STRATEGIC in footwear and apparel industry. · Strong


 

 

STRATEGIC MANAGEMENT

 

 

 

 

Nitin Lazarus

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INTRODUCTION

Nike was originally founded by Phil Knight and Bill Bowerman, Nike is now the market leader in the manufacturing of sportswear and gear and enjoys possessing more than 47% of the market share across the globe. Nike’s mission is to bring inspiration and innovation to every athlete. According to them, you are an athlete if you possess a body.

The company has over 700 shops around the world and has offices situated in 45 countries outside the United States. Most of its factories are located in Southeast Asia including China, Indonesia, Taiwan, India, Vietnam, Thailand, Philippines, Pakistan, and Malaysia.

It enjoys possessing the strength of being the market leader and access to cheap material and labor. Moreover, it has to pay lower tariffs and duties; and with its presence in numerous countries, its suppliers have lower bargaining power.

                                                                    

SWOT Analysis

 Nike is listed on NYSE and its offices are situated worldwide. It tries to evaluate the performance and strategies against every internal and external factor and generally termed as SWOT analysis. It consists of strengths, weakness, opportunities and threat.

STRENGTHS

·         Innovation of products

In a highly competitive environment, innovation can be considered as a major determinant of sustainability. Nike Inc is always successful in the market and is considered as one of the leaders to offer different enthralling products. With the constantly innovative and evolving product range, it has cemented its standings as one of the most famous brands in footwear and apparel industry.

·         Strong Global Brand

Nike is termed as one of the strongest worldwide brands which have its great impact in the global market. Famous sports professionals and celebrities that develop impact brand equity related to image and recognition promote the products. The company is also the brand ambassador of major sporting team and events. Some of the legends of sports fraternity who used to promote or still promoting the brand are Christiano Ronaldo, Rafael Nadal, Michael Jordon and Rory Mcllory. These influential endorsements along with the catchy slogan ‘Just do it’ is recognizable and inspire all its potential customers.

 

·         Effective leadership

The success of an organization is completely dependants on their executives and leaders who manage the organizational procedures in good as well as bad times. As it is stated, Nike Inc is consisting of most efficient leaders who not only maintain the complex marketing strategies but also they help others in order to perform the best work. In the worldwide market, Nike Inc is consisting with more than 60,000 employees who are helping the company to gain remarkable success in the market. At level of Board of Director, its constituent of

·                Philip H Knight, Chairman

·                Mark Parker, President and CEO

·                Trevor Edwards, President of Nike Brand

·                Andy Campion, CFO

·                Jeanne P Jackson, President of product and merchandising

·                Hilary Krane, CAO

 

WEAKNESSES

·         Depending excessively on footwear

Nike Inc offers huge product variety that includes footwear, apparels and equipment. However, the marketing trends evaluate that the sustainability of Nike is based on the footwear sales. If in any situation, the footwear division of Nike experience a huge loss then the entire organization would face a huge problem in order to sustain in the market. It is found that, more than half of Nike’s market revenue generates selling footwear in the market.

·         Product price is high

As the company is highly famous in the global market and their every product are of high quality. However, the company supports the strategy to gain maximum profit from the market; it effectively reduces the numbers of customers particularly from developing countries of South America and Asia. The product price of Nike is so high that it encourages its major competitors to offer low priced products to the customers in order to gain competitive advantage from the market. As the company is willing to follow price hike strategy, the company failed to capitalize maximum market shares in the market of Brazil and Japan. However, the company continues to gain success in other parts of global market.

·         Sweatshop problem of Nike

Nike has always been conservative about their brand image. However, the company has faced serious issues in terms of maintaining their brand image due to unlawful labor practices are entertained in different factories of the company especially in most of the Asian countries. According to the sweatshop issue, it hurts the image of the company and decreases the sales. Using children as labors, poor working environment and low wage rates are the major complaints evolved against Nike. Stated as SHAPE (Safety, Health, Attitude, People and Environment) it illustrates the code of conducts, which is needed to be maintained by every organization. The company is trying to perform according to the committee since 2005 and they successfully achieved to retain their brand image. However, the liability towards the CSR (corporate social responsibility) continues.

OPPORTUNITIES

·         Explore the emerging market

In the 21st century, various developing countries like India, South Africa, Brazil and China are exhibiting economic condition when the economies of American and European slowed down. Customers of these countries are having high disposable income and showing huge interest in order to buy Western products and brands. The market of these countries can help Nike to increase their market revenue and gain competitive advantage. The company can increase their product sales exploring the market of these developing countries. However, the company has already taken major steps to promote their business in these countries and their aim is to endorse popular sports brand to increase their popularity in the global market.

·         Promoting E-commerce marketing

Nike Inc has to offer their products and services to their customers through their retail stores and franchises. However, the expansions of e-commerce market help the company to reach their customers not only via retail stores but also through smart phones. The customers can purchase their products through online marketing and allows them to get their products sitting at their home. According to the market strategists by 2020.

·         Expansion of products

Nike Inc can be considered as one of the biggest companies who are responsible for spending huge amount in a program of research and development. It helps them to create opportunities in order to introduce varieties of new products as they expertise in apparel, sport and health equipment and footwear. It can help the company to enhance their marketing strategy in order to gain competitive advantage and to strengthen their position in the global market.

The innovative ideas in research and development branch help the company to develop exciting products. Some of the innovative products of Nike are Flyknit, recycled polyester, Color dry, Nike Grind that shows diligence and skill in order to introduce new products in the market.

THREATS

·         Immense Competition

Nike Inc is associated with such an industry where they have to face immense competition. However, the company is in the better position as they have captured more market shares compared to their major shareholders. However, Nike is facing extensive competition from Puma, Adidas and other famous brands. All these companies offer same apparel, footwear and other sports equipment that evolves more intense competition in the market. As the industry is highly competitive, the customers have the options to accept substitute products that are similar to other companies if they are not satisfied with the product’s quality.  

·         Unstable International Market

The international market is found to be unstable in the last decade and it is developing huge impact on currency standard. Almost every product of Nike is manufactured in those factories that are located in US and they conduct transactions in different currencies. As a result, it increases the vulnerability and the market fluctuates in exchange rate of foreign currency. Therefore, it leads to increase the product cost, affect the business proceedings and disrupt the business with other independent manufacturers of Nike Inc. This is one of the major issues faced by international brands and exposure to these fluctuations for a longer period of time can be harmful to the company. Along with the unstable currencies, the labor inflation and product cost inflation also affects business process of Nike and obstructing their productivity. 

·         Risky Supply Chain Management

For an international company such as Nike Inc, it is important to reach their targeted customers and deliver quality products and services in an effective way. Nike Inc won no manufacturing units in order to manufacture apparel and footwear though it earn up to 90% of the total market revenue. All raw materials are collected from third parties that are accumulated from independent contractors.

 

PESTLE Analysis of Nike Inc

Political Factors

·         Favourable Policies of US government

The policies generated by the government have huge impact on the business proceedings especially that are engaged with the global market. The government of US show their initiative to develop growth oriented policies that helped the company to expand and grow their business in international market. The international competitive tax arrangements, stable government and trade regulations by Federal Reserve enhance its growth. As Nike Inc is popular for its eco-friendly business initiatives, it receives tax benefits from the government.

·         Political issues in some countries of Asia

Most of the manufacturing units of Nike are situated in emerging Asian countries such as Vietnam, Indonesia and Thailand. The political instability in Thailand in last few years was the biggest concern for Nike’s management where about 35 manufacturing units are situated. The situation was same in Indonesia, Vietnam and in some parts of China in stages as any form of political instability; political and social unrest can affect the supply chain of Nike Inc.

·         Changes in global law

The global law is the last few years have become stricter due to the rise of terrorism threats. Different countries have applied new regulations and rules in order to stay safe from potential threats of illegal terrorism activities. The increases in tariffs in some nations while the strict rule of visa and immigrations are one of the most impact issues for every international organization like Nike Inc. In the United States, where headquarter of Nike is presented is always under major threats of terrorist attacks that create potential threats for Nike in order to maintain their normal organizational functioning. Some of the countries are following strict rules and regulation to restrict terrorist attacks and they are acting as serious threats for Nike in order to expand their business in global market. 

Economic Factors

·         Rise of labor issues and production cost

One of the major reasons of Nike Inc is to develop a strong base in Asian countries due to low labor cost. However, as the economic condition of these countries is developing, the production cost of the company is also increasing. In 2014, April, the company have faced a biggest problem as most of the factories presented in China stopped their production due to low wage and called for strike. It produces major impact on the production and the revenue of the company.

·         The threat of Competition and recession

Nike Inc needs to develop an effective plan in order to tackle the threat of global recession. Being a leader in the market, Nike can face huge problem in order to maintain their business proceedings in the recession period. Last time, it was found that, most of the customers replace Nike products with other companies’ product that are lower in price.

·         Profit margin is fluctuating

Nike maintains its business proceedings on the international arena. Therefore, it can be said that, international interest rates and currency exchange is important to maintain constant growth of its profit margin. However, at the domestic level of US, the inflation rate is high with fluctuating currency rates with respect to dollars always has huge negative effects in the annual margin of profit. According to Forbes, the gross profit margin of apparel of Nike falls by 2.4$ in 2011 and the main reason was unstable economic condition in global market.

Social Factors

·         Customers have become highly brand conscious

In the international market, most of the customers are found to become highly brand conscious. The customers are selecting those products that are of high quality. The increase of brand awareness helped Nike Inc to expand their business in international market. Nike Inc was the first company that used innovative ideas in order to develop apparel and footwear. The combination of style along with the technology helped the company to become highly successful in global market. Apart from their products, the Swoosh logo and their slogan ‘Just Do It’ is hugely famous and recognised in global market.

·         Customers becoming Fashion and health conscious

In recent times, people are showing their willingness to visit a gym to maintain their body, physique and health. Indirectly, it is helping Nike to enhance their sales margin as people are buying sports shoe and equipment to look them as athletics. Some of the customers love to use products of Nike to maintain current fashion trend. This awareness within people will help Nike to gain competitive advantage from the market.

·         Working environment of factories

Nike Inc often faced problems due to improper working conditions of their factories in most Asian countries. One of the major allegations for Nike they are using sweatshops in order to manufacture apparel and footwear from the 1970s. Initially, the authority handles the situation but they have faced complicated issues in the global market in terms of maintaining its image. In the year 1990, the company implemented code of conducts in the manufacturing units in order to maintain security, safety, overtime limits and optimum wages. From then, the company succeeded to improve their working environment. Customers are willing to use products of those companies who are maintaining social responsibilities.

Technological Factors

·         Innovation

Nike Inc is stated as the Apple Inc of footwear and apparel. They are reckoned as the pioneers in order to offer different products, which helped them to gain huge success in global arena. They apply latest technologies to produce new and attractive products. These helped the company to take huge lead from their major competitors. The combination of technology and creativity helped the company to produce unique that are highly popular in the global market. The supportability travel proceeds for Nike, and its prosperity is firmly subject to the development factor that the organization feels emphatically about, making it its way of life and primary driver of its business, by separating Nike from its rivals. Nike trusts that advancement comes in various hues and shapes. Similarly critical they fill in as a reaction and fundamental apparatus to many difficulties, by expanding the likelihood of the unthinkable getting to be noticeably conceivable through leap forward thoughts.

·         Marketing Techniques

Nike Inc has changed their marketing strategies in order to reach prospective customers in the market to increase their sales. The company is focusing on digital marketing instead of traditional marketing in to promote their product and services in the market. Nike is using online apps and media to reach their targeted customer and inform them about their new and existing products. It can help the company to earn opportunities to enhance their market sales in global market. Now they do not have to rely on their franchise outlet and retail stores to sell their footwear and apparel.

Legal Factors

·         Legal issues with Adidas and other companies

Nike reacted to Adidas weaved footwear make a big appearance by documenting a patent encroachment claim. Nike recorded suit in a District Court in Nuremberg, Germany, looking to preclude Adidas from making and offering the Primeknit in Germany, where Adidas is headquartered, for the span of the prosecution and relying upon the result of the case, for all time from that point. The battle between Nike and Adidas is not new. It was found that, in 2014, Nike Inc filed $10 million lawsuits against Adidas accusing that they are taking proprietary secrets, product designs and marketing plans after recruiting few employees of Nike who have left the company. However, Nike Inc is the leader in footwear and apparel industry in the global market and they enjoy undisrupted dominance in North America, still these types of legal issues against their major competitors are considered as important factors that can help the company to develop future strategies. It also makes the company stay engaged with different legal battles that includes the legal rights of using a famous logo of ‘Jump man’ and footwear design. These legal factors can help the companies to develop effective strategic plans so that they can be able to enhance their development process and maintain sustainable growth in global market. 

·         Allegations related to child labor and minimum wage

It was found that, Nike has suffered from huge problems related to minimum wage and child labor. The company has faced allegation that they have used child labor in different manufacturing units especially to those units that are presented in Pakistan and Cambodia. The role of these child labors was to manufacture footballs. However, it has been observed that, Nike took intense steps in order to stop such unlawful practices, which can affect their existing brand image in the market. The management of the company took effective steps to mitigate these types of issues to stay away from legal issues as it can affect them to expand their business in global arena. Moreover, one of the major issues faced by Nike Inc has they faced the allegations of paying low wage to their labors. As a result, in Indonesia, the labors showed strong protest against the company as they are deprived of getting standard wages. However, the management of the company took strong initiatives in order to mitigate such issues as it can hamper to their brand image and their competitors will gain advantage from them. However, Nike Inc always tries to follow the rules and regulation of those respective countries in order to maintain customer satisfaction.

·         Counterfeit Products

Nike Inc can be reckoned as one of the most counterfeited brands in the international market. It can be said, due to this reason, the company is facing huge loss and failed to generate sufficient revenue amount in some of the major countries in the world. Moreover, there are cases of violation related to intellectual rights and patented products when renowned company false products are sold claiming them as 100 % original. It was found that, there are lots of contract manufacturers who deal with these fake products and sell these products in the market. For this reason, the company is suffering from huge loss as it is directly affecting the sales of the company.  In order to tackle the issues related to counterfeit products, Nike Inc needs to monitor the market so that they can be able to take effective steps in order to stop the selling of fake products in the global market. They can take legal support and help to take effective measures to mitigate counterfeit products issue as it can help them to maintain their brand image and reputation for which they are known for in the international market.

Environmental Factors

·         Environmental Concern and global warming

With the rising concern related to the issues of global warming, it is hugely important for the multinational companies to stop using excessive harmful chemicals. They also need to reduce waste that can affect the local environment. It has been observed that, in different countries, the government impose new environmental laws that will force the companies to restrict their production amount if they failed to maintain specific laws. The company is trying to use innovative marketing procedures like Nike Flyknit technology in order to reduce production waste in their supply chain. It also helped to reduce excessive emission of CO2 gas and eliminate the garbage products. Nike took strong initiatives to reduce waste products to help the environment to stay protected.

·         Pollution issues in China

As most of the manufacturing units of Nike are situated in China and it was found that the government of China took strong initiatives in order to check their pollution level in order to protect the environment from being polluted. In order to prevent the environment for getting polluted, the government of China tried to increase the production cost so that they can  limit the production amount. The government took initiatives to make the limitation on the fuel consumption and impose law to protect the environment. 

·         Reduction of Greenhouse emission

Nike Inc is taking strong initiatives in order to mitigate their contribution towards the emission of greenhouse throughout value chain. The company developed effective strategies in order to implant new technologies which will help them to release less amount of carbon monoxide and carbon dioxide gas but it will also lead the company to face production related issues as the they have to decrease the requirement of basic raw materials.

Conclusion

After analyzing all the major factors, both external and internal, it can be said that, Nike Inc has huge opportunities in order to continue their dominance in the global market. However, it is important for the company to take effective steps to mitigate their weaknesses and threats in order to strengthen their current position in the market. As the apparel and footwear industry is highly challenging, it can make Nike to face immense challenges from the market and they need to develop effective strategies to overcome these challenges in order to stay in the market successfully over the next few years. They impressive capability to alter their strategies and new products in the market helped the company to generate huge amount of revenue to grow their business. Finally, Nike Inc will continue to dominate the footwear and apparel industry in the upcoming years.

 

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