Currnt Strtgic ctivity within Mjr Intrntinl Cmpny - Essay Example

Currnt Strtgic ctivity within Mjr Intrntinl Cmpny Currnt rprt ims t prsnt cntmprry strtgic issus f thr lding cmpnis in sprt industry - dids, Nik nd Rbk. It idntifis th histricl bckgrund f th cmpnis, including th cmpnis' prtinl climt nd businss nvirnmnt; spks f th crprt cultur nd ky stkhldrs n th mrkt s wll s rprts th finncil prspctivs f cmpnis within currnt strtgic vnt. The strtegic event tht will be the issue of curent pper refers to the merger between Reebok nd dids. First of ll I will give short historicl bcjground of the compnies nd then will come down to nlyzing the issue. Th shift frm th mrkting f sprtswr s spcilist prfrmnc itms t prmting it s minstrm fshin itms fr th gnrl public hs grtly bnfitd th sprtswr industry, drwing in yung purchsrs nd xpnding its cnsumr bs. In 2004, th thltic pprl nd ftwr mrkt ws wrth mr thn US$ 58 billin. Th tp thr cmpnis - Nik, Rbk, nd dids - rpd pr-tx prfits munting t US$ 1123 millin, US$ 195.5 millin, nd US$ 408.9 millin rspctivly (rsnult, Fwzy, 2001). Th currnt mnufcturing prctics f th snkr industry, in prticulr cmpnis such s Nik, Rbk, nd dids, tks plc thrughut th glb. With th industry xprincing svr cmptitin, nd th prduct rquiring intnsiv lbr, firms r fcing xtrm prssur t incrs thir prfit mrgins thrugh thir surcing prctics. Th fllwing ppr will nlyz th snkr industry, whil xmining th multitud f vibl mnufcturing ptins, nd critiquing thir currnt mnufcturing structur. Ftwr Industry - Plyrs, Rvnus, Mrkt Shr T prprly rviw th mnufcturing in th ftwr industry, it is ncssry t first gin n undrstnding f th dminnt ldrs in th mrktplc. Th industry is currntly xprincing hyprcmptitin, ld by six min firms - Nik, Rbk, dids, Fil, Cnvrs, nd Nw Blnc, with nrly $7 billin in rvnus dmsticlly. Nik is th industry ldr, with 47% mrkt shr, fllwd by Rbk, distnt scnd t 16%, nd dids t 6%. This ctgry is fcing dcrsing dmnd nd th rising ppulrity f ltrntiv ftwr, rsulting in mr prssur thn vr bfr t chiv high grss mrgins thrugh ffctiv glbl surcing prctics. Mnufcturing ptins Ftwr cmpnis hv tw bsic ptins in th mnufcturing f thir prducts, thy cn bth wn nd prt th fctris tht prduc thir prducts, r subcntrct thir prducts ut t scndry mnufcturrs. Ths fcilitis cn b lctd ithr dmsticlly r intrntinlly, nd bth prsnt myrid f psitivs nd ngtivs. Firms tht prduc dmsticlly bnfit frm s f mnitring, skilld wrkfrc, gvrnmnt stbility, jb crtin, nd wll undrstd lbr ruls, whil suffring frm th rltivly high wgs rquird in th U.S. s cmprd t dvlping cuntris. By mnufcturing prducts vrss, in prticulr in third wrld cnmis, trmndus fficincis r gind in th frm f rducd wgs, but r cuntrd by th incrsd difficulty f mnitring th qulity f thir prducts nd th ctul wrking cnditins in th fctris. Cmpnis tht r vrticlly intgrtd, wh wn nd prt th fctris whr thir prducts r mnufcturd, r fcd with lrg cpitl xpnditur rquirmnts nd th mngmnt f th fctris thmslvs, rsulting in lwr prfit mrgins. Strtgic utsurcing In nlyzing th snkr industry, w r fcd with th qustin, "Wht r ths firms cr cmptncis" If mnufcturing flls undr this umbrll, thn firms shuld lk t prduc intrnlly. Hwvr, th cr skills tht st ths cmpnis prt frm th cmptitin, r thir mrkting, distributin, nd tchnlgicl xprtis. pplying th dminnt snkr cmpnis rs f xprtis, lt's rviw th fllwing qustins: Is intrnliztin surc f cmptitiv dvntg Is mnufcturing skill ur firm ds bttr thn nybdy ls Will firms b bl t lvrg thir mnufcturing xprtis in th futur r w rlsing ny f th firm's prpritry skills/infrmtin by utsurcing With ll f th bv qustins psd t ny f th big fur snkr cmpnis, thy wuld rspnd with rsunding "n". Thrfr, in tdy's glbl nvirnmnt, th mst strtgiclly vibl mnufcturing strtgy is th utsurcing f thir prducts. Th fficincis tht r gind, in th frm f shifting f risk, rducd cpitl rquirmnts, lwr wgs, nd bility t fcus n thir cr cmptncis, strngly utwigh ll thr mnufcturing ptins. Th vlutin f Mnufcturing in Third Wrld Cuntris s th cnmis f cuntris rund wrld xpnd, s ds thir bility nd skill lvl in ll fcts f mnufcturing. Bginning in Lndn in th rly 1900's, nd fllwd thrugh t th prsnt dy, mnufcturing in its simplst frm cnsists f light mnufcturing, which uss unskilld lbr t prduc itms such s shirts, shrts, nd jns. s th cnmy dvlps lng with th skill f mnufcturing, cuntris bgin mdrtly tchnicl light mnufcturing, which includs ftwr, utrwr nd, prfrmnc sprtswr. Th nxt stp in this grwth invlvs th prductin f tchnicl cnsumr prducts such s rdis, clcultrs, nd wristwtchs. With th mst dvlpd cnmis gining high lvls f tchnicl xprtis, mnufcturing grws t includ tchnicl durbls, which includs utmbils nd cmputrs. This prgrssin rprsnts th dvncmnt f cnmis thrughut th wrld tdy, nd prvids th rsning bhind snkr cmpnis mnufcturing bginning in th Unitd Stts nd Grmny, nd pssing thrugh Jpn, Kr, nd Tiwn, t its prsnt dy cntrl rs f Chin, Indnsi, nd Vitnm. s ths thr cuntris prgrss vr th nxt dcd, nd lrg munts f nw cpitl is pumpd int thir cnmis, thir stndrd f living will ris lng with thir mnufcturing xprtis. Cmpnis will b frcd t rlct thir mnufcturing in cuntris such s Cmbdi, Pkistn, nd undrdvlpd rgins f fric in srch f lwr wgs. Nik Nik ws stblishd in 1964, nd Nik inc ws rgistrd in 1968 in Bvrtn, rgn. Th cmpny ws nmd ftr th Grk gddss f victry, nd is knwn fr its swsh lg - rfrnc t th wingd gddss - nd its ctch-phrs Just D It!'. It ws whil studying t Stnfrd Univrsity in 1962 tht Phil Knight, futur fundr f Nik Inc, first hd th id f imprting running shs frm Jpn, t chllng Grmny's dmintin f th mrkt. In 1964, h nd Bill Bwrmn ch cntributd $500 t st up cmpny - Blu Ribbn Sprts - which ws th frrunnr f Nik. By 1979 Nik Inc hd chivd 50 pr cnt mrkt shr in th US, bsting n nnul turnvr f US$149 millin. In 1977 prductin in Tiwn nd Kr bgn, nd by 1980 ngtitins fr prductin in Chin hd strtd (Bj, 2000) In th mid-80s Nik's smingly unssilbl grwth ws svrly hit by th cmpny's filur t idntify nd rct t th mrging wmn's rbic mrkt. But by 1990 Nik hd rgind frm Rbk its psitin s th wrld sprts mrkt ldr with turnvr f $2 billin. This ws lrgly thnks t th intrductin f th ir Jrdn trinr, ndrsd nd prmtd by th bsktbll plyr, Michl Jrdn. Tdy th cmpny rtins th psitin f mrkt ldr, nd Frtun mgzin rprts sls wrth $3.79 billin nd prfits f $299 millin in 1994. s f Nvmbr 1994, Nik's sin ftwr mnufcturing ws lctd in Suth Kr, Tiwn, Indnsi, Chin nd Thilnd. Nik currntly njys 47% mrkt shr f th dmstic ftwr industry, with sls f $3.77 billin. Nik hs bn mnufcturing thrughut th sin rgin fr vr twnty-fiv yrs, nd thr r vr 500,000 ppl tdy dirctly nggd in th prductin f thir prducts. Thy utiliz n utsurcing strtgy, using nly subcntrctrs thrughut th glb. Thir mjrity f thir utput tdy is prducd in fctris in Chin, Indnsi, nd Vitnm, but thy ls hv fctris in Itly, th Philippins, Tiwn, nd Suth Kr. Ths fctris r 100% wnd by subcntrctrs, with th mjrity f thir utput cnsisting slly f Nik prducts (rsnult, Fwzy, 2001).. Hwvr, Nik ds mply tms f fur xptrits pr ch f th big thr cuntris (Chin, Indnsi, Vitnm), tht fcus n bth qulity f prduct nd qulity f wrking cnditins, visiting th fctris wkly. Thy ls dvlpd thir cd f cnduct in 1992 nd hv implmntd it crss th glb, s its gl is t st th stndrd fr subcntrctrs t fllw if thy wish t d businss with Nik. Hwvr, du t mnufcturing ntwrk f this mgnitud, thy hv fcd numrus viltins invlving fctry cnditins nd humn rights issus, which hv bn widly publicizd. Thy hv rspndd t ths issus thrugh th ndrw Yung rprt, th Drtmuth Study, nd rnst & Yung's cntinul mnitring, but r still pprximtly tw yrs wy frm cmpltly ddrssing ths prblms thrughut th glb. Rbk This yr Rbk clbrts th 100th nnivrsry f th Fstr' running sh, Rbk's prcursr, md by Jsph Willim Fstr f Bltn. Fstr, kn runnr with th Bltn Primrs Hrrirs, wntd pir f spikd running shs, nd sn his mkshift dsign ws bing dmndd by his fllw runnrs. By 1890 Fstr hd st up his wn businss in Bltn prducing hndmd running shs. ftr his dth in 1933, th businss pssd t his sns Jms nd Jhn nd cntinud t xpnd until 1958, whn tw f his grndsns stblishd cmpnin cmpny clld Rbk. Tdy Rbk prducs wid rng f thltic ftwr distributd in 45 cuntris. Th US prvids th cmpny's lrgst mrkt. But Rbk ws virtully unknwn thr until 1979, whn Pul Firmn - n mricn mrktr f utdr quipmnt - btind licnc fr nrth mric. Th Bltn plnt ws sn unbl t kp up with rdrs frm th US, nd prductin fcilitis wr st up in Kr. Rbk chivd rsunding succss in th mid-1980s. In 1985 Rbk Intrntinl Limitd nd th US cmpny mrgd, with Pul Firmn lctd s Prsidnt. Firmn trnsfrmd his cmpny frm $1.5 millin distributr in 1981 t $1.4 billin mrkt ldr by 1987 - vrging 155 pr cnt nnul grwth rt. H thn tk fiv-yr brk frm th dy-t-dy running f Rbk, during which th cmpny's nwly stblishd mrkt ld ws wrstd bck by rch rivl, Nik. Nik's ld hs rmind, dspit frcful mrkting rspns by Firmn sinc his rturn t full cntrl in 1992. Firmn hs usd ndrsmnts by tp sprts strs such s Shquill 'Nl. Rbk chivd wrldwid sls f $2.8 billin in 1994. Rbk, s th scnd lding mnufcturr f ftwr, hs dmstic rvnus f $1.28 billin nd mrkt shr f 16%. Similr t Nik, thy ls utiliz 100% utsurcing strtgy nd mnufctur thir prducts thrughut si. Thy hv crtd nd implmntd thir wn cd f cnduct fr mnufcturs t fllw, but hv lss infrstructur thn Nik crss th glb t nfrc it. Thy r fcing scrutiny in rgrds t wg, vrtim, nd ir qulity issus, nd lik Nik, r wrking t ddrss ths issus. Hwvr, thir strngth, th crtin nd distributin f glbl brnd, is llwd t fstr undr this mnufcturing strtgy, s thy fcus n thir cr cmptncis, nd utsurc thir prductin. Rbk nw gts nly nin pr cnt f its sprts shs frm Suth Kr, nd stppd prducing in Tiwn lst yr. Th rst f its shs r prducd in Indnsi (28%), Chin (29%), Thilnd (14%), th Philippins (10%), Vitnm nd Indi. Whil Tiwn nd Suth Kr r n lngr th mjr prductin sits, mny f th fctris crss si in which th min sprts sh cmpnis r nw prducing hv bn st up by, nd r run by, Tiwns r Suth Krns. Stv Brwn, mnging dirctr f Rbk Intrntinl in Indnsi nd Indi, hs stimtd tht 90 pr cnt f prductin is cntrlld r wnd by ithr Tiwns r Suth Krns wh hv st up cntrct fctris' in Chin, Indnsi nd lswhr. dids dlf (di) Dsslr crtd his first sprts shs in Hrzgnurch, Grmny in 1920. t th histric 1936 Brlin lympics, Jss wns' fur gld mdls wr wn wring shs prducd by Dsslr. dids, th cmpny whs nm ws drivd frm tht f its fundr, ws st up in 1948 in Wst Grmny with 48 mplys. Tdy thr r 10,000 ppl wrking fr dids wrldwid nd its vlu ws stimtd rlir this yr t up t DM2.5bn (1.1bn). Th firm ws th first sh mnufcturr t dpt lg - th nw fmilir thr strips, first usd in 1949. Initilly ths strips hd prcticl functin: dding supprt nd stbility. But thy wr sn t bcm n intgrl prt f dids's mrkting img. In 1990 Dsslr's hirs sld th cmpny t Brnrd Tpi, th Frnch pliticin nd businssmn. In 1993 it chngd hnds gin s grup f invstrs hdd by Mr Luis-Dryfus - frmr chif xcutiv f Stchi nd Stchi - bught cntrl fr DM615m. Undr th ldrship f Luis-Dryfus, much grtr mphsis hs bn plcd n mrkting in rdr t llw dids t cmpt gin with glbl mrkt ldrs, Nik nd Rbk. nly 10 pr cnt f dids' yrly turnvr f 46 millin pirs f shs r nw md in Grmny, nd dids dmits t prducing in si bcus lbur is chp. dids sls r xpctd t ris substntilly in 1995, nd pr-tx prfits fr th yr r xpctd t b dubl th 1994 figur. dids sls ttlld $2.13 billin in 1994, with th lin's shr (61 pr cnt) in urp (Stbil, 2003). dids is currntly njying th fstst grwth f ny brnd dmsticlly, with mrkt shr f 6% nd rvnus f $500 millin. Thy hv bn shildd frm bd publicity by th tw Glith's f th industry, Nik nd Rbk, nd r rping th rwrds substntilly. Thy hv djustd thir mnufcturing strtgy, frm vrticl prtin in Grmny in th 60's nd 70's, t n utsurcing fcus tdy thrughut si. Unlik th big tw, thy d nt hv cd f cnduct, nd thir fctris r cnsidrd t b th wrst in th industry. It is just mttr f tim bfr thy r xpsd, with n undrgrund swlling f ngtivity lrdy ccurring tdy. In rdr t vid th ngtiv ffcts nd lst rvnus tht Nik nd Rbk hv rcivd, thy nd t immditly bgin t tk prctiv stnc in rgrds t th wrking cnditins f thir fctris. Whil thr is firc cmptitin fr mrkt shr in dvlpd cuntris, subcntrctrs r ftn shrd by sprts sh cmpnis. Th sprts sh cmpnis hv mstly bcm dsign, distributin nd mrkting cmpnis. Nik bss Phil Knight, xplins: Thr is n vlu in mking things ny mr. Th vlu is ddd by crful rsrch, by innvtin nd by mrkting'. nrmus ttntin nd hyp r dvtd t prduct innvtin. Tms r ddictd t rsrching, dsigning nd tsting cntinuus strm f nw cncpts. dids giv tubulr tchnlgy'; Rbk prffrs th futuristic Hxlit', Grphlit' nd Dynmx'; Nik fvurs Klvr, th mtril thy us fr bulltprf vsts'. It is nt, hwvr, ll tchn-ftishism. Ths cmpnis r slling mr thn prduct t d sprts in. Thy r slling lisur itm, fshin ccssry, lifstyl chic. Rbk stimts tht hlf th shs it slls r fr lisur nly' with nly 11 pr cnt fr sprt nly'. Brnding is crucil: th Nik swsh', th thr strips f dids, th Hi-Tc hrpn'. Th im is t sll glbl brnd thrugh mrkting tht ppls t lcl tsts. ccrding t Richrd Dnhu, Nik Vic Chirmn: Th cmmitmnt is t b glbl cmpny - n mngmnt, n thm, n vlu, n thic rund th wrld.' Ths cmpnis spnd hug munts n dvrtising. ccrding t urpn Nik mrkting mngr, th prfil thy r iming fr is mricn, yung, high-tch, dvting lt f ttntin t rsrch nd dvlpmnt.' Th mssg is ftn vry ml, vry cmptitiv, vry hrd-dgd. Th sprts shs llw: ddly ffct' (Rbk); dvstting tuch' (dids); t d sm srius dmg t yur ppnnt' (Nik). In rcnt yrs th cmpnis hv ls dvlpd mr cring pprch in rdr t cptur th grwing wmn's mrkt. Nik's pprch t wmn hs mvd frm sking thm Whil yu'r t it, why dn't yu stp ting lik pig' t th much sftr it's nt th shp yu r, it's th shp yu'r in tht mttrs'. ccrding t dvrtising g Rbk spnt $110 millin n dvrtising in 1994, whil Nik spnt mssiv $280 millin. Th sm mgzin rprts tht dids will spnd $210 millin n mrkting in 1995. Th British figurs fr ttl d spnding r difficult t btin. W d knw tht th fiv mjr cmpnis will spnd wll vr 10 millin this yr just buying dvrtising spc. Th thr mjr prmtinl strtgy is ndrsmnt dls. Th cmpnis cmpt t py tp sprts prsnlitis millins t wr thir clths nd ndrs thm. Nik spnsrs cmptitiv, cntrvrsil, nti-stblishmnt figurs such s Jhn Mcnr, ric Cntn, In Wright, ndr gssi nd Tny Hrding. Nik bss Phil Knight strsss tht th cmpny wnts wnt smn whm th public will lv r ht'. This Mrch ndr gssi signd clthing cntrct with Nik rputd t b wrth 70 millin. Pt Smprs is llgdly rning 4 millin yr nd Jim Curir 3 millin frm th sm cmpny. dids rcntly pid 2 millin t Pul Gscign t wr its bts. Michl Jrdn rputdly rns $18-20 millin yr frm Nik. It is difficult t find ut th ttl spnsrship spnds. Dusty Kidd, Dirctr f Mrkting nd Cmmunictins fr Nik si, suggstd tht Nik's budgt fr funding thlts my b s high s fiv t svn pr cnt f th cmpny's ttl rvnus (which fr th yr nding 1994 ws $3.8 billin). It my b stimtd tht th cmpny spnds $250 - $280 millin dllrs yr n thlt ndrsmnt. nlysis of Strtegic Event From the figures in bove it my be concluded tht the cquisition of Reebok by dids looks gret, however it my only seem so s the xmples of compnies such s Mercedes-Benz nd Chrysler, Quker nd Snpple, HP nd Compq show tht the mergers don't get executed on pper. nd there re mny benefits tht both compnies cn extrct out of this strtegic event. Byuing out Reebok for $3.8 billion dollrs, there ppers n opportunity to combine two of the most respected nd well-known compnies in the worldwide sporting goods industry. With the cquisition, the collective compny would corner 20% of the U.S. thletic-shoe mrket, positioning themselves s leding competitors with Nike. They get executed in rel life where people cn blow executions. In terms of closing the gp between dids nd Nike, this del helps. It gives the Germn shoemker bout 22% of the U.S. shoe mrket, for exmple, compred with Nike's 36%. nd tht's still pretty wide gulf. Both compnies hve numerous celebrity endorsers nd event dels. Reebok counts Jy Z, Nelly nd 50 Cent mong their fmous nmes, while dids hs held long-stnding trdition in the hip hop community, strting with pioneers Run-D.M.C. to recently cquired spokesperson Missy "Misdemenor" Elliot. ccording to figures relesed by Reebok, footwer products endorsed by Jy-Z nd 50 Cent helped the compny doubled fourth qurter ernings over the previous yer. Together compnies will expnd their geogrphic rech, prticulrly in North meric, nd crete footwer, pprel nd hrdwre offering tht ddresses broder spectrum of consumers nd demogrphics. Wht looks like good pln is if the del llows dids to relly focus on premium product full of design nd innovtion--the kind of shoes people with too much money like to buy. Let Reebok fill the middle mrket nd tke cre of the trditionl ldies' erobics nd jzzercise ctegories. By the middle mrket, it is ment the fshion shoes worn by suburbn kids who don't necessrily ply sports. nd Reebok hs to keep up the successful hip hop strtegy. Fiddy Cent's shoes nd stuff re flying off the shelves. But it's fr from slm dunk tht dids is going to encorch on 30% shre in the U.S., which is wht the compny execs sy is in their plns. Nike, BMW, pple...these re brnds tht seldom mke mistke with product or imge. They sty spirtionl becuse they crete mystique round their brnds yer fter yer fter yer. dids my mke some hedwy but they might not know where the dids brnd ends nd the Reebok brnd begins, nd so the two will be jockeying for the sme customer. The Germns re infmous for this. Witness Volkswgen's fory into the luxury cr mrket with the Pheton even though VW owns udi, which should be tking cre of tht mrket for the compny. Summry Mnufcturing in th ftwr industry hs vlvd drmticlly vr th curs f th lst cntury. s cnmis grw nd skills r nhncd, prductin hs bn frcd t sprd t lss dvlpd rgins rund th wrld. Whil Nik, Rbk, dids, Cnvrs, nd Nw Blnc ch hv thir wn mnufcturing structur, th rsn bhind thir ris t dminnc in this industry is thir bility t fcus n th cr skills tht thy prfrm bttr thn nybdy ls. Th utsurcing trnd tht dmints th industry tdy will nly incrs in th futur. Th mjr issus fcing ths firms tdy, wrking cnditins nd humn rights, must b ddrssd in th shrt-trm. Thrugh ithr n firm's ldrship, r ll ftwr cmpnis strtgiclly ligning, ths issus will b ddrssd; th qustin is "Just hw lng will it tk bfr th ftwr cmpnis sy Just D It" Bibligphy: 1. rsnult, Drin J. & Tmr Fwzy (2001). "Just Buy It: Nik dvrtising imd t Glmur Rdrs: Criticl Fminist nlysis." SPCIL ISSU N Crprt Prdtrs nd Nik, Tmr Jurnl f Criticl Pstmdrn rgniztin Scinc. Vl 1 Issu 2 pp. 63-76. 2. Bj, D. M. (2000) "Nik Crprtin, Nik Wmn nd Nrrtiv Mrl Dilmms." Dcmbr 29, 2000. 3. Stbil, Crl . (2003). "dids, scil rspnsibility, nd th hiddn bd f prductin." Criticl Studis in Mdi Cmmunictin, Vl. 17 (2): 186-204). 4. "dids trgts Nik by bringing Rbk int th fld (P)" vilbl nlin: http://www.chindily.cm.cn/nglish/dc/2005-08/04/cntnt_466271.htm Read More