What is the diversification route?

How to take the diversification route?

Question: I have been doing wholesale of children's clothing in a second-tier city in Sichuan for six or seven years, but the scale is not very large. Now the competition is fierce, and the profit margin is getting smaller and smaller. I have been doing it for so many years, but the development has been relatively slow. According to the current market rules, it needs to be large-scale and take a unique route to develop better! So I would like to ask how to expand their scale, how to take the route of diversification? Expert advice please! (asked by: mycp)

Answer: For companies with small profit margins, there are two ways to increase profits: increase in scale and enhance capabilities. I think many companies need to avoid a misunderstanding of management thinking: excessive pursuit and reliance on scale. Scale is a competitive advantage, but scale is not a sustainable competitive advantage, especially when the market profit space is gradually becoming smaller, the idea of expanding profit through scale is limited. In this case, focusing on market segmentation and improving one's own profitability is the real positive response.

For small and medium-sized wholesale enterprises, it is most worthy of attention to keep up with the needs of the market to organize the supply of goods. You also mentioned taking a unique route, which is very important.

To develop an enterprise, the key is to understand the needs of the market and make its own characteristics. In the past five years since 2000, the sales volume of my country's children's clothing market has been on the rise, and the domestic children's clothing market has huge consumption potential. You may wish to make a segment of the market composition of the local consumer market, or analyze specific preferences. For example, according to my preliminary understanding, the current children's clothing market is dominated by baby clothes (0-1 years old), children's clothes (1-3 years old), children's clothes (4-6 years old), middle children's clothes and big children's clothes. There is a lot of room in the market. You can consider focusing on the products with larger space, or focus on the clothing management of boys or girls with better sales.

In general, if an enterprise wants to achieve long-term development, it needs to know what its sustainable competitive advantage is, or what its own characteristics can help to form a competitive advantage, and use its advantages to compete . Therefore, enterprises should avoid the blind pursuit of scale and diversification, but should start from the understanding of the market and their own characteristics, and formulate a strategy suitable for their own development. In fact, the competition of small and medium-sized enterprises is to a large extent the competition of diligence and information, which is what enterprise managers can do through their own efforts.

What should be paid attention to when developing a strategy?

Question: The current Internet basic service market is highly competitive. Our company has just been established, and the target market is the network basic service market in a certain region. We strive to integrate the market and improve the overall service level of the industry. What aspects should we pay attention to when formulating corporate strategy? Focus on current interests or future development? How to achieve long-term competitive advantage? (Questioner: v_sunny)

Answer: If a company is compared to a person, a company's vision is like a person's dream, and a strategy is a plan leading to a life's dream. A good corporate strategy is formulated by systematically studying the market environment where the company is located, the operating policy and legal environment, industry trends, competitors, and the company's own situation. The formulation of corporate strategy is to solve the problem of where the company should compete, how to compete and when to compete.

Strategy formulation itself is a systematic job. A large amount of information from both internal and external aspects is needed as a basis for decision-making. At the same time, scientific internal discussion and decision-making procedures are also required. The strategy agreed by everyone at the meeting may not always be the correct strategy. Whether people who voted really deeply understand the strategy will also have a great impact on the outcome of the decision. Specifically, the developed strategy also needs to have specific steps, and a good strategy needs to have strong feasibility.

On how to achieve long-term competitive advantage, this topic requires us to first determine what is long-term competitive advantage. Competitive advantage can come from structural positioning advantages (such as scale, market protection, government support), or from the core competitiveness of an enterprise itself, which is sustainable and long-term. The core competitiveness of an enterprise comes from the learning ability within the organization and the behavioral characteristics determined by the organization's DNA. To establish a long-term competitive advantage, an enterprise must start with the four basic elements of the most fundamental organizational DNA: decision-making power distribution, organizational structure, information, and incentive mechanism, and establish a healthy DNA type within the organization.

With the further improvement of computer and Internet penetration, the entire Internet market is also expanding. The business volume of basic Internet services such as virtual hosting and domain name registration has increased sharply, and the entire market has shown a trend of jumping growth. However, since there are no high technical thresholds for providing basic services such as domain name registration, web hosting, and email, there are a large number of new and old companies in the industry, and the service quality of these companies is also uneven. In this chaotic market, establishing one's professional image is of particular importance.

It is also worth emphasizing the strategy of strengthening channel and market segmentation. The industry and regional scope of basic Internet services are expanding day by day, and the content of basic Internet services is relatively complex, and the requirements for after-sales are relatively high. It is necessary to further expand the scope of customers and enhance the level of service, and channels just have such a role. Second, to develop cooperation and co-organization of channels in different industries. Using different channels to have a deeper understanding of different industries, service providers can provide more targeted products and services, and then promote the development of the company.

Is this development strategy correct?

Question: A natural gas company with total assets of about 100 million yuan. It is a transformed joint-stock enterprise. Before 2004, the company hardly had a single undergraduate student, and its employees were almost all related households. In 2005, nearly 30 college students were recruited at one time. There are many systems in the company, but the implementation is weak. In 2005, the company decided to change its development strategy and seize the market nationwide. The company invested in 4 provinces and established subsidiaries. The investment areas are all poor and backward areas. The company's investment capital sources are joint ventures and loans. Subsidiary managers have limited ability, and the capital recovery cycle is long, and the fastest place is at least two years. Question: Is this strategy correct? What strategy should the company develop? (Questioner: Xiao Xinxing)

Answer: From what you have introduced, the company's two major initiatives have strong transformative characteristics. One is the major adjustment of the workforce, and the other is the adjustment of the business focus.

For the current situation the company is facing, it depends on two questions: first, whether the company's new strategic direction is correct, and second, whether the company's transformation plan is reasonable.

As for the company's investment in four poor and backward areas, whether the project plan (including financial planning) is reasonable, we cannot judge whether it is reasonable without a detailed feasibility analysis. The issue of the length of the recovery period of a single project is not critical, as long as the company makes a decision after scientific analysis of the project. However, companies also need to balance risks and not put all their eggs in one basket.

After confirming that the new strategy is the right one, the solution is to develop a reasonable transformation plan. This program needs to master comprehensive and step-by-step. For example, it is right to introduce talents, but the selection and use standards of talents also depend on the specific situation. First of all, college students are not necessarily the ones who are most in need, and work experience is also very important; second, whether college students have a suitable position after being introduced is also very important for the exertion of their abilities, and it is of little significance if they cannot make the best use of their talents; Third, what impact can such a one-time large-scale introduction have on company culture? The original intention is to invigorate the company culture by absorbing new blood, but is the company's management able to manage this possible intense cultural conflict well? Otherwise, not only will it be difficult to optimize the corporate culture, but it will cause serious internal friction. In terms of business direction adjustment, if the company's own funds are not very sufficient, and it also invests in multiple projects with long payback periods, the risk of liquidity is relatively large. Might be a little too hasty? Is it possible to maintain the continuity of operations well in the connection between the new business and the original business?

When planning the development strategy of the enterprise, the strategic orientation of the enterprise should be selected after accurately grasping the strategic environment and strategic capability of the enterprise. I think a company still needs to focus on the cultivation of internal capabilities. The direction of the specific business is important, but if the company does not have good internal capabilities, it is difficult to achieve sustainable development.

This article is organized by Cindy Bin. For more questions and answers, please visit the World Manager website.