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Assess one effect on Nike of Indonesia being a member of the ASEAN trading bloc. - Edexcel - A-Level Business - Question 2 - 2022 - Paper 1
Question 2
Assess one effect on Nike of Indonesia being a member of the ASEAN trading bloc.
Worked Solution & Example Answer:Assess one effect on Nike of Indonesia being a member of the ASEAN trading bloc. - Edexcel - A-Level Business - Question 2 - 2022 - Paper 1
Step 1
Effect on Trade Barriers
Answer
As a member of the ASEAN trading bloc, Nike benefits from reduced trade barriers such as tariffs and quotas in Indonesia. This membership allows Nike to operate in a more competitive market with lower operational costs. Because Indonesia has a large population, the removal of these barriers gives Nike the opportunity to expand its market presence and increase sales.
Step 2
Increased Competition
Answer
However, being part of this trading bloc also means that competitors like Adidas, which operate in other ASEAN countries, can access the Indonesian market with the same benefits. This increased competition could threaten Nike’s market share and profitability, as competitors may also lower their prices to attract more customers.
Step 3
Access to Raw Materials
Answer
Additionally, being in the ASEAN trading bloc may improve Nike's access to suppliers for essential materials, such as rubber from Malaysia, which can be procured at lower costs. This could potentially reduce Nike's production costs and enhance its profit margins in the Indonesian market.
Step 4
Market Strategy Evaluation
Answer
Moreover, Nike may need to evaluate its market strategy more closely. If the primary focus shifts to cheaper production in Indonesia while sending finished products back to North America and Europe, the benefits of ASEAN membership may be minimized. Nike could potentially lose out on opportunities for greater local market penetration in Southeast Asia.
Step 5
Conclusion
Answer
Overall, while membership in the ASEAN trading bloc presents opportunities for Nike in terms of reduced trade barriers and possible cost advantages from local sourcing, it also introduces challenges from increased competition and the need for strategic reassessment of its market approach.