Man 4720 CHapter 2
23. The five competitive forces model expands the arena of competitive analysis beyond direct competitors (i.e., rivals) to include buyers and suppliers who may also be a source of competition. a. True b. False
*a. True
25. An example of a government policy barrier to entry would be a scenario in which the Antitrust Division of the Department of Justice disallows a merger because it creates a firm that is too dominant and would thus create unfair competition. a. True b. False
*a. True
26. Suppliers are powerful when the industry is dominated by a few large companies, no satisfactory substitutes are available, the selling industry is relatively more concentrated than the purchasing industry, or switching costs are high. a. True b. False
*a. True
27. Exit barriers are especially low in the airline industry because aircraft are not particularly specialized and can easily be sold to other airlines, air cargo companies, the military, or even to wealthy individuals who want to own a private jet. a. True b. False
*a. True
11. The objective of assessing the external environment is to determine the timing and importance of the effects of environmental changes and trends on the strategic management of the firm. a. True b. False
*a. True
15. The European sovereign-debt crisis and political upheavals in Egypt, Tunisia, Libya, and Syria illustrate uncertainties in the political/legal segment of the general environment that could affect the performance of business firms. a. True b. False
*a. True
17. Although health care reform legislation was passed in the early part of the Obama administration, it continues to be a contentious issue for employers, employees, and politicians because of its increased expenses. These attitudes about health care reform make up the sociocultural segment of the general environment. a. True b. False
*a. True
18. Early adopters of new technology often achieve higher market shares and higher returns than later adopters of the technology. a. True b. False
*a. True
2. Demographic, economic, political/legal, sociocultural, technological, global, and physical are the seven elements comprising the industry environment. a. True b. False
*a. True
22. PepsiCo's strategy called "capital performance with a purpose" links green efforts in businesses to the bottom line. This is an example of addressing concerns in the physical segment of the general environment. a. True b. False
*a. True
33. The competitor analysis is the final part of the external environment analysis and focuses on each company against which a firm directly competes (for example, Coca-Cola and PepsiCo, Home Depot and Lowe's, and Airbus and Boeing). a. True b. False
*a. True
34. The process of competitor analysis should examine the competitors' future objectives, current strategy, assumptions, and capabilities. a. True b. False
*a. True
35. When Delta Air Lines wants to study Continental Airlines, it must examine both Continental and its complementor, Star Alliance. a. True b. False
*a. True
4. The bankruptcy filings by General Motors and Chrysler Corporation during the Great Recession illustrate that firms cannot directly control the general environment's segments. a. True b. False
*a. True
5. The industry environment directly influences a firm and its competitive actions and responses. a. True b. False
*a. True
10. When Google studies the internet user privacy policies of various nations, it is engaged in the forecasting component of the environmental analysis process. a. True b. False
*b. False
12. Age structure, geographic distribution, income distribution, interest rates, and process innovations are all elements of concern when studying the demographic segment of the general environment. a. True b. False
*b. False
13. In recent times, business leaders have become more confident in the ability of economists to provide valid and reliable predictions about the world's economic environment. a. True b. False
*b. False
14. The legislation introduced in the U.S. Congress during the early tenure of the Obama administration intended to reduce the amount of work U.S. companies outsource and is an example of a potential change in the sociocultural segment of the general environment. a. True b. False
*b. False
16. Developing a political strategy by the newly formed General Motors would likely be ineffective as firms are generally unable to influence the political/legal environment. a. True b. False
*b. False
21. Global warming and energy consumption are aspects of the technological environment segment that firms should monitor. a. True b. False
*b. False
24. Switching costs, access to distribution channels, economies of scale, large numbers of competing firms, and slow industry growth are some of the entry barriers that may affect the threat of new entrants to an industry. a. True b. False
*b. False
28. Generally, industries with stronger competitive forces have higher profit potential. a. True b. False
*b. False
29. An attractive industry is one that is characterized by high entry barriers, suppliers and buyers with strong bargaining power, low threats from substitute products, or low rivalry among firms. a. True b. False
*b. False
3. Firms can directly control the elements of the seven segments of the general environment. a. True b. False
*b. False
30. Strategic groups are firms in different industries following the same or similar strategies. a. True b. False
*b. False
31. The strengths of the five competitive forces are similar across strategic groups within an industry. a. True b. False
*b. False
32. The more distant strategic groups are in terms of their strategies, the greater the likelihood of rivalry between the groups. a. True b. False
*b. False
36. Eavesdropping is an ethical way to obtain information about competitors' actions. a. True b. False
*b. False
37. Any competitor intelligence practice that is legal is also ethical. a. True b. False
*b. False
38. Eavesdropping by the NSA on average Americans is ethical because it is a governmental organization instead of a for-profit company. a. True b. False
*b. False
6. Competitor analysis is focused on the factors and conditions influencing an industry's profitability potential. a. True b. False
*b. False
7. When firms analyze the external environment, they typically have complete and unambiguous data. a. True b. False
*b. False
8. Monitoring involves the development of a forecast of what might happen at a future point in time. a. True b. False
*b. False
9. Scanning involves detecting meaning through early signals of environmental trends. a. True b. False
*b. False
20. Globalfocusing is often used by firms with high levels of international operations who further increase their internationalization by focusing on global niche markets. a. True b. False
b. False
97. Media content has moved from paper, tape, and film to a digital world based on Internet technology. From the perspective of the five forces model, which force is most relevant here? a. Buyers b. Substitutes c. Entry barriers d. Suppliers
b. Substitutes
91. Blood banks are highly dependent on donors. In the terminology of industry analysis, which statement about donors is accurate? a. Blood donors are suppliers and are powerful because of the critical nature of what they provide to the blood bank. b. Blood donors are suppliers and are powerful because of their concentration relative to the blood bank. c. Blood donors are buyers and are not powerful because switching costs to change to alternative inputs are low. d. Blood donors are buyers and are powerful because of the volume of blood needed.
a. Blood donors are suppliers and are powerful because of the critical nature of what they provide to the blood bank.
92. The aircraft industry has long been dominated by two large aircraft manufacturers, Boeing and Airbus. The demand for major aircraft is low, and Boeing and Airbus aggressively compete for orders from airlines. What effect will these conditions have on the domestic airline industry? a. It will make the airline industry more attractive because of decreased supplier power. b. It will make the airline industry less attractive because of decreased supplier power. c. It will make the airline industry more attractive because of increased supplier power. d. It will make the airline industry more attractive because of a new entrant.
a. It will make the airline industry more attractive because of decreased supplier power.
53. Which of the following, identified in an analysis of the general environment, is an opportunity for an entrepreneur who wishes to open a business providing "Fitness for Life" physical conditioning services (strength, balance, and flexibility training) in a city of 100,000 people? a. The average age of the population in his community is high. b. The level of unemployment in his community is high. c. A chiropractor and two independent physical therapists are located in his community. d. The average education level of the population in his community is low.
a. The average age of the population in his community is high.
88. A certain marble quarry provides a unique type of marble that is richly colored and strikingly veined. It has been used for churches and public buildings throughout the world. The architect of a new headquarters for a prestigious Fortune 500 firm has specified the use of this marble, and this marble only, for the project. Which of the following statements is most likely to be true? a. The cost of the marble will be expensive because of the bargaining power of the supplier. b. The cost of the marble will be moderate because of the bargaining power of the buyer. c. The cost of the marble will be moderate because of economies of scale. d. The cost of the marble will be expensive because of the high strategic stakes involved.
a. The cost of the marble will be expensive because of the bargaining power of the supplier.
77. The likelihood of entry of new competitors is affected by ______ and ______. a. barriers to entry; expected retaliation of current industry organizations b. the power of existing suppliers; buyers c. the profitability of the industry; the market share of its leading firm d. the demand for the product; the profitability of the competitors
a. barriers to entry; expected retaliation of current industry organizations
87. For a restaurant business dependent on drive-thru customers, the major cost disadvantage independent of scale would be if: a. favorable locations are not available. b. other competitors have proprietary product technology. c. access to food and ingredients is difficult. d. other competitors have government subsidies.
a. favorable locations are not available.
44. The ______ environment is composed of dimensions in the broader society that can influence an industry and the firms within it. a. general b. competitor c. sociocultural d. industry
a. general
65. The technological segment of environmental analysis includes: a. institutions and activities involved with creating new knowledge and translating that knowledge into new outputs. b. the determination of when machinery will need to be replaced in a given firm. c. the need for new technology used by a firm to gain a competitive advantage. d. places where a firm's technology will allow that firm to dominate a given market.
a. institutions and activities involved with creating new knowledge and translating that knowledge into new outputs.
51. A general environmental analysis can be expected to produce all of the following EXCEPT: a. objective answers. b. recognition of environmental trends. c. identification of organizational opportunities. d. identification of organizational threats.
a. objective answers.
39. BP, in response to the Deepwater Horizon oil spill, expected increased scrutiny from which of the following segments of the general environment? a. political/legal b. global c. technological d. sociocultural
a. political/legal
75. One popular approach to taking care of the physical environment is: a. producing and selling additional green products. b. lobbying the government to reduce environmental regulations. c. making donations to the Sierra Club and other environmental organizations. d. increasing health benefits for employees.
a. producing and selling additional green products.
63. An analysis of society's attitudes and values would be conducted when studying the ______ segment of the general environment. a. sociocultural b. global c. demographic d. economic
a. sociocultural
59. The economic environment refers to: a. the nature and direction of the economy in which a firm competes or may compete. b. the economic outlook of the world provided by the World Bank. c. an analysis of how the environmental movement and world economy interact. d. an analysis of how new environmental regulations will affect the U.S. economy.
a. the nature and direction of the economy in which a firm competes or may compete.
64. In a suburban community outside a city in Alabama, a retail store opened that specialized in dancewear for children and adults. It was moderately successful for five years until the local newspaper published an exposé that scanty lingerie stocked in the back of the store's showroom was selling briskly to a certain clientele. Afterward, the store lost most of its customers and nearly closed. Which segment of the environment did the store owners fail to take into account when they began selling the lingerie? a. the sociocultural segment b. the economic segment c. the demographic segment d. the political/legal segment
a. the sociocultural segment
48. Environmental scanning would be most important for which of the following organizations? a. A provider of hospice services for the terminally ill b. A web design company catering to small businesses c. A neighborhood sewer and water utility d. A manufacturer of household linens
b. A web design company catering to small businesses
47. Which of the following is NOT an activity used in the external environmental analysis process? a. Scanning b. Decrypting c. Monitoring d. Assessing
b. Decrypting
1. The external environment facing business stays relatively constant over time. a. True b. False
b. False
19. Contrary to popular belief, the global segment of the external environment does not provide many opportunities for firms that recently experienced low growth and profits coming from emerging markets. a. True b. False
b. False
60. Which of the following would NOT be identified in an analysis of the economic portion of the general environment? a. The willingness of Chrysler's buyers to purchase large vehicles in light of an increase in oil prices b. The ability of Ford to issue new debt in light of its recent financial performance c. The ability of BMW's buyers to finance car purchases in light of a change in interest rates d. The willingness of GM buyers to purchase new vehicles in light of the threat of recession
b. The ability of Ford to issue new debt in light of its recent financial performance
58. Characteristics of the current economic segment include all of the following EXCEPT: a. general uncertainty. b. a clear understanding of future economic opportunities and threats. c. the inability of economists to provide valid and reliable predictions. d. an expanding economy in Vietnam.
b. a clear understanding of future economic opportunities and threats.
86. DWK Foods has developed a line of cookies and candies sweetened exclusively with organic honey. Although DWK is selling some of the products over the Internet, in order to gain economies of scale the products must be sold in retail outlets as well. The main barrier to entry DWK is likely to encounter here is: a. government licensing and permits. b. access to distribution channels. c. consumers' switching costs. d. cost disadvantages independent of scale.
b. access to distribution channels.
62. All of the following are aspects of the political/legal segment of the general environment EXCEPT: a. lobby groups. b. attitudes and values. c. taxation laws. d. industries chosen for deregulation.
b. attitudes and values.
43. The three parts of the external environment that affect a firm's strategic actions are: a. economic, political, and legal. b. general, industry, and competitor. c. industry, business, and product. d. local, national, and global.
b. general, industry, and competitor.
69. The observation that China reached automotive production overcapacity in 2015, and has a glut of extra cars, is an aspect of the ______ segment of the general environment. a. demographic b. global c. physical d. technological
b. global
71. The concepts of Guanxi, Wa, and Inhwa all convey the general idea of: a. entrepreneurial risk-taking. b. interpersonal relationships. c. the value of hard work. d. personal achievement.
b. interpersonal relationships.
72. Global warming and energy consumption trends are aspects of the ______ segment of the general environment that firms should monitor. a. technological b. physical c. sociocultural d. economic
b. physical
95. The highest amount a firm can charge for its products is most directly affected by: a. expected retaliation from competitors. b. the cost of substitute products. c. variable costs of production. d. customers' high switching costs.
b. the cost of substitute products.
96. The threat from substitutes is high when: a. switching costs are high. b. the substitute product's price is lower than the industry product's price. c. the quality of the substitute product is lower than the quality of the industry's product. d. the substitute product stimulates new process innovations within the industry.
b. the substitute product's price is lower than the industry product's price.
90. How is consolidation among fuel providers serving airport facilities viewed in the five forces model of competition? a. As a reduction of the airlines' ability to benefit from economies of scale. b. As an increase in switching costs because the airlines have no choice but to use jet fuel and other oil products. c. As an increase in the bargaining power of suppliers of a critical input. d. As an increase in the intensity of rivalry among airlines for scarce resources.
c. As an increase in the bargaining power of suppliers of a critical input.
55. Demographic changes include variations in income distribution. Which of the following statements is true? a. Firms are most interested in the consumers in the top 10 percent of household income. b. In general, living standards have deteriorated over time. c. The general loss in real income has been somewhat offset by the increase in dual-career couples. d. Workforce diversity is making the concept of average income obsolete.
c. The general loss in real income has been somewhat offset by the increase in dual-career couples.
82. Product differentiation refers to the: a. ability of the buyer of a product to negotiate a lower price. b. response of incumbent firms to new entrants. c. belief by customers that a product is unique. d. fact that as more of a product is produced the cheaper it becomes per unit.
c. belief by customers that a product is unique.
42. Acme Valves, Inc., has been a successful player in the oil field supply industry in the last 15 years. Acme maintained its strategy and product characteristics over this time period. However, the company has experienced declines in sales and profits over the last four quarters. The CEO of Acme should a. continue with the proven strategy because its returns over the long run are important. b. focus on improving efficiency of production and cost control. c. conduct an analysis of the external environment. d. immediately begin making incremental adjustments to the traditional business strategy in an effort to improve sales.
c. conduct an analysis of the external environment.
98. All of the following are forces that create high rivalry within an industry EXCEPT: a. numerous or equally balanced competitors. b. high fixed costs. c. fast industry growth. d. high storage costs.
c. fast industry growth.
70. Because of threats and risks in the global environment, some firms choose to take a more cautious approach by: a. avoiding global markets altogether. b. expanding only to developed countries. c. focusing on global niche markets. d. acquiring already established firms in foreign markets.
c. focusing on global niche markets.
50. When analysts develop feasible projections of future events and how quickly they will occur based on observed changes and trends, they are: engaged in a. scanning. b. monitoring. c. forecasting. d. assessing.
c. forecasting.
61. The political/legal segment of an environment represents: a. the political preferences of different ethnic groups in the society. b. the technological values of different political entities in society. c. how organizations and governments mutually try to influence each other. d. the system of regulations governments at all levels place on businesses.
c. how organizations and governments mutually try to influence each other.
84. Customer loyalty programs such as airline frequent-flyer miles are an attempt to: a. decrease competitors' access to distribution channels. b. develop a cost advantage independent of scale. c. increase customers' switching costs. d. overcome the perishability of the hotel "product."
c. increase customers' switching costs.
79. New entrants to an industry are more likely when: a. it is difficult to gain access to distribution channels. b. economies of scale in the industry are high. c. product differentiation in the industry is low. d. capital requirements in the industry are high.
c. product differentiation in the industry is low.
80. Economies of scale refers to the fact that as the: a. quantity of product produced in a given time period increases, the cost of manufacturing each unit increases. b. quantity of product produced in a given time period increases, the cost of manufacturing each unit remains constant. c. quantity of product produced in a given time period increases, the cost of manufacturing each unit decreases. d. quantity of product produced in a given time period decreases, the cost of manufacturing each unit decreases.
c. quantity of product produced in a given time period increases, the cost of manufacturing each unit decreases.
45. The environmental segments that make up the general environment typically will NOT include: a. demographic factors. b. sociocultural factors. c. substitute products or services. d. technological factors.
c. substitute products or services.
94. Buyers are powerful when: a. there is a threat of forward integration. b. they purchase a small proportion of the supplier's output. c. switching costs are low. d. the buyers' industry is fragmented.
c. switching costs are low.
66. Understanding how new knowledge can develop new products, processes, or materials is a result of analyzing the ______ segment of the general environment. a. economic b. political/legal c. technological d. global
c. technological
99. High-level maintenance on aircraft is performed by the manufacturer. This service after the sale means that in the aircraft industry: a. customers are relatively weak because of the high switching costs created by frequent-flyer programs. b. the industry is moving toward differentiation of services. c. the competitive rivalry in the industry is severe. d. the economic segment of the external environment has shifted, but airline strategies have not changed.
c. the competitive rivalry in the industry is severe.
89. Suppliers are powerful when: a. satisfactory substitutes are available. b. they sell a commodity product. c. they offer a credible threat of forward integration. d. they are in a highly fragmented industry.
c. they offer a credible threat of forward integration.
54. An analysis of income distribution would include all of the following EXCEPT: a. the purchasing power of various age groups. b. the discretionary income of various ethnic groups. c. wage differentials between male and female employees working for a large manufacturer. d. how income is distributed among regions of the United States.
c. wage differentials between male and female employees working for a large manufacturer.
57. An analysis of the economic segment of the external environment would include all of the following EXCEPT: a. interest rates. b. trade deficits or surpluses. c. inflation rates. d. income distribution.
d. income distribution.
78. Which of the following is NOT an entry barrier to an industry? a. Expected competitor retaliation b. Economies of scale c. Customer product loyalty d. Bargaining power of suppliers
d. Bargaining power of suppliers
81. The large amount of advertising by firms such as Procter & Gamble and Colgate-Palmolive is an example of what kind of barrier to entry? a. Access to distribution channels b. Capital requirements c. Economies of scale d. Product differentiation
d. Product differentiation
68. Which of the following would be an example of the application of the next major technological opportunity for organizations? a. Boeing's 747 b. Toyota's hybrid vehicles c. Budweiser's non-alcoholic beer d. SpaceX's reusable space vehicle
d. SpaceX's reusable space vehicle
46. Aardvark Corp. has three products. Two products together make up two-thirds of revenues and constitute 50 percent of company profits. Aardvark's third product makes up one-third of sales. With profitability far above the industry average, this product is responsible for one-half of Aardvark's profits. Which of the following statements regarding assessment of the general environment is accurate for Aardvark? a. The company should monitor the general environment for changes that might affect the revenue of all products. b. The company should monitor the general environment for changes that might affect the profitability of the most profitable products. c. The company should monitor the general environment for changes that might affect the profitability of all products. d. The company should monitor the general environment for changes that might affect the revenue and profitability of all products.
d. The company should monitor the general environment for changes that might affect the revenue and profitability of all products.
93. Golden Lotus, an exercise club targeting healthy individuals over 50, is located in a fast-growing city in the Southwest. Which of the following factors that may have an effect on the success of Golden Lotus is the most directly controllable by the company? a. The sociocultural environment b. The demographics of the environment c. The economy of the local area d. The power of the customers/buyers
d. The power of the customers/buyers
76. An industry is defined as: a. a group of firms producing the same products or services. b. firms producing items that sell through the same distribution channels. c. firms that sell the same products or services to the same customer base. d. a group of firms producing products that are close substitutes.
d. a group of firms producing products that are close substitutes.
52. In analyzing the demographic segment of the general environment, one typically examines all of the following factors EXCEPT: a. age structure. b. ethnic mix. c. distribution of income. d. cultural values.
d. cultural values.
41. The recent joint ventures formed by BP with Russian and Indian partners show the importance of the ______ segment of the general environment in those countries that BP and other oil firms have to manage when contending with scarce resources. a. technological b. physical c. demographic d. global
d. global
74. All of the following are examples of efforts by firms to address the physical segment of the general: a. development of sustainable packaging by McDonald's. b. reduction in carbon dioxide emissions by Procter & Gamble. c. reduction in water usage in plants by Unilever. d. increase in hiring of women and minorities at Microsoft.
d. increase in hiring of women and minorities at Microsoft.
85. As customers come to believe that a firm's product is unique, this allows the firm to: a. decrease its advertising expenditures. b. customize its product. c. force other companies out of the market by lowering prices. d. obtain loyal customers.
d. obtain loyal customers.
100. A manufacturer of washing machines has expanded its plant and has created excess capacity, just as the general economy has taken a downturn. The company is likely to: a. raise prices on washing machines to offset lost sales. b. be vulnerable to new entrants to an attractive market. c. suffer from intense rivalry from international manufacturers. d. offer rebates and incentives for customers who purchase washing machines.
d. offer rebates and incentives for customers who purchase washing machines.
83. When consumers change mobile phone and data service providers, they may be required to maintain service with the provider for a specified time period. This is an example of a: a. cost to a producer to exchange equipment in a facility when new technologies emerge. b. cost of changing the firm's strategic group. c. one-time cost suppliers incur when selling to a different customer. d. one-time cost customers incur when buying from a different supplier.
d. one-time cost customers incur when buying from a different supplier.
73. Green design, sustainable packaging, waste management, and energy efficiency are aspects of the ______ segment of the general environment that companies have sought to address with environmental sustainability initiatives. a. technological b. political/legal c. global d. physical
d. physical
56. The Obama administration sought to pursue policies that would: a. remove the United States from NAFTA. b. abolish antitrust laws. c. increase the amount of work U.S. companies outsource to firms in other nations. d. reduce the amount of work U.S. companies outsource to firms in other nations
d. reduce the amount of work U.S. companies outsource to firms in other nations.
49. The use of the Internet by Netflix to collect data on customer preferences is an example of: a. assessing. b. monitoring. c. forecasting. d. scanning.
d. scanning.
40. Coca-Cola and PepsiCo have been accused of contributing to the obesity problem in the United States. This accusation comes from the ______segment of the general environment. a. economic b. political/legal c. technological d. sociocultural
d. sociocultural
67. The next critical technological opportunity for organizations is predicted to be: a. the Internet. b. multiphasic interventions. c. biological engineering. d. wireless communications.
d. wireless communications.