Business Analysis of Nike - Assignment Example

? Business Case Analysis of Nike Table of Contents Executive summary 3 Existing Mission, Objectives and Strategies 4 New Mission ment 5 SWOT analysis 5 SPACE Matrix 6 BCG Matrix 8 EFE Matrix 8 List of alternative strategies 9 Specific Strategies and long term objectives 10 Prepared Forecasted Ratios 11 Preparation of Pro-Formal Financial Statements 14 Action Timetable 15 Reference 16 Executive summary The world of the 21st century is progressing at a rapid pace, on the line of fast change and tremendous development. It is important to highlight that the fast change of the current century is being powered on the lines of highly connected telecommunications technology that has advanced in a tremendous way in the recent past. It needs to be mentioned that throughout the previous decade there was a tremendous surge in penetration of internet based connectivity in various parts of the world. As a result of a fact acceptance of the single mode of connectivity which has developed on the lines of internet powered virtual platform in various corners of the world, it needs to be mentioned that the world has transformed into a single connected global entity. This has increasingly paved the way for easy synchronization of various trends related to globalization that are emerging from the different corners of the world. It is of significant interest to mention that because of the trends of globalization, there is a tremendous amount of demand that is emerging from various new as well as well established countries and economies around the world. As a result of this surge in demand, it can be said that there is a tremendous amount of business opportunity that is emerging in the global marketplace. It needs to be mentioned that many new as well as established companies that are located in various geographical locations are increasingly focusing on the process of market expansion as well as the process of entering in the new markets to capitalize on the new business opportunities. However, talking in regards to the project, it can be said that this particular research based assignment focuses on the process of providing an in-depth analysis of Nike Inc, which is considered as one of the most popular multinational brands of the division related to athletic footwear and apparel in the recent times. Existing Mission, Objectives and Strategies It needs to be mentioned that the globally popular sports company is been actively perceived as an organization that promotes highly innovative products for athletes around the world. While talking in regards to the project, the mission based issues needs to be discussed. It can be said that the mission of a company talks about the organization’s plans to achieve the goals in the upcoming short term. The mission of the company talks about the long term effort of the company to provide inspiration as well as innovation to every single athlete around the world (Nike.com, 2013). Talking more in regards to the mission of the company, it can be said that the case study highlights the issue of continuing with the legacy of Bowerman in regards to innovative thinking as well as product development that will help the athletes to simply excel in their arena. Now while talking about the company’s objectives, it can be said that the organization is more focused providing the athletes around the world with the needed motivation and encouragement that is required to excel in their field of sports. It needs to be mentioned that for the purpose of attaining significant growth in the market, it is very important to have a well crafted strategy. It needs to be mentioned that Nike in an attempt to attain significant growth in the market has designed a very effective growth strategy. It can be said that because of increase in performance of the company on a year on year basis, the sports accessories manufacturer has raised the financial target to around 28 – 30 billion USD for the financial year of 2015 (Nikeinc.com, 2011) New Mission Statement It has to be said that the mission statement of a company falls within the arena of a strategic plan for the company. It can be said that a well defined mission statement highlights the organization’s dream of the future, while addressing the issues as well as challenges of the current times. As a result, it can be said that the new mission statement of the company should be ‘Providing the best of innovation and motivation for the sports personnel around the world.’ SWOT analysis It is of considerable importance to highlight that the SWOT analysis of a company talks about an organization’s strengths, weakness, opportunities and threats. The strengths of the company can be outlined as follows: Tremendous dimension of the business, which gives it the edge to generate a competitive advantage in the global market Has a highly diversified range of product category and portfolio, which addresses the sports needs of various set of different individuals. Strong focus on developing innovation based products for its entire portfolio so to attain growth in the upcoming future. Existence of multiple strong brands under the company’s product portfolio, which keeps on attaining growth on a year on year basis (Nikeinc.com, 2011). The weakness of the company can be as follows: The threat related to failure of protection of company’s IP Rights. The company is facing a downturn in regards to sale of the company’s products in the Chinese market, which is a potential strong point for the future (The Associated Press, 2013). The potential opportunities of the company are as follows: The continuous focus of the company to gain edge in the market by developing products of various categories which are high on sustainability as well as innovation (nikeresponsibility.com, 2012). The new business opportunities of many new and upcoming markets in the regions of BRIC, since there is a continuous growth related to purchasing power of the masses. For Nike, a variety of risk related issues needs to be taken into consideration. Threats for the company can arise from: Fluctuations in currency exchange rates, propelling the threat of increasing manufacturing and operating costs and depreciating profits. Risks related to overseas manufacturing and sourcing of products (Nikeinc.com, 2011, p. 11). Continuous instability in the global economic environment as well as the Euro zone, which contributes to the process of depreciation of global sales opportunities for the company. SPACE Matrix It can be said that the Strategic Position and Action Evaluation (SPACE) matrix is a very important strategic tool which helps in the process of identifying the right strategy which will help in the growth of the organization. Source: Rao & et.al, 2008,, p. 254 It needs to be mentioned that the SPACE matrix analyzes the internal and external strategic positions of the organization. It can be said that the internal strategic position comprises of factors related to financial strength, competitive advantage, while the external strategic position comprises of environmental stability and industry strength (Rao & et.al, 2008, p. 254). Talking in regards to the Oregon based sports gear manufacturing company, it can be said that the company has a high market share as well as a highly innovative product life cycle. It needs to be mentioned that the company because of its increasing focus on innovation has resulted in the process of developing high growth potential. The company also is tremendously high in regards to the cash flow and return on investments because of the significant growth attained by the company in the recent times. Hence, it can be said that the company falls on the lines of Aggressive variant of the SPACE matrix BCG Matrix It needs to be mentioned that the BCG matrix comprises of four quadrants like Star, Question Mark, Cash Cows and Dogs. In this particular case, it can be said that the product portfolio of a company can be placed and analyzed in regards to their position in the market (Orcullo, 2007, p. 162). With regards to the information provided in the case study of Nike, it can be said that the product variants of Nike can increasingly be placed under the three categories like Star, Question mark and cash cows. Judging on the lines of financial returns gained by the company from its highly diversified product portfolio from various markets around the world, it can be said that the footwear division is the star of the company, while the equipment division falls in the question mark category of the BCG matrix. It also needs to be mentioned that the apparel division is the cash cow for the company in all the global markets. It is of considerable importance to mention that since the Oregon based sports accessories manufacturing division is largely growing and strong company, the company lacks a product portfolio that can be placed under the dogs category of the BCG matrix. The BCG matrix talks about the zone where there is a low growth rate in the market as well as there is a low market share for the company’s product portfolio (Griffin, 2013, p. 22). EFE Matrix It can be said that the EFE matrix is the external factor evaluation matrix. It needs to be mentioned that the EFE matrix is implemented by following a multi staged process. In the very first step, the various opportunities and threats for the business need to be calculated. The next step is to assign relative importance based weights to the various opportunities and strengths, such that the summation the weights come to a total of 1.0. The next step is to rate the various factors on the basis of perception of relevant opportunities and threats. It needs to be mentioned that the final weighted score will act as the total weighted score for each organization (Katsioloudes, 2012, p. 81) In this particular case, it can be said that the key external factors for Nike has been identified in regards to potential business opportunities and threats. It needs to be mentioned that the potential opportunities and threats that are associated with Nike is being provided relevant weights, the summation of which has resulted in 1.0. Significant ratings were also provided in the order of priority. On the basis of the weights of the external factors as well as the rating , the weighed score for Nike is calculated. Given below is the EFE matrix for Nike Key External Factor Weight Rating Weighted Score Focus to develop new products 0.25 2.00 0.50 New business opportunities from the BRIC regions 0.25 1.00 0.25 Fluctuations in exchange rates 0.25 5.00 1.25 Risks of overseas manufacturing 0.15 4.00 0.60 Instability in global business environment 0.10 3.00 0.30 1.00 2.90 List of alternative strategies It needs to be mentioned that the company is facing tremendous amount of competition in regards to the athletic footwear as well as apparel industry. Talking on this note, it can be said that the company is facing high competition from the rivals like Adidas, Puma as well as other competitors. Also, it needs to be highlighted that the company is facing tremendous amount of issues on the lines of risks associated with the fluctuations of international currency, existence of an international and cross country supply chain as well as global macroeconomic challenges of the Euro zone. However, with the opportunities that current exists in the market, it can be said that a series of key strategies can be outlined. The first one is to focus on creating an inbound manufacturing process for the company’s highly spread out product manufacturing divisions. Now talking about the first alternative, it can be said that by rolling out an internal manufacturing strategy for the company’s largely outsourced manufacturing process, the company will be able to secure itself in regards to the risks associated with exchange rate fluctuations as well as cross country supply chain. The second alternative strategy is to focus on attaining growth in the global sports related consumer market by trying to capitalize on the internet powered online retailing opportunities. While concentrating on the second alternative, it needs to be mentioned that Adidas, which is the second most popular company of the sports segment is actually trying to compete with Nike in regards to its key product portfolios like the sports related apparel, footwear as well as sporting equipment. So, by trying to compete in the open global market by increasingly tapping newer channels that are available on the online virtual platform, the company will be able to build up a huge consumer base around the world. This will automatically help the company and attain a boost in product sales and thereby maintain a leadership position in the market. The third one will be to focus on attaining growth in the emerging markets of the BRIC regions. While judging the advantage of the third alternative, it can be said that the company by concentrating more on the lines of the upcoming and growing consumer markets will be in a better position to tackle the slowdown of sales that the company might face from the European markets. Specific Strategies and long term objectives So, it can be said that for the purpose of attaining growth in the market, it is of tremendous importance to concentrate on developing the sales of the company’s products. It needs to be mentioned that the company needs to focus on developing the internet based virtual sales channel so as to reach out to potential consumers all over the world. Also, by focusing on developing the markets of the upcoming BRIC nations, it can be said that the company will be able to streamline the company’s business opportunities that will be emerging from the growing regions. Prepared Forecasted Ratios Ratios are key indicators that evaluate the performance of the management. Such ratio acts as a standard which sets target. They also help the managers formulate long term strategies that will help the firm achieve its mission statement. The logic behind forecasting ratios is that when the promoters delegate responsibility to their managers, they expect them to provide higher return on investment. This is because initially, the owners’ capital is used to run the business. This capital is invested for production or services and the end product is sold to the customer. When the customer makes payment for the product and services received, this cash is again converted into inputs of business and the cycle continues indefinitely. If the company cannot generate sufficient cash, it will not be able to survive in the long run and consequently will have to wind up due to huge debts. The shareholders’ of the company do not run the business. They rely on the managers to run their business for them and in return they are paid healthy packages which are a portion of net profit earned by them. Thus, to get higher incentives the managers must return higher revenues to the company and in the process their performance is measured by various management ratios. Different companies, according to their scale of operations and industry have different ratios for performance analysis. It is important to mention here that there are no standard guidelines that any company must follow while deriving ratios. The importance of the ratios solely depends upon the requirement of the organization. Most businesses mainly focus on growth, profit, assets and cash flows and consequently they analyze profitability ratios, efficiency ratios, and liquidity ratios. If these parameters are handled properly, they add value to business. Liquidity Ratios They help to evaluate the firm’s ability to honor its short term or current obligations. It is an indicator for the measure of working capital management. The firms’ short term obligations include carrying out day to day operations, payments to creditors for purchase of raw materials, payment of daily wages of laborers, outstanding expenses and bills payables, etc. These current liabilities are financed by current assets. Profitability Ratios The profitability of a company can be measured in terms of gross turnover or sales or the capital employed, or total assets. It is a key indicator of the company’s performance in its industry of operation. It helps to measure the company’s position. These ratios are mainly derived from the income statement of the company. Some example of profitability ratios are Gross profit Margin, Net profit Margin, Operating Margin, Return on capital employed etc. Efficiency Ratios These ratios are used to understand how well a company is performing by using its internal assets and liabilities. The efficiency ratios help to calculate usage of assets including inventory and machinery, repayment of liabilities, utilization of equity capital and so on. Some of the common efficiency ratios are receivables turnover, inventory turnover, and fixed assets turnover ratios. There is a direct relation between profitability and efficiency ratio in the sense that when efficiency ratios increase the profitability of the company rises and vice-versa. Preparation of Pro-Formal Financial Statements The financial statement of a company aims to provide information about enterprise’s financial position on a given date. Such information helps the decision makers to strategize correct course of action. The decision makers may be internal (management, shareholders, employees, etc.) or external (creditors, investors, government, competitors, etc.) to business enterprise. The economic conditions are much stable overall mainly due to the US initiative of QE3 (Quantitative Easing 3) and the ECB (European Central Bank) bailout plans to rescue ailing Eurozone countries. It is expected to boost the economy by pumping about $ 3.5 trillion in the market by 2015. The initiatives will help consumers to increase their source of income and consequently increase consumer spending. The company plans to increase the ROE (Return on Equity) target to 18 %, depending on the political and economic developments. The analysts expect that increase in demand for the company’s products will rise by 8.50% in the coming years. Due to high volatility in the macro economies and system, the company’s board has decided to diversify its operation. Action Timetable Conduct a brief study of the market position of the Nike’s product portfolio – 2 weeks Assess the risk associated with the fluctuation of international currency exchange rates – 1 week Assess the risk as well as cost advantage associated with the international manufacturing process – 1 week Looking for potential shifting of manufacturing process from various global markets to the country – 4 weeks Consolidating of sales in the new markets of BRIC countries – 3 weeks. Reference Nike.com. (2013). Nike’s Mission Statement. Retrieved from: http://help-en-us.nike.com/app/answers/detail/a_id/113/p/3897 Nikeinc.com (2011). FY15 REVENUE TARGET RAISED TO $28-30 BILLION. Retrieved from: http://nikeinc.com/earnings/news/fy15-revenue-target-raised-to-28-30-billion Nikeinc.com. (2011) Form 10 K. Retrieved from: http://investors.nikeinc.com/files/doc_financials/AnnualReports/2011/docs/Nike_2011_10-K.pdf Griffin, R.W. (2013) Management. USA: Cengage Learning. Orcullo, N.A. (2007) Fundamentals of Strategic Management. Manila: Rex Books Rao, C.A., & et.al, 2008. Strategic Management and Business Policy. New Delhi: Excel Books. nikeresponsibility.com. (2012) Letter from the CEO. Retrieved from: http://www.nikeresponsibility.com/report/content/chapter/letter-from-the-ceo The Associated Press (2013) Nike Profit Rises, Despite Weak China Sales. Retrieved from: http://www.nytimes.com/2013/03/22/business/nike-profit-rises-despite-weak-china-sales.html?_r=1& Katsioloudes, M. (2012) Strategic Management. UK: Routledge Read More