Chapter 2: The External Environment
The global segment includes relevant new global markets and existing ones that are
changing, important international political events, and critical cultural and institutional
characteristics of relevant global markets. This segment recognizes that firms now
5. How do the five forces of competition in an industry affect its profit potential?
Explain.
An industry’s competitive intensity and profit potential can be determined by the relative
strengths of five competitive forces. This model of industry competition recognizes that
6. What is a strategic group? Of what value is knowledge of the firm’s strategic group
in formulating that firm’s strategy?
A strategic group is a group of firms within an industry that generally follow the same (or
Chapter 2: The External Environment
7. What is the importance of collecting and interpreting data and information about
competitors? What practices should a firm use to gather competitor intelligence and
why?
Competitor analysis can help the firm understand and better anticipate competitors’ future
objectives, current strategies, assumptions, and capabilities. The firm should gather
Chapter 2: The External Environment
MINI CASE
Watch Out All Retailers, Here Comes Amazon; Watch Out Amazon, Here Comes
Other Competitors
Note: To prepare students for class discussion and to introduce them to the
fundamentals of the Strategic Management process, each chapter Mini-Case is
Chapter 2: The External Environment
Answers to Case Discussion Questions
1. Can any firm beat Amazon in the marketplace? If not, why not? If so, how can they best
do so?
Amazon has developed such strengths in terms of product offerings in virtually all market
2. How formidable a competitor is Google for Amazon? Please explain.
Currently, Google is not really a direct member of Amazon’s strategic group. Amazon is a
3. What are Amazon’s major strengths? Does it have any weaknesses? Please explain.
Over the years, Amazon has mastered the art of online retail selling, and it now offers an
4. Is Jet.com a potential concern for Amazon? Why or why not?
With an extensive online product offering and the backing of major investors, Jet.com
Chapter 2: The External Environment
ADDITIONAL QUESTIONS AND EXERCISES
The following questions and exercises can be presented for in-class discussion or assigned
as homework.
Application Discussion Questions
1. Given the importance of understanding the external environment, why do some firms fail
to do so? Students can provide examples of firms that did not understand their external
environment. What were the implications of the firm’s failure to understand that
environment?
5. Have students select an industry that is of interest to them. What actions could firms take
to erect barriers of entry to this industry?
Ethics Questions
1. How can a firm use its “code of ethics” to analyze the external environment?
2. What ethical issues, if any, may be relevant to a firm’s monitoring of its external
Chapter 2: The External Environment
6. Ask the class what they believe determines whether an intelligence-gathering practice is
or is not ethical? Do they see this changing as the world’s economies become more
interdependent? If so, why? Do they see this changing because of the Internet? If so,
how?
INSTRUCTOR’S NOTES FOR MINDTAP
Cengage offers additional online activities, assessments and resources inside MindTap,
our online learning platform. Here is a comprehensive listing of the activities available
within each chapter of MindTap for Hitt, Ireland Hoskisson’s Strategic Management:
Competitiveness and Globalization, 13th edition:
Chapter Level Resources:
• What Would You Do Video
• MindTap Reader (eBook)
• Assignments:
o Multiple Choice Quiz
Course Level Case Resources:
• Text Cases (Readings)
• Group Case Activities (Group Case Assignments)
• Supplemental Cases (Readings)
To view more information on each of these MindTap activities, along with the default
Chapter 2: The External Environment
ADDITIONAL INFORMATION FOR SELECT MINDTAP RESOURCES:
WHAT WOULD YOU DO? PORT CITY BREWING COMPANY
This exercise introduces students to strategic decisions as they are made in the real world.
Students should come to class prepared to discuss this exercise, and why they chose the
VIDEO QUIZ: PORT CITY BREWING COMPANY
The media quiz offers additional opportunities for students to apply the concepts in the
chapter to a real-world scenario as it is described in news reports.
Title: Port City Brewing Company
RT: 2:24
Suggested Discussion Questions and Answers
• Describe the general environment and industry environment in the craft beer market.
• Discuss the set of factors that has a direct influence on a firm and its competitive actions
Chapter 2: The External Environment
GUIDED CASE: AMAZON
This auto-graded activity asks students to read the short end-of-chapter case on Amazon,
and answer questions in the areas of Analysis, Strategy, and Implementation &
Performance.
Amazon has been able to achieve remarkable gains in sales over the last four to five years
by providing high quality, rapid, and relatively inexpensive (relative to competitors)
service. Walmart is perhaps the retailing giant’s biggest competitor, as other online
In answering the Guided Case Questions, students will review these concepts:
• Segments within the external environment
YOU MAKE THE DECISION: MOVIE EXHIBITION
INDUSTRY
You Make the Decision branching exercises are real-world activities that allow each
student to work through challenges by choosing from different decision-making options.
These exercises provide students with the opportunity to practice strategic management in
Chapter 2: The External Environment
Hired as consultants for one of the largest movie theater circuits, AMC, students have
been charged with developing a plan that will help AMC’s efforts to help revitalize the
industry.
The first order of business is to become familiar with the industry and start identifying
early signals of environmental changes and trends.
Students will review these concepts:
• General environments and industry environments
The ideal path that earns a perfect score is the following:
• Start by scanning the general environment.
Correct Answer: Your decisions have given AMC and the industry as a whole a massive
bump in revenue. Your first decision was to start with a scan of the external environment.
GROUP PROJECT: GOING BACK TO THE FUTURE:
RESEARCHING THE PAST TO PREDICT THE FUTURE
A critical ingredient to studying the general environment is identifying opportunities and
threats. An opportunity is a condition in the environment that, if exploited, could help a
company achieve strategic competitiveness. In order to identify opportunities, you must be
Chapter 2: The External Environment
segments and address all four steps in great detail. For purposes of this project, you are
conducting a mini-analysis that will concentrate on just a few of the segments and
complete the steps for only your focus environmental factors. Present 15–20 slides of your
research findings and the poll results. Use the bold words as your outline and be sure to
include the following points:
• Which of the seven dimensions of the general environment did you analyze?