Describe a Foreign Direct Investment (FDI) Initiative
Choose a foreign direct investment project of some particular company, explain what the project is, and why it makes strategic sense for the company. You may also want to talk about why FDI might be a better choice than exporting or licensing in this particular case.
Foreign Direct Investment (FDI) Initiative
Nike: Outsourced Operations in the Philippines
Outsourcing has become an essential option for the business to reduce costs and maximize production. Nike, a prominent sports apparel company, depicted foreign direct investment products by outsourcing its manufacturing process. Of course, the intention is to reduce the manufacturing or labor cost and increase production to meet the needs of customers around the globe. Outsourced operation in the Philippines is a glimpse of foreign direct investment, and interestingly, it makes a strategic sense. For Instance, outsourcing the business in this Asian region has increased its competitiveness, which helped the company to come up with competitive pricing. It leads to high-profit margins (Peterson, 2014). Nike successfully managed to reduce the business or production cost to increase the profit margins. Outsourcing needs some critical investments (Direct) such as machinery, employee skill development, shipping, distribution, and employment. However, people in these regions work at low cost as compared to the firm’s home country. Thus, outsourcing makes strategic sense, and it can ensure long term financial and business sustainability. Direct foreign investment makes strategic sense because the company gains access to different narrow markets. Some issues such as sweatshops exist in these markets, and these are to be resolved to enable sustainability. Foreign direct investment is a better choice than exporting and licensing. The export process is sufficient to enter the new market, but it cannot reduce the business costs. Similarly, The Company may face a lack of standardization in licensing, which may also hit the brand image. Thus, FDI in the form of outsourcing is the right approach. On the other hand, issues such as lack of standardization, poor working conditions, and protests may cause business failure, and it can make exporting and licensing better than foreign direct investment projects (Tielmann, 2010).
References
Peterson, H. (2014, April 22). One Stunning Stat That Shows How Nike Changed the Shoe Industry Forever. https://www.businessinsider.com/how-nike-changed-the-shoe-industry-2014-4
Tielmann, V. (2010). Market Entry Strategies: International Marketing Management. GRIN Verlag.
