Nike: A Multinational Company's Global Success Story - Essay Sample

Introduction

Nike Company is a multinational firm dealing with sports equipment and footwear across the globe. The company's headquarters is based in Beaverton, Oregon, USA (Nike Inc, 2016). The company operates through six business segments, classified based on geographical presence: North America, Western Europe, emerging markets, Greater China, Central, and Eastern Europe, and Japan (Nike Inc, 2016). The company's performance has immensely increased due to the market growth rate, and the current price per share as per 10th march 2020 is $86.69 (Market Insider, 2020). The company's growth is dependent on the earnings per share and the dividend payout ratios. Nike Company is among the best dividend-paying firms.

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In the last one year, Nike's Stock prices have undertaken several dimensions. The company has experienced booms and depression from 2019 to 2020. According to Yahoo Finance (2020), Nikes share prices have been fluctuating from March 12, 2019, where the share prices were $85.75 to 86.69 in March 2020. However, during the year, the highest stock prices were reported on Jan 22nd, 2020, at $105.00 and the lowest prices on June 3rd, 2019, at $77.24 (Yahoo Finance, 2020). Throughout the year, the average stock price was $85.00. The company recorded a dividend payout ratio of 39.36% in 2019 (Market Insider, 2020). The dividends paid contributed to the growth rate of the stock prices as many people wanted to subscribe to the company's share.

The company's share prices can be attributed to both internal and external factors where it operates. Nike Company stock price fluctuation rates can be attributed to the factors that affect the country, the market, and the industry. Nike Inc Being a multinational company, these factors is diversified, and a single firm cannot control most of them.

External Analysis

Like all other companies, Nike Inc does not operate in a vacuum. Nike Being a multinational company, the firm is faced with challenges in its production due to countries' risk. The profitability of the organization depends significantly on how all the countries it trades in are performing both politically and economically. The nature of the market determines how the company operates, and ignoring is suicidal for any firm. The Macroeconomic factors that determine Nike's success can be classified into:

Political Factors

Nike's headquarter is based in the United States of America. The country's policies are favorable for any business growth, which has immensely contributed to the firm's success. The interest rates in the USA, according to Bush (2020), are 1.75%. The low-interest rate is among the best in the world. Therefore, for Nike Company to seek external funding, its cost of capital is meager. The countries tax rates have also been made favorable for the companies operating in the USA. However, tax policies can be changed by the USA government based on political nature. The manufacturing companies are often subjected to these policy changes, which affects the company's productivity.

Nike Company is a global firm. Therefore policies made to either regulate exports or imports by countries affect it. When the political relationship of the USA and countries such as Iran is affected, Nike's market in the region will also be interfered with. The company also depends on political stability in other countries. However, many countries, especially in Africa, often suffer from political instability during elections, which affects the company's profits.

Economical Factors

Nike Company operates in a highly competitive market. Like all other companies, economic factors determine the success of the firm. Dealing with sports equipment limits the Company majorly to sportspeople as its consumers. However, changes in the economic conditions limit the buyers' capability to purchase. It also increases the cost of production for the company making their products too expensive.

Since its establishment in 1964, Nikes Company has been faced with massive economic changes. According to Temin (2010), Depression and Recession are business cycles that immensely affect the firm's ability to make a profit. The business cycles are prevalent in the world today due to the massive increase in the population leading to depletion of resources. For example, the Asian Continent, which is among the biggest markets for Nikes company products, has experienced an inconsistent market cycle limiting their capability to purchase the company's products. Because Sports and other recreational activities are leisure and need to be fulfilled after all other needs, many countries forego these events during the recession.

Inflation affects the general prices of goods and services around the globe. Due to the nature of the Company's market, inflation cannot be avoided. The raw materials used by Nike are mostly imported from other countries which lead to imported inflation. Inflation can be imported from other countries when the nature of the company's operations requires dealing with business from other countries where the general prices of goods are increasing rapidly (Tobin, 1995). Inflation is also characterized by high unemployment rates, which limit the potential of customers to purchase products.

The exchange rates are determined by either the government through the fixed exchange rate regime or the market forces through the floating rates (Westerfield, 1977). Multinational companies often experience foreign exchange risk due to their dealings with other companies. The price of currencies keeps on fluctuating, making it challenging to report profits on Mother Company's country currency. Financial reports are prepared using the currency of the country of origin. Therefore, when converting foreign currencies to domestic currencies, firms often suffer from losses. The market structure makes it challenging to deal with other countries without experiencing this risk.

Environmental Factors

The global market is currently under massive tension due to the emergence of the Corona Virus. The virus which originated from China has made it difficult to trade with affected countries as governments have restricted traveling. The Asian market is among the biggest customers for Nike products. Therefore, restrictions that have been made on flights from China and other countries such as Italy have affected the market. Trading in the international market is challenging for multinational companies, given that all the changes that happen in the world have a direct impact on their operations.

Internal Analysis

Nike Company is among the best sports wears and equipment manufacturers in the world. The brand is well established, with its primary market being North America, Western Europe, emerging markets, Greater China, Central and Eastern Europe, and Japan. The emerging markets are in Africa and other countries that have invested in sports. The mission statement for the company is "to bring inspiration and innovation to every athlete in the world" (Smithson, 2019). Moreover, the vision statement is "to remain the most authentic, connected, and distinctive brand" (Smithson, 2019).

Financial Performance

Nike Inc is a giant company in the sports field that has outperformed its competitors in profits. The company's capital structure comprises of debt and equity. Equity capital is raised through the sales of shares to the public, and the debt capital is raised from bonds, debentures, and bank loans. Having been in the market since 1964, Nike Inc has does not experience any difficulties raising finances. According to the reports published in 2019 by Nikes Inc, their debt to equity ratio is at 27.0%. The ratio indicates that the majority of the firm's capital is shareholders' equity. A debt-equity ratio of 27.0% shows excellent success in the company's management team to maintain a healthy capital structure. Companies with low debt-equity ratios have no difficulty raising external finance when needed.

In 2018, Nike Inc reported profits of $36.4 Billion. However, despite the increase in profit from 2017 by 4%, the gross profit for the company decreased (Nike News, 2018). The decrease in the company's gross profit was attributed to unfavorable foreign exchange. In 2019, the company reported a profit of $ 39.1 Billion. The percentage increase from 2018 to 2019 was 7.5% (Nike News, 2019). The favorable profits can be attributed to the expansion of the company's market and the sporting activities that took place in 2019. In general, Nike, Company continues to record massive profits and a favorable balance sheet in most years due to its brand name.

Nike Inc balance sheets in 2019 reported the company's assets to be 237.17 Billion and the liabilities at146.7 Billion. The company's financial performance can be categorized among the best performing manufacturing companies in the world. The firm can meet its financial obligations without undergoing any form of financial distress. The cash flow statements also prove the company's operations are favorable, given that the inflows are more than the outflow.

Organizational Structure

Nike Inc is managed by a board of directors, which includes both executive and nonexecutive directors. A president and a chairman head the board. A senior management team governs the company's operations while the board undertakes strategic planning. Nike Company has employed over 62000 workers across the globe (Nike Inc, 2020). The organizational structure is bureaucratic, with every individual in the company performing given tasks. The nature of the operations allows the company to utilize cost-effective methods of production and maximizes its profit.

The company market mostly comprises athletes and other sportspeople. Therefore, their marketing teams target countries and groups which engage in sporting activities. Nike Inc's most significant competitors are Adidas Company, which also majors in sports shoes, apparel, and other equipment (Nike Inc, 2020). The Company is divided into departments headed by a departmental manager. The efficiency witnessed in the company's operations can be attributed to its departmental structures.

Legal Structure

Nike Inc is based in the United States of America. Therefore, the company has to adhere to the business operation rules formulated by the USA government. Apart from the USA laws, Nike has to abide by the laws of the countries where they operate. The company has a legal team who are experts in international business law to facilitate its operations. The legal team is headed by the company's secretary, who is also the legal advisor.

Risks and Issues Facing the Business

Nike Inc operates in a diversified market that subjects it to various risks. However, being a Multinational company, foreign exchange, and political risks are significant challenges for the company. The operations of the firms can be streamlined by addressing the two risks and mitigating them effectively.

Foreign Exchange Risk

Nike Inc has its operations in many countries across the globe. Apart from China, which uses a fixed exchange rate regime, all other countries use floating exchange rates. The company depends on the market forces to determine the profits it will make in USA dollars. Foreign exchange risk occurs when a domestic currency either appreciates or depreciates against a foreign currency. Foreign exchange risk can be addressed in two dimensions; Cost of raw materials and sales.

Raw materials for Nike Company are imported from other countries. Therefore, when the USA dollar depreciates against those other countries, the materials become too expensive for the company. The cos...