Market Model Patterns of Change - Essay Example

? Market Model Patterns of Change Market model patterns of change The Coca-Cola Company was started in 1886 as a soda fountain beverage that was sold in glasses, in America. Its growth was impressive especially after a strong bottling system was developed that resulted to the world famous Coca-Cola company that we have today (Barlow, 2005). It began its international expansion in the 1920s under the management of Robert Woodruff, the chief executive officer and the chairman of the board at that time. They opened Coca-Cola plants in France, Honduras, Guatemala, Mexico, and South Africa, among other countries. According to International Business (2009), the Coca-Cola Company used to be a monopoly initially when there were no competitors. This is because it was the only seller that had a well-defined commodity since there were no substantial substitutes of a similar commodity from other firms into the market. However, the Coca-Cola Company can no longer be defined as a monopoly. Its market model (monopoly) has undergone change into oligopoly. International Business (2009) argues that this is due to the presence of the Pepsi and Schweppes Companies among others that have brought plenty of competition in the market for the Coca-Cola Company, with all their products. For the oligopoly market, model, each supplier has a possibility of influencing the market price; thus, leading to competition among the suppliers. In an oligopoly market model, there are only a few industries that dominate the market. For instance, the Coca-Cola Company and Pepsi dominate the bottled and canned soft drinks industry, in most countries. They have control over the market prices and supplies and have high barriers to entry. Their products are nearly identical; hence, the companies involved compete for the market share, and are independent due to the market forces. According to Barlow (2005) there are short-run and long-run behaviors of oligopoly. Long run can be described as a period in which all factors of production, as well as cost, are variable. In this case, industries are able to adjust to cost. The short run refers to a period where the quality of some inputs cannot be raised beyond the priced amount that is available; hence, short run industries can only be able to influence the prices through adjustments made to production. However, in economics, long run models can shift from short run equilibrium where the supply and demand, reacts to price levels with more flexibility. Thus, oligopolistic companies share a variety of short run and long run behaviors such as interdependence, rigid prices, competition, mergers and collusion (Barlow, 2005). The Bertrand model and the contestable markets theory leads to a long run oligopoly market-equilibrium price and output solution, which is similar to that achieved in a competitive market (International Business, 2009). Bertrand argues that products and production costs are identical or similar the customers are likely to purchase from the company selling at the lowest possible price. In addition, the kinked demand curve model of oligopoly that was developed by Paul Sweezy assumes that a business in an oligopoly may face a dual demand curve for its product based on the reactions of other companies in the market to a change in its variables (Cameron and Green, 2009). Thus, short-lived price war between rival companies happens under this model, in which firms are seeking to seize a short term advantage and gain some extra market share. Areas in the company that could lead to transaction costs include the global environment, the competitive environment and the socio-cultural differences. The global environment has become quite sensitive forcing many companies that operate locally to join the global market; thus, resulting in globalization. The Coca-Cola Company is also sensitive to the strategies of globalization, which has led to high competition, as well as to transactions costs. The competitive environment also plays a similar role. Coca-Cola Company, which is a duopoly, aims at maximizing the profits in order to produce more than a monopolist and less than a competitive industry. Socio-cultural differences reflect the view of people today. However, it provides some insights in the cultural distance between countries. These areas result in globalization, which the Coca-Cola Company can deal with by setting its performance goals, and programs, systems that can be used to track their performance in areas such as use of water, waste water treatment, scarcity of water and energy management, among others (International Business, 2009). The first quarter of 2011, the Coca-Cola Company, reported net revenue of $10.5 billion, which was up 40% from the previous year with comparable net revenue up 40% that shows solid growth in concentrate sales. In addition, the operating income was reported as $2.3 billion, up 4% with comparable operating income up 10%, which portrays a strong top-line performance. Moreover, for the second quarter of 2011, Coca-Cola Company reported both net revenue and comparable net revenue of $ 12.7 billion, up 47%, which showed a stable growth in concentrate sales. Additionally, it reported an operating income of $ 3.2 billion, up 18%. The third quarter reported a net revenue and comparable net revenue of $ 12.2 billion, up 45% and an operating income of $2.7 billion, up 17%, with a comparable operating income of $3.0 billion, up 21%, which portrayed a strong top-line performance. The decision making process in any business is determined by analysis of the information, as well as choosing the best case-scenario. These decisions are usually made by the senior managers in the company, who are expected to make the right choices since wrong once may be fatal to the company. Thus, in order for the manager in the Coca-Cola Company to make the right decision, the data collected as costs and revenue must be calculated by the accountants and economists in the company. They calculate the actual money paid out as costs, including fixed costs, and variable costs such as raw materials and labor. According to (International Business, 2009), the relationship between variable and fixed costs and revenue determines whether the company should shut down certain operations for a long or short period when the total costs are more than total revenue. Thus, this makes it easy for mangers to make the relevant decisions for the success of business. Factors that affect the degree of competitiveness of the Coca-Cola Company include the numbers of similar firms that the company is competing with such as Pepsi, Schweppes and other soft drink companies in the world. According to Cameron and Green (2009), the higher the number of the competing firms the higher degree of competitiveness. The level of capacity utilization also affects the degree of competitiveness in the company in that if the levels being underutilized are high the existing firms are likely to be highly competitive in order to win sales and enhance their own demand. Moreover, little brand loyalty is likely to make customers to switch from one product to another easily. Also, the cost of leaving the company is relatively high because of the high levels of investment. Thus, this affects the degree of competitiveness in that the existing companies are likely to fight hard in order to survive since they cannot be able to transfer their resources easily to other places. In order to find out how a business is evolving, there are a variety of measures that can be looked at such as productivity, customer satisfaction and performance measures. Both Productivity and performance of a business can be measured in many ways, which include the output per worker, hour, day, and week, output per machine, unit costs. It helps the business to make a higher profit than its competitors, which shows the productivity of business. As stated by (Barlow, 2005), many companies that are doing well in the new global economy have realized that measuring customer satisfaction is the key in order to hold on to their customers and attract more. Thus, the Coca-Cola Company has been successful in using customer satisfaction as a strategic weapon to increase its market share. References Barlow, J. F. (2005). Excel models for business and operations management. London: John Wiley & Sons. Cameron, E. & Green, M. (2009). Making Sense of Change Management: A Complete Guide to the Models, Tools and Techniques of Organizational Change. Bristol: Kogan Page Publishers. International Business. (2009). The Oxford Handbook of International business. Oxford: Oxford University Press. Read More