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Concept and reasons of corporate restructuring

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detail about the restructuring of a corporate entity,reasons of corporate restructuring

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Concept and reasons of corporate restructuring

  2. 2.  The concept of restructuring focuses on change .  The oxford dictionary (2007) defines restructuring as ‘ giving a new structure , to rebuild/rearrange’.  One can say that corporate restructuring is a structured decision making exercise undertaken to evaluate the current endowments of a co. by fine tuning the available skills, machinery ,& technology to meet the challenges of tomorrow.  Restructuring is a corporate management term that stands for the act of partial dismantling or otherwise reorganizing a company to make it more efficient and therefore more profitable.  It generally involves selling of portion of the company & making drastic staff reduction .restructuring is often undertaken as part of a takeover by another firm.
  3. 3.  Corporate restructuring refers to a broad array of activities that expand or substantially modify its financial structure or bring about a significant change in its organizational structure or internal financing . (CHANDRA 2007)  Corporate restructuring is the reorganization of a company to attain greater efficiency and adopt to new markets.  Corporate restructuring refers to liquidating projects in some areas and redirecting assets to other existing or new areas. (Weston et al. 2005)
  4. 4.  Muller (1988) argues that changing culture and image of the company are the most important rational influencing restructuring. He also states that the human dimension is imperative in any such exercise.  Gibbs (1993) expressed the view that corporate restructuring is needed under three conditions:    The presences of free cash flow, Ineffective corporate governance, The threat of takeover
  5. 5.  CHANGE IN FISCAL & GOVT. POLICIES: change in govt. policies such as deregulation have led many companies to tap new market & customers. Here, co. have to pursue restructuring to adapt their structure to the new challenges .  LPG: liberalization, privatization, globalization have change the rule of the game. Restructuring is the only way to survive in this change business environment.  IT REVOLUTION: companies have to adopt this technology in this modern business enterprises  CONCEPT OF CUSTOMER DELIGHT: the changing profiles has intensified competition & companies have to reshape their activities to survive in business. e.g. general motors, Tata oil mills co. , M&M etc. have change to satisfy the needs and expectation of the customer. Cont…...
  6. 6.  COST REDUTION: customer to only expect quality products, but also affordable price. To becomes cost effective , one of the tools of corporate restructuring.  DIVESTMENT: It means sold off or divided the operations into smaller business. E.g. L&T sale of L&T CEMENT, TATA exit from Tata oil mills co. (TOMCO)  ENHANCING SHAREHOLDER VALUE: when company is not able to generate adequate returns, restructuring can bring about effective allocation and use of resources.  INCOMPATIBLE COMPANY OBJECTIVES: when company objectives are no longer compatible with the current portfolio, restructuring is planned. Cont…
  7. 7.  ENVIORNMENT CHANGE: forces like demand, increase in competitive pressures, increasing stakeholder expectation, & increasing need of innovation etc. force the company to initiate restructuring.  TRANSFERRING CORPORATE ASSETS: companies often have assets that they are unable to use efficiently. They choose restructuring to transfer their assets to more efficient user.
  8. 8.  Corporate restructuring deals with elements that can change the effectiveness and performance of an entity. The basic objective is to introduce path breaking changes in the structural and performance parameters of the company so that the entity returns to the list of profit making entities.