Chapter two

Question 1

External analysis helps us

Answer 1

discover threats and opportunities and better understand the nature of competition in an industry

Question 2

what are the six elements of the general environment

Answer 2

technological changes
demographic trends
cultural trends
economic climate
legal and political conditions
specific international events

Question 3

technological changes is

Answer 3

one of the general environment elements and is how technology might affect the business. * Opportunities: New products and services through technology.
* Threats: Companies need to update their strategies due to tech changes.

Question 4

demographic trends

Answer 4

one of the general environment elements. The characteristics of a population (age, sex, income) Changes in population, such as age or where people live. Understanding demographics helps customers see how their products might appeal to different groups

Question 5

cultural trends

Answer 5

one of the general environment elements. Shared values, beliefs, and norms of a society. Shifts in what people value or their lifestyles. Businesses must understand cultural differences, especially if they operate in multiple countries

Question 6

Economic climate

Answer 6

one of the general environment elements. The current state of the economy, like whether it’s growing or in a recession. The overall health of the economy. This includes the business cycle which is the natural rise and fall of the economy, including periods of prosperity and recession.

Question 7

legal and political conditions

Answer 7

one of the general environment elements.Laws, regulations, or government policies that impact the business.

Question 8

specific international events

Answer 8

one of the general environment elements.Major events happening globally that could affect the company. Major global events like wars, terrorism, or economic downturns can heavily affect businesses

Question 9

what does SCP stand for

Answer 9

Structure-conduct-performance (SCP model)

Question 10

Structure-conduct-performance (SCP model)

Answer 10

theory suggesting that industry structure determines a firm’s conduct, which in turn determines its performance.

Question 11

structure

Answer 11

An industry structure measures
1. number of competing firms
2.homogeneity of products
3.cost of entry and exit

Question 12

conduct

Answer 12

a firms conduct is the strategies that firms purse to gain competitive advantage

Question 13

performance

Answer 13

(1) the performance of individual firms; and (2) the performance of the economy as a whole.

Question 14

perfectly competitive

Answer 14

when there are large numbers of competing firms, the products are being sold homogeneous with respect to cost and product attributes, and entry and exit costs are very low causes competitive parity

Question 15

5 environmental threats

Answer 15

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

Question 16

monopoly

Answer 16

when a single firm is operating in an industry has a competitive advantage costly entry

Question 17

monopolistic competition

Answer 17

large number of firms heterogenous products low cost entry and exit competitive advantage

Question 18

oligopoly

Answer 18

small number of firms homogenous products costly entry and exit competitive advantage

Question 19

environmental threat

Answer 19

is any individual, group, or organization outside a firm that seeks to reduce the level of that firm’s performance

Question 20

5 environmental threats

Answer 20

1.threat from new competition
2.threat from competition among existing competitiors
3.threat from superior or low cost substitutes
4.threat of supplier leverage
5. threats from buyers influence

Question 21

threat from new competition

Answer 21

are firms that have either recently started operating in an industry or that threaten to begin operations in an industry soon.Threat depends on the cost of entry. Barriers to entry are attributes of an industry structure that increase the cost of entry

Question 22

4 barriers to entry

Answer 22

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

Question 23

economies of scale

Answer 23

happen when a company gets more efficient as it produces more, meaning its costs per unit go down. For example, if a factory makes more products, the cost to make each item gets cheaper.

Question 24

diseconomies of scale

Answer 24

happen when a company becomes less efficient as it produces more, meaning its costs per unit go up. This could happen if a company gets too big, leading to management issues or inefficiencies that make it more expensive to produce each item.

Question 25

product differentiation

Answer 25

entrants are forced to overcome customer loyalties to existing products

Question 26

cost advantages of independent of scale

Answer 26

Sometimes, established companies (incumbents) have cost advantages that don’t depend on how much they produce. These advantages make it hard for new companies to compete because they would face higher costs.

Question 27

examples of cost advantages

Answer 27

• Proprietary Technology: The company owns unique technology.
• Managerial Know-How: The company has skilled management and expertise.
• Access to Raw Materials: The company gets materials at lower prices or from better sources.
• Learning-Curve Advantages: The company has learned how to produce more efficiently over time.

Question 28

threat from competition among existing competitors

Answer 28

large number of competing firms that are roughly the same size causes slow industry growth and lack of product differentiation

Question 29

threat from superior or low cost substitutes

Answer 29

Substitutes are different products or services that meet the same customer needs but in different ways.Effect on Prices and Profits: Substitutes limit the prices firms can charge because customers have alternatives

Question 30

threat from supplier leverage

Answer 30

Suppliers provide materials or services needed by firms. They can threaten firms by increasing prices or reducing quality.

Question 31

threats from buyers influence

Answer 31

Buyers purchase a firm’s products or services. They can decrease a firm’s revenue by demanding lower prices or better quality

Question 32

complementors

Answer 32

Other firms that enhance the value of a company’s product when used together.

Question 33

competitors

Answer 33

Firms whose products make customers value your product less when both are available.

Question 34

4 generic industry structures

Answer 34

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

Question 35

fragmented industries

Answer 35

Fragmented industries have many small to medium-sized firms, with no dominant market share or technologies. Examples: Small retail stores, commercial printing, and various service industries.

Question 36

emerging industries

Answer 36

newly created or newly recreated industries formed by technological innovations Examples: Microprocessor, personal computer, medical imaging, biotechnology.

Question 37

mature industries

Answer 37

is one where business practices are well-known, technology is widely used, and innovation slows down. Examples include fast food. Key features are:

Slower growth in demand
More experienced repeat customers
Less increase in production capacity
Fewer new products or services
More international competition
Lower profits for companies in the industry

Question 38

declining industries

Answer 38

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