Skip to main content
Frontiers of Business Research in China
Download PDF
  • Research Article
  • Published:

Why, when, and how to diversify? A comparison between Western theories and the cognition of Chinese enterprises

Frontiers of Business Research in China volume 1, pages 102–122 (2007)Cite this article

Abstract

This paper uses as research samples 140 papers on enterprise diversification published in top-notch Western journals, and public statements from 30 influential contemporary Chinese CEOs on enterprise diversification. Both the qualitative open coding and the qualitative factor analysis are employed to analyze the two samples respectively, and then the corresponding analysis is utilized to explore the differences between Western theories and the cognition of Chinese enterprises on the motivation (why), timing (when) and industry choice (how) of enterprise diversification. Results show that, first, both consider the motivation of diversification mainly from the perspectives of resource-based view and asset portfolio theory. However, Western theories pay more attention to the factors related to the perspectives of the resource-based theory, transaction cost theory and agency theory, while Chinese enterprises put more emphasis on those factors associated with the asset portfolio theory, government policies and institutional theory. Second, on the cognition of the timing of diversification, Western theories insist that enterprises should diversify when they meet threats, while the practice of Chinese enterprises insists that diversification should take place when enterprises have enough strength. Third, Western theories focus more on the interrelationship between the original industry and the intended industry than on the attractiveness of the intended industry, while Chinese enterprises pay more attention to attractiveness than interrelationship.

References

  • Amihud Y, Lev B (1999). Does corporate ownership structure affect its strategy towards diversification? Strategic Management Journal, 20(11): 1063–1069

    Article  Google Scholar 

  • Amihud Y, Lev B (1981). Risk reduction as a managerial motive for conglomerate mergers. Bell Journal of Economics, (12): 605–617

  • Andrews K R (1971). The Concept of Corporate Strategy. Homewood, IL: Dow Jones-Irwin

    Google Scholar 

  • Ansoff H I (1965). Corporate Strategy: An Analytic Approach to Business Policy for Growth and Expansion. New York: McGraw-Hill

    Google Scholar 

  • Anthony R N (1965). Planning and Control System: A Framework for Analysis. Cambridge, MA: Harvard Business School

    Google Scholar 

  • Chatterjee S, Wernerfelt B (1991). The link between resources and type of diversification: Theory and evidence. Strategic Management Journal, 12(1): 33–48

    Google Scholar 

  • Eisenhardt K M (1989). Building theories from case study research. Academy of Management Review, 14(4): 532–550

    Article  Google Scholar 

  • Farjoun M (1998). The independent and joint effects of the skill and physical bases of relatedness in diversification. Strategic Management Journal, 19(7): 611–630

    Article  Google Scholar 

  • Goulding C (2002). Grounded Theory: A Practical Guide for Management, Business and Market Researchers. London: Sage Publications Ltd

    Google Scholar 

  • Guthrie D (1997). Between markets and politics: Organizational responses to reform in China. American Journal of Sociology, (102): 1258–1304

  • Hamel G (1994). The Concept of Core Competence. In: Hamel G, Heene A, eds. Competence-based Competition. Chichester: John Wiley & Sons

    Google Scholar 

  • Hoskisson R E, Hitt M A (1990). Antecedents and performance outcomes of diversification: A Review and Critique of Theoretical Perspectives. Journal of Management, 16(2): 461–509

    Article  Google Scholar 

  • Jensen M, Meckling W (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, (3): 305–360

  • Khanna T, Palepu K (1997). Why focused strategies may be wrong for emerging markets. Harvard Business Review, 75(4): 41–51

    Google Scholar 

  • Kochhar R, Hitt M A (1998). Linking corporate strategy to capital structure: Diversification strategy, Type and Source of Financing. Strategic Management Journal, 19(6): 601–610

    Article  Google Scholar 

  • Lane P J, Cannella A A Jr, Lubatkin M H (1998). Agency problems as antecedents to unrelated mergers and diversification: Amihud and Lev reconsidered. Strategic Management Journal, 19(6): 555–578

    Article  Google Scholar 

  • Li Mingfang, Wong Yim-Yu (2003). Diversification and economic performance: An empirical assessment of Chinese firms. Asia Pacific Journal of Management (in Chinese), (20): 243–265

  • Lubatkin M, Chatterjee S (1994). Extending modern portfolio theory into the domain of corporate diversification: Does it apply? Academy of Management Journal, 37(1): 109–136

    Article  Google Scholar 

  • Markham J W (1973). Conglomerate Enterprises and Public Policy. Boston, MA: Harvard Business School

    Google Scholar 

  • Markides C C (1995). Diversification, restructuring and economic performance. Strategic Management Journal, 16(2): 101–118

    Google Scholar 

  • Penrose E T (1995). The Theory of the Growth of the Firm (3rd edition). Oxford: Oxford University Press

    Google Scholar 

  • Porter M E (1985). Competitive Advantage. New York: The Free Press

    Google Scholar 

  • Porter M E (1980). Competitive Strategy. New York: The Free Press

    Google Scholar 

  • Ravenscraft D J, Scherer R M (1987). Mergers, Sell-offs and Economic Efficiency. Washington, DC: The Brookings Institution

    Google Scholar 

  • Rose N L, Shepard A (1997). Firm diversification and CEO compensation: Managerial ability or executive entrenchment? Rand Journal of Economics, 28(3): 489–514

    Article  Google Scholar 

  • Rumelt R P (1974). Strategy, Structure, and Economic Performance. Cambridge, MA: Harvard University Press

    Google Scholar 

  • Simmonds P G (1990). The combined diversification breadth and mode dimensions and the performance of large diversified firms. Strategic Management Journal, 11(5): 399–410

    Google Scholar 

  • Strauss A, Corbin J (1998). Basics of Qualitative Research: Techniques and Procedures for Developing Grounded Theory (2nd edition). Thousand Oaks: Sage Publications

    Google Scholar 

  • Wernerfelt B (1984). A resource based view of the firm. Strategic Management Journal, 5(2): 171–80

    Google Scholar 

  • Williamson O E (1975). Markets and Hierarchies. New York: Free Press

    Google Scholar 

  • Yao Jun, Lü Yuan and Lan Hailin (2004). An empirical study of the relationship between diversification of China’s listed companies and the economic performance. Management World (in Chinese), (11): 119–125

Download references

Author information

Authors and Affiliations

  1. School of Business, Nanjing University, Nanjing, 210093, China

    Jia Liangding, Qian Haiyan & Cui Rongjun

  2. Health Human Resources Development Center, Beijing, 100009, China

    Zhang Junjun

  3. Jinling School, Nanjing University, Nanjing, 210093, China

    Chen Yongxia

Authors
  1. Jia Liangding
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Qian Haiyan
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Cui Rongjun
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Zhang Junjun
    View author publications

    You can also search for this author in PubMed Google Scholar

  5. Chen Yongxia
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Jia Liangding.

Additional information

Translated from Guanli Shijie 맜理世界 (Management World), 2005, (8): 94–104

Rights and permissions

Reprints and permissions

About this article

Cite this article

Jia, L., Qian, H., Cui, R. et al. Why, when, and how to diversify? A comparison between Western theories and the cognition of Chinese enterprises. Front. Bus. Res. China 1, 102–122 (2007). https://doi.org/10.1007/s11782-007-0007-y

Download citation

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11782-007-0007-y

Keywords