Strategic Management Case Study Grunberg

GRUNBERG (1981)

Grunberg (1981) presents in-depth analysis of three situations of international divestment to determine the causes and consequences of divestment. Grunberg distinguishes divestment, i.e. the closure, full or partial sale, expropriation, or nationalization of an operation, from disinvestment, i.e. the gradual contraction of an operation by starving a subsidiary of investment funds, or drawing profits away and reinvesting them elsewhere. In two of the cases, the divestment was the closure of a factory. The third case was a situation where the company was able to get additional host government funds and worker concessions to remain operating.

Grunberg (1981) theorized that divestment can take place for two reasons: 1) when losses

these companies performed in line with national competitors, but due to a deteriorating position compared to international rivals. Furthermore, problems were exacerbated by weak performance of parent companies. In addition, within these internationally operating companies, there were other subsidiaries that performed well at the same time and in the same industry as those that did not. Nevertheless, Grunberg (1981: 146) concludes that parent companies do not always divest those subsidiaries with the worst cost and marketing performance. One fundamental problem has to do with the difficulty in evaluating market performance due to accounting standards and transfer prices (profits of subsidiaries can be artificially raised or lowered through transfer prices). A deeper problem has to do with a subsidiary’s lack of independence to make a whole series of operational and strategic decisions. This deals with decisions on what products to produce, from what suppliers they will buy, and in what markets they will sell their products. Grunberg (1981: 148) concludes: “Subsidiaries, then, could be said to operate in two environments. In addition to the external environment (the market), in which they compete for sales and revenue, they are also embedded in a complex internal environment. As part of a larger group, their interests become subordinated to those of the whole group as reflected in the overall strategic plan and budget. They find themselves allocated tasks that comprise only a piece of a grander strategic design and thus are allocated resources accordingly. Further, they are likely to find themselves engaged in a more-or- less overt political struggle over their respective places in the overall design and over their share of the centrally controlled resource.” One of Grunberg’s cases (Imperial) is very illustrative on this since it