This case study incorporates Nike’s strategy, industry analysis, problems and solutions. Read the essay about Nike Business strategy, its digital marketing, corporate strategy, financial position, ethical issues, and more
- Nike’s Background
- The Rationale for the Analysis
- Research Method & Data Collection
- Strategic Position and Action Evaluation
- Analysis of Findings
- Nike Ethical Issues and CSR
- Alternatives to Address Nike’s Key Issues
- Critical Analysis of Nike’s Strategy
- Strategic Advantages and Disadvantages
- Problems and Solutions
- Decision Implementation
- Reference List
Nike is an American-based multinational company that is involved in the design, development, production, and global marketing of sportswear, apparel, and sports equipment and services. The company’s main offices are in Beaverton, Oregon. The company is the largest supplier of apparel and sports shoes in the world with a world market share of 37 percent. The company specializes in reputable brands such as Nike and Jordan brands, which offer products for a wide target market, including runners, basketballers, footballers, and gym-goers. The company is also involved in the manufacture of sports equipment such as bags, eyewear, gloves, and golf clubs among others.
Nike’s business environment is constrained in terms of uncertainties in human and natural resources. Consequently, the firm engages in manufacturing outsourcing to lower costs as its main business model. However, this strategy raises various corporate and ethical issues. For example, Nike faces challenges of being accused of collaborating with manufacturing organizations in low-labor-cost nations to produce its products with child labor and exploitation of employees by working under sweatshop conditions.
Despite the company’s high financial performance and market leadership and focusing on the US geographical market segment, the current paper confirms that Nike needs to adopt changes in its operations, including policy development, to address manufacturing outsourcing and diversification in a manner that enhances its business continuity and sustainability in the next 5 to 10 years.
The Rationale for Nike Business Strategy Analysis
Nike expects changes in the prices of oil, climate, the rising population, and uncertainties in the supply of natural and human resources to influencing its business and customers. Nike Inc. (2016) reveals, “As the world moves to a low-carbon economy, we see the potential impact on labor forces, working conditions, communities, development, youth, sport, supply chains, products, and more” (Para.4).
Hence, the organization needs to develop an actionable strategic plan to guarantee business continuity in the next 5-10 years. The main challenge for Nike’s future is doing business in a dynamic environment. Addressing the challenge requires the development and implementation of sustainability strategies (Bakari, 2014; DesJardins, 2016). How should such strategies look like? What changes are required for Nike’s business model to ensure it achieves sustainability as its primary gate to future profitability? Responding to these questions forms the rationale of conducting the strategic analysis for Nike Inc.
Research Method and Design
The current research uses both numerical non-numerical data. Therefore, it is designed to use the mixed-method approach. The paper uses Nike’s website and other reliable websites in supporting various ideas that are developed from data collected from scholarly articles. Search for various scholarly articles on strategic analysis and Nike inc. information, including financial performance and corporate level and business strategies is conducted through the web and academic libraries. Consulted databases include EBSCOhost, EMERALD, and PROQUEST.
Data Collection and Data Analysis
Data will be collected by searching for information from academic sites such as EBSCOhost, EMERALD, PROQUEST, and the internet. However, to guarantee the reliability of data, especially information, which is collected through the internet, only data from the Nike Inc. website and other reliable platforms is used to conduct the strategic analysis. The paper deploys the SWOT matrix, the IFE matrix, Porter’s five forces, the EFE matrix, CPM, and the SPACE matrix to analyze the data collected. The first search term is www.nike.com. The search terms, business continuity, corporate responsibility, sustainability, strategic management, and strategic analysis approaches will be keyed in the academic databases.
Nike Strategic Position and Action Evaluation
The process of determining the strategic position of Nike and evaluating the necessary actions requires the application of various strategic management matrices. The IFE and EFE matrices are strategy formulation tools that help in the analysis of internal strengths and weaknesses of Nike Inc. The CPM facilitates in making comparisons between Nike and other players in its industry. The SWOT matrix helps in the analysis of internal capabilities to deal with the external conditions of Nike’s Business environment. However, it is necessary to analyze various forces that shape Nike’s business industry through Porter’s five-force approach. The SPACE matrix is important in helping to determine the appropriate set of strategies that Nike needs to purse to guarantee success in the next 5-10 years.
Nike: Porter’s Five Forces
Nike: Entry Barriers
Despite the high potential of new entrants in the footwear industry, Nike faces a low threat of new entrants. The company sells high-quality athletes’ footwear. Adidas and Nike possess large-scale operation, which has an effect on effective cost management in terms of ensuring long-term competitive advantage. They have powerful brand identities, although the industry is relatively easy for other manufacturers to join. For example, Bata India developed its athletics wear brand, which continues to grow strongly.
Nike: Buyers’ Bargaining Authority
Nike faces high customer bargaining authority. The company’s business production has many clients who have a wide range of brands to select. Therefore, Nike struggles in differentiating its products. It deploys innovative strategies for successful market differentiation. This plan is necessary to “establish brand identity, essential to attract and retain the target consumer” (Burke, Van Stel, & Thurik, 2010, p.28). In Nike’s new markets, price-sensitive customers are likely to switch between brands, depending on cost competitiveness and brand loyalty. The buying trend situation has also changed over the last decade with a clear increase in women who exert a high bargaining power by purchasing athletic wear.
Nike: Supplier’s Bargaining Authority
Nike’s business industry has a low bargaining power of suppliers. Resources such as rubber and cotton that are used in the business are accessible. Conglomerates exert intense pressure on suppliers due to the standardized procedures that guide their inputs. The companies in the industry, including Nike, easily switch between suppliers who depend mainly on the materials they supply for their survival. This situation makes supplier bargaining power almost negligible.
Nike: Threat of Substitutes
Footwear has no real substitute. The only substitute may result from fashion adjustment. However, this situation may not exert pressure on Nike. Sportswear materials must meet performance specifications, which the wearer has to comply with. This case lowers the ability of the purchaser to switch to any substitute.
Nike: Competitors’ Rivalry
Contention among the opponents is significant in the footwear business. The major competitors, whose brands have incredibly grown, include Puma, Adidas, and Reebok. These brands offer a range of choices for high-profile sporting personalities who put a high endorsement for them. This situation, which increases competitors’ aggressiveness in marketing their brand, threatens to erode Nike’s market share. The fact that the industry has fierce competition makes product differentiation is incredibly important for Nike. This case underlines the importance of integrated communication in marketing for Nike’s brand to enhance the organization’s already existing strong brand.
Nike’s Competitive Profile Matrix
The competitive profile matrix identifies various major competitors of a firm. It also identifies its weaknesses and strengths relative to a sample of the organization’s strategic position. David (2011) indicates that in the CPM, critical success factors reflect various internal and external issues. This claim implies that the rating applies to strengths and weaknesses. David (2011) affirms, “4 = major strength, 3 = minor strength, 2 = minor weakness, and 1 = major weakness” (p.81). Just like the case of Nike as shown in table 1, the ratings of various weighted total scores are then compared to an identified sample organization. The comparative analysis yields crucial information for making internal strategic decisions.
Table 1: Competitive Profile Matrix (CPM) for Nike.
|Critical success factors||Weighted score||Rating||Weighted score||rating||Weighted score||Rating||Weighted score|
|Financial position and performance||0.07||3||0.21||3||0.21||2||0.14|
|Product research and design||0.1||4||0.4||3||0.3||2||0.2|
|Structure of the organization||0.03||3||0.09||3||0.09||3||0.09|
|Positioning in the domestic market||0.08||4||0.32||2||0.16||3||0.24|
|Supplier and manufacturer relationships||0.07||3||0.21||4||0.28||3||0.21|
|Quality of products||0.06||4||0.24||4||0.24||3||0.18|
|Positioning in international markets||0.1||4||0.4||2||0.2||3||0.3|
|Compliance with ethics in the production process||0.05||3||0.15||4||0.2||3||0.15|
Based on the 14 success factors considered in the CPM in table 1, Nike has industry leadership when compared to its two major competitors, Adidas and Reebok.
Nike: EFE Matrix
The External Factors Evaluation matrix entails evaluating the business of any organization by considering the weight of its opportunities relative to its threats. These two factors are external to an organization’s operation. Table 2 shows the EFE analysis for Nike.
Table 2: EFE Analysis.
|Key External Factors||Weights||Rating||Weighted Score|
|Opportunities||Increasing demand for women’s footwear||0.12||4||0.48|
|Rising population for generation Y||0.12||4||0.48|
|Increasing leisure activities||0.1||4||0.4|
|Rising eCommerce producing positive effects||0.1||3||0.3|
|Using products as fashionable commodities||0.1||3||0.3|
|International market expansion||0.06||3||0.18|
|Threats||Likelihood of copying Nike’s business model||0.12||2||0.24|
|Political stability, fluctuating currency, and the increasing rate of interests||0.12||1||0.12|
|Suppliers nations’ labor and political unrest||0.08||1||0.008|
|Price customer orientation compared to Nike’s higher-end market||0.08||2||0.16|
Nike: IFE Matrix
The IFE matrix identifies an organization’s main distinctive competencies allowing it to achieve a competitive advantage. Table 3 shows the IFE matrix for Nike.
Table 3: Nike’s IFE Matrix.
|Key internal factors||Weights||Rating||Weighted score|
|Strengths||Brand name easily identified||0.1||4||0.4|
|High-class R&D leading to innovative products||0.07||3||0.21|
|Effective marketing campaigns through sponsorships of athletes||0.09||4||0.36|
|High company competence||0.008||3||0.24|
|Company portfolio diversified||0.8||3||0.24|
|Highly effective advertising||0.09||4||0.36|
|High customer loyalty to the brand||0.06||3||0.18|
|Financial performance leading to high financial position||0.09||4||0.36|
|International market leadership||0.1||4||0.4|
|Weakness||Footwear dependence revenue generation||0.05||2||0.1|
|Third-party’s dependence on quality||0.05||1||0.05|
|Highly priced products||0.06||2||0.12|
|Child labor, minimum wage, and OT policy violation by contracted manufacturers||0.06||2||0.12|
|Groups exploring anti-globalization policies||0.04||2||0.08|
|Sensitivity in prices for products||0.06||2||0.12|
Nike: SPACE Matrix
The space matrix helps in determining the appropriate strategy that an organization should pursue to achieve a competitive advantage in the operational industry. Possible strategies are shown in figure 1. Table 4 indicates the ratings for Nikes FP, IP, SP, and CP strategies. While factors that are considered in the development of EFE and IFE apply in the development of CP, IP, and SP, the rating of financial health deploys the ROI, working capital, cash flows, liquidity, and leverage.
Table 4: Nike’s SPACE Matrix.
|Internal strategic position||External strategic position|
|Competitive position (CP)||Industry position (IP)|
Control over supplier and distributors
Product life cycle
Ease of market entry
|Financial position (FP)||Stability position (SP)|
Earnings per share
The price range for competing products
Market entry barriers
Ease of market exit
Demand price elasticity
Nike: SWOT Matrix
Companies, including Nike, encounter a myriad of challenges and opportunities in their operations. In determining the necessary response to such situations, the SWOT analysis is important. Nevertheless, SWOT analysis is incomplete without preparing the SWOT Matrix. Using the matrix, four types of strategies are possible. These are OS (Opportunities-Strengths), WO (Weakness-Opportunities), ST (Strengths–Threats), and WT (Weakness-Threats).
Strengths are the traits that enable an organization to have an advantage in comparison with other competing organizations. Strengths refer to the capabilities that the organization possesses and ones, which allow it to perform well and survive under a harsh competitive environment. For Nike, the evaluation involved looking at the advantages that the company possessed such as its financial experience relative to its competitors. In addition, the company’s expertise was reviewed to determine what it did best and/or maximized on in its operations. The company’s flagship brands were considered in determining the strengths together with its unique selling position in the market (Clardy, 2013).
The company employs lateral thinking in its strategy where it focuses on athletes through sponsorship, rather than sponsoring the event itself. This strategy has allowed it to continue to implement its mission of inspiring young athletes. It has also allowed the company to save on expenses. In addition, through the sponsorship deals, the company has acquired a share of the athletes’ compensation as part of the agreement (Barrabi, 2015).
Nike has established a tradition of continuous innovation as part of its mission/vision strategy. The company has developed a consistent culture of keeping up to date with technological advancements in the sports industry to stay ahead of its competitors. This move has allowed it to earn a great deal of loyal followers, endorsements, and customers from athletes such as Michael Jordan to non-athletes who purchase the company’s products. This factor has allowed the company to enjoy a huge market share that has spearheaded its growth to become the largest sportswear and sports equipment supplier in the world.
The company has generated a healthy cash flow from its large sales of which a good portion is used to enhance the value of its shareholders. Nike has achieved this goal by maintaining a modest payout as a dividend of 1-1.5 percent in addition to funding its vigorous buyback program. In addition, enough cash is available to maintain its ambitious Research and Development program that allows it to keep its competition at bay (Hellen, 2014).
Nike has the strength of having a strong brand. It is increasingly having a good reception in its international markets. It has a high probability of growth in this market. The company has the strength of using the internet to make sales. Besides having superior R& D department, it has strong financial returns and effective marketing campaigns. Nike engages in contract manufacturing, which gives it cost-competitiveness. Its systems replenish to guarantee full capacity utilization.
Opportunities are the existing external chances, which while utilized make an organization improve its performance (Hill & Westbrook, 2007). They comprise the external forces, trends, ideas, and events that present to the company. Nike has opportunities such as diversifying the company’s products to include fashion items, international trade development, and the establishment of products for generation Y whose number is approaching 60 million. It can also adapt its footwear to meet the needs of different leisure activities and utilize eCommerce to take advantage of the increasing internet-based sales. The company also has an opportunity for satisfying the demand for women athletics wears. Nike is expected to capitalize on its opportunities to achieve its strategic objectives (Clardy, 2013).
In terms of trends in the sports industry, Nike has recorded an increased trend in fashionable wear for athletes. This development has provided innovative opportunities for the company to design stylish products that suit the consumer demands, thus allowing it to expand its market share. An example of Nike’s exploitation of the market trends is its Flyknit technology that aims at producing lightweight footwear for athletes (Peterson, 2014).
The technology has been well received in the market. The emerging markets such as China, Japan, Korea, India, Brazil, and Africa offer new opportunities for the company’s growth and market share expansion. For instance, in 2014, China accounted for 9 percent of the total revenue, with positive sentiments of a rise in this figure in the coming years. Additionally, these emerging markets provide Nike with the opportunity for innovating new products that are aligned with its market in terms of appeal (Dalavag, 2015). The company’s executives have identified the eCommerce opportunity that can grow its online sales from two billion dollars to seven billion dollars by 2020. Despite accounting for only two percent of its total revenue, Nike is optimistic that the online platform is the future with a projection of 14 percent growth in five years, owing to its untapped market (Zaroban, 2015).
Threats mainly refer to the external forces that undermine the company’s efforts in achieving its strategic objectives. Such pressure needs to be reduced or mitigated. Nike’s threats include competitors who copy the organization’s model of doing business. The competitors can manufacture highly branded product lines at much lower costs. The threats also include political and labor unrest in nations where it contracts manufacturing. It also faces the threat of fluctuation of foreign currency, high interest rates, and the increasing political instabilities in the international markets. Its customers are highly oriented and responsive to changes in prices. Reebok posses a major threat to Nike since it has more than 204 direct stores. For Nike, threats may include obstacles, competitors, product quality, pricing, and technological advancement among others (Clardy, 2013).
The company operates in a highly competitive environment with several market players such as Adidas, Reebok, Under Armor, and LiNing among others. These players pose a threat to the company’s overall market share in one or more of its products. In addition, despite providing opportunities, the rapid technological changes can also pose a threat concerning consumer preferences. Therefore, if consumers change their preference on footwear, Nike would be greatly hurt businesswise (Dalavagas, 2015). Currency fluctuations may affect the company’s international sales due to its exposure to the high fluctuations in the currency market. The 2015 increase in the dollar value affected the company’s sales revenue earnings. Such fluctuations have forced the company to apply hedges to minimize the negative impact of volatility on the currency market (Dalavagas, 2015).
Weaknesses refer to the internal factors that prevent a company from performing well under market conditions. It includes factors that need to be avoided and/or improved to achieve a company’s objectives. Nike’s weaknesses include its absence of stores that specifically target active women, high reliance on sales of footwear to earn revenue, and challenges with footlocker. The company also faces the weakness of poor practices of employment in contract factories, especially in Indonesia and China. The analysis of Nike involved the evaluation of weaknesses that relate to its management, specifically its financial, human resource, operations position. The goal was to point out how these areas have a negative impact on the company’s overall performance and/or achievement of its strategic objectives (Clardy, 2013).
The company is said to be spending hugely on endorsements and advertising as part of its strategic objective. The company’s advertisements and endorsements come at a very high cost of nearly $ 2.7 billion. This figure encompasses almost 11 percent of its total sales. Nevertheless, issues such as the large number of endorsements and the costly advertisements have allowed the company’s brand to grow to the extent of commanding the largest market share globally. Despite the company’s diversified product portfolio, it is heavily reliant on its footwear as the main source of revenue. This weakness may offer an opportunity to its competitors regarding its product development by reducing its market share in its other products.
The SO strategies deploy internal strengths of an organization to exploit external opportunities (David, 2011). Nike can use its strength of launching effective marketing campaigns to promote apparel product lines and other diversified products as its footwear market continues to mature and/or with many firms entering in this market. It can also use its strengths in conducting more promotions to the international markets to grow sales in an online environment
The WO strategies help in improving a firm’s internal weaknesses through the exploitation of various external opportunities (David, 2011). In this respect, Nike can establish stores that are stocked with women athletic footwear and apparel to meet the demand from the increasing female purchasers of these product lines. The ST strategies deploy strengths to mitigate or reduce the effects of the existing external threats (David, 2011).
Nike’s strategy includes using its cost competitiveness to mitigate the threat of customer responsiveness to prices by exploring the low-price strategies. The WT strategies act as defensive tactics. Their aim is to reduce the encountered internal weaknesses while avoiding the external threats (David, 2011). Nike needs to conduct thorough audit of its contract-manufacturing firms to mitigate labor unrest due to the criticism that the firm explores poor employment practices and child labor.
Nike: Analysis of Findings
Nike’s Financial Position
From Nike’s space matrix, the company shows a good financial performance. The IFE matrix indicates that the company has a weighted score of 0.36 in its financial position. The high rating indicated in the space and IFE matrix may be explained by the company’s growing financial performance when compared to competitors and/or industry average. Nike’s cash flows, balance sheet, and income statement as discussed by Nike (2016) and Morning Star. (2016) support this assertion.
Nike’s income statement over the last five years (2011-2015), as evidenced by Nike (2016) and Morning Star (2016), depicts a consistent growth in revenues, gross profit, operating income, and net income. The company’s balance sheet has been growing from 2013 to 2015. This finding depicts an organization whose financial position improves with time. Although competitors such as Reebok and Adidas have also been experiencing similar trends in the last three financial years, they are still behind Nike. The company’s financial ratio has been within or above the industry averages. Figure 2 depicts this assertion by using 2014 and 2013 as example years for comparing variations in the financial ratios.
Nike Ethical Issues/Corporate Social Responsibility
Nike has endeavored to instill a strong social corporate responsibility culture that is based on principles of sustainability in its operations. For example, Nike Inc. (2016) states that Nike’s corporate responsibility statement now focuses on “business that is more sustainable, by which we mean that it brings people, planet, and profits into balance for lasting success” (Para. 6). The CSR is an attempt to deal with ethical issues that arise from negative publicity of its products. Nike has encountered a decade-long criticism over its corporate ethics in foreign nations-based manufacturing businesses.
Despite the high improvement in the US working conditions, especially in manufacturing organizations, Nike is criticized for failing to monitor operations in overseas manufacturing contract organizations that have been associated with child labor, overworking of employees, exposure of employees to dangerous chemicals, and poor pay (Powell, 2012). For example, Nike has been accused that it employs children in its Cambodia plants, although it has argued, “fake evidence of age may be bought in Cambodia for as little as $ 5” (Boggan, 2001, Para 8). While the stalemate of the company’s accusation for employment of children remain unresolved, concerns have been raised that the company uses a very minimal portions of the cost of production of its pair of shoes (70 pounds) in the payment of labor (Boggan, 2001).
Alternatives to Address Nike’s Key Issues
The IFE, EFE, CPM, and Space matrices provide important information that can help in shaping Nike’s strategy as it endeavors to continue not only in leading in the footwear industry but also in achieving its sustainability goals. The purpose of the increased competitive advantage is to ensure and develop a business continuity plan (Reilly, 2015). For Nike, in the next 5 to 10 years, continuity is necessary, especially in an event where some of its key products such as footwear, which is account for about 50% of its revenues, reach maturity in some markets. The surest way to deal with this issue is to eliminate any competition accompanied by fixing the problem of negative publicity. Hence, the company can explore two mutually exclusive alternatives
- Alternative 1: Buy the competitors.
- Alternative 2: Not buy competitors, but fix areas of relative weaknesses.
Critical Analysis of Nike’s Strategy
Nike Corporate Strategy
Business level strategies entail the integrated and coordinated commitment and actions that firms take in the effort to acquire a competitive advantage through the exploitation of their core competencies in particular markets (Gunn & Williams, 2012). Corporate level strategies aim at examining what an organization does together with its command decisions. The strategies include determining whether a business’ establishment deserves to diversify into new regions, develop partnerships with other rival companies, and/or abandon certain product lines to focus on the most profitable ones (Gunn & Williams, 2012).
Nike deploys product differentiation business level strategy to distinguish its products from those of the competitors. This plan has the effect of helping to build strong customer loyalty. It also uses the business level strategy of product segmentation around three aspects, namely children wear, men wear, and women wear. Each of these segments undergoes intensive analysis and examination in terms of design preferences, physical abilities, and sociological needs. In support of the differentiation strategy, Nike deploys diversification as its corporate level strategy. Bowen and Wiersema (2013) assert that the strategy ensures the presence of a range of accessories and apparels that help to build strong customer satisfaction.
Another important business level strategy is affiliation. The company manufactures products for almost every sporting activity. By constantly seeking to understand what needs to be added in the existing product line, Nike builds long-term links between it and its customers.
The company encounters high competition from competitors such as Adidas and Reebok, which pursue low-cost leadership strategies. Nike charges higher prices because of its brand position and the various benefits that relate to possessing Nike’s products. Apart from engaging in agreements for production and selling Nike-branded timepieces, children clothing, and electronic devices among others to guarantee better reach of customers, Nike aims at increasing its growth, offering premium products, increasing customer experience, and expanding its geographical reach.
Nike’s Critical Assessment of Alternatives
Nike’s corporate and business level strategies have been effective as evidenced by the CPM analysis. Nike’s score is 3.63 compared to its closest competitor, Adidas with a score of 3.1 as shown in table 1. This finding indicates its market leadership. However, this position does not suggest that the company is any better than its competitors. The competitors are likely to gain more market dominance in the future by copying Nike’s business model based on low-cost production since it does not own factories, but contracts in nations with higher comparative advantage due to their lower labor prices.
Competitors can easily raise their profitability to overtake Nike. Such organizations are also likely to copy the models and benchmark from Nike’s experience in contract manufacturing to the extent that they can only enter into contract with clear contractual terms, thus helping them to overcome criticisms, including poor labor policies and accusation of child labor that Nike has faced. Therefore, they are likely to have a better image in terms of their corporate stance and sustainability of their products. This situation has the effect of creating good association of their products and their clients. Therefore, if Nike does not do anything to slow down the competitors’ attempt to build strong brand images and its association with clients, in the next 5 to10 years, the competitors are likely to gain more market dominance.
Adidas presents the most serious threat (Nike, 2016). Theretofore, Nike can consider overcoming its competitive force by acquiring it. Instead of the competitor copying Nike’s business model to gain competitive advantage, Nike can adopt its business model to the newly acquired company to increase its profitability and market share when compared to other brands. Alternatively, the company may not purchase Adidas. However, it may reposition itself as a highly sustainable organization in chain supplies. The two alternatives have merits and demerits
Nike’s Strategic Advantages of the Alternatives
Purchasing the competitor ensures that Nike will take the market share of its closest competitor. Therefore, it cuts on its expenditure in marketing campaigns that seek to overcome the prevailing competitive force. The savings can be reinvested in the innovation of new product lines. Purchasing the competitor increases the economies of scale for Nike. Hence, upon successful implementation of its low-cost model to the bigger organizations, more product cost savings can be achieved. Therefore, it can explore low-cost leadership plan just like other remaining competitors, yet they report high financial performance. This situation has the effect of lowering rivalry among the existing competitors.
Nike’s Strategic Disadvantages of the Alternatives
Following the increased competitive advantage on purchasing the closest competitor, the remaining competitors may consider forming mergers to offset the erosion of their collective market share through combined competitive force of Nike and its acquired firm. Purchasing the closest competitor can lead to inheritance of products that have reached maturation in the product life cycle.
Nike’s overreliance on footwear in terms of innovation and marketing poses a risk of losing customers to its competitors. In this regard, the paper recommends the company to develop its other products while keeping up with the trend to exhume market dominance in all its products. Moreover, diversification in its innovative strategy will provide an opportunity for expansion and penetration into new markets where it focuses on market specific products (Jain, Trehan, & Trehan, 2011). Nike continues to expand its operations globally as a way of increasing its exposure of the risk of multiple currency fluctuations that may negatively affect its profit margins. Therefore, hedging against the risk of currency fluctuations can provide an opportunity to eliminate losses that result from such variations.
Nike is recommended not to buy its competitor, but solve its strategic weaknesses that may undermine its business continuity efforts in the next 5 to 10 years. The decision criteria are based on Nike’s current market dominance, its financial performance, and its capability to mitigate risks. Nike has already diversified products, which help to offset the risk of relying on footwear to earn revenues. When such product life cycle reaches the decline phase, the company can easily switch to another product, thus making it flagship merchandise. Therefore, buying its closest competitor, namely Adidas, will not produce any product diversification since Adidas mainly specializes on footwear.
As evidenced in Figure 3, Nike has clear market dominance. Therefore, its main challenge should be on how to retain the dominance. From the financial data provided by Nike (2016) in Figure 1, Nike has a good financial performance. Hence, it has adequate resources to resolve its strategic weaknesses such as auditing contract organizations to ensure they do not produce their commodities through child labor or by deploying concepts of sweatshops, which may lead to labor unrest.
The recommended course of action is not buying the competitor followed by
- Conducting a thorough audit for its policy towards organizations where it outsources manufacturing by reviewing its contractual terms to incorporate the exclusion of liability followed by the termination of contract in case they manufacture with child labor and exploitation of employees. This course of action is necessary since Nike faces the challenge of negative profiling due to allegations of contract manufacturing organizations engaging in sweatshop operations. For example, it was accused of paying people poorly in Asian-based manufacturing centers. Being underpaid means that employees in manufacturing centers are paid salaries and wages that make it impossible for them to afford their basic needs (Daily Mail Reporter, 2011). However, Nike defended its corporate responsibility approaches, saying it was not aware of such situations. Powell (2012) asserts, “Sweatshop workers often do not earn enough money to buy the products that they make, even though such items are often commonplace goods such as t-shirts, shoes, and toys” (p.460). This claim underlines the importance of imposing a condition for not engaging in sweatshops as a contractual term when awarding manufacturing outsourcing contract to organizations that are located in low-cost nations.
- In terms of exploring aggressive business strategies, the space matrix provides the possible strategy for dealing with this issue. Plotting the total for Y-axis against totals for X-axis (as shown in Table 4), in the rectangular coordinate space of Figure 1, a point (4.44, 2.35) is established. This point is in the 1st quadrant. Therefore, Nike needs to pursue aggressive business strategies to guarantee business continuity in the next 5 to 10 years. This strategy includes intensive promotion of its products in new markets by targeting the needs of the growing women and children demand for sporting, apparel, and leisure products.
Buying the competitor is not selected as the recommended action since the idea is not the best alternative. Nike may only enjoy short-term benefits from Adidas’ products before they die. Otherwise, to rejuvenate them, re-engineering is required, which involves huge investments in research and design (Tassabehji & Isherwood, 2014; Cummings & Daellenbach, 2009). This disadvantage will not influence Nike if it does not buy the competitor. Not purchasing the competitor has the merit of ensuring that Nike does not inherit the strategic weakness of Adidas that prevents it from dominating the market for footwear and apparels. As shown in Figure 3, not buying reduces the likelihood of the formation of a merger between the third and the other competitor to gain higher market share than that of Nike combined with that of Adidas.
The primary objective of the recommendations is to guarantee that Nike achieves business continuity in the uncertain business environment in the next 5 to10 years. The goal is to ensure that competitors do not use Nike’s strategic weaknesses to place their brand better in the market place while at the same time increasing the demographic diversification of Nike’s products. This outcome has an effect on Nike’s market share. Sustainable products require an organization to use greener sources of energy in production, avoid child labor, and/or oppose the philosophy of sweatshop and its associated merits of cost reduction. To this extent, sustainability increases market share and profitability by attracting more people who would like to be associated with Nike’s ‘fancy’ products.
Nike Problems and Solutions
Nike Description of Activities
Nike faces the criticism of exploiting employees and producing with child labor through the manufacturing outsourcing strategy of lowering costs. For example, more than a decade ago, the Honduran cloth-manufacturing plant remunerated its employees only 0.24 US dollars for every sweatshirt made and 0.15 US dollars for a long sleeved t-shirt. Sweatshirts went for 50 US dollars in the retail market. Hence, even if a worker would make 100 sweatshirts in a day, he or she would still not afford a single sweatshirt that he or she made, notwithstanding other daily needs. To overcome this corporate responsibility and sustainability issues, activities i and ii should be undertaken by an audit committee led by corporate managers in HRM, Finance, and legal affairs.
Over a long time, Nike has focused on footwear sales that target men because they are identified as the target segment that has the highest interest in footwear due to its high interest in sporting activities while compared to children and women. Nevertheless, the brand awareness for the company has shifted from focusing on only footwear to include fashionable apparels. This plan is the logic behind the third activity (iii). The marketing, customer relationships management, and advertising teams should take responsibility for its implementation. The teams will:
- Review Nike’s contractual terms with contract manufacturers to discourage poor corporate image for its products due to its association with child labor and employee exploitation in low-cost manufacturing nations.
- Audit current contract manufacturers to eliminate exploitative labor policies and child labor.
- Find and target untouched market using aggressive strategies.
Nike continues to reinforce the strength of its brand by pursuing an aggressive marketing strategy. For instance, Nike spends enormous amount of its revenue on advertising. In 2014, the company spent two percent of its revenue on marketing alone. The goal of Nike in pursuing this strategy is to reinforce its brand presence in the market and/or expand its market share. The company achieves this objective through TV ads, celebrity endorsements such as the Jordan brand, and the sponsoring of sports events such as the 2008 Beijing Olympics. Nike uses the 4Ps marketing mix where the product, place, promotion, and price are the focus.
The company is committed to designing of its product brands for various sporting events that are comfortable to athletes with a high degree of effectiveness. This strategy has allowed it to dominate in the competitive market by eliminating the threat of customer snatching. Nike prices its products much higher than its competitors. This situation has created a perception of high-quality products. Nike is known for using different elements of promotion to increase its product sales such as advertising and public relations. Nike has also ensured that its products are easily accessible to the customer by setting up retail shops in strategic locations across the globe.
Nike has set up its distribution system through three main channels, namely selling its products to wholesalers both in the US and the global market, selling of its products direct to its consumers from its factory retail outlets, and selling to its global brand divisions. This strategy has allowed the company’s products to be accessible to most of its customers, thereby maintaining its dominance in the market (Soni, 2014).
In terms of innovation strategy, Nike is focused and committed to ensuring continued innovation in design and development of new products that keep it ahead of its competitors. Moreover, the company has blended its innovation strategy with environmental sustainability and customer value creation. Most of its product designs have been quite successful such as the World Cup t-shirts that were manufactured from recycled bottles and developed through the company’s sustainability index. Another successful innovation is Flyknit technology. This technology has allowed Nike to deliver lighter shoes for athletes to meet the demand for this new market trend (Porteous & Rammohan, 2013).
Nike: Financial and Time Resource Requirements
Table 5: Financial and resource time requirements.
|Activity||Cost in million USD||Time|
|Review contractual terms||0.35||4 months|
|Audit the existing contracted manufactures||2||2 years|
|Focus on the untouched markets (women children) through:|
| ||13||5 years|
| ||8||5 years|
| ||50||18 months|
| ||61||1 years|
| ||45||2 years|
|Total resources||179.35||5 years|
Nike: Decision Implementation
The success or failure of the recommended activities as indicated in the above table will be measured by changes in corporate brand image such as positive comments over the press media, print, and even in new media that Nike has used to address its underlying issues of its brand image with reference to contract manufacturing. For activities i to ii, success is also indicated by an increase in market share arising from more people wanting to be associated with sustainably and ethically manufactured products. The increased traffic on newly developed or existing product lines that target women and children in both footwear and apparels will measure success or failure for activity iii.
In the implementation process, different departments will have to collaborate. For example, in auditing contract manufactures, legal teams, HR, and financial management personnel will work together in foreign nations where the contracted manufacturers are based. This move may create challenges of coordination when each team wants to be credited for the improved organizational situation. However, the company embraces strong work team culture. Reward is offered for work done collectively. Therefore, coordination problems are least expected. The only impediment is the lack of disclosure of the targeted organizations by audit teams. Financial problems are least anticipated. Nike is a highly performing organization.
Organizational analysis involves a comprehensive approach that details both inside and outside forces that interact with an organization. By conducting this analysis, the paper revealed and developed a clear understanding on Nike’s weaknesses, threats, opportunities, and strengths coupled with laying a foundation of understanding their environmental implications for its success in the next 5 to 10 years.
The recommended course of action resolves the most serious strategic weaknesses of the company. The company endeavors to deliver long-term value to its shareholders and all other people who have interests in its operations, sustainability, and continuity of its short and long-term business operations. The Nike Company has managed to grow its brand since its inception with occupation of over 30 percent of the global market share. This dominance has been catapulted via pursuit of its aggressive business strategy. This project encompassed a SWOT analysis that looked at the strengths, weaknesses, opportunities, and threats that affect the company directly or indirectly. Nike’s innovation strategy (embalmed in its mission statement) provides a source of great strength through maintaining its customer brand loyalty.
In addition, another identifiable strength is its aggressive marketing strategy that focuses on a mix of product, promotion, place, and price. Nevertheless, the company is faced with threats such as overreliance on footwear that provides an opportunity for its competitors to snatch its customers on the company’s less established brands and risk of currency fluctuations. Therefore, the paper recommends a diversification of Nike’s innovation and marketing strategy to focus on other brands such as apparel and equipment, including formulating a hedging strategy that protects the company against the risk of currency volatility.
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