Berkshire Hathaway Inc. is an American multinational conglomerate holding company working towards building wealth for the world, having the infamous chairman Warren Buffett. The business Model of Berkshire Hathaway involves its business plan, Revenue model, its competitors, its SWOT Analysis and many more.
Berkshire Hathaway is one of the most coveted stocks and one of the biggest companies in the world. The conglomerate has made a name for itself, thanks to the investing prowess of Warren Buffett who acquired the company in the mid-1960s.
Berkshire Hathaway invests in companies that have a long history of paying dividends. Buffett’s strategy is to reinvest these dividends but not pay one to Berkshire Hathaway investors. Under his leadership, Berkshire Hathaway became one of the world’s biggest holding companies. Buffett officially made Berkshire Hathaway a conglomerate, purchasing National Indemnity, the first of what would become many insurance acquisitions for the company.
The business model is as simple as it is effective: a closed-end fund, whose shares can be redeemed only by selling to another investor, with a strategy of long-term commitment and close engagement with the companies invested in. Berkshire’s success is based on the trust between the group, its operating companies and its investors. It is a world apart from the notion of the company as nexus of contracts among people who find it mutually advantageous, for the moment, to do business together; a world apart from the place to which financial innovation has led us.
Warren follows his own advice: When he invests in a company, he likes to read all of its annual reports going back as far as he can. He looks at how the company has progressed and what its strategy is. He investigates thoroughly and acts deliberately—and infrequently. Once he has purchased a company or shares in a company, he is loath to sell.
One of the most important principles that drive Warren Buffett investing is about his circle of competence. Indeed, that implies to invest in companies he can understand. Thus, technology firms have not been in Warren Buffett‘s radar for that simple reason. Warren Buffett has his own way to look at intrinsic value, that while at the beginning of his career was way closer to his mentor, Ben Graham, it changed over the years. For instance, while Ben Graham as value investor pushes to acquire companies when they are cheap. Warren Buffett usually ignored the stock price.
Berkshire provides a breakdown of six major business segments for revenue and EBT, a measure of profitability before income taxes. The business model is as simple as it is effective: a closed-end fund, whose shares can be redeemed only by selling to another investor, with a strategy of long-term commitment and close engagement with the companies invested in.
There are several brands in the market which are competing for the same set of customers. Below are the top 7 competitors of Berkshire Hathaway:
- Delphi Financial Group
- New York Life Insurance
The strengths of the company are listed below:
- The firm has created such a strong culture among its distributors and dealers that there is participation and accountability. There is a strong association of distribution channels with the companies.
- Berkshire Hathaway has made significant investments, over the years, to develop a potent brand portfolio. If the company wishes to grow into other product categories, this brand portfolio will indeed be quite helpful.
- Berkshire Hathaway is investing a lot of money on employee training and development. Its workforce is not just highly competent, but also driven and motivated to do more.
- Company has strong commitments towards new initiatives and approaches. The top level executives encourage and execute initiatives that ensure a fair amount of success by creating new income sources and producing strong returns on capital investments.
- The company has a strong cash flow. The company is able to generate high free cash flows making it easier for the provision of resources required to develop new ventures.
- The company is also quite successful in terms of developing a strong go to market strategies for its products and services.
The following points indicate the areas where the company can improve upon:
- The company’s product line is lacking several items. A new rival may gain ground in the market as a result of this lack of options.
- Most of the decisions taken by Berkshire Hathaway have been a well thought decision. Warren Buffett holds the major stake in decision making in the company, which demonstrates the brand’s frailty.
- In order to unify the procedures across the board, Berkshire Hathaway has to invest more in technology given the scope of the expansion and the variety of regions the business plans to enter. However, the company’s ambition currently does not match the level of technology investment.
- Despite spending more on R&D than the industry average, Berkshire Hathaway hasn’t been able to keep up with the best competitors in the sector in the area of innovation. It has the appearance of a seasoned company eager to release items with tried-and-tested features.
- Berkshire Hathaway’s turnover rate is greater than that of other companies in the sector, and it must spend significantly more on staff development and training than its rivals.
Here, we will be listing out the opportunities that the company can capitalize on. They are as follows:
- The company’s prosperity is built on successful investments. Their business model and strategies, the main factor in the brand’s expansion, take this into account. There is a terrific chance for the company to further add new companies to its portfolio of brands and subsequently boost its profitability and income stream.
- Emerging markets such as those in South America, Europe, and Asia provide the company with good investment prospects in order to significantly strengthen their brand. This is because these markets are expanding swiftly and have the potential to be profitable in the future.
- Technology is the most crucial factor for businesses like Berkshire Hathaway to become competitive in the market. The IT industry is expanding and offering investment firms several prospects for expansion. Hence, the company must make investments in the IT industry to boost its yearly revenue. They’ve already done so by investing in Apple, but there are other well known tech companies like Samsung, Nokia, Google, Amazon, etc.
In addition to the opportunities, the company also has its fair share of threats that it should be considerate of. They are as follows:
- Many nations, including the United States, have altered their rules and regulations due to the financial and economic crises. As a result, both operational and other costs have grown. These factors may have a detrimental effect on the company’s financial performance as well as its net income and revenue.
- Liability laws vary by country, and Berkshire Hathaway could be subject to a variety of liability claims if the rules in those areas change.
- As each business under the corporation operates in a very competitive environment, the rising rivalry in the technology industry may result in a fall in the company’s earnings. Simply due to this aspect, they risk losing their franchises.
- Lack of trained labor in several international markets threatens the company’s ability to maintain sustained profit growth in such regions.
Berkshire Hathaway is a market leader in its respective field. As of now, Berkshire controls a wide variety of companies including those in the confectionery, retail, railroad, home furnishings, energy, encyclopedia, vacuum cleaner manufacturing, jewelry sales, uniform manufacturing and distribution, and numerous local electric and gas utilities.