True / False
1. The external environment facing business stays relatively constant over time.
a. True
b. False
2. Demographic, economic, political/legal, sociocultural, technological, global, and physical are the seven elements
comprising the industry environment.
a. True
b. False
3. Firms can directly control the elements of the seven segments of the general environment.
a. True
b. False
4. The recent bankruptcy filings by General Motors and Chrysler Corporation illustrate that firms cannot directly
control the general environment’s segments.
a. True
b. False
5. The industry environment directly influences the firm and its competitive actions and responses.
a. True
b. False
6. Competitor analysis is focused on the factors and conditions influencing an industry’s profitability potential.
a. True
b. False
7. When firms analyze the external environment, they typically have complete and unambiguous data.
a. True
b. False
8. Monitoring involves the development of a forecast of what might happen at a future point in time.
a. True
b. False
9. Scanning involves detecting meaning through early signals of environmental trends.
a. True
b. False
10. When Philip Morris International studies the cigarette tax policies of various nations, it is engaged in the forecasting
component of the environmental analysis process.
a. True
b. False
11. 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
12. 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
13. In recent times, businesspeople have become more confident in the ability of economists to provide valid and
reliable predictions about the world‘s economic environment.
a. True
b. False
14. 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
15. 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
16. 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
17. Although health care reform legislation was passed in the early part of the Obama administration, it continues to be
a bone of contention for employers, employees, and politicians because of its delays and increased expenses.
These attitudes about health care reform make up the sociocultural segment of the general environment.
a. True
b. False
18. Early adopters of new technology often achieve higher market shares and higher returns than later adopters of the
technology.
a. True
b. False
19. Contrary to popular belief, the global segment of the external environment does not provide many opportunities for
firms such as H.J. Heinz, SAB Miller, and Citigroup, all of which recently experienced low growth and profits
coming from emerging markets.
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
21. Global warming and energy consumption are aspects of the technological environment segment that firms should
monitor.
a. True
b. False
22. PepsiCo‘s strategy called “capital performance with a purpose” links green efforts in ll businesses to the bottom line.
This is an example of addressing concerns in the physical segment of the general environment.
a. True
b. False
23. The five 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
24. 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
25. An example of a government policy barrier to entry would be a situation in which the Antitrust Division of the
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
26. 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, and switching costs are
high.
a. True
b. False
27. Tablets such as the iPad have had little effect on the sale of PCs in the United States, and PC producers such as
Taiwan’s Acer Computers have experienced significant growth.
a. True
b. False
28. Exit barriers are especially low in the airline industry as 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
29. Generally, the stronger the competitive forces, the higher the profit potential of an industry.
a. True
b. False
30. 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.
a. True
b. False
31. Strategic groups are firms in different industries following the same or similar strategies.
a. True
b. False
32. The strengths of the five competitive forces are similar across strategic groups within an industry.
a. True
b. False
33. The more distant strategic groups are in terms of their strategies, the greater the likelihood of rivalry between the
groups.
a. True
b. False
34. 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
35. The process of competitor analysis should examine the competitor’s future objectives, current strategy, assumptions,
and capabilities.
a. True
b. False
36. When Delta Air Lines wants to study Continental Airlines, it must examine both Continental and its complementor,
Star Alliance.
a. True
b. False
37. Eavesdropping is an ethical way to obtain information about competitors’ actions.
a. True
b. False
38. Any competitor intelligence practice that is legal is also ethical.
a. True
b. False
39. 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
Multiple Choice
40. BP, in response to the Deepwater Horizon oil spill, expected increased scrutiny coming from which of the following
segments of the general environment?
a. political/legal
b. global
c. technological
d. sociocultural
41. 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
42. The recent joint ventures formed by BP with Russian and Indian partners show the importance of the
segment of the general environment that BP and other integrated oil firms have to manage when contending with
scarce resources.
a. political/legal
b. physical
c. demographic
d. global
43. Acme Valves, Inc., has been a successful player in the oil field supply industry in the last 15 years. Acme
maintained its traditional strategy and product characteristics over this time period. However, Acme 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.
44. The three parts of the external environment which 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.
45. 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
46. 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.
47. 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.
48. Which of the following is NOT an activity used in the external environmental analysis process?
a. scanning
b. decrypting
c. monitoring
d. assessing
49. 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
50. 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.
51. 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.
d. assessing.
52. 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.
53. In analyzing the demographic segment of the general environment, one typically examines all of the following
factors EXCEPT
a. age structure.
b. ethnic mix.
c. distribution of income.
d. cultural values.
54. 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.
55. 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.
56. 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.
57. 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.
58. 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.
59. 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.