Importance of BCG for Seth companies in Pakistan
Importance of BCG for Seth companies in Pakistan
As most of the Seth companies in Pakistan like "Shafi group of Companies" are owned and managed by family members. They divide the organization in different units which are managed by the brothers or other family members. So every one has its own independent startegy and planning. In this way, the overall strategy will be suboptimizing for the corporation as a whole.
According to Boston Consulting Group this approach is inherently suboptimizing for the corporation as whole. The only advantage is the financial strength that arises from the portifolio diversification.
Suppose that Shafi group have 3 cash cows, 3 stras, 3 ?marks and 3 dogs as well.
STAR:
SLW Pvt. Ltd
HST Pvt Ltd.(Garments Unit),
HST Pvt Ltd.(Tanning Unit),
? MARK:
S Pvt. Ltd.
S Reso Chemicals
S Gluco-Chem
CASH COWS:
MST
MMSC
MLW
DOGS:
S Texcel Ltd
S China
EverFresh Farms
One of the advantage could be is its ability to channel its resources into the most produtive units, the companies like Shafi group undertake integrated strtegic planning at the corporate level to match resources with business potential and establish the sequence and timing of resource transfers.
For example: Decide to slow the growth of one division in order to throw off cash to be used in the expansion of other division.
But according to Boston Consulting Group approach the product roles are assigned on the basis of cash flow potential and cost position relative to compition, taking account of the product portifolios of significant compititors. Each product's market and competitive situation are unique. The differences in growth, cash flow potential and in competitive position will determine which product/division represent investment oppertunities and which should be used to supply funds for investment.
According to the CEO of National Foods ltd. (Pakistan) Abrar Hasan, the company should always rely on research data to determine future projections and understand new trends.
He said:
"One thing we miss in Pakistan is that companies don't rely on data, such exercises are costly, but the outcome is always rewarding."
They should first calculate the relative market share growth and product market growth for each product. This technique could also be used for each major competitor to trace both direction and the movement of each product over time. To check the competitive strength of the product makes a comparison of your product growth calculations in terms of share and market growth with competitor's products. (Competitive strength of the product)
If the growth is very low in the market, where gaining of share is much difficult and costly, the "Shafi group" should try to maximize its cash flow. If the product has strength to compete the market and some products are generating cash then "Shafi group" can easily decide to choose the dominance strategy for the product having competitive strength i.e. MST (competing in fashion trends, kid and goatskin leather shoes verieties)
Shafi,s group first try to find that which product becomes mature before making decision to select any strategy. They should decrease the expanditures on mature products and reinvest these funds to the still growing products to get maximum share. Seth in Pakistan usually don't want to reinvest money in other divisions.
As it is said by Abrar Hasan the CEO, National Foods ltd. that:
" It is generally believed that most of the seths in Pakistan don't want to reinvest in their organization and they are using the company only to fund their lifestyles."
As it is very useful for the Shafi's group to come to know that which product is generating more cash, which one is getting share and which one is gaining growth in the market. Then strategy for each product will be visible either to generate cash from some products (cash cows) or reinvest in some products to get larger share in the market (?marks) or investing modest level of cash to some products which promise to give much larger cash generation in the future (Stars).
Investment only to maintain shares will ultimately slow down the market growth of some products and investing only to increase the market growth will disturb the share of some products in the market, So reasonable strategy for all divisions should be adapted according to competitive position. The still growing products will become weak unless enough investment is made during growth phase.
The Shafi group should also try to obtain more precise segmentation by further classification in terms of user characteristics and marketing tactics, because there is too much competition in the market. There is no difficult to identify that precise segment of the market.
As Abrar Hasan the CEO, National Foods ltd. says that:
"The era of mass marketing does not exist now because there are too many products and too much competition. So we try to identify some precise segments of market."
For example: As the National foods launch "ready-to-cook meals" a new highly value-added addition to the line of more than 300 items the company makes for local and export markets.
Introduction of such a product does not mean that traditional style of cooking has come to an end. "It is a lifestyle based product. It will be used whenever you want to spare time for leisure. Importantly, women have become busier, they don't want to stay home and just cook."
Shafi group can also make a strategic decision to take the market share in the long run as well i.e. Pepsi Cola have made a strategic decision to take the market share in the long run.
It also depends on the Shafi group that how they develop their definition of served market for the purpose of measuring market share. Measurement of share market, whether it decreases or an increase during the certain period is of great importance in developing the competitive strategy. To build an appropriate market share the Shafi Group should focus on three elements.
New products
Products quality
Market budget
So BCG (Boston Consulting group) have much importance in present scenario for any kind of business to identify the exact nature of the business, exact nature of the product, exact market segment, exact strategy for each product unit, share building strategy, where to invest and where to slow down investment, which unit is for generating cash and which is for gaining share in the market etc.
Reference:
Some quotes of Abrar Hasan, CEO-National Foods ltd. are taken from the interview by Saad Hasan published in "The News International" dated: 6/14/2008
Some information has been collected from the Articles of "Harvard Business Review"..
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