Ch. 2 Analyzing the External and Internal Environment: PYQ Decoder

June 2025Q. 2A(iv)5 marksSyllabus 2022

(iv)Michael Porter’s five forces model is an analysis tool that uses five industry forces to determine the intensity of competition in an industry and its profitability level which has turned into one of the most popular and highly regarded business strategy tools. Among those tools, strategies to face the threat of new entrants is very important. Explain the situations where the threat of new entrants is very high.

December 2024Q. 90 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

The term environment in context of business refers to ............. having a direct or indirect bearing on events related to functioning of business.

(A)all internal forces and factors

(B)only strategic internal forces and factors

(C)only strategic external forces and factors

(D)all external forces and factors

June 2024Q. 71 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

According to Porter, suppliers are more able to exercise bargaining power over buyers when :

(A)The supply industry is dominated by a few large firms

(B)The supply industry is populated by a large number of small firms

(C)When buyers have the ability to take over suppliers

(D)There are few buyers in the market

June 2024Q. 72 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

Potential rivals will not find it difficult to enter a market where :

(A)Existing firms have long-term contracts with the biggest customers

(B)Product differentiation is very strong

(C)Existing firms have the ability to retaliate strongly

(D)Economies of scale are insignificant

June 2024Q. 73 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

In Porter’s five forces model, what is meant by the term ‘substitute’ ?

(A)A substitute refers to an alternative manufacturing process

(B)A substitute is an alternative product or service that performs the same function for the consumer

(C)A substitute is a rival firm offering the same products

(D)A substitute is something else consumers would rather spend their money on

December 2023Q. 63 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

Y is a clothing brand that also offers consumers washable diaper products. According to Porter’s Five Forces model, which one of the following indicates that the power of buyers in Y’s industry is high ?

(A)Y has few rivals in the diaper products

(B)Y’s diaper products have a number of special features, differentiating them from those offered by its rivals.

(C)Their products are crucial to the buyer and substitutes to the material required for production are not available.

(D)Y’s customer typically uses comparison websites to see how much their diapers are costlier from a number of different sellers

December 2023Q. 66 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

Which of the following signifies Attractive Industry as per Porter’s five forces model ?

(A)High Barrier to enter

(B)Strong buyers bargaining power

(C)Strong supplier bargaining power

(D)Intense Competition

December 2023Q. 95 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

As per Porter’s five force theory, low raw materials substitute is a factor of :

(A)Buyer Power

(B)Supplier Power

(C)Threat of new entry

(D)Threat of substitutes entry

December 2022Q. 68 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

Buyers exert poor bargaining power in which of the following conditions ?

(A)When they buy in high volumes

(B)When they control many access points to the final consumers

(C)When there are plenty of buyers in market

(D)When they threaten to backward integration

December 2022Q. 69 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

Rivalry among competitors is poor when :

(A)Exit barriers are high

(B)Products can be easily substituted

(C)Customer Loyalty is low

(D)None of the above

December 2022Q. 70 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

Which of the following is false in relation to ‘‘Pizza Hut’’ as seen from Porter’s five force model perspective ?

(A)Competitive Rivalry is very high

(B)Threat of Substitutes is low

(C)Power of Suppliers is low

(D)All the above are true

June 2022Q. 67 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

Threats of New Entrants in industry will be high in which of the following circumstances ?

(A)Capital required to make an entry is not huge

(B)Existing firms are neither quiet influential nor dominant to prevent new entrants, nor do they have patents, trade-marks or strong bond value

(C)There are no strict government regulations to prevent new entrants

(D)All of the above

June 2022Q. 68 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

In Porter’s Five Force Model, Bargaining Power denotes to which of the following?

(A)Buying in high volumes or controlling many access points to the final customers

(B)Only few buyers in the market

(C)Switching cost to competitors is low

(D)All of the above

June 2022Q. 89 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

Which of the following is not a contributory factor for intense rivalry among the existing competitors ?

(A)Exit barriers are stringent

(B)Products are differentiated

(C)Products can be easily substituted

(D)Customer Loyalty is Low

December 2021Q. 69 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

The Professor Michael Porter’s five forces factors are (1) Threat of new entry
(2)Supplier power (3) Buyer power (4) ................... (5) .....................
(A)Negotiation skill, Market Alternatives
(B)Threat of substitutes, Poor marketing network
(C)Threat of substitutes, Rivalry among existing competitors
(D)Marketing Plan, Advertisement budget

June 2021Q. 66 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

Which one of the following is not part of the Porter’s Five Forces model ?

(A)Rivalry among shareholders

(B)Bargaining power of suppliers

(C)Rivalry among present competitors

(D)Bargaining power of buyers

June 2021Q. 70 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

Threat to New Entrants to the industry is very low when :

(A)Smaller capital is required to make an entry

(B)Existing firms do not have strong brand value

(C)There is no or little government regulation

(D)Customer switching costs are high

June 2021Q. 71 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

Rivalry among competitors in an industry is NOT intensed when :

(A)There are several competitors

(B)High customer loyalty is existing

(C)Exit barriers are high

(D)Products can be easily substituted

December 2020Q. 69 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

Match the following Porter’s five forces factors :

(a) Brand reputation and Government	(1) Buyer power
regulation (b) Materials scarcity and Threat of		(2) Rivalry among existing
integrating forward	competitors
(c) Price sensitivity and		(3) Threat of new entry
Threat of backward integration (d) Customer loyalty and Threat of	(4) Supplier power

horizontal integration

The correct order is :

(A)(a)-(2),

(B)-(3),

(C)-(1),

(D)-(4) (B) (a)-(3), (b)-(1), (c)-(4), (d)-(2) (C) (a)-(3), (b)-(4), (c)-(1), (d)-(2) (D) (a)-(2), (b)-(4), (c)-(1), (d)-(3)

December 2019Q. 71 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

Which of the following is a force in the Porter’s five forces model of industry attractiveness ?

(A)Bargaining power of suppliers

(B)Competitive market

(C)Low cost for customers

(D)Opportunity for substitutes

December 2019Q. 83 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

Which of the following market structures would be commonly identified with FMCG products ?

(A)Monopoly

(B)Monopolistic competition

(C)Oligopoly

(D)Perfect competition

December 2019Q. 86 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

The existence of price-wars in the airline industry in India indicates that :

(A)Customers are relatively weak because of the high switching costs created by frequent flyer programs

(B)The industry is moving towards differentiation of services

(C)The competitive rivalry in the industry is severe

(D)The economic segment of the external environment has shifted, but the airline strategies have not changed

June 2019Q. 5(i) (FSM)4 marksFinancial and Strategic Management paper, Syllabus 2017

Show the facts common to all parts of Q. 5

Case Study :

About the company

Black Diamond Ltd. (BDL) is a public limited company in Country-B engaged in mining and production of coal and coal products. The mission of the company is “to be a partner in the economy by producing and fulfilling the energy demand of the country by providing quality coal in economical and sustainable manner”. The company is listed on a stock exchange of the Country B. Shares of the company are held by the Govt. of Country-B, Mutual funds & FII and general public in proportion of 75%, 12% and 13% respectively. During the financial year 2018-19, the company has produced and dispatched 500 million tonnes of coal. Of this 76% to power plants, 2% to steel plant and rest to other sectors.

Coal is the prime source of energy and fulfills approx. 70% of energy demand of the country B. The thermal power plants, steel manufacturing plants, cement and fertilizer plants are the major consumers of coal.

The country-B has a large reserve of coal but the quality and cost are major concern. In the last few years there has been increase in import of coal by steel and power plants. The steel plants import coal due to quality and cost advantage over domestic coal. As per a study report conducted by the BDL, good quality of coal can be produced only through deep and underground mining. Underground mining requires highly automated technology.

Challenges before BDL

For adopting deep underground mining the BDL is required to acquire land for new mines and latest automated machines for mining. Land acquisition in country-B has been a hard task due to land acquisition related laws and protests by the local community and NGOs as BDL has acres of idle land in the form of used abandoned mines which cannot be used for agricultural activities or human rehabilitation due to the risk of landslides. BDL is a labour intensive company with low productivity. Employee cost is the major cost of BDL which accounts for 55% of total cost. BDL is second largest employer in country B.

Till recent past, the BDL was the only company which was allowed for mining and marketing of the coal in the country but with the changing economic scenario and to meet the growing energy demand the Govt. of Country-B is mulling to allot coal blocks to steel plant and thermal power plant for captive consumption.

The Govt. of the Country B is committed to boost manufacturing and industrial infrastructure of the country in next 10 years. Power and steel sector would be witnessing a multifold increase in demand not only from Govt. schemes but also from private and domestic consumers.

To meet the energy demand, the Govt. has reduced the duty on imported coal. The Govt. being a signatory of Paris agreement on climate change, is committed for sustainable development by reducing carbon emission caused by usage of fossil fuels. It has entered into various technological MoUs to install clean energy sources like nuclear, solar and wind in near future.

Required :

(i)Identify and describe the five forces of Porter with respect to BDL.

The five forces model which was created by Michael Porter is an analytical tool that uses industry forces that uses five industry forces to determine the intensity of competition in an industry and its profitability level. The five forces in present case of BDL is described as under:
a.Industry Rivalry/Competition (Low) Industry rivalry for the BDL is low as it is the only company which is allowed for mining and marketing of the coal in the country and most of the energy requirement of the country is fulfilled by coal. However, increase in import along with reduced import duty may be a potential threat.
b.Threat of New Entrants (Medium/high) With the changing economic scenario and to meet the growing energy demand the Govt. of Country B is mulling to allot coal blocks to steel plant and thermal power plant for captive consumption which may be a cause of worry for BDL in near future.
c.Threat of Substitutes (Low) At present, coal is the prime source of energy and fulfills approx. 70 % of energy demand of the country B. There are various substitutes of coal like Natural gas, solar, wind, nuclear energy etc. Since the Government of country B is a signatory of Paris agreement on climate change and entered technological MoUs to install clean energy sources like nuclear, solar and wind energy, the threat of substitutes may increase in future.
d.Bargaining power of buyers (Low/Medium) The thermal power plants, steel manufacturing plants, cement and fertilizer plants are the major customers of BDL. At present, there is no other alternative available with the customer as the BDL is the only coal producing and marketing company. But in near future bargaining power of buyer may increase as the Govt. of country B is mulling to allot coal blocks to steel and thermal power plant.
e.Bargaining power of suppliers (Medium/High) Being labour intensive company, suppliers of consumables, work contractors and the employees can be classified as suppliers for BDL. When the technology will change, power of supplier who are supplying for specific parts for heavy machineries, explosive and power etc. may increase.
Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 5(i) (Financial and Strategic Management paper, Syllabus 2017).

December 2018Q. 5(b) (FSM)4 marksFinancial and Strategic Management paper, Syllabus 2017

(b)A startup company is thinking of launching a low cost detergent powder in the market. The market for the said product is already dominated by big FMCG players.

As a strategic professional put forward your suggestions to the Company Management Committee to deal with the nature of “entry barriers” while launching the low cost detergent powder.

June 2026Q. 2A(ii)5 marksSyllabus 2022

(ii)How does PESTLE framework assist the management of a company in analysing the external micro environment of a business ?

June 2025Q. 2(b)5 marksSyllabus 2022

(b)The term business environment is defined by several business experts and economists. What is the definition given by Keith Davis in this context ?

How can the demographic environment influence business growth ?

December 2024Q. 81 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

Which of the following is not an “external environment considerations” ?

(A)Political trends

(B)Economic shifts

(C)Changes in consumer taste

(D)Operational inefficiencies

June 2024Q. 2A(b)5 marksSyllabus 2022

(b)Describe any three environmental changes that you expect to have major impact on the following industries :

(i)Retail Industry

(ii)Automobile Industry

(iii)Education Industry.

December 2021Q. 85 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

Which of the following is not a component of macro environment of external environment?

(A)Suppliers, customers, marketing inter-mediaries, competitors, public

(B)Economic, political-legal

(C)Demographic, natural, ecological

(D)Global, Socio-cultural

June 2021Q. 69 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

Which of the following is a part of Macro Business environment ?

(A)Suppliers

(B)Customers

(C)Competitors

(D)Technology

December 2020Q. 70 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

In the business, Macro environment factor, what does PEST stand for ?

(A)Political, environmental, strategic, testing

(B)Political, environmental, strategic, technological

(C)Political, economic, strategic, technological

(D)Political, economic, social, technological

December 2018Q. 5(c) (FSM)4 marksFinancial and Strategic Management paper, Syllabus 2017

(c)A company ABC is finding difficult to adapt itself in the changing environment. A strategic consultant has advised it to go for an environmental scanning to deal with the current problem. Being company’s consultant, submit a report stating the strategic fit between external and internal environment so as to enable the company to regain its previous sustainable market position.

December 2018Q. 6A(ii) (FSM)5 marksFinancial and Strategic Management paper, Syllabus 2017

Comment on the following :

(ii)Business environment is aggregate of all conditions, events and influences that surround and affect the business.

December 2020Q. 72 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

Porter’s Value Chain is essentially a tool for :

(A)Calculating what a firm is worth

(B)Advising firms on how to price their products

(C)Identifying the competitive forces within an industry

(D)Diagnosing and enhancing sources of competitive advantage within an organisation

December 2019Q. 98 (FSM)1 markMCQFinancial and Strategic Management paper, Syllabus 2017

The concept of ‘Core Competence’ has been advocated by :

(A)Gary Hamel and Peter Drucker

(B)C.K. Prahlad and Gary Hamel

(C)C.K. Prahlad and Michael Porter

(D)C.K. Prahlad and Peter Drucker

Also relevant to this chapter