Unit 14.1

Question 1

External Environment layers

Answer 1

((((Firm)Market)Industry)General Environment)

Question 2

Competitors also referred to as…

Answer 2

strategic group

Question 3

Industry competitors include…

Answer 3

all competitors, not just direct competitors

Question 4

General Environment analysis acronym

Answer 4

PESTEL

Question 5

PESTEL

Answer 5

Political
Economic
Social
Technological
Ecological
Legal

Question 6

PESTEL Analysis Objectives

Answer 6

• Identify external factors
• Discern trends and predict outcomes
• Extract Opportunities and threats

Question 7

Ecological

Answer 7

Businesses need to understand how they impact the environment operationally

Question 8

Legal/Ethical

Answer 8

Laws, mandates, regulations and court decisions

Question 9

SCP Model

Answer 9

Structure, Conduct, Performance

Question 10

Structure

Answer 10

Industry Structure

• # of competitors
• Value chain and extent of vertical integration
• Economics of supply and demand
• Cost of entry/exit

Question 11

Conduct

Answer 11

• Branding, product differentiation and price setting
• Capacity
• Innovation
• Operating Efficiencies
• Collusion

Question 12

Performance

Answer 12

• Profits
• Value creation
• Technological progress
• Shareholder returns
• Industry performance

Question 13

Perfect Competition

Answer 13

• Many small firms

- Low entry barriers

Question 14

Monopoly

Answer 14

• One firm
• Pricing Power
• Very high entry barriers

Question 15

Monopolistic Competition

Answer 15

• Many firms
• Some pricing Power
• Differentiated product
• Medium Entry barriers

Question 16

Oligopoly

Answer 16

• Few large firms
• Some pricing power
• Differentiated Product
• High entry barriers

Question 17

Attractiveness

Answer 17

Total industry profitability

Question 18

The stronger the force…

Answer 18

the greater the negative impact is on firm profits

Question 19

Porter 5 Forces

Answer 19

1) Bargaining Power of Suppliers
2) Bargaining power of buyers
3) Competitive Rivalry
4) Threat of new entrants
5) Threat of substitute products or services

Question 20

Concentration Ratio

Answer 20

the ratio of the combined market shares of a given number of firms to the whole market size
- Used to assess the extent to which a given market is oligopolistic

Question 21

Concentration Ratio impacts…

Answer 21

Competitive Rivalry
Buyer Bargaining Power
Supplier Bargaining Power

Question 22

Switching Costs

Answer 22

the costs that a consumer incurs as a result of changing brands, suppliers or products

Question 23

Switching Costs impact…

Answer 23

all five forces

Question 24

Forward Integration

Answer 24

Business strategy that involves a form of vertical integration whereby business activites are expanded to include control of the direct distribution or supply of a company’s products.
- Company moves down the supply chain

Question 25

Backward Integration

Answer 25

Company moves UP the supply chain by controlling supply.

Question 26

Forward/Backward Integration impacts...

Answer 26

Buyer bargaining power | Supplier bargaining power

Question 27

Bargaining Power of Suppliers is HIGH when:

Answer 27

- Concentrated supplier industry - Suppliers not dependent on industry for majority of revenue - Industry competitors firms face supplier switching costs - Suppliers hold scarce resources - Suppliers offer differentiated products - There are no or few supplier substitutdes - Suppliers can forward-integrate into the industry

Question 28

Bargaining Power of Buyers is HIGH when:

Answer 28

- There are a few buyers and each buy purchases large quantities - The industry's products are standardized or undifferentiated commodities - The buyer has many substitude options - Buyers face low or no switching costs - Buyers are price-sensitive - Buyers can backwardly integrate into the industry

Question 29

Threat of Substitutes is HIGH when:

Answer 29

- The substitute offers and attractive price-performance trade-off - The buyer's cost of switching to the substitute is low - Buyer are not loyal to any of the industry competitors

Question 30

Threat of Substitutes is HIGH when:

Answer 30

- The substitute offers and attractive price-performance trade-off - The buyer's cost of switching to the substitute is low - Buyer are not loyal to any of the industry competitors

Question 31

The primary impact of a substitutes is the..

Answer 31

limits placed on the pricing flexible of the industry competitors

Question 32

Threat of New Entrants is HIGH when...

Answer 32

there are no or low barriers to entry and the Industry Average Profitability is high

Question 33

Barriers to entry include:

Answer 33

- Economies of scale - Network effects - Customer switching costs - Capital requirements - Advantages independent of size - Government policy - Credible threat of retaliation

Question 34

Competitive Rivalry

Answer 34

- Other 4 forces put pressure on this rivalry | - The stronger the forces, the higher the intensity

Question 35

Less rivalry when:

Answer 35

- High buyer switching costs - Low exit barriers - Economies of scale not competitive a factor - More industry concentration - More product differentiation

Question 36

The more dissimilar the products of firms are...

Answer 36

the more attractive the industry (heterogenous goods)

Question 37

Complement

Answer 37

a product, service, or competency that addes value to the original product offering when the two are used in tandem

Question 38

Complements tend to result in...

Answer 38

higher margins and profits for industry competitors

Question 39

Ways companies can mitigate structural impediment to firm profitability:

Answer 39

- Increase product differentiation - Diversify product lines - Introduce or strengthen switching costs - Continually innovate to increase product value - Alter bargaining relationships between the industry competitors and buyers and suppliers - Build barriers to entry to keep new competition out - Develop complements or build strategic partnerships with complement providers