Nike Incorporation Strategy Analysis

Vision and Mission Nike

Nike’s vision is to inspire and bring innovation to all athletes around the world. According to the company’s founder, Bill Bowerman, the company’s vision illustrates endless possibilities with reference to exploiting human potential in sports. The company’s mission is to promote the legacy of innovative thinking by designing and developing sports’ products that enable athletes to achieve their full potential.

Additionally, the company’s mission entails creating business opportunities that will facilitate the attainment of a high competitive edge and deliver value to the shareholders. The above vision and mission statements illustrate Nike’s commitment in positioning itself as a growth company in order to attain and sustain an optimal level of business excellence. Nike intends to achieve the corporate mission and vision by offering premium sports’ products and leveraging on its capabilities and resources. Furthermore, the firm is committed to offering unique customer experience.

Strategic goals

  1. Growth- the company intends to achieve long-term market success by venturing into emerging markets.
  2. Profit and wealth maximisation – the firm intends to maximise its level of profitability in order to achieve the shareholders’ wealth creation objective.
  3. Customer experience- Nike Incorporation is committed to providing high-quality sportswear products to customers.

Strategies

Nike Incorporation appreciates the importance of developing sustainable competitive advantage. In a bid to achieve this goal, the company has adopted the Porter’s scheme in its strategy formulation process. The firm has integrated different strategies, which include

Cost leadership

In its pursuit for sustainable competitiveness, Nike is committed to ensuring that its products are produced at a relatively lower cost than that of its competitors. The firm has succeeded in implementing cost-leadership strategy by outsourcing manufacturers from the international market, as evidenced by the fact that most of its production processes are located overseas such as China, Indonesia, Thailand, and Malaysia. The decision to outsource its production activities from these countries is informed by the availability of cheap labour, which minimises the overall cost of production.

Focused differentiation

The company has focused on ensuring that its sportswear products are differentiated optimally by ensuring that its suppliers have integrated effective production technologies. The firm’s success in its product differentiation strategy is enhanced by focusing on a niche market [customers between 12 years and 24 years]. Thus, the firm is in a position to deliver value to the target customers.

General environment analysis

Nike has adopted an international operation strategy by establishing subsidiaries and retail outlets in the local and international markets. Therefore, the firm is subject to diverse macro environmental forces as discussed herein.

Political Analysis

Businesses are subject to changes that occur in the political environment such as the adoption of diverse political policies. One of the political aspects that affect business operations relates to the level of political stability. The case study shows that Nike has managed to succeed in its US domestic market due to the high level of political stability. Consequently, the firm has established retail outlets in different parts of the country. Thus, the political stability in the country has enabled Nike Incorporation to achieve competitive advantage in distributing its products both locally and internationally.

Furthermore, in an effort to stimulate its economic growth, the US has focused on establishing a positive political relationship with other countries. This move has played a fundamental role in fostering trade relationship with other countries. The political relationship has facilitated Nike Incorporation’s entry into the European, African, and Asian markets by outsourcing independent contractors from different countries such as India, China, Thailand, Indonesia, and Malaysia. Additionally, the political relationship between the UK and the US has facilitated Nike Incorporation to establish a wholly owned subsidiary in Manchester, England.

Economic Analysis

The US has undergone remarkable economic growth over the past decades. Its growth has arisen from the adoption of effective economic management practices. The US government has sustained a high level of economic stability by managing the rate of interest rate and inflation. Additionally, the country has created employment opportunities for its citizens.

Consequently, most households have experienced a remarkable improvement in their disposable income. The US appreciates the importance of cooperation amongst countries in enhancing its economic performance. Subsequently, the US has adopted economic integration as one of its priority economic policies. Currently, the US is a member of the World Trade Organisation [WTO] and the North America Free Trade Agreement [NAFTA].

Social environment

Businesses’ long-term survival is also subject to the prevailing social environment. The global sportswear industry has benefited from significant social changes. For example, consumers increasingly appreciate sports as a form of entertainment. Thus, a significant number of sports fans are consuming sportswear products as a sign of support to their favourite athletes. Additionally, consumers are increasingly incorporating sportswear apparels and footwear in their casual clothing. This trend has arisen from the recognition of the comfort associated with sportswear products.

Technological environment

Nike Incorporation is subject to technological changes within the global sportswear industry. One of the technological changes that have affected the firm’s operations relates to the high rate of innovation in information communication technology, which has increased the intensity of competition with reference to the creation of market awareness. The Internet technology has provided companies with an opportunity to improve their market communication by pursuing direct-to-consumer sales channels. Consequently, the sportswear industry has experienced a double-digit growth pace as opposed traditional sales models.

Companies in the sportswear industry are increasingly implementing web-based sales strategy in an effort to customise their products to the customers’ needs. Moreover, the web-based technologies have created an opportunity for companies to develop optimal market intelligence, for example, by strengthening their customer relationship. The high rate of research and development in ICT will lead to the emergence of new technologies. Therefore, Nike Incorporation will be required to harness its internal Information Communication Technologies.

Legal environment

The US considers entrepreneurship as a critical component in its economic growth. Thus, the government is committed to establishing a favourable environment for entrepreneurship to thrive. One of the aspects that the government has focused on entails formulating effective rules and regulations. For example, the government has instituted an extensive legal framework aimed at protecting innovation by formulating the Intellectual Property Rights, which ensures that product invention efforts are protected adequately. Some of the intellectual property rights offered by the US government relate to trademarks, copyright, and patents. The IPRs have enabled individuals and institutions such as Nike Incorporation to exploit their brand equity successfully by eliminating exploitation of the research efforts by other individuals through counterfeiting.

Environmental factors

Over the past few decades, companies established in different sectors have experienced remarkable growth in pressure by government and non-government agencies. The pressure has emanated from the need to ensure that companies’ operations are environmentally sustainable. This trend has been necessitated by the high rate of global warming due to business operations. Thus, firms are increasingly being required to ensure that their operations do not lead to environmental pollution.

Specific environment analysis

Nike Incorporation recognises the importance of positioning its brand optimally in the global sportswear industry. In a bid to achieve this goal, the firm has integrated the concept of market targeting. The decision to adopt the targeting strategy is inspired by the need to ensure that its products meet the customers’ demands. The firm has specifically targeted the athletic sportswear market.

The company has adopted diverse market segmentation dimensions, which include demographic and behavioural market segmentation variables. With reference to demographic segmentation, the firm has mainly incorporated age as its market-targeting variable. The case study cites Nike Incorporation’s core target market to be comprised of customers between 12 years and 24 years.

In its customer targeting effort, Nike Incorporation undertook a comprehensive study of the target customers’ purchase behaviour. The market research showed that customers within the target age bracket [12 to 24 years] are less price-sensitive. Price sensitivity is a major determinant in a company’s market targeting process. Furthermore, the company revealed that the target customers spend a substantial amount of money on athletic and casual footwear and apparel products as opposed to older consumers.

Suppliers

The company outsources its suppliers from the international market. In 2008, Nike Incorporation contracted suppliers from Indonesia, Vietnam, Thailand, and China. Approximately 99% of the company’s sportswear products were manufactured in these countries. The company sources its raw materials from the country within which the production activities are undertaken. Prior to the identification of the manufacturing location, the company assess the availability of raw materials. In most cases, the company locates its operations in countries where the raw materials are abundant. Consequently, the firm is in a position to purchase the raw materials in bulk.

Professional expertise

The company has been consistent in focusing on human resource as one of its critical internal resources. The firm’s operations are undertaken by a pool of well-experienced managerial and subordinate staff. Its founder, Phil K. Knight, has developed optimal expertise in organisational management. He holds a degree in Masters of Business Administration from Stanford University. Moreover, he serves as an Assistant Professor at Portland State University [Business Administration]. Additionally, he is a Certified Public Accountant. Due to his educational qualification and experience, Knight has steered the company towards business excellence.

A team of well-experienced managers also enhances the company’s operations. According to the case study, Mark G. Parker headed the firm as the Chief Executive Officer after being appointed in 2006. Previously, he served as the head of Nike brand between 2001 and 2006. Thus, he has developed sufficient knowledge on the company’s brand. As the head of Nike brand, Charles D. Denson has been in a position to enhance Nike’s market penetration to Brazil, China, and India. On the other hand, the company’s Chief Financial Officer [CFO] Donald W. Blair has enabled the firm to achieve financial prudence in its operations. By developing a well-experienced management team, Nike Incorporation has remarkably improved its success in attaining its objectives.

Competitive environment

The intensity of competition in the global sportswear industry has increased considerably as is illustrated by the Porters five force model below.

Rivalry [high]

The degree of competition in the industry can be described as ‘extremely fierce’. The Addidas Group is the largest industry competitor. The company has developed optimal competitiveness since its inception in 1949 at Herzogenaurach, Germany. Over the years, the company has succeeded in attracting different customers in the sports industry by adopting the concept of athlete endorsement. Furthermore, the Addidas Group has adopted an aggressive market expansion strategy, which entails acquiring other industry players. For example, the company merged with Reebok, hence increasing its global competitiveness.

Nike also experiences intense competition from Puma, which intends to position itself as the most popular sports lifestyle organisation in the world. The company intends to achieve this goal through product innovation. For example, during the 2008 Beijing Olympics, Usain Bolt broke the men’s 200-meter dash, 4×100-meter relay and the 100-meter dash world record. During the event, Usain Bolt’s wore Puma Theseus II Spikes, which significantly promoted the Puma brand.

Threat of entry [high]

Apart from the global competitors, the intensity of competition in the global sportswear industry is also increased by the entry of small players such as the Chinese Li Ling Shoes and the United States K-Swiss. Moreover, footwear-manufacturing companies are increasingly investing in the production of sportswear products in an effort to exploit a new market trend arising from the high rate at which consumers appreciate sportswear products as a fashion. Examples of leisure and fashion companies that have increased the intensity of competition in the sportswear industry include Deckers Outdoor Group, Timberland Company, Crocs, Inc., and Skechers USA, Incorporation. Despite the intense competition, Nike Incorporation has managed to achieve a 37% market share of the global athletic footwear sales.

Threat of substitute [high]

The existence of large industry players presents a considerable challenge to Nike’s competitiveness. The existing and the new entrants are increasingly investing in research and development in an effort to gain a high competitive edge by offering products that are aligned with the customers’ tastes and preferences. Thus, the industry is characterised by a wide range of sportswear products, which has significantly reduced the cost incurred by customers in switching to competing products.

Supplier bargaining power [low]

The global sportswear industry is characterised by a large number of suppliers, as evidenced by the fact that Nike has outsourced independent suppliers from over 34 countries. The large number suppliers have increased the supplier bargaining power. Therefore, the suppliers do not have adequate capacity in dictating the price of their commodity.

Buyer bargaining power [high]

Sportswear manufacturing companies have a relatively high bargaining power. The companies select the suppliers based on the quality of their products and manufacturing efficiency. For example, Nike has incorporated a comprehensive supplier selection criterion based on its cost leadership and focused differentiation strategies.

Opportunities and threats

The general and specific environments indicate that the sportswear industry is characterised by a mixture of threats and opportunities. Therefore, it is essential for industry players to understand the dynamics within the business environment in order to formulate effective strategies. Some of the opportunities evidenced in the case study are highlighted below.

Opportunities

The economic integration between the US and other countries through the formation of various economic blocs such as the WTO and NAFTA presents a perfect opportunity for Nike Incorporation to maximise its profitability. For example, the company will be in a position to venture into new markets by implementing internationalisation strategy. By accessing new markets, the likelihood of the company maximising its sales revenue and profitability will improve considerably.

Additionally, the political and economic relationship established between the US and other countries such as China, India, Brazil, Malaysia, Indonesia, and Thailand will enable Nike Incorporation to improve its competitiveness by exploiting the cost advantage. The company will be in a position to continue with its outsourcing strategy. Therefore, the company will enhance its competitiveness based on price.

The case study indicates that Nike Incorporation is committed to nurturing a high level of job satisfaction amongst its workforce. For example, the company has incorporated job promotion as one of the employee motivation strategies. This strategy presents a perfect opportunity for the company to sustain its competitiveness through effective formulation and implementation of business and corporate level strategies.

The company has also adopted an effective customer targeting strategy, which presents a potential for increasing its sales revenue. Currently, the youth comprises the largest proportion of the global population. Moreover, the high economic development in different economies around the world indicates that the youth might experience an increment in their purchasing power. Thus, the chance of the company increasing the size of its customer base is high.

Threats

Nike’s competitiveness might be affected by diverse threats. One of the major threats relates to economic changes. Occurrence of global economic recession might lead to an increment in the cost of production. Thus, the company’s outsourcing strategy might be affected adversely, thus limiting its cost advantage.

Nike’s competitiveness might be impacted negatively by increment in the intensity of competition. In an effort, to improve competitiveness, the industry players might invest in intensive market research and product development. Subsequently, their capacity to develop competitive products will improve substantially. Furthermore, the entry of new firms into the sportswear might increase the intensity of competition. Increment in the intensity of competition might lead to a significant reduction in the industry’s economic profits. Thus, the firm commitment to deliver value to its clients might be impacted negatively.

Competitive advantage

Over the years, Nike Incorporation has developed a number of competitive advantages as evaluated below.

Global market reach

The company has developed an extensive production and distribution network in both the domestic and the international markets. Therefore, the firm has improved its capacity in exploiting the international market.

Cost advantage

The company has also gained optimal competitive advantage by outsourcing some of its production activities from countries characterised by a low cost of production.

Quality

The company has also based its competitive advantage by leveraging on emerging production and designing technologies. It ensures that its products are designed optimally using effective technology. Thus, the firm offers high-quality products.

Internal analysis

Organisational strengths

  1. Organisational culture – Nike Incorporation is committed to achieving its organisational vision, which entails inspiring and bringing innovation to all athletes around the world. In its quest to attain its vision, Nike Incorporation has based its operations on a culture of innovation. The firm invests in continuous market research in an effort to understand the customer’s tastes and preferences. The market research enables the firm to succeed in developing competitive products. Thus, the company’s adherence to a culture of innovation has facilitated the deliverer of high-quality products.
  2. Resources and capabilities – the company recognises that its success depends on effective utilisation of internal resources. Some of the most important resources in Nike’s operation include its financial and human capital. The firm has developed a well-experienced workforce, which has improved its efficiency in penetrating local and international market. Additionally, the firm has also established a strong financial resource base due to its local and international operations. The firm has succeeded in sustaining a positive financial performance in all its regions.
  3. Core competencies- Nike has developed adequate core competencies with reference to production and marketing. The firm has outsourced different independent contractors who undertake its production processes. Furthermore, Nike has established over 338 distribution stores and over 25,000 retail accounts in the US. Conversely, the firm has established over 336 retail outlets outside the United States. The aggressive distribution strategy has considerably improved its marketing and distribution capability. Furthermore, the company has developed competency with regard to product innovation. Consequently, it offers innovative products.

Weakness

Despite the above strengths, the case study illustrates that Nike has only focused its marketing strengths on a narrow niche market. By focusing on customers aged between 12 years and 24 years, it has limited its market potential. The high rate at which consumers are incorporating sportswear as one of their core leisure and fashion wear products illustrates the high market opportunity in the global sportswear industry that the firm should consider.

Additionally, the company’s pricing strategy is skewed to youths within the high-income category. Thus, the pricing strategy has locked out a substantial number of youths especially in the low-income countries. In summary, the company’s commitment to a culture of innovation has improved its competitiveness significantly by enhancing its capacity to provide high-quality sports’ products. Conversely, Nike’s ability to exploit its internal resources and core competencies has led to a remarkable improvement in its competitive advantage. Additionally, the firm has developed a large customer base, hence increasing its sales revenue. However, the company’s pricing and marketing targeting strategies are skewed, which limits its ability to optimise the level of profitability.

Summary of Nike’s strengths, weaknesses, opportunities and threats [SWOT chart]

Strengths
  • A strong organisational culture based on innovation.
  • The firm has developed optimal resources and capabilities with regard to internal resources and capabilities, viz. human and financial capital. Thus, the firm is able to invest extensively in product research and development.
  • Production and marketing capability; the firm has established a global production and production network.
Weaknesses
  • Nike has adopted a limited market targeting strategy by emphasising on the youth.
  • The company’s premium pricing strategy limits the firm’s ability to market its products to low-income consumers.
Opportunities
  • Global market expansion; the company can increase its sales revenue by entering emerging markets such as the BRIC economies [china, India, Russia and Brazil].
  • Sales revenue; the company can maximise its sales revenue by targeting the youth, who comprise a significant proportion of the total global population.
Threats
  • Occurrence of global economic changes might increase the cost of production and reduce the consumers’ purchasing power.
  • Increase in the intensity of competition might reduce the industry’s level of profitability.
  • Change in technology might affect the company’s ability to produce competitive products.

Financial analysis

The company’s financial performance can be illustrated by the following financial ratios.

Liquidity ratios

These ratios enable a company to evaluate its ability to meet its short-term debt obligations. Some of the common liquidity ratios include the current ratio quick ratio and debt ratio. Below is an analysis of Nike’s liquidity ratios.

Current ratio

This ratio is calculated by dividing the current assets by the current liabilities.

Amount in USD 2009 2008 2007
Current assets 9,734,000 8,839,300 8,076,500
Current liabilities 3,277,000 3,321,500 2,584,000
Current ratio 3 2.7 3.1

Quick ratio

This ratio is calculated by dividing the net assets by the current liabilities. The net assets are obtained by subtracting inventory from the current assets. The table below illustrates Nike’s quick ratio.

Amount in USD 2009 2008 2007
Net assets 7,377,000 6,400,600 5,954,600
Current liabilities 3,277,000 3,321,500 2,584,000
Quick ratio 2.3 1.9 2.3

Profitability ratio

Gross profit ratio

This ratio is used to evaluate the relationship between a company’s net sales and gross profit. The ratio is calculated by dividing gross profit by total net sales revenue.

Amount in USD 2009 2008 2007
Gross profit 8,604,400 8,387,400 7,160,500
Net sales 19,176,100 18,627,000 16,325,900
Gross profit margin 44.85% 45.03% 43.86%

Net profit ratio

This ratio evaluates the relationship between a company’s net profit after tax and its net sales.

Amount in USD 2009 2008 2007
Net profit 1,486,700 1,883,400 1,491,500
Net sales 19,176,100 18,627,000 16,325,900
Net profit margin 7.75% 10.11% 9.14%

Debt ratios

These ratios examine the size of a company’s debt load and its capacity to pay-off the debt. The main debt ratios include the debt to total assets ratio. This ratio is calculated by dividing a company’s total debts by its total assets within a particular financial year. The table below illustrates Nike’s debt to total assets ratio between 2007 and 2009.

Amount in USD 2009 2008 2007
Total debts 437,200 441,100 409,500
Total assets 13,249,600 12,442,700 10,688,300
Debt to total assets ratio 3.30% 3.50% 3.83%

The financial ratio above illustrates that Nike has developed a strong financial base. First, the liquidity ratio illustrates its effectiveness in managing current assets and current liabilities and hence its capacity to meet its short-term financial needs. On the other hand, the profitability ratios depict the company’s profit earning capacity while the debt ratios show that the firm has managed to sustain its debts at a relatively low level.

Data analysis

Nike Incorporation has attained an optimal competitive position. The company’s success in improving its competitiveness has originated from its commitment towards delivering value to its target customers in line with its mission and vision statements. In a bid to achieve its objectives, the company has invested extensively in diverse value chain activities, which have promoted its production and marketing efficiency. The firm has developed competitiveness by establishing effective inbound and outbound logistics, as evidenced by the numerous stores in both the local and the international markets. In its domestic market, the firm has established over 338 retail stores. The table below illustrates the company’s retail outlets outside the United States.

Retail Store Number
Hurley Stores 1
Cole Haan Stores 74
Niketowns 4
Nike Factory Stores 184
Nike Stores 61
Nike Employee-Only Stores 12
Total 336

The local and international retail stores have improved the company’s marketing efficiency. Moreover, the firm has been in a position to access a large number of customers.

The company’s competitiveness has also been enhanced by its strategy to outsource the production activities from independent contractors located in countries characterised by low cost of production. Subsequently, the firm has developed a high level of operational efficiency by eliminating the cost associated in running a manufacturing facility. Additionally, the firm has improved its competitive position by investing in product research and development.

The financial analysis illustrates that the company has developed a high level of financial stability. The firm has sustained a positive trend with regard to profitability. For example, its gross profit margin has increased from 43.86% in 2007 to 44.85% in 2009. Moreover, the net profit margin has been relatively stable at 9.14% in 2007 and 7.75% in 2009. The decline might have arisen from the global economic recession experienced in 2007 and 2008.

By combining its resources, capabilities, and core competencies, Nike Incorporation can succeed in exploiting the opportunities available in the global sportswear market. For example, its outsourcing capacity will enable the successful implementation of a competitive pricing strategy, hence attracting customers within the low-income bracket. Moreover, the firm will invest in research, development, and new technologies, hence improving its capacity to deliver a unique experience to customers. Consequently, the firm will undercut the threat posed by intense competition.

Recommendations

In a bid to improve its long-term competitiveness, Nike Incorporation should consider the following.

  1. One of the long-term objectives that the firm should invest in entails continuous market expansion.
  2. The company should also invest in new product development.
  3. In a bid to improve the effectiveness of the company’s objective in enhancing the company’s competitiveness, Nike should integrate cost-leadership and focused differentiation strategies. Cost leadership strategy will enable the firm gain an edge against the existing and potential entrants. For example, the firm will market its products to diverse consumer groups. Conversely, focused differentiation will enable the firm to offer unique products, hence attracting a large customer base. The process of implementing these strategies will cost the firm approximately $ 5 million due to the diverse aspects involved such as contractual agreements, legal costs, and the cost of research and development. By adopting these policies, Nike Incorporation will enhance its competitiveness by accessing a large number of customers.

Strategy implementation and evaluation

In a bid to implement the market expansion strategy, the firm should evaluate the economic potential of different markets. One of the aspects that the firm should evaluate includes the economic policies implemented by different governments. The firm should expand into markets that are incorporating free economic zones by establishing subsidiaries in such economies.

Furthermore, the firm should invest in continuous market research in order to identify potential market gaps that can be exploited by developing new products. The company should assess the effectiveness of its strategies by examining the change in its market share and customer base. A positive change will indicate the firm’s effectiveness in implementing the strategy. Conversely, a negative change will indicate the existence of difficulties in the implementation process. Thus, the firm will undertake the necessary changes.