Nordstrom Inc. is an international company that has gradually grown to influence a substantial number of customers since its establishment. The plan by the firm to venture into more international markets is much welcome and promising for the future of the company, especially in the long run. Usually, significant investments do not reward profits immediately after the set-up. Hence the company's wish to advance its branches to the African continent should aim for long-term benefits. However, as the company looks at the desirable growth possibilities and the great opportunities, the investment comes with an absolute number of internal and external risks. Indeed, as the stakeholders lobby for financial support, they need to do a thorough SWOT analysis and make feasible and economically prudent moves.
Internal Risks
Among the internal risks in the company is the limited knowledge on international expansion. This challenge is associated with almost all the current stakeholders of the firm, from employees to the top officials. Most employees in the organization are not Africans. Therefore, the move to invest in the African countries will be challenged by cultural understanding and language barriers. Besides, it would take some time to train the employees to adopt the new land rules and social norms and relate well with the new market. Also, there is the need for local knowledge and experience in the new market, which the current employees lack. This will pose a challenge since many employees in the company are conversant will the American market, but not foreign countries. For instance, Nordstrom Inc. has faced challenges when venturing into the Canadian market due to cultural and knowledge differences. Therefore, the company needs to solve such possible hurdles as it plans to venture into Africa.
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Also, as the company plans to advance to the new African countries, they should bear in mind that the rule of law in different countries differ. The company risks being subjected to acts that may not favor some of its practices. The situation may demotivate the stakeholders or cost them in a way or the other. Again, the news of Nordstrom Inc. venturing into any country will attract the local public attention and response. The reaction by locals may be supportive or attract criticisms from activists. This situation could affect the employees emotionally and their productivity or self-esteem in working in such an environment.
In the past, Nordstrom Inc. has faced employee strikes due to several disagreements between the company management and the workers. The major causes of the strikes are related to wages and the working environment (Jin & Cedrola, 2019). Due to the break out of the covid-19 pandemic, the situation is projected to come up again. The company is already recording a drop in its revenues, indicating a significant impact of the pandemic. Hence special treatment and motivation of the employees may not be possible, even when they venture into the new market. The same situation has hit the workers, and the living standards are high so that they would not cope with the typical situation in the foreign countries.
Nordstrom Inc. will need to perform prior investigations of the African market and culture to address the internal risks. This should involve hiring local laborers and incorporate them with the current employees, who should share ideas on how best to approach the market. Also, the local labor will advise on the best strategies feasible in the region and those which favor the local communities. The company will also work with government authorities and other international organizations to note potential legal hurdles and navigate them for maximum investments and returns. Again, the company should allocate significant allowances to the troop send to work on the new project while giving valid reasons why the wages would stay low due to the covid-19 impacts.
Internal opportunities
On the other hand, even with the several risks that may hinder the progress of Nordstrom Inc. to the African market, the company has numerous opportunities, which motivate the stakeholders to carry on the project. These opportunities have a tremendous financial development promise for the company and gradual growth for a long time. However, the company has been adversely affected by the covid-19 pandemic. The internal opportunities enjoyed by Nordstrom Inc. propel it to success in the new market.
First, the items offered by the company are exclusively diversified. It has a wide range of products ranging from clothes, shoes, and jewelry. With the current generation, many people have an excellent taste for fashion across the world. The industry in which Nordstrom Inc. has invested gives a chance to diversify the products and sell more different brands according to different markets' preferences. Furthermore, the fashioned products are more associated with young people. Apparently, in Africa, a more significant part of the population is the youth. This is an excellent opportunity for the company to prosper in its sales volumes. Therefore, Nordstrom Inc. will provide more products to the African market as more demand arises and products suit the customers.
Another opportunity for Nordstrom Inc. is its investment in eCommerce. After advancing the business to online sales, many clients placed orders over the online platform, which has grown the company's financial balances. Also, the company has sophisticated technology in its online platform, which the competitors have not yet invested in. for example, customers can fit clothes online before making their purchases. This service is not standard in many online companies, hence makes Nordstrom Inc. unique and more customer-oriented. Besides, the company offers an effective channel for customers to return unsatisfying products freely. This feature attracts the confidence of many buyers in the company’s satisfaction. An additional feature in this company's eCommerce platform is the free delivery service. This service is rare in many online shops, and when availed, most shops offer it in a limited condition. The free unconditional delivery service saves buyers money and is a crucial strategy to compete in the online market. Nordstrom Inc. will utilize all these opportunities to attract massive customers and control the entire African market. Consequently, the company hopes for massive sales in the African region due to the sweet offers against the competitors.
Additionally, Nordstrom Inc. has expertise in international markets. The company has ventured into foreign countries such as Canada and established its branches there. Therefore, the management knows possible challenges involved in venturing into the outside market. The company will hence be fast to realign itself in the new market. Also, the procedures which did not work perfectly in the previous ventures in a foreign market will be perfected in the African project. In return, Nordstrom Inc. will take a shorter period to catch up with the market requirements and start earning revenues within a short period.
Nordstrom Inc. has also invested in skilled and efficient customer service. Previously they have earned an excellent reputation over good customer care services. Based on the company’s customer interaction skills, Nordstrom Inc. will utilize the opportunity to win many customers to the new organization. Also, Nordstrom Inc. has a good working relationship with the small and retail sellers in the market. This strategy helps Nordstrom Inc. reach customers through many channels. Besides, Africa has many developing retails which are financially struggling. Hence, Nordstrom Inc. will partner with such firms or purchase them to enhance its market share and commence making big sales in a short time.
External Risks
Nordstrom Inc. is likely to face significant risks in the African market upon establishing an outlet. One common risk in the African continent is political instability. Many countries in the continent are always politicking, and many decisions are made on political interests rather than the common goal of promoting development. Therefore, with changing political regimes, the operating policies for international firms may change, which could favor specific companies at the expense of others. Also, the political leaders in the region are unable to control the surging corruption (KIEMDE & KORA, 2020). For instance, it may be delayed at the customs offices for the company to import products to Africa, as the tax officers demand bribes to allow the goods to pass. Also, as the company embarks on recruiting local employees, the local recruiting officers may award jobs to their relatives, friends, or other people who offer bribes, regardless of their qualifications. Nordstrom Inc. will work with recruiting companies that offer the best-qualified employees as the management demands. Corruption is a common vice in many African countries, which hinders the genuine prosperity of firms. This poses fear among investors who are not ready to tolerate social impunity. Since this risk is beyond the control of the management, Nordstrom Inc. will always uphold the rule of law in different countries and avoid unethical practices at all costs. This strategy will save the reputation and integrity of the company, such that there is no time the company will be in disagreement with the government.
Also, the majority of African nations are developing economies. These countries are challenges by economic instability and substantial debt levels. Unfortunately, the countries in the region continue to borrow, imprudently which worries the economy's long-term stability and development. Again, the developing economies suffer from high inflation rates, posing a significant threat to the currency rates. The underdeveloped economies are also associated with low infrastructure capabilities.
Consequently, it may turn out quite challenging to deliver purchased products due to impassable roads. Many roads are dry weather roads, and the cities are often put to a standstill due to traffic jams. To survive this challenge, Nordstrom Inc. will do a thorough financial analysis and economic projections of a country. Therefore, management will invest the conviction that economic development will stabilize steadily.
Again, literacy levels in Africa are still low. Therefore, getting skilled labor for the company will be a challenge for Nordstrom Inc. besides, training the new employees could take time and be more costly as they are not exposed to managerial training. The company will need to establish connections with the local people, to understand the conditions of the bureaucracy and regulations. The local connections also give information on cultural norms and their limitations. This group is dire to the organization since African culture is paramount, and the African society upholds it dearly. Hence, Nordstrom Inc. will work with the local public closely.
Furthermore, the diversified African culture calls for diversified fashion and demand. The tastes of Africans in Europe or America may significantly differ from the preferences of those in home countries. Also, even in Africa, different countries or regions have different cultures and preferences. For an instant, Nigerians and people in western Africa have the Naija fashion, which they most prefer. The East African region has a different sense of fashion while South African countries have different tastes. This, therefore, means that the company will need to make customized clothing for every country it enters to attract a significant demand.
Macroeconomic Factors
Several microeconomic factors influence the success of international firms once they venture into the international market. The most common microeconomic issues in the market are the location of the stores and competitors (Adji et al., 2018). The company set up its main outlet determines the accessibility of the products in the required time and by customers. Therefore, it influences the rate at which customers can note the new products. Also, location is influenced by the demand and convenience of supply to other small outlets. Several international companies have noted this factor to be critical when making the decision. Nordstrom Inc. will make its major outlets in the major cities of the economic strongholds in Africa. Also, Nordstrom Inc. will install the stores in countries such that supply to the neighborhoods will be faster and convenient. These would include countries like Nigeria in West Africa, South Africa in the southern countries, Kenya in East and Central Africa, and other relevant countries. Also, the company would rent the stores in malls before the permanent establishment of bigger stores. Malls are essential since they attract many people, and many fashion shops are hosted there, attracting fashion-oriented customers.
Nordstrom Inc. will also emphasize its competitive advantages to compete with the suppliers of substitute goods. The primary competing tactics will be thorough marketing, good customer relations, and services. Offers like free delivery, free return on unsatisfying products will be advanced. Advanced technology such as online fitting and convenient online purchase platforms will also counteract the strategies adopted by competitors.
Additionally, Nordstrom Inc. upholds that the diversified culture in Africa will have different demands for different products. Also, African countries are suffering from high unemployment rates. Therefore, since many countries will not promote the import of products in their economy, Nordstrom Inc. will manufacture the host countries' products. This idea will create employment opportunities in the host countries and achieve cheap labor in return. That way, the company will be a friend to the economy and the government. Also, the company is likely to enjoy unique benefits such as subsidies and incentives from the government. Hence it will cut on the production costs.
Alternate Financial Scenarios
Upon setting up the investment, the next project is to keep an eye on the company's financial performance. The focus is analyzed concerning the anticipated sales volume. Variation in sales may call for action or may not, depending on the nature of the variations. For instance, a drop in sales below the anticipated point by, say, 20%, maybe in one or few locations. If this happens, the company will strategize on recovery measures of the locations. However, if the drop happens all across the new outlets, the management would convene a quick and particular strategy to analyze the possible causes and subsequent move. However, the drops in sales would only make a significant impact on the African venture. This is because the investment is made independent so that the failure of one continent may not affect the other continents. If the sales rise by 20% above the expected level in few locations, the company will maintain the steady growth and possible advancement of those locations. Nordstrom Inc. would also copy the features from these locations to employ them in the other locations. If the growth is all around the continent, the company will strategize on investing more and maintaining the growth.
The net present value of Nordstrom Inc. would be compared to the last three-year-revenue average income to the same period average assets. Whether to continue investing or not should be considered the impact of a covid-19 pandemic on the global economic performance. Therefore, assuming the average net present value for the past three years is 5%, anything better than 5% should prompt the stakeholders to invest more. However, if the net value amounts to less than 5%, the firm should review the investment decision. Also, if the company achieves an internal rate of return (IRR) higher than the average, then there will be a need to invest more. Also, if the rate is low, managers would review other investment strategies. Therefore, if the payback values such as net earnings are positive and more than expected, the investment would continue the average of the past three years. If the results turn out negative, the project may be revisited or terminated. However, the management will be keen on the time value of money. This is due to the varying currency value in different countries and the static nature of the exchange rates. The wrong valuation of the currency against the dollar may cause miscalculations, hence wrong conclusions concerning the project's financial performance.
References
Jin, B. E., & Cedrola, E. (Eds.). (2019). Process innovation in the global fashion industry . Palgrave Macmillan US.
KIEMDE, S. M. A., & KORA, A. D. (2020, December). The Challenges Facing the Development of AI in Africa. In 2020 IEEE International Conference on Advent Trends in Multidisciplinary Research and Innovation (ICATMRI) (pp. 1-6). IEEE.
Adji, S. S., Ahn, Y. S., Holsey, C. M., & Willett, T. D. (2018). Political capacity, macroeconomic factors, and capital flows. In Political capacity and economic behavior (pp. 127-146). Routledge.
