The Industrial Organization (I/O) View


70.              The I/O approach to competitive advantage advocates that external factors are ________ internal factors in a firm achieving competitive advantage.

a.                   less important than

b.                  as important as

c.                   more important than

d.                  more common than

e.                   less common than


Ans: c                          Page: 84


71.              According to I/O theorists, which of the following contributes least to firm performance?

a.                   Economies of scale

b.                  Barriers to market entry

c.                   Product differentiation

d.                  Internal resources

e.                   Level of competitiveness


Ans: d                         Page: 84


Economic Forces


72.              Which type of trend is exemplified by the increasing numbers of two-income households in America?

a.                   social

b.                  economic

c.                   cultural

d.                  technological

e.                   historical


Ans: b                          Page: 85


73.              What happens to the demand for discretionary goods when interest rates rise?

a.                   rises

b.                  declines

c.                   stays the same

d.                  first rises then declines

e.                   no way to tell


Ans: d                         Page: 85








74.              What effect do trends in the dollar’s value have on companies in different industries and in different locations?

a.                   significant and equal

b.                  marginal and equal

c.                   significant and unequal

d.                  insignificant and unequal

e.                   no significant impact


Ans: c                          Page: 86


75.              In general, what happens to American goods in overseas markets when there is a strong dollar?

a.                   less expensive

b.                  more attractive

c.                   cheaper

d.                  more expensive

e.                   desirable


Ans: d                         Page: 86


76.              Which city has the highest cost of living?

a.                   Tokyo

b.                  Boston

c.                   New York City

d.                  Sydney

e.                   Toronto


Ans: a                          Page: 87


77.              In 2004, which country had the most foreign investment in


a.                   United States

b.                  Netherlands

c.                   United Kingdom

d.                  Germany

e.                   Cyprus


Ans: e                          Page: 87
















Social, Cultural, Demographic and Environmental Forces


78.              It is predicted that the

United States will have how many racial or ethnic majorities by the year 2075?

a.                   none

b.                  one

c.                   two

d.                  three

e.                   five


Ans: a                          Page: 88


79.              Which minority group is predicted to be the largest by 2021?

a.                   African Americans

b.                  Whites

c.                   Hispanics

d.                  Indians

e.                   Japanese


Ans: c                          Page: 88


80.              Who are the world’s longest-living people?

a.                   Americans.

b.                  Mexicans.

c.                   Indians

d.                  Filipinos.

e.                   Japanese.


Ans: e                          Page: 88


81.              Americans are on the move in a population shift to

a.                   the frost belt

b.                  the South and West

c.                   the Northeast and Midwest

d.                  the Midwest and South

e.                   Canada.


Ans: b                          Page: 89
















82.              What are assembly plants on the Mexican side of the border called?

a.                   Maquiladoras

b.                  Assembladoras

c.                   Veskels

d.                  XMLs





Ans: a                          Page: 89


83.              Who is the largest exporter to the

United States?











United Kingdom






Ans: b                          Page: 89


Political, Governmental and Legal Forces


84.              When an industry relies heavily on government contracts, which forecasts can be the most important part of an external audit.

a.                   economic

b.                  political

c.                   technological

d.                  competitive

e.                   multinational


Ans: b                          Page: 90


85.              The world of biopolitics includes

a.                   assisted suicide.

b.                  cloning.

c.                   genetic engineering.

d.                  abortion.

e.                   All of the above


Ans: e                          Page: 90














86.              Which country voted “no” to the European Union’s proposed constitution in mid 2005?










d.                  The CzechRepublic





Ans: c                          Page: 90




87.              The term that refers to the EU’s effort to end competitive tax breaks among member countries is

a.                   double taxation.

b.                  taxation bias.

c.                   equity taxation.

d.                  tax reconciliation.

e.                   tax harmonization.


Ans: e                          Page: 90




Technological Forces


88.              Technological advancements can create new ______ advantages that are more powerful than existing advantages.

a.                   economic

b.                  social

c.                   environmental

d.                  competitive

e.                   comparative


Ans: d                         Page: 93


89.              Which sector of the economy would be most impacted by technological developments?

a.                   forestry

b.                  pharmaceuticals

c.                   textiles

d.                  metals

e.                   paper


Ans: b                          Page: 94








Competitive Forces


90.              Collecting and evaluating information on competitors is essential for successful

a.                   internal analysis.

b.                  strategy evaluation.

c.                   strategy formulation.

d.                  strategy implementation.

e.                   strategy management.


Ans: c                          Page: 95


91.              In 2004, which company had the dominant market share in the beverages industry?


a.                   PepsiCo

b.                  Coca-Cola Enterprises

c.                   Anheuser-Busch

d.                  Pepsi Bottling Group

e.                   Molson Brewing


Ans: a                          Page 95


92.              Which of the following is not a characteristic that describes the most competitive companies in America?

a.                   Divestiture is essential to growth

b.                  People make a difference

c.                   Innovate or evaporate

d.                  There is no substitute for quality and no greater threat than failing to be cost-competitive on a global basis.

e.                   Whether it’s broke or not, fix it


Ans: a                          Page: 96


93.              A systematic and ethical process for gathering and analyzing information about the competition’s activities and general trends to further a business’ own goals is called

a.                   unethical business practice.

b.                  artificial intelligence.

c.                   competitive intelligence.

d.                  information sharing.

e.                   competitive advantage.


Ans: c                          Page: 96












94.              ___________ is not a basic mission of a competitive intelligence program.


a.                   To provide a general understanding of an industry

b.                  To provide a general understanding of a company’s competitors

c.                   To identify industry executives who could be hired by the firm

d.                  To identify areas where competitors are vulnerable and to assess the impact strategic actions would have on competitors

e.                   To identify potential moves a competitor might make that would endanger a firm’s position in the market


Ans: c                          Page: 97


95.              Which statement about business intelligence is least accurate?

a.                   Intelligence gathering is an unethical business practice.

b.                  Running an intelligence program requires many people.

c.                   Running an intelligence program requires many computers and other resources.

d.                  Collecting intelligence about competitors violates antitrust laws.

e.                   Business intelligence is not equal to espionage.


Ans: e                          Page: 97


96.              Keeping strategies secret from employees and stakeholders can do all of the following except:

a.                   inhibit employee and stakeholder communication.

b.                  inhibit employee and stakeholder understanding.

c.                   inhibit employee and stakeholder commitment.

d.                  provide competitive advantage to competitors.

e.                   forego valuable employee or stakeholder input.


Ans: d                         Page: 97-98


97.              Learning from the partner is a major reason why ______ firms enter into cooperative agreements.

a.                   Asian

b.                  American

c.                   African

d.                  European

e.                   Mexican


Ans: a                          Page: 92














Competitive Analysis: Porter’s Five-Forces Model


98.              Intensity of competition _______ in lower-return industries.

a.                   is lowest

b.                  is non-existent

c.                   is highest

d.                  is not important

e.                   fluctuates


Ans: c                          Page: 99


99.              What is not one of Michael Porter’s five competitive forces?


a.                   New entrants

b.                  Rivalry among existing firms

c.                   Bargaining power of unions

d.                  Bargaining power of suppliers

e.                   Bargaining power of buyers


Ans: c                          Page: 100


100.          According to Porter, what is usually the most powerful of the five competitive forces?

a.                   Potential development of substitute products

b.                  Bargaining power of suppliers

c.                   Bargaining power of consumers

d.                  Rivalry among competing firms

e.                   Potential entry of new competitors


Ans: d                         Page: 101


101.          Whenever new firms can easily enter a particular industry, the intensity of competitiveness among firms

a.                   stays the same.

b.                  increases.

c.                   decreases.

d.                  neutralizes.

e.                   fluctuates.


Ans: b                          Page: 102














102.          If suppliers are unreliable or too costly, which of these strategies may be appropriate?

a.                   Horizontal integration

b.                  Backward integration

c.                   Market penetration

d.                  Forward integration

e.                   Concentric diversification


Ans: b                          Page: 102


103.          What level of bargaining power do consumers have when the products being purchased are standard or undifferentiated?

a.                   marginal

b.                  low

c.                   high

d.                  negative

e.                   not necessary


Ans: c                          Page: 103


Sources of External Information


104.          Because of the Internet, barriers to personal and business success are

a.                   being eliminated.

b.                  being built.

c.                   acting like glass walls.

d.                  significantly enhanced.

e.                   lower.


Ans: a                          Page: 103


Forecasting Tools and Techniques


105.          What are educated assumptions about future trends and events?

a.                   Guesses

b.                  Forecasts

c.                   Facts

d.                  Statistics

e.                   Predictions


Ans: b                          Page: 104










106.          Planning would be impossible without

a.                   assumptions.

b.                  employees.

c.                   data.

d.                  competitive intelligence.

e.                   intuition.


Ans: a                          Page: 104


The Global Challenge


107.          The international challenge faced by U.S. business is twofold:

a.                   how to gain and maintain exports to other nations and how to defend domestic markets against imported goods.

b.                  how to enhance imported goods in domestic markets and minimize exports to other nations.

c.                   how to gain exports to other nations and enhance market share for imported goods in domestic markets.

d.                  how to defend domestic markets against imported goods while minimizing exports.

e.                   how to increase exports to other countries and how to increase imports from other countries.


Ans: a                          Page: 105


108.          Which of the following is a process of worldwide integration of strategy formulation, implementation and evaluation activities?

a.                   Mission development

b.                  Globalization

c.                   Brainstorming

d.                  Industry analysis

e.                   Industrialization


Ans: b                          Page: 106


109.          Globalization of industries is occurring for all of these reasons except:

a.                   a worldwide trend toward similar consumption patterns.

b.                  the emergence of global buyers.

c.                   a worldwide trend toward different consumption patterns.

d.                  e-commerce and the instant transmission of money and information across continents.

e.                   the emergence of global sellers.


Ans: c                          Page: 106


110.          All of these are risks that still restrain firms from initiating business with

China except:

a.                   absence of a legal system.

b.                  severe human rights violations.

c.                   freedom of press and religion.

d.                  rampant corruption.

e.                   little respect for patents, copyrights, brands and logos.


Ans: c                          Page: 108




Industry Analysis: The EFE Matrix


111.          What is the first step in designing an EFE Matrix?

a.                   Identifying key external factors in the industry

b.                  Summing the weighted score for each competitor

c.                   Calculating the sales of each competitor

d.                  Drawing the horizontal and vertical lines for the matrix

e.                   Determining four competitors


Ans: a                          Page: 109


112.          What is the range for a firm’s total weighted score in an External Factor Evaluation Matrix?

a.                   0 to 5

b.                  0 to 4

c.                   1 to 5

d.                  1 to 4

e.                   0 to 10


Ans: d                         Page: 109


The Competitive Profile Matrix (CPM)


113.          One difference between CPM and EFE is that

a.                   CPM includes both internal and external issues.

b.                  the weight and total weighted score mean opposite.

c.                   CPM ratings range from 1 to 10.

d.                  CPM is performed only for the company, whereas EFE is performed for both the company and the competitors.

e.                   CPM is only used in small firms.


Ans: a                          Page: 111






Essay Questions


114.          What are the five major types of external forces that should be examined as part of an external audit? Give an example of each type of force.


External forces can be divided into five broad categories: (1) economic forces, (2) social, cultural, demographic and environmental forces, (3) political, governmental and legal forces, (4) technological forces and (5) competitive forces. Relationships among these forces and an organization are depicted in Figure 3-2.


Page: 83


115.          Discuss the process of performing an external audit.


To perform an external audit, a company first must gather competitive intelligence and information about economic, social, cultural, demographic, environmental, political, governmental, legal and technological trends. Once information is gathered, it should be assimilated and evaluated. A meeting or series of meetings of managers is needed to collectively identify the most important opportunities and threats facing the firm. These key external factors should be listed on flip charts or a blackboard. A prioritized list of these factors could be obtained by requesting that all managers to rank the factors identified, from 1 for the most important opportunity/threat to 20 for the least important opportunity/threat.


Page: 83-84


116.          Discuss the I/O approach in relation to competitive advantage.


The I/O approach to competitive advantage advocates that external factors are more important than internal factors in a firm achieving competitive advantage.  Proponents of the I/O view contend that organizational performance will be primarily determined by industry forces, rather than the firm’s internal functional decisions made.  Research findings suggest that approximately 20 percent of a firm’s profitability can be explained by the industry, whereas 36 percent of the variance in profitability is attributed to the firm’s internal factors.  Effective integration of both external and internal factors is the key to securing and keeping a competitive advantage.


Page: 84-85












117.          Identify five key economic variables that could represent major opportunities or threats to a bank in your town or city.


Student answers will vary. However, they should look at economic, social/cultural, political/legal, technological and competitive factors.  Refer to Table 3-1 on page 85.


Page: 85-86


118.          List three opportunities and three threats that could represent key factors facing your college or university.


Student answers will vary. However, they should look at economic, social/cultural, political/legal, technological and competitive factors.


Page: 85-92


119.          Explain how the Internet is changing businesses around the world.


The Internet is acting as a national and even global economic engine that is spurring productivity. The Internet is saving companies billions of dollars in distribution and transaction costs from direct sales to self-service systems. The Internet is changing the very nature of opportunities and threats by altering the life cycles of products, increasing the speed of distribution, creating new products and services, erasing limitations of traditional geographic markets and changing the historical trade-off between production standardization and flexibility. It is also altering economies of scale, changing entry barriers and redefining the relationship between industries and various suppliers, creditors, customers and competitors. An emerging consensus holds that technology management is one of the key responsibilities of strategists.


Page: 93


120.          Agree or disagree with (and discuss) the following statement: “Corporate intelligence is not corporate espionage because 95 percent of the information a company needs to make strategic decisions is available and accessible to the public.”


Agree. Firms need an effective competitive intelligence (CI) program. The three basic missions of a CI program are (1) to provide a general understanding of an industry and its competitors, (2) to identify areas in which competitors are vulnerable and to assess the impact strategic actions would have on competitors and (3) to identify potential moves a competitor might make that would endanger a firm’s position in the market. An effective CI program allows all areas of a firm to access consistent and verifiable information in making decisions.


Page: 97




121.          According to Michael Porter, what are the five competitive forces that create vital opportunities and threats for organizations? Which force do you feel is most important in the computer industry today? Why?


The first one is rivalry among competing firms.  The second is potential entry of new competitors.  The third is potential development of substitute products.  The fourth is bargaining power of suppliers.  The last one is bargaining power of consumers.


Page: 99-103


122.          Discuss the following statement: “Planning would be impossible without assumptions.”


By identifying future occurrences that could have a major effect on the firm and by making reasonable assumptions about those factors, strategists can carry the strategic-management process forward.  Assumptions are needed only for future trends and events that are most likely to have a significant effect on the company’s business.  Assumptions can serve as checkpoints on the validity of strategies.  If future occurrences deviate significantly from assumptions, strategists know that corrective actions may be needed.  Without reasonable assumptions, the strategy-formulation process could not proceed effectively.  Firms that have the best information generally make the most accurate assumptions, which can lead to major competitive advantages. 


Page: 104-105


123.          Discuss the opportunities and threats

China presents to an international firm interested in doing business with China.


U.S. firms increasingly are doing business in

China as market reforms create a more businesslike arena daily. Risks that still restrain firms from initiating business with China include the following: (1) poor infrastructure, (2) disregard for the natural environment, (3) absence of a legal system, (4) rampant corruption, (5) lack of freedom of press, speech and religion, (6) severe human-rights violations, (7) little respect for patents, copyrights, brands and logos, (8) counterfeiting, fraud and pirating of products, (9) little respect for legal contracts and (10) no generally accepted accounting principles.


Both the European community and the

U.S. have approved China’s membership in the WTO. This action integrated the world’s most populated country into the global trading order. Some key changes resulting from this action are as follows: (1) foreign companies can take increased stakes in mobile phone companies; (2) tariffs on high-tech products will be phased out and eliminated by 2005; (3) import tariffs on automobiles will drop to 25 percent by mid-2006 from 90 percent today; (4) foreign banks may conduct domestic currency business with Chinese firms; (5) foreign banks may do business anywhere in China by 2006; (6) foreign firms will be allowed a 49 percent stake in securities joint ventures by 2004; (7) foreign insurance firms may own operations in China; and (8) retail oil distribution will open in China by 2004.


Page: 107-109


124.          List five steps that comprise an effective framework for conducting an EFE Matrix. Explain the details involved in performing any one of the steps.


The EFE Matrix can be developed in five steps: 1) list key external factors as identified in the external-audit process with a total of from 10 to 20 factors, including both opportunities and threats that affect the firm and its industry; 2) assign to each factor a weight that ranges from 0.0 to 1.0; 3) assign a 1 to 4 rating to each key external factor to indicate how effectively the firm’s current strategies respond to the factor, where 4 = the response is superior, 3 = the response is above average, 2 = the response is average, and 1 = the response is poor; 4) multiply each factor’s weight by its rating to determine a weighted score; and 5) sum the weighted scores for each variable to determine the total weighted score for the organization.


Page: 109-111