International Business Strategy: Nike vs. New Balance Report

This report examines the international business strategies of Nike and New Balance, focusing on the implications of import tariffs on Vietnamese footwear and the broader U.S. economy. It analyzes the benefits and challenges of eliminating import tariffs on Vietnamese footwear for Nike and New Balance, considering the impact on production costs and consumer prices. The report also explores the major drivers of success in Vietnam's footwear manufacturing sector, including labor costs, environmental standards, and government subsidies. Furthermore, it discusses the role of the U.S. Trade Representative, Michael Froman, in addressing import tariffs to create a level playing field for American companies within the global economy. The report concludes with a summary of the key findings and their implications for international trade policy and business strategy.

International
Business Strategy
and
Emerging Markets
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Table of Contents
INTRODUCTION ..........................................................................................................................3
MAIN BODY ..................................................................................................................................3
1..............................................................................................................................................3
2. ............................................................................................................................................4
3. ............................................................................................................................................4
CONCLUSION................................................................................................................................6
REFRENCES...................................................................................................................................7
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INTRODUCTION
International business strategy is considered as plans which guide commercial transaction
that take place among entities at different nations. It is also refers to plans or action of private
organizations rather than governments which help in increasing profit and market shares (Ernst
and et. al., 2015). Moreover, emerging market refers to market which identifying as developed
market but it didn't fully meet standard. This report is based on Nike and new balance shoes
which are cheaper than Nike. Topics include in respective report are benefits of Nike and
America economy by eliminating import tariffs on Vietnamese footwear as well as it will include
major drivers of success of Vietnam's footwear manufacturing sector. It will also include aspect
which can be done by U.S. Trade Representative Michael Froman for import tariffs.
MAIN BODY
1.
In 2001, there is establishment of normal trade relation named with U.S.-Vietnam
Bilateral Trade Agreement among United state and Vietnam which play major role in footwear
industry. Vietnam improve themselves become second largest suppliers of America related to
footwear industry. According to the new balance spokesperson, when Nike manufacture a pair of
shoes in US they will cost 25 to 30 percent more as compare to Vietnam like respective company
cost near by $ 20-25 for manufacturing a pair of Nike running shoe at factory of Vietnam. The
main reason behind this is the low wages of production. But earning at Vietnam is more than 20
times less than at United State as well as according to research conducted by Congressional
Research Service the average wages of footwear and apparel manufacturing industry at Vietnam
is approx US $ 0.51 per hour in year 2012.
As compare to other industries, footwear sector of United State is have strong protected
import tariffs. United State import tariff at consumer goods is near by 1.5 % whereas the average
tariff at imported footwear is near by 10 %. Rate of tariff is substantially impacted production
costs such as production cost at US is $ 20- 25 (Kotabe and Kothari, 2016). Due to rise in
current tariff, there is increment in cost of athletic shoe produced at Vietnam by US $ 3 to US $
5, which leads to increase in production cost by 25 percent. This situation will lead US footwear
market to sell their products at high price which they were manufacturing at low. On the other
hand, companies offering new balance shoes are arguing for reducing import tariffs as it is
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considered as small footwear production firm operating at United State. Recently these firm
develop new range shoe which focuses on custom shoes and it is Made in America that can be
ordered at US $ 115 which are made at United State (Marquis and Raynard, 2015). This shows
minimisation of import tariff at Vietnamese footwear is good for Nike Inc. as well as New
balance because due to that these companies able to manufacture shoes at less cost and sell it
high price which increase economy of US as well as its profit.
2.
There are several drivers which shows footwear manufacturing sector at Vietnam are
gaining numbers of advantages due to their labour cost as well as environmental standards and
they also get generous subsidies who are state owned business unit. Along with this government
also support strategic footwear industry in order to strength Vietnamese companies, respective
firm is considered as communist nation and their footwear sector is controlled by big state owned
companies (Yin and Jamali, 2016). These are enjoying large government subsidies as well as
extensive support such as Vinatex which is a state owned textile as well as apparel company, it is
listed as tenth largest garment producer around the world and they are currently accountable for
40 % of apparel production of nation. 20 % of respective company apparel and textile are export
around the world.
According to research conducted by National Council of Textile organization respective
textile company get benefit by eleven different subsidy programs of government that will include
free land as well as low cost. In respect of Vietnam's footwear industry they get one main
advantage i.e. they able to import yarn from China at cheap rate. Similarly like Vietnamese
footwear, yarn of China are produced by big state owned companies due to which they receive
numbers of direct as well as indirect subsidies through the nation government (Reijonen and et.
al., 2015). China produce yarn by conducting allegedly unfair practices due to which they sell
these products at low cost that is known as anti dumping tariffs. Due to which Vietnamese
footwear industries able to gain unfair competitive advantages as compare to another nation.
Along with this labour cost at Vietnam is also less as compare to other nation that will reduce
manufacturing or production cost.
3.
The US footwear sector is very much secured from the import tariffs as compared to
other industries. In order to level the play field to provide allowance to the Americans fro
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wining and competing the global economy they have signed different free trade agreements over
many years, it is basically has been reluctant to properly reduce tariffs on the footwear and
systematically implement the yarn forward rule in the FTAs. (Rottig, 2016). By using the
respective rules that required that yarn has been utilized in the shoe business to be manufactured
within the respective countries in order to be able for reduce duties upon the agreements of
trades. During the time when Vietnam was presenting the US to reduce the tariffs on the interest
groups and imported footwear within the country that put pressure to US negotiations and
Froman. Meetings of Froman with different sorts of lobby groups disclosed that the deep
division in between the American footwear companies. It has been argued that reduction in
imports are very much detrimental to the US footwear workers and for the small kind of
manufacturing companies.
On the other hand it contended that reduction in the tariffs on the footwear helps to
strengthen the US companies to create the high value footwear jobs in the US and lower down
the consumer prices. Besides all of the competitors new balance does not outsource all the
production of footwear to foreign contractors instead of using the hybrid system for in sourcing
and outsourcing (Story, Boso and Cadogan, 2015). There are large number of suppliers for that
regards they not produce itself like embroidery threat and laeather which is utilized in certain
sorts of shoes. During the consultation meeting with the Froman, New balance reps the fierce
competition in tariff reductions on the Vietnamese imports. As per the spokesperson, Matt
LeBretton, it is already 25 to 35% that are more expensive to produce in the US in comparison to
the Vietnam marketplace. The elimination in tariff is not required to make the activities of
manufacturing visible in the Vietnam and may be fleck away which help to access to develop in
America.
In against it would force again to close the US factories and move towards the production
facilities overseas marketplace. All activities resulted the lost in jobs and hurting organisational
contractors and small communities in which organisation occurs manufacturing operations.
There are no. of arguments takes place for and against the elimination of the footwear in regards
of tariff import under the TPP (Thompson, Strickland and Gamble, 2015). While this
determination to the level the playing field that helps to American in leading the global economy
faltered. Various kinds of realities and potential had considered while adopting the wrong
position that negative impact on US economy. Froman still pondering the various crucial kind of
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statistics and viewpoints that should be side of new balance and insisted on the footwear in
reducing the tariffs to kept the negotiation. So it is very much important from the side of Froman
to put one of their best efforts in order to levelling the play field allowed Americans to compete
and win in market.
CONCLUSION
By above discussed point it can be conclude that, now a day almost every company
operating its business at international level as well as they also want to expand it in emerging
market so that they can gain high market shares and profitability ratio. Every nation have their
import tariffs which can be positive or negative for some country at different situation such as
Nike is pay less manufacturing cost when they conduct process at Vietnam as compare to United
State. Moreover, sometime situation occur which show an organization is gaining unfair
competitive advantage at particular situation due to their import tariffs.
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