While economic globalization and scientific and technological progress have brought development opportunities, the complexity and uncertainty of the economic environment have also increased significantly, which has increased the difficulty of structural adjustment and the risk of external shocks in domestic developing economies. The diversification strategy implemented by mainland enterprises is essentially just an economic phenomenon, and what is really worth studying is the uncertainty hidden behind the mainland's economic environment.
Keywords: environmental uncertainty, diversification strategy, corporate value
1 Preface
The implementation of diversified or professional operation is a major strategic decision of the enterprise, which directly affects the value of the enterprise and its development prospects. So far, there has been no complete understanding of diversification, and the jury is still out on whether diversification creates or destroys value. Since the 90s of the last century, the implementation of the strategy of diversification and the formation of enterprise groups have been a common practice in the reform process of mainland enterprises, especially state-owned enterprises. In practice, many companies are diversifying their operations and see it as a good way to improve their competitiveness. However, can diversification become an important way for Chinese enterprises to grow? This is a question that needs to be answered carefully. In mainland China, there are many cases of enterprises being punished by the market for blindly implementing diversified expansion, which eventually leads to the collapse of enterprises. From the earlier Giant Group to the later Delong Group, they have provided us with sufficient warnings. Therefore, only by clearly understanding the role of diversification can we provide practical experience and guidance for the healthy development of mainland enterprises. In view of this, this paper attempts to provide a complete literature review on diversification and corporate value, so as to provide an objective basis for the domestic theoretical and practical circles.
Earlier research found that diversified firms often trade at a discount. There is also literature that measures the degree of diversification discount and usually attributes the diversification discount to diversification itself. Recent studies have also supported diversification discounts, but argue that diversification discounts are not the result of diversification per se, but are the result of pre-merger transactions. Newer studies focus on questioning diversification discounts, identifying problems with previous research methods or data, and validating doubts with new methods or data. The new research results are carried out on the basis of previous research, partially overcoming the shortcomings of previous research, and have their more reasonable side.
2. Definition of the concept of pluralism
Diversification strategy refers to a strategy adopted by an enterprise to enter or leapfrog into a different product or market from the existing main product, and its purpose is mainly to occupy more markets and open up new markets, and to avoid the risk of single operation and choose to expand into new business areas (2002). The definition of the concept of diversification in existing studies is different, but in general, diversification strategy mainly refers to product diversification, market diversification, investment regional diversification, capital diversification, etc. Among them, product diversification refers to the new production of products by enterprises across a variety of industries that are not related to their main business. Market diversification refers to the distribution of enterprise products in multiple markets, such as domestic market, international regional market and even global market. Regional diversification of investment refers to the fact that the investment of enterprises' funds and resources is not only concentrated in one region or field, but is dispersed in various regions and even various regions around the world. Capital diversification refers to the existence of various forms of capital sources and composition of enterprises, such as intangible assets such as tangible assets, bonds, stocks, intellectual property rights, trademarks and goodwill. In view of the research theme of this paper, Zhang Xiaolong's (2010) definition of diversification strategy is adopted, that is, enterprise diversification strategy refers to the business strategy behavior of expanding its business scope by more than one industry, in short, industry diversification.
3. Diversification strategies in an uncertain environment
In fact, with the rapid development of economic globalization and the increasing update of advanced information technology, all countries are trying to make full use of international capital to promote the international movement and redistribution of their own funds. Introduce foreign advanced technology, build a new platform for science and technology to open up the international market, promote economic development, and enhance the country's economic status in the world. While economic globalization and scientific and technological progress have brought development opportunities, the complexity and uncertainty of the economic environment have also increased significantly, increasing the difficulty of structural adjustment and the risk of external shocks in domestic developing economies. The diversification strategy implemented by mainland enterprises is essentially just an economic phenomenon, and what is really worth studying is the uncertainty hidden behind the mainland's economic environment.
Compared with the mature capital markets in the West, the privatization of mainland enterprises and the market-oriented economic reform of the dominant industries have greatly improved the economic and regulatory environment for state-owned enterprises and other enterprises. In addition, the current global economic competition is becoming increasingly fierce, technological innovation is changing with each passing day, domestic market fragmentation, frequent changes in industrial policies that vary by region and industry, and dual control by the central and local governments have increased the ambiguity, uncertainty and unpredictability of the regulatory environment. Modern enterprises are constantly faced with a more dynamic, boundless, and complex business environment. In this context, the diversification strategy of mainland enterprises is deeply marked by environmental uncertainty.
4. The impact of diversification strategy on corporate value
The value maximization hypothesis is a well-researched theory in the strategic motivation of diversification. In this theory, the research on enterprise diversification strategy is divided into several branches, including market power theory, efficiency theory and financial synergy theory. The central idea of these theories remains that the goal of a diversification strategy is to create value for shareholders, and that the value of the diversification strategy derives from the synergies generated by the diversification strategy. After the implementation of diversification, enterprises can produce a variety of synergies, such as management synergies, marketing synergies, financial synergies, operational synergies and so on.
What is the net impact of diversification on firm value, and whether it increases or decreases firm value? Economists have studied this extensively, but there is no consensus. Most empirical studies have shown that diversification reduces firm value, i.e., creates a diversification discount. and Ofek (1995) analyzed the data of more than 3,600 enterprises in the United States from 1986 to 1991, and found that diversification led to a decline in enterprise value, and the higher the degree of enterprise diversification, the greater the value loss. Other studies have been conducted in other countries, such as Lins et al. (1999), which conducted a large sample test in Germany, Japan and the United Kingdom, and found that the degree of diversity discount was similar to that of American firms, and that the estimates of the diversity discount of Japanese and British firms remained significant even after controlling for firm characteristics.
Conversely, recent empirical studies have shown that diversity does not necessarily reduce firm value. Mansi and Reeb (2002) found that diversification reduced shareholder value and increased creditor value. Through the study of data from more than 8000 enterprises in 35 countries from 1991 to 1995, et al. (2003) found that the value of enterprise diversification is related to the degree of capital market development, international integration and the level of legal system.
5 Conclusion
At this stage of increasingly fierce corporate competition, it is particularly important to study the impact of diversity on corporate value. Looking at the literature at home and abroad, most of the research focuses on the empirical analysis of developed countries such as the United States and Europe, while there is little research literature on the value of diversification in developing countries. Therefore, strengthening the research on the value of diversification on enterprises in the mainland not only supplements the shortcomings of research in this area in developing countries, but also can provide theoretical guidance for mainland enterprises to formulate correct development strategies.
The characteristics of corporate strategy include:The characteristics of enterprise strategic management include guidance, overall, systematic, competitive and risky.
Guidance: The enterprise strategy defines the business direction and long-term goals of the enterprise, clarifies the business policy and action guide of the enterprise, and plans the development trajectory and guiding measures and countermeasures to achieve the goals, which plays a guiding role in the operation and management activities of the enterprise.
Overall: The enterprise strategy is based on the future, through the in-depth analysis of the international and national political, economic, cultural and industrial business environment, combined with its own resources, standing at the height of system management, the long-term development trajectory of the enterprise has been comprehensively planned.
Competitiveness: Competition is an unavoidable reality of the market economy, and it is precisely because of competition that the dominant position of "strategy" in operation and management has been established. In the face of competition, enterprise strategy needs to analyze the internal and external environment, clarify its own resource advantages, and design an appropriate business model The characteristics of enterprise strategy include, the formation of characteristic management, enhance the confrontation and combat effectiveness of enterprises, and promote the long-term and healthy development of enterprises.
Systematic: Based on long-term development, the enterprise strategy establishes the long-term goal, and needs to set up the stage goal and the business strategy for the realization of each stage goal around the long-term goal, so as to form an interlocking strategic goal system.
Risk: Every decision a business makes is risky, and strategic decisions are no exception. In-depth market research, accurate prediction of industry development trends, objective vision and objectives, proper allocation of human, financial, material and other resources at each strategic stage, scientific selection of strategic forms, and the formulation of strategies can guide the healthy and rapid development of enterprises.
Principles of corporate strategic management
1. The principle of adapting to the environment
The influence from the environment has a large impact on the business objectives and development direction of the enterprise. The formulation of the strategy must pay attention to the interaction between the enterprise and the external environment in which it is located.
2. The principle of whole-process management
Strategy is a process that includes the formulation, implementation, control and evaluation of strategy. In this process, each stage supports and complements each other, ignoring any of them, enterprise strategic management cannot be successful.
3. The principle of overall optimality
Strategic management should treat the enterprise as a whole, and emphasize the overall optimum, rather than the local optimum. Strategic management does not emphasize the importance of a certain part or department of the enterprise, but coordinates the activities of various units and departments by formulating the purpose and objectives of the enterprise, so that they can form a joint force.
4. The principle of full participation
Because strategic management is overall, and there is a whole process of formulation, implementation, control and revision, strategic management is not only a matter of enterprise leadership and strategic management department, the characteristics of enterprise strategy include, in the whole process of strategic management, all employees of the enterprise will participate.