475 Chapter 3

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

Managers cannot determine the changing speed of an industry or the rate of innovation

How is a firm's task environment different from its general environment?

Managers have some influence over external factors in the task environment; they have little direct effect over external forces in the general environment.

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?

legal factors

Which of the following is a macroeconomic factor that can affect a firm's strategy?

levels of employment

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?

the stage of the business cycle that the country is in

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?

He needs to find out if his company as well as other companies can provide the complements.

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

threat of new entrants is most likely low.

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

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

Which of the following is likely to happen due to horizontal mergers between competitors such as Delta and Northwest airlines?

The overall industry profitability will increase.

Which of the following statements with regard to industry structures is true?

A consolidated industry tends to be more profitable than a fragmented one

Which of the following fundamental insights was provided by Porter's five forces framework from the completion of the Alta Velocidad Española (AVE)?

Any of the five forces on its own, if sufficiently strong, can extract industry profitability.

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?

Consumer demand will increase

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

Cutthroat competition

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?

Economies of scale

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?

Entry barriers usually protect the incumbent players in a profitable industry

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?

Firm Effects

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?

Industry Convergence

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

Only achieve competitive parity

The ________ allows the scanning, monitoring, and evaluating of changes and trends in a firm's macro environment.

PESTEL

Which of the following statements is true about strategic groups?

Profitability varies between different strategic groups

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?

Pursue a differentiated strategy.

) Zoom Zoom Car Rental follows a cost-leadership strategy. Which of the following firms will most likely be its direct competitor?

Reliable Rental Cars, which follows a low-cost strategy

Keeping in mind the five forces in the airline industry, which of the following best explains the difficulty airlines have in generating a profit?

Substitutes are readily available in the form of trains, buses, and cars, thus reducing the profit potential in the industry

In which of the following situations is the power of suppliers high in an industry?

Suppliers' industry is more concentrated than the industry it sells to

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?

The company is likely to be very profitable as long as the threat to entry is low.

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?

Threat of Substitutes

How are cumulative learning and experience effects of a company most likely to affect Michael Porter's five forces?

Threat of new entrants will be low.

A strategic group is

a set of companies that pursue a similar strategy within a specific industry in their quest for competitive advantage.

Economies of scale are cost advantages that accrue for firms with

larger output

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

backward integration In this scenario, All Needs Inc. has exercised its bargaining power as a buyer through backward integration. Buyers are powerful when they can credibly threaten backward integration. Backward integration occurs when a buyer moves upstream in the industry value chain, into the seller's business.

In an industry, the threat of entry is high when

capital requirements are low.

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

co-opetition This scenario best illustrates the process of co-opetition. Co-opetition is cooperation by competitors to achieve a strategic objective.

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.

competition

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

decreased industry profit potential.

A strategic group will typically include

firms within the same industry.

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?

monopolistic competition This scenario best illustrates a monopolistically competitive structure. A monopolistically competitive industry is characterized by many firms, a differentiated product, some obstacles to entry, and the ability to raise prices for a relatively unique product while retaining customers.

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.?

network effects

A firm's ________ relates to its ability to create value for customers (V) while containing the cost to do so (C).

strategic position

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

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

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?

the family size of the firm's target market

A firm's strategic position is likely to be strong when

the gap between the value the firm's product generates and the cost to produce it is large.