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Defensive strategy

This strategy is adopted by organizations who want to restructure their businesses. it is adopted during recessionary economic  conditions when they want to revive their operations in order to survive in the declining markets. These are also called retrenchment strategies where non-essential expenditure is curtailed and wasteful assets are sold of f. The purpose of the strategy is to change the direction of company’s operations, Defensive strategies can be:

(i) Harvest:

When future market for existing products is unprofitable organizations maximize their short-run profits which are used to enter into new businesses with better prospects.

(ii) Turnaround:

It aims at turning the loss- making units into profit- making units by cutting the loss-making operation or costs’ This may be dome through retrenchment of surplus staff, better debut collection policies, better inventory management techniques etc.

(iii) Divestment :

 It involves selling or disinvesting that part of the business which is lose making and using sale proceeds to strengthen the remaining business operations.

(iv) Bankruptcy:

 If a company is unable to repay is debts because assets are less than the liabilities, it can seek the status of a ‘bankrupt organization’ from the court of low till it becomes financially sound to pay its debts.

(v) Liquidation:

 When the above measures fail to help the organizations come out of financial crisis, it finally adopts the strategy of liquidation, I.e., sell its assets, wind up its affairs and pay its creditors out of the sale proceeds.

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