Download Memo To: Rajiv Krishnan Kozhikode From: Team 10 Evan Gao

Memo
To: Rajiv Krishnan Kozhikode
From: Team 10 Evan Gao, Emin Dong, Shuojun Wang, Emily Chu, Christine
Date: July 12, 2013
Key assumptions and theoretical arguments
There exists competition between organizations with multiple geographical markets. It is
possible to assess the competitive behavior of these organizations by looking at market growth
and the entry of these organizations into new geographical markets. By looking at competition,
there are a few assumptions that can be made, which are drawn from economic and social
theoretical arguments. The assumptions in this case include the fact that the level of competition
is determined by the scope of geographical contacts which the organization possesses. These
contacts have an influence on competition level, which consequently determines the extent of
market growth and the entry of these organizations into new markets. The other assumption is
that market structure also has an influence on market entry and the growth of these organizations.
In the end, these assumptions and theoretical arguments affect multi-market firms as well as
single-market firms.
The intensity of competition between multimarket organizations is more pronounced due to
economic integration between countries. When there is economic integration, it means that
multimarket firms have easy access to most markets (Scott, 2005). One of the economic
rationales is that the entry of a firm into a new market might have limitations brought about by a
high cost of entry into the new market. The high entry cost might prevent existing firms from
entering the markets of rival firms. On the other hand, there might be regulatory barriers that
limit the entry of these firms into the new markets. For multimarket organizations, this
assumption is plausible (Scott, 2005).
When focusing on sociological and economic theories, it is vital to recognize the fact that the
contact between the multimarket firms is determined by the social space in which they exist.
When two firms are in contact in a given social space, they develop a mutual forbearance in
respect to the competitive nature of each other. The firms work jointly, but indirectly, in the
given social space because of their ties to similar input requirements. These indirect ties are the
points that determine the competition between the organizations because of the existing
relation relations for exchange. With this kind of relation, they may embrace different tactics
that enhance their benefits, in comparison to their rivals. Competition between multimarket
firms is
also determined by market structure, which is not uniform across different markets. The
different regional locations present a different client nature and product acceptance, which in
turn determines the possibility of entry into the market by another firm.
Organization phenomenon in consideration of these assumptions
The structure of the market depends largely on product differentiation and customer turnover
across geographical markets. The entry of a firm into a new market depends on the willingness
of customers to switch to another product which itself depends on the loyalty that the customer
exhibits to the already existing brand and the kind of advertising that the new player in the
market presents. Competition in the market might be because of persuasive advertising that the
rival organizations present. Therefore, multimarket firms prefer to enter a market where there is
high contact with multipoint rivals.
Looking at real world phenomenon with the soft drink industry as an example, there is a high
possibility that if multimarket firms have access to a larger geographic area there would be an
increase in market size. Consequently, this increase might encourage competition between
these firms. The growth in market size for multinational firms might come about due to
economic integration, which provides firms with access to a larger geographical area. The
integration of the European Union was vital in providing the players in the soft drink industry
with an avenue for expansion to new markets (Armstrong, & Porter, 2007). The increase in
geographical area led to a change in market structure within the European market. The change
in market structure also makes it easier for new entrants into the market, which enhances
competitiveness between the multimarket firms.
The change in market structure of the European Union, in relation to the soft drink
industry increased the competition between multimarket firms. It was necessary for firms in
this industry to reorganize their franchising network with the aim of exploiting the wider
market brought about by integration (Moschandreas, 2000). The argument here is that the
there is a high likelihood that firms would integrate vertically for the main reason of
exploiting the new market opportunities that were present (Moschandreas, 2000). This was not
only necessary for firms to increase their market presence, but also for the purpose of reducing
their operational costs and improving the efficiency of firms in the new markets. The vertical
integration of the firms also presents an avenue for intense competition between the different
firms in the industry.
The competition level among multimarket firms also assumes the scope of the
geographical contacts available to the organizations. In multimarket competition, firms have to
ensure that they cover a wide geographical area. This makes their products top priority for
most consumers. This assumption is because most consumers have a preference for products
whose producers cover a wide geographical scope (Gatignon, 2004). Within these markets,
firms that cover a wider geography tend to have a higher price for their products than firms that
operate in a single market. The high prices presented by these firms might encourage the entry
of new players into the industry, bringing about competition based on prices of the
commodities. A new entrant into the market might challenge the existing multimarket firms,
leading to changes in the competitive climate of the market (Baum & Greve, 2001). For the
soft drink industry, in this case, many consumers prefer brands produced by Coca Cola and
Pepsi respectively, with less consideration given to the firms whose geographical scope does
not rival those two firms.
Conclusion
Firms are able to use these assumptions to make an informed decision on the need to
expand their scope to a wider geographical area. By covering a wider geographical area,
multimarket firms may be able to compete with firms in the already existing markets for
market share. Nevertheless, these firms do not compete aggressively for market share and
instead they avoid the competition, each looking for incentives that would enable them to
have a stake in the market (Bianchi & Labory, 2006).
References
Baum, J. A. C., & Greve, H. R. (2001). Multiunit organization and multimarket strategy. New
York: JAI.
Gatignon, H. (2004). The INSEAD-Wharton alliance on globalizing: Strategies for
building successful global businesses. Cambridge [u.a.: Univ. Press.
Moschandreas, M. (2000). Business economics: [...]. London [u.a.: Business Press.
Armstrong, M., & Porter, R. (2007). Handbook of industrial organization: Vol. 3.
Amsterdam: North Holland.
Scott, J. T. (2005). Purposive diversification and economic performance. S.l.: Cambridge
University Pres.
Bianchi, P., & Labory, S. (2006). International Handbook on Industrial Policy.
Cheltenham: Edward Elgar Pub.