Question 1

Bryan is a manager at a software firm. The CEO tells him that the industry as a whole has become increasingly profitable over the past five years. Based on this information, Bryan is most likely to expect

Accepted Answer

One of the key insights of the five forces model is that the more profitable an industry, the more attractive it becomes to competitors. With the threat of additional capacity coming into an industry, incumbent firms may lower prices to make entry appear less attractive to the potential new competitors, or they may spend more to satisfy their existing customers.

Question 2

Curry Rush is a premium Asian restaurant chain that differentiates itself from a large number of competitors by providing exclusively organic Vietnamese cuisine. It has some pricing power because it provides differentiated products and therefore, has some entry barriers in place. In this scenario, Curry Rush is most likely operating in a(n)

Accepted Answer

In this scenario, Curry Rush is most likely operating in a monopolistically competitive industry. 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.

Question 3

Mara is a management consultant for a soda manufacturer that wants to expand into health drinks such as green tea and after-workout drinks. Based on what you have read, which of these is sensible advice for Mara to offer her client?

Accepted Answer

Rather than considering firm entry as a discrete event (i.e., simple yes or no decision), or a discrete event of five parts, this model suggests that the entry choices firms make constitute a strategic process unfolding over time.

Question 4

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

Accepted Answer

Such competitive actions are indicative of cutthroat competition and a low profit potential in the traditional fast-food industry.

Question 5

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?

Accepted Answer

One of the challenges that strategic leaders face is that often the most attractive industries in terms of profitability are also the hardest to break into because they are protected by entry barriers.

Question 6

A strategic group will typically include

Accepted Answer

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

Question 7

Peerless Inc., a large conglomerate, wants to liquidate its business in certain industries to improve its overall profitability. Which of the following industries would Peerless Inc. find it most difficult to exit?

Accepted Answer

Peerless Inc. would find it most difficult to exit the steel industry in which the company has obligations like severance pay toward employees. Exit barriers are comprised of both economic and social factors. A company exiting an industry may still have contractual obligations to suppliers, such as employee health care and retirement benefits, as well as severance pay.

Question 8

Bethany is a chef who owns three moderately successful restaurants with innovative menus. Based on what you have read, which of these approaches could help her improve her profits?

Accepted Answer

To increase the probability of a successful entry into a new market, one option is to leverage existing assets-that is, to think about a new combination of resources and capabilities that the firm already possesses. Bethany's knowledge, her innovative cooking and serving equipment, and her staff are likely to be valuable assets if she decides to go into the catering business.

Question 9

Jamie is a manager in an industry that has a few large players and that has remained relatively stable over the past few years. He finds out that legislators are proposing new laws to deregulate the industry. If the laws pass, which of these scenarios will Jamie most likely face?

Accepted Answer

Consolidated industry structures may break up and become more fragmented. This generally happens when there are external shocks to an industry such as deregulation, new legislation, technological innovation, or globalization. For example, the emergence of the internet moved the stock brokerage business from an oligopoly controlled by full-service firms to monopolistic competition with many generic online brokers.

Question 10

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

Accepted Answer

Having fewer competitors generally equates to higher industry profitability. According to Strategy Highlight 3.2, the U.S. domestic airline industry has witnessed several large, horizontal mergers between competitors, including Delta and Northwest, United and Continental, Southwest and AirTran, as well as American and U.S. Airways. These moves in turn allow the remaining carriers to enjoy a more benign industry structure.

Question 11

Companies in the same strategic group are ________ to each other.

Accepted Answer

Companies in the same strategic group are direct competitors. The rivalry among firms of the same strategic group is generally more intense than the rivalry between strategic groups: intra-group rivalry exceeds inter-group rivalry.

Question 12

Due to economic regression in Freedonia, the profitability of the large corporation Happiness Products Inc. (HPI) was poor. An analysis of the company's business showed that the company could become profitable if it divested a few strategic business units under its banner. From which of the following businesses would HPI find it most easy to exit?

Accepted Answer

HPI would find it most easy to exit the e-commerce retail business where investments on assets are low. Exit barriers are comprised of both economic and social factors. They include fixed costs that must be paid regardless of whether the company is operating in the industry or not. A company exiting an industry may still have contractual obligations to suppliers, such as employee health care and retirement benefits, as well as severance pay. Social factors include elements like emotional attachments to certain geographic locations.

Question 13

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?

Accepted Answer

Complements increase demand for the primary product, thereby enhancing the profit potential for the industry and the firm. Firms may choose to provide the complements themselves or work with another company to accomplish this.

Question 14

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

Accepted Answer

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

Question 15

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

Accepted Answer

Since a consolidated industry tends to be more profitable than a fragmented one, firms have a tendency to change the industry structure in their favor, making it more consolidated through (horizontal) mergers and acquisitions.

Question 16

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

Accepted Answer

With the five-forces-plus-complements model, one cannot determine the changing speed of an industry or the rate of innovation. This drawback implies that managers must repeat their analysis over time in order to create a more accurate picture of their industry.

Question 17

Competitive rivalry based solely on ________ is destructive to firms as it transfers most of the value created in the industry to the customers.

Accepted Answer

Competitive rivalry based solely on cutting prices is especially destructive to profitability because it transfers most, if not all, of the value created in the industry to the customers-leaving little, if anything, for the firms in the industry.

Question 18

Years ago, the travel industry was controlled by a few large travel companies that booked holidays, air tickets, bus tickets, and hotels for their customers. However, with the emergence of the internet, smaller travel agencies started mushrooming in the industry and customers started making their own reservations. Which of the following can be inferred from this information?

Accepted Answer

A consolidated industry structures may break up and become more fragmented. This generally happens when there are external shocks to an industry such as deregulation, new legislation, technological innovation, or globalization.

Question 19

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?

Accepted Answer

This phenomenon is best known as industry convergence. Industry convergence is a process whereby formerly unrelated industries begin to satisfy the same customer need. Industry convergence is often brought on by technological advances.

Question 20

Hammer and Nails, Local Motion, DIY Palace, and Handy Paradise are all hardware stores that compete against each other through everyday low pricing and discounts on bulk purchases. All four stores cater to the needs of highly price-sensitive customers. Thus, together these stores form a

Accepted Answer

Together the four stores form a strategic group. A strategic group is a set of companies that pursue a similar strategy within a specific industry in their quest for competitive advantage. Companies in the same strategic group are direct competitors.

Quiz 3: External Analysis: Industry Structure, Competitive Forces, and Strategic Groups