Research On Financial Risks And Countermeasures Of Electrical Equipment Enterprises Implementing Diversification Strategy

Electricity is a valuable resource and a driving force for social development.China’s electrical equipment manufacturing industry,whose products secure the functioning of the power system,plays a significant role in China’s economy.In recent years,as China’s economic new normal witnessed a slowdown in the power demand,the products of some electrical equipment enterprises are becoming excessively homogenous,and overcapacity has grown into a major issue.Therefore,industrial transformation and upgrade is imperative.In order to promote the sustainable development of the economy,generate more clean energy,the concept of Internet Plus Smart Energy came into being,and comprehensive energy service providers have become the direction of many electrical equipment companies to set their diversified strategic transformation.However,diversification is like a twoedged sword,which can give full play to synergy effect,but may also cause financial risks.CLOU ELECTRONICS(hereinafter shortened as CLOU),the ShenzhenStock-Exchange-listed electrical equipment company,has a huge diversified layout and a complete Internet Plus Smart Energy industry chain.The company has become one of the five listed companies selected for the "First Batch of Internet Plus Smart Energy Demonstration Projects".However,CLOU’s journey to diversification is not a smooth one.In 2020,its financial risks flare up,and the company was on the verge of losing its title as a listed company.The present paper made a case study of CLOU,and analyzes its financial risks throughout the diversification strategy.First of all,the motivation of CLOU’s diversification strategy is analyzed based on theories.The paper adopts the hierarchical analysis method and questionnaire method,and makes a holistic evaluation on its financial risks.The risks are subdivided into financing risks,operation risks,liquidity risks,managing risks and investment risks,based on which an in-depth analysis of the causes are conducted.Finally,the paper concludes the countermeasures to CLOU’s financial risks throughout the diversification strategy,and made suggestions for further improvement.The conclusion of the paper is as follows: first,CLOU adopts the diversification strategy mainly based on the four motives: reducing the risk of a specialized business,finding new profit growth pole,generating business synergy,and responding to the call of national policies;second,the calculation results of hierarchical analysis method based on the questionnaire method show that CLOU has financial risks since the beginning of its diversification transformation,and the financial risks is worsened in the later period of transformation;third,the reasons of financial risks are complex,mainly including diversification strategy failure,problematic internal management,and external policy changes;fourth,in addition to the countermeasures taken by CLOU,such as integrating resources,introducing the strategic investors,expanding overseas market and so on,the risks can also be prevented through improving the company’s financial risk early warning system and strengthening the ability of independent technology innovation.