Empirical Research Based On The Competitive Strength Of The Diversification Strategy And Corporate Performance

Since American firms began to choose the diversification strategy in 1920s, it has been a widespread economic phenomenon across the world. After the diversification upsurge of 1960s and 1970s, firms of America began to build their core competitiveness and return to specialization strategy in 1980s and 1990s. In China, after its reform and opening up, the planned economy began its transition to market economy and enterprises got their right to make their own decisions. Along with the gradual strengthening competitiveness, the diversified operations of enterprises have begun to rise slowly.Meanwhile, as a very hot subject, diversification strategy attracted many scholars. Researchers from strategic management, industrial organization and corporate finance fields analyze the motive of diversification, as well as the effect of diversification on firm performance. However, as always only considering the direct relation, they can't get a consistent conclusion on the issue of the relationship between diversification and firm performance.In this article, the author believes that it is necessary to take the effects of market competition intensity into account when studying the relationship between the diversification strategy and firm performance. After a systematic literature review on the definitions, types, causes of diversification and the relationships between diversification and performance, this article analyzes the relationships between degree of diversification and corporation performance under different intensity of competition and gets conclusions as followings:1. Competition intensity in the market has obvious effects on the relationship between degree of diversification and performance. Without considering the factor of competition intensity, there is no significant correlation between degree of diversification and performance. After considering the factor of competition intensity, there is a significant negative correlation between degree of diversification and performance under strong competition intensity, but no significant correlation in the market with less fierce competition intensity.2. The effects of specification and diversification are also affected by competition intensity of the market. In the conditions of strong competition intensity, there is no significant difference between specification and diversification and firms can get the choice according to their competences. In the conditions of less fierce competition intensity, specification is significantly better than diversification. Firms should choose specification strategy.3. In the conditions of strong competition intensity, firms should choose specification strategy or diversification with a low degree, and avoid diversification with a high degree.When discussing the results of the article, the author also analyzes the reasons for different diversification status between Western countries and China.