Chapter 2: Evaluating a Firms External Environment 11

CHAPTER 2: EVALUATING A FIRMS EXTERNAL ENVIRONMENT TRUE/FALSE QUESTIONS 1. A firm's general environment consists of broad trends in the context ithin hich the firm operates that can have an impact on the firms strategic choices. !rue False Answer: !rue Page: "# !""!#$%&': Eas$ C(a)&er O*+e#&!,e: 1 2. %n general& technological change creates opportunities& but not threats. !rue False Answer: False Page: "' !""!#$%&': (oderate C(a)&er O*+e#&!,e: 1 ". !he aging of the )bab$ boomer* generation in American societ$ is an example of a demographic trend. !rue False Answer: !rue Page: "' !""!#$%&': (oderate C(a)&er O*+e#&!,e: 1 #. Culture is the values& beliefs and norms that guide a behavior in a societ$& and culture is largel$ the same across the orld. !rue False Answer: False Page: "+ !""!#$%&': (oderate C(a)&er O*+e#&!,e: 1 '. A severe recession that lasts for several $ears is ,no n as a depression. !rue False Answer: !rue Page: "!""!#$%&': Eas$ C(a)&er O*+e#&!,e: 1 +. %n the structure.conduct.performance model& the term structure refers to industr$ structure& measured b$ such factors as the number of competitors in an industr$. !rue False Answer: !rue Page: "/ !""!#$%&': (oderate C(a)&er O*+e#&!,e: 2 -. %n the structure.conduct.performance model& the term performance refers solel$ to the performance of individual firms. !rue False Answer: False Page: #0 !""!#$%&': (oderate C(a)&er O*+e#&!,e: 2

12 1art % 2. %n a perfectl$ competitive industr$& there are large numbers of firms operating in the industr$ hose products and services are similar to each other& and it is not ver$ costl$ for firms to enter into or exit these mar,ets. !rue False Answer: !rue Page: #0 !""!#$%&': (oderate C(a)&er O*+e#&!,e: 2 /. !he 3.C.1 model assumes that an$ competitive advantages a firm has in an industr$ must benefit societ$. !rue False Answer: False Page: #0 !""!#$%&': 4ard C(a)&er O*+e#&!,e: 2 10 . According to the 3.C.1 model& attributes of the industr$ structure ithin hich a firm operates define the range of options and constraints facing a firm. !rue False Answer: !rue Page: #0 !""!#$%&': (oderate C(a)&er O*+e#&!,e: 2 11 . !he five forces frame or, is based on the 3.C.1 model and identifies the five most common threats facing firms from their local competitive environment and the conditions under hich these threats are more or less li,el$ to be present. !rue False Answer: !rue Page: #1 !""!#$%&': Eas$ C(a)&er O*+e#&!,e: " 12 . 5ithin the five forces frame or,& hen all five threats are ver$ high competition in the industr$ begins to approach a monopol$. !rue False Answer: False Page: #2 !""!#$%&': (oderate C(a)&er O*+e#&!,e: " 1" . (onopolisticall$ competitive industries consist of onl$ a single firm.

!rue False Answer: False 1# .

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!o a firm see,ing competitive advantage& an environmental threat is an$ individual& group& or organi6ation outside a firm that see,s to reduce the level of that firms performance. !rue False Answer: !rue Page: #1 !""!#$%&': (oderate C(a)&er O*+e#&!,e: "

Chapter 2: Evaluating a Firms External Environment 1"

1' .

!he threat of entr$ in an industr$ depends on the cost of entr$& and the cost of entr$& in turn& depends upon the existence and )height* of barriers to entr$. !rue False Answer: !rue Page: #" !""!#$%&': Eas$ C(a)&er O*+e#&!,e: " 1+ . 7iseconomies of scale exist in an industr$ hen a firms costs fall as a function of that firm's volume of production. !rue False Answer: False Page: #" !""!#$%&': (oderate C(a)&er O*+e#&!,e: " 1. 8rand identification and customer lo$alt$ serve as entr$ barriers because ne entrants not onl$ have to absorb the standard costs associated ith starting production in a ne industr$& but also have to absorb the costs associated ith overcoming incumbent firms differentiation advantages. !rue False Answer: !rue Page: #' !""!#$%&': (oderate C(a)&er O*+e#&!,e: " 12 . 1roprietar$ technolog$ is more important as a barrier to entr$ than is managerial ,no ho . !rue False Answer: False Page: #+ !""!#$%&': 4ard C(a)&er O*+e#&!,e: " 1/ . 9earning.curve cost advantages are present hen the cost of production falls ith the cumulative volume of production. !rue False Answer: !rue Page: #!""!#$%&': Eas$ C(a)&er O*+e#&!,e: " 20 . !he threat of rivalr$ tends to be high in an industr$ hen firms are able to meaningfull$ differentiate their products. !rue False Answer: False Page: #2 !""!#$%&': (oderate C(a)&er O*+e#&!,e: # 21 . %n an industr$ the products or services provided b$ a firms rivals meet approximatel$ the same customer needs in the same a$ as the products or services provided b$ the firm itself& but substitutes meet approximatel$ the same customer needs but do so in different a$s. !rue False Answer: !rue Page: #/ !""!#$%&': 4ard C(a)&er O*+e#&!,e: #

1# 1art %

22 .

A firms suppliers pose a greater threat if the suppliers industr$ has a large number of firms& none of hich dominate the suppl$ing industr$& than if the suppliers industr$ is dominated b$ a small number of firms. !rue False Answer: False Page: #/ !""!#$%&': 4ard C(a)&er O*+e#&!,e: " 2" . 3uppliers are a greater threat to firms in an industr$ hen suppliers are threatened b$ substitutes. !rue False Answer: False Page: '0 !""!#$%&': (oderate C(a)&er O*+e#&!,e: # 2# . !he threat of bu$ers is greater if the products or services that are being sold to bu$ers are standard and not differentiated than if the products sold to bu$ers are highl$ differentiated. !rue False Answer: !rue Page: '1 !""!#$%&': (oderate C(a)&er O*+e#&!,e: " 2' . %f the o ner of a :e elr$ store ho normall$ purchased diamonds from a diamond bro,erage firm ere to open its o n diamond bro,erage firm& this ould be an example of for ard vertical integration. !rue False Answer: False Page: '1 !""!#$%&': (oderate C(a)&er O*+e#&!,e: " 2+ . %n general& it is rarel$ the case that all five forces in the five forces frame or, ill be e;uall$ threatening at the same time. !rue False Answer: !rue Page: '2 !""!#$%&': Eas$ C(a)&er O*+e#&!,e: " 2. 3ophisticated soft are can enhance the value that customers receive from a personal computer. !herefore& soft are can be said to be a complementor of a personal computer. !rue False Answer: !rue Page: '" !""!#$%&': (oderate C(a)&er O*+e#&!,e: ' 22 . According to 8radenburger and <alebluff& a firms competitors help increase the si6e of a firms mar,ets hile complementors divide this mar,et among a set of firms. !rue False

Chapter 2: Evaluating a Firms External Environment 1'

Answer: False 2/ .

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%t is possible for a single firm to be a complementor of one firm and a competitor of another. !rue False Answer: !rue Page: '# !""!#$%&': (oderate C(a)&er O*+e#&!,e: ' "0 . An emerging industr$ is an industr$ in hich a large number of small or medium. si6ed firms operate and no small set of firms has a dominant mar,et share or creates dominant technologies. !rue False Answer: False Page: '+ !""!#$%&': (oderate C(a)&er O*+e#&!,e: + "1 . !he ma:or opportunit$ facing firms in fragmented industries is the implementation of strategies that begin to consolidate the industr$ into a smaller number of firms. !rue False Answer: !rue Page: '+ !""!#$%&': Eas$ C(a)&er O*+e#&!,e: + "2 . First movers that invest onl$ in technolog$ usuall$ obtain sustained competitive advantages& even if the$ do not tie up strategicall$ valuable resources in an industr$ before their full value is idel$.understood. !rue False Answer: False Page: '!""!#$%&': (oderate C(a)&er O*+e#&!,e: + "" . %f $ou ere to purchase a ne Apple i1od& and ere unable to use $our previousl$ do nloaded librar$ of digital music ith $our ne i1od& this ould be an example of a customer.s itching cost $ou ould incur to use Apples product. !rue False Answer: !rue Page: '2 !""!#$%&': 4ard C(a)&er O*+e#&!,e: + "# . (ature industries are characteri6ed b$ elements such as slo ing gro th in total industr$ demand& a slo do n in increases in product capacit$& and an overall increase in the profitabilit$ of firms in the industr$. !rue False Answer: False Page: '/ !""!#$%&': 4ard C(a)&er O*+e#&!,e: + "' . 1roduct innovation is an effort to refine and improve a firms current processes. !rue False

1+ 1art % Answer: False "+ . Page: +1 !""!#$%&': (edium C(a)&er O*+e#&!,e: +

=uotas can act as an entr$ barrier hen the$ increase the price of an imported good or service above the price of the same good or service produced b$ a domestic firm. !rue False Answer: False Page: +' !""!#$%&': (edium C(a)&er O*+e#&!,e: ". <on.tariff trade barriers include actions such as establishing product performance standards that cannot be met b$ imports& restricting access to domestic distribution channels and establishing local purchasing re;uirements for government purchases. !rue False Answer: !rue Page: +' !""!#$%&': Eas$ C(a)&er O*+e#&!,e: "2 . Firms pursuing multinational opportunities in international industries simultaneousl$ operate in several national or regional mar,ets& but ,eep these operations independent of each other and free to choose ho to respond to the specific needs of each national or regional mar,etplace. !rue False Answer: !rue Page: ++ !""!#$%&': (edium C(a)&er O*+e#&!,e: 2 "/ . Firms pursuing global opportunities see, to optimi6e production& distribution& and other business functions throughout the ord in addressing all the mar,ets in hich the$ operate. !rue False Answer: !rue Page: +!""!#$%&': (edium C(a)&er O*+e#&!,e: 2 #0 . %n general& global strategies are more responsive to local needs& opportunities& and threats than are multinational strategies. !rue False Answer: False Page: +!""!#$%&': (edium C(a)&er O*+e#&!,e: 2 MULTIPLE CHOICE QUESTIONS #1 !he >>>>>>>>>>>>> consists of broad trends in the context in hich a firm . operates that can have an impact on a firms strategic choices. A. micro.environment 8. general environment C. tas, environment 7. internal environment Answer: 8 Page: "# !""!#$%&': Eas$ C(a)&er O*+e#&!,e: 1

Chapter 2: Evaluating a Firms External Environment 1-

#2 All of the follo ing are elements of the general environment except . A. technological trends. 8. demographic trends. C. industrial trends. 7. cultural trends. Answer: C Page: "' !""!#$%&': (oderate C(a)&er O*+e#&!,e: 1 #" . >>>>>>>>>>> is?are the distribution of individuals in a societ$ in terms of age& sex& marital status& income& ethnicit$& and other personal attributes that ma$ determine bu$ing patterns. A. 7emographics 8. Economics C. !echnological trends 7. Culture Answer: A Page: "' !""!#$%&': Eas$ C(a)&er O*+e#&!,e: 1 ## !he values& beliefs and norms that guide behavior in societ$ are ,no n as . A. climate. 8. demographics. C. economics. 7. culture. Answer: 7 Page: "+ !""!#$%&': Eas$ C(a)&er O*+e#&!,e: 1 #' 5hen activit$ in an econom$ is relativel$ lo for a short period of time& the . econom$ is said to be in a A. recession. 8. depression. C. prosperous c$cle. 7. boom. Answer: A Page: "!""!#$%&': (oderate C(a)&er O*+e#&!,e: 1 #+ . Civil ars& political coups& terrorism& ars bet een countries& famines& and countr$ or regional economic recessions are all examples of hich element of the general environment@ A. 7emographics 8. 3pecific international events C. Economics 7. Culture Answer: 8 Page: "2 !""!#$%&': (oderate C(a)&er O*+e#&!,e: 1

12 1art %

#- %n the 3.C.1 model& >>>>>>>>>>>>>> refers to the strategies that firms in an . industr$ implement. A. structure 8. strateg$ C. conduct 7. performance Answer: C Page: "/ !""!#$%&': (oderate C(a)&er O*+e#&!,e: 2 #2 %n a perfectl$ competitive industr$ . A. there are relativel$ fe firms operating in the industr$. 8. the products and services sold b$ firms in the industr$ are ver$ different from each other. C. it is ver$ costl$ for firms to enter the industr$. 7. it is not ver$ costl$ for firms to exit the industr$. Answer: 7 Page: #0 !""!#$%&': 4ard C(a)&er O*+e#&!,e: 2 #/ 5ithin the five forces frame or,& the five most common threats facing firms from . their competitive environment include each of the follo ing except A. substitutes. 8. complementors. C. suppliers. 7. bu$ers. Answer: 8 Page: #1 !""!#$%&': (oderate C(a)&er O*+e#&!,e: " '0 Firms in industries characteri6ed b$ >>>>>>>>>>>>>>> can expect to earn onl$ . competitive parit$. A. perfect competition 8. monopolistic competition C. oligopol$ 7. monopol$ Answer: A Page: #2 !""!#$%&': 4ard C(a)&er O*+e#&!,e: " '1 5hich t$pe of competition is characteri6ed b$ a large number of firms& . heterogeneous products and lo cost of entr$ and exit@ A. 1erfect competition 8. (onopolistic competition C. Aligopol$ 7. (onopol$ Answer: 8 Page: #2 !""!#$%&': (oderate C(a)&er O*+e#&!,e: "

Chapter 2: Evaluating a Firms External Environment 1/

'2 5hich t$pe of competition is characteri6ed b$ a small number of firms& . homogeneous products and costl$ entr$ and exit@ A. 1erfect competition 8. (onopolistic competition C. Aligopol$ 7. (onopol$ Answer: C Page: #2 !""!#$%&': (oderate C(a)&er O*+e#&!,e: " '" ABnC >>>>>>>>>> is an$ individual& group& or organi6ation outside a firm that see,s . to reduce the level of that firms performance. A. environmental threat 8. environmental opportunit$ C. environmental e;uali6er 7. competitive advantage Answer: A Page: #1 !""!#$%&': Eas$ C(a)&er O*+e#&!,e: " '# . Firms that have either recentl$ begun operations in an industr$ or that threaten to being operations in an industr$ soon are considered to be >>>>>>>>>>>>>> in the five forces frame or,. A. barriers to entr$ 8. ne entrants C. suppliers 7. bu$ers Answer: 8 Page: #" !""!#$%&': Eas$ C(a)&er O*+e#&!,e: " '' >>>>>>>>>>>>>>>> exist hen a firms cost rise as a function of that firms . volume of production. A. Economies of scale 8. Economies of scope C. 7iseconomies of scale 7. 9earning cure effects Answer: C Page: #" !""!#$%&': (oderate C(a)&er O*+e#&!,e: " '+ All other things being e;ual& under hich of the follo ing ould lead to lo er . barriers to entr$ in an industr$@ A. !he existence of economies of scale in the industr$. 8. 1roducts are highl$ differentiated in the industr$. C. %ndustr$ incumbents have learning.curve cost advantages. 7. Da materials are idel$ and readil$ available at a competitive price. Answer: 7 Page: #" !""!#$%&': 4ard C(a)&er O*+e#&!,e: "

20 1art %

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Fre;uent price cutting b$ firms in an industr$& fre;uent introduction of ne products b$ firms in an industr$ and intense advertising campaigns are indications of A. high po er of bu$ers. 8. high threat of entr$. C. high levels of rivalr$. 7. high threat of substitutes. Answer: C Page: #2 !""!#$%&': (oderate C(a)&er O*+e#&!,e: # '2 Divalr$ tends to be high hen . A. there are fe firms in an industr$ and these firms tend to be une;ual in si6e. 8. the industr$ gro th rate is higher. C. firms are unable to differentiate their products. 7. hen production capacit$ can be added in small increments. Answer: C Page: #2 !""!#$%&': 4ard C(a)&er O*+e#&!,e: # '/ !he products or services provided b$ a firms rivals meet >>>>>>>>>>> customer . needs in >>>>>>>>>> a$s as the product provided b$ the firm itself. A. differentE the same 8. approximatel$ the sameE the same C. differentE different 7. approximatel$ the sameE different Answer: 8 Page: #/ !""!#$%&': 4ard C(a)&er O*+e#&!,e: # +0 !he products or services provided b$ a firms substitutes meet >>>>>>>>>>> . customer needs in >>>>>>>>>> a$s as the product provided b$ the firm itself. A. differentE the same 8. approximatel$ the sameE the same C. differentE different 7. approximatel$ the sameE different Answer: 7 Page: #/ !""!#$%&': 4ard C(a)&er O*+e#&!,e: # +1 5hich of the follo ing statements regarding substitutes is accurate@ . A. %n the extreme& substitutes can ultimatel$ replace an industr$s products or services. 8. 3ubstitutes place a floor on the prices firms in an industr$ can charge and on the profits firms in an industr$ can earn. C. 3ubstitutes rarel$ impact the profitabilit$ that firm firms in an industr$ can earn. 7. !he importance of substitutes in reducing the profit potential in a ide variet$ of industries is decreasing.

Chapter 2: Evaluating a Firms External Environment 21

Answer: A

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+2 >>>>>>>>>> ma,e a ide variet$ of ra materials& labor and other critical assets . available to firms. A. 8u$ers 8. Divals C. 3uppliers 7. 3ubstitutes Answer: C Page: #/ !""!#$%&': (edium C(a)&er O*+e#&!,e: " +" 5hich if the follo ing attributes ma,es suppliers a stronger threat@ . A. !he supplier's industr$ is dominated b$ a small number of firms. 8. 5hen the product or service provided b$ suppliers is not highl$ differentiated. C. 5hen suppliers are threatened b$ substitutes. 7. 5hen supplies are not able to enter into and begin competing in a firm's industr$. Answer: A Page: '0 !""!#$%&': (oderate C(a)&er O*+e#&!,e: " +# 5hich of the follo ing is the best example of for ard vertical integration@ . A. A car dealership opening up its o n automobile manufacturing plant. 8. A car compan$ opening its o n dealerships to sell its products directl$ to customers. C. A car compan$ opening its o n chain of video rental stores. 7. A car compan$ opening a plant to product motorc$cles. Answer: 8 Page: '1 !""!#$%&': (oderate C(a)&er O*+e#&!,e: " +' . A. 8. C. 8u$ers tend to have less po er hen

a firm has onl$ one bu$er& or a small number of bu$ers. the products or services being sold to bu$ers are standard and not differentiated. the supplies the$ purchase are an insignificant portion of the costs of their final products. 7. the$ are not earning significant economic profits. Answer: C Page:'2 !""!#$%&': (oderate C(a)&er O*+e#&!,e: " ++ Averall& the average level of performance in an industr$ is li,el$ to be highest . hen A. the threat level of all five forces is high. 8. the threat level of rivalr$& and substitutes is lo & but the threat level of suppliers& bu$ers and ne entrants is high.

22 1art % C. the threat level of rivalr$& substitutes and ne entrants is high& but the threat level of bu$ers and supplies is lo . 7. the threat level of all five forces is lo . Answer: 7 Page: '" !""!#$%&': 4ard C(a)&er O*+e#&!,e: "

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%f $our customers value $our products more hen the$ have $our product and another firm's product rather than hen the$ have $our product alone& the other firm is considered to be a A. competitor. 8. complementor. C. rival. 7. substitute. Answer: 8 Page: '" !""!#$%&': (oderate C(a)&er O*+e#&!,e: ' +2 . An industr$ in hich a large number of small or medium.si6ed firms operate and no small set of firms has dominant mar,et share or creates dominant technologies is ,no n as aBnC >>>>>>>>>>>>>> industr$. A. fragmented 8. consolidated C. mature 7. emerging Answer: A Page: '+ !""!#$%&': Eas$ C(a)&er O*+e#&!,e: + +/ . A. 8. C. 7. !he ma:or opportunit$ facing firms in fragmented industries is

refining their current products and emphasi6ing an increase in service ;ualit$. developing ne products and technologies. creating a first mover advantage through technological leadership. the implementation of strategies that began to consolidate the industr$ into a smaller number of firms. Answer: 7 Page: '+ !""!#$%&': (oderate C(a)&er O*+e#&!,e: + -0 . >>>>>>>>>>>>> industries are ne l$ created& or ne l$ recreated industries formed b$ technological innovations& changes in demand& or the emergence of ne customer needs. A. (ature 8. Emerging C. Fragmented 7. 7eclining Answer: 8 Page: '+ !""!#$%&': Eas$ C(a)&er O*+e#&!,e: +

Chapter 2: Evaluating a Firms External Environment 2"

-1 .

!he advantages that come to firms that ma,e important strategic and technological decisions earl$ in the development of an industr$ are ,no n as >>>>>>>>>>>> advantages. A. first.mover 8. competitive C. earl$.entrant 7. first.comer Answer: A Page: '!""!#$%&': Eas$ C(a)&er O*+e#&!,e: +

-2 . A. 8. C. 7.

%n general& first.mover advantages can arise from an$ of these sources except

technological leadership. preemption of strategicall$ valuable assets. the creation of customer s itching costs. using an imitative strateg$ to introduce improved versions of competitors ne products. Answer: 7 Page: '!""!#$%&': 4ard C(a)&er O*+e#&!,e: + -" (ature industries are characteri6ed b$ . A. an increase in total industr$ demand. 8. faster increases in production capacit$. C. a slo do n in the introduction of ne products or services. 7. a decrease in the amount of international competition. Answer: C Page: '/ !""!#$%&': (oderate C(a)&er O*+e#&!,e: + -# !he most promising opportunit$ for a firm in a declining industr$ is to . A. establish itself as a first mover in the post.sha,eout industr$. 8. become a mar,et leader in the pre.sha,eout industr$. C. become a fast follo er in the pre.sha,eout industr$. 7. merge ith another firm. Answer: 8 Page: +2 !""!#$%&': (oderate C(a)&er O*+e#&!,e: + -' . Firms that engage in a long& s$stematic phased ithdra al from an industr$& extracting as much value as possible during the ithdra al period are follo ing aBnC >>>>>>>>> strateg$. A. niche 8. expansion C. divestment 7. harvest Answer: C Page: +# !""!#$%&': (oderate C(a)&er O*+e#&!,e: + -+ !ariffs that are calculated as a percentage of the mar,et value of an import&

2# 1art % . regardless of their eight or volume are ,no n as >>>>>>>>>>>>> tariffs. A. ad valorem 8. specific C. compound 7. constitutional Answer: A Page: +# !""!#$%&': (oderate C(a)&er O*+e#&!,e: -

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Destricting access to domestic distribution channels& and local purchasing re;uirement for government purchase are examples of hich t$pe of barrier to entr$@ A. =uotas 8. <on.tariff barriers C. 3pecific tariffs 7. Compound tariffs Answer: 8 Page: +' !""!#$%&': Eas$ C(a)&er O*+e#&!,e: -2 . Firms pursuing >>>>>>>>>>>>>>>> opportunities in international industries simultaneousl$ operate in several national or regional mar,ets& but these operations are independent of each other& and firms are free to choose ho to respond to the specific needs of each national or regional mar,etplace. A. global 8. transnational C. multinational 7. niche Answer: C Page: ++ !""!#$%&': (oderate C(a)&er O*+e#&!,e: 2 -/ . Firms pursuing >>>>>>>>>>>>>>> opportunities see, to optimi6e production& distribution& and other business functions throughout the orld in addressing all the mar,ets in hich the$ operate. A. global 8. transnational C. multinational 7. niche Answer: A Page: +!""!#$%&': (oderate C(a)&er O*+e#&!,e: 20 . A. 8. Firms pursuing a >>>>>>>>>>>>>> opportunit$ see, to exploit the advantages of both global integration and local responsiveness. global regional

Chapter 2: Evaluating a Firms External Environment 2'

C. transnational 7. multinational Answer: C Page: +2

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4ic,or$ 7ivine is one of the leading manufacturers in the hard ood furniture industr$. 4ic,or$ 7ivine has man$ small competitors& none of hich controls a significant portion of the industr$. 4ic,or$& li,e most of the furniture manufacturers& sells its products to a broad variet$ of small furniture stores throughout the countr$& none of hich represents a large percentage of 4ic,or$'s sales. 5hen purchasing the products it uses for manufacturing its furniture& 4ic,or$ is able to choose from man$ suppliers since the ood it uses is an undifferentiated commodit$& and 4ic,or$ is able to easil$ s itch to an$ supplier that has the best price and deliver$ times. 5hile gro th in the hard ood furniture industr$ has historicall$ been in the double digits& the industr$ gro th rate has slo ed considerabl$ into the single digits& to approximatel$ 'F in recent $earsE consumers have been purchasing less expensive furniture made of composite ood that is considerabl$ less expensive than hard ood furniture& but that loo,s and functions ver$ similarl$ once it is painted. 21 8ased on the above description& the hard ood furniture industr$ can best be . described as aBnC >>>>>>>>>>> industr$. A. emerging 8. fragmented C. consolidated 7. declining Answer: 8 Page: '+ !""!#$%&': (oderate C(a)&er O*+e#&!,e: + 22 !he threat of rivalr$ in the hard ood furniture industr$ can best be described as . A. lo because of the numerous firms in the industr$ and the slo ing gro th rate. 8. lo because of the slo ing gro th rate and the competition from composite ood furniture. C. high because of the numerous firms in the industr$ and the slo ing gro th rate 7. moderate because the slo ing gro th rate offsets the numerous firms in the industr$. Answer: C Page: #2 !""!#$%&': 4ard C(a)&er O*+e#&!,e: " 2" . !he threat of suppliers in the hard ood furniture can best be described as

2+ 1art % A. lo because there are a large number of suppliers selling an undifferentiated product. 8. high because there are a large number of suppliers selling an undifferentiated product. C. moderate because the large number of suppliers is offset b$ the undifferentiated products the$ are selling. 7. moderate because of the slo ing gro th rate in the industr$ and the commodit$ nature of the products produced b$ suppliers. Answer: A Page: #/ !""!#$%&': 4ard C(a)&er O*+e#&!,e: "

2# %f 4ic,or$ 7ivine ere to open its o n chain of furniture stores& this ould be an . example of A. complementors. 8. bac, ard vertical integration. C. consolidation. 7. for ard vertical integration. Answer: 7 Page: '1 !""!#$%&': (oderate C(a)&er O*+e#&!,e: " 2' %n this example& composite ood furniture ould be an example of . A. substitutes. 8. rivals. C. ne entrants. 7. complementors. Answer: A Page: #/ !""!#$%&': (oderate C(a)&er O*+e#&!,e: " 2+ !he threat of bu$ers in this industr$ is best described as . A. high because there are man$ suppliers& none of hich represents a significant portion of the hard ood furniture industr$'s sales. 8. lo because of the slo industr$ gro th and the commodit$ nature of the suppliers. C. lo because there are man$ suppliers& none of hich represents a significant portion of the hard ood furniture industr$'s sales. 7. high because of the slo industr$ gro th and the commodit$ nature of the suppliers. Answer: C Page: '1 !""!#$%&': (oderate C(a)&er O*+e#&!,e: " 8id8u$ is the orld's leading online auction compan$. 5hen 8id8u$ as founded ten $ears ago it as the first online auction compan$ and it has been the leader since it as founded. Although there are other firms in the industr$& 8id8u$ controls over -'F of the mar,et in the

Chapter 2: Evaluating a Firms External Environment 2-

Gnited 3tates& and three additional firms control another 20F of the G.3. mar,et. Ane of the aspects of 8id8u$ that ,eeps users from changing to other online auction companies is the large user base 8id8u$ has built and a feedbac, rating s$stem that allo s bu$ers and sellers to rate their satisfaction ith each other follo ing each transaction. !his allo s users to build a reputation for honest$ and trust orthiness. 3ellers ith a high feedbac, rating tend to receive more bids on their auctions and a higher price for their goods. !o help facilitate pa$ment transfers bet een bu$ers and sellers follo ing successful online auctions& companies such as 7ollar7og have been founded and these companies have facilitated gro th for 8id8u$. 4aving attained a -'F mar,et share in the G.3.& 8id8u$ has begun expanding internationall$ opening its o n sites in some countries and purchasing incumbents in others. %n its international expansion 8id8u$ has allo ed its individual companies to customi6e their offerings according to the needs and desires of the countries in hich the$ operate and hen these companies are successful& 8id8u$ or,s to transfer these successful capabilities throughout the firm.

2- 5hich of the follo ing best describes the competition in the G.3. online auction . industr$@ A. 1erfect competition 8. (onopolistic competition C. Aligopol$ 7. (onopol$ Answer: C Page: #2 !""!#$%&': (oderate C(a)&er O*+e#&!,e: 2 22 . For 8id8u$& services such as those offered b$ 7ollar7og that ma,e 8id8u$'s services more valuable for customers ho use the services of both companies are best described as A. complementors. 8. substitutes. C. rivals. 7. suppliers. Answer: A Page: '" !""!#$%&': (oderate C(a)&er O*+e#&!,e: ' 2/ Factors such as 8id8u$'s feedbac, rating that are valuable to the compan$'s . customers but hich are not useful on other online auction sites are examples of A. first mover advantages. 8. complementors. C. substitutes. 7. customer.s itching costs. Answer: 7 Page: '2 !""!#$%&': (oderate C(a)&er O*+e#&!,e: + /0 . A. 8. %n the international arena& 8id8u$ can best be said to be pursuing >>>>>>>>>>>>>> opportunities. multinational global

22 1art % C. transnational 7. multidomestic Answer: C Page: +2 ESSA. QUESTIONS /01 I2en&!"' &(e s!3 !n&er4re%a&e2 e%e5en&s &(a& #65)r!se a "!r57s genera% en,!r6n5en&1 !he six inter.related elements of a firm's general environment include technological change& demographic trends& cultural trends& the economic climate& legal and political conditions and specific international events. Page: "' !""!#$%&': Eas$ C(a)&er O*+e#&!,e: 1

!""!#$%&': 4ard

C(a)&er O*+e#&!,e: 2

/21 I2en&!"' an2 2e"!ne &(e &(ree e%e5en&s 6" &(e S4C4P 562e%1 !he three elements of the 3.C.1 model are structure hich in this model refers to industr$ structure& measured b$ such factors as the number of competitors in an industr$& the heterogeneit$ of products in an industr$& and the cost of entr$ and exit in an industr$& conduct, hich refers to the strategies that firms in an industr$ implement and performance& hich includes both the performance of individual firms and the performance of the econom$ as a hole. Page: "/ !""!#$%&': (oderate C(a)&er O*+e#&!,e: 2 /81 I2en&!"' &(e "!,e 56s& #6556n &(rea&s "a#!ng "!r5s "r65 &(e!r %6#a% #65)e&!&!,e en,!r6n5en& &(a& are re)resen&e2 !n &(e "!,e "6r#es "ra5ew6r9: an2 2!s#$ss $n2er w(a& #6n2!&!6ns "!r5s !n a s)e#!"!# !n2$s&r' are 56s& %!9e%' &6 earn an a*6,e a,erage )r6"!& an2 w(en &(e' are &6 %!9e%' &6 earn a *e%6w a,erage )r6"!&1 !he five threats that constitute the five forces frame or, include the threat of entr$& the threat of rivalr$& the threat of substitutes& the threat of suppliers& and the threat of bu$ers. 5hen all five threats are lo & competition begins to approach hat economists call a monopol$& and firms are able to earn above average profits. Alternatel$ hen all give forces are ver$ high& competition begins to approach perfect competition and the best firms can hope to earn is competitive parit$. Page: #1 !""!#$%&': (oderate C(a)&er O*+e#&!,e: " /;1 I2en&!"' &(e "6$r &')es 6" #65)e&!&!6n: &(e a&&r!*$&es 6" ea#( &')e an2 &(e e3)e#&e2 )er"6r5an#e $n2er ea#(1 !he four t$pes of competition include perfect competition& monopolistic competition& oligopol$ and monopol$. 1erfect competition is characteri6ed b$ a large number of firms& homogeneous products& lo cost entr$ and exit and firms in these industries can expect to earn onl$ competitive parit$. (onopolistic competition is characteri6ed b$ a large number of firms& heterogeneous products& lo cost entr$ and exit and firms in such industries can earn a competitive advantage. Aligopol$ is characteri6ed b$ a small

Chapter 2: Evaluating a Firms External Environment 2/

number of firms& homogeneous products& and costl$ entr$ and exit& firms in such industries can earn a competitive advantage. Finall$& monopol$ is characteri6ed b$ one firm and costl$ entr$. Firms in such industries can earn a competitive advantage. Page: #2 !""!#$%&': (oderate C(a)&er O*+e#&!,e: " /<1 !s#$ss &(e 2!""eren#e *e&ween a #65)an'7s r!,a%s an2 !&s s$*s&!&$&es an2 2!s#$ss &(e r6%e s$*s&!&$&es )%a' !n an !n2$s&r'1 !he products or services provided b$ a firm's rivals meet approximatel$ the same customers needs in the same a$s as the products or services provided b$ the firm itself& hile substitutes meet approximatel$ the same customers needs but do so in different a$s. 3ubstitutes place a ceiling on the prices firms in an industr$ can charge and on the profits firms in an industr$ can earn. Page: #/ !""!#$%&': (oderate C(a)&er O*+e#&!,e: #

/=1 es#r!*e &(e 2!""eren#e *e&ween a #65)e&!&6r an2 a #65)%e5en&6r an2 !2en&!"' &(e r6%e #65)%e5en&6rs )%a' !n an !n2$s&r'1 A firm is a competitor if $our customers value $our product less hen the$ have this other firm's product than hen the$ have $our product alone. An the other hand& another firm is a complementor if $our customers value $our products more hen the$ have this other firm's product than hen the$ have $our product alone. %t is possible for a firm to be a complementor for some firms and competitors for others and it is also possible for a single firm to be both a competitor and a complementor& especiall$ in industries here it is important to create technological standards. Pages: '".'# !""!#$%&': (oderate C(a)&er O*+e#&!,e: ' />1 I2en&!"' &(e "6$r gener!# !n2$s&r' s&r$#&$res an2 &(e s)e#!"!# s&ra&eg!# 6))6r&$n!&!es !n ea#( 6" &(ese !n2$s&r!es1 !he four generic industr$ structures are fragmented industries& emerging industries& mature industries& and declining industries. Frag5en&e2 !n2$s&r!es are industries in hich a large number of small or medium.si6ed firms operate and no small set of firms has dominant mar,et share or creates dominant technologies. !he ma:or opportunit$ facing firms in fragmented industries is the implementation of strategies that begin to consolidate the industr$ into smaller firms. E5erg!ng !n2$s&r!es are ne l$ created& or ne l$ recreated industries formed b$ technological innovations& changes in demand& and the emergence of ne customer needs. !he opportunities that face firms in emerging industries fall into the general categor$ of first.mover advantages or ma,ing important strategic and technological decisions earl$ in the development of an industr$. %ndustries begin to enter the 5a&$re s&age hen the rate of innovation in ne products and technologies drops. Apportunities for firms in mature industries focus on a greater emphasis on refining a firm's current products& and emphasis on increasing the ;ualit$ of service and a focus on reducing manufacturing costs and increased ;ualit$ through process innovations.

"0 1art % A 2e#%!n!ng !n2$s&r' is an industr$ that has experienced an absolute decline in unit sales over a sustained period of time. !he ma:or strategic options that face firms in this ,ind of industr$ are leadership& niche& harvest and divestment. Pages: ''.+2 !""!#$%&': (oderate C(a)&er O*+e#&!,e: +

/-1 I2en&!"' an2 #%ear%' 2!s&!ng$!s( *e&ween &(e "6$r s&ra&eg!# 6)&!6ns a,a!%a*%e &6 "!r5s !n a 2e#%!n!ng !n2$s&r'1 !he four ma:or strategic options available to firms in a declining industr$ are leadership& niche& harvest and divestment. Ane strateg$ is for a firm to position itself to become a mar,et leader in the pre.sha,eout industr$ b$ becoming the firm ith the largest mar,et share in that industr$. !he purpose of becoming the mar,er leader is to facilitate the exit of firms that are not li,el$ to survive a sha,eout. A firm follo ing a niche strateg$ in a declining industr$ reduces its scope of operations and focuses on narro segments of the declining industr$. Firms pursuing a harvest strateg$ engage in a long& s$stematic& phased ithdra al& extracting as much value as possible during the ithdra al period. Finall$& firms pursuing divestment extract a firm from the declining industr$& but do so soon after a pattern of decline is established in an industr$. Page2: +2.+# !""!#$%&': (oderate C(a)&er O*+e#&!,e: + //1 !""eren&!a&e *e&ween &ar!""s: ?$6&as an2 6&(er n6n4&ar!"" *arr!ers an2 2!s#$ss w(' g6,ern5en&s w6$%2 $se &ra2e *arr!ers1 !ariffs are taxes levied on goods or services imported into a countr$ and can include ad valorem tariffs& specific tariffs& and compound tariffs. =uotas are a numerical limit on the number of particular items that are allo ed to be imported into a countr$. <on.tariff barriers can ta,e a variet$ of forms including restrictive product performance standards& restricted access to domestic distribution channels and environmental and labor regulations that must be met if a firm is to do business in a countr$. All of these non. tariff barriers act to limit mar,et access to firms outside of the home countr$. Hovernments use barriers to entr$ to raise revenue for the government& and to strengthen demand for products and services produced b$ domestic firms. Page: +#.++ !""!#$%&': (oderate C(a)&er O*+e#&!,e: 0@@1 es#r!*e &(e 2!""eren#es *e&ween 5$%&!na&!6na%: g%6*a% an2 &ransna&!6na% 6))6r&$n!&!es1

Chapter 2: Evaluating a Firms External Environment "1

Firms pursuing 5$%&!na&!6na% 6))6r&$n!&!es in international industries simultaneousl$ operate in several national or regional mar,ets& but these operations are independent of each other and free to choose ho to respond to the specific needs of each national or regional mar,etplace. Firms pursuing g%6*a% 6))6r&$n!&!es see, to optimi6e production& distribution& and other business functions throughout the orld in addressing all the mar,ets in hich the$ operate. Firms exploiting a &ransna&!6na% 6))6r&$n!&' attempt to balance local responsiveness ith global integration b$ treating their global operations as an integrated net or, of distributed and interdependent resources and capabilities. Page: ++.+2 !""!#$%&': (oderate C(a)&er O*+e#&!,e: 2