(Test Bank) Business And Its Environment

Baron, 7

Business

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7th Edition

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Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 1 Chapter One: Market and Nonmarket Environments True/False Questions: 1) Firms have more control over their future in their nonmarket environment than they have in the markets in which they operate . Answer: False Page reference: 1 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 2) The long -run sustainability of competitive advantage requires managing effectively in the nonmarket environment. Answer: True Page reference: 1 Difficulty: Easy AACSB: Learning O utcome: Describe the components of the management environment 3) Effective management in the market environment is sufficient for superior performance of the firm over its competitors. Answer: False Page reference: 2 Difficulty: Moderate AACSB: Learning Outcome: Describe the components of the management environment 4) The nonmarket environment is characterized by the social, political, and legal arrangements that structure interactions outside of, but in conjunction, with markets and private agreements. Answer: True Page reference: 2 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 5) Activities in the nonmarket environment may be voluntary, as when the firm cooperates with government officials or an envi ronmental group, or involuntary, as in the case of government regulation or a boycott of a firm’s product led by an activist group. Answer: True Page reference: 2 Difficulty: Moderate AACSB: Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 2 Learning Outcome: Describe the components of the management envir onment 6) Nonmarket issues high on firms’ agendas include environmental protection, health and safety, regulation and deregulation, intellectual property protection, international trade policy, antitrust as well as other issues such as human rights. Answ er: True Page reference: 2 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 7) Managers do not participate in the implementation of nonmarket strategies. Answer: False Page reference: 3 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 8) In formulating nonmarket strategies, managers may draw on the expertise of lawyers, communications specialists, Washington representatives, and community relations specialists. Answer: True Page reference: 3 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 9) In the nonmarket environment, legislation, regulation, administrative decisions, and public pressure are the result of compet ition involving individuals, activists, interest groups, and firms. Answer: True Page reference: 4 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 10) In the market environment, strategies are intermediated by public and private institutions, whereas in the nonmarket environment, strategies are intermediated by markets. Answer: False Page reference: 4 Difficulty: Moderate AACSB: Learning Outcome: Describe the components of the management environment Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 3 11) The nonmarket environment of a firm is characterized by four I’s: independence, individuality, ideas and income. Answer: False Page reference: 4 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 12) Information is the basic unit of analysis and the focus of nonmarket action. Answer: False Page reference: 4 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 13) Nongovernmental institutions include the news media that provides information to society as well as public sentiment composed of societal expectations and norms of behavior that arise from ethics and culture. Answer: True Page reference: 4 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 14) Institutions include only principal government institutions and cannot be established by private parties. Answer: False Page reference: 9 -10 Difficulty: Moderate AACSB: Learning Outcome: Describe the components of the manageme nt environment 15) Institutions are not unitary bodies. Answer: True Page reference: 10 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 16) All institutions represent a set of countries. Answer: False Page reference: 10 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 4 17) Nonmarket issues come from both external forces and the firm’s actions. Answer: True Page reference: 11 Difficulty: Easy AACSB: Learning O utcome: Describe the components of the management environment 18) Renewed confidence in markets and the failure of socialist economic systems spurred a wave of privatization in both developed and developing countries. Answer: True Page reference: 12 Difficulty: Moderate AACSB: Learning Outcome: Describe the components of the management environment 19) Change in the nonmarket environment does not come from market forces. Answer: False Page reference: 12 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 20) One of the approaches to effectively manage nonmarket issues is to respond to nonmarket issues only when they are strong enough to force the firm to act. Answer: True Page reference: 13 Difficulty: Moder ate AACSB: Learning Outcome: Describe the components of the management environment 21) The nonmarket issue life cycle is a theory that relates the stage of development of an issue to its impact on a firm. Answer: True Page reference: 14 Difficulty: Mode rate AACSB: Learning Outcome: Describe the components of the management environment 22) The first step that a nonmarket issue passes through is issue identification. Answer: True Page reference: 14 Difficulty: Easy AACSB: Learning Outcome: Describe the c omponents of the management environment Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 5 23) As an issue progresses through its life cycle, management’s range of discretion in addressing the issue correspondingly increases. Answer: False Page reference: 14 Difficulty: Moderate AACSB: Learning Outcome: Describe the components of the management environment 24) All nonmarket issues pass through the five stages of the nonmarket issue life cycle . Answer: False Page reference: 15 Difficulty: Moderate AACSB: Learning Outcome: Describe the components of the management environment 25) The progress of an issue is shaped by the actions of firms and other interests and by the characteristics of the institutions in whose arenas the issue is addressed. Answer: True Page reference: 15 Difficulty: Moderate AACSB: Learning Outcome: Describe the components of the management environment Multiple Choice Questions: 26) The market environment of business includes ________. a) social, political, and legal arrangements that structure interactions in conjunction with markets and contracts b) interactions between firms, suppliers, and customers that are governed by markets and contracts c) interactions between the firm and individuals, and interest groups that are intermediated by private institutions d) interactions between the firm a nd government entities, and the public that are intermediated by public institutions Answer: B Page reference: 2 Difficulty: Moderate AACSB: Learning Outcome: Describe the components of the management environment Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 6 27) Which of the following characterizes the nonmarket component of business environment? a) It includes those interactions between firms, suppliers, and customers that are governed by markets and contracts. b) The interactions of firms typically involve voluntary economic transactions and the exchange of property. c) Activities in the nonmarket environment may be voluntary or involuntary. d) Effective management in the nonmarket environment is not a necessary condition for superior performance. Answer: C Page reference: 2 Difficulty: Moderate AACSB: Learnin g Outcome: Describe the components of the management environment 28) Which of the following is a nonmarket issue high on firms’ agendas? a) intellectual property protection b) channel selection c) advertising and promotion d) pricing strategies Answer: A Page refere nce: 2 Difficulty: Moderate AACSB: Learning Outcome: Describe the components of the management environment 29) Due to its importance for managerial and organizational performance, nonmarket strategy is the responsibility of ________. a) managers b) clerks c) lobbyists d) the board of directors Answer: A Page reference: 3 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 30) Firms typically deal with nonmarket issues in proportion to their potential impacts on ________ . a) human resources b) inventory control c) public relations d) performance Answer: D Page reference: 3 Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 7 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 31) Which of the following characterizes the competition in a nonma rket environment? a) Firms compete through their market or competitive strategies. b) The competitive strategies are intermediated by markets. c) Public pressure lead s to competition involving individuals, activists, interest groups, and firms. d) The nonmarket enviro nment neither changes nor the issues on a firm’s nonmarket agenda evolve. Answer: C Page reference: 4 Difficulty: Moderate AACSB: Learning Outcome: Describe the components of the management environment 32) The nonmarket environment of a firm is character ized by four I’s: issues, interests, institutions, and ________. a) innovation b) information c) ideas d) independence Answer: B Page reference: 4 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 33) ________ are the ba sic unit of analysis and the focus of nonmarket action. a) Interests b) Institutions c) Issues d) Information Answer: C Page reference: 4 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 34) ________ include the individ uals and groups with preferences about, or a stake in, the issue. a) Institutions b) Interests c) Innovation d) Information Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 8 Answer: B Page reference: 4 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 35) ________ is/are defined as the rules of the game in a society that shape human interactions and provide arenas in which interests seek to influence the outcomes on issues. a) Institutions b) Individualism c) Collectivism d) Issue identification Answer: A Page reference: 4 Difficult y: Easy AACSB: Learning Outcome: Describe the components of the management environment 36) Which of the following are government institutions? a) labor unions b) regulatory agencies c) news agencies d) for-profit organizations Answer: B Page reference: 4 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 37) ________ pertains to what the interests and institutional officeholders know or believe about the issues and the forces affecting their development. a) Independence b) Individualism c) Ideas d) Information Answer: D Page reference: 5 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 38) Special interest groups ________. a) pursue issues because of the benefits that accrue to their memb ers b) monitor the activities of firms and call those activities to the attention of the media, government, and public Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 9 c) represent the interests of individuals, such as those affected by pollution d) take direct action against firms to force them to change their p olicies or can appeal to the public for support Answer: A Page reference: 9 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 39) ________ monitor the activities of firms and call those activities to the att ention of the media, government, and public. a) Advocacy groups b) Activist groups c) Special interest groups d) Watchdog groups Answer: D Page reference: 9 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 40) Which of the following characterizes advocacy groups? a) They pursue issues because of the benefits that accrue to their members. b) They monitor the activities of firms and call those activities to the attention of the media, government, and public. c) They represent the i nterests of individuals, such as those affected by pollution. d) They take direct action against firms to force them to change their policies or can appeal to the public for support. Answer: C Page reference: 9 Difficulty: Easy AACSB: Learning Outcome: Descri be the components of the management environment 41) ________ can take direct action against firms to force them to change their policies or can appeal to the public for support. a) Special interest groups b) Watchdog groups c) Advocacy groups d) Activist groups Answ er: D Page reference: 9 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 10 42) Which of the following is an example of a nongovernmental institution in the nonmarket environment? a) WTO b) the social media c) the jud iciary d) the executive branch Answer: B Page reference: 10 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 43) Which of the following is an example of an institution specific to the United States? a) Congress b) KORUS c) Kyoto Treaty d) News Media Answer: A Page reference: 10 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 44) Which of the following is an example of a global institution? a) Department of Homeland Security b) Environ mental Protection Agency c) Mercosur d) Kyoto Treaty Answer: D Page reference: 10 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 45) ________ involves providing information to officeholders about the likely conseque nces of policy alternatives. a) Corporate social responsibility b) Channel selection c) Lobbying d) Public relations Answer: C Page reference: 11 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 11 46) Under t he new theory of ________, firms could be held liable if their stock prices fell significantly when the firms’ projections of future earnings had been favorable. a) fraud on the market b) fraud on the nonmarket c) the common factor d) collective deception Answer: A Page reference: 12 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 47) Which of the following is the first stage in the nonmarket issue life cycle? a) interest group formation b) legislation c) issue identification d) administration Answer: C Page reference: 14 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 48) Which of the following steps follows the identification of the nonmarket issue in the nonmarket issue life cycle ? a) enforcement b) interest group formation c) administration d) legislation Answer: B Page reference: 14 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment 49) Which of the following is the final stage in the nonmarket issue life cycle? a) interest group formation b) legislation c) administration d) enforcement Answer: D Page reference: 14 Difficulty: Easy AACSB: Learning Outcome: Describe the components of the management environment Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 12 Essay and Review Questions: 50) Describe the n onmarket environment. Why has the nonmarket environment grown in importance and complexity over time? Answer: The performance of a firm, and of its management, depends on its nonmarket environment. The nonmarket environment is composed of the social, polit ical, and legal arrangements that structure interactions outside of, but in conjunction with, markets and contracts. The nonmarket environment encompasses those interactions between the firm and individuals, interest groups, government entities, and the pu blic that are intermediated not by markets but by public and private institutions. Public institutions differ from markets because of characteristics such as majority rule, due process, broad enfranchisement, collective action, and access by the public. Ac tivities in the nonmarket environment may be voluntary, as when the firm cooperates with government officials or an environmental group, or involuntary, as in the case of government regulation or a boycott of a firm’s product led by an activist group. Effe ctive management in the nonmarket environment has become a necessary condition for superior performance just as is effective management in the market environment. The nonmarket environment has grown in importance and complexity over time and Commands incr eased managerial attention. Nonmarket issues high on firms’ agendas include sustainability, global climate change, security, health and safety, regulation and deregulation, intellectual property protection, human rights, international trade policy, antitru st, social pressure from nongovernmental organizations (NGOs) and social activists, news media coverage, social media, corporate social responsibility, and ethics. Although the saliency of particular issues ebbs and flows, nonmarket issues arise sufficient ly often to have important consequences for managerial and firm performance. Nonmarket issues, the forces that influence their development, and the strategies for addressing them are the focus of the field of business and its environment. The managerial ob jective is to achieve superior overall performance by effectively addressing nonmarket issue and the forces associated with them and using nonmarket strategies to unlock opportunities. Developments in the nonmarket environment affect performance on a numbe r of dimensions. In the automobile industry, emissions and fuel economy standards affect research and development, design, production, pricing, and marketing. Safety regulation and liability standards have similar broad effects. Access to international mar kets affects competitive strategies involving product design, pricing, and capacity planning. Page reference: 2 Difficulty: Difficult AACSB: Analytic skills Learning Outcome: Describe the components of the management environment 51) Describe , with examp les, the characteristics of a nonmarket environment. Answer: The nonmarket environment of a firm is characterized by four I’s: • Issues Issues are the basic unit of analysis and the focus of nonmarket action. Using the Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 13 Agricultural biotechnology industry a s an example, the central nonmarket issues have been the formulation of regulatory policies for bioengineered foods and the public reaction to those foods. • Interests Interests include the individuals and groups with preferences about, or a stake in, the issue. The principal interests are the agricultural biotechnology companies, the interest groups and activists concerned about biotechnology issues, and the public. • Institutions Institutions are defined by Douglass North (1990) as “the rules of the game in a society…that shape human interactions,” and these institutions provide arenas in which interests seek to influence the outcomes on issues. Government institutions include entities such as legislatures and regulatory agencies. Nongovernmental instituti ons include those such as the news media that provides information to society as well as public sentiment composed of societal expectations and norms of behavior that arise from ethics and culture. The Environmental Protection Agency, the Department of Agr iculture, the Food and Drug Administration, and Congress are the principal public institutions in whose arenas agricultural biotechnology issues are addressed. The public sentiment about bioengineered foods is influenced by market forces as well. As the pr ices of agricultural products and foods rose in the late 2000s, some consumers and firms that had shunned bioengineered foods began to change their policies in response to their lower prices resulting from higher productivity and resistance to crop damage. • Information Information pertains to what the interests and institutional officeholders know or believe about the issues and the forces affecting their development. In the case of agricultural biotechnology, information pertains to the risks associated w ith individual products and with the technology itself. The public acceptance of bioengineered crops and animals is influenced by both scientific knowledge and concerns about the unknown and can differ across countries and cultures. Information is provided by firms, activists, government institutions, and the media. Page reference: 4 – 5 Difficulty: Difficult AACSB: Analytic skills Learning Outcome: Describe the components of the management environment 52) Explain, with examples, how nonmarket issues ori ginate . Answer: Nonmarket issues originate from both external forces and a firm’s own actions. Nonmarket issues have five basic sources: Scientific discovery and technological advancement can produce fundamental changes in both the market and nonmarket env ironments. In the market environment, they create opportunities for new products and processes, new applications of existing knowledge, and the foundations for future discoveries. They also give rise to nonmarket issues. Nonmarket issues can also arise fro m new technology and scientific uncertainty. Nonmarket issues also arise from changes in understandings. The environmental Movement brought to the attention of the public damage to the natural environment and the associated health risks. Renewed confidence in markets and the failure of socialist economic systems spurred a wave of privatization in both developed and developing Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 14 countries. Increasing evidence of the economic benefits of international trade led not only to further reductions in trade barriers t hrough the WTO but also to market integration in North America through the North American Free Trade Agreement (NAFTA) and in the European Union through the Single European Act. Nonmarket issues also arise because of institutional actions. A Supreme Court decision in 1988 supported a new theory of “fraud on the market,” under which a firm could be held liable if its stock price fell significantly when the firm’s projections of future earnings had been favorable. This provided incentives for trial lawyers to file class action lawsuits against high -technology companies when their naturally volatile stock price fell. No evidence of fraud was required to file a lawsuit, and filing allowed the lawyers to conduct discovery and depose company executives. Change in the nonmarket environment also comes from market forces. In the mid -1990s, new markets associated with the Internet, wireless systems, and integrated services resulted in a restructuring of the telecommunications industry, including mergers, acquisitions, and strategic alliances. Congress then struggled with legislation to lift the archaic restrictions on competition left over from the era of regulation. The demand for mobile communications technology and social media led automakers to equip cars with devic es ranging from GPS navigation systems to handless communications systems to onboard televisions. Those market forces Contributed to the issue of distracted driving, which accounted for a growing share of traffic fatalities and injuries. Nonmarket issues a lso arise because of heightened moral concerns. Privacy concerns associated with the Internet resulted in both self -regulation by Internet service providers and Web sites and calls for new legislation. In the European Union, privacy concerns led to strong legislation on the handling and use of personal information on the Internet. Moral concerns were also raised about subprime lending to borrowers who did not qualify for bank loans, leading to regulations to limit predatory lending. Moral concerns about the spread of AIDS in developing countries and the suffering of its victims resulted in pressure on pharmaceutical firms to lower their prices for AIDS drugs. Page reference: 11 – 13 Difficulty: Difficult AACSB: Analytic skills Learning Outcome: Describe the components of the management environment 53) Explain the different approaches used by managers to address nonmarket issues. Answer: The effectiveness with which a firm and its managers address nonmarket issues depends on their approach to the nonmarket environment. One approach is to respond to nonmarket issues only when they are strong enough to force the firm to act. A second approach emphasizes limiting the extent of the damage once the firm has been challenged by an issue. A third approach is anticip atory and is intended to prepare the firm to take advantage of opportunities as they arise and address issues before they become problems. A fourth approach is proactive with the firm and its managers not only anticipating nonmarket issues but also acting to affect which issues arise and how they will be framed. This approach recognizes that nonmarket issues and their development are affected by the way business is conducted. The fourth approach is the most effective, but it requires considerable sensitivit y to the sources of nonmarket issues and how they progress. A fundamental step in anticipating nonmarket issues is to view the potential issue or Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall 15 business practice from the perspective of others who might be concerned about it. Page reference: 13 Difficult y: Moderate AACSB: Analytic skills Learning Outcome: Describe the components of the management environment 54) Describe the nonmarket issue life cycle. List and explain the different stages . Answer: The progression of nonmarket issues can be understood i n terms of a life cycle. The nonmarket issue life cycle relates the stage of development of an issue to its impact on a firm. Nonmarket issues can progress through five stages: (1) issue identification, (2) interest group formation, (3) legislation, (4) a dministration, and (5) enforcement. As an issue progresses through its life cycle, its impact on the firm tends to increase. As the impact increases, management’s range of discretion in addressing the issue correspondingly decreases. The impact may take th e form of government actions such as regulation or changes in public sentiment that limit the alternatives available to management. Nonmarket issues that complete their life cycles do not always result in more restrictions on business, as evidenced by the issue of airline deregulation. Not all nonmarket issues, of course, garner enough support to pass through all five stages, and many do not survive the legislative stage. The fact that an issue does not pass through all the stages does not mean that it has no impact. The attention an issue receives can produce change even in the absence of institutional action. Page reference: 14 – 15 Difficulty: Moderate AACSB: Analytic skills Learning Outcome: Describe the components of the management environment