Chapter 3

Question 1

What is a firm’s external environment?

Answer 1

A firm’s external environment is multilevel

Question 2

Level 3:

Answer 2

Macro-environment—national and global events and trends

• Includes a variety of social, legal, and economic factors

Question 3

Level 2:

Answer 3

Industry environment—the competitive forces in the industry in
which a firm operates
• Includes major and minor competitors that sell goods and services
similar to the firm

Question 4

Level 1:

Answer 4

Strategic group—the group of firms with which the focal firm is
most similar and competes the most directly with
• E.g., Toyota, Honda, and Nissan in the automobile industry

Question 5

Level 3: Macro-Environment

The PESTEL FRAMEWORK divides a firm’s general environment (macro- environment) into six (6) segments:

Answer 5

1•Political factors—describe the processes and actions of government
bodies that can influence the decisions and behaviors of firms
• E.g., ∆ in tax policies, trade restrictions, government stability, etc
2• Economic factors—describe the macroeconomic trends that influence
business activity
• E.g., economic growth/decline, interest rates, employment, price
stability, currency exchange rates, etc
3•Sociocultural factors—capture a society’s culture(s), norms, and values
• E.g., ∆ in demographics such as population size, age, and ethnicity,
attitudes regarding trends such as obesity, marriage, and classism,
etc
4•Technological factors—include the application of knowledge to
the creation of new processes and products
• E.g., ∆ in rate of new product development, automation,
delivery, computing power (Moore’s law), etc
5•Ecological factors—concern broad environmental issues
• E.g., ∆ in the natural environment, global warming,
sustainability, etc
6•Legal factors—captures the official outcomes of political
processes manifested in laws, mandates, regulations, and court
rulings
• E.g., ∆ in employment laws, health care reform, discrimination
laws, anti-trust legislation, property rights, minimum wage, etc

Question 6

a group of incumbent firms that generally share

the same or similar set of suppliers and buyers

Answer 6

An industry

Question 7

INDUSTRY ATTRACTIVENESS is based on five (5) forces:

Answer 7

• Threat of entry
• Power of suppliers
• Power of buyers
• Threat of substitutes
• Rivalry among existing competitors

Question 8

are sets of firms within the same industry

that pursue a similar strategy

Answer 8

STRATEGIC GROUPS

Question 9

are industry-specific factors that:
• Separate strategic groups from others
• Restrict movement between groups

Answer 9

MOBILITY BARRIERS