On Corporate Diversification Strategy

In accordance with the economic growth, it seems unwise for companies to stick in only one industry supplying a few product categories if they want to survive the heated competition. In history and now, corporate diversification strategies were viewed as one of the most important and widely-used way for companies to grow. This corporate strategy has not been introduced into China before the Reform and Opening up to the outside world. There are more and more firms, however, to make a decision to perform corporate diversification strategy during their way to chase for excellence. But there have been a minute part of them to become successfully diversified. So I think it urgent to make some research on how to diversify a corporate product lines.On the basis of synthesizing the domestic and foreign scholars'articles on corporate diversification strategy, the article has considered the reason for a company to diversify from several aspects, such as economics, enterprises management as well as social, law and so on. Then the article has studied external environment and internal conditions, which is earnestly necessary before a company plans to perform diversification strategy, only in the situation which all these kinds of things has, it is possible for the enterprise to successfully carry out the diversification strategy. Such many questions as how to choose the diversification strategy direction, how to make decisions to begin diversification strategy, etc, have been studied, that the enterprises need to consider when carrying out diversification strategy. In particular after analyzing the advantages and disadvantages that possibly existed when a company carries out diversification strategy based on its core competence, it is proposed that it should be better to make up the advantages under the parenting advantage framework. It is not unlimited for an enterprise to be diversified; thereupon it is the best way for a company to carry out diversification decisions when the diversification marginal cost is equal to its marginal revenue. Finally, the reason has been analyzed why in practice so many corporate carrying out diversification strategy have been failed in our country and the solution has also been proposed. It is the hope of the author that all these may benefit those companies that plans to put diversification strategy into practice successfully.