Sample Chapter

INSTANT DOWNLOAD COMPLETE TEST BANK WITH ANSWERS

 

 

Test Bank For Competing for Advantage 3rd Edition by Hoskisson

 

 

SAMPLE QUESTIONS

 

Chapter 1 – Introduction to Strategic Management

 

TRUE/FALSE

 

  1. A sustained or sustainable competitive advantage occurs when a firm has implemented a value-creating strategy that current competitors currently do not have, even if they are able to duplicate that strategy in the near future.

 

ANS:  F                    PTS:   1                    DIF:    med                REF:   p. 2

OBJ:   1                    NOT:  knowledge

 

  1. Average returns are returns in excess of what an investor expects to earn from other investments with a similar amount of risk.

 

ANS:  F                    PTS:   1                    DIF:    med                REF:   p. 3

OBJ:   1                    NOT:  knowledge

 

  1. The strategic management process requires the making of only a single decision about the overall strategy of a firm.

 

ANS:  F                    PTS:   1                    DIF:    med                REF:   p. 3

OBJ:   6                    NOT:  comprehension

 

  1. Organizations must choose between the Industrial Organization Model and the Resource-Based Model when it sets out on the strategic management process.

 

ANS:  F                    PTS:   1                    DIF:    med                REF:   p. 3

OBJ:   6                    NOT:  comprehension

 

  1. Businesses that have become uncompetitive because of an inability to make necessary changes for continued success are even more common than businesses that fail.

 

ANS:  T                    PTS:   1                    DIF:    med                REF:   p. 4

OBJ:   1                    NOT:  knowledge

 

  1. In a hypercompetitive market, firms often aggressively challenge their competitors in hopes of improving their competitive position and ultimately their performance.

 

ANS:  T                    PTS:   1                    DIF:    med                REF:   p. 5

OBJ:   1                    NOT:  knowledge

 

  1. E-culture is the unique organizational environment created by Internet-based firms.

 

ANS:  F                    PTS:   1                    DIF:    med                REF:   p. 7

OBJ:   1                    NOT:  knowledge

 

  1. Information or intelligence does not help the organization compete unless it is transformed into usable knowledge and diffused rapidly throughout the firm.

 

ANS:  T                    PTS:   1                    DIF:    med                REF:   p. 7

OBJ:   1                    NOT:  comprehension

 

  1. The I/O (Industrial Organization) model assumes that a firm’s unique resources and capabilities are its main source of above-average returns.

 

ANS:  F                    PTS:   1                    DIF:    hard               REF:   p. 11

OBJ:   2                    NOT:  comprehension

 

  1. The I/O model suggests that above-average returns are earned when firms implement the strategy dictated by the characteristics of the general, industry, and competitive environments.

 

ANS:  T                    PTS:   1                    DIF:    hard               REF:   p. 13 (Figure 1.2)

OBJ:   2                    NOT:  comprehension

 

  1. The resource-based model assumes that firms may form a competitive advantage by having resources that are rare or costly to imitate.

 

ANS:  T                    PTS:   1                    DIF:    med                REF:   p. 14

OBJ:   3                    NOT:  comprehension

 

  1. Resources are considered rare when they allow firms to exploit opportunities in the external environment.

 

ANS:  F                    PTS:   1                    DIF:    med                REF:   p. 16

OBJ:   3                    NOT:  knowledge

 

  1. The I/O (Industrial Organization) model argues that core competencies are the basis of a firm’s competitive advantage.

 

ANS:  F                    PTS:   1                    DIF:    med                REF:   p. 14

OBJ:   2                    NOT:  comprehension

 

  1. Customers, suppliers, unions, and local governments are examples of capital market stakeholders.

 

ANS:  F                    PTS:   1                    DIF:    hard               REF:   p. 17

OBJ:   4                    NOT:  knowledge

 

  1. Employees, managers, and non-managers are examples of organizational stakeholders.

 

ANS:  T                    PTS:   1                    DIF:    hard               REF:   p. 17

OBJ:   4                    NOT:  knowledge

 

  1. An organization’s “dream” is its strategic mission created by organizational strategists.

 

ANS:  F                    PTS:   1                    DIF:    hard               REF:   p. 21

OBJ:   6                    NOT:  knowledge

 

  1. A stakeholder approach to strategic management is highly pertinent to a central problem management is facing today – a general lack of trust of corporations and their managers.

 

ANS:  T                    PTS:   1                    DIF:    med                REF:   p. 18

OBJ:   4                    NOT:  comprehension

 

  1. Strategic thinking ignores the past and only focuses on value creation in the future.

 

ANS:  F                    PTS:   1                    DIF:    med                REF:   p. 21

OBJ:   5                    NOT:  knowledge

 

  1. Firms must provide enough flexibility in their strategic management process to allow for the incorporation of new ideas with high potential.

 

ANS:  T                    PTS:   1                    DIF:    med                REF:   p. 21

OBJ:   5                    NOT:  comprehension

 

  1. The strategic management process is an informal approach to helping firms respond effectively to the competitive environment.

 

ANS:  F                    PTS:   1                    DIF:    hard               REF:   p. 22

OBJ:   6                    NOT:  comprehension

 

  1. Corporate-level strategy is concerned with how a diversified firm competes in each industry in which it is active.

 

ANS:  F                    PTS:   1                    DIF:    med                REF:   p. 23

OBJ:   6                    NOT:  knowledge

 

  1. An organization’s willingness to tolerate or encourage unethical behavior is a reflection of its core values.

 

ANS:  T                    PTS:   1                    DIF:    med                REF:   p. 24

OBJ:   6                    NOT:  comprehension

 

  1. Effective strategic leadership is essential to both strategic thinking and strategic flexibility.

 

ANS:  T                    PTS:   1                    DIF:    easy               REF:   p. 8

OBJ:   5                    NOT:  knowledge

 

MULTIPLE CHOICE

 

  1. What has a firm achieved when it successfully formulates and implements a value-creating strategy?
a. Value creation
b. A permanently sustainable competitive advantage
c. Substantial returns
d. Average returns

 

 

ANS:  A                    PTS:   1                    DIF:    med                REF:   p. 3

OBJ:   1                    NOT:  comprehension

 

  1. The strategic management process is:
a. a set of activities that is guaranteed to prevent organizational failure.
b. a process concerned with a firm’s resources, capabilities, and competencies, but not the conditions in its external environment.
c. a set of activities that to date have not been used successfully in the not-for-profit sector.
d. a dynamic process involving the full set of commitments, decisions, and actions related to the firm.

 

 

ANS:  D                    PTS:   1                    DIF:    hard               REF:   p. 3

OBJ:   6                    NOT:  comprehension

 

  1. Two of the primary drivers of the new competitive landscape are:
a. slow technological changes and increased inflation.
b. emergence of a global economy and rapid technological change.
c. increased competition and decreasing tariffs.
d. increased availability of capital and increased competition.

 

 

ANS:  B                    PTS:   1                    DIF:    med                REF:   p. 4

OBJ:   1                    NOT:  knowledge

 

  1. Which of the following is a characteristic of the global economy?
a. The spread of economic innovations around the world
b. The free movement of goods, services, people, skills, and ideas across geographic borders
c. The increased use of artificial constraints, such as tariffs
d. The ability of a firm to be first to market its products in a developing country

 

 

ANS:  B                    PTS:   1                    DIF:    med                REF:   p. 4

OBJ:   1                    NOT:  comprehension

 

  1. In the new competitive landscape, firms will attain competitive success by:
a. continuing current corporate strategies.
b. meeting, or exceeding, global standards.
c. avoiding challenges that change their capabilities.
d. committing more resources to international products.

 

 

ANS:  B                    PTS:   1                    DIF:    med                REF:   p. 7

OBJ:   1                    NOT:  knowledge

 

  1. A set of capabilities used to respond to various demands and opportunities existing in a dynamic and uncertain competitive environment is:
a. strategic flexibility.
b. disruptive technology.
c. information, intelligence and expertise.
d. performance standards.

 

 

ANS:  A                    PTS:   1                    DIF:    hard               REF:   p. 8

OBJ:   1                    NOT:  comprehension

 

  1. An aspect of global competition is that it has increased performance standards in many dimensions. These dimensions do NOT include:
a. production cost. c. social responsibility.
b. quality of product. d. decreased production time.

 

 

ANS:  C                    PTS:   1                    DIF:    med                REF:   p. 6

OBJ:   1                    NOT:  knowledge

 

  1. The advent of inexpensive digital cameras able to compete with film cameras is an example of ____.
a. disruptive technology c. perpetual innovation
b. global competition d. hypercompetition

 

 

ANS:  A                    PTS:   1                    DIF:    med                REF:   p. 7

OBJ:   1                    NOT:  comprehension

 

  1. To achieve greater strategic flexibility, firms must:
a. hire additional personnel.
b. adapt quickly to changes in their competitive landscape.
c. report net losses for a period of three years.
d. acquire competing firms.

 

 

ANS:  B                    PTS:   1                    DIF:    hard               REF:   p. 8

OBJ:   1                    NOT:  comprehension

 

  1. Which of the following is NOT an assumption of the Industrial Organization, or I/O, model?
a. Organizational decision makers are rational and committed to acting in the firm’s best interests.
b. Resources to implement strategies are not highly mobile across firms.
c. The external environment is assumed to impose pressures and constraints that determine the strategies that result in superior performance.
d. Firms in given industries, or given industry segments, are assumed to control similar strategically relevant resources.

 

 

ANS:  B                    PTS:   1                    DIF:    hard               REF:   p. 12

OBJ:   2                    NOT:  comprehension

 

  1. When utilizing the Industrial Organization, or I/O, model the key to success for a firm is:
a. proper utilization of the firm’s human resources.
b. selecting the most attractive industry in which to compete.
c. identifying the firm’s key competitive advantage.
d. developing the firm’s unique resources and capabilities.

 

 

ANS:  B                    PTS:   1                    DIF:    med                REF:   p. 12

OBJ:   2                    NOT:  comprehension

 

  1. The Industrial Organization, or I/O model, argues that:
a. the characteristics of the general, industry, and competitor environments dictate successful organizational strategy.
b. the firm’s internal resources and capabilities represent the foundation for development of a value-creating strategy.
c. internationalization in certain industries will lead to globalization.
d. firms should seek to maximize their returns by organizing their organizational structure in a manner consistent with the most efficient producers in any given industry.

 

 

ANS:  A                    PTS:   1                    DIF:    med                REF:   p. 11

OBJ:   2                    NOT:  knowledge

 

  1. Research into the causes of firm profitability suggests a reciprocal relationship between ____ and ____ affects firm performance.
a. employee training, capital resources
b. the number of competitors, product innovation
c. the board of directors, corporate managers
d. the environment, firm strategy

 

 

ANS:  D                    PTS:   1                    DIF:    hard               REF:   p. 11

OBJ:   2                    NOT:  comprehension

 

  1. Which of the following is NOT an assumption of the resource-based model?
a. Each firm is a unique collection of resources and capabilities.
b. All firms possess the same strategically relevant resources.
c. Resources are not highly mobile across firms.
d. Firms acquire different resources and capabilities over time.

 

 

ANS:  B                    PTS:   1                    DIF:    med                REF:   p. 14

OBJ:   3                    NOT:  comprehension

 

  1. The I/O model and the resource-based view of the firm suggest conditions that firms should study in order to:
a. compete in domestic but not international markets.
b. examine strategic outputs achieved mainly in the last 5-year period.
c. engage in different sets of competitive dynamics.
d. develop the most effective strategy.

 

 

ANS:  D                    PTS:   1                    DIF:    hard               REF:   p. 14

OBJ:   3                    NOT:  comprehension

 

  1. The resource-based view of the firm:
a. suggests that resources, as compared to capabilities, are more closely linked with sustainable competitive advantage.
b. argues that the industry environment has a stronger influence on firms’ ability to implement strategies successfully than does the competitor environment.
c. calls for firms to focus on their homogeneous skills to compete against their rivals.
d. assumes that resources may not be mobile across firms.

 

 

ANS:  D                    PTS:   1                    DIF:    hard               REF:   p. 14

OBJ:   3                    NOT:  comprehension

 

  1. The resource-based model of the firm argues that:
a. all resources have the potential to be the basis of sustained competitive advantage.
b. resources are not a source of potential competitive advantage.
c. the key to competitive success is the structure of the industry in which the firm competes.
d. resources that are valuable, rare, costly to imitate, and non-substitutable form the basis of a firm’s core competencies.

 

 

ANS:  D                    PTS:   1                    DIF:    hard               REF:   p. 16

OBJ:   3                    NOT:  comprehension

 

  1. Which of the following is NOT a criterion that must be met in order for resources and capabilities to become a competitive advantage under the resource-based model?
a. The resources and capabilities possessed by competitors are common.
b. The resources and capabilities are costly to imitate when firms cannot obtain them.
c. The resources and capabilities have no structural equivalents.
d. The resources and capabilities are valuable if they can be used to exploit opportunities.

 

 

ANS:  A                    PTS:   1                    DIF:    hard               REF:   p. 16

OBJ:   3                    NOT:  comprehension

 

  1. To have the potential to become sources of competitive advantage, resources and capabilities must be valuable, ____, and ____.
a. common, easy to imitate.
b. easy to imitate, difficult to implement.
c. rare, costly to imitate.
d. easy to implement, costly to imitate.

 

 

ANS:  C                    PTS:   1                    DIF:    med                REF:   p. 16

OBJ:   3                    NOT:  comprehension

 

  1. Strategic intent seeks to ensure that:
a. the goals of the firm are realistic.
b. the goals of the firm are non-specific in order to allow creativity.
c. only top-level managers are committed to the goals of the organization.
d. all of the organization’s employees are focused on achieving the firm’s goals.

 

 

ANS:  D                    PTS:   1                    DIF:    med                REF:   p. 21

OBJ:   5                    NOT:  knowledge

 

  1. ____ has been effectively formed when employees believe fervently in their company’s product and are totally focused on their firm’s ability to outcompete its competitors.
a. A culture of success c. An organizational mission
b. Competitive vision d. Strategic intent

 

 

ANS:  D                    PTS:   1                    DIF:    med                REF:   p. 21

OBJ:   5                    NOT:  knowledge

 

  1. Strategic intent is primarily:
a. internally focused. c. industry focused.
b. externally focused. d. chief executive officer focused.

 

 

ANS:  A                    PTS:   1                    DIF:    med                REF:   p. 21

OBJ:   5                    NOT:  comprehension

 

  1. Product market stakeholders include the firm’s customers, and the principal concern of this stakeholder group is:
a. maximizing the firm’s return on investment.
b. providing a stimulating career environment for employees.
c. to obtain reliable products at the lowest possible price.
d. increasing the profitability of the firm.

 

 

ANS:  C                    PTS:   1                    DIF:    med                REF:   p. 18

OBJ:   4                    NOT:  comprehension

 

  1. Stakeholders’ interests may conflict, and the organization must prioritize its stakeholders because it cannot satisfy them all. The ____ is the most critical criterion in prioritizing stakeholders
a. Power of each stakeholder
b. Urgency of satisfying each stakeholder
c. Importance of each stakeholder to the firm
d. Influence of each stakeholder

 

 

ANS:  A                    PTS:   1                    DIF:    med                REF:   p. 20

OBJ:   4                    NOT:  knowledge

 

  1. Generally speaking, product market stakeholders are satisfied when:
a. a firm’s profit margin yields the lowest return to capital market stakeholders that is acceptable to them.
b. a firm’s profit margin yields an above-average return to its capital market stakeholders.
c. the interests of the firm’s organizational stakeholders have been maximized.
d. a firm grounds its operations in the principles of the resource-based view of the firm rather than the principles of the I/O model.

 

 

ANS:  A                    PTS:   1                    DIF:    hard               REF:   p. 18

OBJ:   4                    NOT:  comprehension

 

  1. Organizational stakeholders are usually satisfied when:
a. their return on investment has been maximized.
b. customers pay the highest sustainable price for the goods and services they receive.
c. companies are willing to be longer-term employers.
d. companies are growing and helping individuals develop their skills.

 

 

ANS:  D                    PTS:   1                    DIF:    med                REF:   p. 18

OBJ:   4                    NOT:  evaluation

 

  1. The strategic management process is intended to be a rational approach to help a firm:
a. analyze its position in the marketplace.
b. understand its rivals’ competitive moves.
c. design an extensive mission statement.
d. respond effectively to the challenges of the competitive environment.

 

 

ANS:  D                    PTS:   1                    DIF:    med                REF:   p. 22

OBJ:   6                    NOT:  comprehension

 

  1. In a diversified firm, corporate-level strategy is concerned with:
a. operating each individual business.
b. determining how each functional department of the firm will operate.
c. determining in which businesses to compete and how resources will be allocated between businesses.
d. maximizing product distribution over rivals.

 

 

ANS:  C                    PTS:   1                    DIF:    med                REF:   p. 23

OBJ:   6                    NOT:  comprehension

 

  1. A business-level strategy describes:
a. the businesses in which the company intends to compete.
b. all policies and procedures used in functional departments.
c. the firm’s actions to exploit its competitive advantage over rivals.
d. a firm’s resources, intent, and mission.

 

 

ANS:  C                    PTS:   1                    DIF:    med                REF:   p. 23

OBJ:   6                    NOT:  comprehension

 

  1. Caterpillar’s performance during the recent economic recession is an example of:
a. the benefits of globalization.
b. advantages enabled by technological advances.
c. potential opportunities related to economic volatility.
d. threats existing in the competitive environment.

 

 

ANS:  C                    PTS:   1                    DIF:    med                REF:   p. 6

OBJ:   1                    NOT:  application

 

ESSAY

 

  1. Define value creation and above-average returns.

 

ANS:

Value creation is achieved when firms develop and successfully implement a value-creating strategy. Above-average returns are returns in excess of what investors expect to earn from other investments with similar risk levels.

 

PTS:   1                    REF:   p. 2|p. 3         OBJ:   1

 

  1. What is the 21st century competitive landscape?

 

ANS:

The pace of change in the 21st century is relentless and increasing. Even determining the boundaries of an industry has become challenging. Conventional sources of competitive advantage, such as economics of scale, are not as effective as they once were. Hypercompetition is characteristic of the 21st century competitive landscape. It results from the dynamics of strategic maneuvering among global and innovative competitors. The primary drivers of hypercompetition are the emergence of a global economy and rapid technological change.

 

PTS:   1                    REF:   p. 3|p. 8         OBJ:   1

 

  1. Describe the Industrial Organization, or I/O, model of strategy.

 

ANS:

The I/O model is grounded in the economics discipline and argues that the external environment is the primary determinant of firm success. The model has four underlying assumptions. First, the external environment is assumed to impose pressures and constraints that determine the strategies that would result in superior performance. Second, most firms competing within a particular industry, or in a certain segment of the industry, are assumed to control similar strategically relevant resources and pursue similar strategies in light of those resources. Third, resources used to implement strategies are mobile across firms, which results in resource differences between firms being short lived. Fourth, organizational decision makers are assumed to be rational and committed to acting in the firm’s best interests as shown by their profit maximizing behaviors. The challenge for firms within the I/O model is to find the best industries in which to compete.

 

PTS:   1                    REF:   p. 11|p. 14     OBJ:   2

 

  1. Describe and discuss the resource-based model of the firm.

 

ANS:

The resource-based model of the firm focuses on the internal resources and capabilities of the firm as a source of competitive advantage. The model assumes that each firm is a collection of unique resources and capabilities. Resources are not highly mobile across firms. All firms within a particular industry may not possess the same strategically relevant resources and capabilities. The resource-based model suggests that core competencies are the basis for a firm’s value creation and its ability to earn above-average returns.

 

PTS:   1                    REF:   p. 14|p. 17     OBJ:   3

 

  1. Describe and discuss strategic intent and strategic mission.

 

ANS:

Strategic intent is the leveraging of a firm’s internal resources, capabilities, and core competencies to accomplish the firm’s goals in the competitive environment. Strategic intent exists when all employees of the organization are committed to the pursuit of a specific (and significant) performance criterion. Based on its internal strategic intent, the firm then develops its externally oriented strategic mission. The strategic mission is a statement of a firm’s unique purpose and the scope of its operations in product and market terms. The mission provides the general description of the products a firm intends to produce and the market(s) it will serve. The mission should establish the firm’s individuality and be inspiring and relevant to all stakeholders.

 

PTS:   1                    REF:   p. 21|p. 23     OBJ:   5

 

  1. Describe an organization’s various stakeholders and their different interests.

 

ANS:

Stakeholders are the individuals and groups who can affect and are affected by the strategic outcomes achieved and who have enforceable claims on a firm’s performance. There are three principal types of stakeholders. First, there are the capital market stakeholders. These stakeholders include the shareholders and the major suppliers of capital to the firm. They are most interested in the return on capital and profitability of the firm. The second group of stakeholders is the product market stakeholders. This group includes customers, suppliers, host communities, and unions representing workers. The customers seek a reliable product at the lowest possible price. The suppliers seek assured customers willing to pay the highest sustainable price. Host communities want companies willing to be long-term employers and providers of tax revenues. Union officials want secure jobs with good working conditions for the workers they represent. The final group of stakeholders is the organizational stakeholders. This group includes the employees (both managerial and non-managerial). These stakeholders expect a firm to provide a dynamic, stimulating, and rewarding work environment.

 

PTS:   1                    REF:   p. 17|p. 20     OBJ:   5

 

  1. Explain the strategic management process.

 

ANS:

The strategic management process calls for a rational and disciplined approach to the development of competitive advantage. In the strategic management process, the firm studies its internal and external environments to identify marketplace threats and opportunities. It determines how to use its core competencies to pursue its desired strategic outcomes. With this knowledge, the firm forms its strategic intent and strategic mission, ultimately achieving (if successful) value creation and above-average returns.

 

PTS:   1                    REF:   p. 22|p. 24     OBJ:   6

 

  1. Discuss Michael Porter’s contributions to the I/O model of above-average returns.

 

ANS:

Michael Porter’s five forces model suggests that an industry’s profitability is a function of interactions among suppliers, buyers, competitive rivalry, product substitutes, and potential entrants to the industry.  The model reinforces the importance of economic theory, offers an analytical approach that was previously lacking in the field of strategy, describes the forces that determine the nature and level of competition and profit potential in an industry, and suggests how an organization can use the analysis to establish a competitive advantage.

 

PTS:   1                    REF:   p. 12              OBJ:   2

 

Chapter 3 – The External Environment:  Opportunities, Threats, Industry Competition, and Competitor Analysis

 

TRUE/FALSE

 

  1. The final result of successful value creation is above-average returns.

 

ANS:  T                    PTS:   1                    DIF:    med                REF:   p. 72

OBJ:   1                    NOT:  comprehension

 

  1. Demographic, economic, political/legal, sociocultural, technological, global, and physical are the seven elements comprising the industry environment.

 

ANS:  F                    PTS:   1                    DIF:    hard               REF:   p. 73

OBJ:   2                    NOT:  knowledge

 

  1. An analysis of the general environment is usually focused on the future.

 

ANS:  T                    PTS:   1                    DIF:    med                REF:   p. 74

OBJ:   2                    NOT:  comprehension

 

  1. The external environmental analysis process should be used no more than once a year.

 

ANS:  F                    PTS:   1                    DIF:    med                REF:   p. 74

OBJ:   1                    NOT:  comprehension

 

  1. Boundary spanners are corporate employees in positions to interact with external constituents.

 

ANS:  T                    PTS:   1                    DIF:    med                REF:   p. 76

OBJ:   1                    NOT:  knowledge

 

  1. When analysts scan the environment, they typically have complete and unambiguous data.

 

ANS:  F                    PTS:   1                    DIF:    med                REF:   p. 76

OBJ:   3                    NOT:  comprehension

 

  1. When forecasting, analysts must observe environmental changes to determine if an important trend is beginning to emerge.

 

ANS:  F                    PTS:   1                    DIF:    hard               REF:   p. 77

OBJ:   3                    NOT:  knowledge

 

  1. The objective of assessing the external environment is to determine the timing and significance of the effects of environmental changes and trends on the strategic management of the firm.

 

ANS:  T                    PTS:   1                    DIF:    med                REF:   p. 77

OBJ:   1                    NOT:  knowledge

 

  1. Without monitoring, a firm is left with a mass of data of unknown relevance.

 

ANS:  F                    PTS:   1                    DIF:    med                REF:   p. 78

OBJ:   3                    NOT:  knowledge

 

  1. Age structure, geographic distribution, income distribution, interest rates, and process innovations are some of the elements of concern when studying the demographic segment of the general environment.

 

ANS:  F                    PTS:   1                    DIF:    hard               REF:   p. 78

OBJ:   4                    NOT:  comprehension

 

  1. Because the health of a nation’s economy affects the performance of individual firms and industries, companies study the economic environment to identify changes, trends, and their strategic implications.

 

ANS:  T                    PTS:   1                    DIF:    med                REF:   p. 80

OBJ:   4                    NOT:  comprehension

 

  1. The political/legal segment of the general environment is the arena in which organizations compete for attention, resources and a voice in the laws and regulations guiding interactions among nations.

 

ANS:  T                    PTS:   1                    DIF:    med                REF:   p. 81

OBJ:   4                    NOT:  comprehension

 

  1. Differences in retirement planning between French and American workers are reflected in the demographic segment of the general environment.

 

ANS:  F                    PTS:   1                    DIF:    hard               REF:   p. 82

OBJ:   4                    NOT:  comprehension

 

  1. The technological segment represents the impact of new products, processes, and materials, but it does not entail the institutions and activities involved with creating knowledge.

 

ANS:  F                    PTS:   1                    DIF:    med                REF:   p. 83

OBJ:   4                    NOT:  comprehension

 

  1. The five forces model (buyers/suppliers/new entrants/substitutes/rivalry) is a firm-level analytical model.

 

ANS:  F                    PTS:   1                    DIF:    med                REF:   p. 87

OBJ:   5                    NOT:  comprehension

 

  1. Switching costs, access to distribution channels, economies of scale, large numbers of competing firms, and slow industry growth are some of the entry barriers that may affect the threat of new entrants to an industry.

 

ANS:  F                    PTS:   1                    DIF:    hard               REF:   p. 88

OBJ:   5                    NOT:  comprehension

 

  1. Suppliers are powerful when no satisfactory substitutes are available, the selling industry is relatively more concentrated, and switching costs are high.

 

ANS:  T                    PTS:   1                    DIF:    hard               REF:   p. 91

OBJ:   5                    NOT:  comprehension

 

  1. Typically, fast industry growth increases an industry’s rivalry.

 

ANS:  F                    PTS:   1                    DIF:    med                REF:   p. 93

OBJ:   5                    NOT:  comprehension

 

  1. Generally, the stronger the competitive forces, the higher the profitability of an industry.

 

ANS:  F                    PTS:   1                    DIF:    med                REF:   p. 95

OBJ:   5                    NOT:  comprehension

 

  1. An attractive industry is one that is characterized by high entry barriers, suppliers and buyers with strong bargaining power, low threats from substitute products, and low rivalry among firms.

 

ANS:  F                    PTS:   1                    DIF:    hard               REF:   p. 96

OBJ:   5                    NOT:  comprehension

 

  1. Strategic groups are firms in different industries following the same or similar strategies.

 

ANS:  F                    PTS:   1                    DIF:    med                REF:   p. 96

OBJ:   6                    NOT:  knowledge

 

  1. The strengths of the five competitive forces are similar across strategic groups in an industry.

 

ANS:  F                    PTS:   1                    DIF:    med                REF:   p. 97

OBJ:   6                    NOT:  comprehension

 

  1. The process of competitor analysis should examine the competitor’s future objectives, current strategy, assumptions, and capabilities.

 

ANS:  T                    PTS:   1                    DIF:    hard               REF:   p. 97

OBJ:   7                    NOT:  comprehension

 

  1. Any competitor intelligence practice that is legal is also ethical.

 

ANS:  F                    PTS:   1                    DIF:    med                REF:   p. 99

OBJ:   7                    NOT:  comprehension

 

MULTIPLE CHOICE

 

  1. The ____ environment is composed of elements in the broader society that can influence an industry and the firms within it.
a. general c. sociocultural
b. competitor d. industry

 

 

ANS:  A                    PTS:   1                    DIF:    med                REF:   p. 73

OBJ:   2                    NOT:  knowledge

 

  1. The environmental segments that comprise the general environment typically will NOT include:
a. demographics. c. substitutes.
b. sociocultural. d. technological.

 

 

ANS:  C                    PTS:   1                    DIF:    hard               REF:   p. 73

OBJ:   2                    NOT:  knowledge

 

  1. Which of the following is NOT an activity used in the external environmental analysis process?
a. Scanning c. Monitoring
b. Training d. Assessing

 

 

ANS:  B                    PTS:   1                    DIF:    med                REF:   p. 75

OBJ:   3                    NOT:  knowledge

 

  1. A general environmental analysis can be expected to produce all of the following EXCEPT:
a. objective answers.
b. recognition of environmental changes.
c. identification of organizational opportunities.
d. identification of organizational threats.

 

 

ANS:  A                    PTS:   1                    DIF:    med                REF:   p. 74|p. 76

OBJ:   1                    NOT:  comprehension

 

  1. The ethically questionable practice of placing “cookies” on website customers’ personal hard drives is an example of using the Internet for ____.
a. assessing. c. forecasting.
b. monitoring. d. scanning.

 

 

ANS:  D                    PTS:   1                    DIF:    med                REF:   p. 77

OBJ:   1                    NOT:  comprehension

 

  1. When analysts develop feasible projections of the future based on monitored changes and trends, they are engaged in what activity?
a. Scanning c. Forecasting
b. Monitoring d. Assessing

 

 

ANS:  C                    PTS:   1                    DIF:    med                REF:   p. 77

OBJ:   3                    NOT:  knowledge

 

  1. Observing demographic changes in population size involves:
a. examining the population growth rate.
b. determining the average weight of the population of an area.
c. observing the distribution of technologies across certain ethnic groups.
d. suggesting remedies for problems related to distribution of age groups across regions.

 

 

ANS:  A                    PTS:   1                    DIF:    med                REF:   p. 78

OBJ:   4                    NOT:  comprehension

 

  1. The world is projected to have almost ____ people by 2050.
a. 4.8 billion c. 9.3 billion
b. 6.2 billion d. 12.1 billion

 

 

ANS:  C                    PTS:   1                    DIF:    med                REF:   p. 78

OBJ:   4                    NOT:  knowledge

 

  1. Heterogeneous work groups tend to be more creative and innovative, as well as more ____, than homogenous work groups.
a. cohesive c. difficult to manage
b. easily influenced d. subject to stagnation

 

 

ANS:  C                    PTS:   1                    DIF:    hard               REF:   p. 80

OBJ:   4                    NOT:  knowledge

 

  1. Analyzing the income distribution of the general environment would include all of the following EXCEPT:
a. the purchasing power of different groups.
b. the discretionary income of different groups.
c. how much salary each group makes within its own firm.
d. how income is distributed within populations.

 

 

ANS:  C                    PTS:   1                    DIF:    med                REF:   p. 80

OBJ:   4                    NOT:  comprehension

 

  1. The economic environment refers to:
a. the nature and direction of the economy in which a firm competes.
b. the economic outlook of the world provided by the World Bank.
c. an analysis of how the environmental movement and world economy interact.
d. an analysis of how new environmental regulations will affect our economy.

 

 

ANS:  A                    PTS:   1                    DIF:    med                REF:   p. 80

OBJ:   4                    NOT:  knowledge

 

  1. An analysis of the economic environment would include all of the following EXCEPT:
a. interest rates. c. the health of other countries’ economies.
b. international trade. d. the ethnicity of the workforce.

 

 

ANS:  D                    PTS:   1                    DIF:    med                REF:   p. 80|p. 81

OBJ:   4                    NOT:  comprehension

 

  1. The political/legal segment of an environment represents the:
a. political preferences of different ethnic groups in the society.
b. technological values of different political entities in society.
c. arena where organizations compete for attention, resources and a voice in laws and regulations.
d. study of attitudes businesses and other organizations have toward government.

 

 

ANS:  C                    PTS:   1                    DIF:    med                REF:   p. 81

OBJ:   4                    NOT:  comprehension

 

  1. The sociocultural segment of an environmental analysis is concerned with:
a. the economic condition of society.
b. social attitudes and cultural values within a society.
c. the political condition of the societies in which the firm does business.
d. the technological condition of the society.

 

 

ANS:  B                    PTS:   1                    DIF:    med                REF:   p. 82

OBJ:   4                    NOT:  comprehension

 

  1. Corporate restructurings and a breakdown in traditional lifetime employment practices have led to ____.
a. a more diverse workforce
b. more older workers in the workplace.
c. an increase in telecommuting.
d. more contingency workers.

 

 

ANS:  D                    PTS:   1                    DIF:    med                REF:   p. 83

OBJ:   4                    NOT:  knowledge

 

  1. The technological segment of environmental analysis includes:
a. institutions and activities involved with creating new knowledge and translating that knowledge into new outputs.
b. the determination of when machinery will need to be replaced in a given firm.
c. the need for new technology in order for a firm to gain a competitive advantage.
d. places where a firm’s technology will allow that firm to dominate a given market.

 

 

ANS:  A                    PTS:   1                    DIF:    med                REF:   p. 84

OBJ:   4                    NOT:  comprehension

 

  1. Understanding how new knowledge can develop new products, processes, or materials is a result of analyzing the ____ segment of the general environment.
a. economic c. technological
b. political/legal d. global

 

 

ANS:  C                    PTS:   1                    DIF:    med                REF:   p. 84

OBJ:   4                    NOT:  comprehension

 

  1. Which of the following is true of the Internet?
a. The Internet has strategic implications, but only for small firms.
b. The Internet is often referred to as the “communication corridor.”
c. The Internet is a global web of more than 200,000 computer networks.
d. The Internet provides a source of data and information.

 

 

ANS:  D                    PTS:   1                    DIF:    hard               REF:   p. 84

OBJ:   4                    NOT:  knowledge

 

  1. The concepts of Guanxi, Wa, and Inhwa all convey the general idea of ____.
a. entrepreneurial risk-taking c. the value of hard work
b. interpersonal harmony d. personal achievement

 

 

ANS:  B                    PTS:   1                    DIF:    med                REF:   p. 85

OBJ:   4                    NOT:  knowledge

 

  1. Compared to the general environment, the industry environment has:
a. a less direct effect on value creation and a firm’s returns.
b. a more direct effect on value creation and a firm’s returns.
c. the subtle effect of creating a barrier to the hiring of new employees.
d. no effect on value creation and a firm’s returns.

 

 

ANS:  B                    PTS:   1                    DIF:    med                REF:   p. 87

OBJ:   2                    NOT:  comprehension

 

  1. Which of the following is NOT an entry barrier to an industry?
a. Expected competitor retaliations c. Product loyalty
b. Economies of scale d. Bargaining power of suppliers

 

 

ANS:  D                    PTS:   1                    DIF:    med                REF:   p. 89|p. 91

OBJ:   5                    NOT:  comprehension

 

  1. Economies of scale refer to the fact that as the:
a. quantity of product produced in a given time period increases, the cost of manufacturing each unit increases.
b. quantity of product produced in a given time period increases, the cost of manufacturing each unit remains constant.
c. quantity of product produced in a given time period increases, the cost of manufacturing each unit decreases.
d. physical size of the product gets larger, the costs of production become lower.

 

 

ANS:  C                    PTS:   1                    DIF:    hard               REF:   p. 89

OBJ:   5                    NOT:  knowledge

 

  1. The likelihood of entry of new competitors is affected by ____ and ____.
a. barriers to entry, expected retaliation of incumbents
b. the power of suppliers, buyers
c. the profitability of the industry, the market share of its leading firm
d. the demand for the product, the profitability of the competitors

 

 

ANS:  A                    PTS:   1                    DIF:    hard               REF:   p. 89|p. 91

OBJ:   5                    NOT:  comprehension

 

  1. The threat of new entrants is increased if:
a. access to distribution channels is hard to gain.
b. economies of scale in the industry are high.
c. product differentiation in the industry is low.
d. capital requirements in the industry are high.

 

 

ANS:  C                    PTS:   1                    DIF:    hard               REF:   p. 89

OBJ:   5                    NOT:  comprehension

 

  1. As customers come to believe that a firm’s product is unique, this allows the firm to:
a. decrease its advertising expenditures.
b. customize its product.
c. force other companies out of the market by lowering prices.
d. obtain loyal customers.

 

 

ANS:  D                    PTS:   1                    DIF:    med                REF:   p. 89

OBJ:   5                    NOT:  comprehension

 

  1. Product differentiation refers to the:
a. ability of the buyers of a product to negotiate a lower price.
b. response of incumbent firms to new entrants.
c. belief by customers that a product is unique.
d. fact that as more of a product is produced the cheaper it becomes per unit.

 

 

ANS:  C                    PTS:   1                    DIF:    med                REF:   p. 89

OBJ:   5                    NOT:  comprehension

 

  1. Switching costs refer to the:
a. cost to a producer to exchange equipment in a facility when new technologies emerge.
b. cost of changing the firm’s strategic group.
c. one-time costs suppliers incur when selling to a different customer.
d. one-time costs customers incur when buying from a different supplier.

 

 

ANS:  D                    PTS:   1                    DIF:    med                REF:   p. 90

OBJ:   5                    NOT:  comprehension

 

  1. Which of the following conditions does NOT cause a supplier group to be powerful?
a. When satisfactory substitute products are available to industry firms
b. When the effectiveness of suppliers’ products has created high switching costs for industry firms
c. When industry firms are not significant customers for the supplier group
d. When suppliers are a credible threat to integrate forward into the buyer’s industry

 

 

ANS:  A                    PTS:   1                    DIF:    hard               REF:   p. 91

OBJ:   5                    NOT:  comprehension

 

  1. Suppliers are powerful when:
a. satisfactory substitutes are available.
b. they sell a commodity product.
c. they have credible threat of forward integration.
d. they are in a highly fragmented industry.

 

 

ANS:  C                    PTS:   1                    DIF:    hard               REF:   p. 91

OBJ:   5                    NOT:  comprehension

 

  1. Under which of the following conditions will a buyer group NOT be powerful?
a. When they purchase a large portion of an industry’s output
b. When switching costs are high
c. When suppliers sell an undifferentiated product
d. When they have a credible threat of backward integration

 

 

ANS:  B                    PTS:   1                    DIF:    hard               REF:   p. 92

OBJ:   5                    NOT:  comprehension

 

  1. Buyers are powerful when:
a. there is not a threat of backward integration.
b. they are not a significant purchaser of the supplier’s output.
c. there are no switching costs.
d. the buyers’ industry is fragmented.

 

 

ANS:  C                    PTS:   1                    DIF:    hard               REF:   p. 92

OBJ:   5                    NOT:  comprehension

 

  1. Upper limits on the prices a firm can charge are impacted by:
a. expected retaliation from competitors. c. high switching costs.
b. substitute products. d. low switching costs.

 

 

ANS:  B                    PTS:   1                    DIF:    med                REF:   p. 92

OBJ:   5                    NOT:  comprehension

 

  1. The threat from substitutes is high when:
a. switching costs are high.
b. the substitute product’s price is lower than the industry product’s price.
c. the quality of the substitute product is lower than the quality of the industry’s product.
d. the substitute product stimulates new process innovations within the industry.

 

 

ANS:  B                    PTS:   1                    DIF:    med                REF:   p. 93

OBJ:   5                    NOT:  comprehension

 

  1. The forces that create high rivalry within an industry include all of the following EXCEPT:
a. numerous or equally balanced competitors.
b. high fixed costs.
c. fast industry growth.
d. high storage costs.

 

 

ANS:  C                    PTS:   1                    DIF:    med                REF:   p. 93

OBJ:   5                    NOT:  comprehension

 

  1. Which of the following conditions does NOT contribute to intense rivalry among competing firms?
a. Slow industry growth
b. An equal balance among competing firms
c. When fixed costs account for a large part of a firm’s total costs
d. When firms have been able to establish differentiated products

 

 

ANS:  D                    PTS:   1                    DIF:    med                REF:   p. 93|p. 94

OBJ:   5                    NOT:  comprehension

 

  1. The forces that create high rivalry include:
a. low strategic stakes. c. high product differentiation.
b. high switching costs. d. multiple competitors.

 

 

ANS:  D                    PTS:   1                    DIF:    med                REF:   p. 93|p. 94

OBJ:   5                    NOT:  comprehension

 

  1. When rivalrous firms compete aggressively by trying to attract competitors’ customers, this might be an indication of:
a. an industry with low exit barriers. c. slow industry growth.
b. increasing economies of scale. d. high bargaining power among buyers.

 

 

ANS:  C                    PTS:   1                    DIF:    hard               REF:   p. 93

OBJ:   5                    NOT:  comprehension

 

  1. High strategic stakes enhance competitive rivalry. ____ is one factor which does NOT promote rivalry.
a. Close physical proximity of competitors
b. The struggle for a lucrative geographic market
c. Competing manufacturing technologies
d. Contending for market leadership

 

 

ANS:  C                    PTS:   1                    DIF:    med                REF:   p. 94

OBJ:   5                    NOT:  knowledge

 

  1. Exit barriers are comprised of all of the following EXCEPT:
a. emotional barriers. c. non-specialized assets.
b. social restrictions. d. strategic interrelationships.

 

 

ANS:  C                    PTS:   1                    DIF:    hard               REF:   p. 95

OBJ:   5                    NOT:  comprehension

 

  1. Exit barriers to a firm would include:
a. non-specific assets. c. low government restrictions.
b. emotional barriers. d. low fixed costs of exit.

 

 

ANS:  B                    PTS:   1                    DIF:    hard               REF:   p. 95

OBJ:   5                    NOT:  comprehension

 

  1. An industry with low entry barriers, buyers with strong bargaining positions, and intense rivalry among competing firms is called a(n) ____ industry.
a. rivalrous c. moderately attractive
b. unattractive d. moderately unattractive

 

 

ANS:  B                    PTS:   1                    DIF:    hard               REF:   p. 96

OBJ:   5                    NOT:  comprehension

 

  1. An attractive industry would have all of the following characteristics EXCEPT:
a. low barriers to entry.
b. suppliers with low bargaining power.
c. a moderate degree of rivalry.
d. low threats from substitute products.

 

 

ANS:  A                    PTS:   1                    DIF:    hard               REF:   p. 96

OBJ:   5                    NOT:  comprehension

 

  1. Strategic group analysis would NOT examine firms that:
a. come from the same industry.
b. compete along the same strategic dimensions.
c. follow similar strategies.
d. produce products that are dissimilar to one another.

 

 

ANS:  D                    PTS:   1                    DIF:    hard               REF:   p. 96

OBJ:   6                    NOT:  comprehension

 

  1. Firms within strategic groups:
a. follow dissimilar strategies.
b. follow similar strategies across certain dimensions.
c. typically engage in greater intergroup rivalry than intragroup rivalry.
d. exist almost exclusively in the manufacturing sector.

 

 

ANS:  B                    PTS:   1                    DIF:    med                REF:   p. 97

OBJ:   6                    NOT:  comprehension

 

  1. Competitor analysis focuses on:
a. firms with which the company competes directly.
b. firms that produce products that are substitutes.
c. all firms in the industry.
d. companies that might enter the industry.

 

 

ANS:  A                    PTS:   1                    DIF:    med                REF:   p. 97

OBJ:   7                    NOT:  comprehension

 

  1. A competitor analysis includes all of the following EXCEPT:
a. competitor objectives. c. competitor assumptions.
b. competitor capabilities. d. competitor substitutes.

 

 

ANS:  D                    PTS:   1                    DIF:    hard               REF:   p. 97

OBJ:   7                    NOT:  comprehension

 

  1. The data that the firm gathers to understand competitors’ objectives, strategies, assumptions and capabilities is called ____.
a. industrial espionage c. competitor intelligence
b. strategic information d. the competitor dossier

 

 

ANS:  C                    PTS:   1                    DIF:    med                REF:   p. 97

OBJ:   7                    NOT:  application

 

  1. Competitor intelligence could ethically come from all the following EXCEPT:
a. court records. c. trade show discussions.
b. financial reports. d. eavesdropping.

 

 

ANS:  D                    PTS:   1                    DIF:    med                REF:   p. 98

OBJ:   7                    NOT:  knowledge

 

  1. Which of the following represents a competitive intelligence practice that is both legal and ethical?
a. A firm hires a competitor’s employee and asks that employee to share the names and addresses of business contacts contained in his/her Rolodex.
b. An executive attends a trade show solely to obtain a competitor’s brochures, listen to sales pitches, and ask questions about the competitor’s products.
c. The husband of a Staples’ executive goes to work for Office Depot and shares operations information with his wife.
d. A chemical engineer at Avery-Dennison sells confidential plans for the company’s expansion into the Far East.

 

 

ANS:  B                    PTS:   1                    DIF:    med                REF:   p. 98|p. 99

OBJ:   7                    NOT:  application

 

  1. Which of the following intelligence gathering techniques is legal?
a. Buying a competitor’s confidential documents
b. Trespassing
c. Eavesdropping
d. Listening to trade show presentations given by a competitor’s employees

 

 

ANS:  D                    PTS:   1                    DIF:    med                REF:   p. 98

OBJ:   7                    NOT:  comprehension

 

  1. What proportion of firms use formal processes to study competitors?
a. Most c. A relatively small percentage
b. Nearly all d. Approximately one-third

 

 

ANS:  C                    PTS:   1                    DIF:    med                REF:   p. 99

OBJ:   7                    NOT:  knowledge

 

  1. Practices used to develop energy sources is an example of an external factor from the ____ segment which can have strategic implications for a firm.
a. physical c. political
b. technological d. economic

 

 

ANS:  A                    PTS:   1                    DIF:    med                REF:   p. 75

OBJ:   4                    NOT:  knowledge

 

ESSAY

 

  1. Identify and describe the three major parts of the external environment.

 

ANS:

The external environment has three major parts. The first is the general environment, which includes elements in the broader society that affect industries and their firms. The second is the industry environment, involving factors that influence a firm, its competitive actions and responses, and the industry’s profit potential (determined by the threat of entry, suppliers, buyers, product substitutes, and the intensity of rivalry among competitors). The competitor environment is the third part of the external environment, where the firm studies each major competitor’s future objectives, current strategy, assumptions, and capabilities.

 

PTS:   1                    REF:   p. 72|p. 75     OBJ:   1

 

  1. Explain why it is important to study and understand the external environment.

 

ANS:

Most firms face external environments that are turbulent, complex and global. To cope with ambiguous and incomplete environmental data and to increase their understanding of the  environments in which they operate, firms must engage in external analysis. This involves: scanning, monitoring, forecasting and assessing. Firms must be aware of ongoing changes in the environment and be able to identify opportunities and threats that exist. Opportunities are environmental conditions that may help a company achieve value creation. Threats are environmental conditions that may hinder a company from achieving value creation. Opportunities represent possibilities while threats represent potential constraints.

 

PTS:   1                    REF:   p. 74              OBJ:   1

 

  1. Describe and discuss the four activities of the external environmental analysis process.

 

ANS:

The external environmental analysis process includes four steps: scanning, monitoring, forecasting and assessing. The scanning of the environment includes the study of all segments of the general environment in order to detect changes that may occur in the future or already are occurring. When analysts monitor the environment, they observe environmental changes to see if an important trend is emerging from those spotted by scanning. Forecasting builds on scanning and monitoring to develop feasible projections of what might happen, and how quickly it will occur. Finally, through assessing, the analyst determines the timing and the significance of the effects of environmental changes and trends on the strategic management of the firm.

 

PTS:   1                    REF:   p. 74|p. 78     OBJ:   3

 

  1. Identify and describe the seven segments of the general environment.

 

ANS:

1) The Demographic segment encompasses items such as population size, age structure, ethnic mix and income distribution. 2) The Economic segment involves the nature and direction of the economy in which a firm competes or may compete. 3) The Political/Legal segment is the arena in which organizations compete for attention, resources, and a voice in laws and regulations. 4) The Sociocultural segment is concerned with society’s attitudes and cultural values. 5) The Technological segment includes institutions and activities involved with transforming new knowledge into new outputs, products, processes, and materials. 6) The Global segment includes new global markets, changing existing markets, international political events, and critical cultural and institutional characteristics of global markets. 7) The Physical Environment segment involves changes to the physical environment and business practices to respond to or prevent those changes.

 

PTS:   1                    REF:   p. 78|p. 86     OBJ:   4

 

  1. Describe the expected changes that will occur within the United States workforce over the next generation and their potential effect on the strategic posture of the firm.

 

ANS:

Demogrographic trends are changing the population and workforce mix in the United States.  Despite negative population growth, the effects of immigration accounts for a continued increase in U.S. population.  International immigrants compose approximately 20% of new U.S. inhabitants each year.  Hispanics and Asians already consititute more than 20% of workers, and given these trends, the labor force will continue to diversify.  The challenge for firms is to be sensitive to the changing ethnicity of their human resource capital and to develop the management skills to lead diverse work teams and to effectively guide a culturally diverse workforce to produce a competitive advantage.   In addition to a changing ethnic mix, the U.S. is also seeing a trend toward an older workforce.  The percentage of the population over age 65 and increasing life expectancies account for this change.  Finally, as the distribution of population centers shifts from north and east to south and west and from metropolitan to nonmetropolitan areas, firms must be aware of where workforce populations are located.  The good news is that this is where new markets are also growing.

 

PTS:   1                    REF:   p. 78|p. 80     OBJ:   4

 

  1. Identify the five competitive forces and explain how they determine industry profit potential.

 

ANS:

1) Threat of new entrants – new entrants increase production capacity in an industry which results in lower profits for all firms, unless demand is increasing. Firms erect barriers to entry to diminish the threat of new entrants. 2) Power of suppliers – suppliers with high power can increase prices and decrease quality of inputs. If firms are unable to pass along price increases to customers, then profits diminish. 3) Power of buyers – when buyers have high power they attempt to force prices down, increase quality, and increase service levels, thus driving profits down. 4) Substitutes – substitutes place an upper limit on prices firms can charge, limiting industry profits. 5) Intensity of rivalry is often based on product price, which limits profits.

 

PTS:   1                    REF:   p. 87|p. 95     OBJ:   5

 

  1. Describe the factors that raise the competitive nature of an industry’s rivalry.

 

ANS:

The rivalry in an industry can be based on price, product innovation, and other actions to achieve product differentiation. In many industries, more than one of these competitive measures will be used. The factors that can increase rivalry include the following:

Numerous and equally balanced competitors
Slow industry growth
High fixed or storage costs
Lack of differentiation or switching costs
High strategic stakes
High exit barriers

 

 

PTS:   1                    REF:   p. 93|p. 95     OBJ:   5

 

  1. What are high exit barriers and how do they affect the competition within an industry?

 

ANS:

Exit barriers are economic, strategic, and emotional factors causing companies to remain in an industry, even though the profitability of doing so is in question. The following are common sources of exit barriers:

Specialized assets
Fixed costs of exit
Strategic interrelationships or mutual dependence of business units
Emotional barriers
Government and social restrictions

 

 

PTS:   1                    REF:   p. 94|p. 95     OBJ:   5

 

  1. What do firms need to know about their competitors and what intelligence-gathering techniques can be used to obtain this information?

 

ANS:

Competitor analysis helps firms identify what drives the competitors (future objectives), what the competitor is doing and is capable of doing (current strategy), what the competitor believes about itself and the industry (assumptions), and what the competitor’s capabilities are. Firms can gather public information (such as annual reports, SEC reports, UCC filings, court records, and advertisements) and attend trade fairs to obtain competitors’ brochures, view exhibits, and discuss products.

 

PTS:   1                    REF:   p. 97|p. 99     OBJ:   7