CA Intermediate · Financial Management and Strategic Management · Strategic Choices
A diversified Indian conglomerate classifies its business units on a matrix of relative market share and industry growth rate. One unit has a low relative market share in a high-growth industry, needs heavy cash investment, and its future is uncertain. Under the BCG matrix, how is this unit classified and what is the usual advice?
The unit is a question mark. It has low relative market share in a high-growth industry, consumes much cash and has uncertain prospects, so the firm should either invest selectively to build share and turn it into a star or divest it.
- AQuestion mark; invest selectively to build share or divestCorrect
- BStar; hold and invest to maintain leadership
- CCash cow; milk the cash and invest little
- DDog; liquidate or harvest immediately
Explanation
Low relative share with high market growth is the question mark (problem child) quadrant. These units absorb cash and must either be built into stars through selective investment or divested. Stars have high share, cash cows have high share in low growth, dogs have low share in low growth.
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