Society For Human Resource Management (SHRM) Certified Professional Practice Exam

If a clothing retail company decides to move into other industries and leave the clothing sector, what is this process called?

1. Reengineering

2. Restructuring

3. Divestiture

4. Refinancing

The correct answer is: Divestiture

The correct term for a clothing retail company deciding to exit the clothing sector and expand into other industries is divestiture. This process involves selling off or liquidating a portion of a business— in this case, the clothing segment— typically to focus on more profitable or strategic opportunities in different markets. Divestiture can occur for various reasons, such as a shift in business strategy, the desire to eliminate underperforming units, or the intention to allocate resources more efficiently toward core business areas. By divesting from clothing, the company hopes to redirect its efforts and capital toward more promising sectors that align better with its long-term goals. In contrast, reengineering refers to the fundamental rethinking and radical redesign of business processes to achieve significant improvements in critical areas, rather than exiting a sector. Restructuring generally pertains to reorganizing the business with the intent of improving efficiency or adapting to market changes, but it does not inherently imply leaving an industry. Refinancing involves altering the composition of a company's debt and equity to enhance financial stability, which also does not relate to exiting an industry.