exam notes Flashcards
corporate strategy
Defines the scope of the firm in terms of industries and markets in which it competes. Decisions such as investment, diversification, mergers and acquisitions and the allocation of resources
business strategy
Is concerned with how the firm competes, namely how the firm establishes a competitive advantage within a particular industry
Types of competitive advantage
Cost drivers & Differentiation
Diversification
expansion of an existing firm into another product line or filed.
benefits:
growth
risk reduction
value creation
exploiting economies of scope
transaction cost of markets vs cost of corporate complexity.
isolating mechanism
barrier that protects a firms profit from being driven down by competitive processes.
product scope
product range
vertical scope
presence along the industry value chain
geographical scope
geographical markets in which it will compete
comparative advantage
A country is better at producing something because of its natural resources or climate.
The business environment of a firm consists of all the internal and external influences that affect its pereormcane
True
PEST analysis is a popular environmental scanning framework
True
value is created when the price the customer is willing to pay for a product exceeds the costs incurred by the firm in supplying the product
True
Value creation translates directly into profit
False
The level of profit in an industry is determined by three factors: the value of products to customers, the intensity of competition and the relative bargaining power of producers and suppliers
True
When a firm dominates a specific segment in an industry, it is well-placed to earn a higher level of profit on average
True
We analyse industry structure because this helps us explain variations in the profitability of different industries
True
Porters 5 forces model is a framework for analysing the factors that determine a firm’s competitive strategy
False
For a specific product or service, the existence of close substitutes means that customers could switch to these substitutes if prices, service levels or other factors make it in their interests to do so
True
In a contestable market there does not always have need to be actual competition to keep prices relatively low- just the threat of competitors entering the market
True
Economies of scale, absolute cost advantage, high capital start-up costs and access to channels of distribution are examples of “barriers to entry”
True
retaliation against a new entrants may take the form of aggressive price-cutting, increased advertising, sales promotion or vexatious litigations
True
A high concentration ratio is typical of oligopolistic industries, dominated by a few large players
True
excess capacity often leads firms to cut prices to hold on to existing business for fear that competitors will do the same first, leaving them with a lower market share and adverse average costs.
True
having high fixed costs makes it hard to make a profit in a recession, so is indicative of poor cost-control
false
The bargaining power of one player in the industry relative to another player rests, ultimately on refusal to deal with the other player
True
understanding the structure of the industry helps managers to work out how to make a profit in future and to possibly identify ways to change the industry structure to their advantage
True
There is no single absolute definition of what an “industry” is
True
Porters 5 Forces model arguably has some deficiencies and does not answer all possible questions. But this is true of all models
True
Key success factors are defined by the market and by customers not by the company
True
