Current Issues in International Business
Introduction
The International Business that has been chosen for this report is Nike, Inc, which was formerly called Blue Ribbon Sports. Nike is a multinational American association that is occupied in the design, manufacturing, development, and international sales and marketing of footwear, apparel, accessories, services, and tools. The company’s world headquarters are located in the area of Portland metropolitan (USA) near Beaverton, Oregon. It is the main creator of sports equipment, is said to be the leading suppliers of athletic apparel, and shoes around the world. The company recruits more than 44,000 individuals internationally, and in the year 2014, the brand solely was esteemed as $19 billion, creating it the most costly brand among the businesses of sports. On January 25, 1964, Phil Knight and Bill Bowerman, founded the company as Blue Ribbon Sports; hence, on May 30, 1971, the company officially became Nike. Inc. The brand name of the company was after the Greek divinity of victory, Nike.
Hence, along with its own brand, the market of Nike and its products under Nike+, Pro, Blazers, Air Max, Jordan, and other as well as subsidiaries that includes Converse, Jordan, and Hurley Int. However, the overall report will discuss the impact of COVID-19 on the international business of Nike Inc, wherein the impact has been analyzed through Porter’s five forces. Further, the report will provide some recommendations that may resolve the issue faced by the company.
Impact of COVID-19 on the International Business of Nike Inc
The COVID-19 pandemic has made an impact on the market of global Sports Accessories. Because of this pandemic, several companies in the sports accessories market are compelled to halt their production and manufacturing operations. The market of this business operation is paused as new rules of the government have been announced in the market. In business operations, this break in proceedings is openly influencing the income flow of the Sports Accessories market. The research report of Global Sports Accessories Market delivers and detailed analysis of the economy and industry-wide record for business management that may deliver productivity and development for players in this market. Thus, it can be said that COVID-19 pandemic has affected every factor of life worldwide. The international sports accessories report market is involved with key players of the market that are profiled based on the strategies of the business, economic strengths and weaknesses, and current development. The sports accessories market report provides an exceptional consideration of cooperation, partnership, acquirement, and launch of the new product of the key players.
However, the COVID-19 crisis is providing to be a failure for retailers around the globe. As per the research, it has been found that Nike had a fourth quarterly loss as the retailers had to close the stores due to the spurred of lockdowns by the COVID-19 pandemic, sending shares of the largest footwear company around the world losses 3.3% extensive trading (Staff, 2020). In the recent quarter, all those aspects were not sufficient to balance the impact of Covid-19. That was when the effects of the virus were still hindering much of Europe, and once it began its spread around the US, Nike’s biggest market. Hence, 90% of physical stores were closed for two months in Europe, North American, much of Asia excluding China, and other areas during the quarter.
Fig 1- Sales growth of Nike Inc., for its full financial year
Sources- (Bain, 2020)
Through the financial year with the first half that ended May 31, the business had been buzzing. AS per the company, sales were 9% up, but when the pandemic strike in the second half of the financial year, the impact was too immense for even Nike to bear up. Hence, for the complete year, sales of the company fell by 4% versus the similar period last year because of the COVID-19 impact on the functioning of the business, particularly in the fourth quarter (Bain, 2020). The number of retail collaborates of Nike includes Foot lockers and along with other subsidiaries. Like other giant retailers of world’s sports accessories like Nike, other companies had also experienced a headwind from buyers in hard-hit nations cutting spending on items of non-essential.
Moreover, it can be said that the Covid-19 had a caused a huge impact on Nike, which affects the company’s sales wherein the report the quarterly financial report shows $790 million loss and income $1 billion below first forecasts of Wall Street. Thus, the wholesale business of Nike was immensely hit by the Covid-19 as almost all the countries were following the government rules of lockdown wherein the import and export were also stopped. Hence, the shares of footwear makers fell around 4%, and the wholesale business in which Nike sells products to other retailers ended down within the health crisis. These factors had led to a fall of 50% shipments, higher cost, and increased inventory due to the cancellations of order. Consequently, in the fourth quarter, the gross margin fell based on the points of 820, when owned stores of the company and other retailers were shut for almost eight weeks.
Additionally, it can be said that the sales fall of Nike is due to the halt of import and export. The covid-19 lockdown has compelled the nations to stop the international route for the business purpose as well as migration. This has caused a huge impact on Nike’s wholesale business, as the brand is vastly expanded in different countries such as Europe, Asia, and other parts. In this respect, many of the orders got canceled, which eventually leads to a loss in sales in the first half of its new financial year and to have to carry on discounting products to move through its inventory backlog, a problem much of the footwear and clothing industry is experiencing. However, there is still a big deal of improbability concerning when the Covid-18 will settle, too, making the recovery timeline of retails far from assured (Renaldi, 2020).
Porters Five forces of Nike
Powers of Customers
In the industry of Nike, the consumer’s powers to purchase products are in a moderate state. Therefore, for Nike’s consumers, footwear and apparel are essential items that are high on demand. In most cases, Nike’s consumers are price-sensitive because and intend to purchase products that are cheaper in price. Additionally, people have become more knowledgeable regarding the quality of the products. Therefore, Nike’s consumers will prefer to purchase higher quality products and affordable in price. The power of consumers was moderate before the outbreak of COVID 19 in the world. However, at present, the consumer’s purchasing powers have become low because of the effect of COVID 19. The decline in the economy of the countries worldwide has also hampered the purchasing power of the consumers, as there was also a massive decline in the income level of every working in the world (eyorekon-kevin.medium.com, 2020).
Power of Suppliers
In Nike’s industry, the main suppliers are the manufacturers as it provides items such as sportswear and sports shoes, and many more. In order to reduce the cost of materials and labor, the industry of Nike has been cooperating with the producers of developing countries. It is because Nike has been entered into outsourcing contracts with suppliers such as China, Mexico, and India. Therefore, the bargaining of the suppliers with the companies is not much required, as there are numerous suppliers for substitute items all over the world. Therefore, it can be said that the suppliers’ power in the industry is moderately low. However, as per the fact that the impact of COVID 19 on the industry has been in a negative way, the rate of suppliers has decreased to the fullest. Hence, the suppliers’ bargaining power has disappeared as the suppliers are not fully available at present.
Threats of New Entrants
In general, the threats for the new firms to enter the market are very low in the case of Nike’s industry. However, the survival of the new entrance is difficult. It is because the initial threat is price competition. The large industry will try to attract the customers by providing a certain rate of discounts on the products, which is not possible for some of the small-scale industries. Secondly, the threat will be regarding brand images. The new firms will not be able to spread the brand image in the market as much as Nike will. Therefore, even if there are entrances of new firms, it will not exceed the Nike industry because the consumers will not be familiar with the new brand and hence will mostly prefer Nike. However, the outbreak of coronavirus has stopped any of the new companies from entering the market anytime sooner. Therefore, it can be said that there are no threats to the new entrance in the market as of now (eyorekon-kevin.medium.com, 2020).
Threat of Substitute Products
In the case of Nike, the dangers of any substitute products are considerably low as well as moderate. It is because a huge number of competing brands such as Adidas and Under Armour manufactures items, which are the same and matching. Therefore, in the international market, many brands exist to manufacture products with low price trainers than Nike’s industry. These brands provide lower-cost substitute products for Nike. As compared to all the brands, the quality and structure of Nike’s products overcome this threat. However, at present, the pandemic situation because of the COVID 19 has led the firm to face various losses and difficulties. Hence, the threat of substitute products is higher, as the consumers are seeking products that are cheaper in price. It can also be said that at present, the consumers prefer more of the substitute goods, as it comes at a lower price. It has occurred mostly because of the decline in the income level of most people worldwide due to COVID 19.
Competitive Rivalry
As per the fact that Nike falls under the category of the sports industry, the industry has a strong level of competition in the market. There are numerous competitors of Nike, namely, Puma, Under Armour, and Adidas. The industry of sports has enhanced in a saturated form, and the recent players are participating in tough competition for deeper market penetration and attainment of the share market from one another. Therefore, in general, the industry of Nike is surrounded by numerous world-famous companies, which made the firm difficult to compete at certain points. However, because of the impact of coronavirus, there has been a loss in all the companies, and hence it has become more difficult for Nike to cover up the loss within the competitive market (eyorekon-kevin.medium.com, 2020).
Figure 2: Porter’s Five Forces of Nike
Source: (panmore.com, 2020)
Recommendations
After the company is highly affected by the COVID 19 outbreak, the firm can use some of the measurable steps to overcome the losses. In order to gain its position and to be back into normal, it will take a couple of months but Nike Inc., can make it happen if the company focuses on a number of strategies and they are:
Discount on Products –It has been analyzed that sales have decreased to a higher rate in Nike’s industry. Therefore, to attract more consumers and earn more profit, the company can provide a certain rate of discount on the prices of different products to the consumer. It would be one of the most useful steps that the company could use to cope up with the pandemic. Discount provided to the consumers will enable those consumers to purchase more of the products in this situation because people are seeking more of the lower price of products in good quality. Therefore, in this way, the company will be able to attract consumers as well as make more money at the same time.
Decide to Change– The previous business strategies will not be suitable and appropriate for the company to overcome the coronavirus’s losses and damages. Therefore, it is necessary for the firm to change for the better and adopt some new strategies to help the firm run its business in an effective and efficient way (Inc.com, 2020).
Focuses More on Online Sales- As more people worldwide prefer to do online shopping rather than buying products from several brands and companies that they cannot find or are not accessible for purchase in their home countries. However, due to the situation of Covid-19, most of the customers are not able to visit to the physical stores and are not able to come out of their home; thus, it has been found that people are still doing online shopping. Therefore, the company must give more emphasis to the online business rather than the physical stores. Consequently, it can be said that online sales will help to fulfill the loss amount that the company had faced during the pandemic situation as it is one of the fast to market time and meet customers where they want to buy. Hence, in the pandemic situation, the government announced new rules like maintaining social distancing, avoiding gatherings, and so on, therefore focusing on online sales through different marketing strategies will eventually help the company recover the loss.
Conclusion
In conclusion, it can be said that the industry of Nike has been impacted by the outbreak of COVID 19, largely. The company has faced heavy losses as the sales of the industry have declined by a higher rate, which has led the company to face much shortage of cash as well. Generally, all the companies from different sectors have faced immense losses in their business, making it difficult for these companies to cope with the pandemic situation. Therefore, the overall assignment has highlighted Nike’s industry’s present situation and the impact of coronavirus in the same company. Hence, as per the analysis of Porter’s Five Forces of Nike, it has been concluded that the company has been immensely affected by the pandemic from every aspect of the business. There has been an effect of COVID 19 in the company’s consumer behavior regarding its purchasing power, affecting the suppliers, which has made it more difficult for the company to run its business in the emerging market. The assignment has also included measurable recommendations, which can be used by the company to overcome the losses.
References
Bain, M., 2020. Even A Retail Powerhouse Like Nike Was No Match For Covid-19. [online] Quartz. Available at: <https://qz.com/1874014/sales-at-normally-resilient-nike-plunged-due-to-covid-19/> [Accessed 17 November 2020].
eyorekon-kevin.medium.com, 2020. Nike, Inc. Porter’S Five Forces Analysis. [online] Medium. Available at: <https://eyorekon-kevin.medium.com/nike-inc-porters-five-forces-analysis-a2031a7ed9c2> [Accessed 17 November 2020].
Inc.com, 2020. 10 Steps To Recovering After A Business Failure. [online] Inc.com. Available at: <https://www.inc.com/john-rampton/multi-millionaire-to-broke-10-steps-to-recover-from-failure-and-achieve-greater-.html> [Accessed 17 November 2020].
panmore.com, 2020. Nike Inc. Five Forces Analysis (Porter’S Model) – Panmore Institute. [online] Panmore Institute. Available at: <http://panmore.com/nike-inc-five-forces-analysis-porters-model> [Accessed 17 November 2020].
Renaldi, M., 2020. The COVID-19 Pandemic Accelerates Nike’S Ecommerce Focus. [online] News.vaimo.com. Available at: <https://news.vaimo.com/covid-accelerates-nike-ecommerce-focus> [Accessed 17 November 2020].
Staff, R., 2020. Nike Swings To Quarterly Loss Due To COVID-19 Impact. [online] U.S. Available at: <https://www.reuters.com/article/nike-results-idUSL4N2E236S> [Accessed 17 November 2020].