Nowadays, it is hardly to pick up a newspaper and read without some articles which related to expansion of business to China. Nike was known as Blue Ribbon Sports which founded at the year of 1964. After that, a name Nike is used to replace the Blue Ribbon Sports at the year of 1978, because it represents Greek goddess of Victory. However, all of the Nike brand footwear and apparel are produced outside of United States. The main headquarter of Nike Incorporation is located at Beaverton, Oregon. The footwear and apparel are manufactured in China since it is the low-cost country source. China is preferred which due to some reasons as shown in following paragraph.
First and foremost, China has a huge market base for investing. As according to the International Monetary Fund’s research, the China’s total population had rose from 1.29 billion to 1.36 billion at the years of 2003 and 2013 respectively. Thus, it shows that this is an advantage to manufacture Nike’s footwear and apparel at China without worry no customer will purchase it. Company will not make a loss if even only target on part of the population, and target based on the demographic which includes, age, gender, family, occupation, and races. The International Journal of Business and Management has been stated, main target markets of Nike are young people around 20 to 30 years old and middle-age people which in the range of 30 to 50 years old. Furthermore, young people can be classified low and middle income social class, whereas the middle-age people which comes from middle and high income social class. In China, Nike Incorporation is able to target high percentage population of young and middle-age people meaning success rate is higher than other country. Its success rate is proved by the 2010 census which has the fact about nearly 750 million people which is equal to two-thirds of China’s population is under age of 35. Their spending are much higher compare with other segmentation.
Moreover, manufacturing in China can enjoy cost benefit as compared to United States. This is due to Nike Incorporation having a comparative advantage which related to labor cost of China is more affordable than the labor cost in United States and Asia countries and can produced more quality product with the well- developed infrastructure. Let’s think on the side of Nike, the productivity and quality are almost the same however only require to pay a lower amount of wages. In addition, this money can be used for other purpose such as advertisement or Corporate Social Responsibility which help to build positive reputation for company. Since the factory located near to target customer, thus Nike Incorporation able to deliver the footwear or apparel on time, as a result, needs of target customers are satisfied quickly which in turn of increasing the loyalty from them. However, if the situation is like that, the customers need to wait a longer period for the merchandise, they will tend to switch to other competitor such as Reebok or Adidas, it is such a huge loss to Nike Incorporation, thus it can be in termed of cost benefit. Target on existing is much cheaper than target on a new segmentation.
Furthermore, economy condition of China is superior; it undergoes the rapid growth, and now is ranked as the world’s third largest economy. It still can undergo with the Gross Domestic Product (GDP) 9 percent when there is a world financial crisis in the year of 2008. In last year, there are around 8 percent of GDP. This reduced the worry and chance of getting loss because the consumers still want to purchase shoes even in recession period. The most important point is use a suitable marketing strategy and advertisement.
Last but not least, geographical location of the factory in China is much more strategic. Reduction of lead time since lot of component can get over there without export from United States to China. Or else, can have a good bargain from the supplier. Besides that, product can be marketed more rapidly than the competitor in order to gain the market share.
ANALYSIS OF GAINS AND SHORTCOMINGS
Entering into a foreign market is like discovering new territory for business owners. Foreign countries have different laws, economies, business strategies and currency. Cultural differences can also significantly influence a company’s success. So, analyze the relevant gains and shortcomings of entering into foreign countryis essential for any entrepreneur intent to expand into foreign markets. There are several great advantages of China.First, economy condition of China is superior which has a more developed and balanced industry than many developing countries, a result of China’s much faster growth rate in manufacturing since the 1950s. In 1980, when India and China were more or less equal in Gross Domestic Product (GDP) per capita, China already enjoyed a powerful advantage in manufacturing. (Au Loong-Yu, 2007) As economy condition of China is stable and the GDP is growing, it enables the foreign company, Nike who entering into China market growing as well. China has a great economic growth rate is due to the availability of natural resources allows Nike who operate their business in China to produce their product efficiently and effectively.
Secondly, it cannot be denied that China is a huge country with a population of 1.3 billion (Jeffery, H. 2008) which greatly magnifies the advantages of effective growth and sophisticated manufacturing in China. It produces the benefit of economy of scale. The 2009 China Business Report released by the American Chamber of Commerce in Shanghai shows that U.S. enterprises view China as their major investment destination country due to its huge domestic market. (People’s Daily Online, 2010) Once again, huge domestic market in china also boasts billions of potential consumers for everything from pharmaceuticals to footwear, cars, and clothing. In short, Nike can develop huge and lucrative customer base by entering to China market since China has huge population. Furthermore, this can potentially boosts Nike’s sales and revenue, gains a larger profit margin, and allows Nike to realize economies of scale. This can prove from a research with shows that during the 2011 fiscal year, Nike Greater China’s earnings before interest and tax were USD777 million, a year-on-year increase of 22%. (ChinaRetailNews.com, 2011)
Thirdly, it is cost effective to entering into China market. Since China’s population is more than 1.3 billion and the country boasts to have larger human resources than any other countries. As a result, China’s low product and labour costs are well known. Today, when a manufacturing industry needs labour-intensive, value-added services, Chinese suppliers and logistics service providers are capable of responding. Since Chinese labour costs a fraction of US labour, it is extremely cost effective for Nike to manufacturing its products at China rather than at its origin country. As the population increases, China will have the greatest number of professionals which enable Nike to hire Chinese professionals with lower wages as compare with US professionals because the average wage rate in China is only 2.1% that of the United States. (RIETI, 2002) Decreasing overhead through manufacturing in China is a valuable resource for Nike. Cutting costs by employing workers at a reduced rate or paying less for plant operation allows Nike to invest the additional profits into other areas of the business such as advertising to build brand awareness, thereby increasing the potential for company growth. Besides, Nike is able to more efficiently produce its product and reduce costs due to manufacturing its product in China. The average hourly manufacturing compensation for China in 2004 was about 3 percent of the average hourly compensation costs of $22.87 for production workers in the United States for the same year. (Erin Lett and Judith Banister, 2006.) This enables Nike to price its brand at a competitive rate with other companies that sell a similar product.
In the Political aspect, China is not a free-market economy in which the allocation for resources is determined only by their supply and the demand for them. Adversely, China has an authoritarian communist government which is a risk associated with doing business in China. While China is a quickly emerging economy it still is a Communist nation. China employ some of the same terms and strategies as capitalist markets, political control is everywhere.A concern for many businesses is corruption of Chinese officials and lack of legal security in Chinese courts.The shortcoming for Nike to entering into China market is there are many restriction place on them and they only have very little freedom when operate their business in China. Cultural differences are another risk for Nike to entering into China market since the culture of US people with China has a huge different. In addition, most of the foreigners are not exposed to the Chinese culture, thus they do not know what are the preferences and needs of the Chinese consumers. In addition, China encompasses a wide range of cultures, climates and peoples, so Nike will encounter a wide range of development and industrial strengths. The way of doing things can be varying even within this single country. Nike may face the difficulties in satisfying the needs of their wide-range customers in every segment due to the customers in each region will have its own specific needs that will not always overlap with other parts of the country. For example, there is a huge cultural difference between China’s northern and southern regions. Northern Chinese are vigorous and unrestrained; impetuous and straightforward. In comparison with northern Chinese, the southerners are gentle and delicate; patient; reserved. (Renita Lin, 2011)
Another risk may facing by Nike to entering into China is Chinese consumers have a strong sense of national and local pride. The Chinese consumers have a very strong national pride and they like to be associated with their nationality and country. They often prefer to deal with local, Chinese-ru
n companies rather than western enterprises. Hence, the Chinese consumers are very supportive of their local products and they may refuse to buy foreign products. Hence, Nike may face difficulties in this manner and may have a hard time trying to market their products to the Chinese consumers because their products may seem too unfamiliar and foreign. For example, China people may loyal to Warrior which is a brand of athletic shoes from china, founded in Shanghai. Warrior brand athletic shoes is the pride of China, because heÂ WarriorÂ trademark was identified as the most famous trademark of Shanghai city and in 1999 it was recognized as a well-known trademark throughout China. “Warrior” footwear products have won the national silver medal of quality many times. (Lianzhi Ma, 2013) Warrior brand is today one of the People’s Republic of China’s most recognisable creations. (warriorshoes.com) In short, Chinese consumer may support and prefer Warrior shoes rather than Nike shoes.
China facing a serious issue of failed to sufficiently enforce intellectual property laws. Therefore, another risk facing by Nike of doing business in China is the likelihood of facing patent violations and piracy. Idea theft is serious issues in China, and it extends far beyond DVDs and software. Not only is this a problem for companies engaged in buying and selling goods, but it can impact manufacturers who may unwittingly use counterfeit materials. However, one concern for many companies considering entry into the China market is imitation. If you’re selling a good product with well-known brands, someone in China will imitate it. So, it is useless for Nike to spent tens of millions of dollar building their brand in China, because there is a high probability for them to regularly see imitation of their products appearing throughout the country. Nike may faces the problem that others China producers will imitate their products and sell those counterfeit Nike products in much cheaper price in the market. This will cause Nike loss of market share, a drop in sales and perhaps destroys the reputation of Nike in consumer’s mind. For example, Nike brand may become a cheap brand in the eyes of a consumer who buys a shoddy counterfeit without any awareness that it is fake brand.
RECOMMEND RELEVANT STRATEGIES
We found that there are some risks to go in china market, so we also recommended some point to increase the ease to go in china market. According to the analysis the risk may face by the Nike when they entering to the China is Chinese customers have a strong sense of national and local pride. In order to make the Chinese customers feel more reliable on the Nike product is through the corporate social responsibility. Recently, all of the societies are very concerning about the corporate social responsibility from the companies towards the society. Nike has start doing the corporate social responsibility since year 2000 but the amount of corporate social responsibility done by Nike incorporation is not enough to make society aware of their contribution. Corporation social responsibility is type of activity that the company contributing their effort to the environment, society and people. For example, provide scholarship for student, charity programs and plantation activities in the city. It will improve reputation of the company, generate more sales and increase consumers’ awareness towards the environment. As we know that Chinese consumers at China have a strong sense of national and local pride. So Nike incorporation can contribute more effort in China to let the consumers aware of their brand are putting some much effort to the society and to reduce the distance between Nike with the market and also reduce the local pride toward Nike. If the consumers know Nike incorporation is contributing so much to theirs society, they sure willing to try Nike’s product. Consumers are smart, will know Nike incorporation have good image in the market, they will contribute their profit to the people and society. In addition, Nike incorporation also has the manufacturing factory over China. Most of the Asia’s footwear, apparel and equipment are producing at the China manufacturer side. The products are label made in China, it will make the consumers feel more reliable on the products which are from their own country.
Secondly, the cultural difference between US and China is the risk for Nike to entering into China market. Nike incorporation can find out the uniqueness of the China culture and needs. China is a potential market for Nike incorporation it is because China has a huge number of populations in the world. China’s background is totally different with western country. So the easier and safety way to understand more about the China preferences and needs is hire local people as their consultant. Consultant will directly let us know about the taste of the local people. They also will provide information for company about the culture differences between western country and China. This will also reduce the strong local pride inside the customer mind, because as you do more research and understand the cultural of them, they will feel the relationship between the company was more closer to them. This way will help company save cost and time to understand the needs of the local people. Then Nike just can design the products which can suit for their taste. For example, Nike can introduce or emphasize on red series colour of Nike’s product before Chinese New Year Festival. As we know that, red colour symbolize for Chinese is good luck. Nike incorporation also can add the characteristics of Chinese as part of design. This type of design not only can attract young teenagers, adult also will like it. Chinese is the race always takes care of their religious and traditional. In order to understand more about the culture references, Nike also can through conduct survey or questionnaires in the public places. From the survey we can know the favorites style of different level customers and what the consumers desire to have on their sportswear and equipment. The analyses of the survey will make the Nike product closer to their culture.
Thirdly, Nike incorporation can also have a product line extension strategy to extend their product to be more variety. A product line extension strategy can help Nike incorporation to boosts their profit through the sale of different product and it also can reduce the risk in one of the product had failed there are numerous other products to compensate for the loss. Nike can doing this to increase the target markets and any other segment that Nike had not targeted and also provide many other choices to satisfy the needs of wide-range customer in every segment that the customer will have their own specific needs. Nike incorporation mostly designs footwear for athletic purpose. In my opinion, a large percentage of sales that Nike incorporation may gain are from the sales of footwear, apparel, accessories for casual and leisure purposes. So, Nike incorporation can increase their product in a variety of way. Nike incorporation must clearly understand and analyze on some aspect, which are the needs, physiology, design preference and trend of choices of all target market. Secondly, Nike incorporation may also extend their products and also have more choices for their target markets by offering a variety of products like Nike racket, all kinds of balls, watches, eyewear, and so on. Nike incorporation may also provide every type of sports equipment such as soccer, football, basketball, tennis, golf, all kinds of sport to the market. Nike incorporation may also have their products through children’s clothing, school supplies, electronic media devices, and other items that under NIKE brand name. The more Products in the market, can lend to the higher choices to the customers, higher satisfaction and expectation to a customer, higher recognize of the brand name of the company to a customer, higher market share in the market, as long as maximize the company’s profit.
On the other hand, from the analysis we get to know Nike facing difficulties in satisfying the needs of their wide range customers. So, Nike incorporation can expand the customize product to be more variety and services to more areas. Nike’s customize product services is which the interest customers can create their own preferences and colour on their own footwear, apparel or equipment. We seldom can get this type service in the market. Nike’s customize product only available at US, Japan, Europe and China only and the customize product factory is located at US. They may be can locate their customize product manufacturing plant at China. It can help the China’s customers save the shipping cost and they are able get theirs products in a shorter time. They may expand the delivery services products area so more of the interest customers can make their order through online. If the customize product manufacturing locate in China is not only beneficial to the China’s customers even Asia customers also can gain the advantage same with the China’s customers. Asia seldom get this type of customize sportswear services yet. This unique idea can help Nike’s incorporation generate more profit and attract more teenagers who like to seek for unique clothing and footwear to try on their products. Even though Nike is providing chances to customers can customize their shoe which is different from others. But, they only provide limited selection of the pattern, design and colour for customers. So, customers may be can’t really enjoy to play with the style of what they want they shoe to be. Nike incorporation can improve their customize services system to be more advance to help customers own theirs desire products. They can provide different type of surface quality of shoe which can satisfy different needs of customers. Nike incorporation also can design variety shape of the shoulder bag since main target market of Nike incorporation are the young teenagers. Even the height of the shoe also can let the customers to choose it.
Last but not least, to reduce the patent violation and piracy, Nike incorporation can also have some method to reduce such as a well-planned inventory management strategy. Inventory control is the supervision of supply, storage and accessibility of item in order to ensure an adequate supply without excessive oversupply and also ensure the accuracy of sending goods to the sellers. A well-planned inventory management can reduce the chance of imitation from other and clearly identified the authority of sellers selling their products and also increase the credibility to the customers. As a seller, it is your job to ensure that the products that require by customer are in the stock and also not a counterfeit product, if not, you will lose your loyalty customer and it will definitely affect the sales of your company. So Nike can also add product identification inside every product that they made. Nike should make a symbol or anything in their products that only unique to Nike incorporation. Nike must also ensure that their products are only selling in their own retail shop but not all shop lot in the street. Nike should also manage product waste and also damaged inventory because counterfeiters will always get from scrap yards, waste repositories or reclamation centers. With implement these strategies to reduce the violation and piracy, it can let the customers easy define of every product, increase the credibility from the customers, increase the satisfaction from the customer, increase the trust to the company and also maximize company profits.
After we have done all the analysis, we know that Nike may face many challenges while expand their business to China such as political, environmental, economic, social and technological forces. There are gains and shortcomings in expand their business to China. However, we still suggest that Nike should enter into China because we found that there are many advantages for Nike expand to China.
As a final point, Nike should improve on their strategies as different country has different culture. Nike should also put more effort to China market since there have huge population and high growth rate. In order to get more market share in future, Nike should improve with more varieties to suit global cons
umers’ unlimited needs and wants. Moreover, different country may have different needs and wants, therefore Nike must have a full research on its target market needs and wants before enter into China.
From this overall research we done, we are confident that Nike will be successful in entering into low-cost country such as China by using those strategies that we suggested.
In a nutshell, using an appropriate expansion strategy is very important for Nike enters into low-cost countries and it cannot be ignored.
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