exam notes

Question 1

corporate strategy

Answer 1

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

Question 2

business strategy

Answer 2

Is concerned with how the firm competes, namely how the firm establishes a competitive advantage within a particular industry

Question 3

Types of competitive advantage

Answer 3

Cost drivers & Differentiation

Question 4

Diversification

Answer 4

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.

Question 5

isolating mechanism

Answer 5

barrier that protects a firms profit from being driven down by competitive processes.

Question 6

product scope

Answer 6

product range

Question 7

vertical scope

Answer 7

presence along the industry value chain

Question 8

geographical scope

Answer 8

geographical markets in which it will compete

Question 9

comparative advantage

Answer 9

A country is better at producing something because of its natural resources or climate.

Question 10

The business environment of a firm consists of all the internal and external influences that affect its pereormcane

Answer 10

True

Question 11

PEST analysis is a popular environmental scanning framework

Answer 11

True

Question 12

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

Answer 12

True

Question 13

Value creation translates directly into profit

Answer 13

False

Question 14

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

Answer 14

True

Question 15

When a firm dominates a specific segment in an industry, it is well-placed to earn a higher level of profit on average

Answer 15

True

Question 16

We analyse industry structure because this helps us explain variations in the profitability of different industries

Answer 16

True

Question 17

Porters 5 forces model is a framework for analysing the factors that determine a firm’s competitive strategy

Answer 17

False

Question 18

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

Answer 18

True

Question 19

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

Answer 19

True

Question 20

Economies of scale, absolute cost advantage, high capital start-up costs and access to channels of distribution are examples of “barriers to entry”

Answer 20

True

Question 21

retaliation against a new entrants may take the form of aggressive price-cutting, increased advertising, sales promotion or vexatious litigations

Answer 21

True

Question 22

A high concentration ratio is typical of oligopolistic industries, dominated by a few large players

Answer 22

True

Question 23

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.

Answer 23

True

Question 24

having high fixed costs makes it hard to make a profit in a recession, so is indicative of poor cost-control

Answer 24

false

Question 25

The bargaining power of one player in the industry relative to another player rests, ultimately on refusal to deal with the other player

Answer 25

True

Question 26

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

Answer 26

True

Question 27

There is no single absolute definition of what an “industry” is

Answer 27

True

Question 28

Porters 5 Forces model arguably has some deficiencies and does not answer all possible questions. But this is true of all models

Answer 28

True

Question 29

Key success factors are defined by the market and by customers not by the company

Answer 29

True