Explain The Expansion Strategy And Retrenchment Strategy With Conditions Under Which They Are Adopted By A Firm?


1 Answers

Ashif Mohammed Profile
Ashif Mohammed answered
O Retrenchment strategies involve cutting operating costs and divestment of non-core assets.   These appear to be the most common approaches adopted by businesses to deal with recession conditions, especially in the short-term. Analysts report divestment of businesses, closure of establishments, reductions in employment, expenditure cuts on a wide range of activities including R&D, marketing and employee training.

O Investment strategies involve expenditure on innovation and market diversification. Recession is regarded as an opportunity to implement strategic change that would otherwise not have occurred.   Many of today’s household names launched successful businesses during recessions. The evidence on businesses adopting investment strategies to manage through recession, however, is patchy.   Such strategies are risky and many firms are likely to be too preoccupied with short-term survival to think about innovation and growth, or lack the resources to implement such strategies effectively.

O ‘Ambidextrous’ strategies combine retrenchment and investment. It is likely that most firms adapt under recession conditions through judicious cost/asset-cutting behaviour and through investment in product innovation and market development. Choosing the appropriate investments to make and costs to cut takes on additional importance during recession when market selection pressures are at their most severe.

Answer Question