Under Armour Quest for Japan
Instructions:
Final Project Report
This project will give you exposure in exploring and analyzing international investment opportunities for a U.S.-based firm of your choice. For this project, you take the position of a consultancy firm that has been hired by this U.S.-based firm (that you chose) to prepare a report on the attractiveness of a foreign country for investment. You will select the U.S.-based firm and its target country in consultation with me. . For this project, you need to write a comprehensive report on the business environment in the target country in general and on the international competitiveness of an industry in the target country specifically.
This project is not designed to be a term paper in which the views of others are simply summarized. You are the analyst, and it is your job to integrate relevant information and to form your own opinions and views. This project will require you to analyze data. Potential data sources for the project are available at the end of this assignment.
In order to provide a comprehensive analysis of the business environment in the target country, each report must address the business opportunities and challenges presented by each of the contextual dimensions listed below. The analysis should cover the last five years, or as constrained by information limitations. The primary focus should be on more recent events (Present to 2 years).
The full report should be between 3000-4000 words. You can attach any analysis or data in appendices, which will not be counted towards word limit. The report should include the following sections:
1. Introduction:
In this section you should give a brief description of the client firm, its industry base and the general background information of the target foreign country (i.e., location, size, population, resources etc.). This section should include a brief time-line of the main historical events in the foreign country. It should also include basic economic and financial market issues such as monetary policy, exchange rates, sovereign debt or defaults, major imports and exports or other important market background. This section should not exceed two pages.
2. Political-legal analysis of the country’s attractiveness for FDI:
In this section, provide a brief description of the target country’s political-legal structure and its stability. Describe the type of government and recent political developments that could influence the economic and business environment of the country. Be sure to also carefully cover political risk ranking measures for the target country. Identify formal and informal trade barriers (tariffs and other taxes, foreign exchange controls, ownership restrictions) that might require a company to adapt its business strategy. Analyze the rules and regulations that apply to foreign owned firms including ownership rules and repatriation of profits in the target country. Analyze host government efforts to attract foreign investment. Discuss the country’s regulations to protect intellectual property, such as brand names, copyrights, patents, software, music, videos. Please also discuss the legal risks of doing business in the country. This section should not exceed three pages.
3. Economic analysis of the country’s attractiveness for FDI:
In this section, assess the country’s recent economic conditions related to GDP, inflation, interest rates, currency value, personal income, and employment. Suggest how these economic factors may attract or deter foreign investment. Analyze the infrastructure of the country with regard to availability of transportation, communication, and utilities. Examine the ease of starting a business, registering property, dealing with construction permits, employing workers, and paying taxes in the target country. These factors interact for time and cost to start and run a business and help to shape the local business environment. This analysis should not exceed two pages.
4. Socio-cultural analysis of the country’s attractiveness for FDI:
In this section identify demographic trends (such as birth rates, literacy rates) that might influence business activities in the country. Using Hofstede’s measures on business culture, the GLOBE study, and the World Values Study and other country level data provide an analysis of the different aspects of the target country’s culture such as do’s and don’ts, negotiation strategies, business specific cultural practices, and compare them with those in the American culture. Foreign chambers of commerce and the US Commercial regularly provide information on the local business culture. Check their publications that focus on the local business experiences of foreign firms and workshops of doing business in the country you have chosen. This analysis should not exceed three pages.
5. Currency policy analysis of the country’s attractiveness for FDI:
In this section analyze the present and historical performance of your country’s financial markets including both equity and debt markets and the foreign exchange market. In this section you should analyze financial risk profile of the country. This analysis should not exceed two pages.
6. International Competitiveness and Innovation Potential:
In this section provide an analysis of the country level competitiveness as measured by the World Economic Forum (WEF). This analysis should include how the country fares with regard to the current pillars of competitiveness identified by WEF and how trend in competitiveness at the national level. Highlight competitive advantages the country has along with those areas where the country lags significantly behind.
In addition, also provide a detailed analysis of the target country’s international competitiveness in the industry in which the U.S. seeks to invest. Utilizing Porter’s Diamond of National Competitiveness framework list the country’s factor endowments, the existence of related and supporting industries, demand conditions, and the structure and rivalry inherent in the particular industry. This analysis should not exceed three pages.
The third part of this section – an analysis of the innovation potential of the country – is not mandatory. The relevance of this section will depend on your choice of the firm, industry and the target country. Sustainable competitiveness depends on innovation and when a firm decides to enter and invest into a country its innovation system plays a role it is long term success by facilitating local innovation and value creation. The analysis of the country level innovation competitiveness may be based on national level indicators of innovation including expenditures on research and development, the rate of domestic and international patenting, resources and infrastructure provided by government to support innovation.
The INSEAD – Cornell – WIPO Global Innovation Index provides a comprehensive database of innovation indicators and country level analysis and provides an excellent resource for understanding innovation at the country and regional level.
- Recommendations:
In the final section you should integrate your analysis of the country-level factors and industry-level factors related to the business environment and provide recommendations to your client. This section should provide a clear picture of the future outlook, investment opportunities, and how a US firm should approach, enter and operate in the market. The types of questions that should be consider include the following:
- What are your investment recommendations?
- How should a firm do business in the country?
- What are the near future performance prospects?
- In answering these questions examine the business climate, political, economic, socio-cultural, financial, innovation and competitiveness conditions of the country under study.
The report will be evaluated based on the following criteria:
- The analysis is logical and well argued.
- The analysis incorporates original research findings.
- The analysis incorporates relevant concepts/frameworks/research findings from course materials.
The report is well organized, written, and professionally prepared
Solution
Under Armour Quest for Japan
Introduction
Under Armour is an establishment that deals with selling sporting garments and accessories. It sells its products to women, men and kids. Kevin Plank started the organization in 2006. Its global headquarters are in Baltimore, Maryland. It also has corporate offices in North America, in Houston Texas and Austin. Also, Under Armour has stores in Denver, Colorado; San Francisco, California; New York; Portland, Oregon; Toronto, Ontario; and Nashville, Tennessee. The firm’s international headquarters are in Panama City. Additionally, the establishment is in Mexico and China. Under Armour’s unique and quality products make it attractive to many people playing sports thus its continuing success. It also attributes its success to the choice of consumers to incorporate athletic gear in their everyday attire.
The firm wants to expand into Japan. Japan is an excellent location for Under Armour, and careful analysis and planning will result in favorable returns. Japan is a sovereign island located in Eastern Asia. It covers an area of 145,932mi2 (“Japan | History – Geography”). Its population of 127 million people makes it the number ten largest populace in the world. It consists of various ethnic groups: the Japanese, Chinese, Korean, Brazilian, Filipino and Vietnamese. Japan’s currency, Japanese Yen, is quite high and continues to grow despite the volatility of the economy. The island is optimistic that its money will continue to grow despite the 2016 forecasts that it will fall in 2017. It is, however, challenging to predict the strength of currency due to external forces that can change any time thereby affecting money.
Japan lacks natural resources like natural gas, oil, coal, copper, and iron. It, however, has the potential to hold abundant resources since 68.2 percent of the Island is covered in forests. Additionally, the country is yet to tap into these forests and the oceans surrounding its archipelago, which are proved to be rich in natural resources. However, Japan contains reserves for methane hydrates, and these reserves have the ability to provide for the nation’s consumption of gas for over one hundred years. Moreover, the country contains deposits of silver, gold, chromium, manganese, heavy metals and nickel. These deposits have the ability to offer export and employment opportunities to the citizens of Japan. It is, therefore, a lucrative country to invest it due to its natural resources and the potential it holds to produce natural gas. Its primary exports include vehicles, iron and steel, machinery, plastics, rubber, gems and precious stones, optical medical and technical apparatus, and ships and boats. Its main imports are mineral fuels, clothing, pharmaceuticals, organic chemicals; and ores, slag, and ash.
Japan has had significant historical events. It has hosted several Olympic Games and world cups such as the FIFA world cup. Japan held the Olympics in the years, 1964, 1972, and 1998. Its ability to hold these events are proof that the nation has the funds and favorable socio-political features to support international events. It has suffered several earthquakes with the greatest one experienced in 2011. Other earthquakes occurred in 2004, 1995, and 1923. Also, the Kyoto Protocol came into force in 2005, a symbol of the nation’s development after the war. Not to forget the role that the country played in the first and second world wars. Japan has grown into the industrialized nation after the fatalities and the losses it experienced in the wars and the earthquakes. It continues to bring about the latest technology and create technological awareness in the world through the invention of sophisticated technological developments.
Analyzing the Political-legal condition of the country’s attractiveness for FDI
Japan’s constructed its present political system after its defeat in WWII by America. The system is recent when compared to other nations. Its 1947 constitution is anti-military and includes the country’s renunciation of its right to declare war and prohibits the armed forces maintenance. It, however, permitted a limited re-armament that resulted in the self-defense forces. Japan is a democratic state. However, its democratic state differs from other European countries like Germany and France because of its one party, the Liberal Democratic Party that has ruled the country for over 50 years. The state contains the legislative, executive and judiciary branches. It is a constitutional monarchy led by an Emperor. The Emperor’s powers are limited. The Emperor is a formal figure. He / She is the symbol of unity for the people and the state symbol. The nation has a Prime Minister. The people chose the Prime Minister for a four-year term.
However, most Prime Ministers do not complete their terms. They leave the office due to health issues, scandals, and impeachment. The constant changing of Prime Minister creates instability in the Japanese government. Leaders require ample time to make a change, and constant changing of the Prime Minister position makes it difficult for the leaders to fulfill the goals and promises made to the people. The impeachment and stepping down of the corrupt leaders is noble as it serves to reduce corruption. However, Japan needs a Prime Minister who will serve the county for the full term to achieve individual policies and goals for the country. Besides one leader will ensure stability and reduce the confusion and time wasted when swearing in another Prime Minister. More so, the 1996 to 2015 Political StabilityIndex for Japan shows that the nation has a likelihood of being overthrown or destabilized by violent or unconstitutional means that include terrorism and violence motivated by politics (“Japan Political Stability – Data, Chart | Theglobaleconomy.Com”). The government can prevent these occurrences by providing the people with what they want politically. Such initiative shave occurred in the past through the formation of coalitions.
Japan has several trade barriers that US organizations face during exporting products to the nation. The barriers are non-tariff barriers since the country has very few if any, tariffs (“Japan – Trade Barriers | Export.Gov”). Some of the non-tariff barriers that American companies face include: formal, de facto and informal standards, which are unique to Japan. Japan also has a prerequisite in some projects or sectors that require companies to show prior experience in the state thus preventing new entrants into the market. There also exist official regulations that are for products that are domestically produced thus discriminating against foreign goods. The state has enforced licensing powers that influence the market sharply, has limited membership, and contains the ability to operate without supervision and control information. Lastly, the cultural significance of Japan’s personal relationships and the unwillingness to modify or break business relationships make it difficult to bring about business in Japan. The non-tariff barriers listed above may make it difficult for Under Armour to invest in Japan. Luckily, the company has interacted with the country in the past thus the government is likely to allow its investment. Moreover, the high quality of the enterprise’s products and the lack of such products in Japan give it an opportunity to expand in the country.
Various rules exist when foreign investors want to establish their companies in Japan. They need to provide a certificate that proves the registration of the enterprise and the company seal. The FDI companies also have to ensure that their businesses do not go against the non-tariff barriers. They should provide notifications upon registration and close any branch offices and subsidiary companies. They should meet all the regulations pertaining visa acquisition and residence status. Their employees should clearly state their working status and apply for their visas according to those statuses. These companies should comply with all the rules. The adoption of standards to evade the paying of tax may result in the closure of the business and seizure of assets.
Also, Japan requires that trademarks are registered and that the products introduce do not infringe on the patent and trademark rights of the countries companies. The FDI companies are to protect their products by carefully registering their products to prevent imitations and theft from other businesses. The employees of these FDIs are to abide by the rules of Japan that involve hygiene and safety regulations, occupation laws, the Japanese SocialSecurity system and legislations on the requires working hours, days off and breaks. Under Armour should ensure that it complies with all these regulations for the company to venture in the Japan populace. Management should avail all documentation and prepare the employees who will start up the business in the designated location. Also, it should decide on its corporate social responsibility to the Japanese. The CSR may include the creation of employment, scholarship programs or the preservation of the environment.
Analyzing the Economic Condition of the country’s attractiveness for FDI
The economy of Japan ended on a positive note in 2016. The retail sales and industrial production increased amicably in November (“Japan Economy – GDP, Inflation, CPI And Interest Rate”). The GDP per capita was 34484. The GDP (USD bn) was 4117, and the Economic growth was 0.5%. The domestic demand increased to 0.1%. However, the consumption dropped by 1.2%. The decline may result from the decreasing population which is said to continue falling with many households only producing one child. The investment increased by 0.1%. The increase was quite small compared to previous years which had investments of more that 1%. The exports were 2.7% while the imports were 0.2%. The production of industrial products dropped by 0.9% while retail sales declined by 0.4%.Unfortunately, the unemployment rate increased by 3.4%. The Fiscal balance was at -6.7% of the nation’s GDP and the public debt was at 209% of the GDP. The inflation rate was 0.2% eop, 0.8% CPI and -2.3% PPI. Lastly, the country’s exchange rate versus the USD was 120.3.
These economic factors are very favorable to foreign investors (“Japan – Openness To And Restriction On Foreign Investment | Export.Gov”). The growth in the economy is proof that Japan’s economy is a sound investment and will thereby generate revenue for Under Armour. The increased demand shows that the products have a ready market. The reduced consumption may discourage the organization, but it may counter these effects by proper marketing, product differentiation and producing the products that meet consumer tastes and preferences. An increase in investment acts as a motivating factor as it depicts Japan as a desirable state for making investments. The increased exports and weak imports percentages are proof that acting as an FDI is better than importing the products to the Japanese markets. The incentive by Under Armour to invest in Japan will improve its sales as opposed to importing its products which are expensive and needs the company to follow many regulatory processes. Besides, investing the company in the country will make Under Armour products readily available to the Japanese citizens. Expansion to Japan will increase industrial productions thus increasing the retails sales which dropped in 2016. Additionally, moving to Japan will create an employment avenue for Japanese citizens thus reducing the unemployment rates. Work will improve the economy through consumption, saving and investments. The economic factors provide enough proof that it is lucrative, for both Under Armour and Japan, when Under Armour, invests in the country.
Japan is the third strongest economy in the world. Consequently, its infrastructure is well developed and contains the latest technology. The state has sophisticated transport facilities including modern electronic trains, advanced cars and well-maintained and developed roads. Japan has advanced communication with the telecommunication devices of the latest technology. The utilities are modern with state-of-the-art medical facilities that have advanced technological features. The school curricular is regularly updated and quite advanced, and children specialize at an early age.
The process of starting a business in Japan is strenuous as it entails complying with the various regulations that include registration, licensing, taxation and patent laws. However, it becomes easier to settle in once Under Armour complies with these processes. Management should ensure that proper documentation exists and that it meets all procedures for registration, construction and the human resource settling in the country. As mentioned earlier, the company should decide its responsibility to the country to give back to the community. It should not only aim at increasing its sales and market but also at improving the state of Japan. Such an initiative will increase the company’s popularity thus increased sales and profits. It will also pave the way for more US companies to invest in Japan.
Socio-cultural analysis of the country’s attractiveness for FDI
Japan’s birth rates have reduced with many families birthing only one child. The modern state of the country makes it difficult for parents to work productively and rear off springs. The country has advanced literacy rates with developed curricular and teaching aids at school. The tuition fee is also affordable making it easy for parents to provide quality education to their children. The focus on production and the excellent literacy facilities have improved the business activity of the country thus strengthening its economy. The country should, however, develop strategies on how to increase its decreasing populace.
The Under Armour staff and management should have adequate knowledge of the Japanese cultural practices before they move their business to Japan. People of Japan respect each other and thus aspire to fulfill the promises made to one another. Under Armour should, therefore, strive to meet all its obligations and commitments to Japan. Also, time is a commodity in Japan. The company should meet deadlines and the various timelines if it intends to continue operating in Japan.
Corrupt activities and disloyalty are discouraged, and severe consequences result from such heinous practices. Under Armour should not engage in any fraudulent activities but should instead follow the various policies and regulations. The organization should respect issues concerning patent rights, trademarks and should provide quality products as opposed to using Japan as a dumping site for inferior products. The organization should respect all the customs of the country, and the employees should assimilate their practices to that of the Japanese lifestyle. Lastly, the company should aim at resolving its disputes and disagreements through negotiations and arbitration as opposed to law courts. Arbitration provides a better conflict resolution process that safeguards the privacy and image of both parties. The American culture contains the above features, but some cultural practices differ from those of Japan.
Analyzing the Currency policy of the country’s attractiveness for FDI
Japan’s financial markets have improved as compared to the country’s previous performance. The state registers more inventions than in the past. It is the number one technologically-advanced country with the creation of sophisticated and expensive technologies. Its advancement in technology has resulted in the economy becoming the third strongest in the world.
Japan faced a deep financial crisis in the past. Its financial system was weak, and the banks’ credit ratings declined. Several banks collapsed. The banking sector, insurance companies, and security firms dropped after years of dominating the financial markets. The Japanese Yen was weak, and few countries conducted business with Japan. The stock market of the Japan’s products was quite weak and did not attract investors to the country.
Japan’s state however changed in the 2000’s as the country began reclaiming its financial position. Its attempts were successful thus resulted into reviving the economic sectors, strengthening the Japanese Yen and increasing FDI ventures. However, the country loaned money to return the country to its past glory with its public debt at 209% in 2016. The debt has not immobilized development but is instead motivating the country to work hard to fully pay the debt thus easing the effect the debt has on its citizens.
Currently, the country is flourishing with the stock market of its products increasing depending on the industry. The country faced financial challenges and decline in the past but was able to pick itself up and flourish thus improving its economy drastically. It is highly unlikely for the country to face its past financial conditions thus a good venture for Under Armour to invest in it. Also, the state contains a willing market for Under Armour, especially in the sporting industry. Therefore, the organization has a survival chance and an opportunity to flourish if it meets the various Japanese regulations and avoids illegal activities.
International Competitiveness and Innovation Potential
WEF contains 12 competitiveness pillars. Infrastructure; Financial market development; Institutions; Primary education and Health; market size; Training and Higher education; Technological readiness; Good efficiency of markets; Labor market efficiency; innovation; sophistication of business; and Macroeconomic environment (“The 12 Pillars Of Competitiveness”). Japan is highly competitive based on these pillars. The country contains many administrative and legal frameworks through which the government, firms, and individuals interact with for wealth generation. The structures explain why many businesses want to have partnerships with Japan. Its government is not corrupt, and there exist proper regulations to allow competitiveness. The lack of tariffs encourages FDIs and other countries to conduct business with the state. As previously mentioned, Japan contains modern infrastructure that has enabled international marketing, economic growth, and reduced economic inequalities. Poverty is also not prevalent in the country due to the updated infrastructure.
Japan’s macroeconomic environment is quite stable despite its public debt. The inflation rates are controlled thus reducing the weight of inflated prices on its citizens. Japan has developed its Health and primary education sector with advanced health facilities which tend to the societal sick members. The primary education quality is high with most children receiving formal education thus have literacy skills. Japanese children are brilliant and talented due to the excellent education. The children provide a skilled workforce to growth thus the talent in the various industries. The country also offers quality regarding higher education and training. There exist fully equipped higher learning facilities that provide for the needs of students. The students, therefore, specialize in specific occupations based on their skills and talents. The excellent higher educational facilities explain why students across the globe apply for scholarships in Japanese universities.
Japan labor markets and good markets are quite efficient. Despite the 3.4% unemployment rate, the country has excelled in providing employment to its citizens. Unemployment will decrease with increased incentives like FDI. The country is technologically ready with increasing technological developments. It ranks in the top position of technological advancement and development. The Japanese financial markets continue to develop with the increasing economic growth and the strength of its currency. The stock markets and the power of the financial institutions support the growth. Lastly, Japan is very innovative, sophisticated in business and its market size is big and continuous to grow as the country continues development in the forests and the ocean.
The sport’s industry of Japan continues to grow, and thus the country provides a good forefront for Under Armour’s investment. Successful expansion to Japan will allow the company to provide gear to the Japanese sports clubs thus increase market share, and customer base. The countries competitiveness makes it developed and advanced thus the organization will fully focus on investing its products as opposed to improving infrastructure to suit the organization’s standards.
Porter’s model, the Diamond model, explains that there are reasons that sustain the competitive nature of industries globally (Bettis et al., 1413). The internal raw materials of a company provide it with factors that create competitiveness globally. Japan has four-factor endowments that include government support, culture, skilled labor and a strong knowledge and technological base. These endowments make it possible for the success of local industries and FDIs. The government regulations support industrialization and do not contain many policies that discourage investment. The schools and training facilities provide competent and highly skilled personnel. Additionally, the technology and knowledge create innovation and creations that make operations easier.
Japanese demand conditions support the FDI of Under Armour. The increasing demands will help the organization by establishing markets and increasing its customer base. Even though the sporting industry has existed for many years in Japan, Under Armour’s products are unique and durable thus already have a competitive edge over the other related and supporting industries. It is, therefore, easier for Under Armour to enter the Japanese market and succeed. Lastly, Under Armour’s structure and its system of management are hierarchical thus provides order and respect for management. It will, therefore, serve well in Japan with minimal disputes.
Recommendations
Under Armour should consider investing in Japan and start making the necessary preparations for delving in the Japanese markets. It should ensure that all its records are updated and that the finances required for the transitions are available and enough. The employees should familiarize themselves with the Japanese culture to allow easy assimilation into the Japanese lifestyle. Also, honesty and upright behavior are necessary to invest and conduct business in the country entirely. Management should, therefore, ensure that all business practices are legal and that the legal department understands the requirements for registration and licensing the firm in Japan. It should comply with all the patent and copyright rules involving the creations of other organizations. Laxity in following these procedures has severe consequences including prevention from future inventions.
In
conclusion, Under Armour should follow all the requirements strictly and avoid
shortcuts. It should understand that Japan is quite lucrative and that a good
relationship will ensure economic development, profitability, growth and
success for the organization. Besides, since the country is highly developed,
the primary focus for the business is entering the Japanese market, creating
high-quality goods at an affordable price to the Japanese people. The company
should also give back to the society by creating employment, providing
scholarship opportunities and financing charity organizations. Such a gesture
will benefit the Japanese community and will improve the organization’s
popularity, and create a positive image that will attract more customers to its
products. The company should also disengage itself from any corrupt activities
or partners (if any) for the Japanese people to readily accept its products and
its expansion to the country. Japan is a good front for business and Under
Armour will benefit if it does what is required.
Works Cited
Bettis, Richard A. et al. “Theory In Strategic Management”. Strategic Management Journal 35.10 (2014): 1411-1568. Print.
“Japan Economy – GDP, Inflation, CPI And Interest Rate”. FocusEconomics | Economic Forecasts from the World’s Leading Economists. N.p., 2017. Web. 21 Feb. 2017.
“Japan | History – Geography”. Encyclopedia Britannica. N.p., 2017. Web. 21 Feb. 2017.
“Japan – Openness To And Restriction On Foreign Investment | Export.Gov”. Export.gov. N.p., 2017. Web. 21 Feb. 2017.
“Japan Political Stability – Data, Chart | Theglobaleconomy.Com”. TheGlobalEconomy.com. N.p., 2017. Web. 21 Feb. 2017.
“Japan – Trade Barriers | Export.Gov”. Export.gov. N.p., 2016. Web. 21 Feb. 2017. “The 12 Pillars Of Competitiveness”. Global Competitiveness Report 2014-2015. N.p., 2016. Web. 21 Feb. 2017.
