Research On Diseconomy Of Scale In Wushang Group Co., Ltd.

Wuhan retailing market always attracts the eyes of famous retailing corporations both in China and in foreign countries. Wal-Mart, Carrefour and Merto have already opened their shops in Wuhan. A lot of Chinese retailing corporations are also entering the market of Wuhan one after another. Facing severe challenges, Wushang Group Co., Ltd. adopts the strategy of chain-operation to grow rapidly. In this paper, on the basis of systematic analysis of the group's financial statements from 1992 to 2003, the author thinks that the reasons that cause diseconomy of scale in the group are both from exterior and interior. But the principal reasons that cause diseconomy of scale are lower managerial capacity of the management of the group. Those reasons include: over debt financing resulting in a large amount of interest expense, management expense increasing rapidly with the expansion, the slower pace of adjustment of retailing format, the drag of diversification on retailing business, lag construction of modern MIS and logistics distribution system, the ignore to develop human resources, etc. On the basis of analysis of those above reasons that cause diseconomy of scale, the author gives some advice for the development of the Group. Except for expansion through debt financing, M&A and franchising may be the better ways to expand. Scale is not the only key factor of success. The group should study the core competence that those international retailing giants own and own itself core competence as soon as possible. Retailing corporations should be careful to adopt the strategy of unrelated diversification. In fact, there is much to about diversification of means of operation and innovation of retailing format.