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Answer Key
1. False
2. True
3. False
4. False
5. False
6. False
7. False
8. True
9. False
10. True
11. True
12. False
13. False
14. False
15. False
16. True
17. True
18. False
19. True
20. False
21. False
22. False
23. True
24. False
25. True
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26. True
27. False
28. True
29. True
30. True
31. True
32. True
33. False
34. False
35. False
36. False
37. False
38. False
39. b
40. d
41. b
42. c
43. a
44. c
45. d
46. a
47. a
48. c
49. a
50. c
51. b
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52. c
53. d
54. d
55. b
56. d
57. c
58. c
59. b
60. a
61. b
62. b
63. c
64. c
65. c
66. a
67. d
68. c
69. a
70. a
71. c
72. b
73. b
74. b
76. d
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77. d
78. d
79. d
80. c
81. c
82. d
83. a
84. d
85. d
86. c
87. c
88. d
89. c
90. a
91. d
92. b
93. b
94. d
95. b
96. c
97. b
98. c
99. c
100. d
101. c
102. b
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103. a
104. a
105. a
106. b
107. c
108. d
109. d
110. d
111. d
112. a
113. a
114. a
115. c
116. b
117. a
118. b
119. d
120. a
121. d
122. b
123. a
124. a
125. d
127. d
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128. d
129. 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: 1) specialized assets which
cannot be used in another business or location; 2) fixed costs of exit, such as labor agreements which penalize a firm for
ceasing operation; 3) strategic interrelationships or mutual dependence of business units wherein one business of a
corporation serves another corporate business; 4) emotional barriers that cause owners to be sentimentally attached to the
business or to their own role in it; 5) governmental and social restrictions that prevent a firm from closing, often in order
to prevent the loss of jobs in a country or community.
130. Competitor analysis helps firms identify: 1) what drives the competitor by understanding the competitor’s future
objectives); 2) what the competitor is doing and is capable of doing by understanding the competitor’s current strategy; 3)
what the competitor believes about the industry by understanding the assumptions made by the competitor; and 4) what
the competitor’s capabilities are by understanding the competitor’s strengths and weaknesses. Firms can legally and
ethically gather public information, such as annual reports, SEC reports, UCC filings, court records, and advertisements.
Firms can also attend trade fairs to obtain competitors’ brochures, view exhibits, and discuss products. This data combines
to form competitive intelligence.
131. The firm’s strategic group is the set of firms that emphasize similar strategic dimensions and use a similar strategy.
The firms in a strategic group occupy similar positions in the market, offer similar goods to similar customers, and may
make similar decisions about production technology and organizational features. Competition among firms within a
strategic group is more intense than the competition among a firm and those firms outside its strategic group. Actions of
members in the firm’s strategic group affect its strategic decisions in many areas, including pricing, product quality, and
distribution.
132. The external environment has three major parts. The first is the general environment, which is composed of
dimensions in the broader society that affect industries and their firms. These environmental segments are: demographic,
economic, political/legal, sociocultural, technological, and global. The second part of the external environment is the
industry environment, which involves five factors that influence a firm, its competitive actions and responses, and the
industry’s profit potential. These five factors are: the threat of new entrants, the power of suppliers, the power of buyers,
the threat of product substitutes, and the intensity of rivalry among competitors. The competitor environment is the third
part of the external environment. The firm must be able to predict competitors’ actions, responses, and intentions. With the
information collected about these aspects of its external environment, the firm can develop its vision, mission, and
strategic actions.
133. Entry barriers discourage competitors from entering a market and facilitate a firm’s ability to remain competitive in a
market in which it currently competes. Barriers to entry include: 1) Economies of scale are derived from incremental
efficiency improvements through experience as a firm grows larger. 2) Product differentiation occurs when over time,
customers may come to believe that a firm’s product is unique. This belief can result from the firm’s service to the
customer, effective advertising campaigns, or being the first to market a product or service. 3) Capital requirements –
Competing in a new industry requires a firm to have resources to invest. In addition to physical facilities, capital is needed
for inventories, marketing activities, and other critical business functions. 4) Switching costs are the one-time costs
customers incur when they buy from a different supplier. 5) Access to distribution channels – Over time, industry
participants commonly learn how to effectively distribute their products. Once a relationship with its distributors has been
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134. 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 that already are occurring. This is critical in a volatile environment. Scanning often deals
with ambiguous, incomplete, or unconnected data and information. When analysts monitor the environment, they observe
environmental changes to see if an important trend is emerging from those spotted by scanning. It is critical for the firm to
detect meanings in these events and trends so that it can be prepared to take advantage of opportunities these trends
provide. Forecasting builds on scanning and monitoring to develop feasible projections of what might happen and how
quickly it will occur. Forecasting is important in helping the firm adjust sales to meet demand. 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. Assessment must specify the competitive relevance of the data.
135. 1) The demographic segment encompasses factors such as population size, geographic distribution, 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, domestic as well as global. 3) The political/legal segment is the arena in which
organizations compete for attention, resources, and a voice in laws and regulations guiding the interactions among nations.
4) The sociocultural segment is concerned with society’s attitudes and cultural values. 5) The technological segment
includes institutions and activities involved with creating new knowledge and transforming it into new outputs, products,
processes, and materials. 6) The global segment includes new global markets, existing markets that are changing,
international political events, and critical cultural and institutional characteristics of global markets. 7) The physical
segment includes potential and actual changes in the physical environment (such as global warming) and business
practices that are intended to positively deal with those changes (such as control of carbon emissions and other
environmentally friendly actions).
136. Organizations do not exist in isolation. The external environment of the organization presents threats and
opportunities which the organization must address in its strategic actions. Some aspects of the organization’s external
environment are changing rapidly, such as technology, and the organization must constantly adjust to these changes. The
information that the organization gathers about competitors, customers, and stakeholders is used to build the
organization’s capabilities or to build relationships with stakeholders in the external environment. The information that the
organization gathers about the external environment must be matched with its knowledge of its internal environment to
form its vision, to develop its mission, and to take actions that result in strategic competitiveness and above-average
returns.
137. 1) Threat of new entrants: New entrants threaten existing firms’ market share. They increase production capacity in
an industry which results in lower profits for all firms, unless demand is increasing. The new entrant may force the
existing firms to be more effective and efficient in production, and to compete on new dimensions. 2) Power of suppliers:
Suppliers with high power can increase prices and decrease the quality of their products sold to the firm. If firms are
unable to pass along price increases to customers, their profits diminish. 3) Power of buyers: When buyers (customers)
have high power they can force prices down, and require increases in quality and service levels, thus driving profits down.
4) Substitutes: Substitutes perform the same or similar functions of the firm’s product. The price of the substitute places an
upper limit on prices firms can charge for the original product, limiting industry profits. 5) Intensity of competitive rivalry
affects the firm’s ability to make a profit as competitors’ actions challenge the firm or competitors try to improve their
market position. Increasing rivalry reduces the ability of weaker firms to survive.
138. The competitive rivalry in an industry can be based on price, product quality, and product innovation in an attempt to
differentiate the firm’s product from its rivals’ products. The factors that can increase competitive rivalry include: 1)
numerous and equally balanced competitors; 2) slow or no industry growth; 3) high fixed costs, high storage costs of
inventory, or perishable products; 3) lack of differentiated products or low cost of product switching by customers; 4) high
strategic stakes for the competitors; and 5) high barriers for firms wishing to exit the industry, causing firms to remain in
an industry where they cannot reasonably expect to make a profit.
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predictions about the world’s economic environment.
a.
True
b.
False
2. The bankruptcy filings by General Motors and Chrysler Corporation during the Great Recession illustrate that firms
cannot directly control the general environment’s segments.
a.
True
b.
False
3. Developing a political strategy by the newly formed General Motors would likely be ineffective as firms are generally
unable to influence the political/legal environment.
a.
True
b.
False
4. The more distant strategic groups are in terms of their strategies, the greater the likelihood of rivalry between the
groups.
a.
True
b.
False
5. Competitor analysis is focused on the factors and conditions influencing an industry’s profitability potential.
a.
True
b.
False
6. Firms can directly control the elements of the seven segments of the general environment.
a.
True
b.
False
7. Any competitor intelligence practice that is legal is also ethical.
a.
True
b.
False
8. When Delta Air Lines wants to study Continental Airlines, it must examine both Continental and its complementor,
Star Alliance.
a.
True
b.
False
9. When Google studies the internet user privacy policies of various nations, it is engaged in the forecasting component of
the environmental analysis process.
a.
True
b.
False
10. The process of competitor analysis should examine the competitors’ future objectives, current strategy, assumptions,
and capabilities.
a.
True
b.
False
11. An example of a government policy barrier to entry would be a scenario in which the Antitrust Division of the
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Department of Justice disallows a merger because it creates a firm that is too dominant and would thus create unfair
competition.
a.
True
b.
False
12. Eavesdropping by the NSA on average Americans is ethical because it is a governmental organization instead of a for-
profit company.
a.
True
b.
False
13. Scanning involves detecting meaning through early signals of environmental trends.
a.
True
b.
False
14. Eavesdropping is an ethical way to obtain information about competitors’ actions.
a.
True
b.
False
15. Global warming and energy consumption are aspects of the technological environment segment that firms should
monitor.
a.
True
b.
False
16. Early adopters of new technology often achieve higher market shares and higher returns than later adopters of the
technology.
a.
True
b.
False
17. Exit barriers are especially low in the airline industry because aircraft are not particularly specialized and can easily be
sold to other airlines, air cargo companies, the military, or even to wealthy individuals who want to own a private jet.
a.
True
b.
False
18. Monitoring involves the development of a forecast of what might happen at a future point in time.
a.
True
b.
False
19. The European sovereign-debt crisis and political upheavals in Egypt, Tunisia, Libya, and Syria illustrate uncertainties
in the political/legal segment of the general environment that could affect the performance of business firms.
a.
True
b.
False
20. Globalfocusing is often used by firms with high levels of international operations who further increase their
internationalization by focusing on global niche markets.
a.
True
b.
False
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21. When firms analyze the external environment, they typically have complete and unambiguous data.
a.
True
b.
False
22. The legislation introduced in the U.S. Congress during the early tenure of the Obama administration intended to
reduce the amount of work U.S. companies outsource and is an example of a potential change in the sociocultural segment
of the general environment.
a.
True
b.
False
23. The objective of assessing the external environment is to determine the timing and importance of the effects of
environmental changes and trends on the strategic management of the firm.
a.
True
b.
False
24. Contrary to popular belief, the global segment of the external environment does not provide many opportunities for
firms that recently experienced low growth and profits coming from emerging markets.
a.
True
b.
False
25. Suppliers are powerful when the industry is dominated by a few large companies, no satisfactory substitutes are
available, the selling industry is relatively more concentrated than the purchasing industry, or switching costs are high.
a.
True
b.
False
26. PepsiCo’s strategy called “capital performance with a purpose” links green efforts in businesses to the bottom line.
This is an example of addressing concerns in the physical segment of the general environment.
a.
True
b.
False
27. Strategic groups are firms in different industries following the same or similar strategies.
a.
True
b.
False
28. The industry environment directly influences a firm and its competitive actions and responses.
a.
True
b.
False
29. The competitor analysis is the final part of the external environment analysis and focuses on each company against
which a firm directly competes (for example, Coca-Cola and PepsiCo, Home Depot and Lowe’s, and Airbus and Boeing).
a.
True
b.
False
30. Demographic, economic, political/legal, sociocultural, technological, global, and physical are the seven elements
comprising the industry environment.
a.
True
b.
False
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31. The five competitive forces model expands the arena of competitive analysis beyond direct competitors (i.e., rivals) to
include buyers and suppliers who may also be a source of competition.
a.
True
b.
False
32. Although health care reform legislation was passed in the early part of the Obama administration, it continues to be a
contentious issue for employers, employees, and politicians because of its increased expenses. These attitudes about
health care reform make up the sociocultural segment of the general environment.
a.
True
b.
False
33. The strengths of the five competitive forces are similar across strategic groups within an industry.
a.
True
b.
False
34. An attractive industry is one that is characterized by high entry barriers, suppliers and buyers with strong bargaining
power, low threats from substitute products, or low rivalry among firms.
a.
True
b.
False
35. Age structure, geographic distribution, income distribution, interest rates, and process innovations are all elements of
concern when studying the demographic segment of the general environment.
a.
True
b.
False
36. 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.
a.
True
b.
False
37. Generally, industries with stronger competitive forces have higher profit potential.
a.
True
b.
False
38. The external environment facing business stays relatively constant over time.
a.
True
b.
False
Indicate the answer choice that best completes the statement or answers the question.
39. The concepts of Guanxi, Wa, and Inhwa all convey the general idea of:
a.
entrepreneurial risk-taking.
b.
interpersonal relationships.
c.
the value of hard work.
d.
personal achievement.
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40. The U.S. Hispanic market is the third-largest “Latin American” economy behind Brazil and Mexico. This impacts the
______ aspect of demographic segment analysis.
a.
age structure
b.
geographic distribution
c.
income distribution
d.
ethnic mix
41. New Jersey and New York have the highest state taxes in the United States. They also have high ratios of people
moving out compared to people moving into the state. This impacts the ______ aspect of demographic analysis.
a.
age structure
b.
geographic distribution
c.
income distribution
d.
ethnic mix
42. How is consolidation among fuel providers serving airport facilities viewed in the five forces model of competition?
a.
As a reduction of the airlines’ ability to benefit from economies of scale.
b.
As an increase in switching costs because the airlines have no choice but to use jet fuel and other oil products.
c.
As an increase in the bargaining power of suppliers of a critical input.
d.
As an increase in the intensity of rivalry among airlines for scarce resources.
43. After Amazon lowered the price on its tablets, Samsung eventually lowered the price on its tablets. Samsung needed
to do this because:
a.
it is in the same strategic group.
b.
it is outside the strategic group.
c.
of inter-strategic group competition.
d.
of strategic distinctiveness.
44. New entrants to an industry are more likely when:
a.
it is difficult to gain access to distribution channels.
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.
45. Aardvark Corp. has three products. Two products together make up two-thirds of revenues and constitute 50 percent
of company profits. Aardvark’s third product makes up one-third of sales. With profitability far above the industry
average, this product is responsible for one-half of Aardvark’s profits. Which of the following statements regarding
assessment of the general environment is accurate for Aardvark?
a.
The company should monitor the general environment for changes that might affect the revenue of all
products.
b.
The company should monitor the general environment for changes that might affect the profitability of the
most profitable products.
c.
The company should monitor the general environment for changes that might affect the profitability of all
products.
d.
The company should monitor the general environment for changes that might affect the revenue and
profitability of all products.
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46. BP, in response to the Deepwater Horizon oil spill, expected increased scrutiny from which of the following segments
of the general environment?
a.
political/legal
b.
global
c.
technological
d.
sociocultural
47. 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 used by a firm to gain a competitive advantage.
d.
places where a firm’s technology will allow that firm to dominate a given market.
48. The communications industry is broadly defined as encompassing all of the following EXCEPT:
a.
media companies.
b.
smartphone producers.
c.
book retailers.
d.
entertainment companies.
49. The competition within each strategic group is:
a.
more intense than the competition between strategic groups.
b.
less intense than the competition between strategic groups.
c.
typically very low.
d.
an unknown factor in the analysis of competitive practices within a firm’s strategic group.
50. Customer loyalty programs such as airline frequent-flyer miles are an attempt to:
a.
decrease competitors’ access to distribution channels.
b.
develop a cost advantage independent of scale.
c.
increase customers’ switching costs.
d.
overcome the perishability of the hotel “product.“
51. 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.
52. Suppliers are powerful when:
a.
satisfactory substitutes are available.
b.
they sell a commodity product.
c.
they offer a credible threat of forward integration.
d.
they are in a highly fragmented industry.
53. In analyzing the demographic segment of the general environment, one typically examines all of the following factors
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EXCEPT:
a.
age structure.
b.
ethnic mix.
c.
distribution of income.
d.
cultural values.
54. Counterfeiting goods and exporting them from China is:
a.
ethical and legal.
b.
unethical but legal.
c.
ethical but illegal.
d.
unethical and illegal.
55. Which of the following represents a competitive intelligence practice that is both legal and ethical?
a.
A firm hires a competitor’s employees and asks them to share the names and addresses of business contacts
from their previous company.
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.
A city council member shares information about the decision process for selecting a contractor to build a new
city council building with his wife, an executive with a construction firm bidding on the contract.
d.
A marketing manager sells confidential plans for a company’s expansion into the Far East to a firm that is not a
direct competitor.
56. The next critical technological opportunity for organizations is predicted to be:
a.
the Internet.
b.
multiphasic interventions.
c.
biological engineering.
d.
wireless communications.
57. All of the following are forces that create high rivalry within an industry EXCEPT:
a.
numerous or equally balanced competitors.
b.
high fixed costs.
c.
fast industry growth.
d.
high storage costs.
58. Understanding how new knowledge can develop new products, processes, or materials is a result of analyzing the
______ segment of the general environment.
a.
economic
b.
political/legal
c.
technological
d.
global
59. The Department of Defense buys aircraft from U.S. companies for national security reasons. This is an example of a
______ barrier to entry.
a.
cost disadvantage independent of scale
b.
government policy
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c.
capital requirements
d.
product differentiation
60. The likelihood of entry of new competitors is affected by ______ and ______.
a.
barriers to entry; expected retaliation of current industry organizations
b.
the power of existing 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
61. Circuit Inc. is a manufacturer of a broad range of consumer electronics products. These consumer products are all
highly profitable. The firm also manufactures a low-cost component that is an essential differentiating feature for most of
its consumer products. The costs to manufacture this component have risen sharply in recent months. Internal estimates
now indicate the company is breaking even on the manufacture of this component. Which of the following is most likely?
a.
Circuit will likely continue to manufacture the component, even at a loss, due to low supplier power.
b.
Circuit will likely continue to manufacture the component, even at a loss, due to high strategic stakes.
c.
Circuit will likely discontinue manufacture of the component due to low strategic stakes.
d.
Circuit will likely discontinue manufacture of the component due to high supplier stakes.
62. Environmental scanning would be most important for which of the following organizations?
a.
A provider of hospice services for the terminally ill
b.
A web design company catering to small businesses
c.
A neighborhood sewer and water utility
d.
A manufacturer of household linens
63. Which of the following pairs of companies would be least likely to be examined together as part of competitive
analysis?
a.
Wendy’s and Taco Bell
b.
Samsung and Apple
c.
Netflix and Microsoft
d.
Coca-Cola and PepsiCo
64. Buyers are powerful when:
a.
there is a threat of forward integration.
b.
they purchase a small proportion of the supplier’s output.
c.
switching costs are low.
d.
the buyers’ industry is fragmented.
65. The environmental segments that make up the general environment typically will NOT include:
a.
demographic factors.
b.
sociocultural factors.
c.
substitute products or services.
d.
technological factors.
66. Competitor analysis focuses on:
a.
firms with which the company competes directly.
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b.
firms that produce products that are substitutes.
c.
all firms in the industry.
d.
companies that might enter the industry.
67. All of the following are ethical sources of data for external analysis EXCEPT:
a.
trade shows.
b.
a competitor’s annual reports.
c.
a competitor’s help-wanted advertisements.
d.
a competitor’s confidential memos.
68. Competitor intelligence is:
a.
legally or illegally gained data about competitors’ internal strategic processes and competitive decisions.
b.
strategic information gained from industrial espionage targeting international competitors.
c.
the data that the firm gathers to understand competitors’ objectives, strategies, assumptions, and capabilities.
d.
illegal to gather under the Sarbanes-Oxley Act.
69. One popular approach to taking care of the physical environment is:
a.
producing and selling additional green products.
b.
lobbying the government to reduce environmental regulations.
c.
making donations to the Sierra Club and other environmental organizations.
d.
increasing health benefits for employees.
70. The economic environment refers to:
a.
the nature and direction of the economy in which a firm competes or may compete.
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 the U.S. economy.
71. Clarissa is a sales representative for a large pharmaceutical firm. While calling on one of her major clients, the
purchasing director of a hospital, the client told her confidential information that a sales representative from a competing
firm had passed on to him. The information completely contradicts Clarissa’s firm’s understanding of the competitor’s
business strategy and would allow Clarissa’s employer to gain many of the competitor’s clients. What ethical implications
may result from this situation?
a.
There is no ethical or legal concern here for Clarissa.
b.
The ethical dilemma is not Clarissa’s but her client’s, since he passed on confidential information to her
voluntarily.
c.
The ethical dilemma here is the right of competitors not to reveal certain information.
d.
This is an example of ethical competitor intelligence obtained as eavesdropping.
72. Which of the following is NOT an activity used in the external environmental analysis process?
a.
Scanning
b.
Decrypting
c.
Monitoring
d.
Assessing