What are some advantages and disadvantages that come to Nike as a company because of international business.
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The major advantage that comes to Nike from international business is lower costs. Nike produces its shoes in countries where labor is cheap, thus cutting down on its costs. If we expand the definition of international business, we see that Nike also gets more brand recognition by sponsoring teams and athletes who are famous in other countries than the US.
The main disadvantage that can face Nike is the possibility of bad publicity. If Nike plants in other countries are found to have working conditions that seem abusive to Westerners, the company can get a lot of bad press, thus degrading its image in the eyes of its customers. Another danger that Nike faces is from political and social instability in countries where it manufactures. A change in government in such countries can lead to radically different policies that can seriously damage Nike's ability to operate profitably.
Having begun its expansion into international markets in 1980 and 1981, Nike lays out the advantages disadvantages of its international business in its annual financial report. The Corporate Responsibility (CR) Report for fiscal year (FY) 2013 (FY2013, FY13), the latest available one, is made public online as are initial reports of the first fiscal quarter for 2015.
Some of the advantages to Nike as a company because of international business are that they can:
- promote environmental sustainability by "decoupling" growth from "constrained resources."
- ensure ethical sustainability by monitoring and regulating international labor forces.
- increase revenue profits by increasing global market share.
- initiate cost reduction by being globally selective about resource supply chains and delivery.
- generate market share increase.
- develop job creation.
- create consumer value to the athlete in everyone.
- cultivate global potentialities for meeting challenges.
As of 2013 Nike had approximately 48,000 in a worldwide international workforce operating in approximately 950 worldwide locations. This translates to job creation, employment and employment sustainability founded on ethical sustainability with labor policy oversight and regulation.
Between FY2011 and FY2013, revenue profit increased 25.9 percent to $23.5 billion and the projection is for an increase up to $30 billion for FY2015. The 2015 first quarter update shows Nike is on target with increases in the three Nike revenue categories of 15, 15, and 16 percent (NIKE, Inc, Nike Brand and Converse). Additionally, outsourcing to countries like Bangladesh increases cost reduction, which advances increased profits from revenue.
Social discord impacts market performance, market confidence and sustainability. To illustrate, Nike's partnership with the Bangladesh manufacturer Lyric Industries was cut off in 2014 because of unsafe and abusive labor practices:
Rolls of fabric were strewn across the production floor and some windows were bolted shut ... clear-cut hazards in the event of a fire.
The increase of 10,000 international employees from 2011 to 2013 came in the shadow of previous US outcry over abusive employee and child labor practices in globally outsourced Nike manufacturing locations. The 2014 break with Lyric Industries of Bangladesh shows the continuing need for vigilance and action to underpin the philosophy of sustainability.
Global events from economic troubles to weather to political upheaval impacts whether Nike's international business can meet its projections of fails to do so. To illustrate, the global economy affects rising costs, which in turn impact inflationary pressures and margin pressures. Extreme global weather events affect supply chain and delivery. Political unrest is another factor that effects market and market confidence among other market factors.
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