The Study Of Diversification Strategy Of Pioneer Real Estate Companies In China

Real estate industry is highly vulnerable to policy changes in China,after the reform of 1978,government implemented various restrictions and incentives to encourage the privatization of the real estate industry.As a result,the industry grew by more than 22 times in the past 17 years,creating enormous companies such as EverGrande,Vanke,and Country Garden.However,due to large speculation in first and some second tier cities,the government is interfering to control prices,implementing policies to control the supply,and restriction to limit the demand.Thus,in order to keep up the growth rate,many real estate developers are looking for other means to generate profit.Diversification strategy of real estate developers is an essential component of their strategic development decisions and has a direct impact on their overall performance.The degree and implementation of the diversification strategy has profoundly affected the future performance level and development direction of real estate development enterprises.The four diversification strategy chosen are: geographical diversification,concentric diversification,vertical integration,and conglomerate diversification.Four diversification strategy are chosen based on their popularity,feasibility and commonality in the real estate industry.In this context,this paper systematically studies four diversification strategies and implementation of two listed real estate developers as a case study,to help other companies as a reference and support for future diversification decision-making.The study starts with the enterprise strategy and diversification strategy,taking renowned strategy theories and diversification strategy theories as a benchmark,and compares the two real estate enterprises' annual reports with this theory.Through key financial performance data analysis,an in-depth comparison is made between the relevance of diversification strategy and financial performance,along with its causes.The key performance indicators of EverGrande and Country Garden is concluded through the four diversification strategies,and a comparison and explanation is given.Finally,based on empirical analysis,the paper proposes feasible suggestions for implementing diversification strategies for Chinese real estate companies.The case study comparison revealed that there is a positive correlation between the corporates' financial decision and their diversification strategy.However,there is not any single diversification strategy alone that will result in positive improvement such as increasing revenue or lowering costs,other factors such as political policy and management's effectiveness also plays a vital component in the company's final performance indicator.This study provides a new perspective for the strategic development of listed real estate companies in China.Based on China's unique political situation,this paper explores the relationship between improving overall performance of real estate enterprises and diversification.It can provide theoretical support for the future development of Chinese listed real estate companies.