Definition: The Divestment Strategy is another form of retrenchment that includes the downsizing of the scope of the business. The firm is said to have followed the divestment strategy, when it sells or liquidates a portion of a business or one or more of its strategic business units or a major division, with the objective to revive its financial position.
The divestment is the opposite of investment; wherein the firm sells the portion of the business to realize cash and pay off its debt. Also, the firms follow the divestment strategy to shut down its less profitable division and allocate its resources to a more profitable one.
An organization adopts the divestment strategy only when the turnaround strategy proved to be unsatisfactory or was ignored by the firm. Following are the indicators that mandate the firm to adopt this strategy:
- Continuous negative cash flows from a particular division
- Unable to meet the competition
- Huge divisional losses
- Difficulty in integrating the business within the company
- Better alternatives of investment
- Lack of integration between the divisions
- Lack of technological upgradations due to non-affordability
- Market share is too small
- Legal pressures
Example: Tata Communications is the best example of divestment strategy. It has started the process of selling its data center business to reduce its debt burden.
Sourav says
All important informations are provided relevant to the topic. On the mark. Quite helpful. ?
HARI BALARAJU says
SUPER
Debtor Finance says
Yes, I totally agree with what you said. I think that we should really have to be more knowledgeable about the new technologies that will surely help us. Thanks for sharing this very helpful site.
FactorLoads says
Thanks for sharing this article about Divestment Strategy. This is a very helpful site. I think that I really need this information. I can definitely apply this to my business.
Philip says
I am new to business. This gives me a lot of ideas that I can use for my business. This helps me a lot of also to understand divestment strategy. This is a very helpful site.
Abhishek says
Wow man that’s great info.