Deck 3: Analyzing the External Environment

Question 1

Personal opinions and casual observations about the external environment provide exactly the kind of information that managers should use when formulating strategies.

Answer 1

False

Question 2

Substitute products pose a strong threat when they are more effective and priced lower than your existing products.

Answer 2

True

Question 3

One reason that managers analyze conditions in the external environment is to help them select a strategy to implement.

Answer 3

True

Question 4

Licensing and permit requirements in liquor retailing and banking are examples of barriers to entry that are based on government policy.

Question 5

Powerful suppliers can either increase the price of their product or reduce the quality while selling it at the same price.

Question 6

Electronic Arts (EA) is a powerful supplier in the electronic game industry. As a result, EA's actions can reduce the profit potential of companies that make electronic game boxes, such as Sony, Microsoft and Nintendo.

Question 7

IN the United States there has been a geographic shift in the population as people have migrated from the south and west to the northern and eastern parts of the country.

Question 8

Imagine that you are in your final semester of college and you decide to transfer to a different school. This decision probably involves few, if any switching costs.

Question 9

Changes in lifestyles, population size, society's attitudes, educational status and marital status are all examples of demographic trends in the general environment.

Question 10

By keeping up with technological trends a company may be able to identify and incorporate cutting edge technology developed in other industries into its own products.

Question 11

Economies of scale and capital requirements are two of the barriers to entry that companies might try to establish in order to reduce the chances that a new competitor might enter the industry.

Question 12

Economic trends affect customers' purchasing decisions and how firm's allocate their resources.

Question 13

The process of transforming state-owned firms to privately owned companies is known as deregulation.

Question 14

Subprime mortgages are the leading cause of the 2007-2008 financial crisis in the US.

Question 15

Changes in a society's attitudes and cultural values reflect demographic trends.

Question 16

Home Depot and Lowes' installation service businesses are expected to grow as the population ages.

Question 17

Income growth or decline, savings rates, and currency exchange rates are examples of economic trends.

Question 18

When companies like Home Depot and Lowes analyze the external environment they are trying to understand how demographic trends might impact future profitability.

Question 19

Between 2000-2020 the percentage of Americans over age 65 will decrease by approximately seven percent.

Question 20

Firms can exercise a moderate amount of direct control over the demographic and economic trends in the general environment.

Question 21

A company's choice of which strategies to implement is a function of

A) conditions in the firm's external and internal environments
B) government policy
C) managerial risk taking
D) competitor imitation

Question 22

Which of the following IS NOT a demographic trend?

A) increasing population rates and size of international markets, such as China and India
B) increasing average age of American consumers
C) increasing number of Asian consumers in the US
D) increasing interest rates and rates of inflation

Question 23

Conditions in a firm's general, industry and competitor environments with the potential to "prevent the firm from successfully using its core competencies" are known as

A) strengths
B) weaknesses
C) opportunities
D) threats

Question 24

"Changes in organizations and interest groups that compete for a voice in developing and overseeing the body of laws and regulations that guide interactions among firms and nations" are known as

A) political/legal trends
B) economic trends
C) demographic trends
D) socio-cultural trends

Question 25

The increasing Hispanic population in the United States is a example of a(n)

A) demographic trend.
B) sociocultural trend.
C) global trend.
D) economic trend.

Question 26

Trends in the broader society that influence an industry and the firms in it are known as

A) the general environment
B) the competitive environment
C) the industry environment
D) the external environment

Question 27

Which of the following conditions in the general environment are outside the firm's direct control?

A) demographic trends
B) sociocultural trends
C) economic trends
D) all of these are outside the firm's direct control

Question 28

The substantial growth of the customer installation service businesses of Home Depot and Lowe's is primarily due to which of these demographic trends?

A) migration of people from the northern and eastern regions of the United States to the west and south
B) increased low price competition from companies in India and China
C) increasing affluence of the Hispanic customer base
D) increasing age of baby boomers

Question 29

Which of the following IS NOT and economic trend?

A) increased global competition
B) changes in how much people invest in savings
C) currency exchange rates
D) changes in interest rates

Question 30

Conditions in a company's general, industry and competitor environments that "enable the firm to use its core competencies to achieve its vision" are known as

A) strengths
B) threats
C) opportunities
D) weaknesses

Question 31

Companies with high market dependence are likely to respond strongly when competitors attack their market position.

Question 32

As switching costs and the industry growth rate decline, competitive rivalry will also decline.

Question 33

A company's motivation to leverage its resources and capabilities to reach its vision is known as market dependence.

Question 34

According to the text, the external environment is comprised of which segments or parts?

A) company history, governance mechanisms and environmental threats
B) boards of directors, consumer advocacy groups and news media
C) general, industry and competitor environments
D) none of these

Question 35

A high degree of differentiation between competitors' products decreases competitive rivalry.

Question 36

By the year 2015 the world population will grow to

A) 5.1 billion.
B) 7.2 billion.
C) 10.6 billion.
D) 6.1 billion.

Question 37

Digital storage disks, photo editing software, and photo printers are complimentary products to digital cameras.

Question 38

By 2020

A) the U.S. Hispanic population will be over 75 million.
B) the number of Americans aged 65 and older will be 55 million.
C) U.S. annual median per capita income will be $60K.
D) the U.S. population under 30 years old will account for 20 percent of the population.

Question 39

The increase in the number of Hispanic consumers in the United States reflects which of the following demographic trends?

A) change in age structure
B) change in geographic distribution
C) change in income distribution
D) change in ethnic mix

Question 40

In the airline industry, specialized assets create significant exit barriers and intensify the rivalry among competitors.

Question 41

High interest rate loans designed for people with prior credit problems are known as

A) prime rate loans.
B) junk bonds.
C) subprime loans.
D) repackaged securities.

Question 42

Which of the following IS NOT a potential barrier to entry?

A) Economies of scale
B) Agency costs
C) Switching costs
D) Capital requirements

Question 43

In eastern Europe many state or government-owned enterprises have been transformed into private companies in a process known as

A) deregulation
B) privatization
C) expatriation
D) repatriation

Question 44

This global organization, based in Geneva, is responsible for establishing trade rules in the global environment.

A) European Commission (EC)
B) World Trade Organization (WTO)
C) Federal Trade Administration (FTA)
D) Food and Drug Administration (FDA)

Question 45

The "one-time costs that customers incur when they decide to buy a product from a different supplier" are known as

A) switching costs
B) economies of scale
C) economies of scope
D) capital requirements

Question 46

A group of firms that produce similar products is BEST known as

A) an industry
B) a coalition
C) a joint venture
D) a merger

Question 47

Competition in the airline industry in the United States has intensified by the entry of a small, nimble competitor known as

A) American Airlines
B) Jet Blue
C) United Airlines
D) Northwest Airlines

Question 48

When a firm experiences improvements in efficiency as it incrementally increases its size, the firm is said to have created which of the following barriers to entry?

A) economies of switching
B) economies of scope
C) economies of scale
D) economies of distribution

Question 49

The global environmental trend that will result in a sever shortage of workers is known as

A) the employment power shift
B) a downside of nanotechnology
C) repatriation
D) outsourcing

Question 50

In which of the following functional areas is it NOT possible for a firm to realize economies of scale?

A) manufacturing
B) marketing
C) purchasing
D) economies of scale are possible in all of these functional areas

Question 51

Which of the following IS NOT a political/legal trend that can influence how a company implements strategy?

A) reduction of interest rates to increase consumer spending
B) taxation policies
C) labor laws
D) anti-trust regulations and policies

Question 52

The primary purpose of applying Michael Porter's five forces model is to

A) waste time and resources.
B) determine the profit potential of an industry.
C) maximize opportunities and threats in the external environment.
D) increase uncertainty regarding environmental characteristics.

Question 53

Which of the following IS NOT one of the five important global trends discussed in chapter three?

A) advent of nanotechnology
B) global warming
C) water shortages
D) increase in trade barriers

Question 54

In which of the following countries or regions is the emphasis on saving the environment the STRONGEST?

A) Latin America
B) Russia
C) Europe
D) United States

Question 55

Companies that develop policies to reduce waste going to landfills are addressing which of the following?

A) sociocultural environment
B) political/legal environment
C) physical environment
D) global environment

Question 56

Which of the following DOES NOT reflect an example of the impact a new entrant might have on an industry?

A) A new entrant might take away market share from existing competitors.
B) A new entrant might increase production capacity in the industry so that overcapacity results.
C) A new entrant might force existing firms to learn new ways of doing things.
D) A new entrant might decrease competitive rivalry.

Question 57

If a customer perceives that an established firm's products meet his/her needs in a unique way, the firm has succeeded in establishing

A) economies of scale
B) differentiation
C) switching costs
D) capital requirements

Question 58

Which of the following technological trends has played a significant role in the global economy?

A) emphasis on saving the environment
B) increased health consciousness
C) emergence of the Internet
D) employment power shift

Question 59

Changes in a society's attitudes and cultural values are known as

A) demographic trends
B) socio-cultural trends
C) technological trends
D) global trends

Question 60

When changes occur in the activities that help create new knowledge or in the activities that help transform new knowledge into new processes, products or materials - these changes are known as ____.

A) demographic trends
B) political trends
C) socio-cultural trend
D) technological trends

Question 61

When a company tries to understand the competition, it should gather information about

A) the competitors' strategic intent
B) the competitors' current strategies
C) the competitors' strengths and weaknesses
D) all of these

Question 62

Why is it important for firms to analyze the industry environment and how is Michael Porter's five forces model useful as an analytical tool.

Question 63

Goods or services from outside the industry that perform functions that are similar to an existing product in a different industry are known as

A) complimentary products
B) substitute products
C) switching products
D) differentiated products

Question 64

When a supplier is able to increase the price of its product or reduce the quality of the product while maintaining the same price, that supplier possesses significant

A) bargaining power
B) substitute products
C) switching costs
D) capital requirements

Question 65

A company's "motivation to leverage its resources and capabilities to reach its vision" is known as

A) competitive rivalry
B) market dependence
C) strategic intent
D) complementary action

Question 66

Which of the following IS NOT one of the basic areas that a company like Boeing should study in order to understand in which areas its competitor, Airbus is strong or weak?

A) financial resources
B) innovation capability
C) innovation capability
D) organizational structure

Question 67

If a firm derives a large percentage of its revenue from a particular market, the firm exhibits

A) market dependence
B) market independence
C) market dominance
D) market completeness

Question 68

As industry growth slows

A) competitive rivalry increases.
B) supplier bargaining power increases.
C) competitive rivalry decreases.
D) bargaining power decreases.

Question 69

Which of the following conditions DOES NOT increase the intensity of competitive rivalry?

A) undifferentiated products
B) low switching costs
C) fast industry growth
D) high fixed costs of exit

Question 70

Which of the following IS NOT an example of an exit barrier?

A) switching costs
B) fixed costs of exit, such as labor agreements
C) emotional barriers
D) specialized assets

Question 71

What are the components of the general environment and why is it important to understand them.

Question 72

Licensing and permit requirements are two examples of which type of entry barrier?

A) government policy
B) differentiation
C) switching costs
D) economies of scale

Question 73

Competitive rivalry is usually based on which of the following dimensions?

A) price
B) quality
C) innovation
D) Competitive rivalry can be based on any of these dimensions.

Question 74

Which of the following products would be considered the BEST complementor to a personal computer?

A) ink cartridges
B) software and games
C) premium photo paper
D) miniature black and white television

Question 75

Which of the following conditions DOES NOT increase the bargaining power of buyers?

A) Buyers purchase a relatively large portion of the selling firm's output
B) Buyers can switch to another product with no switching costs
C) Buyers pose a credible threat to pursue backward vertical integration
D) Buyers purchase a relatively small amount of the selling firm's output

Question 76

Complementary products can facilitate the sale of another product or

A) reduce economies of scale
B) reduce switching costs
C) increase the functionality of the original product
D) increase government regulation