Bharath Advanced Technologies, Inc., is a large firm in a competitive industry. The company has above-average investment opportunities and its return on investments has been above the required rate of return. In addition, Bharath has invested heavily in fixed assets and technology to reduce its production costs. The company has also increased its advertising budget substantially to establish a strong brand image for its products. From the above description, Bharath is best characterized as a:
A. cyclical company that follows a low-cost strategy.
B. speculative company that follows a differentiation strategy.
C. growth company that follows a defensive competitive strategy.
Answer: C
A growth company is a firm with the management ability and the opportunities to make investments that yield rates of return greater than the firm's required rate of return. A company following a defensive competitive strategy attempts to position itself to deflect the effect of the competitive forces in the industry. Examples may include investment in fixed assets and technology to reduce its production costs or increasing advertising budgets to establish a strong brand image for products.