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CMA Sri Lanka SL3 Business Strategy & Risk Management Exam study materials
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CMA Sri Lanka SL3 Business Strategy & Risk Management Exam practice questions

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Question 1Strategic Analysis and the External Environment

Under Michael Porter's Five Forces framework, which force is most directly weakened when buyers face high switching costs to move to an alternative supplier?

  1. Bargaining power of suppliers
  2. Threat of new entrants
  3. Intensity of rivalry among existing competitors
  4. Bargaining power of buyers Correct answer.

Explanation

High switching costs lock buyers into their current supplier, so they cannot credibly threaten to walk away and their bargaining leverage falls. Supplier power, entry threat and rivalry are separate forces that are not directly reduced by buyer lock-in.

Question 2Strategic Analysis and the External Environment

A Sri Lankan apparel exporter earns above-average returns because its design and merchandising skills are valuable, rare, hard to imitate and embedded in its organisation. Which analytical model does this reasoning belong to?

  1. Ansoff product-market matrix
  2. Value chain analysis
  3. PESTLE analysis
  4. Resource-based view of the firm Correct answer.

Explanation

The resource-based view explains sustained competitive advantage through resources that meet the VRIN criteria of being valuable, rare, inimitable and non-substitutable, as described in the stem. The other tools address macro-environment scanning, activity-level cost and differentiation, or growth direction rather than internal resource attributes.

Question 3Strategic Analysis and the External Environment

In a PESTLE analysis for a Sri Lankan commercial bank, a proposed tightening of statutory capital adequacy ratios is best classified under which element?

  1. Technological
  2. Political
  3. Legal Correct answer.
  4. Economic

Explanation

Regulatory capital requirements are rules enforced by law or by a statutory regulator, so they sit in the legal element of PESTLE. The economic element covers macro variables such as interest rates and inflation, while the political element concerns government policy and stability.

Question 4Strategic Analysis and the External Environment

What does the 'threat of substitutes' force in Porter's model specifically refer to?

  1. Suppliers integrating forward into the buyer's industry
  2. Rival firms selling an identical product at a lower price
  3. New entrants planning to build capacity in the same industry
  4. Products from other industries that perform the same function for the buyer Correct answer.

Explanation

Substitutes are offerings from outside the industry that satisfy the same underlying need, such as video conferencing substituting for business air travel. Identical products sold by rivals are part of rivalry, not substitution.

Question 5Strategic Analysis and the External Environment

A conglomerate's corporate parent adds value by applying a disciplined capital allocation process across unrelated business units. This is best described as which form of corporate-level strategy?

  1. Market penetration in the core business
  2. Related diversification through shared activities
  3. Vertical integration along the value chain
  4. Portfolio management of unrelated businesses Correct answer.

Explanation

A parent that adds value mainly through capital allocation and financial discipline across unrelated units is pursuing a portfolio management logic, typical of conglomerates. Related diversification and vertical integration both depend on operational linkages between businesses rather than financial oversight alone.

Question 6Strategic Analysis and the External Environment

An industry has few buyers, many small suppliers and standardised inputs. Which conclusion about the Five Forces is most defensible?

  1. Buyer power is low and supplier power is high
  2. Both buyer and supplier power are high
  3. Both buyer and supplier power are low
  4. Buyer power is high and supplier power is low Correct answer.

Explanation

Power rises with concentration, so a small number of large buyers facing many fragmented suppliers holds the stronger hand. Standardised inputs also let buyers switch suppliers easily, further depressing supplier power.

Question 7Strategic Analysis and the External Environment

A firm's market share is stable but the overall market is shrinking by eight per cent a year. In the BCG matrix this business unit is best classified as a:

  1. Question mark
  2. Cash cow
  3. Star
  4. Dog Correct answer.

Explanation

The BCG matrix positions a business by relative market share and market growth. Low growth combined with weak relative share makes the unit a dog, a candidate for harvest or divestment even if its own share is steady.

Question 8Strategic Analysis and the External Environment

Which feature of an industry most reliably raises the threat of new entrants?

  1. High customer switching costs
  2. Strong network effects enjoyed by incumbents
  3. Low capital intensity and easy access to distribution channels Correct answer.
  4. Government licensing requirements

Explanation

Entry threat is greatest where the barriers are lowest; modest capital needs and open distribution channels let newcomers enter quickly. Network effects, switching costs and licensing all act as entry barriers that suppress the threat.

Question 9Strategic Analysis and the External Environment

A hotel group uses scenario planning before committing capital to a new resort. What is the primary purpose of this technique in strategic analysis?

  1. To rank competitors by market share
  2. To allocate overhead costs among business units
  3. To test strategy against several plausible, internally consistent future environments Correct answer.
  4. To forecast the single most likely future with precision

Explanation

Scenario planning builds a small set of plausible and internally consistent futures so that strategies can be stress-tested for robustness. It explicitly rejects single-point forecasting because the future is uncertain rather than predictable.

Question 10Strategic Analysis and the External Environment

In the industry life cycle, which strategic emphasis is most typical of the mature stage?

  1. Exit of most competitors through consolidation
  2. Aggressive capacity expansion to capture first-mover advantage
  3. Rapid product innovation to establish a dominant design
  4. Cost efficiency, differentiation and market share defence Correct answer.

Explanation

As growth slows in maturity, demand stabilises and competition shifts toward efficiency, brand differentiation and defending share. Dominant designs already exist, so the emphasis moves from experimentation to profitable execution.

Question 11Strategic Analysis and the External Environment

A national carrier's demand is highly sensitive to disposable income and tourist arrivals. Which PESTLE element is most relevant to this exposure?

  1. Economic Correct answer.
  2. Legal
  3. Environmental
  4. Social

Explanation

Disposable income, exchange rates and travel demand are macroeconomic variables, so they belong to the economic element. Social factors concern demographics and lifestyles, which shape but do not directly measure income sensitivity.

Question 12Strategic Analysis and the External Environment

Which statement correctly distinguishes a strategic group map from a competitor profile?

  1. Both tools are identical in purpose and differ only in presentation
  2. A strategic group map is used only in regulated industries, while a competitor profile is used in all others
  3. A strategic group map assesses one rival in depth, while a competitor profile plots all firms in the industry
  4. A strategic group map positions firms by competitive dimensions, while a competitor profile assesses a single rival's strengths and weaknesses Correct answer.

Explanation

A strategic group map clusters industry players along chosen competitive dimensions such as price and breadth of line, revealing clusters and mobility barriers. A competitor profile is a detailed assessment of an individual rival's capabilities, resources and likely moves.

Question 13Strategic Analysis and the External Environment

Two rivals in a saturated market both cut prices, and each retaliatory cut triggers further cuts. Which industry structure condition best explains this pattern?

  1. Low concentration with many small firms
  2. High product differentiation
  3. High fixed costs and homogeneous products Correct answer.
  4. Strong bargaining power of suppliers

Explanation

When products are homogeneous and fixed costs are high, firms are tempted to cut price to win volume, and rivals can match easily, producing price warfare. Differentiation or concentration tends to reduce this destructive dynamic.

Question 14Strategic Analysis and the External Environment

A firm's value chain analysis shows that most of its cost advantage arises in inbound logistics and operations. What does this most directly indicate?

  1. The firm should outsource all primary activities
  2. The firm's advantage is built on primary activities rather than support activities Correct answer.
  3. The firm operates in a declining industry
  4. The firm has no support activities

Explanation

Porter's value chain separates primary activities, which create and deliver the product, from support activities such as procurement and human resources. A cost advantage concentrated in logistics and operations rests on primary activities.

Question 15Strategic Analysis and the External Environment

Which of the following is the clearest example of a firm pursuing a focused differentiation strategy?

  1. A bank offering identical standard accounts to all retail customers
  2. A cement producer competing on scale and logistics efficiency
  3. A supermarket chain competing on the lowest prices nationwide
  4. A luxury watchmaker serving a narrow segment of collectors with handcrafted pieces Correct answer.

Explanation

Focused differentiation combines a narrow market segment with a distinctive offering that commands a premium. It differs from broad cost leadership, which targets the whole market on price.

Question 16Strategic Analysis and the External Environment

A government announces a sudden increase in import tariffs on raw materials used by a manufacturer. Under PESTLE, this event primarily affects which element?

  1. Technological
  2. Environmental
  3. Political Correct answer.
  4. Social

Explanation

Tariffs are a government policy instrument, so a sudden tariff change is a political factor affecting input costs and competitiveness. Legal factors concern statutes and regulation, while economic factors concern market conditions such as prices and demand.

Question 17Strategic Analysis and the External Environment

Which condition is most likely to increase the bargaining power of suppliers in Porter's model?

  1. The supplier's input is a small fraction of the buyer's total cost
  2. Many substitute inputs are readily available
  3. Buyers can easily backward integrate into the supplier's business
  4. The supplier group is concentrated and its product is highly differentiated Correct answer.

Explanation

Supplier power rises when suppliers are concentrated and their offerings are differentiated, making substitution difficult. Availability of substitutes and credible backward integration by buyers both reduce supplier leverage.

Question 18Strategic Analysis and the External Environment

A firm uses the Ansoff matrix and decides to sell its existing products to new export markets. Which growth option has it chosen?

  1. Market development Correct answer.
  2. Market penetration
  3. Diversification
  4. Product development

Explanation

Market development means taking current products into new markets, whether new geographies or new segments. Product development would require new offerings for existing markets.

Question 19Strategic Analysis and the External Environment

Which of the following best captures the concept of 'mobility barriers' in strategic group analysis?

  1. Obstacles that prevent customers from switching between brands
  2. Costs incurred when relocating a factory
  3. Regulations that restrict foreign direct investment
  4. Factors that prevent firms from moving between strategic groups Correct answer.

Explanation

Mobility barriers are the impediments, such as brand loyalty or scale economies, that deter a firm from shifting from one strategic group to another. They explain why group structures persist even when another position looks more attractive.

Question 20Strategic Analysis and the External Environment

In a rapidly changing technology market, which approach to environmental analysis is most appropriate?

  1. Annual planning based on a single fixed forecast
  2. Continuous scanning with periodic scenario updates Correct answer.
  3. Ignoring the external environment to focus on internal efficiency
  4. Relying solely on historical sales trends

Explanation

Volatile environments demand continuous environmental scanning and frequent scenario revision so that strategy can adapt as signals change. Static annual forecasts and backward-looking trends quickly become obsolete.

Question 21Strategic Analysis and the External Environment

A firm's core competence is described as difficult for competitors to imitate because it is embedded in tacit organisational routines. Which characteristic of sustainable advantage does this illustrate?

  1. Transparency
  2. Inimitability Correct answer.
  3. Transferability
  4. Substitutability

Explanation

Inimitability means rivals cannot easily replicate the resource, and tacit routines embedded in the organisation are especially hard to copy. Substitutability, by contrast, concerns whether other resources can fulfil the same function.

Question 22Strategic Analysis and the External Environment

Which statement best describes the purpose of a competitor intelligence system in strategic analysis?

  1. To prepare statutory financial statements
  2. To record the firm's own internal accounting transactions
  3. To gather and analyse systematic information about rivals' capabilities, strategies and likely responses Correct answer.
  4. To set the selling price of the firm's products

Explanation

Competitor intelligence systematically collects and interprets data on rivals so that managers can anticipate their moves and respond effectively. It is outward-looking and strategic, unlike internal accounting or pricing routines.

Question 23Strategic Analysis and the External Environment

An industry exhibits high exit barriers, slow demand growth and numerous equally sized firms. Which outcome is most likely?

  1. Low rivalry because firms can exit easily
  2. Rapid consolidation into a monopoly
  3. Reduced price competition due to mutual interdependence
  4. Intense rivalry with persistent overcapacity Correct answer.

Explanation

High exit barriers trap firms in the industry even when demand is weak, and numerous similar-sized competitors have little ability to coordinate. The result is chronic overcapacity and intense rivalry, often expressed in price competition.

Question 24Strategic Analysis and the External Environment

A firm identifies that a technological shift could either disrupt its core product or open a new market. Which analytical response best fits good strategic practice?

  1. Wait until the shift is fully realised before responding
  2. Develop scenarios and identify trigger points for strategic response Correct answer.
  3. Copy the first competitor's response without analysis
  4. Assume the technology will fail because it is unproven

Explanation

Where an environmental shift is uncertain but potentially material, scenarios combined with trigger points allow the firm to prepare responses without premature commitment. Waiting passively or copying rivals forfeits the chance to shape the outcome.

Question 25Strategic Analysis and the External Environment

Which of the following best explains why a strong brand can act as an entry barrier?

  1. It reduces the firm's fixed costs
  2. It eliminates the threat of substitutes
  3. It lowers the bargaining power of suppliers
  4. It forces new entrants to spend heavily to overcome customer loyalty Correct answer.

Explanation

Established brand loyalty obliges entrants to invest heavily in promotion and distribution to win trial, raising the cost of entry. It does not remove other forces such as substitution or supplier power.

Question 26Strategic Analysis and the External Environment

Under PESTLE analysis, a new competition law that empowers a regulator to block mergers and to fine firms for abuse of dominance is best classified as which element?

  1. Technological
  2. Legal Correct answer.
  3. Political
  4. Economic

Explanation

The legal element of PESTLE covers legislation, regulatory bodies, competition law, consumer protection and the enforcement powers that shape how firms may compete and combine. A competition authority's merger-blocking and fining powers are statutory, so they sit in the legal category rather than in the political one.

Question 27Strategic Analysis and the External Environment

In Porter's Five Forces, which combination most clearly raises the intensity of rivalry among established competitors?

  1. Strong supplier power combined with a small number of buyers
  2. High fixed costs, slow market growth and several similarly sized competitors Correct answer.
  3. Rapid market growth combined with strongly differentiated products
  4. Few competitors, high switching costs and rising demand

Explanation

Rivalry intensifies when firms must fight for a share of a slow-growing market and carry high fixed costs that create pressure to fill capacity, especially when competitors are of comparable size so no one can dictate terms. Differentiation, high switching costs and rapid growth all soften rivalry by reducing the need for price competition.

Question 28Strategic Analysis and the External Environment

A domestic dairy producer holds a stable share of a market that is growing at fifteen per cent a year and requires heavy cash investment to keep pace. In the BCG matrix this business is best described as which type?

  1. Cash cow
  2. Question mark
  3. Star Correct answer.
  4. Dog

Explanation

A star combines high relative market share with a high-growth market, so it generates cash but also consumes large amounts to fund growth. A cash cow has high share in a low-growth market, a dog has low share in low growth, and a question mark has low share in high growth.

Question 29Strategic Analysis and the External Environment

A strategic group map plots firms in an industry on two competitive dimensions. Which interpretation of the map is most defensible?

  1. Every firm plotted on the map belongs to the same strategic group by definition
  2. Distance on the map measures the absolute size of each firm's profits
  3. Firms placed far apart on the map are guaranteed to be direct competitors
  4. Firms in the same group face similar competitive pressures and may be close substitutes for one another Correct answer.

Explanation

A strategic group is a set of firms following similar strategies along the chosen dimensions, so members face comparable competitive conditions and often compete most directly. Firms in distant groups may compete less directly, and the axes represent strategic choices rather than profitability or size.

Question 30Strategic Analysis and the External Environment

Which factor most reliably increases the threat of new entrants into an industry?

  1. High capital intensity together with strict licensing requirements
  2. Strong incumbent brands supported by patented technology
  3. Low switching costs for buyers combined with limited economies of scale Correct answer.
  4. Restricted access to distribution channels and long-term supply contracts

Explanation

Entry barriers are low when buyers can switch suppliers easily and incumbents enjoy few scale economies, because a newcomer can win customers without heavy investment. Capital requirements, licensing, brands, patents and distribution access all deter entry instead.

Question 31Strategic Analysis and the External Environment

A company's value chain shows that its primary activities are performed at similar cost to rivals, but its procurement and technology development functions are markedly more efficient. How should this be interpreted?

  1. The firm must be following a differentiation strategy rather than a cost strategy
  2. Support activities are irrelevant to cost analysis in the value chain
  3. The firm cannot possess any cost advantage because primary activities are identical
  4. The firm has a competitive advantage rooted in support activities rather than in primary activities Correct answer.

Explanation

The value chain separates primary activities, such as operations and logistics, from support activities, such as procurement and technology development, and advantage can arise in either set. Superior efficiency in support activities can lower total cost or improve product performance even when primary activities match rivals.

Question 32Strategic Analysis and the External Environment

A regional airline targets only business travellers on short-haul routes, offering a premium service with lounges and flexible tickets while deliberately avoiding leisure traffic. Which generic strategy is this?

  1. Focused differentiation Correct answer.
  2. Broad differentiation
  3. Cost leadership
  4. Stuck in the middle

Explanation

Focused differentiation means serving a narrow market segment with an offering that is perceived as superior, which is exactly what a premium business-only service on selected routes represents. Cost leadership and broad differentiation target wide markets, while stuck in the middle describes a failure to achieve either advantage.

Question 33Strategic Analysis and the External Environment

Which change in the competitive environment most directly increases the bargaining power of suppliers in Porter's model?

  1. The supplier industry becomes highly fragmented with excess capacity
  2. Buyers consolidate into a small number of large purchasing groups
  3. The input supplied becomes standardised and available from many alternative sources
  4. The supplier's product becomes a critical input with high switching costs for buyers Correct answer.

Explanation

Supplier power rises when the input is important to the buyer and changing suppliers would be costly, because the buyer cannot credibly threaten to walk away. Standardisation, buyer consolidation and supplier fragmentation all shift power toward the buyer instead.

Question 34Strategic Analysis and the External Environment

A biscuit manufacturer decides to sell its existing product range to supermarket chains in two neighbouring countries where it has never operated. Under the Ansoff matrix, which option has it chosen?

  1. Product development
  2. Diversification
  3. Market development Correct answer.
  4. Market penetration

Explanation

Market development means taking existing products into new markets, such as new geographies or new customer segments, which is what entering two neighbouring countries with the current range involves. Product development would require new products for existing markets, and diversification would require both new products and new markets.

Question 35Strategic Analysis and the External Environment

Two firms occupy different strategic groups in the same industry. Which concept best explains why a firm in one group finds it costly to move into the position held by the other group?

  1. Experience curve effects
  2. Economies of scope
  3. Mobility barriers Correct answer.
  4. Core rigidity

Explanation

Mobility barriers are the factors that deter a firm from shifting between strategic groups, such as the need for different capabilities, brands or distribution arrangements. They are the strategic-group analogue of entry barriers, protecting the positions of firms already inside a group.

Question 36Strategic Analysis and the External Environment

An industry has high exit barriers, slow demand growth and several equally sized firms with undifferentiated products. Which competitive outcome is most likely?

  1. Suppliers will lose all bargaining power
  2. Firms will exit quickly and restore profitability
  3. Persistent price competition and low returns for all firms Correct answer.
  4. New entrants will be attracted by the high returns

Explanation

High exit barriers trap capacity in the industry, and slow growth with undifferentiated products means firms can win volume only by cutting price, so rivalry becomes destructive and returns stay depressed. The excess capacity also deters entry rather than attracting it.

Question 37Strategic Analysis and the External Environment

A firm can see that an emerging technology may either make its core product obsolete or open a large new market, but it cannot forecast which outcome is more likely. Which analytical approach is most appropriate?

  1. Preparing a budget variance report for the current financial year
  2. Extrapolating recent sales trends to produce a single point forecast
  3. Scenario planning that develops distinct futures and identifies robust strategic responses Correct answer.
  4. Ranking competitors using a weighted scoring matrix on current market share

Explanation

When uncertainty is high and outcomes are genuinely unknowable, scenario planning explores several plausible futures and tests which strategic options perform acceptably across them. Single-point forecasting assumes predictability, and current performance tools do not address the strategic uncertainty described.

Question 38Strategic Analysis and the External Environment

A household appliance brand enjoys high consumer trust, wide recognition and habitual repurchase. Which explanation best describes why this brand acts as an entry barrier?

  1. It forces new entrants to spend heavily to overcome buyer loyalty and reduce perceived risk Correct answer.
  2. It lowers the incumbent's production costs below those of any new entrant
  3. It gives the incumbent a legal monopoly over the product category
  4. It removes the need for the incumbent to invest in distribution

Explanation

A strong brand creates customer loyalty and reduces perceived purchase risk, so an entrant must invest in advertising, promotion and trial incentives to persuade buyers to switch, raising the cost of entry. Brand strength does not by itself confer legal monopoly or eliminate distribution costs.

Question 39Strategic Analysis and the External Environment

In the industry life cycle, a market has moved into the mature stage. Which strategic emphasis is most appropriate for an incumbent seeking to protect profitability?

  1. Aggressive capacity expansion to capture first-mover share
  2. Cost efficiency, differentiation and defending market share against consolidation Correct answer.
  3. Withdrawal of all investment to harvest cash immediately
  4. Rapid product proliferation to serve every emerging niche

Explanation

In maturity demand growth slows and competition shifts toward price and efficiency, so firms focus on cost control, differentiation and defending share while weaker rivals consolidate or exit. Aggressive expansion or endless proliferation risks adding capacity and complexity to a market that cannot absorb them.

Question 40Strategic Analysis and the External Environment

A Sri Lankan apparel exporter uses scenario planning to prepare for possible changes in EU trade preferences and buyer sourcing patterns. Which characteristic of scenario planning makes it more useful than a single forecast for this purpose?

  1. It replaces the need for competitor analysis once the external scenarios have been agreed
  2. It produces a single most-likely projection that can be adopted directly as the annual budget
  3. It builds several plausible, internally consistent futures so that strategic options can be tested against each Correct answer.
  4. It ranks external factors by numerical weight to give a definitive priority order for management action

Explanation

Scenario planning constructs a small set of plausible and internally consistent future environments rather than predicting one outcome. Its value lies in testing strategy against each scenario so that the organisation is prepared for uncertainty and can identify robust or contingent options. It does not produce a single forecast, a weighted ranking, or substitute for competitor analysis.

Question 41Strategy Formulation, Choice and Evaluation

Under the Ansoff growth matrix, a company selling its existing products to entirely new customer segments is pursuing which strategy?

  1. Market penetration
  2. Product development
  3. Market development Correct answer.
  4. Diversification

Explanation

Market development means taking current products into new markets, whether new geographies, new segments, or new channels. Because the product offering stays unchanged while the customer base changes, it is distinct from penetration, which grows sales within existing markets.

Question 42Strategy Formulation, Choice and Evaluation

In the BCG growth-share matrix, a business unit with a high market share in a slow-growing industry is classified as which type of portfolio item?

  1. Dog
  2. Star
  3. Cash cow Correct answer.
  4. Question mark

Explanation

A cash cow holds a relatively high share in a low-growth market, generating surplus cash that can fund other units. Its mature position means limited investment need, so the strategic emphasis is on harvesting and cash extraction.

Question 43Strategy Formulation, Choice and Evaluation

Porter's generic strategy framework warns that a firm attempting to be both the lowest-cost producer and a premium differentiated player risks being 'stuck in the middle'. The primary consequence of this position is:

  1. It faces lower competitive rivalry because it avoids direct confrontation
  2. It gains the strongest bargaining power over both suppliers and buyers
  3. It lacks the cost advantage to undercut rivals and the differentiation to justify a price premium Correct answer.
  4. It automatically achieves the highest market share because it appeals to all segments

Explanation

Being stuck in the middle means the firm has neither a defensible cost lead nor sufficient perceived uniqueness, so it loses on both price and value. It becomes vulnerable to cost leaders on price and to differentiators on perceived quality.

Question 44Strategy Formulation, Choice and Evaluation

A firm's value chain analysis shows that inbound logistics and outbound logistics together account for the largest share of total cost. In deciding where to seek competitive advantage, the firm should focus on:

  1. Only the marketing and sales activities, since these generate revenue
  2. Support activities such as firm infrastructure, because they are always strategic
  3. Primary activities that drive cost and can be reconfigured for efficiency Correct answer.
  4. Activities performed by competitors rather than its own internal processes

Explanation

Value chain analysis identifies where cost and value are created, and inbound and outbound logistics are primary activities. When these dominate cost, reconfiguring or improving them offers the clearest route to a cost advantage.

Question 45Strategy Formulation, Choice and Evaluation

PESTLE analysis applied to strategy formulation is primarily used to:

  1. Rank internal business units by their profitability and cash generation
  2. Determine the optimal capital structure for a proposed investment
  3. Scan the macro-environment for forces that may affect the industry and the firm Correct answer.
  4. Compare the firm's resources against those of direct competitors

Explanation

PESTLE examines political, economic, social, technological, legal, and environmental forces in the wider environment. Its output informs strategy by identifying opportunities and threats that lie beyond the firm's direct control.

Question 46Strategy Formulation, Choice and Evaluation

In Porter's Five Forces model, which force is most directly strengthened when buyers face low switching costs and purchase in large volumes?

  1. Threat of new entrants
  2. Threat of substitutes
  3. Bargaining power of suppliers
  4. Bargaining power of buyers Correct answer.

Explanation

Low switching costs and concentrated, high-volume purchasing give buyers leverage to demand lower prices or better terms. These conditions directly raise buyer bargaining power within the industry structure.

Question 47Strategy Formulation, Choice and Evaluation

A strategic group map is most useful to a strategist because it:

  1. Replaces the need for a separate industry life-cycle assessment
  2. Reveals competitive positions within an industry and identifies gaps or mobility barriers between groups Correct answer.
  3. Calculates the net present value of each competitor's investment programme
  4. Determines the exact market share held by each individual firm

Explanation

Strategic group mapping plots firms on dimensions such as price and quality to show clusters of similar competitive approaches. It highlights white space, likely competitive moves, and the barriers that keep firms within their groups.

Question 48Strategy Formulation, Choice and Evaluation

The resource-based view holds that a resource confers sustained competitive advantage only when it is:

  1. Valuable, rare, difficult to imitate, and not readily substitutable Correct answer.
  2. Approved by regulators and disclosed in the annual report
  3. Cheap, widely available, and easily transferable between firms
  4. Purely financial and measurable on the balance sheet

Explanation

The VRIN criteria state that a resource must be valuable, rare, inimitable, and non-substitutable to underpin sustained advantage. Resources failing any criterion can be copied or neutralised, eroding the advantage.

Question 49Strategy Formulation, Choice and Evaluation

A firm's distinctive competence in rapid product customisation is best described as which type of strategic capability?

  1. A temporary promotional tactic with no bearing on long-term positioning
  2. A generic hygiene factor that offers no basis for differentiation
  3. A core competence that is embedded in organisational routines and hard to replicate Correct answer.
  4. A threshold resource that every competitor must possess to operate

Explanation

Core competences are bundles of skills and routines that are difficult for rivals to copy and that contribute to customer value. Rapid customisation rooted in organisational processes fits this definition rather than being a mere threshold capability.

Question 50Strategy Formulation, Choice and Evaluation

In a SWOT analysis feeding strategy formulation, strengths and weaknesses differ from opportunities and threats because strengths and weaknesses are:

  1. Internal attributes of the firm, while opportunities and threats are external Correct answer.
  2. External conditions, while opportunities and threats are internal
  3. Always financial in nature, while opportunities and threats are operational
  4. Short-term in nature, while opportunities and threats are always long-term

Explanation

SWOT separates internal factors (strengths and weaknesses) from external ones (opportunities and threats). This distinction matters because internal factors can be managed directly, while external factors must be anticipated and adapted to.