chap 2 evaluating a Firm's External Environment

Question 1

the analysis of the 5 environmental threats can be used only to anticipate what?

Answer 1

the average level of firm performance in an industry

Question 2

what does the structure in the SCP model refer to?

Answer 2

it refers to the industry structure, measured by number of competitiors in industry, the heterogeneity of products in an industry, the cost of entry and exit in industry, etc.

Question 3

what are 5 indicators of the threat of buyers influence in an industry?

Answer 3

1. number of buyers is small 2. products sold to buyers are undifferentiated and standard 3. products sold to buyers are a significant percentage of a buyers final costs 4. buyers are not earning significant economic profits 5. buyers threaten backward vertical integration

Question 4

the benefits of implementing a consolidation strategy in a fragmented industry come from what?

Answer 4

the advantages larger firms in such industries gain from their larger market share such as as cost advantages and helping a firm differentiate its products

Question 5

when incumbent firms have patented or secret tech that reduces their costs below the costs of potential entrants, potential new competitors much do what in order to compete?

Answer 5

develop substitute new tech

Question 6

what is the opportunity in a emerging industry structure?

Answer 6

first mover advantages

Question 7

what are 3 methods potential new competitors could use to enter a market that currently has the barrier to entry of economies of scale?

Answer 7

1. they could attempt to expand the total size of the market so they can enter at the optimal size 2. they could attempt to develop new production technology to shift the economies of scale curve to the left reducing the optimal plant size so they can enter 3. they could try to make their produccts seem very speical to their customers so they can charge higher prices to offset higher production costs associated with smaller than optimal plant

Question 8

economies of scale exist in an industry when ?

Answer 8

a firms costs fall as a function of its volume of production

Question 9

what is a shakeout period?

Answer 9

period in which overcapacity is reduced and capacity is brought in line with demand. happens to industry in decline

Question 10

what are 4 ways market leaders in declining industries can faciliate other firms exits?

Answer 10

1. purchase and deemphasize competitors product lines 2. purchase and retire competitors manufacturing capacity 3. manufacture spare parts for competitiors product lines 4. send unambiguous signals of their intention to stay in an industry and remain a dominant firm

Question 11

emerging industries are newly created or newly recreated industries formed by what possible 3 things?

Answer 11

1. technological innovations 2. changes in demand 3. the emergence of new customer needs

Question 12

what are the 5 most common threats faced by firms in their local competitive environmnets?

Answer 12

1. competition from existing companies 2. new competition 3. buyers influence 4. supplier leverage 5. superior or lower cost substitute products

Question 13

suppliers can threaten the performance of firms in one of what 2 ways?

Answer 13

1. increasing the price of their supplies 2. reducing the quality of their supplies

Question 14

what are the 4 common barriers to entry?

Answer 14

1. economies of scale 2. product differentiation 3. cost advantages independent of scale 4. government regulation of entry

Question 15

what are 6 ways firms can implement a harvest strategy?

Answer 15

1. reduce range of products they sell 2. reduce their distribution network 3. eliminate less profitable customers 4. reduce product quality 5. reduce service quality 6. defer maintenance and equipment repair

Question 16

incumbent firms possess brand identification and customer loyalty that potential new competitors do not. what kind of barrier to entry is this?

Answer 16

product differentiation

Question 17

niche and leadership strategies in declining industries have what attribute in common?

Answer 17

they intend to remain in the industry despite its decline

Question 18

what is the opportunity in a fragmented industry structure?

Answer 18

consolidation

Question 19

direct competition threatens firms by doing what?

Answer 19

reducing their economic profits

Question 20

the extent to which new competitiors act as a threat to an incumbent firms performance depends on what?

Answer 20

the cost of entry

Question 21

what are 4 attributes of an industry that are likely to generate high levels of direct competition?

Answer 21

1. large number of competing firms that are roughly the same size 2. slow industry growth 3. lack of product differentiation 4. capacity added in large increments

Question 22

first mover advantages can arise from what 3 primary sources?

Answer 22

1. technological leadership 2. preemption of strategically valuable assets 3. the creation of customer switching costs

Question 23

first movers that move to tie up strategically valuable resources in an industry can gain sustained competitive advantages if they do so before what?

Answer 23

the resources full value is widely understood

Question 24

what does product differentiation mean when it is a barrier to entry?

Answer 24

incumbent firms possess brand identification and customer loyalty that potential new competitors do not

Question 25

what do firms following a harvest strategy in a declining industry do?

Answer 25

engage in a long, systematic, phased withdrawal, extracting as much value as possible during the withdrawal period

Question 26

what are 6 common characteristics of a mature industry?

Answer 26

1. slowing growth in total industry demand 2. slowdown in increases in production capacity 3. slowdown in the intro of new products 4. reduction in the profitability of firms in the industry 5. increase in the amount of international competition 6. development of experienced repeat customers

Question 27

what is a first mover disadvantage?

Answer 27

uncertainty

Question 28

what does the performance in the SCP model refer to? (2)

Answer 28

1. the perforamnce of individual firms 2. the performance of the economy as a whole

Question 29

what are substitutes?

Answer 29

they meet approximately the same customer needs but do so in different ways

Question 30

what is a complementor?

Answer 30

a firm is a complementor if your customers value your product more when they have this other firms product than when they have your product alone

Question 31

buyers threaten the performance of firms how?

Answer 31

by decreasing their revenues

Question 32

what does the conduct in the SCP model refer to ?

Answer 32

the strategies that firms in an industry implement

Question 33

what are 2 ways consolidation can occur?

Answer 33

1. an incumbent firm can discover new economies of scale 2. incumbent firms can adopt new ownership structures to help consolidate an industry like franchise agreements

Question 34

what are 4 reasons industries can be fragmented?

Answer 34

1. they may have few barriers to entry encouraging numerous small firms to enter 2. they may have few if any economies of scale 3. they may have important diseconomies of scale encouraging firms to remain small 4. close local control over enterprises may be necessary to ensure quality and to minimize losses from theft

Question 35

what are the 4 opportunities in a declining industry structure?

Answer 35

1. leadership 2. niche 3. harvest 4. divestment

Question 36

what are the 4 generic industry structures?

Answer 36

1. fragmented 2. emerging 3. mature 4. declining

Question 37

what is the purpose of becoming the market leader in a declining industry?

Answer 37

to try and facilitate the exit of firms that are not likely to surevive a shakeout thereby obtaining a more favorable competitive environment as quickly as possible

Question 38

opportunity analysis begins by identifying and describing what?

Answer 38

identifying several generic industry structures and describing the strategic opportunities that are available in each of these different kinds of industries

Question 39

what are the 2 advantages generated in emerging industries by implementing a technological leadership strategy?

Answer 39

1. firms that have implmented these strategies may obtain a low cost position based on their greater cumulative volume of production with a particular technology 2. firms that make early investments in a technology may obtain patent protections that enhance their performance

Question 40

T/F patents seem to provide relatively small profit opportunities for first moving firms in most emerging industries

Answer 40

T

Question 41

attributes of an industrys structure that increase the cost of entry

Answer 41

barriers to entry

Question 42

what kind of firms may find divestment a superior option to harvest?

Answer 42

those that dont have established competitive advantages

Question 43

what are 4 cost advantages that serve as barriers to entry outside of economies of scale?

Answer 43

1. proprietary technology 2. managerial know how 3. favorable access to raw materials 4. learning curve cost advantages

Question 44

what does the SCP model stand for?

Answer 44

structure conduct performance

Question 45

the 5 environmental threats have 3 important implications for managers who are choosing and implementing strategies?

Answer 45

1. they describe the most common sources of local environmental threat in industries 2. they can be used to characterize the overall level of threat in an industry 3. they are related to and therefore can be used to anticipate the average level of performance of a firm in an industry

Question 46

diseconomies of scale exist when?

Answer 46

a firms costs rise as a function of its volume of production

Question 47

what are barriers to entry?

Answer 47

attributes of an industrys structure that increase the cost of entry

Question 48

what is the most important step that a firm must do in a declining industry if they want to wait out the storm in hopes of better environmental conditions in the future?

Answer 48

establish itself as a market leader in the pre shakeout industry usually by becoming the firm with the largest market share

Question 49

what are the 6 elements of a firms general environment?

Answer 49

1. technological change 2. demographic trends 3. cultural trends 4. economic climate 5. legal and political conditions 6. specific international events

Question 50

what is the difference between a complementor and a competitor in regards to the market?

Answer 50

a complementor helps to increase the size of the market while compeitors divide the market among a set of firms

Question 51

high levels of direct competition are indicated by what 4 actions?

Answer 51

1. frequent price cutting 2. freuqent introduction of new products 3. intense advertising campaigns 4. rapid competitive actions and reactions in an industry

Question 52

the alternating pattern of prosperity followed by recession and back again is called ?

Answer 52

the business cycle

Question 53

what is a declining industry?

Answer 53

one that has experienced an absolute decline in unit sales over a sustained period of time

Question 54

what are 3 reasons besides industry decline that a firm would use a divestment strategy?

Answer 54

1. divest certain operations to focus their efforts on remaining operations 2. divest to raise capital 3. divest to simplify operations

Question 55

opportunities for firms in mature industries typically shift from the development of new tech and products in an emergin industry to a greater emphasis on what 3 things?

Answer 55

1. refining a firms current products 2. increasign the quality of service 3. reducing manufacturing costs and increasing quality through process innovations

Question 56

a firms general environment often has an impact on a firms threats and opportunities through its impact on a firms ?

Answer 56

local environment

Question 57

what does a firm in a declining industry following a niche strategy do?

Answer 57

reduces its scope of operations and focuses on narrow segments of the declining industry

Question 58

what are the 3 opportunities in a mature industry structure?

Answer 58

1. product refinement 2. investment in service quality 3. process innovation

Question 59

what are 5 supplier attributes that can lead to high levels of threat?

Answer 59

1. suppliers industry is dominated by small number of firms 2. suppliers sell unique or highly differentiated products 3. suppliers are not threatened by substitutes 4. suppliers threaten forward vertical integration 5. firms are not important customers for suppliers

Question 60

why is brand identification and customer loyalty an entry barrier?

Answer 60

because new competitors have to absorb the costs associated with overcoming incumbent firms differentiation advantages