The New Nike - Assignment Example

NIKE, Inc Nike) is in the business of designing, developing, and worldwide marketing of high quality footwear, apparel, equipment, and accessory products. Nike is the largest seller of athletic footwear and athletic apparel in the world (NIKE, Inc. 2). PESTEL analysis (O'Conor 50) and Michael Porter's (137-45) five forces analysis will be used to analyze this industry's international factors. Political factors that affect the industry are political unrest, terrorist acts, military conflict, and cargo restrictions to prevent terrorism (NIKE, Inc. 14). Economic factors that affect the industry are general economic conditions, anti-dumping duties, restrictions on the transfer of currency, the annual renewal of NTR with Vietnam, availability of import quotas and currency exchange rate fluctuations (NIKE, Inc. 13-14). On the sociological front, athletic footwear and apparel are consumer products and the relative popularity of various sports and fitness activities and changing design trends affect the demand for such products (NIKE, Inc. 11). On the technological front, although design and aesthetics appear to be the most important factor for consumer acceptance of athletic footwear, apparel, and equipment, technical innovation in the design of such products to reduce injury, enhance athletic performance and maximize comfort is also essential to commercial success. Research and development plays a key role in technical innovation (NIKE, Inc. 12). Lastly, factors in the legal and ecological environment that could affect the athletic footwear, apparel, and equipment industry are non-compliance of environmental, health and safety standards or applicable local law by contractors. This could harm the organization's reputation and have an adverse effect on sales (NIKE, Inc. 12). To the athletic footwear, apparel, and equipment industry, trademark is perhaps the important aspect in the legal environment. Having distinctive marks that are readily identifiable is an important factor in creating a market for goods, in identifying the firm, in distinguishing a firm's goods from those of others, in building a brand, and in a firm's competitive position (NIKE, Inc. 13-14). The intensity of competition is high. The athletic footwear, apparel and equipment industry is keenly competitive in the United States and on a worldwide basis. International players comprise of athletic and leisure shoe companies, athletic and leisure apparel companies, sports equipment companies, and large companies having diversified lines of athletic and leisure shoes, apparel and equipment (NIKE, Inc. 7). Competition also exists for the production capacity of independent manufacturers and for import quota capacity. The industry's product offerings, technologies, marketing expenditures (including advertising and endorsements), pricing, costs of production, and customer service are aspects of intense competition (NIKE, Inc. 11). The bargaining power of suppliers is medium. Suppliers mainly include contract manufacturers and professional athletes and sports teams and leagues to evaluate and promote the products of a firm, and to establish the authenticity of a firm's products with consumers (NIKE, Inc. 12). The bargaining power of professional athletes and sports teams and leagues is high. The endorsements of professional athletes and sports teams and leagues such as Tigerwoods, Ronaldo and Michael Jordan (Nike, Inc. online) is important to the marketing and branding of a firm's products. The high bargaining power of professional athletics and sports teams and leagues is mitigated by the low bargaining power of contract manufacturers. Compared to the athletic footwear and apparel industry dominated by a few large organizations such as Nike and Reebok1, there are hundreds of contract manufacturers (NIKE, Inc. 12; Rankine and Ferris 4-5). Besides, the shoes and apparel produced by contract manufacturers are commodities. It is the brand name of the organization that designs, markets, and sells the products that makes the product unique and differentiates it from the rest. The bargaining power of customers is low. Customers include retail accounts such as retail stores owned by the organization that designs and markets the products and independent distributors and licensees (NIKE, Inc. 2). Such customers are more fragmented as compared to the athletic footwear and apparel industry that is dominated by a few large companies such as Nike and Reebok (Rankine and Ferris 4-5). Moreover, purchases do not represent a significant part of the customers' costs as independent distributors and licensees sell products from a variety of suppliers. Furthermore, the industry's products are differentiated and compete based on brands that reduces the bargaining power of customers. The threat of substitutes is high. Because a large percentage of sportswear are worn for casual or leisure purposes (NIKE Inc. 2), substitutes include products from the non-sportswear market. The threat of new entrants is low. In the sportswear design and marketing industry, significant economies of scale already exist for the current players. Besides, their technology and products are protected by patents. With over 21,000 employees worldwide, Nike is organized into departments by both geographic divisions and product categories, which creates overlapping management responsibilities and fluid leadership structure. For example, a footwear manager in Europe answers to both the Vice President of Footwear and the Vice President of Europe. However, there is no formal communication link between the regional vice presidents (those in the United States, Europe, Asia-Pacific, and Latin America) and the product vice presidents (footwear, apparel, equipment) (McDonald and London 2). Nike's strengths lie in its innovation culture (Holmes and Bernstein online), a wide range of sports and non-sports oriented gear that no single can compete directly with (Nike, Inc. online), and core competencies in design and development and marketing that has built up its brand name. Nike's main weakness is that it has been criticized for the working conditions and production methods in the overseas factories with which it contracts (Nike, Inc. online). Nike's organizational structure that is configured by geography and product lines is appropriate since Nike offers several product lines and operates worldwide. Its core competencies in design and development and marketing are also appropriate. As indicated in the PESTEL analysis, the influence of consumer demand and technological competencies are the factors for success in the industry. As revealed by the five forces analysis, the athletic footwear and apparel design and marketing industry is an attractive industry to be in save for the high intensity of competition. Nike's strengths all help to mitigate the intensity of competition. To overcome its weakness, Nike has to pay more attention to corporate social responsibility. A bad reputation could potentially hurt sales in an industry where brand name underpins success. WORKS CITED Holmes, Stanley and Bernstein, Aaron. "The New Nike." BusinessWeek online. 20 September 2004. The McGraw-Hill Companies Inc. 27 October 2006 McDonald, Heather, and London, Ted. "Expanding the Playing Field: Nike's World Shoe Project (A)." World Resources Institute and Kenan-Flager Business School at the University of North Carolina, Chapel Hill. 2002. 27 October 2006 . NIKE, Inc. Annual Report. NIKE, Inc., 2006. "Nike, Inc." Wikipedia, The Free Encyclopedia. 25 October 2006. 27 October 2006 . O'Conor, Darren. Business Planning. Connecticut: Scitech Educational Ltd, 2000. Porter, Michael. "How Competitive Forces Shape Strategy." Harvard Business Review 57.2 (1997): 137-145. Rankine, Graeme and Ferris, Kenneth. "Nike-Globalizing the Sportswear Industry." Thunderbird, The Garvin School of International Management. 2005. 27 October 2006 . Read More