China's Private Enterprises, The Strategy To Diversify Risk

In 80s to 90s of the 20th century, over 60% of Private enterprises in china had carried out diversification. In 2007, the Chinese Enterprise Federation announces the research"the Reason Analysis of Unsuccessful Private Enterprise in China", which shows that most of the cases of unsuccessful private enterprises were defeated by diversification. Now the Private enterprises have already become the important driving force to national economy, which promotes the patterns transformation of economical development, perpetual growth of national economy, progress of technology and economical internationalization. However, the failure during the progress of diversification seriously hinders positive developments of enterprises and national economy. Therefore we devote to research the risk in the diversification strategies in order to avoid these risks and help the enterprises develop stably.Through the analyses of the cases of Youli, Gome, Delong and Haci, we find that the risk in the diversification strategies of private enterprises is mainly from the aspects of strategic decision, financing, managerial effectiveness and human resources. Then combined with the theories and models of industry and organization, we analyze the reasons which cause these risks. It shows that private entrepreneurs'overconfidence and knowledge limited cause the risks of strategic decision; the separation of ownership and management enables enterprises to obtain more control rights with less capitals, which cause more risk of fund chain scission with the reduce of stock right profits; the cost of enterprise expansion makes managerial inefficient in the process of diversification; and that the optimum point in the principal-agent model is difficult to realize causes the risks of human resources. Finally, based on the analysis of these causes, we propose that in the progress of diversification strategy, in order to avoid the risk, we should have an explicit goal, make decisions according to investigations and develop core-competitiveness of enterprises.