Diversification and Corporate Performance

Discussion and Implications

China's energy companies, particularly the small private energy companies with no government funds, are not suited to industrial diversification. Famous enterprises in developed countries almost adapt from specialization to diversification first, but refocus on their core businesses in the end. Thus, China's energy companies could adopt related industrial diversification schemes based on their core businesses to avoid industrial risks and to identify other growth opportunities.

It has been a passive choice of China's energy companies to extend offshore markets via international diversification. For China's conventional energy companies, and especially for Chinese oil companies, domestic oil and gas resources are limited and subjected to poor development conditions. Thus, China's oil companies must extend offshore markets to ensure domestic energy supplies and to in turn promote the sustainable development of the Chinese economy. Occasionally, the extension of offshore markets can involve political cooperation between the Chinese government and the governments of other countries. In turbulent offshore markets, China's oil companies can suffer losses at any time. For China's renewable energy companies, due to the limited market capacity of China's domestic renewable energy power generation sector, manufacturers of power generation and equipment will need to secure their income by continually exporting most of their products to Europe and America. Therefore, international diversification will be one of the main strategies employed by Chinese energy companies over the next few years. In this case, state-owned energy companies may solicit national government support to spread risks to a particular country or market through additional international diversification in more countries; with limited capital and poor core competencies, private energy companies could share and avoid overseas risks by establishing multi-party cooperation and by following state-owned energy companies.

Thus, by selecting business strategies based on companies' strengths and market circumstances, China's energy companies could achieve sustainable development.