Chapter 2: The External Environment
Chapter 2
The External Environment
TRUE/FALSE QUESTIONS
1. Individual organizations typically have only a marginal impact on the broad
environment.
2. The broad environment consists of sociocultural forces, competitive forces,
technological trends, and political/legal forces.
3. Awareness of and compliance with the attitudes of society can help an organization
avoid problems associated with a bad ethical reputation.
4. Exchange rates can influence the ability of a firm profitably to remove profits from
foreign countries.
5. Technology is human knowledge about products and services and the ways they are
made and delivered.
6. Government intervention in business is increasing worldwide.
7. The task environment consists of stakeholders with whom organizations interact on a
fairly regular basis.
8. Industries may be defined as a group of organizations that compete directly with one
another to win orders or sales in the marketplace.
9. The three major forces that drive industry competition and profitability are
government regulators, direct competitors and social forces.
10. The power of a single customer is greater when there are many customers than when
there are few.
Chapter 2: The External Environment
11. Organizations that are in a weak position relative to their suppliers can attempt to
balance power through vertical integration.
12. Low levels of competition may be caused by high fixed costs.
13. A strategic group map involves plotting industry rivals based on two or more strategic
dimensions that are important to the industry.
14. The higher the entry barriers, the more intense is competition in an industry.
15. Discriminating and demanding buyers in the home country of a firm can help the firm
to succeed as it competes in foreign markets.
MULTIPLE CHOICE QUESTIONS
16. What is a primary reason that an organization should monitor the broad environment?
A. To anticipate concerns and trends
B. To determine the firm’s internal strengths
C. To determine the firm’s internal weaknesses
D. To identify key employees within the firm
E. To determine the firm’s focus on manufacturing and materials management
17. An organization can typically have:
A. Little influence over events in its task environment
B. Little influence over major occurrences and patterns in the broad environment
C. Significant influence over major occurrences and patterns in the remote
environment
D. Significant influence over major social trends
E. Significant influence on government policy in a nation as a whole
18. The broad environment consists of all of the following except:
A. Technological trends
B. Political and legal forces
C. Competitors
Chapter 2: The External Environment
D. Economic forces
E. Sociocultural forces
19. Which of the following is part of the broad environment?
A. Competitors
B. Suppliers
C. Technological forces
D. Government agencies
E. Unions
20. Analysis of society is important for all of the following reasons except:
A. Awareness of what is happening in society virtually guarantees that an
organization will be able to successfully compete in its own industry
B. Most of the other stakeholder groups are also members of society
C. Awareness of and compliance with the attitudes of society can help an
organization avoid problems associated with being a bad corporate citizen
D. Changes in society can provide opportunities for organizations
E. Correct assessment of social trends can help businesses avoid restrictive
legislation
21. Analysis of social trends is important because:
A. The values and beliefs of key stakeholders are derived from societal
influences
B. Correct assessment of social trends can help businesses avoid restrictive
legislation
C. Changes in society can create either opportunities or threats for organizations
D. All of these are correct
E. Only A and C are correct
22. Among the most critical economic factors to monitor are:
A. Interest rates
B. Economic growth
C. Foreign trade balances
D. Inflation rates
E. All of these factors are important
23. Among the following, the best definition of technology is:
A. Human knowledge about products and services and the ways they are made
Chapter 2: The External Environment
and delivered
B. Technical equipment such as computers and electronics
C. Knowledge about computers, electronics, and information systems
D. Knowledge about computers, electronics, and information systems as well as
the equipment and systems themselves
E. All equipment that is used to create products and services
24. Which of the following is not included as a major force that drives industry
competition and profitability?
A. Existing competitors
B. Economic power of suppliers
C. Potential competitors
D. Unions
E. Indirect competitors
25. Suppliers tend to exhibit greater power if:
A. There are few suppliers of the raw material, product, or service
B. There are many substitutes for the product or service that suppliers sell
C. Suppliers are small businesses with regards to total sales volume
D. The suppliers’ products are undifferentiated and plentiful
E. Suppliers cannot integrate forward
26. The influence of potential competitors on industry competition is determined
primarily by:
A. Buyer power
B. Supplier power
C. Strength of entry barriers
D. Strength of exit barriers
E. Threat of substitutes
27. Customers tend to exhibit a powerful force on competition in the industry if:
A. There are a large number of customers that buy the product
B. Few similar products exist
C. Purchases customers make from the industry are large relative to the amount
spent for items from other industries
D. The sellers’ products are highly differentiated
E. The customers are earning high profits
28. High levels of competition may be caused by:
A. Rapid industry growth
B. Low fixed costs
C. A small number of competitors
D. A lack of product differentiation
E. Low exit barriers
29. Which of the following makes an industry more attractive to enter?
A. Strong supplier power
B. Strong customer power
C. No close substitutes
D. Many strong competitors
E. Low sales growth
30. All of the following are true about environmental uncertainty except:
A. It makes managerial decision making more difficult
B. Organizations feel most of its influence directly from the broad environment
C. Political power of stakeholders influences it
D. Economic power of stakeholders influences it
E. Network centrality of stakeholders influences it
31. What should organizations do with stakeholders that have a large influence on
environmental uncertainty?
A. Fight against them with competitive weapons
B. Ignore them
C. Just monitor their activities
D. Cooperate with them
E. None of the above
32. When two or more firms form a legally independent company to pursue common
objectives, in is called:
A. A semiautonomous partnership
B. A social network
C. An equity alliance
D. A business network
E. None of these
33. According to Michael Porter, all of the following are conditions that create
Chapter 2: The External Environment
advantages for firms in certain countries and industries except:
A. Suppliers to a particular industry are the very best in the world
B. Strong industry competition
C. Buyers are among the most demanding in the world
D. Shortages of critical raw materials or other supplies
E. Ability to attract the most talented managers
34. According to Michael Porter, conditions that create advantages for firms in certain
countries and industries include:
A. Suppliers to a particular industry are the very best in the world
B. Strong industry competition
C. Buyers are among the most demanding in the world
D. Ability to attract the most talented managers
E. All of the above
ESSAY QUESTIONS
35. What is a firm’s broad environment? To what extent can the broad environment
influence a firm? To what extent can one firm influence the broad environment?
36. Why is analysis of social trends important? Give examples.
37. What are some of the most critical economic factors for a firm to track? Why are they
important?
38. When do customers exhibit a powerful force on competition in an industry?
39. What are strategic groups? Why are strategic group maps useful?
40. According to Michael Porter, what are the conditions that create advantages for firms
in certain countries and industries? Please explain each of them.
Chapter 2: The External Environment