The literary world may not like it, but where the City is concerned selling books is no different to selling cornflakes. Publishing is subject to the same economic trends as any other industry, and like many great British brands the biggest publishing houses are now mostly in the hands of foreign conglomerates.

Last month French giant Lagardère bought Hodder Headline from WH Smith for £230 million, a deal that pushes Hachette Livre, Lagardère's book division, into second place in the UK, with a 12.6 per cent market share. Of the top five publishers, only one - Pearson-owned Penguin - is British. The market leader, Random House, is owned by Bertelsmann of Germany and HarperCollins is part of Rupert Murdoch's News Corp. Only Bloomsbury is in the top eight, and it has JK Rowling to thank for that.

Global consolidation is taking place because publishing is a low-growth industry, expanding by an average of between 1 and 3 per cent per annum over the last 10 years. When a company's top-line is rising at just above inflation, the only way to keep profits rising is to look at the bottom line and increase margins, usually by cutting costs.

That explains the wave of acquisitions in the industry over the last decade. In the 1990s HarperCollins was snapped up by Murdoch, Bertelsmann added Random House and Transworld to its rapidly expanding portfolio of publishing assets, Hachette acquired Orion, and Pearson expanded in the American market by buying US publisher Putnam. Four years ago it added Dorling Kindersley.

The logic underpinning those deals was a relatively simple one: to buy up numerous imprints and save money via simple economies of scale.

'You can't save money on author's royalties or agents' fees, but you can save huge sums by buying paper in bulk or improving distribution,' says one industry executive.

Now that most of those savings have been squeezed out, the publishing conglomerates have embarked on a further round of internal rationalisation, merging imprints and cutting titles.

'Every single publishing house is rationalising the number of books being published,' says an industry executive. 'That is making it very difficult for individual smaller imprints to maintain their own identities, because they are being told they can't publish more than 100 books in the next fiscal year.'

The need for greater scale has also been driven by trends on the high street, where booksellers have adopted some of the sophisticated selling techniques other retailers have used for years. 'They have brought their buying intelligence in line with the rest of the high street and they are ordering fewer titles up front, but choosing to back those titles heavily,' says one executive.

Chains like Waterstone's may be marketing books more intelligently, but they order fewer titles and about 50 per cent of sales are now generated by just 3 per cent of titles. The rest come from a long tail of books growing shorter by the year.

Sheila Bounford, executive director of the Independent Publishers' Guild, said: 'It is absolutely indisputable that the biggest publishers have the most clout in terms of the high-street book trade. Books by big-name authors are always going to come out of those big conglomerates.'

But striking a balance between financial discipline and a creative environment in which star authors, agents and editors can flourish is not easy. That often drives some into the arms of smaller publishers.

'[Consolidation] is a double-edged sword [because ] it provides opportunities for small independents. Very big companies often find it very difficult to publish in particular niches,' says Bounford.

Lynne Truss's best-seller Eats, Shoots and Leaves, published by Profile, is one of several published by small independents. 'Often when [consolidation] occurs, talented people get shaken out and go and do their own thing,' says Bounford. 'Independent publishers get mopped up and then the process starts all over again.'

Canongate, the Edinburgh-based group that published last year's Booker Prize winner Life of Pi, has been approached by several large industry players but has so far clung to its independence.

The biggest threat to the independent sector could come in the form of supermarkets, which have already transformed the dynamics of the industry.

Supermarkets sell a handful of books, typically only buying 10 a month, but shift a huge number of copies. According to one executive: 'If you've got a chick lit novel and you get it into Asda you will see it in the best-seller list. And if it means that it immediately gets in the top 10 list, then the job's done.'

Supermarkets are driving margins down by demanding huge discounts from publishers and most of them will only deal with sales representatives from the largest houses.

As Tesco and its competitors grab more of the market, independent publishers will find it more difficult to compete. But then books - just like cornflakes - are rapidly becoming just another commodity.