Chapter 3

In addition to the static nature of the PESTEL, Porter's five forces, and strategic group mapping frameworks, what is their other shortcoming? 1) It does not help us understand why there are performance differences among firms in the same strategic group. 2) It does not account for the threat of new entrants or proposed governmental legislation. 3) It does not refer to the international nature of the PESTEL factors.

- It does not help us understand why there are performance differences among firms in the same strategic group.

Which of the following are approaches for answering the question "How to enter?" when a firm is considering entering an industry? 1) Reconfiguring value chains 2) Establishing a niche 3) Timing of the entry 4) Leverage existing assets

- Reconfiguring value chains - Establishing a niche - Leverage existing assets

industry effects & firm effects

- a firms performance can be determined by industry effects and firm effects

entry choices

1) when - when to entry 2) how - how to enter - reconfiguring value chains, establishing a niche, leverage ecisting assets 3) what - what type of entry 4) where - where to enter 5) who - identify the players

Many drivers find a GPS navigation system useful. Because installing a GPS system in an automobile adds value to the vehicle, the system functions as ______. 1) a complement 2) mobility barrier 3) co-opetition 4) loss leader

- a complement

strategic commitments

- are firms actions that are costly, long-term oriented, and difficult to reverse

entry barriers

- economies of scale - are cost adv. that accrue to firms with larger output because they can spread fixed costs over more units - network effects - the positive effect that one user of a product or services has on the value of that product or services for other users - customer switching costs - - capital requirements - the price of the entry ticket into a new inddustry - advantages independent of size (brand loyalty, preferential access, favorable locations) - big firms posses cost & quality adv - government policy - - credible threat of retaliation - incubents firms already in the industry can target new firms and try to stop them from entrying or make it harder

Legal Factors

- include the official outcomes of political processes as manifested in laws, mandates, regulations, and court decisions

ecological factors

- involves broad environmental issues such as the natural environment, global warming, and sustainable economic growth

industry

- is a group of incumbent firms facing more or less the same set of suppliers and buyers.

complement

- is a product, service, or completency that adds value to the original proudct offering.

co-opetition

- is cooperation by competitors to achieve a strategic objective.

Industry Dynamics

- it provides only a point-in-time snapchot of a moving target. - over time, industry structures are not stable - the 5 forces model is a static model

Industry Analysis

- provides a more rigorous basis not only to identify an industry's profit potential - the level of profitability that can be expected for the average firm.

price stability

- the lack of change in price levels of goods and services is rare - inflation - when there is too much money in an economy then prices rise. too much money chasing too few goods and services - deflation - a decrease in the overall pricelevel

PESTEL model

- the model provides a relatively straightforward way to scan, monitor, and evaluate the importatnt external factor and trends that might impinge upon a firm. 1) Political - 2) Economic - 3) Sociocultural - 4) Technological - 5) Ecological - global warming 6) Legal -

exit barriers

- the obstacles that determine how easily a firm can leave that industry

The pressure of rivalry increases when which of the following forces increase in intensity? (Check all that apply.) 1) the barriers to entry 2) the power of buyers and suppliers 3) the threat of entry 4) the threat of substitutes

- the power of buyers and suppliers - the threat of entry - the threat of substitutes

sociocultural factors

- capture a society's cultures norms, and values - demographic

Technological Factors

- capture the application of knowledge to create new processes and products

4 Main Competitive Industry Structures

1) Perfect Competition 2) Monopolistic Competition 3) Oligopoly 4) Monopoly

Michael Porter developed the five forces model to help firms do which of the following? 1) determine the profit potential of different industries 2) analyze PESTEL forces 3) understand the strengths and weaknesses of a firm's resources 4) gain and sustain a competitive advantage

- determine the profit potential of different industries - gain and sustain a competitive advantage

Michael Porter developed the five forces model to help firms do which of the following? (Check all that apply.) 1) understand the strengths and weaknesses of a firm's resources 2) analyze PESTEL forces 3) determine the profit potential of different industries 4) gain and sustain a competitive advantage

- determine the profit potential of different industries - gain and sustain a competitive advantage

Power of Buyers

- extent to which buyers influence market rivals

Power of Suppliers

1) powerful suppliers can raise the cost of production by demanding higher prices for their inputs or by reducing the quality of the input factor or service level delivered 2) are a threat to firms because they reduce the industry's profit potential by capturing part of the economic value created

Threat of Entry

1) reduces the industry's overall profit potential - 2) increasaes spending among incubent firms - - entry barriers

Complementors

- a company is a complementor to your company if customers value your product or service offering more when they are able to combine it with other company's product or service

industry convergence

- a process whereby formerly unrelated industries begin to satisfy the same customer need EX: digital media, technological progress in AI, telecommunication advances

Industry Effects

- describes the underlying economic structure of the industry

Which of the following contribute to consumer buying power? 1) low switching costs 2) high levels of product differentiation 3) real time, accurate price comparisons 4) moderately high barriers to entry

- low switching costs - real time, accurate price comparisons

Economic Factors

- mainley macroeconomics, affecting econmy-wide phenomena 1) growth rates - is a measure of the change in the amount of goods and services produced by a nation's economy. 2) levels of employment - growth rates affect Unemployment/employement rates 3) interest rates - the amount that creditors are paid for use of their money and the amount that debtors pay for that use, adjusted for inflation 4) price stability (inflation & deflation) 5) currency exchange rates - determines how many dollars one must pay for a unit of foreign currency

Through use of the PESTEL model, firms are able to do which of the following? (Check all that apply.) 1) monitor external factors 2) determine internal decision-making processes 3) evaluate their resources 4) evaluate external trends

- monitor external factors - evaluate external trends

In the five forces model, threat of entry refers to the risk that ______. 1) startup costs for a given company will be excessive 2) that government regulators will target a given industry 3) potential competitors will enter a given industry 4) an established market will gain more customers

- potential competitors will enter a given industry

competitive industry structure

- refers to elements and features common to all industries. 1) the number and size of competitors 2) the firm's degree of pricing power 3) the type of product or service ( commodity or differentiated product) 4) the height of entry barriers

strategic position

- relates to its ability to create value for customers, while containing the cost to do so.

Five Forces Model

- to help strategic leaders understand the profit potential of different industries and how they can position their firms. - competition is viewed more broadly in the five forces model - includes buyers, suppliers, potential entry of new firms - profit potential is a function of the 5 competitive forces - threat of entry, power of suppliers, power of buyers, threat of subsitutes, and rivalry among existing firms 1) threat of entry 2) power of suppliers 3) power of buyers 4) threat of substitutes 5) rivalry among existing competitors - the stronger the 5 forces, the lower the industry's profit - the weaker the 5 forces, the greater the industry's profit potential

Which of the following tend to result from strong competitive rivalry? 1) limits to the industry's profit potential 2) industry-wide price increases 3) less product differentiation 4) a reduction in the threat of substitutes

- limits to the industry's profit potential

The pressure of rivalry increases when which of the following forces increase in intensity? (Check all that apply.) 1) the threat of substitutes 2) the threat of entry 3) the power of buyers and suppliers 4) the barriers to entry

- the threat of substitutes - the threat of entry - the power of buyers and suppliers

Which of the following are ways that powerful suppliers are a threat to firms? (Check all that apply.) 1) They can force the cost of production to increase. 2) They can reduce the industry's profit potential. 3) They can capture part of the economic value created by firms. 4) They can drive away the consumer market directly.

- They can force the cost of production to increase. - They can reduce the industry's profit potential. - They can capture part of the economic value created by firms.

Firm Effects

- attribute firm performance directly to the actions strategic leaders takes

The pressures that industry suppliers can exert on an industry's profit potential, is also called the ______. 1) rivalry amongst existing competitors 2) bargaining power of buyers 3) bargaining power of suppliers 4) threat of new entry

- bargaining power of suppliers

According to Porter's model, which of the following should be considered when analyzing a firm's competition? (Check all that apply.) 1) buyers 2) the regulations in possible host countries 3) suppliers 4) the threat of substitutes

- buyers - suppliers - the threat of substitutes

Which of the following are ways in which the power of buyers affects producers? (Check all that apply.) 1) by obtaining price discounts 2) by reducing economies of scale 3) by demanding higher quality 4) by requesting more service

- by obtaining price discounts - by demanding higher quality - by requesting more service

Political Factors

- Results from processes and actions of government bodies that can influence decisions and behavior of firms - nonmarket strategies - through lobbying, public relations, contributions, litigation, and so on