BCG Matrix Analysis of Reliance

Presented by Nwankwo Emmanuel

Main Subsidiaries

• Reliance Telecommunication Limited (RTL)• Reliance Globalcom• Reliance Communications Infrastructure

Limited (RCIL)• Reliance Big TV Limited

• Reliance Infratel Limited(RITL)

Why BCG MatrixThree techniques most widely used and most referenced in the business literature: BCG-Growth Share Matrix GE-McKinsey Industry Attractiveness-Business Strength Matrix Arthur D. Little Life Cycle Approach The BCG matrix method is based on the product life cycle theory that can be used to determine what priorities should be given in the product portfolio of a business  unit.

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Cash Cows Dogs

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Stars Question Marks

4 categories in a portfolio of a company

1. Stars (=high growth, high market share)

• use large amounts of cash and are leaders in the business so they should also generate large amounts of cash.

• frequently roughly in balance on net cash flow. However if needed any attempt should be made to hold share, because the rewards will be a cash cow if market share is kept.

2. Cash Cows (=low growth, high market share)

• profits and cash generation should be high , and because of the low growth, investments needed should be low. Keep profits high.

• Foundation of a company.

4 categories in a portfolio of a company (cont’d)

3. Dogs (=low growth, low market share)• avoid and minimize the

number of dogs in a company.

• beware of expensive ‘turn around plans’.

• deliver cash, otherwise liquidate.

• divest, but occasionally hold for possible strategic repositioning, which can lead to question mark or cash cow.

4. Question Marks (= high growth, low market share)• worst cash characteristics of all, because high demands and low returns due to low market share.

• generate insufficient cash, simply absorb great amounts of cash and later, as the growth stops, a dog.

• either invest heavily or sell off or invest nothing and generate whatever cash it can. Increase market share or deliver cash.

The BCG or Growth-Share matrix imposes a two-dimensional analysis on management of Strategic Business Units: a comparative analysis of business strength and an assessment of the environment. The business strength measure is the business's Relative Market Share. The environmental measure is the Market Growth Rate.

Formulas for Relative Market Share and Market Growth Rate:

The two dimensional analysis of BCG Matrix

Service Provider Subscriber (Mn) Market Share (%)Relative

Market Share

Bharti Airtel 130.61 21.73 1.243

Reliance Com + RTL 105.15 17.49 0.805

Vodafone Essar 103.75 17.26 0.794

BSNL 70.62 11.75 0.541

Tata Teleservices 67.88 11.29 0.520

IDEA 65.28 10.86 0.500

Aircel 38.46 6.40 0.295

MTNL 5.12 0.85 0.039

Uninor 5.02 0.84 0.039

Sistema Shyam 4.21 0.70 0.032

Loop Mobile 2.89 0.48 0.022

STel 1.11 0.19 0.009

Videocon 0.65 0.11 0.005

HFCL Infotel 0.327 0.06 0.003

Etisalat/Allianz 0.004 0.00 0.000

Indian mobile mkt 2010

overall telecom operator market share

•Bharti Airtel 32%•Vodafone 20.8% [Consistent] •Idea Cellular 12.7% [Moderate Growth, but commendable]•Reliance Communications -11.7% [ Losing to competition ]•BSNL 9.3% [ Losing to competition]•Tata Tele [ Gaining on the back of DoCoMo’s innovative strategies•Aircel 4%

India Wireless Operators Revenue Market Share

India Wireless Connection (2010)

Telecom Operator Market Share Relative Market Share

Bharti Airtel 32.0% 2.735

RCOM 11.7% 0.366

Vodafone 20.8% 0.650

BSNL 9.3% 0.291

IDEA Cellular 12.7% 0.397

Tata Teleservices 8.5% 0.266

Aircel 4.0% 0.125

Telecom Operator

Market Share (in %)

Relative Market Share

MTS (SSTL) 1.0% 0.017

RCOM 56.0% 1.514

MTNL 0.0% 0.000

BSNL 6.0% 0.107

HFCL 0.0% 0.000

Tata Teleservices

37.0% 0.661

Top CDMA operators in India

10x 8x 7x 5x 3x 1x .7x .5x .4x . 3x .2x .1x

20%-

18%-

16%-

14%-

12%-

10%-

8%-

6%-

4%-

2%-

0%-

BCG Analysis for Reliance CommunicationsBCG Analysis for Reliance Communications

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Cash Cows Dogs

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Stars Question Marks

Strategy for substantial growth

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Cash Cows Dogs

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Stars Question Marks

Cash reinvestment

BCG Matrix(Three Paths to Success)

• Continuously generate cash cows and use the cash surplus from the cash cows to invest in the question marks that are not self-sustaining.

• Reinvest in Stars, as the market matures, stars will degenerate into cash cows and the process will be repeated.

• Segment the market for dogs, nurse the dogs to health or manage for cash.

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Cash Cows Dogs

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Stars Question Marks

Three Paths to Success

BCG Matrix(Three Paths to Failure)

• Over invest in cash cows and under invest in question marks.

• Under invest in the stars.

• Over milk the cash cows.

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Cash Cows Dogs

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Stars Question Marks

Three Paths to Failure

The 4 Portfolio Strategies

1. High market share is not the only success factor2. Market growth is not the only indicator for attractiveness of a market3. Sometimes Dogs can earn even more cash as Cash Cows4. How growth and share are measured highly affect the overall analysis.5. It does not provide sufficient direction for most effective ways to

implement the investment strategies.

Recommendation:

Either these SBUs should receive enough investment funds to enable them to achieve a real market dominance and become a cash cow (or star), or otherwise companies are advised to disinvest and try to get whatever possible cash out of the question marks that were not selected.

limitations of the BCG Matrix

references1. http://www.bcg.com/about_bcg/history/history_1968.aspx

2. http://www.rcom.co.in

3. http://www.simonbrandon.com

4. http://www.telecomindiaonline.com/india-telecom-growth-and-subscribers-2010.html

5. http://www.thehindubusinessline.com/2010/05/22/stories/2010052252590700.htm.

6. http://www.businessweek.com/globalbiz

7. http://www.trai.gov.in/WriteReadData/trai/upload/PressReleases/740/PRelease28June10.pdf

8. http://www.ibef.org/industry/telecommunications.aspx.

9. http://en.wikipedia.org/wiki/Reliance_Communications

10. http://economictimes.indiatimes.com/News/News-By-Industry/Telecom/GSM-CDMA-players-maintain-subscriber-growth-momentum/articleshow/4281903.cms

11. Carl W. Stern, George Stalk - Perspectives on Strategy from The Boston Consulting Group