Deck 2: Evaluating a Firms External Environment

Question 1

Understanding a firm's general environment can help the firm identify some of the threats and opportunities it faces.

Answer 1

True

Question 2

Proprietary technology often is more important as a barrier to entry than is managerial know-how.

Answer 2

False

Question 3

In general, technological change creates opportunities, but not threats.

Answer 3

False

Question 4

Diseconomies of scale exist in an industry when a firm's costs fall as a function of that firm's volume of production.

Question 5

Learning-curve cost advantages are present when the cost of production falls with the cumulative volume of production.

Question 6

The aging of the "baby boomer" generation in American society is an example of a demographic trend.

Question 7

Monopolistically competitive industries consist of only a single firm.

Question 8

In the structure-conduct-performance model, the term "structure" refers to industry structure, which can be measured by such factors as the number of competitors in an industry.

Question 9

Within the five forces framework, when all five threats are very high, competition in the industry begins to approach a monopoly.

Question 10

The five forces framework is based on the S-C-P model and identifies the five most common threats facing firms from their local competitive environment and the conditions under which these threats are more or less likely to be present.

Question 11

Brand identification and customer loyalty serve as entry barriers because new entrants not only have to absorb the standard costs associated with starting production in a new industry, but also have to absorb the costs associated with overcoming an incumbent firm's differentiation advantages.

Question 12

In the structure-conduct-performance model, the term "performance" refers solely to the performance of individual firms.

Question 13

The S-C-P model assumes that any competitive advantages a firm has in an industry must benefit society.

Question 14

According to the S-C-P model, attributes of the industry structure within which a firm operates define the range of options and constraints facing a firm.

Question 15

The threat of existing competition tends to be high in an industry when firms are able to meaningfully differentiate their products.

Question 16

A firm's general environment consists of broad trends in the context within which the firm operates that can have an impact on the firm's strategic choices.

Question 17

The threat of entry in an industry depends on the cost of entry, and the cost of entry, in turn, depends upon the existence and "height" of barriers to entry.

Question 18

Incumbent firms may have a whole range of cost advantages compared to new competitors.

Question 19

In a perfectly competitive industry, a large number of firms have products and services that are similar to each other and it is not very costly for firms to enter into or exit these markets.

Question 20

Culture is largely the same across the world.

Question 21

Product innovation is an effort to refine and improve a firm's current processes.

Question 22

In general, it is rarely the case that all five forces in the five forces framework will be equally threatening at the same time.

Question 23

If the owner of a jewelry store who normally purchased diamonds from a diamond brokerage firm were to open his own diamond brokerage firm, this would be an example of forward vertical integration.

Question 24

An emerging industry is an industry in which a large number of small or medium-sized firms operate and no small set of firms has a dominant market share or creates dominant technologies.

Question 25

First movers that invest only in technology usually obtain sustained competitive advantages, even if they do not tie up strategically valuable resources in an industry before their full value is widely understood.

Question 26

In an industry, the products or services provided by a firm's competition meet approximately the same customer needs in the same way as the products or services provided by the firm itself, whereas substitutes meet approximately the same customer needs but do so in different ways.

Question 27

The major opportunity facing firms in fragmented industries is the implementation of strategies that begin to consolidate the industry into a smaller number of firms.

Question 28

Mature industries are characterized by elements such as increasing growth in total industry demand, significant increases in product capacity, and an overall increase in the profitability of firms in the industry.

Question 29

According to Bradenburger and Nalebluff, a firm's competitors help increase the size of a firm's markets while complementors divide this market among a set of firms.

Question 30

Suppliers are a greater threat to firms in an industry when suppliers are threatened by substitutes.

Question 31

Sophisticated software can enhance the value that customers receive from a personal computer. Therefore, software can be said to be a complementor of a personal computer.

Question 32

The threat of buyers is greater if the products or services that are being sold to buyers are standard and not differentiated than if the products sold to buyers are highly differentiated.

Question 33

It is possible for a single firm to be a complementor of one firm and a competitor of another.

Question 34

The objective of divestment is to extract a firm from a declining industry.

Question 35

A firm's supplier poses a greater threat if the supplier's industry has a large number of firms, none of which dominate the supplying industry, than if the supplier's industry is dominated by a small number of firms.

Question 36

All divestments are caused by industry decline.

Question 37

If you were to purchase a new Apple iPod and were unable to use your previously downloaded library of digital music with your new iPod, this would be an example of a customer-switching cost you would incur to use Apple's product.

Question 38

Firms pursuing a harvest strategy in a declining industry do not expect to remain in the industry over the long term.

Question 39

A firm following a niche strategy in a declining industry reduces its scope of operations and focuses on narrow segments of the declining industry.

Question 40

A fragmented industry is an industry that has experienced an absolute decline in unit sales over a sustained period of time.

Question 41

The products or services provided by a firm's substitutes meet ________ customer needs in ________ ways as the product provided by the firm itself.

A) different; the same
B) approximately the same; the same
C) different; different
D) approximately the same; different

Question 42

In a perfectly competitive industry,

A) there are relatively few firms operating in the industry.
B) the products and services sold by firms in the industry are very different from each other.
C) it is very costly for firms to enter the industry.
D) it is not very costly for firms to enter or exit the industry.

Question 43

The ________ consists of broad trends in the context in which a firm operates that can have an impact on a firm's strategic choices.

A) micro-environment
B) general environment
C) task environment
D) internal environment

Question 44

Civil wars, political coups, terrorism, wars between countries, famines, and country or regional economic recessions are all examples of which element of the general environment?

A) demographics
B) specific international events
C) economics
D) culture

Question 45

The products or services provided by a firm's direct competitors meet ________ customer needs in ________ ways as the product provided by the firm itself.

A) different; the same
B) approximately the same; the same
C) different; different
D) approximately the same; different

Question 46

Which type of competition is characterized by a large number of firms, heterogeneous products and low cost of entry and exit?

A) perfect competition
B) monopolistic competition
C) oligopoly
D) monopoly

Question 47

The threat of direct competition tends to be high when

A) there are few firms in an industry and these firms tend to be unequal in size.
B) the industry growth rate is higher.
C) firms are unable to differentiate their products.
D) production capacity can be added in small increments.

Question 48

All other things being equal, which of the following would lead to lower barriers to entry in an industry?

A) The existence of economies of scale in the industry
B) Products are highly differentiated in the industry.
C) Industry incumbents have learning-curve cost advantages.
D) Raw materials are widely and readily available at a competitive price.

Question 49

Within the five forces framework, the five most common threats facing firms from their competitive environment include each of the following except

A) substitutes.
B) complementors.
C) suppliers.
D) buyers.

Question 50

Firms in industries characterized by ________ can expect to earn only competitive parity.

A) perfect competition
B) monopolistic competition
C) oligopoly
D) monopoly

Question 51

The values, beliefs and norms that guide behavior in a society are known as

A) climate.
B) demographics.
C) economics.
D) culture.

Question 52

A(n) ________ is any individual, group, or organization outside a firm that seeks to reduce the level of that firm's performance.

A) environmental threat
B) environmental opportunity
C) environmental equalizer
D) competitive advantage

Question 53

Frequent price cutting by firms in an industry, frequent introduction of new products by firms in an industry and intense advertising campaigns are indications of

A) high power of buyers.
B) high threat of new entrants.
C) high levels of direct competition.
D) high threat of substitutes.

Question 54

When activity in an economy is relatively low for a short period of time, the economy is said to be in a

A) recession.
B) depression.
C) prosperous cycle.
D) boom.

Question 55

Which type of competition is characterized by a small number of firms, homogeneous products and costly entry and exit?

A) perfect competition
B) monopolistic competition
C) oligopoly
D) monopoly

Question 56

All of the following are elements of the general environment except

A) technological trends.
B) demographic trends.
C) industrial trends.
D) cultural trends.

Question 57

________ 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

Question 58

________ is/are the distribution of individuals in a society in terms of age, sex, marital status, income, ethnicity, and other personal attributes that may determine buying patterns.

A) Demographics
B) Economics
C) Technological trends
D) Culture

Question 59

In the S-C-P model, ________ refers to the strategies that firms in an industry implement.

A) structure
B) strategy
C) conduct
D) performance

Question 60

Firms that have either recently begun operations in an industry or that threaten to begin operations in an industry soon are considered to be ________ in the five forces framework.

A) barriers to entry
B) new competitors
C) suppliers
D) buyers

Question 61

An industry in which a large number of small or medium-sized firms operate and no small set of firms has dominant market share or creates dominant technologies is known as a(n) ________ industry.

A) fragmented
B) consolidated
C) mature
D) emerging

Question 62

In general, first-mover advantages can arise from any of these sources except

A) technological leadership.
B) preemption of strategically valuable assets.
C) the creation of customer switching costs.
D) using an imitative strategy to introduce improved versions of competitors' new products.

Question 63

Buyers tend to have less power when

A) a firm has only one buyer, or a small number of buyers.
B) the products or services being sold to buyers are standard and not differentiated.
C) the supplies they purchase are an insignificant portion of the costs of their final products.
D) they are not earning significant economic profits.

Question 64

Mature industries are characterized by

A) an increase in total industry demand.
B) faster increases in production capacity.
C) a slowdown in the introduction of new products or services.
D) a decrease in the amount of international competition.

Question 65

A consolidation strategy is a good option in what type of industry?

A) mature
B) emerging
C) fragmented
D) declining

Question 66

________ costs exist when customers make investments in order to use a firm's particular products or services.

A) First-mover-switching
B) Technological leadership-switching
C) Customer-switching
D) Process-switching

Question 67

________ are advantages that come to firms that make important strategic and technological decisions early in the development of an industry.

A) Visionary advantages
B) First-mover advantages
C) Comparative advantages
D) Missionary advantages

Question 68

The major opportunity facing firms in fragmented industries is

A) refining their current products and emphasizing an increase in service quality.
B) developing new products and technologies.
C) creating a first-mover advantage through technological leadership.
D) the implementation of strategies that began to consolidate the industry into a smaller number of firms.

Question 69

Which of the following attributes makes suppliers a stronger threat?

A) The supplier's industry is dominated by a small number of firms.
B) The product or service provided by suppliers is not highly differentiated.
C) Suppliers are threatened by substitutes.
D) Suppliers are not able to engage in forward vertical integration.

Question 70

If your customers value your products more when they have your product and another firm's product rather than when they have your product alone, the other firm is considered to be a

A) competitor.
B) complementor.
C) rival.
D) substitute.

Question 71

Firms in a declining industry that engage in a long, systematic phased withdrawal from the industry, extracting as much value as possible during the withdrawal period, are following a(n) ________ strategy.

A) niche
B) expansion
C) divestment
D) harvest

Question 72

Which of the following statements regarding substitutes is accurate?

A) In the extreme, substitutes can ultimately replace an industry's products or services.
B) Substitutes place a floor on the prices firms in an industry can charge and on the profits firms in an industry can earn.
C) Substitutes rarely impact the profitability that firms in an industry can earn.
D) The importance of substitutes in reducing the profit potential in a wide variety of industries is decreasing.

Question 73

Which of the following is the best example of forward vertical integration?

A) a car dealership opening up its own automobile manufacturing plant
B) a car company opening its own dealerships to sell its products directly to customers
C) a car company opening its own chain of video rental stores
D) a car company opening a plant to product motorcycles

Question 74

________ are resources required to successfully compete in an industry.

A) Strategically valuable assets
B) Technological leader strategies
C) Process innovations
D) Product innovations

Question 75

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 best be described as a(n) ________ industry.

A) emerging
B) fragmented
C) consolidated
D) declining

Question 76

Overall, the average level of performance in an industry is likely to be highest when

A) the threat level of all five forces is high.
B) the threat level of rivalry and substitutes is low, but the threat level of suppliers, buyers and new entrants is high.
C) the threat level of rivalry, substitutes and new entrants is high, but the threat level of buyers and supplies is low.
D) the threat level of all five forces is low.

Question 77

The advantages that come to firms that make important strategic and technological decisions early in the development of an industry are known as ________ advantages.

A) first-mover
B) competitive
C) comparative
D) emerging

Question 78

________ make a wide variety of raw materials, labor and other critical assets available to firms.

A) Buyers
B) Rivals
C) Suppliers
D) Substitutes

Question 79

The most promising opportunity for a firm in a declining industry is to

A) establish itself as a first mover in the post-shakeout industry.
B) become a market leader in the pre-shakeout industry.
C) become a fast follower in the pre-shakeout industry.
D) merge with another firm.

Question 80

Industries in which a large number of small or medium-sized firms operate and no small set of firms has dominant market share or creates dominant technologies are called ________ industries.

A) fragmented
B) mature
C) emerging
D) declining