Assignment of Strategic Management

BS-BA 6th (A)

Submitted by:
Saqib Liaqat

Registration No.
04151713051

Submitted to:
Dr. Rabia Buzdar
Different Defensive Strategies
 Retrenchment
 Divestiture
 Liquidation

1. Retrenchment:

When the organization faces declining sales & profits then it considers the retrenchment
strategy in which it reorganizes its activities by reducing its assets & costs. By doing so the
organization actually reverses the affects of declining profit & sales. It is also called as
reorganization or turnaround strategy. The basic distinctive competence of an organization is
fortified through effectively designed retrenchment strategy. When an organization applies
retrenchment strategy, pressure is exerted from shareholders, media & employees on the
strategists who perform their functions with limited resources. Following are some of the
activities that come under the retrenchment category.

The example of retrenchment in Pakistan is one led by acquisition of KASB bank by bank
islami. The management of BankIslami started retrenchment of senior bankers of the head-
office of KASB Bank it had taken over in May 2015.
According to an official of the bank, more than 150 senior employees of KASB Bank had
been removed from their posts in order to decrease the costs of KASB bank between
December 2015 and January 2016, while many others are being forced to resign.

Internationally the example of retrenchment strategy includes Genral motors of USA. GM of

USA has stopped a number of “makes” of its automobiles. GM decided that it neded to
retrench by focussing on only a few models. It hoped that it would get this company back to
profitability.

2. Divestiture:

Divestiture is one of defensive strategies in which part or division of an organization is sold.

For further strategic investments or acquisitions, certain capital is raised trough divestiture. It
is considered to be component of retrenchment strategy in which those projects of
the Business Organization are closed that need heavy capital, are unprofitable & that are not
suitable with the other activities of the business organization.

Divestiture strategy was followed by Pakistan government. KAPCO Power plant was built
between 1984 and 1996 by the state-run power utility WAPDA. The same year, the
government sold its 36 percent shares to a strategic buyer after an international competitive
bidding.  In 2013, the strategic investors sold its entire shareholding in the company to local
corporate entities and individuals. The government sold another 18 percent of its shares to the
general public in 2005.The company was formally listed on Karachi Stock Exchange

Internationally the example of divestiture is ConocoPhillips where it agreed to sell its Circle
K convenience store chain and gasoline outlets to Canadian convenience-store operator
Alimentation Couche-Tard Inc. for about $821 million, clinching a large piece of the oil and
gas company's post-merger slim-down plan. ConocoPhillips is one of the world’s largest
independent exploration and production companies, based on proved reserves and production
of liquids and natural gas.

3. Liquidation:

Liquidation is the selling of all the assets of the organization in parts in order to cash their
tangible worth. It is quite difficult emotional strategy as the element of defeat is recognized in
it. Therefore in the condition when the organization is bearing loss completely then it is wise
act that all the operations of the filed business should be closed down so that there should not
be any further loss of money.

The companies which have followed the strategy of liquidation in order to prevent further
ongoing losses include Alif Textile Industries Limited, Apex Fabrics Limited, Indus
Polyester Company Limited

Internationally the example of liquidation strategy can be seen by JC Penney company of

USA. It is a chain of departmental stores which has over 846 locations. This company
decided to go for liquidation strategy. They sold their Eckerd chain of drug stores in order to
focus on their core business that was departmental stores, internet and catalog sales. Studies
show that between 33 to 50% of acquisitions were later divested.