Private Firms’ Core Competence, Managerial Cognition And Strategic Choice Of Diversification

In the growth process, cross-business or cross-regional development is inevitable for enterprises, in order to expand business scale and obtain lasting profit. However, in reality, most Chinese enterprises are keen to carry out diversified business, and did not follow the growth path “stronger first then bigger” which is advocated by the academic circles. So in the end what determines the strategic choice of enterprises? Resource-based theory suggests that corporate diversification strategy is to fully utilize and develop their resources and capabilities. As a result, heterogeneous enterprise resources, capabilities will enable enterprises different in a wide range of size, scope and manner of diversification. In addition, people are always bounded rationality, and it is impossible to make completely accurate understanding and judgment for internal and external information and opportunity of the organization, then the strategic decisions of enterprises will inevitably be affected by policy makers(executives) traits and values. Therefore, this study attempts to explore the mechanism of the private company’s core competencies and its diversification strategy of choice, and introduces managerial cognition as context factor, designed to improve theoretical research on the subject and provide certain guidance and inspiration for strategy management practice of the Chinese private enterprises.On the basis of literature research, this study regards the RBV, IBV and managers cognitive theory as the theoretical basis, and divides the core competencies of private enterprises into market capabilities(R&D capability and marketing capability) and non-market capabilities(political relations capacity), divides the diversification strategy into product diversification and regional diversification, building a theoretical model of the relationship between private enterprises’ core competence and diversification strategy and introducing managerial cognition as situational factor. This study is aimed to solve two major problems:(1) what is the impact core capabilities respectively make on product diversification strategy and regional diversification strategy?(2) is the relationship between core capabilities and diversification strategy affected by the managerial cognition?To solve the above problems, the study puts forward some hypotheses around the relationship among the core competencies, managerial cognition and diversification strategy. Then, the paper takes 2012—2014 private manufacturing listed companies as samples, collects data to measure related variables, tests the hypotheses through regression analysis, and ultimately comes to the following conclusions:(1) market capabilities(R&D capability and marketing capability) of the enterprises have a significant positive effect on regional diversification; non-market capability(political relations capability) has a significant positive effect on product diversification;(2) the attention business executives pay to industrial environment will negatively regulate relations of core competence and diversification strategy, that is, when too much attention is paid to industrial environment, the role of the core competence on the diversification strategy would be weakened;(3) the attention business executives pay to the institutional environment does not play a significant role in the regulation between core competence and diversification strategy.Based on previous studies, the paper explores the influence mechanism of core competence on the diversification strategy and creatively introduces managerial cognition as the moderator, perfects the theoretical model of “capability-strategy”, more fully describing the relationship among the core competence, managerial cognition and diversification strategy. This study not only enriches the theory research about core competence and diversification strategy, but also tries to introduce cognition into diversification strategy research field and so on. In practical terms, the conclusions of this paper have important theoretical significances on the choice of private enterprises’ diversification strategy, cultivation of relevant core competence, the allocation of senior executives’ attention, and provide some inspiration to the government’s role positioning in the comprehensive deepening of reform.