Deck 3: External Analysis: the Identification of Opportunities and Threats

Question 1

Absolute cost advantage is enjoyed by incumbents in an industry and that new entrants cannot expect to match.

Answer 1

True

Question 2

Switching costs are those costs that consumers must bear to switch from the products offered by one established company to the products offered by another established company.

Answer 2

True

Question 3

Michael Porter argues that the stronger each of the five forces, the more limited the ability of established companies to raise prices and earn greater profits.

Answer 3

True

Question 4

The bargaining power of suppliers is the ability to raise the price of inputs or to raise the costs of the industry in other ways.

Question 5

The bargaining power of buyers is the ability to bargain down prices charged by companies in the industry or to raise the costs of companies in the industry by demanding better product quality and service.

Question 6

The starting point of strategy formulation is an analysis of the forces that shape competition in the industry in which a company is based.

Question 7

Once the boundaries of an industry have been identified, the task facing managers is to analyze competitive forces in the industry environment to identify opportunities and threats.

Question 8

Opportunities arise when a company can take advantage of conditions in its environment to formulate and implement strategies that allow it to be more profitable.

Question 9

Economies of scale arise when unit costs increase as a firm expands it output.

Question 10

Exit barriers are the economic, strategic, and emotional factors that prevent companies from leaving an industry.

Question 11

A company's closest competitors, its rivals are those that serve the same basic customer needs.

Question 12

The risk of entry by potential competitors is a function of the height of barriers to entry.

Question 13

Potential competitors are companies that are currently competing in an industry, but have the capability to do so if they choose.

Question 14

A consolidated industry is dominated by a large number of small or medium sized companies which are in a position to determine industry prices.

Question 15

Brand loyalty exists when consumers have a preference for the products of established companies.

Question 16

A fragmented industry consists of a small number of large companies, none of which is in a position to determine industry prices.

Question 17

Rivalry refers to the competitive struggle between companies in an industry to gain market share from each other.

Question 18

Fixed costs refer to the costs that must be born before a firm makes a single sale.

Question 19

Historically, government regulation has constituted a minor entry barrier into many industries.

Question 20

Many fragmented industries are characterized by low entry barriers and commodity-type products that are hard to differentiate.

Question 21

As an industry enters the shakeout stage, rivalry between companies becomes intense.

Question 22

Growth in an embryonic industry is slow because of buyers' unfamiliarity with the industry's product, high prices due to the inability of companies to reap any significant scale of economies, and poorly developed distribution channels.

Question 23

An important determinant of the strength of the competitive forces in an industry is the changes that take place in it over time.

Question 24

Rivalry in embryonic industries is based not so much on price as on educating customers, opening up distribution channels, and perfecting the design of the product.

Question 25

Substitute products are the products of different businesses or industries that can satisfy similar customer needs.

Question 26

As an industry enters maturity, barriers to entry decrease, and the threat of entry from potential competitors increases.

Question 27

As an industry enters the shakeout stage of the industry life cycle, the rivalry between companies decreases.

Question 28

Strategic groups are groups of companies in which each company follows a strategy that is similar to that pursued by other companies in the group, and is the same strategy followed by companies in other groups.

Question 29

In a declining industry, competition usually decreases.

Question 30

The stability of a mature industry is threatened by price wars.

Question 31

Explosive growth cannot be maintained indefinitely. Sooner or later, the rate of growth slows, and the industry enters the mature stage.

Question 32

The systematic analysis of forces in the industry environment using the Porter framework is a powerful tool that helps managers to think strategically.

Question 33

Normally, the importance of control over technological knowledge as a barrier to entry has diminished by the time an industry enters its growth stage.

Question 34

The industry life cycle model identifies four sequential stages in the evolution of an industry that lead to four distinct kinds of industry environment.

Question 35

Within an industry, each strategic group may face a different set of opportunities and threats.

Question 36

Mobility barriers are factors that help the movement of companies between strategic groups.

Question 37

One of the defining characteristics of the mature stage of the industry life cycle is that growth is low or zero.

Question 38

Managers must anticipate how the strength of industry competitive forces will change as the industry evolves and then formulate appropriate strategies to take advantage of opportunities.

Question 39

The growth industry is where demand is expanding as second-time consumers enter the market.

Question 40

In mature industries, companies tend to recognize their interdependence and try to avoid price wars.

Question 41

Which of the following industry structures is dominated by a small number of large companies?

A) Fragmented industry
B) Consolidated industry
C) Mature industry
D) Monopoly
E) Growing industry

Question 42

Which of the following is not one of Porter's five forces?

A) Risk of entry by potential competitors
B) Bargaining power of suppliers
C) Ability to earn greater profits
D) Bargaining power of buyers
E) The closeness of substitutes to an industry's products.

Question 43

Which of the following is not a determinant of the extent of rivalry among established companies?

A) The number and size distribution of companies in the industry
B) The power of buyers
C) The cost structure of firms in an industry
D) Exit barriers
E) Demand conditions

Question 44

A company's closest competitors are those that

A) are in the same geographical area.
B) serve the same basic customer needs.
C) are small and aggressive.
D) focus on low price.
E) attack and then retreat before the company can respond.

Question 45

As a barrier to new entry, absolute cost advantages can be based on

A) continuous advertising of brand and company names.
B) high product quality, service-oriented innovations, and good after-sales service.
C) cost reductions that arise from the mass production of standardized output.
D) the unique ability of established companies to spread fixed costs over a large volume.
E) control over low-cost inputs required for production, be they labor, materials, equipment, or management skills.

Question 46

Merck, Eli Lilly, and Pfizer are examples of?

A) a generic drug strategic group.
B) companies which manufacture low-cost drugs.
C) companies with low R&D spending
D) a proprietary strategic group pursuing a high-risk, high-return strategy.
E) unsuccessful patent monopolies.

Question 47

The bargaining power of an industry's suppliers is greater when

A) the supply industry is fragmented.
B) switching costs are high.
C) the industry buys in large quantities.
D) many substitutes are available.
E) firms in the industry can threaten backward vertical integration.

Question 48

Which of the following is not a barrier to entry?

A) Economies of scale
B) Brand loyalty
C) Absolute cost advantages
D) High customer bargaining power
E) High customer switching costs

Question 49

The extent of rivalry among established companies is lowest when

A) the industry's product is a commodity.
B) demand is growing rapidly.
C) exit barriers are substantial.
D) the industry is entering a decline stage.
E) the industry is dominated by a small number of large companies.

Question 50

Walmart, Kmart, Target, Costco and Fred Meyer are examples of

A) companies in a proprietary group.
B) companies with the same rate of return.
C) companies which move between strategic groups.
D) a group of companies characterized as discounters within a strategic group.
E) companies which share competitive forces.

Question 51

If economies of scale are an industry's primary entry barrier, a new entrant's major risk is

A) its inability to access labor and materials.
B) inferior quality of its products.
C) its inability to match the innovation of the established firm.
D) its inability to produce in sufficient volume to match the cost advantages of established producers.
E) its inability to get buyers to switch to its product.

Question 52

Members of a strategic group

A) compete directly with members of other strategic groups.
B) are affected by Porter's five competitive forces to the same degree that members of other strategic groups are affected.
C) follow a business model that is similar to that pursued by other companies in the group.
D) earn the same rate of return.
E) move easily to other groups as desired.

Question 53

A group of companies offering products or services that are close substitutes for each other is referred to as a(n)

A) strategic group.
B) market segment.
C) sector.
D) supplier.
E) industry.

Question 54

Which of the following industry structures consists of a large number of small and medium-sized companies, none of which is in a position to determine industry price?

A) Fragmented industry
B) Consolidated industry
C) Oligopoly
D) Monopoly
E) Sector

Question 55

Mobility barriers

A) prevent movement within a strategic group.
B) inhibit the movement of companies between strategic groups in an industry.
C) inhibit the movement of a company from one industry to another.
D) include exit barriers of the strategic group that a company wants to enter.
E) are low when exit barriers in the strategic group that a company is a member of are high.

Question 56

It is possible for a company to alter the strength of one or more of the five competitive forces in the industry

A) by deferring action indefinitely.
B) by adopting a strong and compelling vision.
C) through proper CEO succession planning.
D) through its choice of strategy.
E) None of these

Question 57

Research suggests that it is often the __________ firms in an industry that initiate price cuts or increase promotions in an attempt to cover fixed costs.

A) strongest
B) weakest
C) largest
D) oldest
E) newest

Question 58

The bargaining power of an industry's buyers is greater when

A) the industry is consolidated and the buyers are many.
B) the buyers make small and infrequent purchases.
C) they can threaten to enter the industry and produce the product themselves.
D) buyers' switching costs are high.
E) it is not feasible for buyers to purchase inputs from more than one company in the industry.

Question 59

The concept of strategic groups suggests that

A) a company's major competitors are those in other groups.
B) companies within a strategic group all have the same rate of return.
C) it is easier for a company to move between groups than within a group.
D) different strategic groups can have different standings with respect to each of Porter's five competitive forces.
E) each company in the group pursues a unique basic strategy.

Question 60

Within Porter's framework, a _________ competitive force can be regarded as a(n) __________.

A) strong; threat
B) weak; threat
C) strong; opportunity
D) weak; competitive advantage
E) strong; competitive advantage

Question 61

Describe one major limitation of each of the following models for competitive analysis: the five forces model, the strategic groups model, and the industry life cycle model. Does the existence of these limitations mean that the models are not useful? Why or why not?

Question 62

What is meant by the term "strategic group," and why is it important for managers to understand this in order to position their companies in a competitive marketplace?

Question 63

In growth industries,

A) replacement demand is increasing rapidly.
B) technological expertise is the most important entry barrier.
C) rivalry is high.
D) distribution channels are poorly developed.
E) buyers are familiar with the industry's product.

Question 64

List and briefly discuss each of the elements of Michael Porter's Five Forces Model.

Question 65

Which of the following is not one of the factors in the economic forces of the macroenvironment?

A) Growth rate of the economy
B) Interest rates
C) Price inflation
D) Currency exchange rates
E) Market saturation

Question 66

Entry barriers in the embryonic stage are frequently based on

A) brand loyalty.
B) technological know-how
C) absolute cost advantages.
D) economies of scope.
E) economies of scale

Question 67

Beverage makers are finding that water sales are increasing due to consumers' preferences for healthy drinks. Which part of the macroenvironment does this represent?

A) Economic forces
B) Social forces
C) Embryonic forces
D) Political forces
E) Demographic forces

Question 68

All of the following are part of the shakeout stage of the industry life cycle except

A) demand is limited to replacement demand.
B) demand approaches saturation levels.
C) rivalry between companies becomes intense.
D) capacity continues to grow.
E) companies cut prices.

Question 69

Growth industries

A) typically suffer from high mobility barriers.
B) provide economies of scale to existing companies
C) have high rivalry among established companies.
D) increase prices because customers are more aware of the industry's product.
E) tend to be characterized by weak rivalry.

Question 70

Julian is asked to examine the demographic environment facing his employer, a clothing manufacturer. Which of the following should Julian examine?

A) Government regulations
B) Inflation
C) Manufacturing technology
D) Aging of the population
E) Society's growing interest in exercise

Question 71

Due to a recent relaxation in pollution standards, Ford Motors is withdrawing its electric-powered cars from sales in the U.S. market. Ford is responding to a change in which of the following macroenvironmental forces?

A) Economic
B) Demographic
C) Strategic
D) Social
E) Political and legal

Question 72

The Internet is an example of a

A) technological force.
B) social force.
C) political and legal force.
D) demographic force.
E) global force.

Question 73

All of the following are demographic forces in the macroenvironment except

A) age
B) values
C) gender
D) social class
E) sexual orientation

Question 74

High exit barriers pose the greatest threat to companies in the _________ stage of the industry life cycle.

A) embryonic
B) growth
C) maturity
D) fragmented
E) decline

Question 75

Using the industry life cycle model, tell how the threats and opportunities for existing firms in an industry change over time.

Question 76

High levels of immigration into the U.S. in recent years have had an impact on which of the following macroenvironmental factors?

A) Economic
B) Social
C) Political and legal
D) Demographic
E) All of the macroenvironmental factors have been affected.

Question 77

All of the following are forces in the wider macroenvironment except

A) economic forces
B) global forces
C) demand forces
D) demographic forces
E) social forces

Question 78

The threat from new entrants is greatest in the _________ stage of the industry life cycle.

A) embryonic
B) growth
C) shakeout
D) maturity
E) decline

Question 79

Demand reaches total saturation in the ___________ stage of the industry life cycle.

A) embryonic
B) growth
C) shakeout
D) maturity
E) decline

Question 80

Consider the macroenvironment facing a large, international airline headquartered in the United States (such as American or United Airlines). Give at least three examples of important trends or events from each of the five segments of the airline's macroenvironment (macroeconomic, technological, demographic, social, and political/legal), and tell whether each of them represents a threat or an opportunity for the firm.