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CA Intermediate · Financial Management and Strategic Management · Strategic Choices

Nilgiri Tea Estates has a large share of a mature, slowly growing tea market and has no scope for further expansion. It decides to sell a loss-making estate division to focus on its core business, expecting the proceeds to fund improvements in its remaining estates. Which grand strategy is it following, and what is the specific form?

The firm is following a retrenchment strategy through divestment. It sells a loss-making division to concentrate on its core business and use the proceeds elsewhere. This reduces the scope of operations, so it is neither stability nor growth, and not merely cost-cutting turnaround.

  1. ARetrenchment strategy through divestmentCorrect
  2. BStability strategy through profit strategy
  3. CGrowth strategy through concentration
  4. DTurnaround strategy through cost reduction only

Explanation

Selling off a division to focus on core operations and raise funds is divestment, a form of retrenchment strategy. Stability involves maintaining current operations without major change. The sale of a division is a contraction of scope, so growth is not correct. Turnaround by cost reduction alone does not involve selling a division.

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