MGMT 352 Homework 2

Due to resource immobility, a critical assumption in the resource-based model of a firm, the __________________.

resource differences between firms lasts for a long time.

T/F. Firms within the same industry automatically belong to the same strategic group.

False Explanation: Even within the same industry performances differ depending on strategic group membership.

In the aircraft manufacturing industry, at least for large commercial jets, Boeing and Airbus are the only competitors. There is not a significant threat of entry because ____________.

entering the aircraft manufacturing industry requires huge capital investments.

T/F. A local manufacturer that wants to be a global manufacturer faces few mobility barriers because it has not yet invested in supply chains, which can become outdated and expensive.

False Explanation: Mobility barriers restrict movement between groups. Creating a supply chain is expensive, risky, and time-consuming, so the existing global manufacturers have at least a temporary advantage over a local manufacturer.

The primary objective of the Porter's five forces model is to ___________.

understand the profit potential of industries Explanation: Porter developed the five forces model to help managers understand the profit potential of different industries and how they can position their respective firms to gain and sustain competitive advantage.

What is the difference between monopolistic competition and an oligopoly?

In monopolistic competition, many firms compete against each other, in an oligopoly, there are few large firms competing against each other.

Given the accelerated pace of technological change, in combination with deregulation, globalization, and demographic shifts, a firm will be successful today only if its _________________.

Internal strengths change with its external environment in a dynamic fashion Explanation: Dynamic markets today are a rule rather than an exception. As a response, a firm may create, deploy, modify, reconfigure, or upgrade resources to provide value to customers and/or lower costs in a dynamic environment.

Brain Boost Inc. is a leading educational toy company. Competitors across the globe have failed to imitate Brain Boost's production models, supply chain systems, knowledge systems, and culture. These attributes have remained unique to Brain Boost Inc. for a long time. What assumption of the resource-based model of competitive advantage does this scenario best illustrate?

Resource immobility

Juanita, a manager at a multinational organization, is trying to carefully scan and link the firm's internal environment to its external environment. The insights from this analysis will allow her to effectively leverage the company's internal strengths to exploit external opportunities, while mitigating internal weaknesses and external threats. In this scenario, what managerial tool is Juanita employing?

SWOT analysis

Managers at Sandburg Real Estate are surprised to hear that interest rates are likely to remain low for the next six months. What is an implication of low interest rates?

Consumer demand will increase Explanation: Low interest rates have a direct bearing on consumer demand. When credit is cheap, consumers buy homes, cars, computers, and others on credit. You can borrow money at lower rates, which increases economic growth

Why are entry barriers in the U.S. airline relatively low?

Entry barriers in the U.S. airline industry are relatively low, resulting in a number of new airlines popping up. To enter the industry, a prospective new entrant needs only a couple of airplanes, a few pilots and crew members, some routes connecting city pairs, and gate access in airports.

Frans owns Consolidated Auto Parts, a company that got its start making auto parts related for hybrid vehicles, but her firm has had difficulty establishing itself as a maker of parts for the more-profitable internal combustion engine. What is most likely contributing to Consolidated's problem in this area?

Entry barriers usually protect the incumbent players in a profitable industry Explanation: One of the challenges that strategic leaders face is that often the most attractive industries in terms of profitability are also the hardest to break into because they are protected by entry barriers.

T/F. Sleeprite Mattresses Inc. wants to become the largest and most profitable mattress supplier in a three-state area. To do this, Sleeprite should try to create the smallest possible difference between the value that its mattresses create and the expense that the company must spend to produce the mattress.

False. Explanation: Competitive advantage flows to the firm that is able to create as large a gap as possible between the value the firm's product or service generates and the cost required to produce it.

Etsuro is a management consultant. Baker Corp. asks him to evaluate their company, and he finds that the difference between the cost of producing the firm's products and the value of those products is extremely narrow. What should Etsuro suggest that Baker Corp. management do?

Find a way to widen the gap between cost and value. Explanation: Firms create economic value by expanding as much as possible the gap between the value of the firm's product or service generates and the cost to produce it.

What is the drawback of the five forces model?

It is only a snapshot in time. Managers would need to repeatedly do analysis to keep abreast with the changing environment.

How does causal ambiguity act as an isolating mechanism for organizations?

It makes it difficult for the competitors to understand why a company has been so successful.

What is an implication of high employee turnover in a company?

It results in a reduction in the company's intangible-resource stocks. Explanation: The outflows of resources represent a reduction in a firm's intangible-resource stocks. Significant resource leakage can erode a firm's competitive advantage.

Quick Market Inc. is a food supply company that wants to sell its products directly to consumers through mail order instead of going through supermarkets and other stores. However, supermarket chains want to make this transaction either illegal or more difficult for Quick Market. To accomplish this, they are using ________ to influence the political process.

Lobbying forces

Jamie is a manager in an industry that has a few large players and that has remained relatively stable over the past few years. He finds out that legislators are proposing new laws to deregulate the industry. If the laws pass, which scenario will Jamie most likely face?

Many new competitors. Explanation: Consolidated industry structures may break up and become more fragmented. This happens when external shocks occur, such as deregulation or other legislation passed.

Three large firms dominate the telecommunication industry of United Canava: AD Telecom Inc., Mystic Telecom Corp., and Total Talk Inc. Instead of cutting prices competitively, these firms have resorted to non-price competition through branding and product differentiation. Which industry competitive structures are these brand companies most likely in?

Oligopoly Explanation: Oligopolistic industry is where a few (large) firms, differentiated products, high barriers to entry, and some degree of pricing power.

________ describes a process by which the options one faces in a current situation are limited by decisions made in the past.

Path dependence

During market testing, Sensation Cosmetics (SC) realized that the cosmetics industry was dominated by multiple, well-established brands. These brands mostly sold their products in exclusive outlets and departmental stores. SC management realized that a new entrant would require a different business model to be successful. Thus, SC started selling its products through direct marketing. In this scenario, Sensation Cosmetics accomplished substitution primarily through ____________.

Strategic equivalence Explanation: An avenue of imitation for a firm's valuable and rare resource is through substitution. This is often accomplished through strategic equivalence.

Riya has recently started a restaurant in a commercial area that already has many other established restaurants and popular fast-food chains. Riya owns the building in which her restaurant is located, rather than leasing premises as her competitors do. This factor allows her to offer her products at a more competitive price. Riya has also invested in a huge amount in designing the restaurants interior and in equipping the kitchen with the appliances that are most widely used in her industry. In this scenario, what is the most valuable resource for Riya's business?

The building owned by Riya, which reduces cost of operations. Explanation: A resource is valuable if it helps a firm increase the perceived value of its product or service in the eyes of consumers, either by adding attractive features or by lowering price because the resource helps the firm lower its costs.

T/F. When smartphone manufacturers began including cameras and voice recorders in their products, that was an example of industry convergence.

True Explanation: Industry convergence is a process whereby formerly unrelated industries begin to satisfy the same customer need. Industry convergence is often brought on by technological advances.

T/F. A consolidated industry tends to be more profitable than a fragmented one.

True Explanation: Since a consolidated industry tends to be more profitable than a fragmented one, firms have a tendency to change the industry structure in their favor, making it more consolidated through (horizontal) mergers and acquisitions.

T/F. A company that owns failing movie theaters could leverage existing assets by turning the buildings into performance spaces and conference sites.

True Explanation: To leverage existing assets means to think about a new combination of resources and capabilities that firms already possess. In this case, the firm already had large buildings and parking lots that could accommodate hundreds of people at each site.

Assume a firm's resources and capabilities are costly to imitate. This is because rival companies do not clearly understand the relationship between the resources and capabilities controlled by the firm. In this case, the firm's competitive advantage is protected against imitation by _____________.

causal ambiguity Explanation: Causal ambiguity describes a situation in which the cause and effect of a phenomenon are not readily apparent.

In a firm's external environment, _____ primarily capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class.

demographic trends

In the context of the resource-based model of competitive advantage, if a successful firm exhibits resource immobility it means that the ___________________________.

firm will have a sustained competitive advantage because of its unique resources that are difficult for others to replicate. Explanation: In the resource-based view, resource immobility is an assumption that resources of a firm tend to be "sticky" and do not move easily from firm to firm. Because of that stickiness, the resource differences that exist between firms are difficult to replicate and, therefore, can last for a long time.

The "Natural Nourishment" granola bars manufactured by Global Good Foods have been top-selling granola bars in the market. Though the market for granola bars is flooded with competitors, Global Good has been able to maintain its market position for a long time. This is mainly attributed to the pleasant texture of its granola, which comes from a proprietary processing technique used by the company. This competency of Global Good Foods will be considered a(n) __________ resource in the VRIO framework.

rare Explanation: A resource is rare if the number of firms that possess it is less than the number of firms it would require to reach a state of perfect competition.

Due to economic regression in Freedonia, the profitability of the large corporation of the large corporation Happiness Products Inc. (HPI) was poor. An analysis of the company's business showed that the company could become profitable if it divested a few strategic business units under its banner. What business would HPI find it most easy to exit?

the e-commerce retail business, where investments on assets are low Explanation: Exit barriers are comprised of both economic and social factors. Include fixed costs that must be paid.

Anders is researching sociocultural factors related to his employer, a sporting goods manufacturer. What would be part of the sociocultural forces in a firm's external environment?

the family size of the firm's target market Explanation: Sociocultural factors capture a society's cultures, norms, and values. Demographic trends play a big role in this