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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.