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A Study of Nike's Operation in Bangladesh Through a Pestle Analysis

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A Study of Nike’s Operations in Bangladesh Through a PESTLE Analysis

Sarah Seward-Langdon
Xi’an Jiaotong-Liverpool University
MAN311 Business in the Asia-Pacific Region
Dr. Donald Pak
October 30, 2015
Word Count: 3,215
Table of Contents Executive SummaryIntroduction of Bangladesh PESTLE Analysis of Bangladesh Political Situation Economical Situation Social Situation Technological Situation Legal Situation Environmental SituationIntroduction of NikeNike AnalysisMini-SWOTNike in Relation to Bangladesh PESTLE AnalysisConclusionReferences | 344467789101111121416 |

Executive Summary The Asia-Pacific region is a diverse and growing area spanning approximately 28,000 square kilometers worldwide (Lane and Waggener, 1997). Countries such as China, Japan, and South Korea have seen unprecedented growth in recent history and are now part of the top 15 world economies (Central Intelligence Agency, 2015). Although which countries are considered part of the region is heavily controversial, many professionals agree that it is one of the most promising areas for business investments. This paper aims to provide a deeper insight into one of the still impoverished countries in the Asia-Pacific region: Bangladesh. After a short introduction of Bangladesh, an in-depth PESTLE analysis will be done on the country’s situation. Before corporations decide to invest in a country, it is extremely important to have all the facts. Through a PESTLE interpretation, the advantages and disadvantages of Bangladesh’s current situation will become clearer. Following the country’s analysis, the report gives a brief overview of Nike Inc. Then the main focus shifts to some of Nike’s more pressing problems, as well as its strategies and operations in Bangladesh. Questions such as “What did Nike do to become a recognized world brand?” or “What has Nike done in Bangladesh to succeed?” are often in people’s minds. Given the information on Bangladesh (PESTLE) and Nike, this report’s purpose is to explore the possible answers to these questions. Furthermore, the research done on Nike in relation to Bangladesh should allow business professionals or students to have a better vision on running business operations in this up and coming economy.
Introduction of Bangladesh Bangladesh is a South Asian country located between India and Burma, and boarders the Bay of Bengal (BBC News, 2015). Between the years 1947 and 1971, the area was called East Pakistan; it was not until 1971 that Bangladesh gained its independence (Central Intelligence Agency, 2015). With a population of about 169 million people facing issues such as widespread poverty and environmental pollution or disasters, Bangladesh is not a perfect country (BBC News, 2015). That being said, the state’s importance as a developing country should not be overlooked. Bangladesh is considered as part of the “Next Eleven Emerging Economies”, meaning it has the potential to become a powerful and investment-rich economy (Macroeconomic Analysis, 2013). Not only has Bangladesh been able to half its infant mortality rate, raise the country’s life expectancy, and increase accessibility to drinking water, it has also improved education equality and availability (The Economist, 2015). Additionally, it is one of the only countries that are estimated to achieve the Millennium Development Goals (MDG) – already completing 5 out of 8 of these goals (UNDP in Bangladesh, 2014). The country is not close to becoming a first world country, but it is a very appealing place for businesses to consider investments in.
PESTLE Analysis of Bangladesh
Political Situation Historically, Bangladesh’s political situation has been fast changing and violent. During a fifteen-year period, the country was under military control with several coups and murders of politicians. In 1991, the first election took place after democracy was restored. Bangladesh is now a representative democracy, at least in name. Two parties, the Bangladesh National Party (BNP) and the Awami League (“A Global/Country”, n.d.), have dominated its political system. Between the 1991 elections and 2013, both parties alternated being in power (Central Intelligence Agency, 2015). With this juggling of power, tensions between party leaders Sheikh Hasina (Awami League) and Khaleda Zia (BNP) overshadow Bangladesh’s politics (BBC New, 2015). Although Bangladesh’s politics are very turbulent, an encouraging development is that its government is committed to working with NGOs that have helped to improve the living conditions. This willingness to work with international aid shows that it is open to collaborating with foreigners and that foreign involvement will help the country continue to develop (The Economist, 2012). In relation to foreign direct investment, statements from the Bangladesh government indicate an active pursuit and interest in FDI. The government offers almost no incentive differences between foreign and domestic private investors, but some incentives for investors include tax holidays or exemptions and 100% duty-free imports (Rahman, 2011). Bangladesh’s taxation policy does differentiate between personal income and corporate income. Upper corporate rate was 45% (as of 2012), registered and publically traded companies were taxed a 27.5% rate, and most other companies (excluding financial institutions) were taxed a 37.5% rate (“A Global/Country”, n.d.). Although the government gives off a positive impression about its views on FDI, many in Bangladesh still fear FDI and foreign firms intruding. In addition to Bangladesh’s fragile democracy, higher taxations rates, corrupt government officials, and suppression of individual/organizational rights continue to be a deterrent for investment by foreign companies (Tanmoy, 2013).
Economical Situation Bangladesh’s economy has seen continued improvement in the past few years, growing at a rate of about 6% every year since 1996 (Central Intelligence Agency, 2015). In 2009, it was the 48th largest economy in the world with a low per capita income (PPP) of US$1,500 and a gross domestic product (GDP) of approximately US$224.9 billion (Rahman, 2011). A comparison with more recent statistics shows that Bangladesh has made strides to improve their situation against many challenges facing the country. As of 2014, the country sat as the 36th largest economy with a PPP of US$3400 and its GDP was estimated at around US$533.7 billion (Central Intelligence Agency, 2015). Due to the political instability, Bangladesh’s economic growth has been good but did not reach full growth potential. Political unrest has led to continuous inflation (7.4% forecasted in the Asian Development Outlook 2015) and stunting the growth of its private sector – both bad developments for foreign investments (Asian Development Bank, 2014; The World Bank, 2015). Its economy is sustained mostly by the service sector, which currently generates over 50% of the GDP, but its employable workforce is mainly working in the agriculture sector. This uneven development is yet another impediment to growth (“A Global/Country”, n.d.). Most relevant is how Bangladesh is changing due to globalization: its industrial sector is now dominated by garment exports that account for more than 80% of the country’s total exports (Central Intelligence Agency, 2015). Supply chain disruptions and changes in cotton prices can impact the pricing in the garment industry, but there was a slow growth of 4.1% with continued interest from regions like the European Union and America. Generally, the Asian Development Outlook 2015 states that Bangladesh will continue making economical improvements in 2016 including export and import growth and more political stability leading to more private and public investment (Asian Development Bank, 2014).
Social Situation As of early 2015, approximately 169 million people resided in Bangladesh. 98% of those people are ethnically Bengali and most speak the official language, Bengla (Central Intelligence Agency, 2015). Traditionally known as a conservative Muslim country, the Bangaldeshis are extremely proud of their historically rich culture and language. Still, due to globalization through means like satellite, radio, and global trade, the Bangladeshi people are beginning to live a more liberal lifestyle. For example, practice of religion is more relaxed, women and men are becoming more equal in society, and other western values are now more common (Tanmoy, 2013). One of the country’s main focuses currently is improving the standard of living in the country. Despite achieving many of the Millennium Development Goals and working in partnership with NGOs, more than 47 million people are still living under the poverty line (“A Global/Country”, n.d.).
Technological Situation With ongoing growth and desire to better the country’s overall situation, Bangladesh is in desperate need of technological advancements (Tanmoy, 2013). Currently Bangladesh is heavily dependent on imported technology, using it in many of its sectors including agriculture, education, and information and communication technologies (ICT). More advanced technology helps students become more educated about global issues, fights against environmental issues, and makes production more efficient. Unfortunately, substantial challenges face technology in Bangladesh, such as lack of finances, inadequate infrastructure, and high levels of corruption. These problems are issues by themselves, but they also hinder Bangladesh’s ability to grow and catch up to other successful Asian countries (Misti Moriom, n.d.). Even so, Bangladesh is very keen to do enough research and planning to effectively implement more imported technologies and begin to better development of their own indigenous technology (Rahman, 2011).
Legal Situation Due to a period of British rule, Bangladesh’s legal system is a common law system heavily influenced by Britain’s laws. In contrast, family laws such as marriage, divorce, and inheritance, are based on religious scripts. Since the country is dominantly Muslim, some laws can clash due to the differences between British and Middle Eastern beliefs (OGR Legal Resource Portal, n.d.). The constitution was drafted in 1972 with 15 amendments made since. Unfortunately, even after many amendments, Bangladesh still experiences a lot of corruption because the legal system is not independent enough from the government. Human rights issues still plague the country, including human trafficking, low salaries, and child labour. Without seriously dealing with the problems within their government and legal system, Bangladesh will not be able to properly do anything in regards to human rights (“A Global/Country”, n.d.).
In relation to business, some of the most important legislation that is still relevant is not updated, for instance the Patent and Design Act of 1911 or the Trademark Act of 1940 (Rahman, 2011). Because Bangladesh is openly searching for foreign investment, the country has newer legislation about incentives that are supposed to attract companies from abroad. Some examples are special visa options, permanent relationship deals (with a money payment), and protection of intellectual property rights (Nasir, n.d.). Although Bangladesh is trying to fix their lack of legislation and human rights problems, some companies are still hesitant in doing business because of these challenges.
Environmental Situation Bangladesh is characterized as a smaller country (similar in size to Iowa) with a tropical climate and is plagued by many natural disasters. The land is mostly flat with hills in the southeast and many crisscrossing waterways throughout the country, some of which eventually flow into the Bay of Bengal (Central Intelligence Agency, 2015). Because of Bangladesh’s geographical makeup, goods are transported through neighboring boarders by road or rail. When moving goods internationally, all methods are subject to a complex trading process that can take days, cost a lot, and is filled with corruption (“A Global/Country”, n.d.). The Bangladeshi people instead decide to use water-based public transportation or the rail to travel. Many of these ferries and boats get caught in natural disasters like monsoons (in season from May to October) and cause dozens of fatalities every year (Rahman, 2011). The many environmental issues facing Bangladesh cause these natural disasters such as droughts, flooding, cyclones, and monsoons to happen more frequently. Severe overpopulation means a great deal of the population is moved to land that is unfertile, very far from urban centers, and is prone to flooding. In addition, water shortages are caused by both natural degradation of the water and pollution (Central Intelligence Agency, 2015). These issues are becoming more and more pressing, leading companies who invest in Bangladesh to also need to put a heavy focus on corporate social responsibility (CSR). Although the Bangladesh business market is not fully aware of the need for CSR, it is gradually becoming a more widespread idea and companies are building environmental and social promises into their business strategies (Tanmoy, 2013).
Introduction of Nike Nike, incorporated in 1969, is now one of the most well-known sports brands worldwide. The Nike brand caters to customers through 8 different categories: running, basketball, soccer, men’s training, women’s training, action sports, sportswear, and golf. It currently uses independent contractors to manufacture most of its products and sells through physical stores, Internet websites, and other independent distributors or licensees (Reuters, 2015). Based in Oregon, USA, Nike is now operating in 120 countries and employs over 20,000 employees (IISD, 2013). Its mission statement reflects the global demand for the brand, saying its mission is to “bring inspiration and innovation to every athlete in the world”. In addition, Nike goes on to define a broader vision of an athlete, stating, “if you have a body, you are an athlete” (Nike, 2015). In its history, Nike has not always been well received or popular in the public’s opinion. Throughout the 1990’s, the company was plagued with bad publicity about working conditions in emerging economies. Because it was one of the earlier companies to move into these developing nations, Nike’s situation was unprecedented and it badly hurt the brand’s image. In response to the issues, Nike changed its business strategy and started truly addressing those issues. Now many say it is the example company of a business built on corporate social responsibility (Nisen, 2013).
Nike Analysis
Mini SWOT Strengths | Weaknesses | Opportunities | Threats | * Well known brand name and logo * Associated with many celebrities (Elliman, 2013) * Offers products worldwide * Fortune 500 company * Because Nike uses independent contractors to manufacture products, easy to become more cost efficient (Quality Assurance Solutions, n.d.) | * History of poor conditions in the workplace (Quality Assurance Solutions, n.d.) * Heavily dependent on their footwear products (Marketing Teacher, n.d.) * Less control of quality of products because of oversea manufacturing (Elliman, 2013) | * Emerging markets that are searching for more western goods * More diversification to minimize dependency on their footwear products (Management Study Guide, n.d.) | * By operating globally, Nike is more threatened by issues globally * Operate in a very competitive market… ex. Adidas, Reebok, and Puma (Marketing Teacher, n.d.) * Economic recession is a threat because people do not want to buy more expensive brands (Management Study Guide, n.d.) |

Nike in Relation to Bangladesh PESTLE Analysis The PESTLE analysis of Bangladesh allows interested parties to better understand what opportunities and challenges are present in the country. By combining this new information with a real-life example of Nike, some strategies that work and do not work are more evident. Nike’s reputation is well known as one of the pioneers of the strategy of outsourcing manufacturing. During a year Nike moves hundreds of millions of products through its worldwide supply chain that helps in reducing inventories and improving profit margins. While completing all this, the company owns no manufacturing factories – one of the points that prove Nike’s success (Soni, 2014). The single most helpful thing Nike has done in Bangladesh and other emerging markets is being part of the change. Although their past is somewhat blemished, they are now part of numerous movements to change the living standards of their workers from developing nations. For instance in Bangladesh in 1999, women made up at least 56% of the clothing sector workers and earned wages equivalent to men; a number that has probably increased since then. The investment in Bangladesh by Nike (and other garment foreign garment manufacturers) has led to profound effects on economic opportunities for women in a society where religion and traditional rural family roles constrained women greatly (Langdon, 1999). In addition, through Nike’s commitment to their corporate social responsibility strategy and push for international labour standards, they have worked around challenges that relate to Bangladesh’s situation as presented by the PESTLE analysis (Zadek, 2004).
Politically, Bangladesh’s government is satisfied because one of their main focuses is foreign investment. In relation to Bangladesh’s economy, Nike’s continued investment into the country not only creates more jobs, but also pushes the wages up for the Bangladeshi people. By being one of the first entrants, Nike was able to take advantage of the low wages. Now, because it is pushing for higher labour laws that will impact all companies, it can continue to compete while staying true to its CRS image (Bhattacharjee and Wohl, 2013). Therefore, Nike’s involvement in Bangladesh, which pleases both the government and helps the country’s economy, also betters the living standards of Bangladeshi citizens as well. Again, Nike’s pursuit of fair labour laws and better working conditions show that societal issues are important to the CRS-focused company. A further factor that helped Nike is that it moved into developing nations like Bangladesh early. Because it felt that the risk was worth the reward, the company now is in a better position in Bangladesh and against some of its largest competitors. Nike has had a lot of experience dealing with developing nations and is a very prestigious brand name (Banjo, 2014). One of the most recognized challenges Nike and other corporations face are the factory collapses and working conditions. The largest factory collapse in Bangladesh was the Rana Plaza Garment collapse in April 2013 that killed around 1,100 people and injuring about 2,500 more. (Nike Inc., n.d.). In response to these social issues, Nike limited their activity in Bangladesh to four factories in the “Export Processing Zone” of Bangladesh. Nike promises that all four of these factories must follow internal health and safety codes, have correct fire safety procedures, and submit audits in timely intervals (“A Comparison of”, n.d.). On top of this, since the early 2000’s, Nike has been one of the only companies to present the names and audits of all of contract factories (Nisen, 2013). The company’s demands for better standards, as well as being public with which factories they do business with, is staying true to their CRS promises. They continue to do business in Bangladesh but also push for changes within the country before investing more (Zadek, 2004). These types of experiences, actions, and their recognized name help them when doing business in Bangladesh. Even though Nike does not directly deal with advanced electronic technology, its early entry into the Bangladesh market did bring valuable knowledge into the developing nation. With investments from foreign companies like Nike, Bangladesh’s textile and ready-made-garment industry has grown to become one of the country’s most important sectors. Nike has developed technologies like water free dying, seamless knitted shoes, and clothing made from recyclable plastic (Rabby, 2012). Because manufacturers in emerging economies are working with these new techniques, they can gain knowledge that could be applied in other jobs and situations. These techniques give Bangladeshis more skills, but they also help to fight some of Bangladesh’s environmental problems. Furthermore Nike has trying to become more environmentally friendly by cutting out toxins and other harmful materials out of their products. These ideas are part of their strategy to make Nike production “green” (Sharma, 2013).
Conclusion
The PESTLE analysis of Bangladesh shows that it is not easy to successfully work in Bangladesh, like many other developing nations. Presenting Nike’s history, current situation, strategies in relation to Bangladesh illustrate that it is possible to do so. Through its involvement in emerging nations like Bangladesh, Nike has taken the lead on becoming a CRS-focused but successful company. The high-end sports corporation took a route that many big companies did not dare to travel on: facing human rights and environmental issues head on. This strategy has worked for them, as they are now a Forbes 500 company and a brand well received worldwide (Quality Assurance Solutions, n.d.). Nike’s actions (pursuing laws for workers and being cautious of involvement in Bangladesh) as well as numbers and predictions for Bangladesh make it a very important country for businesses. As it continues to grow, many more companies will want to start investing and to do so they must consider Bangladesh’s problems and advantages from every angle.

References
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