International Business Strategy of Nike Company - Case Study Example

of Institute Executive summary The journey of Nike Inc. started in 1962 when Bill Bowerman and Phil Knight founded Blue Ribbon Sports as a partnership. When it was founded, its main goal was to distribute in the American market Japanese athletic shoes that were at a lower cost and high quality. This was an attempt to break the dominance of the domestic market by German manufacturers. Currently, Nike Inc. manufactures and distributes athletic shoes, athletic apparel as well as sports equipment and subsidiary ventures. Nike has grown to become a global brand with its target markets in different regions such as United States, Europe, Asia Pacific and the Americas. To sell its products, Nike uses internet based Websites, Nike stores, Nike factory store, Nike Towns, Cole Haan Stores as well as the many retailers it has worldwide. Nike’s greatest dominance is in the athletic footwear industry where by the year 2011 it had a 35% global market share. To achieve this market share, Nike has had to provide quality and innovative products and employ aggressive marketing. Brief case history For a very long time since its founding, Nike has always concentrated on athletic footwear cutting a niche for itself in the industry as the best brand. Through its strategies, it has become the leading brand in athletic footwear. However, with other competitors increasing their input into the market, there has been increased competition. Nike has had to reconsider its manufacture and distribution of sport apparel and equipment. In addition, some of its competitors have been able to catch up in the manufacture of athletic footwear prompting Nike to react in order to recapture its market. This has been through strategic alliances such as mergers and acquisitions e.g. the acquisition of Reebok by Adidas. Whether Nike Inc. will overcome such competition setbacks in the industry to gain a commanding market share in the manufacture and distribution of sport apparel and equipment remains to be seen. Nike’s apparel faces stiff completion from other brands such as Adidas and Puma, which hold a greater market share. The aim of Nike apparel is to overtake its competitors to gain a greater market share. For Nike, the most important question would be whether it would be able to continue controlling the market in terms of market share. Another question would be whether it will be able to topple its competitors in the sports apparel and equipment business. Data and methods The data used for the research comes from secondary sources. The information used for the report originates from Nike Inc. website. The research stretches across several financial years. This was to ensure the strategies could be analysed as accurately as possible. Strategic analysis Resource Based View As Nike approached plans for global expansion, that it should assess its competitive advantage in the area in which it intends to venture. As Mwailu & Mercer (1983, p142), Wernerfelt (1984, p172) Rumelt (1984, p557-558) and Penrose (1959) observe, implementation of strategies that will give a competitive advantage to a firm lie majorly on the primary application of the bundle of valuable interchangeable and intangible and intangible resources at the firms disposal. To this extent, Nike should apply its valuable tangible and intangible resources as an expansion strategy into the new market. Depending on other external forces in the target market, Nike will strike a balance as whether to have intangible resources way above the tangible resources as a market entry tactic. By first analysing the competitive of the target international market, Nike would be in a position to master the competitive environment and make sure that the resources with which it intends to transform its short-run competitive advantage are heterogeneous as well as not being perfect. This explains why it has to invest in market analysis to gather market information as intangible resource, but whose value is of tremendous importance. As Barney (1991, p. 117) observes, doing so would enable Nike company acquire market resources incapable of being perfectly imitable without great effort. The same resources would also be very difficult to substitute. This is how Nike would acquire competitive advantage as it makes effort to grow its market share through market share expansion. As long as there is a perfect application, this framework would ensure Nike’s continued operations above average returns. Porter’s Five Forces Framework There are several issues that Nike faces in its attempt to grow its market share. These factors affect the growth of its businesses. The factors may include rivalry with other competitors, entry of new firms into the industry, substitution by consumers to other alternative products, customers having power over the pricing of the products and suppliers holding some power over the company. To overcome these forces, Nike can employ Porter’s aimed at maintaining its advantage in the market. The strategy that has been highly applied by Nike Inc. is differentiation. The company, through continuous innovations, has been able to produce unique features in its products. Such innovations and differentiation has led to customers preferring Nike products. Innovation and differentiation also contribute to quality, which helps develop customer loyalty. This reduces chances of customers shifting to other products. Differentiation adds value to the product without necessarily raising prices thus enhancing customer loyalty. Nike has, through innovations, expanded to action sports and the music industry. This has led to expansion of its market. Some of the new products include the Nike SB brand for skateboarding and Nike snowboarding. This demonstrates its seriousness in becoming the leading Sports equipment manufacture. In order to create and maintain brand loyalty, Nike has invested in manufacture of quality sports products. In so doing, the brand has developed a strong image that is difficult to beat. However, due to its high quality products, the company charges comparatively slightly higher prices as compared to competitor. This could have a negative effect as some customers may shift although for those who value quality will continue being loyal to the brand. Nike has employed an aggressive marketing strategy where it uses Celebrity endorsements to gain popularity among the consuming market. Apart from Celebrity endorsements, Nike also sponsors some high profile sports events such as Tennis tournaments, which attract a large viewing. Some sports teams also have the swoosh trademark of Nike on their kit. This continues to sell the brand further. These aggressive marketing strategies create a lasting impression on the customers as well as create awareness about the product. Customer satisfaction would be another area in which Nike has invested. The development of technologies like Nike+ and Nike free help the company keep the customers satisfied. All these lessen the substitution rate from Nike products to other alternatives. To be able to compete effectively with its competitors, Nike Inc. has had to study the production patterns of the competitors. This has led to Nike Inc. venturing into new production lines such as manufacture and distribution of sport apparel and equipment. This has provided the company with new angles to compete with competitors from. To be the leading sports brand, Nike Inc. has to gain a big market share in the lines of production it engages in. it also needs to keep expanding the lines to remain ahead of the rest. This calls for constant innovation and inventions. Given the threat of new entrants into the market, Nike Inc. has continued to expand its market. It has grown to reach out to the global market thus reducing the effect of new entrants in the local market. This also helps to ease competition among domestic competitors as some have their eyes on the greater global market. However, it is still difficult for a new firm to enter the market. This is due to the competitive nature of the industry. Well-established brands like Nike and Adidas have set the environment so competitive that a new company would struggle to successfully penetrate the market. Although Nike Inc. faces the threat of supplier power, it has come up with a strategy to overcome that. Through opening up to the global market, Nike has been able to outsource production of Nike products to other manufacturers in different markets. This reduces the pressure on the suppliers within a locality. With reduced dependence on local suppliers, their power over the company also falls. They can no longer influence costs due to raising prices of materials. Nike Inc. may also acquire raw materials, for production from suppliers, in a different locality in the global market. Being in the maturity stage of its product life cycle, Nike is able to experiment with other lines of production. Apart from athletic footwear, it has plans to start producing products that offer comfort especially for casual wear. In addition, the company intends to make acquisitions of companies that are strategically going to benefit Nike in its goal to grow in the long run. These are firms mainly dealing in equipment rather than footwear. Generic Strategies Nike could apply some strategies to help it maintain growth and profitability. These would include cost leadership, differentiation and focusing. In cost leadership, the company would seek to be the one producing at the lowest cost in the industry. It may achieve these low costs due to economies of scale, technological advantages, easy and cheaper access to raw materials. Provided a firm can achieve and sustain its cost leader status, then it would perform above average within the economy. It can dictate prices around this average. It is therefore important that a firm exploits any source of cost advantage. Differentiation Strategy Under differentiation, the firm tries to be unique in the industry by creating a product that is of great value to the customer but different from those of competitors. It produces a product with some attributes considered highly by consumers in order to meet their need. This way, it produces a product that is identifiable by the customers and which can be differentiated easily from those of competitors. The focus strategy involves selecting a segment of the market or a line of production and working to meet the needs of that particular segment. It ignores all the other segments outside the selected segment. An example would be Nike focusing on manufacture of women sports shoes and marketing them. This means that the focus will be on the women sports shoes and resources will be directed towards attaining this objective. This strategy usually has two variants namely cost focus and differentiation focus. Cost Leadership Strategy Under cost focus, the company intends to get a cost advantage from the segment while under differentiation focus the aim is to differentiate products in the segment. This strategy relies on the differences between the target segment and the rest of the industry. The target segment must have its unique characteristics such as buyers with unusual needs. Otherwise, the production and delivery system that is applied to target segment must differ from the one that serves the other industry segments. The cost focus seeks to exploit the differences in the cost behaviour in some segments. On the other hand, differentiation focus seeks to exploit the special needs of buyers in different segments. Strategic Recommendations for the Future Nike Inc. should focus more on production and marketing of women sports shoes as most women still prefer rebook shoes. Nike should look for more women celebrities to endorse their products in order for them to switch from Reebok to Nike shoes. This would increase sales revenue due to the increased sales in women sports footwear. Another segment that Nike could possibly try to reach out to would be that of people aged 50+. Nike should make shoes that are comfortable for them for walking. Following innovations in technology such as NIKEiD, Nike should increase its innovations to enhance its online platform. This would increase sales as more and more people will find it convenient to buy products online. This will give Nike an edge over the competitors and will leave them working to catch up. Nike can also use advancements in technology to make game pads for games like soccer, cricket, golf and NBA. This could create a new market that could be very successful. Nike Inc. should also adopt price leadership. This will enable it determine market prices for products. In the past, Nike has concentrated on high-end price consumers ignoring low-end price consumers. Engaging in low-end markets would increase sales and thus increase revenue in the process. Nike could enhance its current strategy of expanding the range of sports gear they produce and venture into new markets. Some of the markets they could venture into may include hiking and fishing. This would be a great opportunity, as there is plenty of equipment and gear they could manufacture for those markets. Just as Adidas acquired Reebok, Nike could also attempt joint ventures, acquisitions or any other strategic alliance to expand its product portfolio and enjoy economies of scale in the market. However, it should be careful in its expansion to avoid outgrowing itself to the extent that control becomes difficult. To boost its image, Nike should collaborate with other firms to set up sporting academies in its various markets especially in developing markets. This will immensely contribute to creating awareness and a liking of its brand due to the effort it makes to nurture talent, which could have a positive effect on its overall sales and market share. By setting up and sponsoring sporting activities, Nike will be strengthening its image as the leading sports manufacturing company worldwide. These events may include matches or sporting competitions. The company may not benefit financially directly, but it will provide an avenue for it to be seen. Bibliography Campbell, B, Coff, R, & Kryscynski, D. 2012. Rethinking Sustained Competitive Advantage from Human Capital, Academy of Management Review, 37, 3, pp. 376-395. Eden, L, Dai, L., & Li, D. 2010. International Business, International Management, and International Strategy, International Studies Of Management & Organization, 40, 4, pp. 54-68. Gobble, M. 2012. Innovation and Strategy, Research Technology Management, 55, 3, p. 63. Gupta, A. 2013. Strategic Alliance: International Business Strategy, Asia Pacific Journal of Research in Business Management, 4, 7, p. 1. Karasik, et al. 2005. Measurements of low-level prepulse on Nike KrF laser, Journal of Applied Physics, 98, 5, p. 053101. Locke, R, Fei, Q, & Brause, A. 2007. Does Monitoring Improve Labour Standards? Lessons from Nike, Industrial & Labour Relations Review, 61, 1, pp. 3-31. Rice, J.F. 2010. 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