Multinational Corporation (MNC) is an enterprise operating in various countries but is mainly managed from their home country where they coordinate global management. It is an organization or company that gathers at least a quarter of its’ revenue from operations outside of its’ home country. In this assignment, I will be researching on the challenges faced by a MNC in international business, the cultural differences, and the market entry strategies faced by the MNC while entering the industry in its home country.
Background of Nike Inc.
Nike Inc. is an American Multinational Corporation that is known worldwide by many. Nike was originally named Blue Ribbon Sports (BRS), which was founded in 1964 by a track-and-field coach – Bill Bowerman, and his student Phil Knight. The company had initially started out as a distributor for Japanese shoe maker, Onitsuka Tiger. However, in 1971, the relationship between BRS and Onitsuka Tiger was ending and BRS had launched its own line of footwear – with the Swoosh design that is widely recognized in today’s society.
BRS had subsequently renamed their brand to Nike, which came from the Greek goddess of victory. Over the years, Nike had gained significant market share in the U.S. athletic shoe market, and the company went public. From the late 1980s, Nike focused in expanding its business and diversified their product lines. The expansion had led them to move their headquarters to Beaverton, Oregon.
With increased product diversification, Nike created All-Conditions-Gear (ACG) to market products suited for extreme sports such as snowboarding and mountain biking. By the 21st century, Nike is one of the leading sports brands that holds significant market share. Nike’s success is greatly due to the use of endorsements by athletes such as Michael Jordan, Roger Federer, and Tiger Woods. The use of advertisements has also led to their well-remembered slogan – Just do it.
Nike produces a wide range of sports products other than their initial track running shoes. They had expanded their shoes category into various sports – track and field, basketball, tennis, golf, and many other types of shoes. Apart from that, they have apparel and equipment along their assortment of products. Nike products have also become part of the street fashion industry by introducing their premium line, NikeLab.
With the help of globalization, Nike has grown to be the world’s largest retailer for athletic footwear and apparel. Nike products are sold in approximately 160 countries, with 1,182 retail stores around the globe (Statista, 2018).
Industry Analysis (PESTLE)
The process of globalization is universal. Globalization allows interaction and integration among people, companies, governments, and countries of the world to develop global economy. Globalization plays an important role in the world’s economy. However, there are both positive and negative impacts that can affect various situations.
In any industry, revenue and profitability are affected due to rules and regulations that the government implement on business activities. These laws will impact the economy in terms of consumers’ buying habits and international trade laws. With stable political condition in most major markets, it provides an opportunity for Nike to grow its business.
By expanding free trade policies, it allows them to facilitate better market penetration overseas. However, due to its nature of business Nike will be affected in terms of the changes in tax and manufacturing laws when political conflicts arise. Overall, Nike experiences opportunities to improve its market presence and global expansion in the retail industry with support from the government.
A stronger economy means higher buying power in consumers, creating a smoother flow in retail businesses. With United States being a developed country that is relatively stable, Nike can continue its growth. With the economy forecasted to continue improving, this means that consumers have higher disposable income which leaves the retail industry to further expand (Trading Economics).
However, if recession were to occur and the market collapse, Nike would suffer along with the other big brands. Unemployment rates increases, and the standard of living drops as consumers are less willing to spend their money on unnecessary items.
The social changes and lifestyle have created changes in the shopping and retailing industry. With consumers being more educated and well aware of the ever-changing retail industry, their habits have changed according to the society’s needs and wants. Consumers are health conscious, which means that they are seeking to better improve their lifestyle and be more active.
This creates the desire to purchase sports apparel, which could increase revenue for Nike. The desire is due to buying habits of consumers which had changed over the years because of social norms, making consumers more brand conscious.
With technology on the rise, it provides businesses the ability to innovate in the different areas to improve themselves. With new inventions and developments, the retail industry has made use of online platforms to support online purchases.
However, with advancements in technology, competitors are constantly developing more advanced products. Thus, the increased in the Research and Development (R&D) sector creates stronger competition for Nike. Despite that, Nike is also seeking for opportunities to better improve their products to suit to consumers preferences by integrating mobile technology into their products.
In the retail industry, it is important that companies follow the consumer protection laws and policies and protection rights for labour. In developing countries, improving employment laws make be a threat to Nike due to the increase in labour costs which means increased overall costs. However, with increased employment costs it may mean higher standards for labour and employment.
Nike has always been improving on its environmental and sustainability programs with their goal being to double their productivity while reducing the company’s environmental impacts by half. They aim to reduce overall energy use, carbon emissions, water, and waste in their value chain.
Their innovations had also led to them creating iconic products in a more sustainable way. They made use of recycled polyester to create their iconic ‘Air’ shoes, which have been around since 1979.
Globalization has revolutionized the world in many different aspects which includes labour, technology, and the interaction between people.
With the help of globalization, Nike has established an extensive network that connects them to the society. There are many opportunities that Nike can continue to pursue in improving themselves as a whole company.
Host Industry Analysis (China)
Cultural revolution has changed China in many ways – transforming into a modern industrialized state and allowing foreign investments into the market. After China joined the World Trade Organization (WTO), the domestic market became more attractive for investors to join. Free entry and exit for firms were an advantage for firms’ developments as they had benefits from the economies of scale.
As China has a large domestic market, it is easy for Nike to sell their products to consumers and this increases opportunities for product developments. Moreover, with China being able to achieve its peak at economy in such a rapid speed, it shows that they have an attractive market potential.
Nike has outsourced many production factories located in Asia, including China, Taiwan, Vietnam, etc. By outsourcing factories in other countries with low labour costs, this allows Nike to lower their costs of productions to increase their net profits.
Labour force in China was 776.4 million in 2017 (Statista, 2017). Also, they have relatively cheap labour costs in the manufacturing sector with a minimum monthly wage of ___, while in the United States, the minimum wage is ____. This shows that it is effective to have manufacturing factory in China because of the low costs of production and this will help to grow their business effective and efficiently.
However, political risks are imposed if Nike were to invest in China due to the issues on their legal and regulatory sectors. Political economy is a term of legal systems of a country which are interdependent between interacting and influencing one another (Hill et al, 2008). This causes a risk in financial and/or reputational loss because of the difficulties in complying to the host country’s rules and regulations (World Bank,2012).
There are many policies that will affect foreign investors when investing in China as this may affect the way investors manage their companies in the state. In 2018, China had introduced the Environmental Protection Tax Law, which was one of its key goals in their Five-Year plan to improve the country. The Environmental Protection Law refers to atmospheric and water pollutions, solid wastes, and industrial noise. The effects of the new law had created additional costs for firms in China as they had to modernize their installations to prevent themselves being taxed. Therefore, Nike has to understand the consequences before entering China’s market to sustain minimum risk to their entry.
Porter’s Diamond Theory
The Michael Porter’s Diamond Model is a diamond-shaped framework that focuses on explaining why industries within a particular nation may be competitive nationally, while others might not. The model is made by Michael Porter, who wanted to find out the elements to determine competitiveness of nations and sub-sectors, and to determine the kinds of contributions provided to develop competitive structures of countries (Sultan and Qaimary, 2018).
The model is based on four factors, and if the conditioners are favourable, domestic companies will continue striving to innovate and upgrade themselves. By applying this model, it would determine the factors Nike will have to consider in order to stay competitive in the industry.
Firm Strategy, Structure and Rivalry
According to Porter (1990), demand conditions in the domestic market provides the primary driver of growth, innovation and quality improvement.
Related Supporting Industries
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