Skip to main content


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

  • 227 Accesses


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.


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

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

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

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

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

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

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

  8. 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

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

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

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

  12. 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

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

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

  15. 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

  16. 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

  17. 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

  18. 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

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

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

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

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

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

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

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

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

  27. 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

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

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

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

  31. 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

Correspondence to Liangding Jia.

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).

Download citation


  • diversification
  • motivation
  • timing
  • industry choice