Research On The Factors Affecting Chinese Manufacturing Firms' Choice Of Mode Of Diversification

Diversification is a strategy that a single-product enterprise must choose after several years'growth. Therefore, the choice of mode of diversification is also a strategic decision that a single-product enterprise must make sooner or later. Caution should be paid to such decision because it has been found by scholars that the mode of diversification significantly affects firms'performance together with the type of diversification. In reality, we can see that there is remarkable difference of diversification mode between different firms, and even the same firm may choose one mode at a time, but the other mode at another time. Then, how to choose the right mode of diversification or the mode that contributes to better performance? To answer this question, another one should be addressed at first: what factors should be perceived when making the choice of mode of diversification? In other words, what factors may affect the enterprises'choice of mode of diversification? This is the question addressed by the paper.The structure of the paper is constructed as following: The first chapter introduces the main contents of the paper, including the reason why the topic is chosen, the research method, conclusion and the innovations. The second chapter is a review of the papers addressing the same topic as this paper's. Then come the theoretical analysis and propositions of the paper, followed by the design of the empirical research. And the fifth chapter describes the results of logistic regression. Finally, the limits and future research directions regarding the topic are pointed out.Being based mainly on the Resource-Base View of the firm, and absorbing the thought of Transaction Cost Theory, this paper analyses the factors affecting manufacturing enterprises'choice on the mode of diversification from the micro, industrial, and macro perspectives. With a strict criterion, 54 diversification samples between the years of 2001 and 2005 are collected from the public companies listed in ShenZhen Stock Exchange of China. The data is analysed by binary logistic regression, and the final conclusions are as following:The internal financial resources, external financial resources and state-owned stock proportion have a statistically significant influence on the choice of mode of diversification: the more they are, the more possible that a firm choose the mode of internal development. Whereas other factors such as physical resources, intangible resources, industry relevance and the environment of laws do not have significant influence.The above conclusions show that Chinese manufacturing enterprises pay more attention to internal resources than external factors of industry and laws environment when they make the decision of diversification mode. This reflects that Chinese manufacturing enterprises are approaching the decision mode that internal factors come first and external ones come second when making strategies. Meanwhile, non-financial resources (physical resources & intangible resources) play a less important role than financial resources. This reflects that the enterprises do not care about resources like technology, brand name very much. The reason may be that they take profit ratio or ROI as their primary decision criterion when choosing the mode of diversification, and that they seldom consider the relation between the core competence they possess and the ones needed to develop new businesses.The paper has three innovations. First, it collects new data, which is from public traded companies in China, a country with typical transition economy. Second, the paper is more comprehensive other ones in terms of research perspectives. It examines the factors from all three perspectives including micro, industrial and micro. Last, it obtains a new conclusion as a result of the above two innovations. The paper finds that the bigger the state-owned stock proportion of a Chinese manufacturing company is, the greater the possibility of choosing internal development is when making the choice of diversification mode. To the best of the author's review of literatures, no domestic or abroad scholars are found that analyse this point theoretically or prove it empirically.