Chapter 3,4, & 5 Module 2 test

Cartzy Inc., Cartific Inc., and Clustercart Inc., are three consumer-product retailing companies. Their products consist primarily of day-to-day items that are easy to imitate and sell. All three companies use the same resources and capabilities in the production and distribution of their products. Judging from the market conditions described in this scenario, which of the following statements is true?

Any advantage that one firm has will be short-lived. If a resource is common, it will result in perfect competition where no firm is able to maintain a competitive advantage. In perfect competition, all firms have access to the same resources and capabilities, ensuring that any advantage that one firm has will be short-lived.

Managers at SunTrustUs Properties are surprised to hear that interest rates are likely to remain low for the next six months. Which of the following is an implication of low interest rates?

Consumer demand will increase Low interest rates have a direct bearing on consumer demand. When credit is cheap (because interest rates are low), consumers buy homes, automobiles, computers, and even vacations on credit; in turn, all of this demand fuels economic growth. During periods of low interest rates, firms can easily borrow money to finance future growth. Borrowing at lower rates lowers the cost of capital and enhances a firm's competitiveness.

Silvio is a manager at a software firm. The CEO tells him that the industry as a whole has become increasingly profitable over the past five years. Based on this information, Silvio is most likely to expect

increased competition in the future and therefore he should recommend that the company upgrade its products to slow the entry of rival companies. One of the key insights of the five forces model is that the more profitable an industry, the more attractive it becomes to competitors. With the threat of additional capacity coming into an industry, incumbent firms may lower prices to make entry appear less attractive to the potential new competitors, or they may spend more to satisfy their existing customers.

One of Tiffany & Co's tangible resources is its well-known brand name and reputation for quality timepieces.

False Brand equity is an example of an intangible resource. Tangible resources include a well-trained workforce, advanced machinery, or expansive facilities.

High demand for online video streaming options is one of Netflix's core competencies.

False Core competencies are unique strengths possessed by a firm which allow it to differentiate its products and services from its rivals. Consumer demand is external to the firm. An example of Netflix's core competencies is its use of proprietary algorithms to determine its customer's needs.

Firms within the same industry automatically belong to the same strategic group.

False Even within the same industry, firm performances differ depending on strategic group membership. Some strategic groups tend to be more profitable than others. This difference implies that firm performance is determined not only by the industry to which the firm belongs but also by its strategic group membership.

Shippity and ShipING Inc. are two competing firms in the same industry. Shippity's tangible assets are valued at $15 billion and its intangible assets are valued at $35 billion. ShipING Inc.'s tangible assets are valued at $5 billion and its intangible assets are valued at $45 billion. What can be concluded from this information?

It is likely that ShipING Inc. is better enabled than Shippity to gain and sustain a competitive advantage. It can be concluded that ShipING Inc. is better positioned than Shippity to gain and sustain a competitive advantage. Competitive advantage is more likely to spring from intangible rather than tangible resources. Tangible assets, like buildings or computer servers, can be bought on the open market by any comers who have the necessary cash. However, a brand name must be built, often over long periods of time.

Which of the following is a drawback of Porter's five forces model?

Managers cannot determine the changing speed of an industry or the rate of innovation. With the five-forces-plus-complements model, one cannot determine the changing speed of an industry or the rate of innovation. This drawback implies that managers must repeat their analysis over time in order to create a more accurate picture of their industry.

Which of the following applies to the Strength-Threats quadrant of the SWOT matrix?

The local fast-food chain Easy Hot Dogs used its wholesome image to maintain its competitive advantage against stiff competition.

The Strength-Threats quadrant of the SWOT matrix uses an external strength, such as a wholesome image, to minimize the effect of an external threat, such as stiff competition.

an increase in its customers' disposable income In the context of SWOT analysis, an increase in its customers' disposable income best exemplifies a firm's external opportunity. Strengths and weaknesses are internal to an organization, whereas opportunities and threats are external to the organization.

Hot Caffeine, a leading coffee roaster, anticipated that the prices of coffee beans from Costa Rica, where its main suppliers were located, would double in less than three years. This would significantly affect Hot Caffeine' profit margins. Thus, Hot Caffeine decided to develop a new partnership with a supplier in Indonesia. As predicted, the price of Costa Rican coffee beans increased twofold. Because the price of Indonesian coffee beans was much lower, Hot Caffeine was able to maintain its profit margins in turbulent times. Which of the following isolating mechanisms does this scenario best illustrate?

better expectations of future resource value The scenario illustrates better expectations of future resource value. Sometimes firms can acquire resources at a low cost, which lays the foundation for a competitive advantage later when expectations about the future of the resource turn out to be more accurate.

Leo's Magic Rails maintains a manufacturing plant overseas. The local government has just been overthrown by a military group that opposes foreign influence in the country. According to the SWOT analysis, the political situation in this location is considered to be an

external threat. An external threat is a danger in a firm's general environment.

Which of the following external forces is a part of a firm's task environment?

the composition of the strategic group to which the firm belongs External factors in a firm's task environment are ones that managers do have some influence over, such as the composition of their strategic groups (a set of close rivals) or the structure of the industry.

STRIKEBYTE Inc. is a software company that has built and acquired numerous assets over the years. According to the resource-based view of a firm, which of the following assets of STRIKEBYTE Inc. will best enable it to gain and sustain a competitive advantage?

the expertise acquired by the employees in the company The expertise acquired by the employees in the company is the asset that will best enable Smooth Fusion Inc. to gain and sustain a competitive advantage. The resource-based view is a model that sees certain types of resources as key to superior firm performance. If a resource exhibits VRIO attributes, the resource enables the firm to gain and sustain a competitive advantage. Competitive advantage is more likely to spring from intangible rather than tangible resources.