An In Depth Analysis Of The Nike Company

1.1.1 Mission statement and history

The Nike co-founder Bill Bowerman made this observation many years ago when he was defining how he viewed the endless possibilities for human potential in sports. He set the tone and direction for a young company, called Nike, which created in 1972. Today those same words inspire a new generation of Nike employees.

This observation led Nike to its following mission statement:

To bring inspiration and innovation to every athlete* in the world [2] 

Their goal is to carry on Bowerman’s legacy of innovative thinking, whether to develop products that help athletes of every level of ability reach their potential, or to create business opportunities that set Nike apart from the competition and provide value for their shareholders.

It all started with a handshake between two visionary Oregonians – Bowerman and his University of Oregon runner Phil Knight on January 25, 1964. Each agreed to contribute $500 to partnership. They set up a company called Blue Ribbon Sports. On June 1971 a graphic design student named Carolyn Davidson presented the Swoosh trademark which she had created for a fee of $35. Bowerman, Phil Knight and the people they hired evolved and grew the company that became Nike from a US-based footwear distributor to a global marketer of athletic footwear, apparel and equipment that is unrivaled in the world.

Nike has established a strong Brand Portfolio with several wholly-owned subsidiaries along the way. Some of the subsidiaries are Cole Haan, Converse Inc., Hurley International LLC, NIKE Golf, and Umbro Ltd.

The world headquarters of Nike are located near Beaverton, Oregon, a suburb of Portland. While the Pacific Northwest is actually the birthplace to Nike, today it operates in more than 160 countries around the globe. They directly or indirectly provide labor for nearly one million people through their suppliers, shippers, retailers and other service providers.

Nike has more than 34,400 employees across six continents, each of whom make their own contribution to fulfill Nikes mission statement: to bring inspiration and innovation to every athlete* in the world.

1.1.2 Parent company strategy

NIKE’s principal business activity is the design, development and worldwide marketing of high quality footwear, apparel, equipment and accessory products. Nike is one of the largest sellers of athletic footwear and apparel around the world.

In the upcoming years the goal of Nike wants to continue to build, fuel and accelerate the NIKE inc portfolio.

By portfolio they mean:

their subsidiaries like Cole Haan, Converse Inc, Hurly International LLC, NIKE Golf and Umbro Ltd.

their seven key NIKE categories(Football, Basketball, Running, Action Sports, Athletic training, Women’s training and NIKE sportswear).

their key geographies and territories.

their product and technology platforms.

their owned and partner retail.

their marquee athletes and teams.

So what they mean by portfolio is the wide set of resources they have at their command. But in order to really achieve this goal they need a good fundamental financial model and strategy. [3] 

One of the strategies of Nike is that it wants to achieve long-term revenue growth by creating innovative, “must have” products, building deep personal consumer connections with our brands, and delivering compelling retail presentation and experiences. [4] 

Another strategy of Nike is to integrate sustainability into the heart of the NIKE, Inc. business model. So it helps NIKE, Inc. and its consumers thrive in a sustainable economy where people, profit and planet are in balance. [5] 

This means for Nike, that it has to focus on sustainable manufacturing, sustainable product development and to create a sustainable marketplace.

1.1.3 International management

(organization strategy, production strategy, marketing ,

financial, HR strategies, strategic planning

1.1.4 Organization Strategy

Nike is a company which is doing businesses in a number of diverse geographic areas. The organizational structure they use is a mix of the global product structure and the global area structure. The organizational chart of Nike can be found in appendix A.

The chief executive officer and president of Nike is Mark Parker. The home-office is divided into several departments. Some executive officers of the registrant are:

Philip H. Knight, Chairman of the Board

David J. Ayre, Vice President, Global Human Resources

Donald W. Blair, Vice President and Chief Financial Office

Charles D. Denson, President of the NIKE Brand

Gary M. DeStefano, President, Global Operations

Trevor Edwards, Vice President, Global Brand and Category Management

Jeanne P. Jackson, President, Direct to Consumer

Hilary K. Krane, Vice President and General Counsel

P. Eunan McLaughlin, President, Affiliates

Bernard F. Pliska, Vice President, Corporate Controller

John F. Slusher, Vice President, Global Sports Marketing

Eric D. Sprunk, Vice President, Merchandising and Product

Hans van Alebeek, Vice President, Global Operations and Technology

On the operating divisions level all the divisions are divided by area, subsidiaries and products. And they all stand in connection with the CEO in order to keep the communication on a high level.

1.1.5 Production strategy

Nike has its World Headquarters (WHQ) in Beaverton, Oregon. It encompasses 17 buildings on 376 357.647 m2, totaling 176 515.776 m2 of interior space and they lease more than 69.67728 m2.

It also has Headquarter in Europe which is located in Hilversum, The Netherlands (see figure 1). [6] 

There are in total 5 distribution centers in the world. Three in the US. (two in Memphis, Tennessee and one in Wilsonville, Oregon), one in Tomisatomachi, Japan and one in Laakdal, Belgium.

Figure 1; Headquarters

Nike makes use of suppliers anywhere in the world, this is also known as global sourcing. They have 612 contract factories, 819.990 contract workers and manufactories in 46 countries (see figure 2) [7] . Most of the production occurred in China, Thailand, Indonesia, Malaysia, Vietnam, Turkey, Sri Lanka, Cambodia, Taiwan, El Salvador, Mexico, India and Israel.

Figure 2; Suppliers of Nike

Nike’s main focus is on new product development. They update each shoe model every six months, in order to maintain a high speed to the market. This way they overcome copied behavior from their competitors and is it possible to implement technological changes from the R&D department. It is also a fact that when you are first on the market you can become a fashion setter.

1.1.6 Resources

In order to obtain big revenues, a company needs resources. Nike has a lot of resources, as well capital resources as human resources.

One of Nike’s capital resources is its tangible assets; like their property, plant and equipment. Which has a total value of 1,9310 million dollar. But these are not all the assets. Other important assets are its current assets, identifiable intangible assets, Goodwill and Deferred income taxes and other assets, which can also be seen in the figure below. Figure 3 shows a part of the balance sheet of Nike, which is copied from the annual report 2010. Nike’s total assets has a value of 14,419.3 million dollar.

Figure 3; Balance sheet Nike

Another important capital resource is the cash flow of a company. As for the capital resources, these are the most important ones, because without these two mentioned resources a company won’t have any financial possibilities.

Nike has also human resources. These are of course its workers, the R&D department that is stated in Beaverton, its athletes, owned patents and trademarks.

In order to outdistance the competition, Nike developed a human resource management strategy which is focused on training. As for Nike its human resources, they developed a training for the contract manufacturing management which is a key to improving conditions and the worker- management overall.

Figure4; Human recources management

Nike thinks that this human resource management program, which uses trainings, is the best available way to increase the overall capacity for contract factory employees. It provides an empowered work force (see figure 4). It also helps the manufacturers to understand the benefit of lean manufacturing.

1.1.7 The strengths and weaknesses of Nike

Strengths of Nike

Nike believes that their success depends primarily upon certain skills. These skills are design, research and development, production, and marketing.

Another important asset which is also one of Nike’s strengths is NIKE® and the Swoosh Design trademarks registered in over 150 countries. [8] These rights are important for their brand, success and their competitive position. Sometimes Nike discovers products that are counterfeit reproductions of their products or discovers things which infringe on their intellectual property rights. If Nike is not successful in challenging those products based on patent infringement, design or trademark, continued sales of these products could cause a major effect on Nike’s sales, brand, because the consumer preferences has shifted away from Nike’s products.

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Another strength is the endorsement of their products. They let well-know athletes use and test their products which has a big effect on its consumers. Because a consumer thinks; ‘well if an athlete uses that shoe for example than it would probably be a good shoe. So I have to get it too’. So they convince the consumer unconsciously that the shoe is product of good quality. This effect is also known as the endorsement effect.

Weaknesses of Nike

However Nike also has its weaknesses. Nike is a consumer products company and operates in a product market. One of its weaknesses is the changing design trends. This has a big affect on the demand for Nike’s products. And because it operates in a market with a lot of similar companies, these changes in design trends are a big disadvantage for Nike and therefore a weakness.

The sale of a large number of shares held by the Chairman is another weakness, because it could depress the market price of the Nike’s common stock.

If Nike fails to meet the expectations of an analyst, it could cause another decline in the price of Nike’s stock. Which is also a weakness of Nike.

The economic downturn is another weakness of Nike. An economic downturn causes demand of products to drop. This means that the companies’ profit will drop too.

External Analysis

Besides the internal organisation, Nike also deals with environmental influences. The environment affects Nike in more then one way. It restricts and threats the company but also provides opportunities. How Nike deals with the environment can be divided into two separate parts. The first part is about industry-based view and the second part is about institutions. Finally, in the external part of the SWOT analyse the opportunities and threats will be put together.

1.2.1 Industry-based view

Industry-based view is underpinned by the porter’s five forces framework which can be seen in figure 6. These five forces are as follows: Potential entrants, bargaining power of buyers, substitutes, bargaining power of suppliers and Industry competitors. All forces have a negative influence on the market position of Nike, so it is important for Nike to keep the threats as low as possible.

Figure 6; Porter’s 5 Model

Potential Threat of new entrants

Potential threat of new entrants into the industry in which Nike is market leader is very low. Market leaders Nike and Adidas established barriers to prevent new entrants from threatening them. A barrier would be the outsize marketing budgets, which are spent in advertising and the endorsements of athletes. The powerful companies also profit from economics to scale. Since they are producing, marketing, selling and innovating more, they are saving money because the fixed costs are spread over a larger volume. Another factor that affects the new companies to enter this industry is product differentiation. Nike has its brand identity that spreads over all there products and provides Nike with loyal customers.

Bargaining power of buyers

Bargaining power of buyers isn’t a big environmental threat for Nike. This can be concluded out of two illustrations, which occurred in the past. The costumers, like Footlocker, have few manufacturers of footwear to buy from that they cannot negotiate favourable terms. Footlocker is US biggest retailer of athletic shoes. They questioned the prices for the high-end sneakers and pressured Nike by lowering its orders with about $200 million. Nike Counteracted by reducing its planned shipments by 40% of what it had shipped in the previous year. The sales of Footlocker went down more than that of Nike’s and so resumed its regular business. Another illustration is that Nike sets product lines available to select amount of costumers. For example Nike decided on October 2005 to no longer sell its products in Sears stores nationwide. This was due to the merge of Sears with K-mart.

Bargaining power of suppliers

Bargaining power of suppliers with respect to Nike isn’t much. Nike doesn’t manufacture it’s own sneakers. It uses private contractors in area’s like Vietnam, China, and Asia in which the labour cost is very low. Since the wages are very low, Nike indirectly gains a great deal of power over these factories. The factories can’t easily demand higher wages. Nike can switch easy between small scaled factories, because it has subcontracts to more than 500 small scale factories. However, a large amount of people are demonstrating against the fact that Nike is using child labour in these countries.

Substitutes

Substitutes of sneakers are a small problem for Nike. Most sneakers and clothing are now made in areas like china by subcontracting companies. The people working at these companies gain experience and so know how to remake products. The companies are thereby temped to avoid marketing costs by selling copies of Nike. It is difficult for Nike to counteract against this fact. How much market loss Nike suffers is also hard to trace. Yet consumers do find the imitations appealing.

Industry competitors

There are a few big competitors in the footwear industry. Largest Industry competitor of Nike is Adidas. Adidas has grown in august 2005 after a merge with Reebok. After the merge Adidas-Reebok owns 22% of the total us market. Even though Adidas is the biggest competitor, the threat coming from industry competition is low. This is because Nike has by far the biggest market share. Nike’s market share includes 36% of the total US market share. The US market accounts for half of the sales of athletic footwear in the world and drives most of the product trends. Together, Nike and Adidas have acquired about 60%. The other 40% are filled with smaller notable companies like New Balance, Puma and K-Swiss which has succeeded at small scale to enter the market. Even though Nike has a great advantage over Adidas, Adidas has more sponsor contracts in Soccer. Even though Nike doesn’t currently have big threats, the threats are growing since Adidas does everything to obtain a bigger market share.

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1.2.2 Institutions

Another part that influences Nike’s decision making are institutions. A distinction can be made between two forms of institutions. There are the informal and the formal institutions. Formal institutions include laws, regulations and rules, while informal institutions are about the norms, cultures and ethics. On both grounds, formal and informal, Nike is trying to seek the limits to optimize their profit. To realize this, Nike violates the ethics with child labour in developing countries and is trying to apply technologies developed by Reebok at it’s own products. The exploitation of child labour has been previously discussed under the bargaining power of buyers. However Nike is trying to cover their actions, like in Miyashita Park. Under the guise of making “social welfare donation”, Nike is converting the park into a sport facility. Against this action there have been protests. Nike also seeks the limits of the law and for that Nike has been indicted by Adidas. This is because Adidas accuses Nike of violating the patent reform concerning eleven shoes with flexible soles. Adidas states that with this violation Nike is knowingly developing shoes that are based on the technology of Reebok, a subsidiary of Adidas.

1.2.3 External part of SWOT analysis

From the Porter’s five can be concluded that Nike doesn’t encounter many threats from the environment, so there are many opportunities. The opportunities arise from the strong position towards buyers, suppliers and new entrants. bargaining power of both buyers and suppliers are very low, because Nike is capable of reducing the profit of the buyers and suppliers without losing to much profit itself. New entrants are having a hard time entering the market and only a few have actually succeeded. The biggest threats come from competition and substitution. Even thought the competition isn’t a big threat, it is a developing threat. Over the years the competition has gained larger share on the world market and Nike is losing a part of its share due to the production of

copies.

Figure 7; SWOT

[2] GLOBAL STRATEGY

2.1. Competition within the industry

Figuur 8; SCP model

To analyze the position and the competition of Nike in the industry, it is important to define the industry where Nike is in.

Nike, and its competitors, sell sportive products, like sport clothing’s, sport attributes and sport shoes, but also normal shoes that have a sportive look. So the industry is the sport branch.

To analyze the competition in that industry a SCP model is used. With the SCP model the Structure of the industry, the Firm Conduct and its Performance becomes clear. The SCP model is graphically made clear in figure 8.

The industry structure is characterized by the kind of firms and products that are in Nike’s industry. There are a several competing firms, but Nike has by far the biggest market share in all segments. For example, in 2008, Nike has a market share of 31% in the footwear while number two (Adidas) has a market share of 16% [9] . The products that Nike sells are very homogeneous. There are no big differences between a Nike jacket or a Puma jacket. The only difference is the brand image. This makes it hard to entry the market, because a lot of money has to be spend on developing, promoting and marketing. In 2008 Nike spend 12,4% of its revenues on advertisement costs. [10] 

The actions that Nike takes to maximize its revenues and profit are basically focused on developing new products. This continuing flow of new shoes and apparels makes it hard for the competitors to copy Nike’s success. Nike reached that success by being good at two things: The actual developing and the promotion of the products. [11] 

Due the economical crisis there was an overall decline in demand for sportswear. Therefore there is a little decline in Nike’s revenues. The decline is not dramatic and there is a big market that could be further explored (in Asia and developing countries). Because these two reasons and that Nike is not doing much better than other sport companies, the performance is little above average.

Overall can be concluded there is a heavy competition in the sports products industry. Because Nike focus so much on creating new products they can stay in this business.

2.2 From a resource-based view; what is behind the growth of your case company?

To look at the resource-based view of the company Nike, we first have to find out what the tangible and intangible assets, resources and capabilities of the company are. Then we can evaluate these points on the following criteria: valuable, rare, costly to imitate, exploited by organizations, competitive implications and firms performance.

2.3 From an institution-based view;’ what opportunities and challenges have been brought by external environment of your case MNE (e.g. the integration of EU markets in both Western Europe and CEE)?

One informal institution is ethics. Nowadays sustainable products are very important. The government makes the people aware of sustainability and therefore sustainability becomes more important for people in their choices for products everyday. This is an opportunity for Nike. They could produce sustainable shoes or clothing.

Culture is also an informal institution. People took this challenge. People take people they look up to from their culture as an example. Therefore Nike contracted famous sport people to play in their campaigns. This worked very well for Nike and resulted in more sales. When people see, for example Michael Jordan in sport clothing and shoes from Nike, they will link the brand Nike to their sport idol and also want to buy products from Nike.

Another opportunity for Nike could be that the government and the media are supporting sports more and more. There are many people all over the world with obesities and nowadays this is a big problem. Therefore the government is supporting people to have more movement in their everyday lives. This could be an opportunity for Nike to sell more sport clothing and shoes.

2.4 From an international perspective; what challenges do you foresee your case MNE facing as it continues in expansion in other regions?

Although Nike has worldwide a very large market share, and a strong base for selling their products, there are some challenges when they continue expanding in other regions.

An important issue is the marketing and promotion of the brand. Nike could, and also can, spend more money on marketing then their direct competitors do, but there are some struggles. For example, do the consumers of the new regions have the same brand attitudes? An analysis figures out that for the consumers of the sportswear market in China the brand association and loyalty are influential dimensions of the brand equity [12] . In other regions this could be the other way around.

Another way Nike promotes their brands is by sponsoring athlete celebrity’s. A comparison between U.S. and Chinese consumers shows that the Chinese are more receptive to ads featuring celebrity’s than the American consumers. [13] These two studies pointed out that there are some differences between the perception of marketing in different regions. Because Nike spend so much money on promoting their brands, it is a challenge to do this promotion as effective as possible in every country.

Another part of the marketing is the sponsoring of big sport events like the Olympic Games and FIFA World Cup. These events are viewed all over the world, also by possible new consumers of Nike. Nike’s competitor Adidas [14] is the partner of these event . For Nike it is a challenge to reach the spectators of that events by e.g. guerrilla marketing.

In the countries where Nike likes to expand their market share, there are also some other existing sport brands. Consumers could have a preference for such brand because of their loyalty towards a national brand. In some countries there is a dislike towards America and products from America. For Nike it is a challenge to separate its origin from the brand. This could be done with sponsoring local celebrity like they do now. [15] 

2.5 From institution- and resource-based views, identify the obstacles confronting MNEs from emerging economies interested in expanding overseas. How can your case MNE overcome them?

Government

The organization of the emerging economies and countries differs a lot from the western economics. In the emerging economies countries the influence is much bigger than in, for example, The Netherlands. In China the government regulates the economy much more. In 2009 it blocks the takeover of Hummer by a foreign company [16] . Therefore it is important for companies to influence the politics. This causes corruption, which is in emerging economies bigger than in other economies [17] . For an expanding company it is important to have a network in the emerging country to expand their business.

Nike could use their network they have already in such countries from their contacts with the factories. They could also use the athletics they sponsor to get easier into the country.

Competition

One of the obstacles for MNE’s to expand in emerging economies is competition. There are lots of MNE’s that want to expand in emerging economies, because of the opportunities of emerging economies. These economies are growing, so MNE’s can make lots of profits there. Therefore the competition is big.

Nike can overcome this competition by competitive advantage. They have to make sure that they have a characteristic that other competitors don’t have, so the consumers will choose Nike over other companies. This can be a product that other companies don’t have, but also a service or for example good R&D.

Infrastructure

The shops are organized on a other way than in the ‘home’ market of Nike. In emerging countries like India there are not that much large and well-organized shops [18] . Most shops are small and family-owned. It is difficult to set up a good network of shops that are able to sell and represent the Nike brand.

Nike could tackle this problem by setting up its own stores in the biggest cities of the country. That way they could put the brand image and reputation in the market the way Nike likes.

[3] DISCUSSION

3.1 Ethics

Critics argue that MNEs, through FDI, allegedly both exploit the poor in poor countries (beneficial to citizens of rich countries) vs. take jobs away from rich countries (beneficial to citizens of poor countries). If you were a CEO of Nike (either from adeveloped economy or from an emerging economy), how would you defend your firm?

As stated in paragraph 1.2 the bargaining power of Nike isn’t much. The Nike-company does use child labour in the area’s they manufacture like Vietnam, China and other parts of Asia. The production costs end up to be very low because of these low wages. Because Nike has subcontracts with over 500 small scale factories, these factories can’t easily demand higher wages, because Nike will take the manufacturing out to another small factory. Due the large editions Nike has this power and due their contant sales they obtain this power.

We would defend Nike by the following:

Nike is a large company with loads of products made each year. The whole production of goods is outsources to factories in Asia, we supply large editions of quality goods. There is no such thing as taking jobs away from the rich countries, because our manufacturing countries have the workmanship and facilities within their factories to produce the quality goods we promise our customers.

It is also not an exploitation of poor countries, but the only place where to find this workmanship ands facilities to attain the quality we plight. Several time we’ve been accused of using child labour in Asia but it’s not us who are involved in this illegal labor practices but it is the local subcontracter who is doing so [i] .

3.2 Culture

Some argue that guanxi (relationships and connections) is a unique Chinese-only phenomenon embedded in the Chinese culture. Others disagree, arguing that every culture has a word or two describing what the Chinese call guanxi, such as blat in Russia, guan he in Vietnam, and “old boys’ network” in the English-speaking world. In both cases,the intensive use of relationships and connections in International business management is a reflection of the lack of formal institutional framework. Which side of the debate would you, as a CEO of Nike, join?

We would react for Nike by the following:

RECOURCES

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http://www.bharatbook.com/detail.asp?id=107911&rt=Global-market-review-of-active-sportswear-and-athletic-footwear-forecasts-to-2016.html

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http://www.humankinetics.com/excerpts/excerp