Downscoping strategy of the firm

Downscoping is one of downsizing strategies, in which, firm divests their capital from some existing SBUs, some market segments or business fields, that are often vertically or horizontally integrated into its supply chain, in order to re-focus on its core business. Downscoping strategy consists of two main processes. First, firm divests from non-core businesses for reducing its diversification level. Then, secondly, firm selectively eliminates employees and divisions that do not contribute significantly to the strategic goals of the firm. At the same time, ineffective assets are split up and reallocated or sold. The downscoping strategy allows firms to achieve the optimal level of diversification, by prioritizing the strategic control rather than financial control, thereby reducing the requirements of processing information at management levels.

A typical example is the case of Tata Group in India. In order to establish more centralized business process and do not give up the traditional ones, Tata Group decided to restructure its business portfolio by keeping only 91 SBUs among 250 existing ones. Another example in Vietnam is the case of Vingroup. In 2019, Vingroup sold the supermarket chain of VinMart, and VinEco in the agricultural sector, which was earlier formed from the diversification strategy in its supply chain of commercial center services. Also, Uber abandoned the Southeast Asian market by selling their activities in this region to Grap, in order to focus on their US strategic markets.

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