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CS Professional · Strategic Management and Corporate Finance · Analyzing the External and Internal Environment

A firm lists: strong cash reserves, a dominant distribution network, high debt of a subsidiary, and obsolete IT systems on the internal side; and rising demand in tier-2 cities, new entrants with deep pockets, and a possible import duty cut on key inputs on the external side. Which statement about classifying these factors is correct?

Cash reserves and the distribution network are strengths; subsidiary debt and obsolete IT are weaknesses; tier-2 demand and the input duty cut are opportunities; new entrants are a threat. Internal factors are classed as S or W, external ones as O or T.

  1. AStrengths: cash reserves, distribution network; Weaknesses: subsidiary debt, obsolete IT; Opportunities: tier-2 demand, duty cut; Threat: new entrantsCorrect
  2. BStrengths: cash reserves only; Weaknesses: subsidiary debt, obsolete IT, distribution network; Opportunities: tier-2 demand; Threats: new entrants, duty cut
  3. CStrengths: distribution network, tier-2 demand; Weaknesses: subsidiary debt, obsolete IT; Opportunities: duty cut; Threats: new entrants
  4. DStrengths: cash reserves, duty cut; Weaknesses: obsolete IT; Opportunities: tier-2 demand; Threats: new entrants, subsidiary debt

Explanation

Internal factors are strengths or weaknesses: cash and distribution are strengths, subsidiary debt and obsolete IT are weaknesses. External factors are opportunities or threats: tier-2 demand and a duty cut on inputs help the firm, while deep-pocketed entrants threaten it. The other options place external items as internal or vice versa.

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