Star engineering
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Transcript of Star engineering
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How to allocate funds to variousproducts?
Limited financial resources Need to allocate funds in a balanced
manner to keep up with growth
Five product groups
Total requirement = Rs.11 crore
Total available funds = Rs. 5 crore
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Customers Manufacturers of equipments
used in telecom exchanges.
Market Share 20% (market leader)
MarketGrowth Rate
25% pa
Problems Increase in production
capacity to keep pace with
the growth and to maintain
leadership,
Investment
Required
2 crore
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Customers Telecom Industry for Jelly-filled
Cables
Market Share 20% (market leader)Market
Growth Rate
15% pa
Problems Jelly-filled cables and jointing
kits are getting slowly
substituted by fibre-optic
cables and different type of
jointing kits.
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Customers Railways for changing tracks
electrically
Market Share 40% (market leader)Market
Growth Rate
7-8% pa
Problems Expansion of operations to
international markets
Investment
Required
2.5 crore
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Customers Diverse industries.
Market Share 5%
Market GrowthRate
8-10% pa, high demand ininternational markets
Problems Sick Unit Poor quality & high rejection rates
Previous investment of 3 crores &
management efforts went futile
Further investment in equipmentsneeded to improve quality & get ISO
9000 certification
Investment
Required
1.5 crore
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Customers Electronic industries.
Market Share 6%
MarketGrowth Rate
20% pa
Problems Inability in meeting production
capacity due to financialconstraints
Investment
Required
5 crore
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STARS
PRODUCT A
QUESTIONMARK
PRODUCT E
CASH COWS
PRODUCT B
PROCUCT C
DOGS
PRODUCT D
MARKET
GROWTH
RATE
Relative Market Share
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PRODUCTS Requirement Product Life cycle Allocation
A - Transformer
Coils
2 Crore Growth 1.5
B - Cable JointingKits, Jelly FilledCables
- Decline -
C - Electric pointMachines
2.50 Crore Maturity 1
D - Steel Forgings 1.50 Crore Maturity 0
E - Switch ModePower Supply(SMPS)
5 Crore Growth 2.5
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It is in the STAR category as it has a highmarket growth rate (25%) and a high
market share (20%). So it is in the growthphase of product life cycle.
To maintain the growth of the starproduct, the company must investmoney to improve its growth andmaintain leadership & also to increasethe production capacity.
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It is a CASH COW as it generates hugerevenues for the company.
But it is in a decline phase because newsubstitutes like fiber optic cables areeating up its market share.
So we will milk the product and generate
as much revenues as we can and notinvest any money.
Also, the case doesnt mention anybudget allocation for product B.
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It is also a CASH COW and it is in itsmaturity phase.
Again, our focus will be to invest less andgenerate maximum revenues.
The product has opportunity to grow in
export markets so the allocated fund willhelp it to cater to its overseas demand.
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Product D is the weak link of thecompany.
It is in the DOG category and hasreached its maturity phase.
Already much money and effort has
been invested in this product with noresult and continued losses.
So the best option will be to divest theproduct.
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It is a recently launched product with ahigh market growth rate and hugedemand.
It has the potential to become marketleader.
Our objective will be to move this productfrom the current QUESTION MARK categoryto star category in the future.
So we will allocate the highest amount tothis product.
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THANKING YOU