Global Business Strategy Test Bank – Questions & Answers – Managing Industry Competition

Global Business Strategy Test Bank – Questions & Answers – Managing Industry Competition

1. Mass markets tend to be characterized by low profit margins.   a.  True   b.  False   ANSWER:   True
2. An industry is defined as a group of firms producing goods and/or services that are similar to each other.   a.  True   b.  False   ANSWER:   True
3. ​Industrial organization economics is a branch of economics that seeks to better understand how firms within an industry may be both centralized and regulated.   a.  True   b.  False   ANSWER:   False
4. ​The primary contribution of IO economics is the structure-conduct-performance model.   a.  True   b.  False   ANSWER:   True
5. A key proposition of the five forces framework is that industry structure is unrelated to firm performance and the strength of the five forces.   a.  True   b.  False   ANSWER:   False
6. A key indicator of intense rivalry among firms is low cost competitive actions and reactions.   a.  True   b.  False   ANSWER:   False
7. High exit costs from an industry tend to reduce the intensity of rivalry.   a.  True   b.  False   ANSWER:   False
8. Product proliferation is a potential strategy used to reduce the threat of potential entry.   a.  True   b.  False   ANSWER:   True
9. Substantial switching costs reduce the threat of potential entry.   a.  True   b.  False   ANSWER:   True
10. The threat of substitutes (products from different industries that satisfy customer needs being met by focal firms) is greater if there are low switching costs.   a.  True   b.  False   ANSWER:   True
11. Core features of the five forces model remain remarkably insightful when analyzing old industries but not new phenomena, such as e-commerce.   a.  True   b.  False   ANSWER:   False
12. ​If there are many buyers but only a few sellers, the buyers tend to have the most bargaining power.   a.  True   b.  False   ANSWER:   False
13. ​If there are many sellers but only a few buyers, the sellers tend to have the most bargaining power.   a.  True   b.  False   ANSWER:   False
14. ​In order for firms within an industry to be more likely to enjoy higher profitability, product differentiation should be high.   a.  True   b.  False   ANSWER:   True
15. ​It is easier to establish dominance and market share in an industry that provides big-ticket items.   a.  True   b.  False   ANSWER:   False
16. ​Intel held numerous patents for semiconductors, allowing them to hold a significant share of the world’s market. These patents represented a significant barrier to entry for other firms wanting to enter the lucrative semiconductor business.   a.  True   b.  False   ANSWER:   True
17. ​By finding ways to reduce the per-unit cost of its products, a firm enjoys non-scale-based advantages that provide greater profitability.   a.  True   b.  False   ANSWER:   False
18. ​The three generic strategies include cost leadership, differentiation, and profitability.   a.  True   b.  False   ANSWER:   False
19. One of the benefits of having a cost advantage is that it serves as barrier to entry.   a.  True   b.  False   ANSWER:   True
20. The three generic strategies can strengthen a focal firm’s position relative to the five forces.   a.  True   b.  False   ANSWER:   True
21. A focused firm avoids being either a specialized differentiator or a specialized cost leader.   a.  True   b.  False   ANSWER:   False
22. Choosing whether to perform activities differently than rivals or to perform different activities than competitors is the essence of the Three Generic Strategies.   a.  True   b.  False   ANSWER:   True
23. ​If a low-cost firm has already achieved the maximum efficient scale, it must turn to differentiation to distinguish itself from competitors.   a.  True   b.  False   ANSWER:   True
24. ​Company Allgood is positions its products to target “average” customers for the mass market; Allgood is mostly likely the cost leader among market participants.   a.  True   b.  False   ANSWER:   True
25. ​Cost leaders are significantly and negatively affected when strong suppliers decrease their prices.   a.  True   b.  False   ANSWER:   False
26. ​Once a firm becomes a cost leader, it no longer has to search as diligently for lower costs.   a.  True   b.  False   ANSWER:   False
27. ​An off-the-rack wedding dress would not be considered a highly differentiated product.   a.  True   b.  False   ANSWER:   True
28. Telecommunications is an example of one industry in which one can determine exact boundaries.   a.  True   b.  False   ANSWER:   False
29. Strategic alliances are on the decline.   a.  True   b.  False   ANSWER:   False
30. The five forces model overemphasizes threats and downplays opportunities.   a.  True   b.  False   ANSWER:   True
31. Strategies of firms within a strategic group tend to be differentand so does their performance.   a.  True   b.  False   ANSWER:   False
32. Recent success of firms in unattractive industries suggests that firm-specific resources and capabilities are not needed to determine firm performance.   a.  True   b.  False   ANSWER:   False
33. The industry-based view ignores the impact of industry history and institutions on firm performance.   a.  True   b.  False   ANSWER:   True
34. The traditional view recommends avoidance of integration.   a.  True   b.  False   ANSWER:   False
35. Recent work favors outsourcing and willingness to collaborate with suppliers/buyers, as well as competitors.   a.  True   b.  False   ANSWER:   True
36. ​Japanese firms do not tend to maintain close relationships with their suppliers.   a.  True   b.  False   ANSWER:   False
37. ​In an industry-based view, not every firm within an industry competes against each other.   a.  True   b.  False   ANSWER:   True
38. ​When demand is uncertain, integration increases strategic flexibility.   a.  True   b.  False   ANSWER:   False
39. ​In an industry-based view, firms should strive for integration and avoid outsourcing.   a.  True   b.  False   ANSWER:   False
40. ​For a savvy strategist, the five forces framework provides for a strong beginning, middle, and end of strategic analysis.   a.  True   b.  False   ANSWER:   False
41. Which of the following is true of the industrial organization (IO) economics model?   a.  Industry structure determines firm performance, which determines strategy and conduct.   b.  Original goal – help regulators set policy to minimize the ability of firms to earn excess profits.   c.  Strategists avoid the IO model to try to earn above-average returns (excess profits).   d.  All of the above are true.   ANSWER:   b
42. ​Economist ________________ defined perfect competition as a situation in which price is set by the “market,” all firms are price takers, and entries and exits are relatively easy.   a.  ​Michael Porter   b.  ​John Maynard Keynes   c.  ​Adam Smith   d.  ​Richard Branson   ANSWER:   c
43. ​The relative bargaining power of the focal firm and (according to the traditional view) the degree of integration helps answer which of the following questions?   a.  ​Why do firms differ?   b.  ​How do firms behave?   c.  ​What determines the scope of the firm?   d.  ​What determines the international success and failure of firms?   ANSWER:   c
44. Which of the following tends to reduce the intensity of rivalry?   a.  Similarity of firms in terms of size, market influence and product offerings.   b.  Products are big-ticket items and purchased infrequently.   c.  New capacity can be added in small increments.   d.  Slow industry growth or decline in demand.   ANSWER:   c
45. Which of the following are scale-based low cost advantages?   a.  Experience curves.   b.  Proprietary technology.   c.  Favorable access to raw materials and distribution channels.   d.  Favorable locations.   ANSWER:   a
46. Which of the following would tend to reduce the bargaining power of suppliers?   a.  Dominance of the supplier industry by a few firms.   b.  Suppliers provide unique, differentiated products with few or no substitutes.   c.  Focal firm is not an important customer.   d.  Unwillingness and inability of suppliers to integrate forward.   ANSWER:   d
47. Which of the follow would tend to reduce the bargaining power of buyers?   a.  Large number of buyers.   b.  Products of the industry do not produce clear cost advantages or enhance the quality of life for buyers.   c.  Purchase standard, undifferentiated commodity products from suppliers.   d.  Willingness and ability of buyers to integrate backward.   ANSWER:   a
48. ​The luxury market is characterized by:   a.  ​Fewer competitors than in a mass market.   b.  ​Less use of incentives and price cuts to induce purchases.   c.  ​Healthier profit margins than in a mass-market segment.   d.  ​All of the above.   ANSWER:   d
49. ​Porter’s five forces framework:   a.  ​Identifies relevant variables but fails to ask the needed questions.   b.  ​Identifies only questions to ask.   c.  ​Identifies both relevant variables and questions to ask.   d.  ​Eliminates the need for other frameworks to add insight about firm performance.   ANSWER:   c
50. ​Maximizing opportunities and minimizing threats presented by the five forces provides some answers to which of the following questions?   a.  ​Why do firms differ?   b.  ​How do firms behave?   c.  ​What determines the scope of the firm?   d.  ​What determines the international success and failure of firms?   ANSWER:   b
51. ​Which of the following is NOT one of the forces in Porter’s five forces framework?   a.  ​The intensity of collaboration among rivals.   b.  ​The threat of potential entry.   c.  ​The bargaining power of buyers.   d.  ​The threat of substitutes.   ANSWER:   a
52. ​Competitors that typically compete most vigorously with each other:   a.  ​Are of different sizes and with similar market influence.   b.  ​Have highly differentiated product offerings.   c.  ​Offer big-ticket items to their market.   d.  ​Are of similar size and offer similar products.   ANSWER:   d
53. Which of the following are true concerning cost leadership?   a.  Targets average customers for mass market – little differentiation.   b.  Key functional areas are manufacturing and materials management.   c.  Relentless drive to cut costs might compromise value that customers desire.   d.  All of the above.   ANSWER:   d
54. Which is generally NOT true of differentiation?   a.  Inability to pass on suppliers’ price increases to buyers.   b.  Relentless efforts of competitors to duplicate differentiation.   c.  Key areas of application include research and development, marketing/sales and after-sale services.   d.  It is a challenge to identify attributes that are valued by customers in each market segment.   ANSWER:   a
55. ​Porter’s three generic strategies are:   a.  ​Industry-based view, resource-based view, and institution-based view.   b.  ​Cost leadership, differentiation, and focus.   c.  ​Rivalry among competitors, threat of potential entry, and threat of substitutes.   d.  ​Potential profitability, assessment of opportunities, and challenge of threats.   ANSWER:   b
56. ​Porter’s three generic choices address how a firm is to make strategic choices in order to:   a.  ​Become an incumbent firm with excess capacity.   b.  ​Allow buyers to enhance their bargaining power.   c.  ​Strengthen the focal firm’s position relative to the five competitive forces.   d.  ​Establish structures that increase the costs of entry and reduce the scale of production.   ANSWER:   c
57. ​Which of the following firms exhibits a cost leadership strategy?   a.  ​Company A’s products meet customers’ needs in several niche markets.   b.  ​Company B takes a low-volume high-margin approach in targeting customers for its products.   c.  ​Company C targets customers who are willing to pay a premium price.   d.  ​Company D targets the average customer.   ANSWER:   d
58. ​Which of the following firms exhibits a differentiation strategy?   a.  ​Company A constantly searches for lower costs in providing its products.   b.  ​Company B takes a high-volume low-margin approach in targeting customers for its products.   c.  ​Company C targets customers who are willing to pay a premium price.   d.  ​Company D targets the average customer.   ANSWER:   c
59. ​Which of the following firms exhibits a focus strategy?   a.  ​Company A’s products meet customers’ needs in a particular niche market.   b.  ​Company B takes a high-volume low-margin approach in targeting customers for its products.   c.  ​Company C targets customers who are looking for the lowest price.   d.  ​Company D targets the average customer.   ANSWER:   a
60. ​For firms following a cost leadership strategy, their goal is a:   a.  ​High-volume how-margin approach.   b.  ​High-volume high-margin approach.   c.  ​Low-volume high-margin approach.   d.  ​Low-volume low-margin approach.   ANSWER:   a
61. ​The main goal of a differentiation strategy is to:   a.  ​Target the average customers for mass market.   b.  ​Identify the attributes and deliver products that attract customers willing to pay a premium price.   c.  ​Relentlessly cut costs in producing the products customers desire.   d.  ​All of the above.   ANSWER:   b
62. ​One of the drawbacks of the differentiation strategy is that:   a.  ​Customers are unwilling to pay a premium price for differentiation.   b.  ​It is difficult to sustain the basis of differentiation in the long run.   c.  ​The firm is forced to continuously search for lower costs.   d.  ​The bargaining power of suppliers presents a significant problem to differentiators.   ANSWER:   b
63. ​A niche market that is the goal of a focus strategy may have all of the following characteristics EXCEPT:   a.  ​It is defined by a specific geographical area.   b.  ​It is defined by a specific geographical area.   c.  ​It is define by product line.   d.  ​It is defined by imitation of competitors.   ANSWER:   d
64. Related and supporting industries are called _________ and they are an additional force that can impact the competitiveness of an industry.   a.  Complementors   b.  Supporters   c.  Customizers   d.  Flexible manufacturing   ANSWER:   a
65. One controversial issue with strategic groups is:   a.  Stability of strategic groups.   b.  Lack of mobility barriers between strategic groups.   c.  How easy it is to obtain large quantities of objective data.   d.  All of the above are controversial issues.   ANSWER:   a
66. The industry-based view recommends:   a.  Backward integration as a way to defend against the power of suppliers.   b.  Backward integration as a way to defend against the power of buyers.   c.  Forward integration as a way to defend against the power of suppliers.   d.  Backward or forward integration as a way to defend against the power of suppliers and buyers.   ANSWER:   d
67. Which is a reason for choosing  integration as opposed to outsourcing?   a.  Decreased expense.   b.  Strategic flexibility is enhanced.   c.  Those within the firm are often more competitive.   d.  The activity is not crucial to the core business.   ANSWER:   c
68. Which is a reason for choosing outsourcing as opposed to integration?   a.  More expensive.   b.  Strategic flexibility is enhanced.   c.  Those inside the firm are often more competitive.   d.  The activity is crucial to the core business.   ANSWER:   b
69. Which of the following is NOT true regarding supplier relationships?   a.  Supplier relationships that are too close may introduce rigidities, including loss of flexibility.   b.  In Japan suppliers may become trusted members of the keiretsu.   c.  In Japan, instead of treating suppliers as adversaries, they are treated as collaboration partners.   d.  Supplier relationships in Japan tend to be ineffective.   ANSWER:   d
70. ​The ultra-luxury automobile market is characterized by:   a.  ​A great deal of competition in the past – but that is changing.   b.  ​A small number of cars produced each year – but they are very expensive.   c.  ​Being the same as the luxury market.   d.  ​A and B above.   ANSWER:   b
71. A systematic foundation for industry and competitor analysis is best provided by:   a.  The industry-based view.   b.  Resource-based view.   c.  Historical view.   d.  Macro analysis.   ANSWER:   a
72. An industry-based view provides some answers to which of the following questions?   a.  Why do firms differ?   b.  How do firms behave?   c.  What determines the scope of the firm?   d.  All of the above.   ANSWER:   d
73. ​Strategists using the industry-based view need to:   a.  ​See it as a powerful strategic tool.   b.  ​Arrive at an uncritical acceptance of the traditional view.   c.  ​Identify their firm within an industry in a boundary-less way.   d.  ​Avoid strategic alliances.   ANSWER:   a
74. ​A complementor that sells products that add value to a focal industry’s products:   a.  ​Does not affect the competitiveness of an industry.   b.  ​Is almost always high-tech in nature.   c.  ​Can act as a sixth force in the five forces framework.   d.  ​None of the above.   ANSWER:   c
75. ​Which of the following is true about firms that pursue both strategies of cost leadership and differentiation?   a.  ​They become “stuck in the middle” with resulting poor performance.   b.  ​They cannot be successful in both strategies.   c.  ​Flexible manufacturing enables a firm to produce differentiated products at low costs in many cases.   d.  ​Mass customization is the inevitable result of combining strategies.   ANSWER:   c
76. ​Every firm within a broadly defined industry:   a.  ​Is uniformly influenced by advances in technology.   b.  ​Succeeds best by following a strategy that combines cost leadership and differentiation.   c.  ​Competes against each other.   d.  ​Can usually be placed in one of several strategic groups within that industry.   ANSWER:   d
77. ​Which of the following statements about strategic groups is most accurate?   a.  ​Firms within an industry can easily move from one strategic group to another.   b.  ​Members of strategic groups are often subject to mobility barriers.   c.  ​An abundance of objective data within industries prevents classification of strategic groups.   d.  ​Strategic groups greatly complicate the analysis of a given industry.   ANSWER:   b
78. Activities that are crucial to a firm’s core business:​   a.  ​Should be outsourced to increase a firm’s strategic flexibility.   b.  ​Should be managed through a keiretsu structure.   c.  ​Should not be outsourced.   d.  ​Should always be outsourced.   ANSWER:   c
79. ​Which of the following questions is NOT essential to determining the scope of a firm?   a.  ​Can opportunities be leveraged by outsourcing?   b.  ​Have we optimized industry as destiny?   c.  ​Are we focused on core activities?   d.  ​Will collaboration with competitors be beneficial?   ANSWER:   b
80. ​Which of the following is characteristic of a savvy strategist?   a.  ​Focusing on the five forces as a way to understand an industry inside and out.   b.  ​Understanding that structurally unattractive industries do not allow for firm success.   c.  ​Using the five forces framework as the beginning, middle, and end of any good strategic analysis.   d.  ​Realizing that industry is destiny.   ANSWER:   a
81. An intense focus on above-average firm performance is shared by IO economists and those involved in the strategy of firms and yet their perspective is opposite of each other. Explain. ANSWER:   IO economists and policymakers are concerned with the minimization rather than the maximization of above-average profits. The name of the game, from the perspective of strategists in charge of the profit-maximizing firm, is exactly the opposite—to try to earn above-average returns (of course, within legal and ethical boundaries).
82. How can high exit costs increase the chance that firms may continue to operate for at least a while when operating at a loss? Explain by giving examples. ANSWER:   Specialized equipment and facilities that are of little or no alternative use, or that cannot be sold off, pose as exit barriers. In addition, emotional, personal, and career costs, especially on the part of executives admitting failure, may be high. In Japan and Germany, managers may be legally prosecuted if their firms file for bankruptcy. Thus, it is not surprising that these executives will try everything before admitting failure and taking their firms to exit the industry.
83. Many high-technology industries are characterized by network externalities. What are those externalities and how can they pay off? ANSWER:   Network externalities pertain to the value a user derives from a product that increases with the number (or the network) of other users of the same product. These industries have a “winner take all” property, whereby winners (incumbents) whose technology standard is embraced by the market (such as Microsoft Word, Excel, and PowerPoint) are essentially locking out potential entrants. In other words, these industries have an interesting ““increasing returns” characteristic, as opposed to “diminishing returns” taught in basic economics.
84. How can backward integration be used by buyers and what are some examples? ANSWER:   Backward integration involves obtaining control of a firm’s inputs instead of depending on other firms for those resources thus providing an internal alternative to outsiders. Buyers may thus enhance their bargaining power by entering the focal industry through backward integration. Buyers such as COSTCO, Tesco, and Marks & Spencer now directly compete with their own suppliers such as Procter & Gamble (P&G) and Johnson & Johnson by procuring store-brand products. Store brands (also known as private labels), such as Kirkland (for COSTCO), Kenmore (for Sears), Kroger, and Safeway brands, compete side-by-side with national brands on the shelf space.
85. ​The text discusses how the five forces framework continues to influence strategic practice and research. According to the text, what are the lessons offered by the five forces framework? ANSWER:   ​Answers should mention the three points made in the text: (1) The framework reinforces the important point that not all industries are equal in terms of their potential profitability. (2) The task is to assess the opportunities (O) and threats (T) underlying each competitive force affecting an industry, and then estimate the likely profit. (3) The challenge, according to Porter, is “to stake out a position that is less vulnerable to attack from head-to-head opponents, whether established or new, and less vulnerable to erosion from the direction of buyers, suppliers, and substitutes.” In other words, the key is to position your firm well within an industry and defend its position.
86. What are the “Three Generic Strategies,” and what lessons can we learn from their use? ANSWER:   Porter suggested three generic strategies, (1) cost leadership, (2) differentiation, and (3) focus, all of which are intended to strengthen the focal firm’s position relative to the five competitive forces. The essence of the three strategic choices is whether to perform activities differently or to perform different activities relative to competitors. Two lessons emerge. First, cost and differentiation are two fundamental strategic dimensions. The key is to choose one dimension and focus on it consistently. Second, companies that are stuck in the middle—that is, neither having the lowest cost nor sufficient differentiation (or focus)—may be indicative of having either no or drifting strategy. Their performance may suffer as a consequence,  although that is subject to debate.
87. ​Describe the advantages and disadvantages of pursuing a cost leadership strategy? ANSWER:   ​Advantages include offering the same value of a product at a lower price, which tends to attract many customers; providing a low-cost advantage that presents a significant barrier to the entry of competitors; challenging a substitute’s ability to outcompete on the both the level of product utility and on price. Disadvantages include the danger of being outcompeted on price; to be continuously searching for lower costs; and potentially upsetting customers when cutting corners to attempting to cut costs. In summary, cost leadership is pursued as a strategy for firms that find little alternative basis for differentiation.
88. ​Describe a situation in which a focus strategy would be most effective. ANSWER:   ​Answers will vary greatly but should make some mention of the firm serving a segment based on geographical market, type of customer, or product line. Focus strategy works best for firm that can serve the needs of a segment that is so unique that broad-based competitors choose not to serve it. Answers might also include a discussion of how firms avoid the disadvantages of the difficulty in sustaining differentiation of the focus strategy and the challenge of defending against ambitious imitators.
89. ​In the 1990s, Porter added a sixth force to his five forces framework. Describe that sixth force and give an example of its use in determining a firm’s strategy. ANSWER:   ​Answers need to state related and supporting industries as the sixth force that affects the competitiveness of an industry. They might also mention that Andrew Grove, the former CEO of Intel, coined the term complementors to describe firm that sells products that add value to the products of a focal industry. The example mentioned in the text described complementors to PC and smartphone industries to be firms that produce software applications, which in turn increases the demand for PCs and smartphones, and vice versa. Students’ examples may vary.
90. ​What are the fundamental questions that can be answered using an industry-based view, and what do the answers to those questions imply for taking strategic action? ANSWER:   ​Answers should address the following: The industry-based view can directly answer the four fundamental questions discussed in Chapter 1: Why do firms differ? How do firms behave? What determines the scope of the firm? and What determines the success and failure of firms? Answering these questions should lead to the realization that taking action means establishing an intimate understanding of your industry by focusing on the five forces, being aware that additional forces may influence the competitive dynamics of your industry, and realizing that industry is not destiny. In summary, then industry-specific conditions play an important role in determining firm performance around the world.

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