Question

The managers of Loyola Corp. recently had a meeting to discuss new opportunities in Europe as a result of the recent integration among Eastern European countries. They decided not to penetrate new markets because of their present focus on expanding market share in the United States. Loyola's financial managers have developed forecasts for earnings based on the 12 percent market share (defined here as its percentage of total European sales) that Loyola currently has in Eastern Europe.

Required:
a. Is 12 percent an appropriate estimate for next year's Eastern European market share?
b. If not, does it likely overestimate or underestimate the actual Eastern European market share next year?

Answer 1

a. Is 12 percent an appropriate estimate for next year's Eastern European market share?

No its not, because Loyola is probably not the only company considering expanding its operations over eastern Europe. As more companies start operating there, Loyola's market share will decrease due to increased competition.

b. If not, does it likely overestimate or underestimate the actual Eastern European market share next year?

Loyola's future market share is overestimated because:

1. Loyola is not willing to expand their operations and it is basically focusing on their domestic operations (in the US)
2. other companies expand their operations and an aggressive market strategy will make them gain market share, which means that Loyola's market share will start to shrink