Nike Business Internationalization Benefits - Assignment Example

Nike, Inc. Contents Company Profile: Nike, Inc. 5 Nike Business Internationalization Benefits 7 Nike Business Internationalization Process 9 Nike Marketing Strategy 11 4 P Model 11 Differentiation verses Standardization 14 Reference List 15 International Business Since the emergence of globalization and trade liberalism, the degree of market rivalry in each industrial segment has considerably increased. Increased competition is pioneered by greater discretionary spending power and market demand of consumers. In order to gain higher competencies, companies conduct business according to transaction cost economies resource based view. Under this regime, the firms expand into the foreign countries after saturation of the domestic market demand (Brenner, 2013). Commercial success of any multinational company is measured in terms of business internationalization process involved. International business has, hence, become a modern jargon in the current epoch. It is the process of conducting business all over the world. Such business transactions include trading of services, goods, technology, capital and managerial knowledge between different economies (Brenner, 2013). The import and export related activities of a nation constitute its foreign trading affairs. International business expands the scope and scale of commercial activities in an economy. Figure 1: International Trade Growth (Source: RBA, 2014) From the above figure, it can be stated that international trade or business has noticeably increased over time. The growth had slightly fallen during the global financial crisis of 2008. As a result, the volume of international trade has greatly influenced the external business environmental factors. Primary Features of International Business Involves large magnitude of commercial operations Companies engaging in international business across diversified economies conduct commercial on large scales. The production and marketing strategies of these firms are globally established (Brenner, 2013). Integrates the economic system of several nations A multinational company helps to integrate the global economic system. In an international business process, the firm procures labour, finance and infrastructural services from different countries (Brenner, 2013). Is highly dominated by the developed economies and multinational corporations The process of foreign trade in dominated by companies belonging to developed rich countries. These countries possess productive resource reserves and high technological knowhow. These multinational organizations offer high prices to all the factor service owners, thereby leading the business realm in each country (Brenner, 2013). Provide additional advantages to participating countries International business conducted by companies helps to enhance the employment opportunities wherein they operate (Brenner, 2013). Moreover, by providing diversified goods and services in the market, the process helps to improve living standards of the individuals therein. Enhances market rivalry across all industrial segments International business contributes towards augmenting the level of trading competition between participating countries. Increased rivalry among the sellers in the production of most goods and services lowers the global prices, thereby raising the social welfare thresholds (Brenner, 2013). Improves the state of science and technology Advancement in the field science and technology is headed by international trading activities. Improved technology facilitates lowering of the production costs and improves quality of the product sold (Brenner, 2013). Lowers the magnitude of international restrictions in business Through the activities of numerous trading blocs, international business of companies helps in lowering the level of cross-country legal restrictions (Brenner, 2013). Highly sensitive or volatile in nature Companies formulate their international business strategies after performing adequate market research, given that international business is highly volatile in nature. Any change in economic policies, political environment and technology creates massive impact on international trade (Brenner, 2013). Company Profile: Nike, Inc. Nike Inc. is a popular American multinational company founded in 1964 (Nike, 2014). The organization manufactures, designs and distributes products such as, apparel, footwear, equipment, accessories and other services internationally. The company operates in the apparel and accessories industry. Its headquarters is located in Washington County, Oregon, United States (Nike, 2014). Since its inception, the company has considerably expanded its business internationalization process. At present, its commercial branches are located in almost all major economies around the world. Phil Knight is the current chairman of Nike Inc (Nike, 2014). The position of CEO and president is headed by Mark Parker (Nike, 2014). The primary product categories of Nike Inc. are athletic clothing and footwear, recreational products and sports equipment. The company owns high brand value in the international market and experiences constantly increasing revenue and operating profit. In 2013, the aggregate revenue earned by Nike Inc. was estimated to be US$25.3 billion and the operating income was US$3.04 billion (Nike, 2014). The organization recruits over 44000 employees worldwide and owns assets worth US$15.465 billion (Nike, 2014). It is a public limited organization, which is a dominant supplier of sports as well as athletic products in the market. During its inception in 1964, official name of the company was Blue Ribbon Sports (Nike, 2014). Bill Bowerman and Phil Knight were the two founders (Nike, 2014). In 30th May 1971, Blue Ribbon Sports was renamed as Nike, Inc (Nike, 2014). Figure 2: Nike Five Year Revenue (Source: Market Watch, 2014) The above graph shows that the revenue of Nike, Inc. is rapidly increasing since 2010. Figure 3: Nike Five Year Revenue (Source: Market Watch, 2014) The above line graph indicates that the net income level of Nike is gradually improving. The quarterly profit of the company is rising by 13% since 2013. It is reckoned that Nike’s commercial growth has always been stimulated by effective business internationalization process. Nike Business Internationalization Benefits The current trading world is dynamic and uncertain in nature. The process of business internationalization can act as the primary source to attain success. Following globalization, business affairs of every nationalized company are exposed to the international market conditions. The extent of market competition and technological challenges faced by these firms are soaring over time. Under such circumstances, business internationalization is the requisite corporate survival strategy for any profit making corporation. Commercial success and high brand value can be experienced by a company by way of expanding business into several cross-country marketplaces (Brenner, 2013). Nike, Inc. dominates the global apparel and accessories industry. However, Nike is able to attain such a leading position with the essence of its international business growth process. International trade has contributed towards improving the financial position of Nike, Inc. The organization could gain adequate core competencies in business through the same. Additionally, business internationalization process has helped to enhance the managerial skills and quality of the products offered. The reasons for Nike to adopt business internationalization can be analyzed through the Ferdows’ international business model (Shirani, 2009). As per the model, international business has enabled Nike to gain six types of core competencies in business. These aspects have directly helped to improve brand value and financial position of the organization. These factors are: Propinquity to Suppliers By expanding business internationally, Nike is able to procure raw materials and semi-finished products from several suppliers. As the company deals with multiple suppliers, its bargaining power is mostly higher than that of the market suppliers (Brenner, 2013). Availability of Labour Force Nike recruits labourers from different countries in its business segments. The company often hires skilled, efficient and productive labour resources from the developing economies such as, China and Brazil, at relatively lower wage costs (Brenner, 2013). Since currency value and exchange rates in these economies are low, the wage rates are lower than that in the developed countries such as, the U.K. and the U.S. Availability of Technological Knowhow Through international business expansion, Nike has gained technological knowhow from every country where it operates. Improved technology has facilitated lower manufacturing cost (Brenner, 2013). The organization constantly launches new products and improves upon the features of existing product lines by applying superior technological expertise. Market Proximity If Nike had confined its business in the U.S., then it would not have been able to experience the current volume of revenue and profit. Business internationalization has helped in broadening the customer base. Nike produces products for consumers all over the world. International business has facilitated greater market demand for the company, thereby enabling Nike to experience economies of scale in manufacturing (Brenner, 2013). Socio-political Benefits The international business expansion process practiced by Nike is largely stimulated by the public authorities of various countries. The government entities of the developing nations encourage the company to make fresh portfolio or green field investments therein so as to facilitate enhancement of the aggregate domestic productivity and employability. At the same time, international business has helped to augment the brand value of Nike (Brenner, 2013). Goodwill and high brand value is an intangible asset that helps to improve profitability and revenue share at a steady rate. Competition After trade liberalism, the apparel and accessories industry has become monopolistically competitive in nature. The companies within this industry experience high threats of rivalry and implements business internationalization as well differentiation strategies for improving effectiveness of the trade conducted. Also, the sports apparel and accessories industry is oligopolistic in nature. Certain companies, such as, Nike, Adidas and Reebok, are seen to dominate the sports accessories and clothing industry (Brenner, 2013). The market power of a firm is usually determined by its relative market demand share. Thus, Nike could gain adequate market power within the industry through its internationalization process. With this process, Nike is subjected to increased competition, which has enhanced efficiency in international business operations. From the above analysis, it can be claimed that Nike, Inc. expands business internationally in order to experience the intrinsic benefits associated. Nike Business Internationalization Process Nike, Inc. was founded in 1964 and the official name was Blue Ribbon Sports then (Nike, 2014). The company’s name was formally established as Nike, Inc. in 1971 (Nike, 2014). Since 1971, the company has set up business branches in all important marketplaces worldwide (Nike, 2014). Presently, the organization operates in 160 countries. As of 2010, Nike owned 41% market share in the athletic apparel and footwear industry (Nike, 2014). The company outsources most products offered so as to avail lower manufacturing costs. Nike lowers the production cost by outsourcing its semi-finished product lines from economies that have lower currency valuations. The company owns 124 manufacturing plants in China, 35 in South Korea, 73 in Thailand, 34 in Vietnam and few production units in Italy, Mexico, Turkey and the United States (Ore, 2005). In 2003, it was estimated that the company owned approximately 569 factories in the international business branches. Approximately 60% of the aggregate revenue of Nike is accumulated through international business operations (Shirani, 2009). The Europe, Middle East and African (EMEA) business headquarters of Nike is located in Hilversum, Netherlands (Shirani, 2009). The EMEA business segment of the organization generates annual revenue of $ 4.8 billion as recorded in 2012 (Shirani, 2009). Then again, Nike’s footwear sales constitute maximum proportion of the revenue earned. The EMEA business segment has around 6000 workers and 124 contract factories (Shirani, 2009). Figure 4: Nike EMEA Business Branches (Source: Brenner, 2013) The above map shows different countries where Nike is successfully operating under its EMEA business segment. The EMEA division is Nike’s second largest revenue generating international business segment. As of 2008, 35% of the company’s aggregate revenue was procured from its EMEA markets (Shirani, 2009). Figure 5: Nike Business Internationalization (Source: Brenner, 2013) The above pie diagram shows the major business segments of Nike. Following the proportion of revenue earned from the U.S. division, Nike experiences the second highest sales from the EMEA business sector owing to growing market demand for its products in Russia, South Africa and Turkey (Shirani, 2009). The third most profitable international business segment lies in the Asia-Pacific region. The business branches within the Asia-Pacific region are located in countries such as, Japan, New Zealand and Malaysia (Shirani, 2009). The commercial activities of Nike conducted in economies such as, Canada, Mexico and South America, belong to the American business segment. In 2014, the company has declared to initiate business expansion in the developed economies of Western Europe, North America and Japan. The organization estimates to earn revenue worth $3 to $3.5 billion from these new marketplaces (Shirani, 2009). Even so, the firm is also willing to set up trading subsidiaries in some emerging countries such as, China, Russia, Brazil, India and South Africa (Shirani, 2009). From the above review, it can be empirically stated that Nike, Inc. has a wide network of business internationalization process. The organization not only sells its final products across different markets, but also upholds the manufacturing procedure adopted internationally. Nike Marketing Strategy The industry wherein Nike Inc. functions is highly competitive in nature. From the above research, it is proved that the organization operates in a monopolistic market. Marketing is a crucial aspect of business for a monopolistic or oligopolistic market structure. Nike experiences increased sales, higher brand value and greater commercial efficiency through its marketing activities. The company’s marketing strategies can be analyzed through 4 P analysis model. 4 P Model Product Nike implements differentiation strategy for manufacturing its products. Through this strategy, the company tries to segregate products offered from that of its market rivals. The company produces designs and distributes shoes, shorts, jerseys, baselayers and cleats of different types of sports such as, baseball, tennis, football and cricket (Nike, 2014). Apart from selling sports accessories and clothing, Nike also offers special cross-training sports items under the SPARQ training program introduced (Nike, 2014). The company has recently launched a new range of light footwear that is composed of weight lowering components such as, Lunarite Foam and Flywire (Nike, 2014). In 2010, the company had introduced a new Nike Pro Combat jersey collection (Nike, 2014). The product had become widely popular among the university students of the U.S. Hence, Nike constantly invents new product categories and improvises the features of existing product lines through implementation of differentiation strategy. Price Nike, Inc. incorporates vertical pricing strategy in business. Vertical pricing strategy is the procedure whereby selling prices of a firm’s products are kept constant throughout the vertically integrated supply chain process (Shirani, 2009). The pricing agreements established between different segments of the company’s marketing channels are kept fixed through this strategy, which implies that Nike maintains the same product prices for both its supply chain vendors and retailers (Shirani, 2009). However, the product prices of Nike are supposed to be set according to competitive pricing strategy in the market. The company tries to sell differentiated products in the industry at market level prices. Place Nike distributes its products in over 160 countries around the world. Figure 6: Nike Domestic Distribution (Source: Brenner, 2013) The above table presents the different retailing shops of Nike in its native market (the U.S.). Figure 7: Nike International Distribution (Source: Brenner, 2013) The table above shows the different retailing outlets of Nike present across the international business branches. The items offered are spread internationally through independent distributors, business subsidiaries, licenses and franchisees (Shirani, 2009). The international business locations of Nike are segregated in terms of the U.S., EMEA, Asia-Pacific and American geographical segments. Promotion Nike, Inc. attempts to promote the brand by way of establishing different sponsorship agreements. The company sponsors several popular celebrity athletes, college athlete teams and professional gaming teams. The first nationalized advertisement of Nike was launched in 1982 over television (Nike, 2014). In 1994 and 2003, the company was the chief advertiser of The Cannes Advertising Festival (Nike, 2014). The company had won the Emmy Award in 1990 for preparing the best commercials in the market (Nike, 2014). In order to enhance brand recognition, the company commonly uses the catchphrase of “Just Do It” (Nike, 2014). The Swoosh logo of Nike has globally augmented its brand value and goodwill. The potential buyers of Nike products consider the brand name to be a quality assurance factor. Recently, the organization has increased its promotional activities over different means of internet media (Nike, 2014). As the proportion of individuals using internet is rapidly increasing in the present scenario, product promotion through the same is a crucial marketing tool for Nike. Differentiation verses Standardization The state of commercial affairs of a company is largely influenced by affairs of the external business environment. Presently, successful multinational companies do not follow standardized strategies of business internationalization (Brenner, 2013). Nike implements differentiated strategies across different countries. These strategies are framed according to the political, social, cultural, technological, environmental and economic aspects of each market (Brenner, 2013). The taste and preference pattern of the potential consumers of Nike are not same in all countries. The company improvises the product, pricing, place and promotional strategies adopted as per the customized consumer needs. For instance, high-end product categories of the company are mostly sold in the rich developed countries (Brenner, 2013). This is because individuals living in such economies have adequate purchasing power to buy expensive product lines. Therefore, Nike clearly applies a differentiated marketing strategy for conducting trade across diversified economies (Brenner, 2013). Reference List Brenner, B., 2013. Inside the NIKE matrix. [pdf] Palgrave Macmillan. Available at: [Accessed 19 July 2014]. Market Watch, 2014. Nike, Inc. [online] Available at: [Accessed 19 July 2014]. Nike, 2014. Nike, Inc. [online] Available at: [Accessed 19 July 2014]. Ore, B., 2005. Nike reveals overseas factory names and locations. [online] Available at: [Accessed 19 July 2014]. RBA, 2014. Activity in global foreign exchange markets. [online] Available at: [Accessed 19 July 2014]. Shirani, M., 2009. Internationalization process model. [pdf] ITU. Available at: [Accessed 19 July 2014]. Read More