What Is a Secondary Business?

Mary McMahon
Mary McMahon

A secondary business is a unit within a larger corporation that supports core functions with services or products, including raw materials and supplies. Such units are discussed in annual reports and other statements to shareholders to provide information about business activities and profitable divisions within the company. They can also be spun off or sold to create new businesses or transferred to other business entities, if the company believes this would be in its long-term interest. The role of a secondary business can depend on the company and its overall mission and goals.

Businessman giving a thumbs-up
Businessman giving a thumbs-up

Services like research and development, advertising, and environmental consulting may be available through a secondary business which supports the company’s core. An aerospace firm, for example, wants to maintain a robust research and development arm to compete with other companies in the industry, develop new products, and address issues as they arise. It may operate with a high level of independence to allow personnel to focus on their goals, rather than the overall directives of the company.

Product supply can also be part of the role of a secondary business. It may secure raw materials, components, and products made by subcontractors and other firms. These support the core activities of the business, like the production of cars with metals procured and managed by the secondary business. The focus in this case is on obtaining necessary products in a cost-effective and timely fashion to ensure that core operations are not interrupted.

Company officials can review documentation, policy, and other materials from the secondary business to learn more about its operations, audit for problems, and make sure it is staying on task. These can include renegotiations to refocus the mission or direct it to different activities. A company might be moving away from manufacturing a given product, for example, in which case it needs different support functions from its secondary units.

In the event of a spinoff to divest the secondary business from the main company, it may maintain a business relationship. Research and development arms, for example, could become unique firms but continue to work closely with their former parent companies. Likewise, suppliers might keep up contractual relationships. Divestiture is sometimes necessary to reduce the size of a company, access liquidity, or otherwise reorganize, but the company may not want to lose its valuable connections, making it important to stay connected with the former secondary business.

Mary McMahon
Mary McMahon

Ever since she began contributing to the site several years ago, Mary has embraced the exciting challenge of being a wiseGEEK researcher and writer. Mary has a liberal arts degree from Goddard College and spends her free time reading, cooking, and exploring the great outdoors.

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