Nordstrom: Risks
Internal
A risk in an organization is defined through demonstration of anything that has the capability of presenting threats to the achievement of set objectives. At the same time, risks can be an expected or unexpected event with the potential of limiting the ability of a firm (Mohammad, Ghwanmeh, & Al-Ibrahim, 2014). In the case of Nordstrom where the organization seeks to expand into a new market in Hong-Kong through a physical store, specific internal risks and opportunities should be expected. Internal risks are caused by factors within the organization, and there is a possibility to have them controlled. Using effective risk management strategies, Nordstrom can forecast the existence of internal risks creating a chance of reducing the occurrence of damages such as loss of finances.
The first internal risk that the organization faces is related to the human factor (Beers, 2018). Human factor risks include dishonesty on the part of the employees, having leadership or management which is ineffective, and failure by external suppliers or producers. Issues related to personnel might cause challenges in operations. Employees who are injured or become ill delays the timeframe estimated for implementing the project because of reduced productivity. As a result, the organization will be forced to outsource to fast-track the expansion into the new market an aspect which increases the budget for expenses initially estimated. The second internal risk is related to technology. Technological risks include the changes that are unforeseen during the distribution or delivery of the firm’s product to the new geographical region (Toma, & Alexa, 2012). For instance, Nordstrom could face the risk of having outdated systems that are unable to track the distribution of products from the warehouse to Hong Kong. It will require having adequate capital to replace or update the methods to avoid unnecessary losses during product shipping. The last internal risk associated with the project is the physical risk. Physical risks would involve damage or loss of a company’s assets. Loss of assets could be through stealing by some unscrupulous employees.
An occurrence of internal risks will result in a direct negative impact on the financial estimates. In particular, the financial forecasts of setting up the store in Hong Kong include the cost of paying the employees, setting up the store and rent. Internal risks contribute to the increase of incurred expense. For example, if leaders at Nordstrom fail to make an informed assessment of the exact rent space needed, less space could be rented, and upon setting up the store, the company could be forced to let at another nearby location often at a higher rate. Nonetheless, to avoid such a scenario, the organization should invest in a risk management strategy that addresses each internal risk. For instance, to reduce the employees’ risk, proper training programs should be put in place for all members of staff. Training programs would expand the knowledge of staff members into making appropriate decisions. Moreover, leaders should adopt effective management styles such as transactional approach where consultations are done before making the decision. Secondly, to minimize the technology risk, Nordstrom should invest in suitable knowledge management system. Finally, physical risks can be reduced through the installation of security cameras and authorization cards for employees. Successful curtailing of internal risks could be vital in ensuring that the financial estimates vary within levels which can be manageable.
On the other hand, there are specific significant opportunities associated with expanding to Hong Kong. The first opportunity is on increasing the visibility of the company through physical presence. Currently, the company serves the customers in Hong Kong through an online platform (Tang, n.d.). Therefore, there is a high possibility that some consumers are not aware of the company’s existence. Nevertheless, through opening a physical store, the company will increase its visibility, at the same time attract new customers, and make sales. Secondly, Hong Kong is one of the top shopping destinations in the world with elite consumers who seek high-end products. Thus, the project provides an opportunity to offer its quality products in this market and compete with the companies that have already set foot in Hong Kong. As a result, Nordstrom will increase its global market share. Initially, the company intends to open a single physical store. However, proper management of the store and its success will provide an opportunity to open several stores in the city.
Moreover, operating in the new market will offer the firm a chance to acquire smaller retail chains in China and economies that are emerging. Through the project, the company also has a chance to produce innovative material for the fresh consumers who focus on organic and green products. For example, the company sells chemical, cosmetic products (Kopelman, Chiou, Lipani, & Zhu, 2012). As a niche, Nordstrom can introduce a line of cosmetics for consumers who use natural products without added supplements. Moreover, for the emerging average and middle-class customers, Nordstrom should seek to identify their needs for their satisfaction. Expanding into Honk Kong also provides an opportunity to launch luxurious items at prices which are reasonable. The luxury fashion market in China is growing, and Nordstrom could take advantage by seeking to satisfy the needs of this emerging consumer who is influenced more by aspects such as quality and the class in the society than the marketing done by the firm.
New opportunities for the company emanating from the new project will affect the financial estimates. For any organization in a competitive market, taking advantage of fresh and unique opportunities is vital. Therefore, Nordstrom will have to explore further opportunities before seeking to implement them. Thus, the company requires having adequate capital for research and development which will lead to increment in the financial estimates. Further, upon implementation of the opportunity, more financial resources will be needed. For example, if Nordstrom seeks to open two stores in different busy streets in Hong Kong, financial estimates will double. As a result, the company will have to develop a plan for possible implementation of the available business opportunities. Sourcing for finances to implement the present project will take time. Thus, considering new opportunities will increase the financial estimates, Nordstrom should pursue the current project and based on the rate of success, the source for other funds to execute the new business openings.
External
External risks are not controllable by any input from the organization. External risks develop because of economic events arising from the outside of the company. Besides, forecasting external events leading to the external risks is an impossible task and hence, a challenge reducing the associated threats. Concerning investing in a store in Hong Kong, Nordstrom will likely be faced with three external risks specifically economic, natural, and political risk (Beers, 2018). It will be important for the organization to put in place mechanisms that address these qualitative risks. The external risks will have an impact on the success of the proposed investment.
First, economic risks involve changes in the conditions of the market. Globally, all economies face risks which means that despite Hong Kong being among the fastest growing economies in the world, Nordstrom should have adequate measures to prevent adverse externalities. For example, an economic downturn in Hong Kong or China can lead to unexpected loss of returns. Additionally, slow growth in the economy coupled with increased inflation decreases the financial success of the proposed investment. On the other hand, a boom in the economy can positively affect financial triumph in the store expansion project. Considering that hedging against economic risks is not achievable, having the knowledge and understanding of what are the driving factors in the specific market helps to maximize the opportunities and manage the threats. Thus, Nordstrom will continuously be monitoring various economic factors that that can positively or negatively influence the economy of Hong Kong and China in general. Based on the results from a continuous evaluation of the economy, the company will decide on the model to invest.
The second external qualitative risk that is likely to influence the operations of Nordstrom in the new geographical location is natural risks. Factors associated with natural risks include natural disasters affecting how the business operates. For instance, if the site where the store is opened experiences an earthquake, the capability of opening the business for several days, weeks, or months might be affected. As a result, it could lead to sharp reduction in the quarterly sales. In Hong Kong, the common causes of risks of natural disasters include floods, storms, and wildfires. In Asia, it has been determined that the city registers the highest risk of natural incidents and Hongkongers lack adequate plans to deal with the aftermath (Newnham, Patrick, Balsari, & Leaning, 2015). The occurrence of natural disasters will always adversely affect the financial success of the proposed investment. Disasters often lead to extensive damages and recovering takes time especially when the location of the business is profoundly affected. For instance, damaging of clothing by floods would result in incurring losses. The plans against natural disasters that Nordstrom can adopt include being up-to-date, creating a disaster plan, and investing in suitable insurance.
Finally, political risks can affect achieving financial success of the new store in Hong Kong. Risks in politics consist of changes happening in the political atmosphere. For example, changes in exports or import laws, taxes, tariffs, increased interest rates, and other regulations would influence the business negatively. Therefore, if the political environment is stable, achievement of projected financial success can be realized. However, in situations where the government increases taxes, import charges or tariffs, operating the new business using the original financial estimates could become hard for Nordstrom. Consequently, more capital would be needed to achieve financial success.
For Nordstrom, planning to handle qualitative external risks is not possible considering that they cannot be foreseen with precision. As a result, reduction of external risks for any organization is a difficult task. The best plans will be to deal with the aftermath to ensure that less damage is caused and the company takes advantage of the opportunities depending on the type of risk.
Based on the analysis of internal and external risks that Nordstrom could face in Hong Kong, a summary has been provided using a SWOT analysis in the table below.
Nordstrom: SWOT Analysis
Strengths
Efficient customer service
Broad range of products
Multiple stores
Online presence
Highly innovative
Strong revenue performance Weaknesses
Low presence outside America
Customers who are price sensitive

Opportunities
Expanding into new geographical locations
Changes in demographics
Increase in disposal incomes
Collaborating with small retail chains
Physical store visibility
Threats
Strong competitors
Internal and external operating risks
Risks of foreign exchange rate
Legal and regulatory risk factors

Table 1 Swot Analysis
Source: Author (2017).
Micro-economic
The investment proposed is affected by numerous microeconomic factors. Microeconomics deals with the study of how firms and individuals make decisions on allocating scarce resources as well as how the company interacts with the individuals. For Nordstrom, understanding factors associated with Microeconomics is critical in preparing and planning on how to run the business in the new global market. Microeconomic factors that would affect the decision making of the organization in relation to the investment proposed include competitors, customers, employees, suppliers and the media (Varian, 2014).
First, the level of competition affects the daily sales for an organization. Many competitors in a single market signify the enormous demand of the products provided. Hong Kong offers Nordstrom with the perfect location where it can experience intensified competition from some of the globe’s largest retailers. Hong Kong is a host of many Chinese retail groups including Wuhan. At the same time, the city provides easy access for global brands from North American and European countries. Some of the competitor retailers in the Hong Kong market are H&M, and Marks and Spencer (Euromonitor, 2016). For Nordstrom, opening a physical store would complement the online presence that the company has and hence an opportunity to compete with firms that are already operating in Hong Kong.
The factor that will have the most direct microeconomic effect on proposed investment is the customer. Naturally, one cannot operate a profitable venture without attracting the customers targeted. Understanding the company’s ideal customer and developing marketing campaigns that are effective is vital to having a loyal customer base (Varian, 2014). As an example, consider that Nordstrom fails to attract many customers within a six-month period. The results would be weak sales and lack of revenue. Subsequently, the company can create an innovative market campaign that raises awareness on the presence of its goods in the Hong Kong market.
Regarding price elasticity, the products that Nordstrom sells are considered to have a high-income elasticity of demand. When individuals accumulate more wealth, they seek to buy many design and luxury products; however, if income declines, the demand also drops. As a result, luxury goods could be inferior goods or normal goods depending on the level of income. One of the vital aspects of launching in a foreign market in particular Asia is having product prices close to global charges. Importantly, there is the need to develop logistical networks that minimize the costs of shipping the products to the Hong Kong market.
Alternate financial scenarios
In analyzing the risks associated with Nordstrom opening a new store in Hong Kong is assessing two scenarios that the company could face in relation to the financial projections. The first scenario regards the change in estimated financial predictions if sales are 20% higher or short of the base assumption. Both situations could affect the plans of Nordstrom expanding into Hong Kong. The initial financial projections were made on the foundation that steady sales would be made starting 2019 to allow catering for expenses such as employees pay and rent.
A decrease in sales of approximately 20% can be caused by numerous risk factors as explained in this report including a recess in the economy or natural disasters. Sales decrease would negatively impact on the financial projections. For instance, the revenues would decrease leading to a high burden in settling the company’s expenses. Shareholder’s annual dividends would also reduce. Nevertheless, the company would still record positive net income. Consequently, to finance the expansion, the company will require a more substantial financial need.
On the other hand, an increase in sales would positively impact on the company’s cash flow and make it easy to achieve the expansion plans within the timelines set. An increase in sales would provide Nordstrom with the necessary leverage to select the style of financing needed to set up the store in Hong Kong. For instance, the company can choose to collaborate with an overseas firm in a joint venture or establish a new facility and rely on importing its products.
Finally, in relation to the time value for money, it is critical to determine the company’s goal of reaching 20 billion in annual sales by the year 2020 (Drain, 2015). Determining this will require utilizing time value analysis and use the two scenarios provided above. Of importance to note is that sales do not entirely demonstrate whether the company should expand into Hong Kong.
References
Beers, B. (2018). How can companies reduce internal and external business risk? Retrieved March 22, 2018, from https://www.investopedia.com/ask/answers/050115/how-can-companies-reduce-internal-and-external-business-risk.asp
Drain, K., (2015). Nordstrom Hopes to Earn $20 Billion in Annual Sales by 2020. Fashion Times. Retrieved March 23 2018 from http://www.fashiontimes.com/articles/23707/20151014/nordstrom-hopes-earn-20-billion-annual- sales-2020.htm
Euromonitor. (2016). Retailing in Hong Kong. Retrieved March 23 2018 from http://www.euromonitor.com/retailing-in-hong-kong-china/report
Kopelman, R. E., Chiou, A. Y., Lipani, L. J., & Zhu, Z. (2012). Interpreting the success of Zappos. com, Four Seasons, and Nordstrom: Customer centricity is but one‐third of the job. Global Business and Organizational Excellence, 31(5), 20-35.
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Newnham, E. A., Patrick, K. A., Balsari, S., & Leaning, J. (2015). Community Engagement in Disaster Planning and Response. Boston, MA: FXB Center for Health and Human Rights.
Tang, C. (n.d..). China Highlights. Shopping in Hong Kong-An Insider’s Guide. Retrieved March 6, 2018. From https://www.chinahighlights.com/hong-kong/shopping.htm
Toma, S. V., & Alexa, I. V. (2012). Different Categories of Business Risk. Economics and Applied Informatics, (2), 109-114.
Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach: Ninth International Student Edition. WW Norton & Company.