Investment Risks
i) Industry Risks
At the moment faces stiff competition from its competitors, the biggest of them in the form of the recent merger between Adidas and Reebok in January 2006. The net result of this move by the competitors has been continued decreasing market share especially in the United States. With Adidas now in charge of the market share in the United States, Nike is currently faced with the challenge of holding on to its stature as the industry leader which is seriously under threat. As it is, Nike is facing an uphill climb in its efforts to maintain the loyalty of its customers who are increasingly being attracted to brands of such big rivals such as Adidas and New Balance. There is no doubt that it will be extremely difficult for Nike to maintain, attract and gain new customers in the rapidly expanding its market share (Nike Inc., 2010)..
Nike also faces industry risk in the form of the rapid change in technology which has effectively put pressure on Nike to become innovative. This is especially the case because advances in technology in the athletic apparel as well as footwear go a long way to assist a brand gain and maintain it new customers. This makes it imperative for Nike’s research and development to strive to keep up with the new trend if the company is to escape the risks of losing its brand image together with its big sales volume.
ii) Credit Risks
It is feared that the credit risks of Nike Inc. are bound to increase if there is consolidation of retailers or even concentration of the retail market share itself among a handful of retailers. This has got negative impact to the company in the sense that it impairs Nike’s ability to sell its products thus compromising its profitability. The increased market share of competitors who have acquired and constructed additional stores has concentrated the credit risk of Nike with a relatively modest number of retailers (Nike Inc., 2010).. Furthermore, if any of the retailers happen to experience a shortage of liquidity, it would result in increased that may not be able to settle their outstanding payables to Nike. Finally, Nike faces the credit threat of not being able to find other sufficient retail outlets for her products so as to sustain the same amount of sales and revenues where the market share is concentrated among a single or few retailers in a given country or region.
iii) Exchange rate risk
Nike as multinational is at great exchange rate risk owing to the fact that it conducts its transactions in a number of currencies. This means that Nike is greatly exposed to fluctuations in the foreign currency exchange rates in relation to the U.S. dollar (Nike Inc., 2010). Unchecked volatility in both domestic and international markets along with the exchange rated as well as contracts in foreign currencies often have a negative bearing on the company’s reported results and status
iv) Market risks
Nike Company is at present greatly subject to global market risks such the negative effects of fluctuations in the foreign currency exchange rates together with interest rates. Nike employs derivatives to control financial exposures that happen in the normal operation of business but does not issues derivatives for the purpose of speculative trading (Nike Inc., 2010).
v) Political risks
Nike as an international company, is faced with immense political risks. The first political risk is change of government in any of the countries that Nike is established. Change of guard in mature democracies are relatively easier to foresee and plan for. The change could affect the company when there is resultant review of policies pertaining to conducting business.
The other more serious political risk that Nike faces in countries it operates from is violent conflicts that are damaging to trade (Nike Inc., 2010). These are both in terms of internal and external conflicts including terrorist activities are very difficult to prepare for in advance. Other global threats that the company has to contend with include anti-globalization movements, poverty, environmental concerns, and cyber attacks.
References:
Nike Inc. (2010). NIKE, INC. ANNUAL REPORT ON FORM 10−K. Retrieved on April 27, 2012 from: http://media.corporate-ir.net/media_files/IROL/10/100529/nike-ar-20100804/docs/NIKE_2010_10-K.pdf.
