Chapter 3: External Analysis: Industry Structure Competitive Forces, and Strategic Groups

Question 1

A framework that categorizes and analyzes an important set of external factors (political, economic, sociocultural, technological, ecological, and legal)
that might impinge upon a firm. These
factors can create both opportunities and
threats for the firm.

Answer 1

Pestel Model

Question 2

result from the pressure that various groups such as government bodies,
nongovernmental organizations (NGOs), and social movements can exert to influence the
decisions and behavior of firms.

Answer 2

Political Factors

Question 3

Strategic leaders’ activities outside
market exchanges (in which firms sell products or provide services) to influence a firm’s general environment through such activities as lobbying, public relations,
contributions, and litigation that will lead
to favorable outcomes for the firm.

Answer 3

Nonmarket Strategy

Question 4

in a firm’s external environment are largely macroeconomic, affecting
economy-wide phenomena.

Answer 4

Economic Factors

Question 5

measures the change in the value of
goods and services produced by a nation’s economy.

Answer 5

Growth Rates

Question 6

In boom times, unemployment tends to be low, and skilled human capital becomes scarce and more expensive.

Answer 6

Employment Level

Question 7

rates—the amount that creditors earn for lending their money and the amount that
debtors pay to use that money, adjusted for inflation.

Answer 7

Interest Rates

Question 8

little or no change in the prices of goods and services—is rare because economic growth is dynamic and needs to be matched with adequate monetary supply.

Answer 8

Price Stability

Question 9

A general and sustained increase
in the overall price level for goods and
services in an economy.

Answer 9

Inflation

Question 10

determines how many dollars
one must pay for a unit of foreign currency. It is a critical variable for any company buying
or selling products and services across national borders, and strategic leaders need to fully
appreciate the power of varying currency exchange rates to assess their effects on firm
performance.

Answer 10

Currency Exchange Rates

Question 11

capture the application of knowledge to create new processes and products. Significant innovations in process technology include lean manufacturing, Six Sigma quality, genetic engineering, artificial intelligence (AI), and quantum computing.

Answer 11

Technological Factors

Question 12

concern broad environmental issues such as the natural environment, climate change, and sustainable economic growth. Organizations and the natural environment coexist in an interdependent relationship.

Answer 12

Ecological Factors

Question 13

capture the official outcomes of political processes as manifested in laws, man-
dates, regulations, and court decisions, all of which can directly impact a firm’s profit potential. Regulatory changes tend to affect entire industries.

Answer 13

Legal Factors

Question 14

Occurs
when the production or
consumption of goods
and services imposes
costs on or provides
benefits to others, but
the prices of the goods
and services do not
capture these costs
and benefits.

Answer 14

Externalities

Question 15

Firm performance attributed to the
structure of the industry in which the firm competes.

Answer 15

Industry Effects

Question 16

Firm performance attributed to the
actions strategic leaders take.

Answer 16

Firm Effects

Question 17

A group of
incumbent firms with
more or less the same
set of suppliers and
buyers.

Answer 17

Industry

Question 18

A method to (1) identify
an industry’s profit
potential and (2) derive
implications for a firm’s
strategic position
within an industry.

Answer 18

Industry Analysis

Question 19

A firm’s strategic profile
based on the difference
between value creation
and cost (V – C).

Answer 19

Strategic Position

Question 20

A framework that identifies five forces that determine the profit potential of an industry
and shape a firm’s competitive strategy.

Answer 20

Five Forces Model

Question 21

The risk that potential competitors will enter an industry.

Answer 21

Threat of Entry

Question 22

Obstacles that discourage or prevent entry into an industry.

Answer 22

Entry Barriers

Question 23

are cost advantages that accrue to firms with
larger output because they can spread fixed costs over more units, employ technology more efficiently, benefit from a more specialized division of labor, and demand better terms from their suppliers.

Answer 23

Economies of Scale

Question 24

The positive impacts that
one user of a product
or service has on other
users of that product or
service.

Answer 24

Network Effects

Question 25

are the costs that a customer incurs when changing to the products, services, and/or brands offered by a different vendor.

Answer 25

Customer Switching Cost

Question 26

are the “entry ticket price” into a new industry.

Answer 26

Capital Requirements

Question 27

Incumbent firms often possess cost and quality advantages that are independent of company size.

Answer 27

Advantages Independent Size

Question 28

an essential concept in marketing, captures a consumer’s emotional attachment and feelings toward a specific brand.

Answer 28

Brand Loyalty

Question 29

technology is any process, method, device, or system that firms use to solve problems when providing products and services.

Answer 29

Proprietary Technology

Question 30

access to raw materials, critical components, and distribution channels can bestow absolute cost advantages.

Answer 30

Preferential Access

Question 31

such as the locations of Tesla’s Gigafactories near Austin, Texas, and Shanghai, China, provide advantages that other locales cannot match easily.

Answer 31

Favorable Locations

Question 32

Finally, incumbent firms often benefit from cumulative learning and experience effects over long periods.

Answer 32

Cumulative Learning and Experience

Question 33

Suppliers with strong bargaining power can exert pressure on an industry’s profit potential.

Answer 33

The Power of Suppliers

Question 34

In many ways, buyers’ bargaining power is the flip side of suppliers’ bargaining power.

Answer 34

Power of Buyers

Question 35

Substitutes are the threat that products or services available from outside the given industry will come close to meeting the needs of current customers

Answer 35

THE THREAT OF SUBSTITUTES

Question 36

The threat of substitutes is high when they offer a low-cost alternative that provides a similar or equivalent product or service performance.

Answer 36

Price/Performance Trade-Off

Question 37

In addition to offering a lower price, substitutes may become more attractive by offering a higher value proposition.

Answer 37

Low Switching Cost

Question 38

Elements and features common to all industries, includ- ing the number and size of competitors, the firms’ degree of pricing power, the type of product or service of- fered, and the height of entry barriers.

Answer 38

Competitive Industry Structure

Question 39

It is characterized by many small firms, a commodity product, ease of entry, and little or no ability for each firm to raise its prices.

Answer 39

Perfect Competition

Question 40

a differentiated product, some obstacles to entry, and the ability to raise prices for a relatively unique product while retaining customers.

Answer 40

Monopolistic Competition

Question 41

industry is consolidated. It has a few large firms, differentiated products, high barriers to entry, and some degree of pricing power.

Answer 41

Oligopoly

Question 42

when there is only one, often large firm supplying the market.

Answer 42

Monopoly

Question 43

directly affects the intensity of rivalry among competitors. During periods of high growth, consumer demand rises, and price competition among firms frequently decreases.

Answer 43

Industry Growth

Question 44

costly, have a long- term impact, and are difficult to reverse. Contrast with tactical decisions, which are short-term and can be easily reversed.

Answer 44

Strategic Commitments

Question 45

The obstacles that interfere with a firm’s ability to leave an industry.

Answer 45

exit barriers

Question 46

A product, service, or competency that adds value to the original product offering when the two are used in tandem.

Answer 46

Complement

Question 47

A company that provides a good or service that leads customers to value your firm’s offering more when the two are combined.

Answer 47

Complementor

Question 48

Cooperation by competitors to achieve a strategic objective.

Answer 48

Co-opetition

Question 49

A process whereby formerly unrelated industries begin to satisfy the same customer need.

Answer 49

Industry Convergence

Question 50

The set of companies that pursue a similar strategy within a specific industry.

Answer 50

Strategic Group

Question 51

A framework that explains differ- ences in firm perfor- mance within the same industry.

Answer 51

Strategic Group Model

Question 52

Industry-specific factors that separate one strategic group from another.

Answer 52

Mobility Barriers