Strategic Analysis: External Environment

Original descriptive practice: 30 original cases, 3 at 3 marks, 21 at 5 and 6 at 10. Strategic analysis/risk; environment/PESTLE/internationalisation; products/PLC/value chain; five forces/relative attractiveness; experience/value creation; customers/behaviour/landscape/key success factors. Original preparation, not official questions, marking schemes, a live site or a complete official bank. Native tables scroll on phones.

Boundaries: Total value V-C, customer surplus V-P and firm margin P-C use explicit supplied definitions. Page 38 uses surplus language for value creation. Micro/internal employee overlap and behaviour-domain count tensions are disclosed. Current law, policy, tariffs, subsidies and company examples are not verified claims. PLC, experience and forces support diagnosis, not guaranteed outcomes.

SM-C02-D001 · 3 marks

A chair chooses a foreign market because he likes its city. The firm has limited service capacity and unfamiliar rivals. Explain two situational considerations and the sequence before choice. (3 marks)

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Marks	Credit	Working / case application
1	External	Study industry/customer/competitive conditions in the proposed market.
1	Internal	Assess resources, capability and position; service capacity may constrain entry.
1	Sequence	Appraise external/internal situation, evaluate alternatives, then choose. Personal preference alone does not establish fit.

Original indicative capped marking, not official ICAI scheme. Two-mark sections credit a sound concept plus specific case application/reasoning. Equivalent justified answers accepted without duplicate credit. Case classifications and source boundaries are explicit.

Official concept source, PDF page 4

SM-C02-D002 · 5 marks

A retailer hears trends informally but has no review of suppliers, regulation or competitors. Evaluate its scanning and propose a balanced routine. (5 marks)

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Marks	Credit	Working / case application
1	Lead	Informal encounters can supply useful signals.
1	Risk	Informal-only scanning can miss opportunities and hazards.
1	Structure	Assign relevant customer, competitor, market and macro information responsibilities.
1	Verify	Check important signals against suitable original sources; tax rumours are not current law.
1	Continuous	Review changes alongside capability and update alternatives rather than file one report.

Official concept source, PDF page 3

SM-C02-D003 · 3 marks

Research produces overlapping options and consumes operating time. The CEO says the report automatically picks the best strategy. Explain two limitations and a correction. (3 marks)

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Marks	Credit	Working / case application
1	Choice	Analysis can produce confusing options without selecting which to pursue.
1	Time	Lengthy analysis can impede operations and innovation.
1	Correction	Use decision criteria, feasibility checks and a bounded review; research supports judgment rather than replaces it.

Official concept source, PDF page 5

SM-C02-D004 · 5 marks

Small pricing/service choices change Northstar's position over time. A new market opportunity conflicts with capacity and a strong incumbent. Apply evolution, balance and risk. (5 marks)

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Marks	Credit	Working / case application
1	Evolution	Accumulated choices and experience shape strategy; update it as outcomes emerge.
1	Opportunity	The external driver is a possibility, not proof of fit.
1	Constraint	Capacity is internal, incumbent pressure external; both affect feasible scope.
1	Balance	Compare trade-offs rather than assume a perfect fit or ignore one side.
1	Risk	Assess mismatch consequences; faster growth ambition does not create capacity.

Official concept source, PDF page 5

SM-C02-D005 · 10 marks

A device firm misreads current demand, lacks launch capacity, later faces a standard making its plan obsolete and gradually loses needed skills. Classify the four risks on source/time axes and justify monitoring. (10 marks)

Fictional mismatch events.

Event	Timing
Demand interpretation	Current
Capacity shortfall	Current
New standard	Later
Skill loss	Gradual

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Marks	Credit	Working / case application
2	External/short	Misreading current environment is short-time external interpretation risk. Test demand evidence/assumptions before treating forecasts as reliable.
2	Internal/short	Current capacity cannot meet strategic demands. Match launch requirements to skills/equipment/funds instead of assuming demand solves capability.
2	External/long	A later standard may make strategy obsolete. Monitor drivers and review product/market choices when conditions change.
2	Internal/long	Skill loss changes internal capacity relative to strategy. Track retention/training and retest operating feasibility.
2	Grid limit	Time and source are separate axes. The grid diagnoses mismatch, not probabilities or independent risks; connect monitoring to correction.

Official concept source, PDF page 6

SM-C02-D006 · 3 marks

A workshop records customer complaints, supplier reliability, national rates and technician skills. Classify external micro/macro versus internal capability and explain overlap. (3 marks)

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Marks	Credit	Working / case application
1	Micro	Customers/suppliers affect the specific firm directly and regularly.
1	Macro	National rates are broad economic conditions generally beyond direct control.
1	Internal	Skills are capability. Page 11 lists employees among immediate issues; state the external/internal boundary instead of calling skills external PESTLE.

Official concept source, PDF page 11

SM-C02-D007 · 5 marks

A distributor ignores tastes and rival offers until sales fall. Apply five benefits of interaction with its business environment. (5 marks)

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Marks	Credit	Working / case application
1	Opportunity/threat	New needs and rival offers reveal gaps and risks.
1	Growth	Use evidence of demand to assess feasible expansion.
1	Learning	Update managers' knowledge/skills.
1	Image	Responsive service can show sensitivity, without guaranteed reputation gains.
1	Competition	Analyse rivals and adjust positioning rather than blindly copy.

Official concept source, PDF page 9

SM-C02-D008 · 5 marks

Older population increases, incomes change and residents favour repair over disposal. Distinguish the signals and their implications. (5 marks)

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Marks	Credit	Working / case application
1	Demographic	Age distribution is a population characteristic.
1	Economic	Income affects purchasing power, separate from age.
1	Social	Repair preference reflects attitudes/values.
1	Implication	Test access, pricing and service needs without stereotyping older customers.
1	Overlap	PESTLE headings can overlap; explain the causal basis rather than infer demand from a label.

Official concept source, PDF page 12

SM-C02-D009 · 5 marks

A hotel faces proposed tourism policy, higher interest, new travel habits, booking technology, a stipulated safety law and floods. Apply six headings and a scope warning. (5 marks)

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Marks	Credit	Working / case application
1	Political/economic	Tourism policy is government direction; rates affect debt/customer spending.
1	Social	Travel habits affect needs and demand.
1	Technology	Booking tools may change access/distribution and competition.
1	Legal	Stipulated safety law is a fictional binding-rule influence; actual jurisdiction/version requires verification.
1	Environmental	Floods are physical/ecological risk; related law can also be legal. PESTLE structures thought, not exact prediction.

Official concept source, PDF page 16

SM-C02-D010 · 10 marks

Aster Cold Storage considers expansion amid a subsidy proposal, rising rates, preference for less waste, new refrigeration tools, a stipulated safety requirement and heat/flood exposure. Skilled staff are limited. Diagnose drivers, fit and decision limits. (10 marks)

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Marks	Credit	Working / case application
2	Political/economic	A subsidy proposal is not entitlement. Assess policy direction separately from financing cost; rate impact depends on debt/terms and demand.
2	Social/technology	Waste attitudes may change customer value; tools may improve efficiency or strengthen rivals. Test willingness to pay and adoption capability, not automatic benefit.
2	Legal/environmental	Use safety requirement as a case fact and assess heat/flood risk. Overlapping headings do not establish any current permit/subsidy/compliance rule.
2	Fit	Macro opportunity does not remove staffing limits. Review training, capacity and immediate supplier/customer conditions before setting expansion scope.
2	Choice	Rank causal importance, verify assumptions and compare alternatives. PESTLE does not pick a guaranteed best investment or authorise spending.

Official concept source, PDF page 17

SM-C02-D011 · 5 marks

Remote diagnostics may reduce a repair chain's visits but rivals use it to win clients. Explain dual effect and a response. (5 marks)

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Marks	Credit	Working / case application
1	Opportunity	Adoption could improve cost/service if tools fit workflows.
1	Threat	Rival innovation may weaken the existing approach.
1	Fit	Check staff know-how, cost and acceptance.
1	Choice	Compare feasible changes instead of buying because technology is new.
1	Limit	No tool guarantees lower cost/quality gains; external trend differs from internal ability.

Official concept source, PDF page 15

SM-C02-D012 · 5 marks

Units abroad share ownership, information/patents/credit and common strategy. Identify global characteristics, planning and motives/limits before expansion. (5 marks)

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Marks	Credit	Working / case application
1	Units	Units in several countries are linked by common ownership.
1	Resources/strategy	A shared resource pool and coordinated strategy link them beyond unrelated local firms.
1	Planning	Assess opportunities/threats against capability; define scope, objectives and corporate strategies. Country variables make planning more complex.
1	Motives	Growth/new markets, resource access, scale or producing near customers can motivate internationalisation. Actual savings/demand need evidence.
1	Limits	Communication/transport can aid coordination but international development adds cost, country risks and complexity. Lower tariffs/cheaper resources are not universal current facts.

Official concept source, PDF page 18

SM-C02-D013 · 5 marks

A firm studies worldwide shifts, a region's opportunities and one country's tax/culture/entry rules. Explain levels and why a global report is insufficient. (5 marks)

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Marks	Credit	Working / case application
1	Multinational	Monitor broad global developments/impacts.
1	Regional	Examine critical factors/opportunities in a selected area.
1	Country	Study specific economic/legal/political/cultural conditions.
1	Link	Regional averages may hide country differences; levels remain connected.
1	Scope	Check current local rules before real entry; global trends are not verified local law.

Official concept source, PDF page 20

SM-C02-D014 · 5 marks

A firm says only goods are products and item useful life equals category market life cycle. Correct this and give implications. (5 marks)

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Marks	Credit	Working / case application
1	Product	Services/experiences can be products; repairs are intangible.
1	Features	Function, design, quality and cumulative experience deliver satisfaction.
1	Price	Competition/value affect feasible price; cost-plus is not universally decisive.
1	Life	An item's useful life differs from a category's sales life cycle.
1	Strategy	Examine customer needs/renewal rather than treat every replacement as industry decline.

Official concept source, PDF page 21

SM-C02-D015 · 10 marks

Comparable sales: purifier 5/8/12, filter 20/35/55, heater 100/102/101, lamp 60/40/20. Purifier awareness limited, filter acceptance rapid, heater market saturated, lamp displaced. Diagnose stages, conditional choices and limits. (10 marks)

Comparable supplied sales units, with awareness/market assumptions in prompt.

Product	Period 1	Period 2	Period 3
Purifier	5	8	12
Filter	20	35	55
Heater	100	102	101
Lamp	60	40	20

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Marks	Credit	Working / case application
2	Introduction	Limited awareness/low sales support purifier introduction. Test awareness/fit; expansion can be considered but low absolute sales alone does not prove stage.
2	Growth	Acceptance/rising sales support filter growth. Assess feasible capacity/distribution investment and competitors/resources.
2	Maturity	Stable heater sales/saturation support maturity. Protect value/efficiency; mature businesses may supply cash, not guaranteed surplus/profit.
2	Decline	Lamp sales fall with replacement. Assess harvesting/retrenchment/adaptation and exit costs rather than mechanically close.
2	Portfolio	Balance funding/attention across evidence-based stages. PLC is diagnostic, not an unavoidable timetable; category, costs and causes matter.

Official concept source, PDF page 22

SM-C02-D016 · 5 marks

A machine firm receives metal, assembles, dispatches, promotes and installs machines. Classify five primary activities and a linkage. (5 marks)

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Marks	Credit	Working / case application
1	Inbound	Receiving/storage of inputs is inbound logistics.
1	Operations	Assembly/testing transforms inputs.
1	Outbound	Finished-product dispatch/storage distributes to customers.
1	Marketing/sales	Promotion/purchase arrangements help customers learn/buy.
1	Service/linkage	Installation maintains value. Dispatch-installation coordination may matter more than isolated cost cuts.

Official concept source, PDF page 25

SM-C02-D017 · 5 marks

A firm acquires input contracts, improves know-how, trains workers and maintains planning/finance/quality routines. Classify support groups and procurement scope. (5 marks)

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Marks	Credit	Working / case application
1	Procurement	The acquisition process, not stock itself or only receiving.
1	Technology	Product/process/resource know-how development.
1	HRM	Recruitment/training/management/reward across activities.
1	Infrastructure	Planning, finance, quality and information routines.
1	Link	Support enables several primary activities; classify what the action does, not department title.

Official concept source, PDF page 26

SM-C02-D018 · 5 marks

A CEO examines only rival prices and declares industry analysis complete. Explain overlooked forces and assessment sequence. (5 marks)

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Marks	Credit	Working / case application
1	Scope	Also assess entry, substitutes, buyers and suppliers.
1	Identify	Specify actual pressures within each force for a defined industry.
1	Strength	Judge evidence-based strength rather than count names.
1	Combined	Assess collective pressure and attractive-profit prospects.
1	Limit	Industry pressures/firm position differ; no guaranteed individual profit follows.

Official concept source, PDF page 27

SM-C02-D019 · 5 marks

An incumbent has scale-related low costs, brand reputation, customer retraining costs and distribution access. Explain four barriers and their limit. (5 marks)

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Marks	Credit	Working / case application
1	Scale	An entrant may lack volume to match unit cost.
1	Brand	Recognition/valued differences can take resources/time.
1	Switching	Retraining/testing makes customer change costly.
1	Channels	Limited distribution access can impede entry.
1	Limit	Discouragement is not absolute prevention; capital and likely response also need evidence.

Official concept source, PDF page 29

SM-C02-D020 · 10 marks

Elm Packaging sells standard packs to two large buyers. Three rivals compete in slow growth with high fixed/exit costs. One crucial material supplier has no ready substitute and costly switching. Entry needs a large plant/channels. Reusable containers from another industry meet similar protection needs. Analyse forces and qualified profit outlook. (10 marks)

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Marks	Credit	Working / case application
2	Rivalry	Slow growth, standard packs and fixed/exit costs can intensify price/capacity rivalry. Three rivals alone does not prove strength.
2	Buyers	Concentrated large buyers with standard-product alternatives can demand price/service concessions. Check actual share and switching terms.
2	Suppliers	Crucial special input/no substitutes/costly switching support input leverage. Explore alternatives without assuming availability.
2	Entry	Plant capital/channels impede newcomers; well-resourced/different-channel entrants may still enter.
2	Substitution/outlook	Reusable containers satisfy similar end need outside the defined industry. Assess price/performance; several strong pressures may squeeze profits despite barriers, with actual position/resources decisive.

Official concept source, PDF page 31

SM-C02-D021 · 5 marks

A vendor sells interchangeable parts mostly to one informed customer. Analyse buyer leverage and effects beyond price. (5 marks)

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Marks	Credit	Working / case application
1	Concentration	Large concentrated buyer can leverage vendor dependence.
1	Alternatives	Knowledge and low differentiation assist switching.
1	Price	Buyer may demand lower prices.
1	Service	Delivery/service/investment demands can raise supplier costs.
1	Limit	Check actual criticality/contracts; no instruction to form cartels or accept every term.

Official concept source, PDF page 30

SM-C02-D022 · 5 marks

One specialised supplier serves many small assemblers; redesign makes switching costly. Analyse power and distinguish a substitute. (5 marks)

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Marks	Credit	Working / case application
1	Importance	Crucial input/lack of alternatives strengthens leverage.
1	Switching	Redesign costs increase dependence.
1	Concentration	Concentrated supplier base versus fragmented buyers aids power.
1	Effect	Cost/availability affects industry profit.
1	Role	Supplier provides inputs; substitutes meet similar end need from another industry. Industry/role definition matters.

Official concept source, PDF page 31

SM-C02-D023 · 5 marks

A commodity industry has surplus capacity, unsaleable specialised assets and similar suppliers. Explain fixed/exit costs, differentiation and growth. (5 marks)

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Marks	Credit	Working / case application
1	Fixed	Unused capacity encourages price cutting to spread fixed costs.
1	Exit	Low-resale assets can keep weak firms competing.
1	Differentiation	Similar offerings invite price comparison; valued differences may soften rivalry.
1	Growth	Slow growth makes share gains depend more on taking rival customers.
1	Boundary	Entry impedes joining, exit impedes leaving; high entry and exit barriers have different effects, not guaranteed profit.

Official concept source, PDF page 32

SM-C02-D024 · 5 marks

Defined industry is scheduled intercity buses. Another bus firm serves the route, rail serves similar travel and a fuel vendor supplies input. Classify and judge substitution. (5 marks)

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Marks	Credit	Working / case application
1	Rival	Another bus firm is existing rivalry.
1	Substitute	Rail meets similar transport need outside the defined bus industry.
1	Supplier	Fuel vendor supplies input, not automatically an end-service substitute.
1	Pressure	Compare price/performance/access and switching.
1	Limit	Role depends on boundary; alternatives are not equally substitutable for every traveller.

Official concept source, PDF page 33

SM-C02-D025 · 10 marks

A slow-growth industry has severe rivalry but an efficient leader serves a profitable niche; a weak entrant lacks channels. Discuss overall/relative attractiveness and conditional choices. (10 marks)

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Marks	Credit	Working / case application
2	Industry	Assess forces, growth/drivers and near/long-term profit. Weak general prospects do not prove zero returns for all.
2	Position	Leader efficiency/niche can defend returns; weak channels can make entry unsuitable even in an otherwise attractive industry.
2	Capability	Check defence against threats, gaps and links to other businesses. Advantages need evidence and may change.
2	Risk	Review uncertainty, industry problems and changing force strength rather than one growth statistic.
2	Choice	Strong firms may cautiously protect position, weak firms seek alternatives. Fit/price/resources govern investment/acquisition/exit; relative attraction is not an automatic action instruction.

Official concept source, PDF page 34

SM-C02-D026 · 5 marks

A plant cuts costs with cumulative output through learning/redesign. Manager says current size guarantees this forever. Assess. (5 marks)

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Marks	Credit	Working / case application
1	Experience	Cumulative production can improve efficiency through learning.
1	Drivers	Scale, redesign and technology can contribute but differ.
1	Scale	Current volume economies differ from accumulated learning.
1	Strategy	Experience can impede entrants; challenger may seek niche/new process.
1	Limit	No automatic/permanent savings; obsolescence/diseconomies can intervene and numerical prediction needs assumed curve.

Official concept source, PDF page 35

SM-C02-D027 · 5 marks

Stipulate willingness to pay V 150, price P 110, cost C 80 rupees/unit. Compute total value, customer surplus, margin and reconcile source wording. (5 marks)

Rs/unit in supplied framework, not observed market prices.

Variable	Value
Customer value V	150
Price P	110
Cost C	80

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Marks	Credit	Working / case application
1	Total	V-C=70 under the supplied framework.
1	Surplus	V-P=40 customer surplus.
1	Margin	P-C=30 unit margin before unspecified other costs.
1	Identity	40+30=70; price splits the created interval.
1	Boundary	PDF page 36 diagram separates regions but page 38 calls excess over price value creation. State definitions; surplus is not total value in this exercise.

Official concept source, PDF page 36

SM-C02-D028 · 5 marks

A school purchases tablets used by pupils. Vendor assumes quality alone determines purchases and gathers no needs information. Explain buyer/user and customer-oriented analysis. (5 marks)

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Marks	Credit	Working / case application
1	Roles	School purchases; pupils consume/use. Roles need not coincide.
1	Orientation	Product orientation stresses features/quality, production orientation prioritises low cost/availability, and sales orientation stresses persuasion/promotion. Customer orientation gathers and uses needs/competitive information; none guarantees demand.
1	Analysis	Identify target groups, needs and product fit with evidence.
1	Marketing	Research/product/place/price/promotion/distribution matter beyond advertising.
1	Scope	Avoid stereotypes and unneeded sensitive data; examine real decision-makers and use requirements.

Official concept source, PDF page 39

SM-C02-D029 · 5 marks

Family identifies cooling need, searches/compares appliances, buys and feels dissatisfied. Explain influences, decision and post-decision stages. (5 marks)

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Marks	Credit	Working / case application
1	External	Ads, peer views and social/environmental influences affect alternatives.
1	Internal	Motivation/attitudes and psychology affect choices.
1	Decision	Recognise need, search alternatives, gather/weigh information, choose; involvement varies.
1	After	Satisfaction/dissonance can affect repeats/recommendations, not universal fixed responses.
1	Boundary	Page 40 says three domains but lists an additional post-decision part. Follow described processes, not forced count or universal rationality.

Official concept source, PDF page 40

SM-C02-D030 · 10 marks

Willow makes reusable insulated lunch boxes in a fictional market. Two retailers buy most output and switch among similar brands. One crucial liner supplier has costly switching. Rivals cut prices in slow growth/spare capacity/high exit costs. Entry needs tools/channels. Meal subscriptions offer a different lunch solution. Customers value durability/seals; waste attitudes and heat affect demand. Stipulate V 200,P 140,C 100 rupees/box. Map environment/forces, value, activities and focused KSFs; qualify outlook. (10 marks)

Rs/unit in supplied framework, not observed market prices.

Variable	Value
Customer value V	200
Price P	140
Cost C	100

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Marks	Credit	Working / case application
2	Environment/forces	Waste attitudes social, heat environmental; no laws supplied. Rate rival/buyer/supplier/entry/substitution separately, using defined industry and evidence rather than force counting.
2	Value	V-C=100 total, V-P=60 surplus, P-C=40 margin rupees/box. Utility, price and cost differ; PDF page 38 wording does not collapse total into surplus.
2	Activities	Seal testing in operations/service handling supported by procurement/technology/HR can protect durability. Link material quality/design/claims; isolated cost cuts may harm value.
2	KSFs/landscape	Prioritise durability/seals and relevant cost/service capabilities using customer choice, required resources and sustainable advantage. Assess direct/indirect rival offers/strengths/weaknesses from legitimate evidence rather than rumours.
2	Outlook	Strong pressures can squeeze margin despite barriers; relative position/capability and future drivers matter. Experience/PLC need evidence, and no guaranteed investment/sales/profit outcome follows.

Official concept source, PDF page 27