Based on the scope of the economic mechanism of corporate investment decision-making constraints

[Abstract] ability to develop or cultivate a new competitive advantage is to determine the scope of business expansion strategy the key to success. In this paper, the scope of the Economic sources of business investment as a starting point to study the scope of business expansion in the cultivation of the factors that affect the competitive advantage to derived range of corporate investment decisions of Economic constraint model.

[Keywords:] enterprise-wide investment decisions binding mechanism

First, the enterprise-wide source of income

As the "barrel effect" exists, the enterprise business processes often occur in the production of some of the phenomenon of underutilization of resources. "Barrel effect" also known as "short-board effect", it tells us more than a board constituted by a The size of the barrel storage capacity depends on the height of the shortest piece of wood. By the same token, a company the size of production and management capacity is determined by its number of factors, the least resources to decide. to maintain a smooth production and operation the factors involved in the liquidity and capital adequacy, to master the technology, management capability, the full extent of the production lines running, brand, etc., any of which factors are restricting the development of a production "board." In order to avoid internal existence is not Economic to the need for enterprises in the production and management process within the full use of remaining resources to enhance their capacity and efficiency of use of resources.

The remaining resources of different nature and have different characteristics, it also decided to use the remaining resources of the enterprise approach to determine the enterprise's investment. Further production and business activities need to use the resources in its exclusive and non-specific nature divided into two categories feature: Specific resources and non-specific nature of resources. Specific resources, including production, marketing, distribution and service systems, technical expertise and know-how, trademarks, patents, etc.; non-specific nature of resources, including corporate goodwill, management skills (organizational structure, human resource management, corporate culture systems, etc.), capital and other.

Specific features of the resource is professional, systematic, and conversion transformation of the poor, often not accessible to other areas as well. So, when a private enterprise resource surplus and idle there, only to fixed cost allocation to the business as much as possible to obtain the economies of scope. This is because, even if only a single product companies have set up a complete production, distribution sales system, when the use of existing systems and other similar products sold usually does not require too much additional investment but to be capable of small adjustments to the new tasks. So, in the event of surplus and idle resource-specific circumstances, the diversification of business expansion in the most Economical way is to these resources similar products as the axis for the development, production and marketing of lateral expansion.

Non-specific nature of resources, often refers to corporate reputation, management skills, technology development and innovation system and other intangible resources, most of them embodied in capital operation and practice, embodied in the special skills and entrepreneurship of the managers of people. Since the majority of management skills, senior management has a certain generality, not necessarily for a product, so companies often either to the upstream and downstream industry chain expansion for the vertical direction can also carry out non-related diversification of investment. longitudinal expansion method is the market by trading between the original into the internal relationship between the administrative allocation, which allows companies in financial, trade links, organization, etc. have a "1 +1" 2 "synergy. Although the company's business scope expansion than before, But to expand the business scope of the synergies arising from the average cost can be diluted in order to achieve economies of scope.


Second, Economic and competitive advantages of enterprise-wide

There is an inherent economies of scope not only economic, there are also external economy. The scope of the internal economy of the economy means that when a company from specializing in one product or multiple products or services to production when a variety of services, the costs have been reduced, profits improved, increase efficiency of an economic phenomenon. the scope of the external economy is not only the economic performance of industry production to meet market demand for variety increases to individual enterprises more opportunities and benefits; while including a number of enterprises within the same region produce the same product or through a variety of specialized division of labor to produce a variety of related products and the benefits of a single enterprise, that the formation of the aggregation (C1usters) effect. from the scope of the internal economy and external economic can be found in the economy: diversification in a business expansion process, the realization of economies of scope on the business use of resources, production costs, information access and product differentiation and reduce the operational risks of its cultivation and development of competitive advantage is to promote role.

1, resource utilization advantages. From a range of financial resources point of view, enterprise-wide implementation is based on the economy of their enterprises make full use of idle resources. When companies improve resource utilization, the factors of production means that companies put in all the circumstances given the number of , the type and quantity of output increase than before. So when companies realize economies of scope after the resource use efficiency is improved, it also enhances the profitability of business.

2, the production cost advantages. When a business can make full use of its idle resources, the most immediate consequence is to reduce its production costs. The scope of the economic form of production cost advantages, from the inner side is the enterprise-wide economic cost of production arising from advantages from sharing fixed costs, lower variable costs in two areas shown. apportionment of fixed costs for enterprises mainly plant depreciation, fixed cost-sharing, etc.; variable cost reductions mainly in lower procurement costs, improve resource utilization rate and so on. from outside the economy in terms of enterprise-wide mainly as lower transaction costs, the formation of effective supply of human resources, access to specialized information, access to institutional and public facilities to support, promote better management of power and the effect on the effective evaluation of specific performance is to increase production efficiency. the formation of external economies of scope, easier to attract government or other public institutions specialized in infrastructure and investment in public goods, such as training programs, professional-quality centers, testing laboratories, specialized exhibition, transport, industry associations, schools.

3, the information an advantage. Diversified expansion path from the enterprise point of view, whether related to business diversification through expansion or diversification of non-related expansion of its market, customers have different degrees of exposure to the expansion of the boundary. Fed back information more timely, more reliable, companies can be the first to grasp the more competitive market conditions, availability of raw materials upstream, downstream clients demand. the scope of the information created by the economic advantages of companies in its industry to increase participation in the course of competition initiative.

4, the product differentiation advantages. Enterprises to achieve economies of scope is one of the characteristics of products and production services provided by species differentiation. Differentiation is the diversity of enterprises to provide products, including product quality, functionality, appearance, variety , specifications and service delivery. which can meet different customers diversified and personalized needs and increase market share, increase customer loyalty to its brand.

5, reduce business risk advantage. The formation of the cost advantages of economies of scope and differentiation advantages, reflected in the product, quality and price competitiveness. Meanwhile, the company's reputation long established, summed up the business management skills and established marketing platform to market of new products and reducing the cycle, bring convenience to consumers but also can accelerate the pace of capital turnover rate, reduce the potential market risk.


Third, the scope of business investment decision-making mechanism of the economic constraints

Although the process of business expansion through diversification to achieve economies of scope to enhance their competitiveness can promote, but the diversity of enterprises and the expansion can not be unlimited. The reason is that when the expansion of excessive diversification of resources will make the fragmentation of the operating costs over large, also increased the difficulty of operation and management, enterprises will face at this time "diversity trap". "diversification trap" phenomenon explains why not limit the diversification of business expansion, that is, when the expansion process of diversification Economic status is not in the scope of the enterprise will be at a competitive disadvantage.

Without considering the premise of external factors, the paper that the enterprises have the core competitiveness of enterprises maintained a competitive advantage, diversification strategy of economic benefits and costs determine the choice of enterprises expansion strategy, but also determine the scope of the enterprise The depth and breadth of the expansion (see Table 1).

1, the enterprises have the core competitiveness. Enterprises have the core competitiveness of enterprises not only determine the specificity is relevant or non-related diversification Diversification expansion, diversification and expansion determine the extent of the enterprise. Contact with the product related to the core competitiveness of enterprises often make similar products associated with different types of diversification; as management skills, brand goodwill, promote the core competitiveness of enterprises are often vertical and horizontal integration of the relevant industry or other non-related industry diversification. Generally speaking, the deeper the degree of diversification, with the necessary capital, technology, management and manpower requirements of the higher, the greater the difficulty of implementation, the higher the risk to bear.

Sometimes the reason why the development strategy of diversification is difficult to succeed, often because its difficult to smooth the introduction of core competencies into new areas, or the transfer of core competencies has been formed slowly after being diluted and weakened, leading to the final can not maintain the original Some core competencies. Therefore, the business applications the way the transfer core competencies to diversify, which can reduce cost and improve the whole enterprise to achieve strategic competitive advantage purposes.

Links to Research Papers Download http://www.hi138.com 2, enterprises maintain a competitive advantage. Enterprises in accordance with their own core competencies are selected the appropriate diversification strategy, the new development strategy must the competitive advantage of companies previously have an impact, can enhance or weaken the competitive advantage of existing, or create new competitive advantages. enterprises decide to maintain the competitive advantage of diversified development strategy of enterprises the depth and breadth. Bohong movement, Wang Dan (2007) on enterprises to maintain competitive advantage and business relations between the diversified development strategy has the following point of view (see Table 2).


Difficult to form a new competitive advantages and core competencies to maintain the one hand because of the transfer there are some obstacles, which are the most difficult part of the core intangible resources that the transfer capacity; the other hand, the competitive advantage of the newly formed not to be consolidated and strengthening on the rush to open up new areas, causing scattered power.

3, the diversification strategy of the economic benefits and costs. (1) economic benefits mainly from three aspects. The first unit production costs. With the production and operation of the synergies arise, it will lead to the production, marketing and management the process of reducing the unit cost of products, reduce product unit costs for the direct performance of their products a competitive advantage in price. Second, the transaction cost savings. enterprises and independent vendors in the business activities between the time the transactions between enterprises will generate significant cost, the major costs include negotiations, delays in the production and destruction and so on. diversified expansion, for a business transaction between the departments associated costs and communication costs will be saved. Third, brand value, etc. intangible resources, added value. Whether your business is through acquisitions or greenfield investments, the result is size of the business also expanded, so that reputation will be increased.'s reputation, brands and other intangible resources to the enterprise value-added on the one hand enhanced in the negotiations to win the weight, and enhance the attractiveness of high-end talent, on the other hand can make up for business investment in fixed assets the lagged effect of economic benefits, bringing business in the investment process the total value of assets value. (2) diversified expansion strategy will cost the following aspects enterprises increased investment. First, the improvement of the total production cost. With the expansion of business scale, the type and scope of production and operation must also expanded , so that purchases of raw materials, the number of employees, investment in the production line will be enormous. The second is the increase in the total management costs. This was reflected in the rise in staff costs, staff effective incentive and monitoring more difficult, and enterprise excessive resource sharing led to the unique advantages of resources to be diluted. Third, the increase in organizational costs. Diversification means that the expansion of business organization, business process change, organization and management level to increase the span to increase, in short, means that the enterprise structure of the complex, the problem is that the resulting organization and management of increasing demand. diversity brought about by the expansion of the complex organizational activities and corporate organization and management structure of the existing contradictions become Diversification constraints and obstacles. Fourth, the "rent-seeking" cost. In general, the industry average profit margin (industry attractiveness also done in some places), then the higher, the greater the barriers to entry. enterprises in order to enter this new high-profit industry are bound to and the relevant departments dealing with industries and enterprises, this process can not help but there is a "rent-seeking" cost.

By this analysis, enterprises have come to sum up the core competitive edge, the formation of competitive advantage, the cost of the expansion process, the four elements of economic interest in the expansion process in the enterprise to achieve economies of scope in the mechanism shown in Figure 2 .


Enterprises have the idle resources of the combined decision of the enterprises have the core competitiveness of the nature of the different core competencies directly affect the strategic choice of diversification and expansion. Business expansion strategy in the selection or implementation process will enhance the existing competitive advantage, or will have a new competitive advantage. development strategy adjustment process, whether a company can achieve economies of scope are based on the economic interests of enterprises in the number and size of the cost paid to measure the difference, when the enterprises in the new implementation of the strategy in the course of the economic benefits of the added value is greater than the cost to business, then that company's diversified development strategy to achieve economies of scope; the contrary that the development of enterprises in the diversification of economies of scope is not implemented.


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