The 2018 economic slowdown in Saudi Arabia had facilitated a sharp decline in the clothing and footwear sales in the country. As a result of the hard economic times, the implementation of the new VAT policy which was meant to increase the government’s revenue collection had created a direct impact on the consumers who were faced with high prices of commodities. Other than the VAT, the increased cost of living had also doubled the effect on apparel industry as the consumers became selective in the expenditures. The price of the commodities was given more consideration over the quality while making the purchase decisions. Even though most apparel and footwear companies are still adjusting to the aftershocks of the last year’s economic distress in Saudi Arabia, the current forecast studies into the industry have depicted sharper growth in the coming years. There are many changes which precedent in the Saudi Arabian market and are expected to bring about the predicted increase in the footwear and apparel industry, and they include the new laws and reforms, the shift towards value-oriented brands by the consumers and the adoption of online shopping (Abalkhail, 2018). Accordingly, the emerging new trends in this industry makes it more attractive to the leading international footwear and apparel companies like Nike to take over the Saudi Arabian market with its brand products.
With this promising nature of the apparel and footwear industry in Saudi Arabia, many multinational companies are seeking means of gaining entry and taking over the dominance of this market. In most instances, multinational companies which aim to take control of specific foreign markets usually implement the Foreign Direct Investment method (FDI), whereby they form mergers or acquisition of the existing local companies in such regions. Even though there are cases where the formation of mergers or acquisitions can be successfully applied as a market entry strategy, there are some cases of failures, thus, making it be a risky form of investment.
There are many instances where Nike has gained entry and successfully competed in foreign markets such as Europe, Africa, and Latin America. However, the company has had minimal influence in the Saudi Arabian footwear and apparel industry. On 23 July 2010, Nike made a distribution agreement with the Saudi Arabian wholesaler and retailer, Sun and Sand Sports. The deal entailed the distribution of footwear’s, apparel and accessories in the country. In spite of this deal, Nike is yet to attain the largest market share in the market. Basing on the information given above, This case study aims to determine the strategic entry and settlement methods that can be applied by Nike for increased adoption in the Saudi Arabian Market.
The Commonly Applied Market Entry Modes
Pioneer entry strategy. This is where a company enters the market at the start of its product life cycle. Pioneering market entry strategy is appropriate for new companies in large markets. Before deploying this strategy, the company must seek well-refunded research and development initiatives so that it can be able to adapt to the consistent changes in the industry to maintain its dominance. Since a lot of marketing is required to create more awareness regarding the new company and its product or service offerings, the company must set aside a large marketing budget. The ability of the consumers to purchase a product does not rely on its mode of presentability or appearance. Instead, it depends on the market presence and strong product awareness which establishes its ability to address the unmet consumer needs by other similar products. During the first initial years in the market, the company spends a lot of money in educating the consumers before they come into terms with the benefits of such products and then later on the products begin to generate higher demands and profits. It is very common for pioneering companies to be overtaken by the existing companies. The failure is mainly attributed to the lack of sufficient capital to carry on with the market, as opposed to the situation of the leading companies.
Exporting: exporting is the most established and commonly applied method of foreign market entry. It refers to the selling and marketing of products manufactured in a country into a foreign country. Even though there is no direct manufacturing in the international market is required, a lot of investment is needed in the investing company in the overseas market. The use of exporting market entry strategy is much beneficial because of the following reasons: it is less risky as the manufacturing is done locally, it allows the company to learn about the foreign market before investing into it, and it also reduces the potential risks of operating in the foreign countries. The exporting method can be done in the form of passive or aggressive exporting. A passive exporter comes across the products by chance or awaits orders. On the other hand, an aggressive exporter initiates robust marketing strategies that gives a broad image of the firm’s intentions in the foreign markets. In Pavord and Bogart (1975) research, they discovered that there is a massive distinction in the intensity of problems that escalates the pressures between non-seekers and seekers of exporting opportunities. Through this study, they were able to establish the difference between companies whose efforts were characterized by aggressive activities, no activity, and minor activities. Firms which are aggressive in their exporting efforts are characterized by clearly defined strategies and plans, including price, product, distribution, research, and promotion. The motivation behind exporting determines aggressiveness or passiveness of an organization to export. According to Piercy (1982), she highlights that the level of a firm’s involvement in a foreign operation relies on the “exogenous and endogenous” motivating factors that are whether the motivation came from the company’s internal situations or the changes in the business environment. As Collett (1991) states, the process of exporting needs partnership between the importer, government, exporter and transport and lack of these elements increases the risk of failure.
Segmentation entry strategy. In this case, the company enters the market in the late product growth life cycle. They then modify the existing products in the market to satisfy the needs of a specific group of consumers in the market. According to Clark (2010), companies are required to make minimal efforts to adapt to the needs of their target segment. However, successful implementation of this market entry strategy requires strong market research to assist in the identification of existing consumer requirements or the specific needs of the targeted group which should be implemented into the product.
Partnering. Partnering is an essential method of entry strategy in certain markets. There are different forms of partnerships in business, and this ranges from complex strategic alliances in manufacturing to simple co-marketing arrangement. Partnerships are more beneficial for companies seeking to enter into the foreign market, which exhibits substantively different culture in business and social lifestyles. The local partners are therefore recruited to help the company adapt to the new market by bringing the knowledge of the local markets and customers. A firm is likely to be more successful in the new market if the partners are selected wisely.
Footwear and apparels industry in Saudi Arabia
While 2018 was such a challenging year in the footwear and Apparel industry in Saudi Arabia following the economic slowdown, many forecasts have depicted higher growth in the coming years. The new policies and reforms on the business salesforce are likely to affect the footwear industry. This policy requires that at least 70% of the people working on the stores should be citizens of Saudi. This will be beneficial to the companies as they will able to take advantage of the cheap local labor and reduce the operating costs.
Currently, Saudi consumers are also shifting towards promotions and value-oriented brands. Most footwear and apparel consumers in Saudi Arabia comprises of the young people who are more informed and sensitive to the trending fashions in the world. Companies which have got established brand identities in the market such as Nike are likely to be more competitive among these consumers (Abalkhail, 2018). Following the intense competition in this market by international companies, both the after-sales and in-store services are very important. Companies that engage in great promotions also enjoys wide acceptance into this market.
The rapid adoption of internet marketing in Saudi Arabia. The Saudi Arabian community is embracing the use of an online business transaction. This follows the increasing knowledge on the application of the internet. Many footwear and Apparel companies are adopting the method of online shopping and marketing by allowing their customers to make purchases online. There are new online companies and applications which enables consumers to place their orders and pay for the goods without making physical access to the stores are also emerging in the Saudi Arabian market. Some of the factors that facilitate the growth of internet business activities include the presence of well-developed logistics and transportation network and internet penetration in the country.
The recovery of the footwear and apparel industry in Saudi Arabia.
With the government’s implementation of strategies which are meant to stimulate the Saudi Arabian economy, such as the creation of employment and rising incomes, there is likely to be higher spending as the country is expected to recover from the 2018 financial shock and improve the consumers spending power.
Nike Inc. is an American international corporation that deals with the manufacture, design, development and worldwide sales and marketing of services, accessories, apparel, equipment, and footwear. Nike headquarter is located at Beaverton, Oregon. It is the largest supplier athletic apparels and shoes, and a key manufacturer of sporting equipment’s in the world. In the fiscal year 2012, it accumulated a total revenue of more than US$24.1 billion and employed about 44,000 people across the globe. In 2014, it was considered as the most valuable sports business with its brand being valued at $19 billion. In 2017, Nike’s brand was valued at $29.6 billion and ranked 89th in the fortune 500 lists of the most prominent American companies in terms of revenue. Phil Knight and Bill Bowerman founded Nike on January 25, 1964, and named it Blue Ribbon Sports. The company adopted the name, Nike, Inc. on May 30, 1971, by deriving its name from the Greek goddess of victory. Nike does its marketing through its brand and several other brands such as Air Force, Air Max, Nike CR7, Nike Pro, Air Jordan, Nike Dunk, Nike Blazes and many others. The company sponsors many athletes and sports who acts as its brand ambassadors through the highly recognized trademarks such as “Swoosh” and “Just Do It” logo. Over the years, Nike has acquired many apparel and footwear companies, some of which have been sold to the other companies in the same industry.
Other than sports, Nike has significantly been adopted in the hip hop industry and modern urban fashion following its association with the success in games. At the start of 1980, various cloth lines from Nike were considered to be the staples of the American mainstream youth fashion, more so the tracksuits, Air Jordan’s, Baseball caps. Currently, Nike is considered among the most significant brand in both the footwear and apparel industry. The largest consumers comprise of the young people who are shifting towards value-oriented brands. With the changing nature of the footwear and apparel industry in Saudi Arabia, Nike is poised to take over the market if the company implements the most effective entry strategies.