Business Environment and Porter's Diamond
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Questions and Answers

What illustrates the concept of collective involvement in the market among firms in strategic groups?

  • Total revenue generated by top firms
  • Diameter of the circle of competition (correct)
  • Number of products offered in different groups
  • Range of consumer preferences in a market

    • What factor critically affects a firm's ability to move between strategic groups?

  • Mobility barriers present in the industry (correct)
  • The overall market size
  • The willingness of competitors
  • Changes in consumer demand

    • What is a potential consequence of firms being protected from competition within their strategic group?

  • Reduced innovation in products and services (correct)
  • Simplified market regulations
  • Enhanced brand loyalty among consumers
  • Increased collaboration among competing firms

    • What happens to competitive opportunities when mobility and exit barriers are absent in an industry?

    <p>Rivalry intensity increases across all firms</p> Signup and view all the answers

    Which of the following is NOT a characteristic of strategic groups within an industry?

    <p>Similar methods of competing</p> Signup and view all the answers

    What is essential for generating demand for products or services in a country?

    <p>Conditions of domestic demand</p> Signup and view all the answers

    Which factor is NOT mentioned as influencing a country's competitiveness?

    <p>Stable economic policies</p> Signup and view all the answers

    What does the scenarios method help in understanding?

    <p>Potential future environments and conditions</p> Signup and view all the answers

    What is a significant aspect of the scenarios method?

    <p>It emphasizes relationships between dynamic variables.</p> Signup and view all the answers

    What should be the first step in creating an environment's strategic profile?

    <p>Drafting a list of key factors</p> Signup and view all the answers

    Which of the following is a prospective measure to handle a turbulent environment?

    <p>Adopting a proactive attitude</p> Signup and view all the answers

    Which of these components is considered when designing scenarios?

    <p>Interrelation of relevant variables</p> Signup and view all the answers

    What is crucial for diagnosing the general setting in an environment's strategic profile?

    <p>Identification of key factors</p> Signup and view all the answers

    What is the primary driving force for businesses within an industrial district to innovate?

    <p>Internal competitive pressure</p> Signup and view all the answers

    How does the presence of new start-ups impact an industrial district?

    <p>It strengthens the district's overall competitiveness.</p> Signup and view all the answers

    What is a common characteristic of industrial districts?

    <p>Combination of competition and cooperation.</p> Signup and view all the answers

    What role does defining the competitive environment play for a business?

    <p>It helps identify opportunities, threats, and success factors.</p> Signup and view all the answers

    What may occur if a firm poorly defines its competitive arena?

    <p>Key market segments may be overlooked.</p> Signup and view all the answers

    In defining industries, what is the primary criterion used?

    <p>The closeness of substitute products or services offered.</p> Signup and view all the answers

    What is the consequence of a firm ignoring competitors from other industries?

    <p>A compromised competitive strategy.</p> Signup and view all the answers

    What factor contributes to the lower financing costs for new businesses in an industrial district?

    <p>Low risk premiums due to potential client growth.</p> Signup and view all the answers

    What is the impact of excess installed operating capacity on firms in an industry?

    <p>It makes firms more aggressive in their competitive approach.</p> Signup and view all the answers

    How does competitor diversity affect competition intensity?

    <p>It can lead to more intense competition due to varied strategies.</p> Signup and view all the answers

    What are entry barriers in an industry?

    <p>Elements that protect established firms from new competitors.</p> Signup and view all the answers

    What characterizes absolute entry barriers?

    <p>They are usually linked to government regulations.</p> Signup and view all the answers

    What happens to an industry's attractiveness when new competitors can enter and compete on similar terms?

    <p>It diminishes as competition rises.</p> Signup and view all the answers

    What are relative entry barriers?

    <p>Barriers that can be managed based on a firm's resources.</p> Signup and view all the answers

    How do strategic interests influence competition within an industry?

    <p>They can intensify competition as more firms seek success.</p> Signup and view all the answers

    What happens to industries with high entry barriers regarding average returns?

    <p>They experience higher average returns over time.</p> Signup and view all the answers

    What is the primary purpose of analyzing the general environment for a firm?

    <p>To identify external variables that affect operations</p> Signup and view all the answers

    Which of the following best describes the competitive environment of a firm?

    <p>The specific industry where the firm operates</p> Signup and view all the answers

    What are considered opportunities in the context of environmental analysis?

    <p>Favorable factors for a firm’s operations</p> Signup and view all the answers

    Which factor does NOT typically constitute a threat in environmental analysis?

    <p>A competent marketing team</p> Signup and view all the answers

    What is the Porter Diamond primarily used to explain?

    <p>How country and industry affiliation affects competition</p> Signup and view all the answers

    Which of the following is NOT considered part of the general environment?

    <p>Specific organizational policies</p> Signup and view all the answers

    What is an outcome of a more dynamic and complex business environment?

    <p>Increased uncertainty for firms</p> Signup and view all the answers

    What aspect of the general environment helps in understanding regional attractiveness for businesses?

    <p>Local public policies</p> Signup and view all the answers

    What happens to competition intensity as an industry enters maturity or decline?

    <p>It increases as firms become more aggressive to capture customers.</p> Signup and view all the answers

    What are mobility barriers in an industry?

    <p>Hindrances that restrict movement between market segments.</p> Signup and view all the answers

    Which of the following is NOT considered an exit barrier?

    <p>Customer loyalty to a specific product.</p> Signup and view all the answers

    How does a company's cost structure affect competition intensity?

    <p>Greater fixed costs drive firms to operate at full capacity.</p> Signup and view all the answers

    Which of the following factors typically leads to a decrease in competition intensity?

    <p>High levels of product differentiation.</p> Signup and view all the answers

    What are switching supplier costs?

    <p>Expenses incurred by customers when changing suppliers.</p> Signup and view all the answers

    Which factor primarily causes firms to remain in an industry despite wanting to exit?

    <p>Exit barriers that hinder departure.</p> Signup and view all the answers

    What is typically true of concentrated industries compared to fragmented ones?

    <p>Concentrated industries have a lower intensity of competition.</p> Signup and view all the answers

    Study Notes

    The Business Environment

    • Environment: Everything outside a firm's control
    • Business environment: External factors affecting decisions and performance
    • General environment: Broad socio-economic system affecting all competitors
    • Competitive environment: Industry the firm operates in, and directly affects daily operations
    • Dynamic, complex, diverse, and hostile environments create uncertainty for firms due to globalization, technology acceleration, and international trade barriers.
    • Societal values change, leading to environmental factors that influence firm performance
    • Opportunities: Factors that support firm operations
    • Threats: Hindrances to firm operations
    • Analysis of general environment: Identifying variables affecting a firm's operations, considering both political, economic and social systems surrounding the firm and the firm's place within a specific country or region. Evaluate wealth and prosperity of the external context.

    Porter's Diamond

    • Explains why some countries/nations are more competitive than others in specific industries
    • Purpose: to explain how a country's/nation's characteristics affect a firm's competitiveness compared to firms from other countries.
    • Factors: Relevant factors that equally shape a country/nation's competitiveness

    Methods of Analysis:

    • Scenarios Method: Describes possible future scenarios (optimistic, pessimistic, and expected). Used to understand the way the future may unfold. Considering relevant variables to be incorporated, their interrelation and the ramifications of strategic decisions to better prepare for contingency.
    • The Environment's Strategic Profile: Two-stage process analyzing major factors and their impact on the firm's business. This method helps identify main opportunities & threats in a particular context from a territorial perspective.

    Defining the Competitive Environment

    • Purpose: To define competitive arena for analysis
    • Key elements:
      • Identifying direct competitors.
      • Defining industry boundaries.
      • Defining substitute options

    Industry, Criteria, and Market

    • Industry: Group of firms offering substitute products or services
    • Criteria: Technological considerations, Market considerations
    • Market: The sum of companies, offering the same functions for the same customer/consumer base, without taking into account their industry backgrounds

    A Firm's Business

    • The selection made by a firm in terms of customer groups & functions served within the industry. This can differ across firms, even within the same industry.

    Analysis of the Competitive Environment.

    • Industry Structure: Understanding opportunity & threat positions for firms in a given market.
    • Evaluating factors impacting profitability & industry behavior
    • 5 Forces: Model used to determine industry attractiveness including rivalry, threat of new entrants, threat of substitute products, bargaining power of suppliers, and bargaining power of buyers.

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    Environmental Analysis PDF

    Description

    Explore the intricacies of the business environment and how external factors influence a firm's decisions and performance. This quiz covers general and competitive environments, as well as the significance of Porter's Diamond in understanding local and global market dynamics.

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