A Case Study On The Relationship Of Diversification Of Investment And Corporate Performance

With the process of globalization and development of the economic of China,enterprises of China are facing so many investment opportunities. The time ofconsidering the strategy of diversified investment has come. However, the failure ofso many cases in America and Euro has alarmed the entrepreneurs in China. One coinhas two sides, entrepreneurs should be very cautious before they start the strategy ofdiversified investment.During the time of doing diversified investment, some companies enjoy bigtriumph, while some companies go bankruptcy, what is the principle behind it andhow can we avoid the failure? In this study, I use the method of case study to explorethe principle behind the success of some company that uses the strategy of diversifiedinvestment. By analyzing the financial ratios and reactions of the investors, Icompared some important ratios of the two corporations that were chosen fromindustry of suit-making, I realized that there really exist some commons among thecompany that are successful.During the research, I found that there is a direct relationship between thediversified investment strategy and its business performance. Vertical diversificationintegration and cross-industry diversification integration are two main models thatcompanies use to apply the diversified investment strategy. The verticaldiversification integrates upstream and downstream enterprises, which wouldeffectively reduce costs of production, shorten the reaction time of the demand in themarket; cross-industry diversified integration would offset the original industrysystem risk.The data show that the vertical diversified integration can reduce the cost ofproduction in the manufacturing industry and improve the inventory turnover rate,thereby increasing the profits of the enterprises and generating stable cash flow;complementary diversified integration between industries would support stable cashflow. Risk is considerably reduced and the enterprise could expand rapidly. If thevertical diversified integration and cross-industry diversified integration could besubtly combined, business performance would enjoy a rapidly increase in a shortperiod of time. What is more, enterprise can easily get more financial support frominvestors, which is critical for the next circulation of doing the diversified investment.We can safely arrive at the conclusion that the modern market economy requiresthat entrepreneurs must be very cautious when selecting investment opportunities. The essence of taking the diversified investment strategy is to cleverly combine thevertical diversified integration and cross-industry diversified integration.