CA Intermediate · Financial Management and Strategic Management · Strategic Choices
An Indian two-wheeler maker facing falling demand sells off its loss-making scooter division, which it had no strengths to run, and uses the proceeds to strengthen its core motorcycle business. Which strategy is this primarily?
This is divestment, a retrenchment strategy. The company sells one weak, poorly fitting division and redirects resources to its core motorcycle business. Liquidation would require selling all assets and closing the entire firm, which is not happening here as the business continues.
- ALiquidation
- BDivestment as a retrenchment strategyCorrect
- CCaptive company strategy
- DTurnaround through market penetration
Explanation
Selling a division that does not fit and refocusing resources on the core is divestment, a form of retrenchment. Liquidation would mean selling off the whole firm's assets and closing it down. The company continues operating, so liquidation is wrong.
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