The Company Diversified Strategic Decision-making: The Industry Perspective

In our essay, we try to solve a paradox in the field of corporate diversification: the corporation's great efforts to diversify their businesses and the academia's great efforts to criticize and oppose corporate diversification. Why such case happens? We attempt to build a bridge for the two sides and so we can understand why corporation do things in that way.We find that although too much studies and papers have published in the field of corporate diversification, much few are fit for us to understand in what way corporation select specialization or diversification. In this essay, we want to answer such questions, which we think very important during the decision-making:1. Just considering a single company, why it begins to try to diversify its businesses only when it has developed for a certain period, but not from the time it was founded?2. From the views of industry, whether the companies' diversification behavior happens in a common period in a certain industry (We find it is true in Chinese large manufacturers of electric household appliances)? If it true, what it may mean?3. Considering the target Industries selected by companies, whether the target industries have commonness? If have, what the commonness is?Based on a new corporation target, industry life-cycle theory and sequential continuum of industrial entry, a general model of corporation developing is set up. In order to get a clear conclusion, we also build a formal math model to achieve the necessary condition of corporate diversification and the optimum level of corporate diversification. A special attention is paid to how corporation select from related diversification and unrelated diversification. We distinguish the two kinds of risks, industry- combined risk and operating risk.We also test our model in two ways. One way is using the crossing-section data to see what kinds of merging happen in different life-cycle industries. The other way is using Chinese large manufacturers of electric household appliances as our study's object. We review the history of our target companies' diversification. In the study, we have four findings: 1 The time selecting diversification is centralized, happened between in 1996 and in 1999. 2 The path of diversifying is similar, from close-related diversification to related diversification and then unrelated diversification. 3 The entrance way of diversification is similar, inside developing is used to enter into related industries and M&A or Alliance is more continually used to enter into unrelated industries. 4 When unrelated diversification, the target industries are always to be " high tempo, high risk" ones. Connecting with our model, we analyze those phenomena.If we are as the looker-on who just tell others how the corporate diversification decision is made in the above chapters, in the last chapter we come up with a proposition: what king of model of corporate diversification may have greater chance to succeed. We construct a leverage theory for corporation's selection of new industries, which we think maybe useful to corporation.