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CA Intermediate · Financial Management and Strategic Management · Strategic Choices

A Hyderabad electronics firm has two businesses. Business P has a high relative market share in a low-growth industry and generates strong surplus cash. Business Q has a low relative market share in a high-growth industry and needs heavy investment, with an uncertain outcome. The firm uses the BCG matrix to decide on resource allocation. Which pairing of classification and sensible strategy is correct?

P is a Cash Cow, whose surplus cash should fund other businesses, and Q is a Question Mark, which needs a choice between investing to build share or divesting. High share with low growth gives a Cash Cow, and low share with high growth gives a Question Mark.

  1. AP is a Dog and should be divested; Q is a Cash Cow and should be harvested
  2. BP is a Cash Cow and should be milked to fund selected businesses; Q is a Question Mark and needs a decision to build or divestCorrect
  3. CP is a Star and should be harvested; Q is a Dog and should be built
  4. DP is a Question Mark and should be built; Q is a Star and should be held

Explanation

High share and low growth is a Cash Cow, which generates cash that is used to fund other businesses. Low share and high growth is a Question Mark, where the firm must decide whether to invest to build share or to divest. The other options mismatch the quadrants and strategies.

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