Disadvantages of FDI – Term Paper

Disadvantages of FDI to Nike’s Operations in Overseas Markets

Risk of Political Changes

Political uncertainty is a major factor facing Nike’s move to use FDI as a market penetration strategy in the oversees market. This is because some of the nations where the Nike Corporation conducts its operations have the unstable political background. As such, investing in such nations places the corporation’s capital intensive investments at a risk of loss in the event there is a politically instigated market tribulation.

Risk of Foreign Currency Fluctuations

Unlike in the U.S. where the value of the domestic currency is relatively stable due to the strong economic position of the nation, some foreign nations may experience occasional fluctuations in the domestic currency. As such, Nike faces a critical risk in the value of its products that are retailed in the foreign markets through FDI. In the event a foreign currency fluctuates in value, Nike stands to lose in the profit margin of its products in the affected market.

Risk of Social Discord

This is a phrase used to describe the lack of harmony between different persons. By venturing into foreign markets via FDI, Nike also faces the risk of social discord. This phenomenon can impact negatively on Nike’s performance in the market as well as its market sustainability and confidence. For instance, when Nike ventured into the Bangladesh market by forming a partnership with the Lyric Industries, it discontinued its partnership in 2014 due to the unsafe as well as abusive labor practices that were being placed on the corporation’s staffs (Hardison, 2015).

Ansoff Matrix

It is an organization’s market planning tool that aids a business to evaluate its products as well as market growth strategies (Ansoff Matrix, 2013). According to the matrix, the ability of a corporation’s product to grow is dependent on whether it is promoting new or existing products in the identified new or existing markets. The matrix was originally invented by H. Igor Ansoff, and it features four primary subdivisions namely market development, market penetration, diversification as well as product development.

Discussion of How Ansoff Matrix Can Be Used to Facilitate Nike’s Strategic Decisions

Market Development

Under market development, Nike should carry out a market PEST analysis for overseas markets situated in different geographical areas. This will aid the corporation in identifying any possible threats that may face the corporation in the chosen region upon its establishment. In addition, Nike should use the market segmentation strategy to target the different groupings of consumers in the identified market. This way, the corporation can create products for every potential customer, depending on his/her tastes, fashions, and preferences. Nike should also employ the marketing mix methodology to understand the best ways to reposition its products in the targeted market. Finally, Nike should retail its products through various channels such as direct and online sales, so as to increase its chances of positive sales performance in the chosen market.

Market Penetration

This is a strategy that is focused on retailing existing products to an existing market with an underlying primary objective of acquiring the highest market share (Joseph, 2016). In this subdivision, Nike should develop a variety of marketing strategies, which they should employ to market their products in the market. It should also create promotion incentives aimed at enhancing the sales of the corporation’s products in the chosen market. Some of the other strategies that can be used under market penetration include purchasing a rival corporation and increasing the scope of the sales force functions in the corporation.

Product Diversification

This is a strategy that is employed by a business organization in a new market where the organization has not yet launched its operations. At this point, such an organization tries to market a variety of items on the targeted market and at the same time introducing new products in the market (Linton, 2016). This is one of the best strategies that Nike should use to create a niche for its products in a new market.

Product Development

This is a name issued to describe an instance where a business attempts to introduce new products in a specified market (TechTarget, 2016). In this strategy, Nike should try to sell the same products being sold by other rival corporations in the market. Nevertheless, for it to be successful in the market, the corporation can try repackaging the existing products in a way that attract the targeted consumers. Alternatively, the corporation can develop products that are almost similar to the substitute products in the market.

Conclusion

In summary, Nike Corporation’s productivity has increased tremendously since its inception. Its market performance has thrived over the years due to favor political, economic, social, technological, environmental and legal environments. This can be analyzed using the PESTEL framework of business environment analysis. The porter’s value chain describes the activities that business organization must undertake in order to deliver effective goods and services to the market. Such activities can be classified as primary or secondary. In addition, foreign direct investment is an effective strategy that business organizations can use to expand their scale operations in the long run. Its advantages include a reduction in costs of production, access to resources and tax incentives. On the other hand, its demerits include risks of political changes, risks of foreign currency fluctuations and risks of social discord. In addition, the Ansoff Matrix can be used by an organization as a market planning tool that aids a business to evaluate its products as well as market growth strategies.