Oksana Suprun

National University of Food Technologies, Ukraine

Diversification as a way to increase the efficiency of enterprises

Implementation of diversification in agricultural production is undoubtedly subsidiary, and even the main factor to ensure a competitive ability of the agricultural enterprise. The choice of diversification strategy allows not only to increase the competitiveness of the products and the enterprise but also to enlarge its sales owing to more complete satisfaction of customer demands.

Each enterprise must decide to what degree it is reasonable to diversify its production. It should be taken into account the current situation (stable or unstable economy, market conditions, population solvency, etc.) and also the volume of the enterprise, the real state of its economy. It is obvious that big enterprises have more opportunities for diversification. They are able to develop the new branches with a reasonable concentration of production for them and there by eliminate or substantially settle the contradictions between diversification and specialization of production achieving better results in the enterprise management. Such enterprises have more financial resources for starting new production. It reduces the need for debt capital, and hence it reduces the expenses for its realization. And on the contrary, the small enterprises with a low production concentration are not able to develop many branches, that is why they should tend to more specialized production. Diversification as a social form of production organization can provide some benefits to the enterprise.

First, it is an important way of financial risk management. For instance, when the company receives the main part of the profits from the sale of one type of product, then the deterioration in market situation on a given production or natural calamity such as epizootic can lead to serious economic losses or even bankruptcy of the company. In terms of production diversification, the profit losses in some branches can be compensated by obtaining more profit from sales of the other production. In case, when such a compensation does not occur, as it happens sometimes, the economic losses in one branch cannot significantly influence the financial and economic situation of the enterprise, as its share in the profits ceases to be dominant. Therefore, enterprises with diversified production are marked with higher economic stability, especially in changing environment and crisis: inflation, defaults, low solvency of the population and so on.

Second, diversification allows the enterprises to fully use their physical resources, earth and labor and thereby to grow mild the seasonality of production, increase employment of workers, to get additional profit from making-good use (timely and well thought out) industrial mobility, to increase industrial output of demanded products with reasonable price, and also partly to reduce the manufacturing of the other types of products with bad market situation. It is clear that such a maneuver is quite difficult to do for specialized enterprises, because they need to start new production which requires a lot of money and a long time.

Third, diversification of agricultural enterprises, including vertically integrated industrial diversification, enables them to obtain a synergistic effect and thus, under the same other conditions, increase production efficiency.

At the same time diversification can bring some threats to the enterprises. It does not always give an opportunity to take advantages of specialized production, and therefore to it is an antithesis to a certain extent. Because the development of many branches scatters the enterprise resources and therefore it is often unable to gain a rational concentration from some of them. As a result, the enterprise loses an effect of volume production.

It should also be kept in mind that it is much more difficult to manage the diversified production compared to non-diversified. Here, managers and specialists must have diverse professional trainings, they have to consider much more factors of external and internal environment, and it increases the risk to take insufficiently informed decisions.

Thus, we can conclude that increased diversification of the agricultural enterprise should be done extremely carefully, in each case we have to take into account the specific of production , the competition structure of the finished commodity in the market.

References:

1. Доценко Г.О. Реалізація стратегії диверсифікації виробництва / Доценко Г. О. // Вісник Харківського національного технічного університету сільського господарства ім. Петра Василенка. Серія «Економічні науки. Ринкова трансформація економіки АПК».

2. Ілляшенко С. М. Аналіз дослідницького потенціалу при виборі стратегій диверсифікації в системі стратегічно – інноваційного управління підприємством.

3. William D. Smithburg. The Development and Marketing of New Consumer Products: Some Successes and Failures, Product Development & Management.