Nike's Acquisition and Information Theory: A Business Report

This report delves into Nike's acquisition of Invertex Ltd through the lens of information theory, examining the key characteristics of the acquired firm and the expected corporate-level benefits for Nike, such as enhanced digital platforms and improved customer experiences. It addresses information asymmetries and potential risks like adverse selection and moral hazards that may arise from these asymmetries, emphasizing the importance of transparency post-acquisition. The report also proposes measures to alleviate information asymmetries, such as guarantees, industrial standards, governmental regulations, and increased information availability, to mitigate risks and ensure effective business operations. It concludes by highlighting the significance of addressing information imbalances for the overall success of the acquisition.

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TOPIC 1: Information Theory
Key characteristics of the acquired firm
The Invertex Ltd Company is basically a computer vision technology developer
providing with the bid to strengthen the digital technological platform. Nike had acquired the
business of Invertex Ltd with the intentions to explore its business operation over the digital
platform. The company was mainly founded in the year 2014 based in Tel Aviv, Israel. Invertex
Ltd is basically a startup in the software industry of technological sector of Israel. It is a privately
owned company which offers the e-commerce software products and services for the retailers or
manufacturing companies. It acquires a total amount of approximately $2 million in its financial
resources. The company is been listed among the top IT companies serving its clients with
advanced digital technologies and services within retail or online shopping platforms. The
software company is a startup in the industry having small scale business practices and serves the
businesses with IT reforms. However, the company at present operates as a subsidiary of NIKE,
Inc as was taken under acquisition on April 9, 2018 by the company (Nike buys Israel computer
vision startup Invertex. 2018).
Expected corporate-level benefits to be achieved by the acquisition
The acquisition of Invertex Inc. by NIKE Inc. would prove to be highly beneficial in
diverse areas of the business of Nike and would help the organization expand its business over
digital platform. It has been expected that the acquisition would be beneficial at corporate levels
in terms of providing wider enhancements at digital platforms making the online presence
stronger as earlier (Bellavitis, Kamuriwo and Hommel, 2018). The acquired company would
focus upon the development of groundbreaking innovations to assist Nike in serving the millions

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of customers across the boundaries. The software company had developed a technology which is
considered to transform the ways of buying shoes at online platform. An artificial intelligence
and 3D imaging technology had been invented to evaluate the feet of users in stores and suggest
them with best models and sizes which fit best.
The software would also help the people shop online, enabling the smart phone to scan
the feet through app and make suggestion about what would be the best choice (Wilbur, 2017).
This technology by Invertex would prove to be highly beneficial to NIKE in terms of wide
expansion of its shoe range over the digital platforms. Moreover, the acquisition would be
beneficial in exploring new enhancements in the product and service development over the
digital platform and strengthen the online presence of the company. It is also identified that the
act would enlarge the organizational scopes of NIKE Inc in the retail sector and helps the
business nurture itself all over the world. It is been also observed that the acquisition by NIKE
of Invertex would deepen the bench of the digital platform of their business (Çeker and Özdaml,
2017). It would even enhance their capabilities in artificial intelligence and computer vision as
NIKE create most persuasive customer experiences at every point of contact.
Information asymmetries and potential risks caused by information asymmetries in this
case.
Information asymmetry is basically defined as the act where one party has more
information than the others. In simple words, it is the imbalanced manner of information
provided by the parties to each other which could also lead towards market failures or
worse cases. This issue could also result in the adverse selections and moral hazards out
of the business relationships or other deals (Cuypers, Cuypers and Martin, 2017). In case

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of the acquisition by NIKE, it has been found that there is a low level of information
asymmetries which would not impact the business deals directly. It has been determined
that having high levels of asymmetries could have led to the higher extents of adverse
selection and moral hazard in the foreign acquisition. The moral hazards might take place
when the behaviors of parties changes on the basis of their financial strengths or services.
In case of this foreign acquisition, it could be stated that both the parties could come
across the risks of adverse selection, moral hazards and information monopoly due to the
information asymmetries. These are the major potential risks would could be caused by
the information asymmetries within the organizations (Delbufalo and Bastl, 2018).
However, it is been observed that the company would be likely to face an ex post moral
hazard where change in behavior after the outcome of the business practices would be
evaluated. It is very important for the authorities of NIKE and Invertex to ensure that no
information asymmetry is avoided and no issues are created post acquisition. This could
reduce the impact of potential risks to be incurred due to the asymmetries (Plank and
Teichmann, 2018).
Measures to alleviate information asymmetries and justification for the solution
The information asymmetry is the most problematic act when it leads towards the risks
like adverse selection and moral hazards in the market. For instance, a company to makes wrong
decision or acts in market with the intention of acquiring more financial resources resulting in
huge failures many of the times. The information asymmetry misguides the company in many
cases where insufficient information about other party results in adverse selection of the deals. In
order to eliminate or reduce the information asymmetries, the organization could make use of
various measures as the solutions of the problem (Courtney, Dutta and Li, 2017). Out of wide

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range of possible solutions, NIKE could use the measures like guarantees and warrantees,
industrial standards, governmental regulations and availabilities of the information.
These measures would help the company in alleviating the information asymmetries
within the organizational framework reducing the risk probabilities to the lowest. The solution
of availabilities of information would prove to be beneficial for the company as it would
facilitate in creating opportunities of greater access to the information to the clients and making
them informed about the business practices specifically (Tu, Tung and Goes, 2017). In addition
to this, it would help in reducing the gap between the information imbalances leading the
business towards success. Meeting the governmental regulation and industrial standards would
also help in eradicating the issues and problems out of the asymmetry. It is important for the
organization to reduce the potential risks out of this problem so that to conduct its operations
effectively (Bruce, Lee and Sills, 2018).

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REFERENCES
Bellavitis, C., Kamuriwo, D. S., & Hommel, U. (2018). Mitigation of Moral Hazard and Adverse
Selection in Venture Capital Financing: The Influence of the Country's Institutional Setting.
Journal of Small Business Management.
Bruce, R. M., Lee, E. K., & Sills, C. K. (2018). U.S. Patent Application No. 15/691,049.
Çeker, E., & Özdaml, F. (2017). What" Gamification" Is and What It's Not. European Journal of
Contemporary Education, 6(2), 221-228.
Courtney, C., Dutta, S., & Li, Y. (2017). Resolving information asymmetry: Signaling,
endorsement, and crowdfunding success. Entrepreneurship Theory and Practice, 41(2), 265-
290.
Cuypers, I. R., Cuypers, Y., & Martin, X. (2017). When the target may know better: Effects of
experience and information asymmetries on value from mergers and acquisitions. Strategic
Management Journal, 38(3), 609-625.
Delbufalo, E., & Bastl, M. (2018). Multi-principal collaboration and supplier’s compliance with
codes-of-conduct. The International Journal of Logistics Management.
Plank, A., & Teichmann, K. (2018). A facts panel on corporate social and environmental
behavior: Decreasing information asymmetries between producers and consumers through
product labeling. Journal of Cleaner Production, 177, 868-877.
Tu, Y., Tung, Y. A., & Goes, P. (2017). ONLINE AUCTION SEGMENTATION AND
EFFECTIVE SELLING STRATEGY: TRUST AND INFORMATION ASYMMETRY
PERSPECTIVES. Journal of Electronic Commerce Research, 18(3).
Wilbur, J. R. (2017). U.S. Patent No. 9,585,039. Washington, DC: U.S. Patent and Trademark
Office.

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Online:
Nike buys Israel computer vision startup Invertex. (2018). Retrieved from
<https://www.timesofisrael.com/nike-buys-israel-computer-vision-startup-invertex/>
Retrieved on 23 October 2018