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David TIF Ch03
David TIF Ch03
CHAPTER 3
The External Assessment
True/False
Introduction
1.
2.
Page: 82
An external audit focuses on identifying and evaluating trends and events within
the control of management.
Ans: F
Page: 82
The aim of an external audit is to develop an exhaustive list of every possible factor
that could influence the business.
Ans: F
4.
External audits attempt to identify key variables that offer actionable responses.
Ans: T
5.
Page: 83
7.
Page 83
Five major categories of external variables are: (1) economic forces, (2) social and
cultural forces, (3) political, governmental and legal forces, (4) technological forces
and (5) demographic forces.
Ans: F
6.
Page: 83
Page: 83
Page: 84
44
8.
Page: 84
Page: 85
Economic Forces
10.
11.
12.
Page 86
The economic standard of living varies little between cities and countries.
Ans: F
17.
Page: 86
16.
Page: 86
A low value of the dollar means lower exports and higher imports.
Ans: F
15.
Page: 85
Motor vehicle firms in the United States are vulnerable when the value of the dollar
falls.
Ans: F
14.
Page: 85
13.
Page: 85
Page 86
The cost of living in London is greater than the cost of living in New York City.
Ans: T
Page 87
45
18.
The cost of living in Boston is greater than the cost of living in New York City.
Ans: F
19.
According to the Wall Street Journal, the political bureaucracy in Russia has been
able to stimulate economic progress, free enterprise, and entrepreneurship.
Ans: F
20.
Page 87
Page 87
Russian businesses are more likely to fall victim to illegal actions by officials and
policemen than by criminals.
Ans: T
Page 87
22.
It is predicted that, by 2025, over 18% of the population in the United States will be
over 65 years old.
Ans: T
23.
Page: 88
In the United States, the population has been moving from the south and west to the
Northeast and Midwest.
Ans: F
26.
Page 88
Hispanics are expected to become a larger minority group in the United States than
African Americans by 2021.
Ans: T
25.
Page 88
Recent consumption trends in the United States indicate that wine consumption is
increasing at 5% while beer consumption is increasing at 10%.
Ans: F
24.
Page: 88
Page: 89
In 2003, China replaced Mexico as the largest exporter to the United States.
Ans: T
Page 89
46
Political, governmental, and legal factors are considered key threats for most small
and large organizations.
Ans: F
28.
Political forecasts can be the most important part of an external audit for firms that
depend heavily on government contracts.
Ans: T
29.
Page 90
Page: 83
Within the European Union (EU), tax rates have been standardized to end
competitive tax breaks among member countries.
Ans: F
page 90
Technological Forces
30.
The Internet is changing the very nature of many industries by altering product life
cycles and changing the historical trade-off between production standardization and
flexibility.
Ans: T
31.
Page: 93
Page: 94
Competitive Forces
32.
33.
Page: 96
Page: 96
47
34.
35.
36.
Page 98
Learning from the partner is a major reason why U.S. firms enter into cooperative
agreements.
Ans: F
42.
Page: 97
41.
Page: 97
40.
Page: 96
An effective CI program allows all areas of a firm to access consistent and verifiable
information in making decisions.
Ans: T
39.
Page 96
38.
Page: 96
According to Business Week, there are less than 500 corporate spies now actively
engaged in intelligence activities.
Ans F:
37.
Page 96
Page: 99
Market commonality is the extent to which the type and amount of a firms internal
resources are comparable to a rival.
Ans: F
page 99
48
According to Michael Porter, five competitive forces create vital opportunities and
threats to organizations: (1) new entrants, (2) substitute products or services, (3)
bargaining power of suppliers, (4) bargaining power of buyers, and (5) rivalry
among existing firms.
Ans: T
44.
The first step for using Porters Five-Forces Model is to evaluate the relative
strength of each competitive force.
Ans: F
45.
Page 102
49.
Page: 102
Laser eye surgery would be considered a substitute product for eyeglasses and
contact lenses.
Ans: T
48.
Page: 101
Significant barriers to entry are not always sufficient to keep some new firms from
entering industries with higher-quality products, lower prices and substantial
marketing resources.
Ans: T
47.
Page 101
46.
Page: 100
Page: 102
The bargaining power of consumers can be the most important force impacting
competitive advantage.
Ans: T
page 103
Page: 104
49
51.
Qualitative forecasts are most appropriate when historical data are available and
when the relationships among key variables are expected to remain the same in the
future.
Ans: F
52.
page 104
53.
Page: 104
Linear regression is based on the assumption that the future will be different from
the past.
Ans: F
54.
Page: 104
55.
Page 104
Ans: T
Page: 104
57.
A global strategy seeks to meet the needs of customers worldwide with the lowest
cost at the highest value.
Ans: T
58.
Page: 106
Rampant corruption and the absence of a legal system are risks that still restrain
firms from initiating business with China.
Ans: T
59.
Page: 106
Page: 106
Page 107
50
60.
Page: 108
In an EFE Matrix, opportunities often receive higher weights than threats, but threats
too can receive high weights if they are especially severe or threatening.
Ans: T
62.
Page: 109
Page: 109
Both a Competitive Profile Matrix and an EFE Matrix have the same meaning in the
weights, ratings and total weighted scores.
a.
64.
Ans: T
Page: 111
The critical success factors in a Competitive Profile Matrix are often the same as
those in an EFE Matrix.
a.
Ans: F
Page: 111
Multiple Choice
The Nature of an External Audit
65.
Page: 83
51
66.
67.
68.
Page: 83
69.
Page: 83
Page: 84
Freund emphasizes that key external factors should be all of these except:
a.
important to achieving long-term and annual objectives.
b.
measurable.
c.
relatively few in number.
d.
applicable to all competing firms.
e.
hierarchical in the sense that some will pertain to the overall company while
others will be more narrowly focused.
Ans: c
Page: 84
52
The I/O approach to competitive advantage advocates that external factors are
________ internal factors in a firm achieving competitive advantage.
a.
less important than
b.
as important as
c.
more important than
d.
more common than
e.
less common than
Ans: c
71.
Page: 84
Page: 84
Economic Forces
72.
73.
Page: 85
What happens to the demand for discretionary goods when interest rates rise?
a.
rises
b.
declines
c.
stays the same
d.
first rises then declines
e.
no way to tell
Ans: d
Page: 85
53
74.
What effect do trends in the dollars value have on companies in different industries
and in different locations?
a.
significant and equal
b.
marginal and equal
c.
significant and unequal
d.
insignificant and unequal
e.
no significant impact
Ans: c
75.
76.
Page: 86
77.
Page: 86
Page: 87
Page: 87
54
It is predicted that the United States will have how many racial or ethnic majorities
by the year 2075?
a.
none
b.
one
c.
two
d.
three
e.
five
Ans: a
79.
80.
Page: 88
81.
Page: 88
Page: 88
Page: 89
55
82.
What are assembly plants on the Mexican side of the border called?
a.
Maquiladoras
b.
Assembladoras
c.
Veskels
d.
XMLs
e.
Tijuana
Ans: a
83.
Page: 89
Page: 89
When an industry relies heavily on government contracts, which forecasts can be the
most important part of an external audit.
a.
economic
b.
political
c.
technological
d.
competitive
e.
multinational
Ans: b
85.
Page: 90
Page: 90
56
86.
87.
Page: 90
The term that refers to the EUs effort to end competitive tax breaks among
member countries is
a.
double taxation.
b.
taxation bias.
c.
equity taxation.
d.
tax reconciliation.
e.
tax harmonization.
Ans: e
Page: 90
Technological Forces
88.
Technological advancements can create new ______ advantages that are more
powerful than existing advantages.
a.
economic
b.
social
c.
environmental
d.
competitive
e.
comparative
Ans: d
89.
Page: 93
Page: 94
57
Competitive Forces
90.
91.
In 2004, which company had the dominant market share in the beverages industry?
a.
PepsiCo
b.
Coca-Cola Enterprises
c.
Anheuser-Busch
d.
Pepsi Bottling Group
e.
Molson Brewing
Ans: a
92.
Page 95
Which of the following is not a characteristic that describes the most competitive
companies in America?
a.
Divestiture is essential to growth
b.
People make a difference
c.
Innovate or evaporate
d.
There is no substitute for quality and no greater threat than failing to be costcompetitive on a global basis.
e.
Whether its broke or not, fix it
Ans: a
93.
Page: 95
Page: 96
A systematic and ethical process for gathering and analyzing information about the
competitions activities and general trends to further a business own goals is called
a.
unethical business practice.
b.
artificial intelligence.
c.
competitive intelligence.
d.
information sharing.
e.
competitive advantage.
Ans: c
Page: 96
58
94.
95.
96.
Page: 97
Keeping strategies secret from employees and stakeholders can do all of the
following except:
a.
inhibit employee and stakeholder communication.
b.
inhibit employee and stakeholder understanding.
c.
inhibit employee and stakeholder commitment.
d.
provide competitive advantage to competitors.
e.
forego valuable employee or stakeholder input.
Ans: d
97.
Page: 97
Page: 97-98
Learning from the partner is a major reason why ______ firms enter into
cooperative agreements.
a.
Asian
b.
American
c.
African
d.
European
e.
Mexican
Ans: a
Page: 92
59
99.
100.
Page: 100
According to Porter, what is usually the most powerful of the five competitive
forces?
a.
Potential development of substitute products
b.
Bargaining power of suppliers
c.
Bargaining power of consumers
d.
Rivalry among competing firms
e.
Potential entry of new competitors
Ans: d
101.
Page: 99
Page: 101
Whenever new firms can easily enter a particular industry, the intensity of
competitiveness among firms
a.
stays the same.
b.
increases.
c.
decreases.
d.
neutralizes.
e.
fluctuates.
Ans: b
Page: 102
60
102.
103.
Page: 102
What level of bargaining power do consumers have when the products being
purchased are standard or undifferentiated?
a.
marginal
b.
low
c.
high
d.
negative
e.
not necessary
Ans: c
Page: 103
Page: 103
Page: 104
61
106.
Page: 104
108.
109.
Page: 105
Page: 106
Page: 106
62
110.
All of these are risks that still restrain firms from initiating business with China
except:
a.
absence of a legal system.
b.
severe human rights violations.
c.
freedom of press and religion.
d.
rampant corruption.
e.
little respect for patents, copyrights, brands and logos.
Ans: c
Page: 108
112.
Page: 109
What is the range for a firms total weighted score in an External Factor Evaluation
Matrix?
a.
0 to 5
b.
0 to 4
c.
1 to 5
d.
1 to 4
e.
0 to 10
Ans: d
Page: 109
Page: 111
63
Essay Questions
114.
What are the five major types of external forces that should be examined as part of
an external audit? Give an example of each type of force.
External forces can be divided into five broad categories: (1) economic forces, (2)
social, cultural, demographic and environmental forces, (3) political, governmental
and legal forces, (4) technological forces and (5) competitive forces. Relationships
among these forces and an organization are depicted in Figure 3-2.
Page: 83
115.
116.
64
117.
Identify five key economic variables that could represent major opportunities or
threats to a bank in your town or city.
Student answers will vary. However, they should look at economic, social/cultural,
political/legal, technological and competitive factors. Refer to Table 3-1 on page 85.
Page: 85-86
118.
List three opportunities and three threats that could represent key factors facing your
college or university.
Student answers will vary. However, they should look at economic, social/cultural,
political/legal, technological and competitive factors.
Page: 85-92
119.
120.
65
121.
According to Michael Porter, what are the five competitive forces that create vital
opportunities and threats for organizations? Which force do you feel is most
important in the computer industry today? Why?
The first one is rivalry among competing firms. The second is potential entry of new
competitors. The third is potential development of substitute products. The fourth is
bargaining power of suppliers. The last one is bargaining power of consumers.
Page: 99-103
122.
123.
66
allowed a 49 percent stake in securities joint ventures by 2004; (7) foreign insurance
firms may own operations in China; and (8) retail oil distribution will open in China
by 2004.
Page: 107-109
124.
List five steps that comprise an effective framework for conducting an EFE Matrix.
Explain the details involved in performing any one of the steps.
The EFE Matrix can be developed in five steps: 1) list key external factors as
identified in the external-audit process with a total of from 10 to 20 factors,
including both opportunities and threats that affect the firm and its industry; 2)
assign to each factor a weight that ranges from 0.0 to 1.0; 3) assign a 1 to 4 rating to
each key external factor to indicate how effectively the firms current strategies
respond to the factor, where 4 = the response is superior, 3 = the response is above
average, 2 = the response is average, and 1 = the response is poor; 4) multiply each
factors weight by its rating to determine a weighted score; and 5) sum the weighted
scores for each variable to determine the total weighted score for the organization.
Page: 109-111