. The company has an enhanced pricing power and can price which aligns with better company profitability and rate of investment. There is an edge on innovations and rolling out products faster in the market which gives the company a competitive edge. A centralized support system has positive effects on better customer satisfaction experience. The turnaround time for customer support is also lesser and more efficient. These all factors lead to a major competitive edge thus reducing the market competition and the risks associated with it.

Risk Mitigation:

A strategically undertaken Consolidation decision has a number of benefits in mitigating the risk that the parent company and the subsidiaries face. The financial creditworthiness of the company strengthens which lowers the risks of credit volatility and bankruptcy. The newly acquired talent pool lowers the risk of them joining the competitors and in turn, gives the company a competitive edge in the market. The local, as well as global outreach, becomes better, and cost-effective, and the risk of market instability reduces. 

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Disadvantages of Adopting a Consolidation Model

Although the Consolidation method has a plethora of advantages it also comes with its set of risks. Let’s take a peek at the challenges faced due to Consolidation : 

  • As the number of products available in the market under the same product line or service decreases, so does the competition and so does the choice for the customer. 
  • The company gains the power of pricing which can lead to market monopoly making the customer pay more for the same as compared to earlier.
  • A company with market leadership can reduce its efforts in the development, innovation, and introduction of new features or products in the market.
  • A company consolidation can give rise to job losses as the firm will eliminate duplication. This can lead to manpower unrest and can also affect the retained talent pool.
  • Restructuring can pose significant costs for a shorter period of time.
  • In case the consolidation fails reversal or disruption will come with a very heavy cost.
  • In some cases, centralization can cause a loss of local monitoring. The implementation and flow of information to smaller local branches can be inefficient and slow causing delayed reactions toward new implementations. This risk lowers the company image among the employees and can give rise to a high sense of dissatisfaction amongst them.
  • The reaction time to local unforeseen challenges can be delayed causing the company to lose its market position in those local areas.


 Adopting a Consolidation Model is not a simple process. It takes months of strategic planning, and evaluation of potential benefits and risks, taking into account not only the current challenges but predicted and unforeseen future challenges. The planning for implementation and execution also plays a very important role. All these have to be data-driven, informed decisions, which are allegiance to the goals of the company are long term.

Consolidation brings a plethora of benefits along with it, with the biggest one being a stronger and more pronounced creditworthiness in the market. This results in lesser borrowing rates and better investor choices in the market. With the elimination of redundancy and streamlining of the processes cost optimization is the largest goal of all the companies. A better global reach and a better marketing network brings not only a bigger customer base under one umbrella but also works positively in attractions and retaining an increased talent pool. The reduction of market competition allows the company to divert resources in sectors to further promote the foray into cutting-edge technologies and developments. 

On the other hand, Consolidation also has to be very strategic and in alliance with the laws and regulations as a monopoly can cause major damage to the creditworthiness image of the company. A reversal or disruption of consolidation can cause major losses to not only the company image but monetary wise too.

Thus, before embarking on the decision of Consolidation a company has to weigh all its options.


Q. What is a Consolidation Model?

A consolidation method is a process of merging two or more small companies to form a single entity that works in alignment with the single goal of the companies or the parent company. The basic aim of consolidation is gaining a competitive edge in the market, increasing creditworthiness, reducing and optimizing costs, and increasing market presence. The companies aim to reduce market competition, better resource deployment in innovation and development, and increase in the talent pool at optimized costs. It has to be a data-driven, highly informed, and deeply researched decision.

Q. What are the challenges and risks associated with Consolidation?

Consolidation in business has to be a very informed decision, which has to be taken with due diligence and through market research. There can be many potential challenges that a company can face while consolidating for example geographic locations which can give rise to cultural differences, work culture differences, and employee culture differences which if not handled properly can cause manpower instability and loss of potential talent pool. Constant monitoring and planning have to be done to ensure a smooth flow of information and timely implementation of decisions of policies. The company also has to take into consideration government regulations and compliances not only locally and globally which can cause major obstacles.

Q. Are there any successful examples of Consolidation in Business?

The following are a few examples of companies that have benefitted leaps and bounds from the Consolidation of business :  

  • Essilor is a leading company in ophthalmologic products. It consolidated with Luxottica to form a new company known as EssilorLuxottica which has gained a wider global reach, and a wider customer base and is now known as a leader in the eyewear market.
  • Fiat Chrysler Automobiles is a market leader in auto cars. It was formed by the consolidation of Italian Fiat Automotives with American Chrysler Automotives.
  • In the year 2017 Dow, DuPont, and Corteva Agriscience consolidated to form DowDuPont which gained a good place in the manufacturing of agriculture products, industrial chemicals, material science, and other products.

Geetanjali Pantvaidya is a Post Graduate in MBA Marketing from Army Institue of Management Kolkatta. A Y2k batch pass out , She started her career with Caltiger.com which the country’s first free ISP. She has over 12 years experience in marketing working in the telecom industry, banking , insurance and the education industry. Hailing from an army family background, the love for travelling was deeply rooted in her veins since childhood, thus, her stint as a travel manager with Thomas Cook. She embarked on her journey as a content writer with a travel company.

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