Page 11 - Portfolio Analysis

= ---- = 1.5 20 b) Company share ----------------- share of largest three largest competitors 30 = ---- = 0.75 40 The former measure is more applicable where only one or two firms have a significant market share and where experience curve gains are more evident. The latter measure is better suited to a highly concentrated industry, where, for example, the four-firm concentration ratio is greater than 80 per cent. Regardless of which measure is used it is often the case that the dominant firm has to be at least 1.5 times as large as the next biggest competitor in order to maintain profitability. BCG MATRIX ANALYZING THE PRODUCT PORTFOLIO A study of the PLC demonstrates the wisdom of having a variety of products/divisions with different present and prospective growth rates. However, this is not a sufficient condition for the development of a well-balanced portfolio of products that will ensure longrun growth. Two other factors are market share position and the need to balance cash flows within the company. Some products should generate cash (and provide acceptable reported profits) and others should use cash to support growth. If this balance is not achieved the company may either build up unproductive cash reserves or go bankrupt. This becomes clearer when we consider market share position and market growth rate together. Products or services or divisions are classified according to their positions on two dimensions: relative market share and market growth rate. Relative market share records the product’s share relative to the largest competitor; market growth rate