CA Intermediate · Financial Management and Strategic Management · Strategic Choices
Vihaan Pharma has several divisions. Its corporate head office decides to sell off two loss-making divisions that fit poorly with its core business, and use the proceeds to strengthen its main formulations business, without closing the whole company. Which statement best describes this strategy?
The strategy is retrenchment through divestment. Selling poorly fitting, loss-making divisions and using the money to strengthen the core formulations business reduces the scope of operations while the company continues. It is not stability, expansion or full liquidation.
- ARetrenchment through divestment, a type of turnaround and focus on core businessCorrect
- BStability strategy of the pause or proceed-with-caution type
- CExpansion through related diversification
- DLiquidation of the entire company
Explanation
Selling parts of the business to refocus on the core is a divestment, which falls under retrenchment strategies. It is not stability because the portfolio is being cut, not expansion because no growth is sought, and not liquidation because the firm continues operating.
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