CA Intermediate · Financial Management and Strategic Management · Strategic Choices
Meghna Retail, an Indian chain facing falling sales, loss-making stores and rising costs, appoints a new CEO who closes unprofitable outlets, trims staff and sells idle assets to restore profitability within two years. Which grand strategy is being followed?
The firm is following a retrenchment strategy in the form of turnaround. Closing loss-making stores, cutting staff and selling idle assets aims to restore profitability. It is neither expansion nor stability, because the company is shrinking operations and making significant changes.
- AExpansion through market development
- BRetrenchment through turnaroundCorrect
- CStability through no-change
- DCombination through joint venture
Explanation
Closing unprofitable units, cutting costs and selling assets to restore profitability is a turnaround strategy, a form of retrenchment. It is not expansion, since the firm is shrinking. It is not a stability strategy because major changes are being made.
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