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Students Zone - Answers to Case Study Questions
CASE STUDY 1.2 KARSTADT UNDERTAKES INVESTMENT FOR SURVIVAL
1. What has led Karstadt to divest itself of some of its parts?
There are many reasons for divestment, one is to refocus the business, another is to reduce costs by selling off under-performing parts of the business. A third driver might be to obtain revenue from the sale of various parts of the business for expansion and development elsewhere. Finally, divestment might allow a business that has grown haphazardly to be re-focused. The divestment at Karstadt is probably explained by poor growth performance, falling profits and an attempt to restructure itself because of falling sales. The divestment process would also lead to an injection of income that would help with store refurbishment and through the divestment process the problems with the management structure of Karstadt could also be addressed.
2. What is the danger behind such an divestment strategy?
Divestment can be very successful if it achieves its aims, One of the problems is that the divestment that takes place does not addressed the core issues facing the company and a further round of divestment occurs. In this process, chief executives can be seen as not working and are quickly replaced. The money that is raised may be spent inappropriately. As the organisation gets smaller it may lose its competitive edge and be more open to being taken over. Its range of products and markets may be reduced. For shareholders this may be a signal that they should place their investments elsewhere and the shareholders may be more willing to sell out to another organisation making the takeover operation more feasible.
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- Case Study 8.1 Cross-Border Banking Bids in Italy
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- Case Study 9.2 Poductivity in European and International Labour Markets
- Case Study 11.1 Poorer EU Areas Lose Funding
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- Case Study 12.1 European and US Entrepreneurship Activity
- Case Study 12.2 EU Enlargement and the SME Sect
