Chapter 2

Question 1

Why is it important to a firm to study and understand the external environment?

Answer 1

External environment is very complex
External environment has an effect on the performance
Firm must develop skills requiring the environment and identify threats and opportunities

Question 2

Explain how the five forces of competition in an industry affect that industries profit potential

Answer 2

• Rivalry among competing firms, barriers to entry, Substitute products, bargaining power of suppliers, bargaining power of buyers