Multinational companies are business entities that operate in more than one country. The typical multinational company normally function with a headquarters that in based in one country, while other facilities are based in locations in other countries. Multinational company is also referred to as a multinational enterprise (MNE) or a transnational corporation (TNC)
There are 3 type of model for a multinational company. One of the models is the common model for multinational company is the positioning of the executive headquarters in on nation, while production facilities are located in one or more other countries. This model usually helps the company to take advantage of benefit of incorporating in a given locality, while also being able to produce goods and services in areas where the cost of production is lower.
Another structural model for a multinational company is to base the parent company in one nation and operate subsidiaries in other counties around the world. This model is just about all the functions of the parent are based in the country of origin. The subsidiaries more or less function independently, outside of a few bases related to the parent.
A third approach to the setup of a multinational company involves the establishment of a headquarters in one country that oversees a diverse group that stretches too many different countries and industries. In the model, multinational company includes affiliates, subsidiaries and possibly even some facilities that report directly to the headquarters
Globalization
Globalization is the system of interaction and integration among the people, companies, governments and countries of the world in order to develop the global economy. This process has effects on human well-being, on the environment, on culture, and on economic development and prosperity of societies across the world. Globalization is involved of positive and negative.
Positive impact of globalization
Globalization is very important in the world economy right now. People relied more on the market economy, had more confident in private capital and resources, so that, multinational company started playing a vital role in the development of developing countries. The globalization has been affected the developing economies to a certain extent. It makes varied opportunities for the developing countries. It also makes the multinational company easy to access to the developed market. The technology transfer promised better productivity and thus improved standard of living.
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Negative impact of globalization
Globalization has also created many problems such as inequality across and within different nations; the financial market will be affected in the environment situation. Another negative impact of globalization was that a majority of third world countries lost of track. Until the 20 century, the process of globalization in the Indian economy had been protected by trade, investment and financial barriers. Due to this, the liberalization process took time to speed up. The step of globalization did not start that smoothly.
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Introduction of Nike as an MNC
Nike Inc is an incorporated company that designs, develops and markets worldwide athletic footwear, apparel, equipment and accessories. Nike employs both traditional and non-traditional distribution channels in almost 200 countries with primary market regions in the United States, Europe, Asia Pacific, and the Americas.
Nike has some 20,000 retailers worldwide including Nike factory stores, Nike stores, Nike Towns, Cole Haan stores, and websites which sell Nike’s sports and leisure product. Nike is the company which has 33% of the global market share in the athletic footwear industry.
PEST Analysis in host country
Nike is and multinational company, its focus on macro environmental factors. Macro environmental factors consist to Political, Economics, Society, and Technology.
Political
The government must create economic policies that will foster the growth of businesses. Nike has been helped by the US policies which enable it to advance its product. US government support Nike, particularly in the general macroeconomic stability, low interest rates, stable currency conditions and the international competitiveness of the tax system, form the foundation critical to Nike’s growth.
Economic
In economy, the biggest threat for Nike would be economic recession. Nike’s growth adversely affected during the economic recession. The US economy is experiencing a downturn right now. The sales of products are decrease. Because of the recession, Nike’s feeling pressure. The Asian economic crisis also affects Nike since the products are manufactured in Asia and the labor costs and material prices are increasing
Nike’s growth is not just affected by the local economy but also in the international economy. Euro and Asia recession affected the sales for Nike. The overall results in the sales generated by Nike in athletic footwear. However, it’s still remained stable due to the global market makes up for the variances in sales, especially between peek seasons.
Society
Nowadays, people are more health conscious. The people are getting more on diet and health due to more and more people joining fitness clubs. Because of that, the demand for accompanying fitness products, especially exercise apparel, shoe and equipment is increase. Demands of Nike product increase due to people are looking for sport shoes, apparel and equipment.
Nike failed to foresee problems brought about by a sweatshop expose about the labor and factory conditions at production location in Asia. This caused bad publicity and declining sales as society and consumers demand more socially responsible companies.
Technology
Nike uses IT in its marketing information systems very effectively. Nike applies marketing information system to the economics of innovation, segmentation and differentiation for most of the business. Nike is the leader of the market due to use of the extremely valuable information technology, and applying it to every aspect of the product from development to distribution.
Nike is the world leader in the athletic footwear industry which able to effectively uses its environment to improve its marketing efforts. This strategy has helps Nike make a good sales in the product.
PEST Analysis in home country
Political
Nike has been accused of using child labor to manufacture their products in Pakistan. Although Pakistan has laws against child labor and slavery, but the government has taken very little action through this problem. An another view, Nike actually help the local citizen, due to providing job toward children, their parents have less burden as compare to before. According to Stephen Chapman, the best way the end the child labor is buy more the product which produce by the children. That will rise above the poverty level and also benefit the families of the children and the nation due to the increase of the demand of the product and they can produce more and earn more.
Economic
In Pakistan, citizen average income is $5 per day as Pakistan culture, normally they have burden of ten children in one family, in this low income situation, Pakistan citizen actually struggle for life. Due to this situation, Nike assists Pakistan economy due to the export from Pakistan brought income of almost 385million USD. This may help Pakistan reduce the rate of the inflation.
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Society
Nike is worldwide; it has contracts with 700 factories that employ 550,000 workers in 50 countries. Nike sells different type of product for the different countries due to different countries have a different lifestyle. Nike also produces some limited product for people who like to follow the trend as their collection. And some of them will sell it with higher price due to the product is limited.
Technology
Nowadays, technology is keeping improve. Nike spends a large amount on R&D to attain innovation and will earn more revenues due to the innovative product will attract more and new consumers. E-commerce with flash is one part of the new technology which Nike using. In e-commerce with flash, consumer can understand the detail and the structure of the product more clearly and how the products look like.
Potential impact of Globalization
New development
Nike develops the new innovation in footwear, apparel, and equipment. Nowadays, people are concern in personal safety. A design of shoe will affected the balancing of people, Nike focusing on this case to develop their new product especially for sport person. Sport person normally will concern on the footwear, apparel and equipment whether are suitable for them and help them perform well when they exercise. Many people will spent more money to buy a footwear due to they want the footwear is suitable for them and not easy to get injury. For athletic person, they want to get footwear which is very soft and as light as possible to perform well during the workout. Another new development for Nike is the footwear with timer and calculates distance. The product can be estimate the time and distance when they running. This function can let them set a target and achieve it.
Nike is running the design competition called “Future Sole”. This competition is only for high school and college student. Nike gives the opportunity for them to pursue their passion and get their own design. As the result of the competition has shows, Nike will make it as a real product of the company and can be finding in Nike store all around the world. Because of this, Nike can come out more design in the market due to passion of the candidate.
Nike’s product are planned to give consumer perform well in exercise. In every part of the manufacturing process is designed to achieve the goal of providing the world’s best athletic gear. When Nike Air was introduced, it affected the sport world for its versatility. Based on the function of impact protection, it can be shaped and tuned to meet the specific demand of the sport person (Nike, 2007,6). Nike concern the sport person needs and change were implemented to make their footwear even better.
Brand Awareness
Nike is the world’s leading sport footwear company. Nike’s products are all around the world. In the future, when consumer wants to buy a footwear Nike is the first choice come their mind. Consumer always remember Nike slogan “Just do it”, this means that Nike’s have a very strong brand loyalty.
Innovation
Although Nike is one of the largest sports and fitness companies in the world, but Nike still has to challenge its competitor with new product ideas. In the planning process, Nike needs to evaluate the consumer demands. For example, Nike decided to collaborate with Apple combines the sport and music together. According to Nike’s CEO, Mark Parker, The Nike and iPod Sport Kit is a wireless system that connects to the iPod nano to give people a personal running and workout experience (Apple, 2007, p. 1). Nike is planning to make many products with iPod such as jacket, tops, shorts and armbands. Nike’s CEO and Apple’s CEO will continue to work together to maximize the Nike and iPod experience. This partnership will help Nike to remain as the leading sports company.
Ethics
Companies that specialize in business ethics training and corporate social responsibility instill workplace ethics among staff by creating a business ethics policy (Fieser, 2006). The child labor cases are affected Nike’s so much. Because of this, Nike had to plan and organize a world-wide public relation campaign to redeem their name and reputation related to the ethical problem. Without the proper management leading and planning, Nike will suffer from the problem of child labor. Nike has made a right decision from the negative media attention. And will continue to be successful, due to its strong business ethic and philosophy.
Change in lifestyle
Nike is creating different product with different lifestyle. Traditionally, most people are using Nike with sports shoes. But it appears that, the new lifestyle is needed in the new generation. There is a rising trend of our teens participating in multiple sports. Consumer will purchases different sport shoe for different sport activity. Nike knows some consumer can’t afford for that. So that, the plan to design a multi-purpose shoe that the consumer can wear for various functions. But the performance of the shoes now as good as the specific sport shoes. The developments of new shoes have the potential to change the lifestyle.
Natural disaster
In china, there are having snow disaster, this disaster lead to the problem that the world now facing the shortage of cotton in global market. In the future, there might be more disaster will be happen will lead to another problem of shortage of another raw material, when this happen this price of raw material will increase in the market and break the budgeting of Nike company and lead to another problem to Nike financial because of the high raw material price.
Strategy to Overcome Potential Impacts
Go Green
Nowadays, People are supporting the environmental friendly product due to the global warming is getting serious. Nike also starts to design shoe which using little quantities of detrimental adhesives and more of recycle material to produce the product. Nike is practicing to produce recycling shoes, phasing out the sulfur hexafluoride and manufacturing sport accessories by using the waste. For example, Nike has been operating Re-use program to collect the old shoe and produce it as a new recycle shoe.
Nike purchase so many corrugated cardboard due to almost 50% of the Nike’s packing such as shoebox and the shipping carton. Nike applied innovative design and use other different material to produce the shoebox and shipping carton for reduce the waste and the cost. Nike will try to produce the box which saving 30% of the material and aid in saving 200,000 trees annually. Nike also controls the lighting management in their retail stores for saving the energy.
Collaboration
Nike manufactures sportswear for so many years. However, the company has sought for new opportunities in fashion market. In my suggestion, Nike collaborates with G.A.P Company. G.A.P has very good reputation in producing clothes, with wider range of varieties. It is possible to come up with a new clothing line for sports with GAP in order to boost up sales worldwide, which would indirectly increase brand awareness as well as recognition by the public as the prior reason for such collaboration is the consumers. Gatorade specializes in energy drink and provides the technology that Nike can venture and produce their own brand of energy drink. In addition, collaboration can also be done with energy drink Gatorade. Nike and Gatorade are in the same sector of sport field, to satisfy the sport man needs and desire. Nike can now produce an energy drink to fulfill and boost the current market demand and satisfy customer taste.
Change of Management styles
The changing of the management styles of Nike towards the manufacture in third world country. Nike can try to train some manager to send to the manufacturer factory in third world countries to guide the management style of the countries. Those managers can control the management style of the factory. For example, the wages pay, raw material usage, the working condition and the working environment.
The managers will control the wages paid which must be higher than the salary which only able to provide 3 meals in a day, but the salary which able to give extra for the labor to do saving and enjoy their life. For the working condition, the manufacturer factory should be having a comfortable and safe working condition to the labor which is good ventilation and the safety environment due to the control of efficient and effective of the machinery. A good working environment is needed for the labor which is the location of the manufacturer factory is safety and surrounding with not consist any uncertain elements like radioactive of the nuclear power from the factory surrounding Nike Factory, the spread of virus, disrupting environment like forest and highland.
Research for new technology
In year 2010, Nike had done a research and development in raw material to produce jersey. The research they done actually is use the recycled plastic bottle to produce jersey. So to overcome the problem of the price of raw material and the shortage of raw material in the market, Nike can try to do more effort in research and development department to find out more new material which is existing in the market no matter is renewable or unrenewable raw material. The new material need to be environmental friendly, this actually will help the growth of awareness of the global towards Nike product because due to the high education level of public, there are more and more public who care about the pollution of earth. So when they are new product which would not product pollution and having a high quality and better durability. This actually will attract the attention from the public to do purchasing on that product.
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