Nike Transactional Strategy

Introduction and Overview of Nike

Discuss about the International Business for Nike.

In this report, the organization chosen is Nike, Inc. whose ranking is jumped to 343th in the year 2016 from 425 out of Fortune 500 Ranking in the year 2015 ("Nike"). The US-based company was founded as Blue Ribbon Sports on 25^th Jan 1964 by Bill Bowerman and Philip Knight, later on, in 1978, it officially became Nike, Inc. Nowadays, Nike, Inc. is a global market leader in supplying and manufacturing of premium apparels, gear and sportswear. 

The mission of Nike is “To bring inspiration and innovation to every athlete in the world” ("About Nike - Company Profile"). Nike, Inc. claims that they fosters a culture of invention and create products, services and experiences for today’s athlete while solving problems for the coming generation. By the early 21^st century, the organization had retail outlets and distributors in more than 200 countries across the world. Today, Nike has contracted with more than 700 stores all over the world and has offices located in 45 countries outside the US. Most of its factories can be found mainly in India, China, Taiwan, Malaysia, Vietnam, Pakistan, Thailand, Philippines, and Indonesia. 

From time to time, NIKE has been launching the new high-tech advanced shoe models, followed by the modern advertisements, with authorization from the celebrities, and event sponsorships. Fiscal-year sales of Nike, Inc. have increased to $30.6 billion in 2015[1] from $27.8 billion in 2014 since Americans and shoppers around the world have been inspired by the trendy logo “Swoosh” or “Just do it”, which is appealing the customers with the marketing strategy centred on a brand image that has a high level of recall value, and the company has predicted to project $50 billion in sales by 2020 (Nike , 2015).   

Figure 1: Key Financials including revenue of NIKE in 2015 ("Nike")

(Nike , 2015)

Multinational Corporations (MNC) are identified as business institutions that focus on enhancing their value through the use of their overseas holdings. Further, MNCs are also identified as companies that directly investment in development of holdings across overseas markets thereby upholding their value-addition based on their operation in international markets (Rioux, 2014). The international operations are carried out by MNCs through distribution of an effective package of potential capital, technology, skills and knowledge along the different foreign economies where it had set up its branches. Similarly, MNCs are also featured a companies that tend to set up its base in one country and conducts its production, marketing and distribution operations through investing and development of holdings in other nations (Shah et al., 2012).

Nike as a Multinational Corporation

Nike is identified as a multinational corporation that focuses on interlinking different economies on an international scale for carrying out its production functions. The firm focuses on arranging different material and non-material resources through the formulation of a complex arrangement between diverse international economies. The Air Max Penny basketball footwear produced by Nike is essentially developed through the integration of 52 different components gained from 5 international economies (Kazi, 2011).

Nike faces a political risk from the existence of unionised parties operating in the factory establishments. The union groups and bodies demand a proper compensation and work environment to be provided to the employees. The Fair Labour Association (FLA) during 2009 required the bonus qualification to be set at Rs. 10,000 which is identified to be the legal amount where Nike was observed to pay only Rs. 3,500 to its employees. A notice was also generated in the Nike factory to help create needed awareness among the workers concerning the change (Fair Labor Association, 2012).

Nike faces increased financial risks in terms of its operation in the Indian market. The total losses incurred by Nike during 2014-15 amounted to Rs. 541 crore that required Nike to shut down around 35 percent of its stores operational in the region (Sarkar, 2016).

Nike Inc. has potential economic resources that can help in developing an effective presence in emerging economies like India. However, the event of economic depression and emergence of recessionary trends happens to affect the market for sportswear generated by Nike in the Indian market. Nike also tends to gain the advantages of availability of cheap labour in the Indian market for carrying out its production and distribution operations. The company also tends to gain increased threat from other foreign players operating in the sports retail segment owing to the existence of effective FDI regulations encouraging the flow of foreign income in the nation (Garg, 2013).

Key factors in India that encourage the internationalisation of Nike can be effectively analysed based on the use of Dunning’s Eclectic Paradigm.  The Theory of Eclectic Paradigm operates based on three paradigms like ownership, location and internalisation.

Ownership based advantages refer to the different types of intangible assets that are possessed by a business institution and are rather transferred between translational or multinational companies at reduced costs. The same contributes in creating higher income opportunities for the companies in the international markets. The multinational companies are required to possess some effective competencies that would help them in countering the increased operating costs that are required to be expended in terms of their operation in foreign economies. Translational firms gain on monopoly advantages in terms of earning the privilege to access and penetrate foreign market territories through gaining ownership over trademarks and patents. Similarly, the innovation potential of the firm also contributes in enhancing its potencies in the international market. Again, the firm gaining on economies of scale and scope also earn advantages of earning higher capital gains (Dunning, 1995).

Factors Influencing Internationalisation Process of Nike in India

Location based advantages are earned by the translational companies in terms of the economic benefits associated with production potentials, reduced costs of transport and logistics and also the existence of effective telecommunication networks. Similarly, the size of the market with also the government legislations and regulations encouraging the flow of foreign direct investment are also evaluated to be potential advantages that can be gained by the multinational firms entering into a new market. The existence of effective understandings of cultural norms and values of different economies by the social groups of the country also amount to encourage the entry and operation of the foreign firm (Denisia, 2010).

The internalisation paradigm of the Eclectic Model focuses on understanding whether the company would gain needed potential for potentially penetrating the international market for setting up its production and distribution bases. It thereby reduces the dependence of the firm on the generation and maintenance of licensing agreements with like firms operating in the foreign market (Chowdhury, 2015).  

The application of the Eclectic Paradigm generated by Dunning is made to the internationalisation aspect of Nike in the Indian market. Nike gains specific advantages for developing an effective presence in the Indian market. The company earns effective advantages in terms of existence of effective production resources and also increased demand for the generation of fresh product lines for both the sports enthusiasts and also for the athletes. It thus gains an effective exposure in the Indian market to develop a niche selling market for selling its apparel, footwear, accessories and other types of merchandises on a mass scale. The same helps the company gain on economies of scale and scope in the region. Further, apart from the development of mass scale franchisee outlets, Nike also focuses on gaining increased market penetration through selling its merchandises through the incorporation of multi brand outlets or MBOs and also based on integration of the multichannel framework. The franchisee outlets of Nike operate as exclusive stores of the sports retail brand in the Indian market. Nike also focuses on developing an effective brand presence based on the use of high profile advertising and also through the use of star endorsements that would help in attracting Indian youths and high profile customers to the sports brand (Fashion United , 2012).

Nike made its foray in the Indian market through generation of a seven year licensing agreement with an Indian firm, Sierra Industrial Enterprises. The global sportswear company however in the later period developed its presence in the Indian sports retail market as Nike India that operates as a wholly owned subsidiary of the parent company based in United States (BS Reporter , 2014).

Dunning’s Eclectic Paradigm

Nike Inc. in terms of incorporating the market entry strategy of Wholly Owned Subsidiary for setting up wholly owned subsidiaries of its parent company in India gains on specific advantages that are outlined as follows. The formation of wholly owned subsidiaries in the Indian market contributed in helping Nike gain on long-term profitability potential. Further, the setting up of wholly owned subsidiary units also helped Nike in development and sustenance of effective contacts with local and regional players like customers, suppliers groups, intermediary firms and other government and other non-government institutions. Further, setting up of wholly owned subsidiary units in India is taken to help Nike to gain on needed competitive advantages. The above features significantly contribute in enhancing the performance potentials of the sports retail company in the global market (Ghahroudi, 2011).

The use of the wholly owned subsidiary strategy by Nike for developing an effective presence in the Indian market is evaluated to generate considerable problems. The same are identified as follows. The application of the wholly owned subsidiary strategy would require Nike for generation of increased commitments based on the incorporation of potential resources and capabilities for conducting its production, distribution and marketing related functions. Further, the formation of wholly owned subsidiary units would require Nike to expend greater time, energy and cost such that it would affect the productivity and efficiency level of the business corporation in the shorter and current period. Similarly, the formation of wholly owned subsidiaries by Nike in India would require the former for involving considerable amount of local investments and resources. The same would generate increased risks for Nike’s operation in the Indian market. It also creates and enhances the level of uncertainty for Nike regarding its operation in the Indian market. Again, the dependence of Nike on the development of wholly owned subsidiaries would also require the company to effectively manage and counter social and cultural dealings for helping in the reduction and minimisation of problems emerging on a large scale (Lee & Huang, 2009).

Nike’s contribution to the Indian economy and society can be increasingly observed in terms of its production of new type of jerseys for promoting the Indian cricket team in the global arena. Nike operated as the official sponsor for India in the one-day international series against Australia. The sports retail company contributes in meeting the sustainability objectives based on the use of recycling plastic bottles for generation of sportswear and apparels out of the recycled polyesters. Moreover, the sustainability efforts are also met by Nike based on reducing its supply chain wastage by around 17 percent, use of environmentally safe materials for production of apparel products by around 20 percent and also in achieving a reduction in the emission of volatile organic compounds by around 95 percent. Further, Nike also focuses on expanding its base to semi-urban markets in India by opening large number of stores in towns and cities. The same helps Nike in meeting the needs of middle income households in the Indian market (Puri, 2010). Nike focuses on generating large scale employment opportunities for Indians in that it encourages the growth of creativity and innovation in its work atmosphere based along different offices located in India. The company generates increased opportunities for growth potential of the skills of Indians employed in its different offices and retail outlets (Nike Inc. , 2016).

Application of Dunning’s Eclectic Paradigm

Nike Inc. operating in India needs to effectively focus on reducing problems associated with child exploitation and labour problems in terms of addressing Principles 3 to 6 pertaining to the labour dimension. The principles require Nike to eliminate all forms of compulsory and child labour practices and also in addressing the problems associated with discrimination at the workplace and also development of employment and compensation conditions (United Nations , 2016). Nike focused on addressing the issues associated with sweatshops and child labour based on conducting of effective monitoring of its sweatshops and supplier and manufacturing facilities located along different Asian economies. The company management also focuses on enhancing the level of transparency through the generation of CSR and sustainability reports such that the same contributes in effectively meeting the information needs of its different stakeholders like governments, investors and the larger societies including the consumers. Similarly, the enhancement of the transparency level of its CSR and sustainability reports also contributed in effectively addressing the problems associated with low wages paid to employees operating in sweatshops and in other Asian factories (Nisen, 2013).

Conclusions

Nike Inc. to gain an effective presence in the Indian market needs to effectively market its merchandises through the employment of the multichannel marketing platform such that the same helps the consumers in making effective choices of ordering products via the digital platform and thereby collect the same from their brick-and-mortar outlets or from the courier companies.

References

BS Reporter , 2014. Nike to open fully-owned stores in India. [Online] Available at: https://www.business-standard.com/article/companies/nike-to-open-fully-owned-stores-in-india-114090101497_1.html [Accessed 14 October 2016].

Chowdhury, A.K., 2015. The Theory of Multinational Enterprises: Revisiting Eclectic Paradigm and Uppsala Model. Business and Management Horizons, 3(1), pp.72-79.

Denisia, V., 2010. Foreign Direct Investment Theories: An Overview of the Main FDI Theories. European Journal of Interdisciplinary Studies , 2(2), pp.104-10.

Dunning, J.N., 1995. Reappraising the Eclectic Paradigm: In An Age of Alliance Capitalism. Palgrave Macmillan Journals, pp.461-91.

Fair Labor Association, 2012. Ensuring Proper Benefits for Workers in India. [Online] Available at: https://www.fairlabor.org/impact/case-studies/study/ensuring-proper-benefits-workers-india [Accessed 14 October 2016].

Fashion United , 2012. Nike’s Indian expansion strategy. [Online] Available at: https://www.fashionunited.com/executive/report/nikes-indian-expansion-strategy-20122908489926 [Accessed 14 October 2016].

Garg, G., 2013. An Economic Analysis of Foreign Direct Investment in Retail Sector in India. International Journal of Scientific and Research Publications, 3(12), pp.1-10.

Ghahroudi, M.R., 2011. Ownership Advantages and Firm Factors Influencing Performance of Foreign Affiliates in Japan. International Journal of Business and Management , 6(11), pp.119-37.

Kazi, T.B., 2011. Superbrands, Globalization, and Neoliberalism: Exploring Causes and Consequences of the Nike Superbrand. Inquiries , 3(12), pp.1-2.

Lee, Y.-H. & Huang, Y.-H., 2009. Entry mode Choices between Wholly-Owned and Joint Ventures of Taiwanese Firms in China–An Eclectic Theory Perspective. The Journal of International Management Studies, 4(1), pp.77-84.

Nike , 2015. Form 10-K. Oregeon : Nike.

Nike Inc. , 2016. Go Corporate at Nike. [Online] Available at: https://jobs.nike.com/article/Corporate [Accessed 14 October 2016].

Nisen, M., 2013. How Nike Solved Its Sweatshop Problem. [Online] Available at: https://www.businessinsider.in/How-Nike-Solved-Its-Sweatshop-Problem/articleshow/21122639.cms [Accessed 14 October 2016].

Puri, T., 2010. Our focus is on top Indian cities: Tarun Puri, MD, Nike India. [Online] Available at: https://economictimes.indiatimes.com/opinion/interviews/our-focus-is-on-top-indian-cities-tarun-puri-md-nike-india/articleshow/6654681.cms [Accessed 14 October 2016].

Rioux, M., 2014. Multinational Corporations in Transnational Networks: Theoretical and Regulatory Challenges in Historical Perspective. Open Journal of Political Science, 4, pp.109-17.

Sarkar, J., 2016. Nike shuts 35% stores in India to cut losses. [Online] Available at: https://economictimes.indiatimes.com/articleshow/54421174.cms [Accessed 14 October 2016].

Shah, F.A., Yusaff, R.M. & Hussain, A., 2012. A Critical Review of Multinational Companies, Their Structures and Strategies and Their Link with International Human Resources Management. IOSR Journal of Business and Management , 3(5), pp.28-37.

United Nations , 2016. The Ten Principles of the UN Global Compact. [Online] Available at: https://www.unglobalcompact.org/what-is-gc/mission/principles [Accessed 14 October 2016].