Strategic Mgmt test #1

If SA Pharmaceuticals obtains an 18% return on invested capital, which of the following will help determine if it has a competitive advantage over other pharmaceutical companies? A) Comparing the return to the return on invested capital obtained by other firms in the industry B) Assessing the value based on the shareholders' expectations of return on their capital C) Evaluating the liquidity ratios for other pharmaceutical companies D) Comparing the value to the history of the firm's return of investment over a number of years

A) Comparing the return to the return on invested capital obtained by other firms in the industry

The share price of Groupon, a daily-deal website, fell by 90 percent just a year after its successful initial public offering. The firm was not able to sustain its competitive advantage because of the emergence of other daily-deal sites that were able to better serve the needs of local markets and specific population groups. Which of the following is the most accurate inference from this example? A) Groupon's competency was not hard to imitate B) Groupon's competency was built more on an intangible resource than on a tangible one C) Groupon operated in an industry where the barriers to entry were high D) Groupon invested in resources that were invaluable and common

A) Groupon's competency was not hard to imitate

The threat of suppliers in the hardwood furniture can be described as A) Low because there are a large number of suppliers selling an undifferentiated product B) High because there are a large number of suppliers selling an undifferentiated product C) Moderate because the large number of suppliers is offset by the undifferentiated products they are selling D) Moderate because of the slowing growth rate in the industry and the commodity nature of the products produced by suppliers

A) Low because there are a large number of suppliers selling an undifferentiated product

In this example, composite wood furniture would be an example of a(n) A) Substitute B) Rival C) New entry D) Complementor

A) Substitute

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) The overall industry profitability will increase

When a firm manufactures 2,000-3,000 units of a product, it incurs an average cost of $10 per unit. When it manufactures 3,000-4,000 units of the same product, the average cost per unit reduces to $7. However, manufacturing beyond 4,000 units will raise the average cost per unit to $9. Which of the following is the firm's minimum efficient scale? A) 2,000-3,000 units B) 3,000-4,000 units C) Below 2,000 units D) Above 4,000 units

B) 3,000-4,000 units

True Cinemas Inc. and Digi Future Inc. are two companies that own and run movie theaters in malls and other commercial areas. While True Cinemas Inc. pursues a cost-leadership strategy, Digi Future Inc. adopts a differentiation strategy. Which of the following statements is most likely true of this scenario? A) True Cinemas will charge a premium price for its customers while Digi Future will implement everyday low pricing B) Digi Future and True Cinemas will not be direct competitors to each other and their customer segments will overlap very little C) Digi Future will keep its customer service at an acceptable level while True Cinemas will provide superior customer service D) True Cinemas and Digi Future will use similar approach to create value for customers by attempting to offer everything to everybody

B) Digi Future and True Cinemas will not be direct competitors to each other and their customer segments will overlap very little

Green Frog is an environmentally friendly firm in the cosmetics industry. If during the strategic planning process Green Frog tried to determine the critical threats and opportunities in its competitive environment, it would be performing a(n) A) Internal analysis B) External analysis C) WACC analysis D) Economic analysis

B) External analysis

Hickory Divine is one of the leading manufacturers in the hardwood furniture industry. Hickory Divine has many small competitors, none of which controls a significant portion of the industry. Hickory, like most of the furniture manufacturers, sells its products to a broad variety of small furniture stores throughout the country, none of which represents a large percentage of Hickory's sales. When purchasing the products it uses for manufacturing its furniture, Hickory is able to choose from many suppliers since the wood it uses is an undifferentiated commodity, and Hickory is able to easily switch to any supplier that has the best price and delivery times. While growth in the hardwood furniture industry has historically been in the double digits, the industry growth rate has slowed considerably into the single digits, to approximately 5% in recent years; consumers have been purchasing less expensive furniture made of composite wood that is considerably less expensive than hardwood furniture but that looks and functions very similarly once it is painted. Based on the above description, the hardwood furniture industry can be described as a(n) ________ industry A) Emerging B) Fragmented C) Consolidated D) Declining

B) Fragmented

____________ helps a firm understand which of its resources and capabilities are likely to be sources of competitive advantage A) Competitive analysis B) Internal analysis C) Strategic choice D) External analysis

B) Internal analysis

In general, as long as the number of firms that possess a particular valuable resource or capability is less than the number of firms needed to generate perfect competition dynamics in an industry, that resource or capability can be considered ________ and a potential source of competitive advantage A) Valuable B) Rare C) Inimitable D) Un-substitutable

B) Rare

The telecom industry in the country of Andalus 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 telecom 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 non-existent

B) Threat of new entrants is most likely low

The primary objective of Porter's five forces model is to A) Replace a firm's competitive advantage with competitive parity B) Understand the profit potential of different 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) Understand the profit potential of different industries

Which of the following factors best contributes to the US 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) Car manufacturers require large-scale production in order to be cost-competitive

_________ exist when a firm's costs rise as a function of its volume of production A) Economies of scale B) Economies of scope C) Diseconomies of scale D) Learning curve effects

C) Diseconomies of scale

The best example of a firm following a cost-leadership business strategy is A) Mercedes Benz B) Macy's C) Ryanair D) Rolls Royce

C) Ryanair

True Sync Inc. is a software company, which has built and acquired numerous assets over the years. According to the resource-based view of a firm, which of the following assets of True Sync Inc. will best enable it to gain and sustain a competitive advantage? A) The resources of the company that are mobile B) The capital raised by the company from its shareholders C) The expertise acquired by the employees in the company D) The headquarters owned by the company

C) The expertise acquired by the employees in the company

Which of the following is an implication of all firms in an industry pursuing low-cost position through application of competitive benchmarking? A) No firm would face direct competition from others in the industry; hence, profit potential would be high B) Each firm would be catering to a different customer segment C) The firms would eventually have no resources to invest in product and process improvements D) Each firm would be in a better position to gain a competitive advantage

C) The firms would eventually have no resources to invest in product and process improvements

Pure Food Inc., a multinational company, relies on its media partner Radio Ex to regularly advertise its offers, sales, and new products. Radio Ex is invested in this relationship because it generates most of its revenue from advertising Pure Food's products. In this scenario, Radio Ex is Pure Food Inc.'s _____. A) Stockholder B) Workforce C) Internal stakeholder D) External stakeholder

D) External stakeholder

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) The threat of substitutes

TRUE OR FALSE Business level strategies are actions firms take to gain competitive advantages by operating in multiple markets or industries simultaneously

FALSE Business level strategies consider how to position a business in the market; two generic business level strategies are cost leadership and product differentiation

TRUE OR FALSE Suppliers are a greater threat to firms in an industry when suppliers are threatened by substitutes

FALSE If suppliers are threatened by substitutes, the focal firm can choose to buy from multiple suppliers who provide the products in a different way but filling the same need; it suggests the threat from suppliers will be lower

TRUE OR FALSE As a firm increases in size, it often increases in complexity; however, the ability of managers to control and operate the firm efficiently are virtually unlimited and therefore costs do substantially increase

FALSE The ability of managers to control and operate the firm efficiently is limited and therefore costs do substantially increase

Your former college roommate calls you and asks to borrow $10,000 so that he can open a pizza restaurant in his hometown. He acknowledges that there is a high degree of direct competition in this market, that the cost of entry is low, and that there are numerous substitutes for pizza, but he believes that his pizza restaurant will have some sustained competitive advantages. For example, he is going to have sawdust on his floor, a variety of imported beers, and a late-night delivery service. What are the risks in lending him the money?

No, you would not lend your friend the money. Use the porter's five forces to analyze the profitability potential of pizza restaurants from the threat of entry, buyer, supplier, rivalry, and substitutes. The future profit may not be high. Also, the claimed sources of competitive advantage do not meet the VRIO criteria. The sawdust might not even be valuable and the imported beers and late-night delivery are not rare. There should be no expectation that the new pizza restaurant would earn any better than a normal return. In fact, unless your friend is at least as good as the other restaurants, below normal returns would be expected.

TRUE OR FALSE Firms that operate in industries that are informationally complex, require customers to know a great deal in order to use the industry's products, require a great deal of R&D, and have significant economies of scale are more likely to have sustained competitive advantage than those firms in industries without those characteristics

TRUE