International market expansion is the primary mode of entry for Nike in Brazil. It allows the company to get an opportunity to locate in a region that has low production and labor costs, locate close to its target market and provide an opportunity for profit maximization.
Historically, most American corporations seeking to enter world markets, especially in the emerging economies, use an international market expansion approach (Daniels, Radebaugh, & Sullivan, 2013, p. 397).
Having a centralized production site is a vital factor in Nike’s operations as it seeks to control costs. Research studies indicate that the strategy is supported by the nature of their business where uniformity in the organization and efficiency in product distribution are required. However, Nike is a decentralized corporation across all its global subsidiaries.
The corporation functions through a flat organization structure, which empowers its employees to delegate decisions independent of top management.
According to Belavina and Girotra (2012), this type of organizational structure benefits a company because it improves the supply chain efficiency, allows for faster production and promotes specialization in management skills while line manager have immediate information concerning local customer demands and conditions (p. 2). For example, Nike launched its new World Cup product line, but only in Brazil.
When a firm decides to globalize in order to improve its domestic operations, it is best to remain decentralized if the main reason for expansion is competitive advantage (Belvina & Girotra, 2012, p. 5).
Moreover, most American manufacturing corporations have been successful in entering foreign markets by using international marketing approach. They have established that a decentralization strategy is useful if the company has segments that are independent of one another (Daniels et al., 2013 p. 564).
In this case, Nike relies on standards set by Adidas and Reebok, which have been exporting products from their manufacturing units in Southeast Asia, India and North American to stock their Brazilian outlets.
It is, therefore, recommended that Nike should retain its centralized production system and engage in activities that increase its shoe distribution in Brazil. With this strategy, Reebok and Adidas are able to increase their presence in foreign markets, especially in Asia and Europe.
Currently, Adidas uses the same strategy in Brazil. With this in mind, Nike will be in a good position to determine whether it should establish similar retail and wholesale ventures in Brazil. In addition, the company will be in a good position to examine the possibility of setting up additional manufacturing units in the region within the next few years.
Strategies and Challenges MNEs Encounter in Brazil
Nike, Adidas and Puma have all experienced operational problems when expanding into Brazil due to their past problems with child labor and sweatshop in China, Indonesia and Pakistan. Brazil has problems with child labor and therefore, the country has an extremely watchful eye on independent factories.
Nike has worked rigorously to counter its negative reputation by strictly enforcing factories to follow the Code of Conduct. Research shows that countries, which have strong national laws such as Brazil, have been effective in their efforts to enforce labor standards, improve work conditions and empower workers (Lock, Kochan, Romis, & Qin, 2007, p. 24).
Moreover, Nike and Adidas have both encountered organizational issues due to local businesses’ concerns of the MNEs monopolization of the industry. Nike’s acquisition of the UK sporting wears, Umbro allowed it to become the biggest MNE brand in the world of football.
This was particularly troubling for Brazilian retailers, who worried about the concentration of brands between two large corporations and the effects this might have on local business. Brazilian government increased tariffs on exports to counteract MNEs dominance. In addition, all US corporations in Brazil suffered from political issues that rendered bad press.
In 2008, Brazil’s president created negative propaganda against US corporations by blaming US MNEs and the government for infecting his nation with problems that were not of its own making, such as the global recession. This created a negative attitude in view of Brazilians toward Nike’s presence and thus, creating a significant decrease in sales (Townsend, 2012).
In particular, Nike faced problems because of environmental issues. In the past, the firm used Brazilian suppliers for its leather goods from the cattle raised in Amazon Rainforest in Brazil. This caused huge problems because the suppliers had to clear and cut forests in order to make room for their cattle.
The deforestation of the Rainforest had detrimental effects on the Brazilian’s ecosystem and the world. Nike, however, along with help from Greenpeace, enacted a set of regulations that all its suppliers must follow. The organization agrees that Nike obtains leather from cattle reared outside the Amazon forest area.
Despite past years of public turmoil, Nike has built a better reputation and rapport with the Brazilian government and it citizens. It is suggested that Nike should continue to work on environmental issues to ensure sustainability because Brazil is highly concerned about its ecosystem. Sponsoring the 2014 World Cup and Olympics will also make Nike a favorable company among Brazilian citizens
Nike Brazilian Corporate Structure
Nike has a matrix corporate structure, also known as a flat structure. Brand managers are allowed to make decisions independent of their Chief Executive Officer. According to Qui & Donaldson (2012), within departments, there are sub-departments that are responsible for mini-task. This structure is ideal for its global locations because it give these subsidiaries the freedom to react quickly to market dynamics (pp. 671-72).
Since Nike global products are locally responsive, the company positions its organizational structure toward customer-focused strategies. The matrix strategy works better with a multidimensional matrix structure so that line production managers can react without a department head who is not normally involved in line production (Daniels et al., 2013).
It is recommended that a multinational enterprise like Nike should continue to use a matrix structure so it can be aligned with various forms of task and technologies. This would allow the company to run smoothly and seamlessly with approval of top management.
The system also allows employees to be more specialized in their fields. It also ensures that functional supervisors are more focused on training and task management while project supervisors can focus on specific goals pertaining to projects or products.
It is imperative to note that in this type of a flat structure, a line of communication might sometimes be crossed and duplication can happen. Therefore, balancing controls must be strict and efficient to avoid these occurrences (Qui & Donaldson, 2012, p. 679).
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