Research paper on International Financial Strategy: Nike Inc.

Nike Inc. is a multinational company that has contracts with more than 750 shops in 56 countries of the world (Nike Inc, 2012). Today, the American company Nike is the leader of the world market, as well as the national market of sports goods, clothing and footwear. However, in the conditions of rapid changes and rising complexity of the international market and severe competition in the segment, Nike Inc. should conduct serious analysis on forming its strategies on gaining and retaining its share. The purpose of this paper is to analyze the main challenges Nike faces in the global market and point out possible effective international investment decisions by the company.

Factors of macro-environment affecting the activity of Nike in any country, the market of which the company is going to conquer, include economic, technological, political, legal, socio-demographic, cultural, natural, and ecological aspects (Balasundram & Leavell, 2003; Crum & Venkataraman, 2009).

Socio-demographic and cultural environment is surely of particular interest for the enterprise. Within the short and medium-term periods, Nike should take into consideration different demographic trends (population dynamics, fertility and mortality, gender and age composition, population density, migration levels), as well as the level of culture and education, propensity of consumers to the traditions and cultural values, their attitude to nature and society, which are also considered to be significant determinants of business conduct in the region (Crum & Venkataraman, 2009). For instance, the tendencies of decreasing population and significant excess of deaths over the number of births annually observed in many European countries and especially in large East-European markets result in a more fierce competition between manufacturers and may lead to the decline in demand for company’s products, and therefore, to the reduction of its financial results.

The main factors of economic environment affecting the activity of Nike in the global market are the level of income, inflation dynamics, expectation of rising prices, and unemployment levels (Crum & Venkataraman, 2009). Currently, high inflation rates in many countries as the result of global economic crisis (especially third-world countries) exceeding the rates of population income growth may lead to the decrease in purchasing power, and hence, to the reduction of demand for sporting goods. On the other hand, inflation entails the rise in price of raw materials for production, which causes primecost and distribution prices increase. This can also cause a drop in demand for the products of Nike. All these trends have a general negative impact on the development of the market and are considered to be the risks of highest level in investing at foreign markets.

Observing challenges in scientific and technological environment in order to remain competitive and maintain its position in the market, the management of the company should closely monitor the changes and innovations in this area, work with scientific and technical experts, carry out scientific research and development introducing new technologies into production and improving its products. By now, Nike keeps the finger on the pulse of technologies, cooperating with Apple and Microsoft expert to produce innovative products like NIKE+ Kinect Training and Nike+ FuelBand (Nike Inc., 2012), but the truth is that the technological development should never stop, otherwise it’s easy to be outstarted by competitors.

The activities of the company in foreign markets are directly influenced by political and legal factors such as public policy, tax rates, labor law, international law and other regulations (Balasundram & Leavell, 2003). Current political instability in Europe may be a serious obstacle for the success in this market, while low tax rates for international capital in China production zones may become one of the growth factors for Nike. It should also be mentioned that natural and ecological environment like the rise in energy prices or environmental pollution can also affect the production and sale of sports goods (Balasundram & Leavell, 2003).

All of the above factors are uncontrollable, the company can only adapt to their changes, as opposed to microenvironment factors (customers, competitors, suppliers, dealers, contact audiences) which are influenced by the company and are recognized as regulated (Hollis, 2010).

The target audience of sports goods is quite extensive in the global scale. And it is not surprising, because each person on earth needs the sports shoes. For instance, among the buyers of athletic footwear, most prefer the footwear for professional sport, but there are also a large percentage of buyers preferring running shoes for the active lifestyle, as well as for recreation. Among the factors influencing the end user’s choice of sports shoes it is necessary to outline the design, quality, price, manufacturer’s brand. But depending on the national median income, and social stratification, in some countries the company will focus on low cost items, in others – on the high end ones, etc. (Nadvi, 2008). Still combination of quality, design and cost of sportswear are the main factors determining the decision of the buyer in any country (Hollis, 2010). And in most cases, regardless of income level, each consumer does not prefer cheap goods, but looks for the best combination of price and quality. The price in this case is not the leading criterion, but a financial constraint.

Nike’s major competitors of are Adidas and Puma. The companies lead an active fight for the leadership in each region, and depending on the situation in the local markets one can yield to another. For example, in 2006, Adidas completed the acquisition of one of its competitors – the Reebok Company, – to increase its share in the U.S. After all, U.S. is considered one of the largest markets for sportswear and spots shoes. Although at the present time the company is the global leader in sports goods, it should closely monitor the activities of major competitors, not yielding to them either in products’ quality, or in the price. The company should improve and develop in every possible way, thus maintaining its market position.

At the same time, the company focused seriously on its spending, reducing largely once truly huge advertising budget, and decided to sell off its unprofitable brands Cole Haan and Umbro, and giving preference to digital marketing and investments in innovations. Such decisive action has already born fruit: the revenue and stock price began to rise again.

Today Nike aggressively advances into new markets, especially overseas. The company’s sales outside the U.S. make approximately 38% of total sales (Nike Inc., 2012). However, in order to lead in a global scale as well as in the U.S., Nike needs to gain market leadership for football equipment, as football is the most popular sport in the world.

Naturally, to win the fight for the world market, Nike needs something more than large investments. To remain a leader, Nike will have to show the world the same outstanding quality, the same technological innovations, and the same customer value by which the brand gained popularity in the U.S. Nike will need to re-create its image in every country where its products appear for the first time, and become part of the cultural environment of each new market. After parting with the image of an ambitious and daring newcomer, and having turned into a giant manufacturer, Nike must constantly monitor its relationship with the consumer.