MST 3830 Exam 1, Ch. 3
A firm's ________ relates to its ability to create value for customers (V) while containing the cost to do so (C). A) strategic position B) industry effects C) advantage of the marketplace D) industry analysis
A
A strategic group will typically include A) firms within the same industry. B) customers belonging to a particular socioeconomic class. C) firms employing similar number of employees, irrespective of their industries. D) employees within a firm earning the same amount in salary.
A
Bryan 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, Bryan is most likely to expect A) increased competition in the future and therefore he should recommend that the company upgrade its products to slow the entry of rival companies. B) increased profitability in the future and therefore he should recommend that the company remain on its current course. C) a leveling off of profitability in the next few years and therefore he should recommend that the company cooperate with its rivals to stimulate the industry. D) decreased competition in the next few years and therefore he should recommend that the company take advantage of its pricing power.
A
Competitive rivalry based solely on ________ is destructive to firms as it transfers most of the value created in the industry to the customers. A) price-cutting B) new product releases C) promotional campaigns D) product differentiation
A
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 mattresses.
F
In regard to any of the five forces that shape competition, it is important to note that their relative strengths are context-dependent. Elaborate on this statement with the help of a real-world example.
In regard to any of the five forces that shape competition, it is important to note that their relative strengths are context-dependent. For example, the Mexican multinational CEMEX, one of the world's leading cement producers, faces very different buyer power in the U.S. versus in its domestic market. Cement is an undifferentiated commodity product. In the U.S., cement buyers consist of a few large and powerful construction companies that account for a significant percentage of CEMEX's output. This results in razor-thin margins in the U.S. In contrast, the vast majority of CEMEX's customers in its Mexican home market are numerous, small, individual customers facing a few large suppliers, with CEMEX being the biggest. Not surprisingly, CEMEX earns high profit margins in its home market. This example provides the context to show that CEMEX actually competes in two different industry conditions (albeit offering the same product), because it faces two very different competitive forces in the U.S. versus Mexico.
What is a natural monopoly? Provide a real-world example.
In some instances, the government will grant one firm the right to be the sole supplier of a product or service. This is often done to incentivize a company to engage in a venture that would not be profitable if there was more than one supplier. For example, public utilities incur huge fixed costs to build plants and to supply a certain geographic area. Public utilities supplying water, gas, and electricity to businesses and homes are frequently monopolists. For example, Georgia Power is the only supplier of electricity for over 2.5 million customers in the southeastern United States. Philadelphia Gas Works is the only supplier of natural gas in the city of Philadelphia, Pennsylvania, serving some 500,000 customers. These are so-called natural monopolies. Without them, the governments involved believe the market would not supply these products or services at all.
What is meant by industry convergence? Explain with the help of a real-world example.
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. For years, many players in the media industries have been converging due to technological progress in IT, telecommunications, and digital media. Media convergence unites computing, communications, and content, thereby causing significant upheaval across previously distinct industries. Content providers in industries such as newspapers, magazines, TV, movies, radio, and music are all scrambling to adapt. Many standalone print newspapers are closing shop, while others are trying to figure out how to offer online news content for which consumers are willing to pay. Industry convergence appears often in everyday life. For instance, someone who buys a smartphone probably no longer needs a landline, watch, alarm clock, calendar, radio, music player, print newspaper subscription, or print magazine subscription.
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? A) Find a way to widen the gap between cost and value. B) Find a way to pass on as much profit as possible to suppliers and customers. C) Shore up the company's strong position by erecting entry barriers. D) Encourage customers to buy complements to their products.
A
How are cumulative learning and experience effects of a company most likely to affect Michael Porter's five forces? A) Threat of new entrants will be low. B) Bargaining power of suppliers will be high. C) Availability of complements will be low. D) Threat of substitute products and services will be high.
A
In an industry, the threat of entry is high when A) capital requirements are low. B) expected returns are low. C) technological know-how is industry specific. D) switching costs are high.
A
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 A) entering the aircraft manufacturing industry requires huge capital investments. B) there is expected to be a huge return on investment within this industry. C) there is no credible threat of retaliation from the incumbents. D) entering the aircraft manufacturing industry means violating government policies.
A
Keeping in mind the five forces in the airline industry, which of the following best explains the difficulty airlines have in generating a profit? A) Substitutes are readily available in the form of trains, buses, and cars, thus reducing the profit potential in the industry. B) Suppliers have weak bargaining power because they offer products that are not differentiated. C) Entry barriers in the industry are high, resulting in hardly any new airlines popping up. D) Consumers in the industry make decisions based on price, thus reducing the intensity of rivalry in the industry.
A
Magical Productions is a large production company that controls a major portion of the television industry's market share along with two other firms. Despite its competitiveness with the two other firms, it is influenced by their actions and often has to consider their strategic actions before acting on its own. In this scenario, Magical Productions is most likely functioning in a(n) ________ industry. A) oligopolistic B) monopolistic C) perfectly competitive D) monopolistically competitive
A
Samsung and Google cooperate as complementors to compete against Apple's strong position in the mobile device industry, while at the same time Samsung and Google are increasingly becoming competitive with one another. This scenario best illustrates the process of A) co-opetition. B) perfect competition. C) monopolization. D) conglomeration.
A
Which of the following external forces is a part of a firm's task environment? A) the composition of the strategic group to which the firm belongs B) the interest rates prevalent in the economy in which the firm operates C) the inflation level in the economy in which the firm operates D) the recent innovations in process technology, including lean manufacturing
A
Which of the following is likely to happen due to horizontal mergers between competitors such as Delta and Northwest airlines? A) The overall industry profitability will increase. B) The threat of strong competitive forces such as supplier power will increase. C) The industry will face excess capacity in the future. D) The structure of the industry will change from consolidated to one that is fragmented.
A
While Tender Chicken Inc. operates in a monopolistically competitive industry, Future Wireless Inc. operates in a monopoly. Keeping this information in mind, which of the following statements is most likely true? A) The threat of new entrants will be higher for Tender Chicken than for Future Wireless. B) Tender Chicken will have more pricing power than Future Wireless does. C) Tender Chicken will have more profit potential than Future Wireless. D) The number of buyers will be limited for both Tender Chicken and Future Wireless.
A
While implementing strategic group mapping for the U.S. domestic airline industry, two strategic groups become apparent: low-cost, point-to-point airlines (Virgin Atlantic, Alaska Airlines, JetBlue, and Southwest Airlines) versus differentiated airlines using a hub-and-spoke system (American, Delta, and United). Which of the following statements is true about these two strategic groups? A) Competitive rivalry between Virgin Atlantic and JetBlue is likely to be higher than that between American and Southwest Airlines. B) American, United, and Delta Airlines will be affected differently by Porter's five competitive forces. C) Alaska Airlines and Delta Airlines will be affected by the external environment in very similar ways. D) Competitive rivalry between Virgin Atlantic and Delta Airlines is likely to be higher than that between American, Delta, and United.
A
With the emergence of smartphones, users no longer have to carry a separate music player, a video game, a laptop, or a magazine to keep themselves entertained when traveling. A smartphone is loaded with a variety of applications to satisfy all the customer needs that different industries or products individually satisfied earlier. As a result, the smartphone industry has been posing a threat to a lot of other unrelated industries. What is this phenomenon best known as? A) industry convergence B) backward integration C) product differentiation D) customer myopia
A
Years ago, the travel industry was controlled by a few large travel companies that booked holidays, air tickets, bus tickets, and hotels for their customers. However, with the emergence of the internet, smaller travel agencies started mushrooming in the industry and customers started making their own reservations. Which of the following can be inferred from this information? A) The travel industry changed from a consolidated structure to a fragmented one. B) The pricing power of the incumbent firms in the travel industry has increased. C) The bargaining power of buyers in the travel industry has decreased. D) The structure of the travel industry changed from monopolistic competition to an oligopolistic one.
A
amie 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 of these scenarios will Jamie most likely face? A) many new competitors B) technological innovation C) the end of globalization D) across-the-board price increases
A
How do interest rates affect a business?
A key macroeconomic variable for managers to track is interest rates—the amount that savers are paid for use of their money and the amount that borrowers pay for that use. 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. These effects reverse, however, when interest rates are high. Consumer demand slows down, credit is harder to come by, and firms find it more difficult to borrow money to support operations and might defer investments.
What is the drawback of the five forces model? Provide an example that shows this drawback. The example can be from your reading or from your own experience.
Although the five forces plus complements model is useful in understanding an industry's profit potential, it provides only a point-in-time snapshot of a moving target. With this model (as with other static models), 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 to create a more accurate picture of their industry. Industry structures are not stable over time. Rather, they are dynamic. 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. Having fewer competitors generally equates to higher industry profitability. Industry incumbents, therefore, have an incentive to reduce the number of competitors in the industry. The U.S. domestic airline industry has witnessed several large, horizontal mergers between competitors, including Delta and Northwest, United and Continental, Southwest and AirTran, as well as American and U.S. Airways. A more consolidated airline industry is likely to lead to higher ticket prices and fewer choices for customers, but also more profitable airlines.
Which of the following is a macroeconomic factor that can affect a firm's strategy? A) power of buyers B) power of suppliers C) levels of employment D) threat of substitutes
C
Discuss the sixth force in Porter's five forces model. Give a real-life example of this sixth force.
As valuable as the five forces model is for explaining the profitability and attractiveness of industries, some have suggested extensions of it. Strategy scholars have suggested that the value of Porter's five forces model can be further enhanced if one also considers the availability of complements. A complement is a product, service, or competency that adds value to the original product offering when the two are used in tandem. Complements increase demand for the primary product, thereby enhancing the profit potential for the industry and the firm. A company is a complementor to an existing company if customers value the existing company's product or service offering more when they are able to combine it with the other company's product or service. Firms may choose to provide the complements themselves or work with another company to accomplish this. For example, streaming video services such as mlb.com, HBO Now, and FilmStruck are complements to a Roku streaming video player.
) During an interview for a CEO position, Elena's potential employers ask her, "If you get this job, will you focus more on industry effects or firm effects?" What should her answer be? A) "Neither. I would focus on unexplained variances. They are the most mysterious effects and the most powerful." B) "Firm effects. I will be able to have the most impact on those." C) "Industry effects. They have the most substantial effect on superior firm performance." D) "Neither. I would focus on business cycle effects. These are the most predictable, so they are worth the most effort."
B
Companies in the same strategic group are ________ to each other. A) strategic allies B) direct competitors C) merger partners D) stakeholders or shareholders
B
Corner Market Inc. is a supermarket chain. Due to strong competition from other stores in the industry, Corner Market has aggressively used branding, pricing, and superior customer service to uniquely position itself in the market. As a result, the supermarket chain has been able to differentiate itself from its competitors and sell its products at higher prices. Which of the following industry competitive structures does this scenario best illustrate? A) perfect competition B) monopolistic competition C) monopoly D) oligopoly
B
Eon Inc., Electravia Inc., and FC Inc., the three largest firms in the consumer electronics industry, hold close to 85 percent of the industry's market share. These companies mainly compete against each other by providing unique features in their products rather than pricing them low. These firms are interdependent, and each firm must consider the strategic actions of its competitors. Which of the following industry competitive structures does this scenario best illustrate? A) monopolistic competition B) oligopoly C) monopoly D) perfect competition
B
Fadia Ammunition Inc., a firm controlled and managed by the government of Fadia, is the only company that has the license to produce defense arms in the country. Which of the following industry competitive structures does this best illustrate? A) monopolistic competition B) monopoly C) oligopoly D) perfect competition
B
Given the structure of the automobile industry, entering the auto manufacturing industry seemed risky. Yet Tesla Motors joined the fray. Rather than attempting to compete head-on with internal combustion engines, Tesla Motors entered the all-electric car segment, a much less crowded niche in the overall car industry. Which of the following is Tesla most hoping to benefit from in this market niche? A) network effects B) economies of scale C) customer switching costs D) capital requirements
B
How do low interest rates affect a business? A) Firms tend to defer investments until rates rise. B) Firms can easily borrow money to finance future growth. C) Consumer demand slows down. D) Business credit is harder to obtain.
B
In 2008, BlackBerry's market cap peaked at $75 billion. By 2017 this valuation had fallen more than 90 percent, to $3.9 billion. BlackBerry fell victim to two important PESTEL factors in its external environment: sociocultural and technological. How did technology contribute to BlackBerry's decline? A) BlackBerry failed to offer strong security features for its device. B) BlackBerry failed to change its device into one that could perform multiple tasks effectively. C) BlackBerry failed to adapt to a groundswell that involved workers bringing mobile devices to work. D) BlackBerry failed to produce an efficient emailing system using a keyboard.
B
In a firm's external environment, ________ primarily capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class. A) political trends B) demographic trends C) ecological trends D) economic trends
B
Kirsten, a manager, is writing an analysis of her employer's current and possible future revenues. Which of the following could she identify as an economic factor in her firm's external general environment? A) the government regulations and laws in the country in which the firm exists B) the stage of the business cycle that the country is in C) the values and norms prevalent in the society in which the firm operates D) the bargaining power of the firm's suppliers and buyers
B
Mara is a management consultant for a soda manufacturer that wants to expand into health drinks such as green tea and after-workout drinks. Based on what you have read, which of these is sensible advice for Mara to offer her client? A) "Pinpoint the best time to enter this new market, and then make a yes-or-no decision quickly." B) "Carefully consider the entry choices over time before making a decision." C) "Your best bet is to undercut competitors' prices and lure them into a price war." D) "Focus on what your company does well rather than trying to expand into untried areas."
B
Marina manages the supply chain for a company that sells diamond watches. She learns that economists are predicting a moderate to severe recession in the next six to eight months. Based on that information, what action should Marina recommend to the company's owner? A) Increase supply. During recessions, businesses that focus on low-cost solutions make significant profits. B) Reduce supply. Customers generally reduce their purchases of luxury items when the economy falters. C) Maintain the supply at its current rate. Economic forecasts are rarely accurate. D) Wait six months and see what happens. Recessions rarely affect consumer spending.
B
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.
F
National Safety Inc., an insurance firm, replaced its existing project management software with new software from another supplier. Since the new software has different features and abilities, National Safety has had to spend $10,000 on training its employees to use it. In this scenario, $10,000 represents National Safety's A) opportunity cost. B) switching cost. C) octroi charge. D) excise duty.
B
Peerless Inc., a large conglomerate, wants to liquidate its business in certain industries to improve its overall profitability. Which of the following industries would Peerless Inc. find it most difficult to exit? A) the management consultancy industry in which the company's fixed costs are low B) the steel industry in which the company has obligations like severance pay toward employees C) the corporate training industry in which the company's commitments are mostly short-term D) the e-commerce industry where the company has no long-term contractual agreements with suppliers
B
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. A) ecological factors B) lobbying forces C) interest rates D) demographic research
B
The internet service provider industry in the country of Megalopolis is an industry characterized by the presence of strong network effects, high brand loyalty, high economies of scale, and proprietary technology among incumbent firms. Thus, in the internet service provider industry, the A) threat of substitutes is most likely high. B) threat of new entrants is most likely low. C) bargaining power of buyers is most likely low. D) entry barriers are most likely nonexistent.
B
The primary objective of Porter's five forces model is to A) understand valuable, rare, and hard-to-imitate resources. B) understand the profit potential of industries. C) reduce the gap between the value of a firm's product and its cost of production. D) break down a firm's value chain activities into primary and support.
B
Which of the following is a drawback of Porter's five forces model? A) The model describes competition narrowly as a firm's closest competitors. B) Managers cannot determine the changing speed of an industry or the rate of innovation. C) It fails to provide a basis for deriving implications for a firm's strategic position within an industry. D) The model fails to consider that threat of substitutes can come from outside a given industry.
B
Which of the following is the best characterization of sociocultural forces? A) a firm's culture, norms, and values B) a society's culture, norms, and values C) a competitor's culture, norms, and values D) a focus group's culture, norms, and values
B
Which of the following statements is true about strategic groups? A) It is not possible to have two different strategic groups within the same industry. B) Rivalry within the same strategic group tends to be lower than rivalry between different strategic groups. C) Profitability varies between different strategic groups. D) Companies within the same strategic group are complementors to each other.
C
What are the two key insights that form the basis of Michael Porter's seminal five forces model?
By combining theory from industrial organization economics with hundreds of detailed case studies, Michael Porter derived two key insights that form the basis of his seminal five forces model: 1. Rather than defining competition narrowly as the firm's closest competitors to explain and predict a firm's performance, competition must be viewed more broadly to not only encompass direct rivals but also a set of other forces in an industry: buyers, suppliers, potential new entry of other firms, and the threat of substitutes. 2. The profit potential of an industry is neither random nor entirely determined by industry-specific factors. Rather, it is a function of the five forces that shape competition: threat of entry, power of suppliers, power of buyers, threat of substitutes, and rivalry among existing firms.
) Hammer and Nails, Local Motion, DIY Palace, and Handy Paradise are all hardware stores that compete against each other through everyday low pricing and discounts on bulk purchases. All four stores cater to the needs of highly price-sensitive customers. Thus, together these stores form a A) focus group. B) command group. C) strategic group. D) cross-functional group.
C
A new company named Far Reach Inc. entered the radio retail business, which is a fairly consolidated industry. In response, two large incumbent radio retailers, Smooth Waves and Clear Signal, lowered the price of their radios. Also, they spent more money to improve their radios and on additional marketing. By doing this, Smooth Waves and Clear Signal A) decreased industry exit barriers. B) increased industry exit barriers. C) decreased industry profit potential. D) increased industry profit potential.
C
Addams Coaches Inc. is a bus line with service to several major cities. It has several competitors that each offer service to one or two cities, and based on its current outlays, it cannot match or beat those competitors on price. Because of long-term contracts and an increase in the cost of gasoline, it is not possible to reduce expenditures at this time. Which of these strategies should Addams pursue instead? A) Create a strategic group through mergers. B) Compete based on inter-group rivalry, not intra-group rivalry. C) Pursue a differentiated strategy. D) Close the business until the cost of gas decreases.
C
Anders is researching sociocultural factors related to his employer, a sporting goods manufacturer. Which of the following would be part of the sociocultural forces in a firm's external environment? A) the interest rates prevalent in an economy B) the laws protecting small enterprises in a nation C) the family size of the firm's target market D) the rate of employee attrition within the firm
C
Bethany is a chef who owns three moderately successful restaurants with innovative menus. Based on what you have read, which of these approaches could help her improve her profits? A) Change her menus and décor to appeal to economy-minded consumers. B) Carefully time the opening of her business and focus on underserved niches. C) Use her existing knowledge, equipment, and staff to launch a catering business. D) Expand to new locations in economically struggling areas.
C
Clear Calls Inc., a telephone service provider, has a large user base mainly because phone calls and messages between all Clear Calls users are free. When a person switches to a Clear Calls network, his or her entire network of family and friends is likely to switch to the same network to receive the benefit of free calls and messages. In addition, an existing user who gets a new user to register with Clear Calls Inc. is given a free wireless connection. This has helped to keep competition away from Clear Calls. In this scenario, which of the following factors is acting as an entry barrier for Clear Calls Inc.? A) economies of scale B) high capital requirement C) network effects D) high fixed costs
C
Due to economic regression in Freedonia, the profitability 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. From which of the following businesses would HPI find it most easy to exit? A) the automobile industry, where the company has contractual obligations with suppliers B) the airline business, where the company's strategic commitments are long-term C) the e-commerce retail business, where investments on assets are low D) the pharmaceutical business, where the company has a large number of fixed costs
C
Economies of scale are cost advantages that accrue for firms with A) high fixed costs. B) low employee turnover. C) larger output. D) high capital risks.
C
Euan manages product design and development at a toy company. The junior managers who report to him tell him that new complementors for the firm's products are available. What should Euan's reaction be? A) He should consult lawyers about the possibility of suing for copyright infringement. B) If the industry barriers to entry are low, he doesn't need to do anything. C) He needs to find out if his company as well as other companies can provide the complements. D) If the industry barriers to entry are high, he doesn't need to do anything.
C
Golden Harvest is a restaurant located inside a five-star hotel. It caters mainly to customers who are concerned about quality dining rather than the prices. In this scenario, which of the following will be a part of Golden Harvest's strategic group? A) a nearby fast-food restaurant B) a food kiosk in an adjacent subway station C) a premium rooftop restaurant in the same city D) a mobile food cart parked opposite to the five-star hotel
C
In the five forces model developed by Michael Porter, ________ is not defined narrowly as a firm's closest competitors but rather more broadly to include other factors in an industry like buyers, suppliers, potential new entry of other firms, and the threat of substitutes. A) a stakeholder B) regulation C) competition D) a barrier to entry
C
Pure Carat Inc. is a company that sells 24-carat gold biscuits to companies that manufacture jewelry. Since the company operates in an industry where many other suppliers sell standardized products, it can most likely A) easily achieve a temporary competitive advantage. B) easily achieve a sustainable competitive advantage. C) only achieve competitive parity. D) maintain its absolute advantage for long time.
C
When companies that manufacture shipping containers want to buy iron ore, the purchase decision is solely based on price. This is because there are a large number of sellers in the iron ore industry, and iron ore is a highly undifferentiated commodity. Which of the following industry competitive structures does the iron ore industry best illustrate? A) monopoly B) oligopoly C) perfect competition D) monopolistic competition
C
Which of the following factors most contributes to the U.S. automotive industry being characterized by high entry barriers? A) New auto companies create electric cars powered by simpler motors and gearboxes. B) New entrants in the automotive industry expect that incumbents will not or cannot retaliate. C) Car manufacturers require large-scale production in order to be cost-competitive. D) Few industrial products are as easy to build as cars powered by internal combustion engines.
C
Which of the following fundamental insights was provided by Porter's five forces framework from the completion of the Alta Velocidad Española (AVE)? A) A strong threat of substitutes decreases the rivalry among existing competitors. B) All the five forces must work together to have a meaningful impact. C) Any of the five forces on its own, if sufficiently strong, can extract industry profitability. D) Competition must be defined more narrowly to remain confined to the industry's closest competitors.
C
Which of the following statements with regard to industry structures is true? A) They are stable over time, not dynamic. B) Having a large number of competitors generally equates to higher industry profitability. C) A consolidated industry tends to be more profitable than a fragmented one. D) Having few but large competitors increases the threat of strong competitive forces such as supplier or buyer power.
C
Zoom Zoom Car Rental follows a cost-leadership strategy. Which of the following firms will most likely be its direct competitor? A) Classic Car Rentals Inc., which follows a cost-increase strategy B) Paul Bunyan Car and Truck Rentals, which follows a differentiation strategy C) Reliable Rental Cars, which follows a low-cost strategy D) Rent-an-Auto LLC, which follows a standardization strategy
C
Federal and regional laws prevent incumbent firms from dramatically lowering prices or otherwise retaliating when a new entrant joins an industry.
F
A firm's strategic position is likely to be strong when A) the entry barriers within the industry it operates in are low and the exit barriers are high. B) its suppliers and vendors can easily forward integrate and buyers can backward integrate. C) all the five forces in Porter's model are strong. D) the gap between the value the firm's product generates and the cost to produce it is large.
D
Curry Rush is a premium Asian restaurant chain that differentiates itself from a large number of competitors by providing exclusively organic Vietnamese cuisine. It has some pricing power because it provides differentiated products and therefore, has some entry barriers in place. In this scenario, Curry Rush is most likely operating in a(n) A) oligopoly. B) monopoly. C) perfectly competitive industry. D) monopolistically competitive industry.
D
Demand for traditional fast-food providers such as McDonald's, Burger King, and Wendy's has been on a decline in recent years. Consumers have become more health conscious and demand has shifted to alternative restaurants like Subway, Chick-fil-A, and Chipotle. Attempts by McDonald's and Wendy's to steal customers from one another include frequent discounting tactics such as dollar menus. Such competitive actions are indicative of A) profitability increases. B) perfect competition. C) natural monopolies. D) cutthroat competition.
D
Fran 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? A) Newcomers cannot use existing assets or reconfigure their value chains. B) New competitors usually ignore stakeholders who are not stockholders. C) It is difficult for outsiders to gauge which stage of the "life cycle" that industry is in. D) Entry barriers usually protect the incumbent players in a profitable industry.
D
In which of the following situations is a company that exists in the telecommunications industry most likely to face the highest threat of entry? A) if the company is able to put up a credible threat of retaliation B) if the capital requirements in the industry are high C) if the customer switching costs in the industry are high D) if the industry has recently become deregulated
D
In which of the following situations is the power of suppliers high in an industry? A) Suppliers offer products that are undifferentiated. B) Suppliers can credibly threaten to backward integrate into the industry. C) Suppliers depend heavily on the industry for their revenues. D) Suppliers' industry is more concentrated than the industry it sells to.
D
Kimba Inc. is a manufacturer of smart watches that track the wearer's heart rate and sleep patterns. Which of the following is most likely an implication of new firms entering this industry? A) The bargaining power of buyers will reduce. B) The industry's overall profit potential and sales will increase. C) The rivalry among existing competitors will reduce. D) The incumbent firms will spend more to satisfy their existing customers.
D
Which of the following features about a buyer indicates that the buyer has high bargaining power? A) when the buyer cannot credibly threaten to backwardly integrate into the industry B) when the buyer cannot purchase specific products from other sellers C) when the buyer faces high switching costs D) when the buyer operates in an industry where products are undifferentiated
D
Firms within the same industry automatically belong to the same strategic group.
F
Lu runs a company that manufactures satellites for commercial and government use. It has few rivals. At the moment, the power of buyers, the power of suppliers, and the threat of substitutes are all low. Based on this information, what can Lu conclude? A) The manufacturer is likely to see little profit until the power of buyers improves. B) In this scenario, suppliers are likely to create and sell effective substitutes. C) This firm is an example of near-perfect competition. D) The company is likely to be very profitable as long as the threat to entry is low.
D
Luz manages a chain of bars and restaurants in a tri-county area that has recently experienced an economic boom because of fracking and high oil prices. What is most likely to happen when there is too much money in the tri-county economy? A) too many goods and services B) a drop in interest rates C) high economic growth D) an increase in prices
D
Managers at Sandburg Real Estate 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? A) Cost of capital for firms will be high. B) Firms will invest less in future growth. C) Economic growth rate will fall. D) Consumer demand will increase.
D
Soapsuds Inc., a manufacturer of cleaning agents, supplies its products to All Needs Inc., a supermarket chain. It demands that All Needs create more shelf space in its stores for Soapsuds' products. However, All Needs Inc. refuses to do this. Instead, it decides to produce its own range of cleaning agents with its own label "All Wash." In this scenario, All Needs Inc. has exercised its bargaining power as a buyer through A) price stability. B) retroactive market share. C) enhanced technology. D) backward integration.
D
The ________ allows the scanning, monitoring, and evaluating of changes and trends in a firm's macro environment. A) VRIO framework B) SWOT analysis C) BCG matrix D) PESTEL framework
D
The government of Filvia has mandated that the standard minimum wage in the country be increased to $8,000 per year. Which of the following factors in a firm's general environment does this mandate best indicate? A) ecological factors B) sociocultural factors C) technological factors D) legal factors
D
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 of the following industry competitive structures are these companies most likely in? A) monopoly B) perfect competition C) monopolistic competition D) oligopoly
D
When fashion magazines face competition from fashion blogs on the web, which of the following forces in Michael Porter's five forces model primarily gets stronger? A) the emergence of entry barriers B) the bargaining power of suppliers C) the availability of complements D) the threat of substitutes
D
For-profit businesses operating in long-standing fields such as energy and transportation usually operate in an environment of price stability.
F
Which of the following is a primary feature of the five forces model? A) It is concerned exclusively about the intensity of rivalry among direct competitors. B) It takes into account a firm's internal resources, capabilities, and core competencies. C) It helps managers determine the changing speed of an industry or the rate of innovation. D) It views competition within an industry broadly to include forces such as buyers, suppliers, and the threat of substitutes.
D
Which of the following statements accurately brings out the difference between monopolistic competition and an oligopoly? A) Sellers in an oligopoly provide highly differentiated products; in monopolistic competition, the products sold are undifferentiated or standardized. B) In an oligopoly, the number of buyers is large; in monopolistic competition, the number of buyers is limited to three or four. C) Firms in an oligopoly have no pricing power; firms in a monopolistically competitive industry have the ability to raise prices. D) In monopolistic competition, many firms compete against each other; in an oligopoly, there are few large firms competing against each other.
D
Why are entry barriers in the U.S. airline industry 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 (on a small scale, serving a few select cities), a prospective new entrant needs only a couple of airplanes (which can be rented), a few pilots and crew members, some routes connecting city pairs, and gate access in airports.
Explain how the availability of substitutes affects business strategy. Include an example of a company or industry where many substitutes are available and one where few or none are available.
If substitutes are readily available, then customers have more power, and profitability probably suffers. For example, a domestic airline such as Southwest faces the challenge of having many substitutes for its short-distance flights. If people believe Southwest's prices are too high, then they can drive, take a bus, or "visit" virtually through teleconference. If substitutes are rare or nonexistent, then customers have less power, and profitability most likely declines. For instance, an international airline such as British Airways has few substitutes for its trans-oceanic flights. Customers who believe BA's prices are too high may choose from one or two other airlines, travel by ship, or stay home.
Explain mobility barriers between strategic groups. Provide a real-world example.
Mobility barriers are industry-specific factors that separate one strategic group from another. Although some strategic groups tend to be more profitable and therefore more attractive than others, mobility barriers restrict movement between groups. For example, the difficulty of securing landing slots at international airports around the world acts as a mobility barrier between those airlines that use the hub-and-spoke operational model to offer international routes and those that are point-to-point airlines.
) How is a firm's task environment different from its general environment? Provide examples of both types of environments.
One common approach to understanding how external forces impinge upon a firm is to consider the source or proximity of these forces. For example, external forces in the firm's general environment are ones that managers have little direct influence over, such as macro-economic factors (e.g., interest or currency exchange rates). In contrast, external factors in the 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, such as McDonald's Corp. and The Wendy's Company) or the structure of the industry.
A company that owns failing movie theaters could leverage existing assets by turning the buildings into performance spaces and conference sites.
T
A small coffee shop faces significant potential competition because of the low capital requirements compared with business environments such as universities and laboratories.
T
A video-streaming service provider such as Netflix is a complement to a manufacturer of streaming video devices such as Roku.
T
Because competitors in oligopolistic industries are so interdependent, it is especially important for managers in those firms to monitor and respond to changes their competitors make.
T
When smartphone manufacturers began including cameras and voice recorders in their products, that was an example of industry convergence.
T
What are the five stages of the industry life cycle? Name them and provide a real-life example of a company or industry that has gone through all five stages.
The five stages of an industry life cycle are introduction, growth, shakeout, maturity, and decline. AT&T is a company that has gone through all five cycles: it brought phones to people's homes and businesses, grew to have an enormous market share, faced legislation from the federal government, reestablished itself as a provider of landlines, cell phones, and television; and has lost significant business as people switch from landlines to smartphones.
Describe the relationship between the state of an economy and its level of employment.
The state of the economy directly affects the level of employment. In boom times, unemployment is low, and skilled human capital becomes a scarce and more expensive resource. In economic downturns, unemployment rises. As more people search for employment, skilled human capital is abundant and wages usually fall. A period of high unemployment could be a good time for firms to expand or upgrade their human capital base. Although U.S. companies generally lay off people during recessions, some Japanese companies, such as Toyota, prefer to use downturns to train their workers on the latest manufacturing techniques. Clearly, this human resource management strategy is a short-term expense for Toyota, yet it positions the company well when the economy picks up again. Moreover, periods of higher unemployment often spur an uptick in entrepreneurship as the opportunity cost of starting a new venture falls.
Defend or refute the statement: "Strategic groups do not impact competitive rivalry within an industry
This statement is incorrect. Firms in the same strategic group tend to follow a similar strategy. Companies in the same strategic group, therefore, are direct competitors. The rivalry among firms of the same strategic group is generally more intense than the rivalry between strategic groups: intra-group rivalry exceeds inter-group rivalry. The number of different business strategies pursued within an industry determines the number of strategic groups in that industry.
How do scholars explain differences in firm performance within the same industry?
To explain differences in firm performance within the same industry, scholars offer the strategic group model, which clusters different firms into groups based on a few key strategic dimensions. They find that 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. The distinct differences across strategic groups reflect the business strategies that firms pursue. Firms in the same strategic group tend to follow a similar strategy. Companies in the same strategic group, therefore, are direct competitors.
What does it mean when a company leverages existing assets? Include a real-life example in your answer. Your example can be from the reading or from your own experience.
When an organization leverages (uses) existing assets, it puts together a new combination of resources and capabilities it already has. Partnering with an ally that has resources that the organization lacks can be part of leveraging existing assets. During the low-carb and paleo diet crazes, the doughnut shop near me nearly went out of business. It rallied by promoting its superb coffee, which was in demand and which had proven health benefits.
How is a firm's task environment different from its general environment? A) Managers have some influence over external factors in the task environment; they have little direct effect over external forces in the general environment. B) Managers have no direct effect over external factors in the task environment; they have some influence over external forces in the general environment. C) Managers have no direct effect over external factors in the task environment; they have influence over all external forces in the general environment. D) Managers have influence over all external factors in the task environment; they have no direct effect over external forces in the general environment.
a
