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73. Media content has moved from paper, tape, and film to a digital world based on Internet technology. From the
perspective of the five forces model, which force is most relevant here?
a.
Buyers
b.
Substitutes
c.
Entry barriers
d.
Suppliers
74. The observation that China reached automotive production overcapacity in 2015, and has a glut of extra cars, is an
aspect of the ______ segment of the general environment.
a.
demographic
b.
global
c.
physical
d.
technological
75. Exit barriers to a firm include all of the following EXCEPT:
a.
generic assets.
b.
loyalty to employees.
c.
governmental concern about job loss.
d.
restrictive labor agreements.
76. The use of the Internet by Netflix to collect data on customer preferences is an example of:
a.
assessing.
b.
monitoring.
c.
forecasting.
d.
scanning.
77. The Obama administration sought to pursue policies that would:
a.
remove the United States from NAFTA.
b.
abolish antitrust laws.
c.
increase the amount of work U.S. companies outsource to firms in other nations.
d.
reduce the amount of work U.S. companies outsource to firms in other nations.
78. A manufacturer of washing machines has expanded its plant and has created excess capacity, just as the general
economy has taken a downturn. The company is likely to:
a.
raise prices on washing machines to offset lost sales.
b.
be vulnerable to new entrants to an attractive market.
c.
suffer from intense rivalry from international manufacturers.
d.
offer rebates and incentives for customers who purchase washing machines.
79. Which of the following explains, in part, why rivalry among McDonald’s, Wendy’s, and Burger King is intense?
a.
There is low geographic saturation of the market.
b.
There is high differentiation among competing products.
c.
The threat of supplier forward integration is low.
d.
These companies are trying to find ways to differentiate their products.
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80. Once a firm has determined its competitors’ future objectives, current strategy, assumptions, and strengths and
weaknesses, its next step is to develop:
a.
an environmental assessment.
b.
a marketing plan.
c.
a response profile.
d.
a task force to implement the plan.
81. Product differentiation refers to the:
a.
ability of the buyer 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.
82. Which of the following is NOT an entry barrier to an industry?
a.
Expected competitor retaliation
b.
Economies of scale
c.
Customer product loyalty
d.
Bargaining power of suppliers
83. Blood banks are highly dependent on donors. In the terminology of industry analysis, which statement about donors is
accurate?
a.
Blood donors are suppliers and are powerful because of the critical nature of what they provide to the blood
bank.
b.
Blood donors are suppliers and are powerful because of their concentration relative to the blood bank.
c.
Blood donors are buyers and are not powerful because switching costs to change to alternative inputs are low.
d.
Blood donors are buyers and are powerful because of the volume of blood needed.
84. Which of the following intelligence-gathering techniques is most likely to be legal and ethical?
a.
Hiring investigators to examine the competitor’s trash
b.
Entering a competitor’s production plant without authorization
c.
Redirecting a competitor’s emails to one’s own company
d.
Attending trade show presentations given by a competitor’s employees
85. Which of the following would be an example of the application of the next major technological opportunity for
organizations?
a.
Boeing’s 747
b.
Toyota’s hybrid vehicles
c.
Budweiser’s non-alcoholic beer
d.
SpaceX’s reusable space vehicle
86. When analysts develop feasible projections of future events and how quickly they will occur based on observed
changes and trends, they are: engaged in
a.
scanning.
b.
monitoring.
c.
forecasting.
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d.
assessing.
87. The political/legal segment of an environment represents:
a.
the political preferences of different ethnic groups in the society.
b.
the technological values of different political entities in society.
c.
how organizations and governments mutually try to influence each other.
d.
the system of regulations governments at all levels place on businesses.
88. The recent joint ventures formed by BP with Russian and Indian partners show the importance of the ______ segment
of the general environment in those countries that BP and other oil firms have to manage when contending with scarce
resources.
a.
technological
b.
physical
c.
demographic
d.
global
89. When rival firms compete aggressively by trying to attract competitors’ customers, this might be an indication of:
a.
an industry with low exit barriers.
b.
increasing economies of scale.
c.
slow industry growth.
d.
high bargaining power among buyers.
90. In a suburban community outside a city in Alabama, a retail store opened that specialized in dancewear for children
and adults. It was moderately successful for five years until the local newspaper published an exposé that scanty lingerie
stocked in the back of the store’s showroom was selling briskly to a certain clientele. Afterward, the store lost most of its
customers and nearly closed. Which segment of the environment did the store owners fail to take into account when they
began selling the lingerie?
a.
the sociocultural segment
b.
the economic segment
c.
the demographic segment
d.
the political/legal segment
91. A competitor analysis includes all of the following about competitors EXCEPT:
a.
future objectives.
b.
current strategy.
c.
assumptions.
d.
traditions.
92. Which of the following would NOT be identified in an analysis of the economic portion of the general environment?
a.
The willingness of Chrysler’s buyers to purchase large vehicles in light of an increase in oil prices
b.
The ability of Ford to issue new debt in light of its recent financial performance
c.
The ability of BMW’s buyers to finance car purchases in light of a change in interest rates
d.
The willingness of GM buyers to purchase new vehicles in light of the threat of recession
93. DWK Foods has developed a line of cookies and candies sweetened exclusively with organic honey. Although DWK
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is selling some of the products over the Internet, in order to gain economies of scale the products must be sold in retail
outlets as well. The main barrier to entry DWK is likely to encounter here is:
a.
government licensing and permits.
b.
access to distribution channels.
c.
consumers’ switching costs.
d.
cost disadvantages independent of scale.
94. Coca-Cola and PepsiCo have been accused of contributing to the obesity problem in the United States. This
accusation comes from the ______segment of the general environment.
a.
economic
b.
political/legal
c.
technological
d.
sociocultural
95. Global warming and energy consumption trends are aspects of the ______ segment of the general environment that
firms should monitor.
a.
technological
b.
physical
c.
sociocultural
d.
economic
96. Demographic changes include variations in income distribution. Which of the following statements is true?
a.
Firms are most interested in the consumers in the top 10 percent of household income.
b.
In general, living standards have deteriorated over time.
c.
The general loss in real income has been somewhat offset by the increase in dual-career couples.
d.
Workforce diversity is making the concept of average income obsolete.
97. 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.
98. Because of threats and risks in the global environment, some firms choose to take a more cautious approach by:
a.
avoiding global markets altogether.
b.
expanding only to developed countries.
c.
focusing on global niche markets.
d.
acquiring already established firms in foreign markets.
99. An analysis of income distribution would include all of the following EXCEPT:
a.
the purchasing power of various age groups.
b.
the discretionary income of various ethnic groups.
c.
wage differentials between male and female employees working for a large manufacturer.
d.
how income is distributed among regions of the United States.
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100. 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.
101. High-level maintenance on aircraft is performed by the manufacturer. This service after the sale means that in the
aircraft industry:
a.
customers are relatively weak because of the high switching costs created by frequent-flyer programs.
b.
the industry is moving toward differentiation of services.
c.
the competitive rivalry in the industry is severe.
d.
the economic segment of the external environment has shifted, but airline strategies have not changed.
102. According to the five forces model, an unattractive industry would include all of the following characteristics
EXCEPT:
a.
low economies of scale needed for new firms to enter.
b.
low supplier power due to commodity inputs.
c.
high threat of substitute products due to a large number of low-cost alternatives.
d.
high bargaining power of buyers due to low switching costs.
103. A certain marble quarry provides a unique type of marble that is richly colored and strikingly veined. It has been
used for churches and public buildings throughout the world. The architect of a new headquarters for a prestigious Fortune
500 firm has specified the use of this marble, and this marble only, for the project. Which of the following statements is
most likely to be true?
a.
The cost of the marble will be expensive because of the bargaining power of the supplier.
b.
The cost of the marble will be moderate because of the bargaining power of the buyer.
c.
The cost of the marble will be moderate because of economies of scale.
d.
The cost of the marble will be expensive because of the high strategic stakes involved.
104. An owner of a stable of racehorses has been earning below-average returns for more than 15 years. To a colleague,
he expressed his determination to stay in horse racing until he died because “racing is in my blood.” This individual is
probably still racing horses because of:
a.
high barriers to exit.
b.
high switching costs.
c.
high fixed costs.
d.
low levels of competitive rivalry.
105. Which of the following, identified in an analysis of the general environment, is an opportunity for an entrepreneur
who wishes to open a business providing “Fitness for Life” physical conditioning services (strength, balance, and
flexibility training) in a city of 100,000 people?
a.
The average age of the population in his community is high.
b.
The level of unemployment in his community is high.
c.
A chiropractor and two independent physical therapists are located in his community.
d.
The average education level of the population in his community is low.
106. The highest amount a firm can charge for its products is most directly affected by:
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a.
expected retaliation from competitors.
b.
the cost of substitute products.
c.
variable costs of production.
d.
customers’ high switching costs.
107. Acme Valves, Inc., has been a successful player in the oil field supply industry in the last 15 years. Acme maintained
its strategy and product characteristics over this time period. However, the company has experienced declines in sales and
profits over the last four quarters. The CEO of Acme should
a.
continue with the proven strategy because its returns over the long run are important.
b.
focus on improving efficiency of production and cost control.
c.
conduct an analysis of the external environment.
d.
immediately begin making incremental adjustments to the traditional business strategy in an effort to improve
sales.
108. When consumers change mobile phone and data service providers, they may be required to maintain service with the
provider for a specified time period. This is an example of a:
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 cost suppliers incur when selling to a different customer.
d.
one-time cost customers incur when buying from a different supplier.
109. An analysis of the economic segment of the external environment would include all of the following EXCEPT:
a.
interest rates.
b.
trade deficits or surpluses.
c.
inflation rates.
d.
income distribution.
110. Golden Lotus, an exercise club targeting healthy individuals over 50, is located in a fast-growing city in the
Southwest. Which of the following factors that may have an effect on the success of Golden Lotus is the most directly
controllable by the company?
a.
The sociocultural environment
b.
The demographics of the environment
c.
The economy of the local area
d.
The power of the customers/buyers
111. Green design, sustainable packaging, waste management, and energy efficiency are aspects of the ______ segment of
the general environment that companies have sought to address with environmental sustainability initiatives.
a.
technological
b.
political/legal
c.
global
d.
physical
112. An analysis of society’s attitudes and values would be conducted when studying the ______ segment of the general
environment.
a.
sociocultural
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b.
global
c.
demographic
d.
economic
113. For a restaurant business dependent on drive-thru customers, the major cost disadvantage independent of scale would
be if:
a.
favorable locations are not available.
b.
other competitors have proprietary product technology.
c.
access to food and ingredients is difficult.
d.
other competitors have government subsidies.
114. Mighty Green, a residential lawn chemical manufacturer, is committed to gaining market share in its industry.
Mighty Green:
a.
is likely to raise the level of competitive rivalry in the industry.
b.
probably has top management who are affected by emotional barriers to exit.
c.
has decided that long-run above-average returns are not important.
d.
will probably embark on an acquisition strategy.
115. Economies of scale refers 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.
quantity of product produced in a given time period decreases, the cost of manufacturing each unit decreases.
116. The three parts of the external environment that affect a firm’s strategic actions are:
a.
economic, political, and legal.
b.
general, industry, and competitor.
c.
industry, business, and product.
d.
local, national, and global.
117. A general environmental analysis can be expected to produce all of the following EXCEPT:
a.
objective answers.
b.
recognition of environmental trends.
c.
identification of organizational opportunities.
d.
identification of organizational threats.
118. Characteristics of the current economic segment include all of the following EXCEPT:
a.
general uncertainty.
b.
a clear understanding of future economic opportunities and threats.
c.
the inability of economists to provide valid and reliable predictions.
d.
an expanding economy in Vietnam.
119. Applications developed for iPhones make the phone more valuable to iPhone users. App developers are ______ to
Apple.
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a.
suppliers
b.
customers
c.
competitors
d.
complementors
120. According to the five forces model, an attractive industry would have all of the following characteristics EXCEPT:
a.
low barriers to entry.
b.
suppliers and buyers with little bargaining power.
c.
a moderate degree of rivalry among competitors.
d.
few good product substitutes.
121. The large amount of advertising by firms such as Procter & Gamble and Colgate-Palmolive is an example of what
kind of barrier to entry?
a.
Access to distribution channels
b.
Capital requirements
c.
Economies of scale
d.
Product differentiation
122. All of the following are implications of strategic groups EXCEPT:
a.
the strength of the five forces differs across strategic groups.
b.
the strength of the five forces is the same across strategic groups.
c.
competitive rivalry within strategic groups is greater than between strategic groups.
d.
the closer the strategic groups are in terms of strategies, the greater is the likelihood of rivalry.
123. The ______ environment is composed of dimensions in the broader society that can influence an industry and the
firms within it.
a.
general
b.
competitor
c.
sociocultural
d.
industry
124. The aircraft industry has long been dominated by two large aircraft manufacturers, Boeing and Airbus. The demand
for major aircraft is low, and Boeing and Airbus aggressively compete for orders from airlines. What effect will these
conditions have on the domestic airline industry?
a.
It will make the airline industry more attractive because of decreased supplier power.
b.
It will make the airline industry less attractive because of decreased supplier power.
c.
It will make the airline industry more attractive because of increased supplier power.
d.
It will make the airline industry more attractive because of a new entrant.
125. All of the following are examples of efforts by firms to address the physical segment of the general environment,
except the:
a.
development of sustainable packaging by McDonald’s.
b.
reduction in carbon dioxide emissions by Procter & Gamble.
c.
reduction in water usage in plants by Unilever.
d.
increase in hiring of women and minorities at Microsoft.
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126. All of the following are aspects of the political/legal segment of the general environment EXCEPT:
a.
lobby groups.
b.
attitudes and values.
c.
taxation laws.
d.
industries chosen for deregulation.
127. An industry is defined as:
a.
a group of firms producing the same products or services.
b.
firms producing items that sell through the same distribution channels.
c.
firms that sell the same products or services to the same customer base.
d.
a group of firms producing products that are close substitutes.
128. Competitor intelligence could ethically come from all of the following EXCEPT:
a.
court records.
b.
financial reports.
c.
trade show discussions.
d.
eavesdropping.
129. What are high exit barriers and how do they affect the competition within an industry?
130. What do firms need to know about their competitors? What legal and ethical intelligence-gathering techniques can be
used to obtain this information?
131. What is a firm’s strategic group? What effect does the strategic group have on the firm?
132. Identify and describe the three major parts of the external environment. What is the purpose for a firm to collect
information about these aspects of its environment?
133. What are barriers to entry and how do they affect competition in the industry?
134. Describe and discuss the four activities of the external environmental analysis process.
135. Describe the seven segments of the general environment.
136. Explain why it is important for organizations to analyze and understand the external environment.
137. Identify the five forces that underlie the five forces model of competition. Explain briefly how they affect industry
profit potential.
138. Describe the factors that raise the competitive nature of an industry’s rivalry.
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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
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
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
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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
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
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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
built a firm will nurture it, thus creating switching costs for the distributors. 6) Cost disadvantages independent of scale
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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.