The choice of growth mode in strategic management is the key to the survival and development of companies. Diversification strategy is a priority problem companies have to face when they’ve reached some scale and stage. The formation and development of diversification strategy for companies as well as various problems rising from it have always been the focus of theoretical and business circles.
Since the 1960s, diversification has been a popular growth mode among worldwide companies. From the 1990s, China also began to see a surge of diversified operation. Diversification strategy has always been the focus of foreign academic and business circles. However, Chinese companies have not had enough practice with diversification, and theoretic research lags behind.
Taking listed companies in China as the samples for study, this thesis is aimed at analyzing the relationship between the diversified operation and economic performance of listed companies in China to seek the appropriate growth mode and strategic choice in diversification for Chinese companies.
This thesis consists of five parts: the theoretic research and empirical tests on corporate
diversification at home or abroad; research on performance of diversifications by the listed companies in China; outcome discussion, the default of this thesis and follow-up research directions; and thoughts on the diversified operation of Chinese companies and suggestions for its implementation.
In the literature review, there is a review on the research outcomes of the diversification strategy from the perspective of both theoretic and empirical studies. In the analysis of diversification motivations and risks, this thesis has summarized the drivers of diversification strategy by companies, including effect of scope economy, effect of internal resource allocation, effect of risk distribution, effect of principal-agent, and the effect of improving and acquiring core competency. Moreover, the thesis evaluated the potential risks of diversification in terms of four aspects and lastly summarized the trends of diversification strategy.
In the empirical research, 58 listed companies were selected from the Shanghai and Shenzhen Stock Exchanges for the study. According to annual and half-year reports covering five successive years from 2003 to the first half of 2008, this thesis calculated the entropy for measuring the degree and type of diversification for each company, the total assets for evaluating the operation scales of companies, and the indicator for corporate performance. It also built up a statistical analysis model. After the statistical analysis, this thesis finally discovered the relationship between diversified operation and corporate performance, meanwhile revealing the deficiency of this research and the follow-up study directions.
The last part is includes thoughts on the diversified operation of Chinese companies and suggestions for implementation.