Findings

The extent to which SMEs in China use diversification strategy

It was found that the Chinese SMEs have gone a long way in practicing and implementing
business diversification strategy which have continually resulted to improvement in the
organizational effectiveness of eth Chinese SMEs. Owing to the resources paucity in the
Chinese SMEs and their disadvantageous position in the Chinas current institutional
environment, SMEs have prioritized diversification strategy as key point in achieving their
sustainable competitive advantage providing them with a clear focus to attaining organizational
goals. The positive relationship between prioritization of the diversification strategy by the
Chines SMEs and the organizational effectiveness echoes the role of innovative strategies
adopted by these SMEs. Respondents explained that most of the Chinese SMEs have not only
adopted one strategy, but they have gone a step further of adopting multiple strategies
simultaneously in the various sectors of the organization giving a clear preference order.
Responses showed that Chinese SMEs have identified major diversification strategies in their
operations although they can still host other types of strategies especially innovative strategies
simultaneously following their clear a clear precedence order. The Chinese SMEs have adopted
diversification strategy in introducing changes to their systems, control costs and also in
marketing their products. Therefore, prioritizing this type of a strategy has enabled Chinese
SMEs to benefit from the positive impact associated with diversification though innovation.
The study identified the current Chinese SMEs optimal diversification strategy configuration.
They have prioritized the use of diversification strategy in cost-control strategies, innovation and
marketing. The strategys effectiveness dramatically subverts the Chine SMEs general
impression they competition on control-cost strategies is a necessity for a better firm
performance. However, the Chinese SMEs have adopted diversification through the various
forms of innovation including product innovation and diversification, market innovation mad
process innovation. This has enabled them to achieve more benefits as oppose to diversification
without adoption of innovation and innovative strategies. It was noted that the Chinese SMEs do
not employ a single innovative measure and strategy as a diversification strategy. Besides, they
have adopted other multiple strategies including cost-control strategies which are an evolvement
from the old cost-control strategies to the new cost-control strategies and innovative strategies
which are convenient to the firm and its customers. Diversification strategy follow innovative
strategies in various sectors of the organization but eventually the Chinese SMEs compete
mainly on innovation. Diversification strategy on marketing focuses on meeting the needs of
current customers as well as location of more market niches for the SMEs existing products and
services. Marketing oriented SMEs have more sensitivity to the needs of their potential
customers giving likelihood for generating creative ideas and meeting the needs of the market.

Diversification strategy in Chinese SMEs is recognized as a new ides potential hotbed for
products and services. Consequently, the Chinese marketing-oriented SMEs have bound
themselves with diversification though innovation providing necessary market research for
creation, development and discovering of new business opportunities in their related nad
unrelated industries.
Findings show that the Chinese SMEs have a wide range of programs supporting diversification
strategy. Their best diversification strategies are established on the basis of the existing
organizational capabilities and the existing human capital. Therefore, the implemented
diversification strategies by different Chinese SMEs make a sense of movement into product
lines and service lines well known by the management. In this regard, the different industries in
the country have been useful because of the industry connection they provide to these SMEs.
Thy have tried using existing resources for the support new service lines and product lines.
Respondents explained that they have continually put diversification strategy on their businesses
front burner in cases where their businesses go slow thus helping them in resources
conservation. In minimizing the diversification costs, Chinese SMEs have developed and
launched new products and services when there is slow ongoing of the normal business activity.
Further, results showed that Chinese SMEs have partnered with other diversified organizations in
developed countries to make it easier to introduce new products or services in the market. These
partners include but not limited to businesses in related sectors and industries with interest of
participating in product development; and government agencies and programs responsible for
providing finance and grants for the development of new products.
Respondents highlighted that the Chinese SMEs have successfully used diversification strategy
which in turn has continually enhanced their performance. Globalization across the world has
triggered the use of innovative practices in different sectors of the SMEs resulting to increased
production units, introduction of SMEs into new markets and increased product lines and service
lines. Diversification strategies have been implemented in various sectors including marketing,
human resource and R&D giving new faces to these SMEs. The findings revealed that the policy
makers of China have continually provided a good environment for the Chinese SMEs to
implement the various diversification strategies and practices. In the global economy, the SMEs
in China have shown notorious competition since cheap labor supply lowers production costs.
The factors that contribute to diversification of Chinese SMEs
Findings reveal that Employees Empowerment and Participation, Effective Workplace
Communication, Employee Training and Development and Continuous Learning Culture are
among the factors that contribute to diversification through innovation in the SMES in China.
Responses on the business issues and practices affecting the ability of SMEs to implement new
and improved methods in their external relations and the organization of the workplace show that
the workforce require the capability of being trained as well as the willingness to learn. The

human resource management in the various SMEs in the study area has emphasized the need for
continuous learning among their workforce. Just as there is non-ending culture in education,
learning is considered to be a non-ending process too. Employees in the selected SMESs are
encouraged to present new ideas, learn new things, implement them and share them with other
employees. One of the managers of the R&D department in one of the SMEs posited that they
always and continually find new ways of performing their activities and doing new things or else
the firm can easily become a back bencher or can easily go out of the industry or business. Most
of the Chinese SMEs are not satisfied with their current market position and therefore they are
doing everything possible with the aim of achieving excellent status.
Employee training and development was found evident in supporting the ability of the SMEs to
implement the diversification strategies and new innovative methods in external relations and in
their business practices. He participants from different SMEs raised several issues including staff
seminars and training, accessing external knowledge, on the job training, in-house knowledge
transfer and appraisal measures for the post training staff performance. Evidence from the
participants in supporting this includes; before implementation of nay innovative and
diversification strategy, they perform a simulation of the scenario before implementing the actual
strategy in which the staff is provided with training and motivation to prepare them for the task.
The directors of the selected SMEs explained that they continually work on the human resource
department such that the top level management is given the opportunity to attend various training
courses on diversification through innovation. Five out of the twenty selected SMEs have entered
into partnership with firms in developed countries thus promoting their access to raw materials
and external knowledge. These SMESs brief and train their employees of any arising changes
resulting from business diversification strategy. They conduct research on ways to introducing
diversified products and entry to new markets as well as the effective and efficient ways of
reaching their target and potential final customers. Occasionally, the managing directors of
fifteen of the selected Chinese invite professional bodies members to equip their employees with
the relevant knowledge on market innovation and business diversification strategy.
It was noted that Customer Partnering, Referral Marketing and Customer Relationship
Management are other factors contributing to the market innovation in the Chinese SMEs. Half
of the selected SMEs are keen in directly engaging their customers in the activities and practices
of their business. Embracing customers voice in the company activities and practices is
important in meeting the needs of the customers and is also crucial in the new marketing
methods successful implementation for both products and services. Customer partnering practice
by a company is useful in connecting its business activities both with the new and old customers
continuously. The Chinese SMEs consider their customers as part of their business partners and
in return they offer the company an added advantage. A portion of information on marketing
innovation originates from the customers and resellers who are treated as the company partners.
Being three-sided affair, the partners, the customers and the staff play an important role of
bringing insights to the activities of the firm. For this reason, the Chinese SMEs see their

customers as their partners and occasionally they hold meetings with them. They put different
and noble ideas to them on what can be done better and how they can be served better as well as
how they can serve the companies better for the smooth ongoing of the company operations.
Among the managers of the selected SMEs explained that in an attempt of improving
diversification through innovation, SMEs have maximized the ability of their current customers
to introduce the firms activities to new customers. It was noted that some of the SMEs have
greatly benefited from new customers introduction into the firms through the existing customers.
Responses revealed that Chinese SMEs enjoy several new customers introduction to their firms
from their old customers commonly known as referral marketing.
References