GSL M2 – Module Quiz 2

YOU SCORED 6 OUT OF A POSSIBLE 10 [60%]

Question 1 Marks: 1
Which of the following statements most accurately captures the relationship between
industry profitability and Porter’s Five Forces model?

Answer Options
You answered D. The correct answer is D
USER SELECTION CORRECT ANSWER

The higher the threat of new entrants, the higher industry profitability is likely
A
to be.

Industry profitability is likely to be lowest when the threat of substitutes is

B
declining.

Moderate buyer power and moderate level of rivalry is likely to increase

C
industry profitability.

Low levels of rivalry and low supplier power are likely to be associated with
D
higher industry profitability.

Answer Explanation

D is correct because industry profitability is likely to be the highest when the power of
each of the five forces is low. A low level of rivalry suggests that competitors in the
industry do not have to compete away profits in order to attract buyers. Similarly, low
supplier power suggests that organisations in the industry are not forced to pay high
prices for their purchases. Both features are positive for industry profitability.
A is incorrect because the threat of new entrants and industry profitability are usually
inversely related—that is, the higher the threat the lower the profitability. Note that in a fast
growing industry new entrants often don’t reduce industry profitability at that stage of the
industry life cycle. However, as the industry moves towards maturity, profit margins erode.

B is incorrect because lower threat of substitutes would give rise to high industry
profitability. If there are fewer substitutes to the industry’s product there are low
alternatives for buyers to purchase and reduced pressure on profitability.

C is incorrect because only low buyer power and industry rivalry would give rise to higher
industry profitability. Moderate levels of these forces would give rise to moderate levels of
profitability only.
Module: 2 > 2.4 Industry environment analysis - industry profitability >
Page: 115-124

Question 2 Marks: 0
Which of the following statements about supplier power is most likely to be correct?

Answer Options
You answered A. The correct answer is B
USER SELECTION CORRECT ANSWER

The higher the threat by suppliers to forward integrate, the lower their power
A
relative to industry rivals.

The smaller the quantities of supplies purchased by companies in the industry,

B
the higher the supplier power.

The higher the number of suppliers, the more power suppliers will have in
C
negotiating prices with companies in the industry.

The higher the importance of the suppliers' input to industry rivals, the more
D
power industry rivals have in negotiating with suppliers.
Answer Explanation

B is correct. If the companies in an industry purchase a low volume of products from

suppliers, the industry is relatively unimportant to the suppliers, and companies in the
industry are not in a position to bargain down the prices paid for these supplies. You may
have not selected this because you thought that the industry companies had the power
because they didn't buy many supplies. But, that is not necessarily correct. If only 4% of
my raw materials come from a group of suppliers, I don't get to meet them and say "I only
need 4% so give me a lower price". They would laugh and walk away because it's a small
sale to them and they may not care if I go to another supplier. However, I might find I have
exactly the same problem with that next supplier!

A is incorrect because the ability for suppliers to forward integrate increases their power
relative to the industry.

C is incorrect because the more suppliers that exist, the more likely industry rivals will hold
the negotiating power by having a wider range of supplier choice.

D is incorrect because industry rivals will have limited scope for negotiation where the
suppliers’ input is of high importance because the industry rivals will have little choice as
to purchase.

Module: 2 > 2.4 Industry environment analysis - industry profitability >

Power of suppliers to the industry > Page: 118

Question 3 Marks: 0
In what circumstances are buyers most likely to be powerful in relation to organisations
within the industry?

Answer Options
You answered D. The correct answer is B

USER SELECTION CORRECT ANSWER

A When buyer profitability is high.

 B When buyers consist of a few large retail chains.

C When there is a high concentration of industry participants.

D When the cost of the industry product is low, relative to other buyer purchases.

Answer Explanation

B is correct. A large retail chain is likely to be powerful in negotiating the price it pays for
the products of an industry. This is because it typically buys a high volume of products;
can threaten to buy products from rival producers; has the potential to backward integrate
or provide its own brand of goods; and its cost of switching to other producers is likely to
be low.

A is incorrect because buyer power is about the relativity of importance of the industry
participant to the buyer. Buyer profitability is not a factor in determining this importance as
this may be derived by ways other than purchasing, such as production efficiencies.

C is incorrect because buyers are more powerful when they are concentrated, or there are
many industry participants from which they can purchase.

D is incorrect as it is an indication of buyer power, but cost of industry product being low
relative to other buyer purchases would not necessarily give rise to the most buyer power.

Module: 2 > 2.4 Industry environment analysis - industry profitability >

Power of buyers > Page: 119

Question 4 Marks: 1
Which of the following circumstances is most likely to increase the threat of new entrants?

Answer Options
You answered A. The correct answer is A

USER SELECTION CORRECT ANSWER

 A Brand loyalty has decreased in recent years.

B Supplier power has increased due to a shortage of key components.

Existing competitors have dramatically increased their spending on

C
advertising.

The government has passed regulations to increase consumer rights and deter
D
anti-competitive behaviour.

Answer Explanation

A is correct because a strong brand can be a deterrent to new entrants. A decline in brand
loyalty means an opportunity for new entrants. Brand loyalty may decline in an industry for
various reasons, including changing technology or changes in market demographics.

B is incorrect because it relates to supplier power, which is not related to the threat of new
entrants but a separate force.

C is incorrect because it would indicate that consumers are more aware of existing
industry rival products, which would likely make it more difficult for a new entrant to
penetrate the market.

D is incorrect because new regulations, whether about consumer rights or anti-

competitive behaviour, results in a barrier to entry that decreases the threat of new
entrants.

Module: 2 > 2.4 Industry environment analysis - industry profitability >

Threat of new entrants to the industry > Page: 116-117

Question 5 Marks: 0
Which of the following alternatives provides the best reason why it is important to perform
competitor analysis?
Answer Options
You answered D. The correct answer is B

USER SELECTION CORRECT ANSWER

A You can determine what your competitors are doing well and replicate it.

B Competitive intelligence may reveal industry trends you may have missed.

Your competitors will guide you in what products you must release and
C
operations you must improve.

Customers have a choice of who they purchase from, so you should

D
understand what else they can buy.

Answer Explanation

B is correct because it is important to establish a clear and specific profile of each of the
major competitors for your organisation in its major market segments within the industry.
When you do the analysis you will confirm and communicate your competitive advantages
to customers; use competitive intelligence that may reveal important industry trends you
have missed; and use this information as a key input into strategic decision-making so that
your organisation can position itself differently from its competitors.

A is incorrect because copying a competitor does not give rise to a long-term competitive
advantage where the company is positioned uniquely compared to competitors.

C is incorrect because although your competitors help you benchmark your own
performance, they don't necessarily tell you what products to launch or operations to run.
Option C is similar to option A in that you would only try to copy your competitor and this is
not a long term viable strategy. Companies need to develop their own new products, and
find ways to improve their own efficiency, in order to gain a competitive advantage.

D is incorrect because a general understanding of competitors is insufficient. A detailed

understanding of your competitors is required to undertake effective strategic analysis and
understand their strengths and advantages from a customer perspective.
Module: 2 > 2.6 Competition in the industry > Competitive position >
Page: 132-133

Question 6 Marks: 0
Which of the following statements describes an industry that is in the growth stage of the
industry life cycle?

Answer Options
You answered A. The correct answer is D
USER SELECTION CORRECT ANSWER

A New products are constantly being developed.

B A small group of organisations dominate the industry.

C There are few competitors and higher barriers to entry.

D Competitive differentiation is not of critical importance.

Answer Explanation

D is correct because as the industry is growing, competitive differentiation is not of critical

importance at this stage because there is ‘enough room for everyone’ in the industry. The
growth phase sees a surge in new competitors as new players enter the growing industry.

Industry rivalry is low and the power of buyers is still relatively low as there is a supply
shortfall, that is, demand still exceeds supply. High growth rates enable most organisations
to survive. Organisations will be primarily concerned with keeping up with current
demand, not looking towards the future.

A is incorrect as this represents the maturity stage—although new products are constantly
being developed, this is to penetrate more of the market, rather than ‘grow’ with the rest of
the industry.

B is incorrect as this represents the shake-out stage—the remaining small group of

organisations then dominates the industry with their own products, through mergers,
acquisitions and takeovers.

C is incorrect because this represents the introduction phase—the industry is new and
there are few competitors. Sometimes the growth phase has few competitors early one but
it usually does not have high barriers to entry. There is room for new entrants.
Module: 2 > 2.2 Defining the industry for analysis > The industry life
cycle > Page: 90-91

Question 7 Marks: 1
The Australian Government is considering introducing changes in the tax policy affecting
the research and development tax concessions that are attractive to manufacturing being
based in Australia.

Which industry growth factor of the STEEPLE (social, technological, environmental,

economic, political, legal, ethical) analysis is this an example of?

Answer Options
You answered B. The correct answer is B

USER SELECTION CORRECT ANSWER

A Legal

B Political

C Economic

D Environmental
Answer Explanation

B is correct because a political party in government is impacting an industry through

policy changes. Political impacts are nearly always closely related to legal impacts but in
this case the question is pointing to a possible change in tax policy that is driven by
politics.

A is incorrect because this is a policy change that is under consideration and not a
legislative change that has occurred.

C is incorrect because this is an industry-specific issue and not a factor impacting on the
growth or decline of the overall economy.

D is incorrect as this is not an example of the sustainability or otherwise of the industry.

Module: 2 > 2.3 Remote environment analysis - growth > Political >
Page: 109

Question 8 Marks: 1
Which of the following options is not a reason to perform a remote environment analysis?

Answer Options
You answered B. The correct answer is B
USER SELECTION CORRECT ANSWER

To identify factors that affect industries and their effect on the growth of the
A
industry being analysed.

To consider factors within the industry that affect the competitive position of
B
organisations within the industry.

To understand how an industry has evolved to its current state and being able
C
to explain how it has changed over time.
 To help anticipate changes that are likely to happen in the future, including the
D
size and nature of future growth opportunities.

Answer Explanation

B is correct because in the industry environment analysis, we consider those factors

within the industry that affect its profitability and the competitive position of organisations
within it. The remote environment analysis focuses on industry growth.

Options A, C and D are incorrect. They are all examples of reasons why a remote
environment analysis should be performed.

Module: 2 > 2.3 Remote environment analysis - growth > Future

expectations > Page: 99

Question 9 Marks: 1
Which of the following is not a characteristic of business intelligence and data analysis
(BIDA) when examining remote environments?

Answer Options
You answered D. The correct answer is D

USER SELECTION CORRECT ANSWER

A It allows for deeper data analytics for decision-making.

B It allows more accurate monitoring of strategies against global impacts.

C It allows for data mining, online analytical processing, querying and reporting.

It requires an expert data analyst and sophisticated information technology (IT)

D
systems.
Answer Explanation

D is correct because although BIDA requires the use of technology, the data drilling can
use well-known systems and IT to collect, store and analyse data. Systems like Microsoft
Excel are readily available to organisations and can provide assistance with the simple
form for analysis.

A is incorrect as BIDA does allow firms to make more informed and rigorous decisions.
The tools of analysis all have high user engagement and high collective insight into the
area that is being investigated, offering rich analysis of the data.

B is incorrect as BIDA does allow for better analysis of remote environment impacts on
strategy implementation. It's important to remember that although you perform a PESTEL
or STEEPLE analysis early in the strategy creation process, that doesn't mean you don't do
it again. Strategies are often implemented over years and so monitoring of changes to the
remote environment is critical. BIDA allows us to do this much quicker and more accurately
than previously.

C is incorrect. The tools of analysis used in BIDA include data mining, data optimisation,
predictive modelling, analysis and agile visualisation.

Module: 2 > 2.1 Understanding the external environment > External

environment analysis - analysing an industry > Page: 73

Question 10 Marks: 1
Company A makes and sells motorcycle seats to bike manufacturers. They only produce
traditional leather seats for customised bikes and kevlar composite seats for high-
performance bikes. Company B makes and sells a wide variety of seats to suit all major
brands with a focus on securing long term supplier deals and offering competitive
contracts.

In relation to analysing competitors, which of the following categories does this

information enable you to analyse?

Answer Options
You answered A. The correct answer is A
 USER SELECTION CORRECT ANSWER

A Value proposition.

B Operating profitability.

C Key stakeholder needs.

D Key competitive weaknesses.

Answer Explanation

A is correct because the question information discusses how each competitor is trying to
position themselves in the market. One, operates for a high end customer with specialised
products, and the other company focuses on providing standardised products, most likely
with higher volumes and lower prices.

B, C and D are incorrect because the question doesn't indicate what level of profitability
each company is delivering, nor who their key stakeholders are, or what their key business
weaknesses are.

Module: 2 > 2.6 Competition in the industry > Competitive position >
Page: 133