SURVIVAL STRATEGY
When to adopt survival
strategies? What are the routes of survival strategy? What is liquidation ?
SURVIVAL STRATEGY
When the company is on
the verge of extinction, it can follow several routes for renewing the fortunes
of the company. These are discussed in the following sections.
Divestment
An organization divests
when it sells a business unit to another firm that will continue to operate it.
Threatened with bankruptcy between 1979 and 1982, Chrysler sold its U.S. Army
tank division to General Dynamics, its Air Temp air conditioning unit to Fedders,
and its European distribution units to Peugeot/Citroen. The purpose was to focus
only on the U.S. auto market- its main market. In our country, the TATA group has,
in some form or the other, been realigning its portfolio since the early 1990s.
But in the past few years it had done this in a more structured manner. The
divestment of Tomco and Tata Steel’s cement plant was a conscious decision. It
was Tata Steel’s decision to concentrate on steel and get out of the cement
business. As for Tomco, the company had reached a point where it required
immediate attention, not only in financial terms but in terms of management as
well. The group felt that it did not have the requisite managerial skills in
the specific area where Tomco operated and hence decided to hive it off.
Spin-Off
In a spin-off, a firm
sets up a business unit as a separate business through a distribution of stock
or a cash deal. This is one way to allow a new management team to try to do
better with a business unit that is a poor or mediocre performer. For instance,
Indian Rayon and Industries Ltd (IRIL), an Aditya Birla group enterprise, has
decided to spin-off its insulators business under Jaya Shree Insulator Division,
in favour of a new company - Vikram Insulators Private Ltd (VIPL). The net
assets of Rs 92.98 crore of the insulators division were transferred in favour
of VIPL and a 50:50 joint venture with the Japanese insulators giant - NGK
Insulators Ltd - was forged. The joint venture with NGK Insulators Ltd was
proposed in order to upgrade the quality of the existing insulators and to
develop new and more technically advanced insulators.
