Economic diversification in general terms is a strategy designed to reduce risk by adding assets, products or services, as well as customers or markets, to an already formed portfolio. For the first time, the concept is found in the code of provisions of Judaism, in the Talmud. The described formula is a division of assets into three parts. One part is a business, including the purchase or sale of goods, the second part is liquid assets, for example, gold, the third part is funds concentrated in real estate. Restructuring can be called a competent allocation of valuable resources with such a perspective that the loss of one segment that generates profit does not affect the overall state of affairs. This definition is ideal for both the state level and for investment, agriculture, any industry.
Narrow interpretation of diversification
Economic diversification is conditionally divided into the following areas:
- Banking. It implies the redistribution of loan capital between a significant number of customers. In some states there is a restriction regarding the provision of loans. A financial institution does not have the right to provide a loan to one person if its amount exceeds 10% of the capital of the bank itself.
- Investment. Provides for the inclusion in the portfolio of additional types of securities or similar, but differing in issuers in industries or companies.
- Production. This is an expansion of the product range in the development of new production and production technologies.
- Business diversification is defined as the conquest of new markets, the development of new industries.
- Agricultural. Defined as expansion of activity: active development of both animal husbandry and vegetation.
- Conglomerate. This is an expansion of the list of services and goods provided within the framework of one enterprise. At the same time, the list of products should not bear any resemblance to the already existing nomenclature.
- Risks. This is the use of a wide range of tools for earning. At the level of investment, this is the purchase of not only stocks, but also bonds. At the business level, it is the development of a new policy; at the economic level, it is the elimination of dependence on the world price environment through the full provision of the needs of the population by the state.
A bit of history
The market economy was formed in stages. Each stage of development has its own individual characteristics, especially if we take into account the level of specialization and diversification in terms of antagonistic forms of building the manufacturing industry. For the first time, the concept of "diversification of the economy" appeared as the dominant economiccategory in the 1950s. During this period, the efficiency of production in almost all countries of the world fell significantly as a result of the relative depletion of domestic sources. An active battle began between states for the world market. The transformation of production became necessary as a result of clear prerequisites for a slowdown in the development of economic growth and under the influence of scientific and technological progress. Against the background of the fact that the purchase of innovative equipment at that time and the introduction of new technologies into the activities of large-scale industries did not give a result, diversification took the place of the most common form of capital concentration. Enterprises and organizations that have tried to expand their sphere of influence and increase the number of sources of income at the expense of income have achieved not only a high level of competitiveness, but also success.
Strategy and its role at the enterprise level
Concentration solely on one direction on the part of management determines a wide range of advantages for business: organization, management and strategy. The fall in the return on capital that was invested in production leads to the need to use a resource redistribution strategy. The diversification of a firm or enterprise, acting as a tool for eliminating disproportions in reproduction and the logical distribution of resources, plays the role of an important coordinator of the direction of restructuring the entire economy as a whole, thereby setting a wide variety of tasks and goals for corporations. Redistributionrelates to the modification of the most essential elements of the activity. This is a finished product, and an industry, and a sales market, and the place that a company occupies in a certain area. In an actively developing macro environment, the process acts as a kind of basis for achieving a completely new level of market flexibility, both internal and external. The decision on whether to apply a diversification strategy or not is made on the basis of forecasting the future. The true concept of the process is associated with the active development of the company, with the conquest of new areas of its influence. If the enterprise continues to accumulate capital, then the process of redistribution does not act as the main strategic goal.
Diversifying the economy
Diversification in terms of the economy means restructuring, which is aimed at modernizing and actively developing a wide variety of industries. Perestroika is very relevant for Russia, in the development of which only three sectors play the most significant role:
- Military.
- Industrial.
- Energy.
As for tourism, the agricultural segment, the production of consumer goods, the service sector, these areas are underdeveloped. The critical percentage of consumption-oriented goods is a consequence of an imbalance in the economic sector. This results in Russia being highly volatile in terms of inflation. The high level of inflation leaves its mark on the formation of high interest rates on loans. So,mortgages and other types of financing for individuals and legal entities are simply inaccessible to a fairly wide range of the population. The structure of the economy, which is characteristic of the country today, serves as nothing more than a brake on development. For the overall development of the state, it is extremely important to stimulate the development of completely unrelated industries, in particular the automotive industry and tourism, agriculture and food production.
Benefits of restructuring
Diversification of the economy brings many benefits. The main one is the complete independence of the state of one economic sector from another. If difficulties arise within one market, the decline of the entire economy of the state will not occur. The disadvantages of the process include the need to take into account the numerous differences between markets and the specifics of their service, between the subtleties of the production of different types of products. Due to the fact that the Russian government did not expand the range of manufactured goods, did not master new types and types of production, did not change the types of products, that is, did not modernize production, today the country's economy is in complete decline. The reason for the decline can be called the statistical state of investments that were previously directed to the oil and gas industries. Due to the fall in the cost of oil, with the imposition of sanctions by the EU, the Russian budget is not replenished in the planned volume, and domestic production cannot meet the needs of the country. That is why at this stage of developmentdiversification of the Russian economy is essential not only for prosperity, but also for the ability to survive the crisis. Until the process is activated, the world elite has a chance to influence the country by changing the world price environment, in particular for fuel.
Who needs economic diversification?
The goals of diversification are ideal for those states whose development and prosperity is closely connected with the export of minerals, with the sale of natural resources. Russia is one of the countries that needs a complete overhaul of the existing economy in accordance with a more efficient model. Countries such as Chile and Malaysia, Indonesia and many others can be a worthy example of a successful modernization. It is worth paying attention to the multi-level procedure when studying the question of what economic diversification is. The definition leads to the fact that this task turns out to be unbearable for most countries of the world, which have been successfully surviving for more than a decade due to the extraction and sale of minerals. Despite the active statements of politicians and analysts, in the vast majority of situations everything remains at the level of talk.
Work for the future
The main feature of the process of restructuring the economy is that a wide range of activities are carried out today, and the results are achieved with a significant time delay. In other words, diversification, examples of which are verydifficult to find in history, is essentially a work for the future. The result of the activities carried out in the present tense will bear fruit for a long period of time. Active investment in various sectors of the state, including the service sector, the tourism industry, and production, gives a good impetus to the active prosperity of private entrepreneurship. Relations between industries are actively beginning to build up, and the prerequisites for an active increase in trade turnover within the international market will be formed. All this will lead to an improvement in the standard of living of the population, to an increase in demand and the formation of proposals. An increase in domestic trade in the country in tandem with an increase in material flow will raise the overall economic performance of the state.
Subtleties of the Russian economy and the relevance of diversification
The development of a state with huge raw material resources, in particular Russia, has characteristic features. In the dominant number of situations, the rate of energy production is significantly lower than the population growth rates. Over time, the rate of return per capita gradually falls. It should be noted that the extractive industries are not able to provide a sufficiently large number of jobs. All this leads not only to the formation of a social threat, but also negatively affects the standard of living. The risk of a crisis appears as a result of the active growth of the unemployment rate. Russia, being a major exporter of natural resources,almost completely dependent on the international price environment. Despite the use of agreements between countries on an acceptable level of prices for raw materials, there is a risk of a sharp change in pricing policy. The risk turned out to be justified in the situation that developed in 2015. The fall in oil prices led the economy of the Russian state into decline. The concept of diversification implies a competent redistribution of income from the raw materials industry among all other areas of the state's activity, otherwise the occurrence of the "Dutch disease" may occur.
What will save Russia?
Russia is characterized by large volumes of resource extraction. The main problem is not only that the income from the industry goes into the pockets of the privileged part of the country's population. Difficulties in the development of the state are related to the direct relationship between the volume of resource extraction and the level of corruption. The most elementary way to get a lot of capital is to appropriate income from the energy industry. When the formation of the dominant part of the budget is carried out at the expense of taxes from companies in the extractive industries, the Russian leadership does not feel much responsibility towards other areas of activity due to their insignificant contribution to the economy. The state of affairs dictates the relevance of restructuring. Diversification of business, industry, production, all sectors will be the country's response to the dictates of the world market. A show of political will and significant efforts can change the situation radically.
Technical moments of restructuring
Almost all typesdiversification today will be relevant for Russia. This is due to a number of factors:
- Russia is seeing a sharp decline in business development potential.
- Opportunities for activities in a wide variety of industries, although there are, but they are not developing.
- The potential of the extractive industry can be successfully redistributed among other segments.
- The presence of a large number of resources in the mining direction.
For example, the diversification of the rural economy will allow the state not to feel dependent on the supply of products to the domestic market. No restrictions on imports by the EU countries will not be able to hit the economy. Despite vigorous efforts aimed at modernizing the economy, including a detailed plan, at the moment the authorities cannot take any actual decisions. Restructuring is impossible without the active development of the domestic market and the presence of the solvency of consumers. In order for the system to work, it is initially necessary to raise the general standard of living in the country: increasing wages, paying social benefits, providing the population with jobs. Modernization should begin within the state, and not outside.
