what does divestiture mean

What Does Divestiture Mean

Business strategies are necessary measures that allow companies to gain an edge, become more competitive, increase their revenues and expand their reach. Without the application of one strategy or another, businesses would not be able to grow and would eventually stop producing. Sometimes these are forced measures, to correct previously created mistakes. The business operation that we will talk about in this article is called a sales strategy, or as it is also called a divestiture strategy. We will find out what does divestiture mean, its purpose, examples, and application.

Divestiture strategy – what is it, why do they use it?

Developing companies do not stand still, they are constantly expanding, adding new services or product lines, buying assets, making mergers and acquisitions, and investing. Sometimes, these actions cause significant changes in the way a company operates, and they are not always positive. So, in order to rebuild and improve their performance, companies need to shed excess “weight” in the form of assets that do not bring them enough benefits. This process is called a divestment strategy.

A divestment strategy is getting rid of one or more assets or business units. Companies can sell, liquidate, or close these parts of their business that are incompatible with their business and only slow down their operations. Typically, these sales occur after unsuccessful merger and acquisition integration.

Divestment examples in modern business

Lt’s look at examples of exclusion:

  • First example – Toshiba is a Japanese company operating in many areas of business, including consumer electronics, such as televisions. But also in medical devices. And you see one of their products here. However, the company recently sold its medical business, Toshiba Medical, to another Japanese diversified company, Canon. So Toshiba went out of business, and this business remained owned by Canon
  • The next example is eBay and PayPal. eBay is probably best known for its online marketplace, where you can buy goods directly from other buyers. It used to have its own payment system, PayPal. You can use PayPal to pay on eBay as well as to pay on other sites. You could also have a bank account with PayPal. Currently, you can still use PayPal on eBay, but eBay no longer owns PayPal. It has gone out of the payments business
  • The latest example – Philips is a Dutch company that has undergone a massive transformation over the last two decades. Philips has sold several of its businesses. One of its oldest businesses is lighting. Despite being one of the world’s largest lighting manufacturers, Philips began selling its lighting business

These are three examples of divestment. Companies have exited a business in which they were previously active. Here’s a general idea. The company is active in the soccer and shoe business. Then it decides to get out of the shoe business. Here you can see that diversification is the opposite of diversification. If you move from a left-to-right situation, it’s called diversification. If you move from a right-to-left situation, meaning you go into a new business, it’s called diversification. You may have heard of something called outsourcing, which is another way to downsize an organization. That’s how outsourcing differs from diversification. Like before, a company is in both the soccer and shoe business, then it decides to outsource its shoe manufacturing to another company.