Comparative Analysis: New Balance Athletic Shoe, Inc. and Nike, Inc - Case Study Example

New Balance Athletic Shoe, Inc. and Nike, Inc. Comparative Analysis: New Balance Athletic Shoe, Inc. and Nike,Inc Nike and New Balance are among the leading manufacturers of sportswear in the world. Both firms originate and administer their operation from the United States. They produce sportswear for various sporting activities such as soccer, football, athletics and fitness. In this regard, they command a sizeable market in the world as far as sportswear is concerned. To capture the influence of the companies on the international market, it is paramount to understand the current position of each company. Current market position Nike Current Position Nike is the leading sportswear manufacturer and marketer in the world. The firm has a market share of 4.2 % in sports apparel industry. Further, company has 20.8% market share in the athletic footwear division (statistica.com). The statistics imply that Nike is the market leader in the sportswear industry. The company is also expected to experience growth over the next five years. The sports apparel market has a high prospectus of growing due to changing lifestyles that favor sporting activities for individuals and families. By transitivity, increasing market share of Nike increases the annual revenues. The company’s revenue amounted to $ 23.3 billion in 2012, $25.3 billion in 2013 and $27.8 billion in 2014. The trend shows a clear growth in sales revenues. The improving amount of revenues is a result of increasing global presence and also engaging in aggressive marketing strategies. The increase is sales revenues increases the corresponding net profits. The profits for the three-year period are $ 2.2 billion in 2012, $2.4 billion in 2013 and $2.7 billion in 2014 (Yahoo! finance). The trend shows that the cost of sales is relatively stable and does not fluctuate to affect the net profit. Despite the company having the largest market share in sportswear, it faces several problems. The problems include stiff competition in the footwear division. Although the company has a market share of 20.8% in the category, it faces stiff competition from manufacturers such as Adidas and Reebok. Adidas is challenging the firm presence, especially in Europe, in the footwear division. To this end, the company is struggling to maintain its edge in Europe by sponsoring athletics clubs. The current operations of the company are affected by human resource problems. Nike is facing allegations of allowing unfair labor practices in its manufacturing plants. In essence, the company is facing criticisms of watching as its contractors use child labor in Asia. The company manufactures most of its products in Asia. As such, loose labor laws in these countries allow the contractors to harass workers with low wages and child labor. New Balance Current Position New Balance is ranked at position 3 in the sportswear market in the United States. Nike and Adidas precede the company. It markets products whose price ranges between $5 and $200. Currently, the company growth rate is pegged at 5% annually, with the US market being the largest. The company is struggling to increase its presence worldwide by establishing retail outlets outside the country. As noted above, the company is presumed to be growing at 5% annually. Thus, it is expected that the revenues are growing too. New Balance is a private company hence it is not obliged to declare its financial information publicly. However, the company revenues for the 2013 financial year stood at $2.73 billion (forbes.com). The company manufacturing activities are based in the United States. It has about 4000 employees in both production and administrative positions. The company uses its situation as a local manufacturer as a vantage point to bring customers to its stores. In this regard, the firm is able to survive domestically amid stiff competition from giant companies such as Nike. The overall intuition is that New Balance is concentrates more on the domestic market, rather than globally. The company loses its edge to others in marketing. It does not engage in aggressive marketing strategies aimed at attracting potential buyers. In fact, the company does not associate itself with sporting events. Unlike other companies, it does not endorse or sponsor sporting activities. The failure is dire for the company given that it manufactures products for sporting activities. Target Markets Both Nike and New Balance target customers who are active in sports. Mainly, the age group is between 18-35 years. The age group is selected because it represents a group that is enthusiastic about sports and is constantly engaged in sporting activities. As such, the companies engage them so that they can use their products in their sporting roles. The companies also target older adults who are keen on maintaining their physical fitness. As such the companies appeals to the customers to use their sporting products in the quest for fitness. Production Nike The company has 47% market share in the country. However, it does not own any production plants in the United States. For more than 25 years, Nike has engaged in production activities throughout the word, especially in Asia. The company adopts a strategy aimed at reducing the overall costs of production by outsourcing production privileges to companies in Asia. In fact, Nike does not own any production plants (Keuning, 2013). It engages contractors with whom they agree to the specifics of the products, the costs, labor relations and environmental concerns. The move to outsource production is due to high costs of production, especially in the United States. The high wage limits in the United States and high taxation increase the pressure on the company to produce in countries where labor is cheap, and the government regulations are few. In essence, the company produces in countries where cheap labor and raw material are readily available. Such countries include China, Indonesia, and Vietnam. The company employs 50000 employees in both production and administrative roles. The production facilities are fully owned by the contractors. However, Nike reserves the right to monitor the quality of the products and the working conditions by hiring four expatriates in each country (University of North Carolina, n.d). New Balance Unlike Nike, New Balance Sports Shoe Inc. maintains manufacturing activities in the United States. It has production facilities in New England and Maine (McFarlin & Sweeney, 2011). The company produces almost 50% of their output in the United States. However, some of the parts that are used in the production process in the US are imported. The company uses vertical integration and outsourcing simultaneously to boost the quality of their products. The company’s argument on domestic production is banked on the perception of the customers regarding products made in the USA. It is expected that the American customers would prefer items made in the USA. The company uses the tag “Made in the USA” to emphasize on quality. However, the company faces high costs of production due to high wage rate in the United States, government regulations and also expensive raw materials. New Balance SWOT Analysis Strengths The company balances production activities both in the USA and the outside world. The situation gives the company a good image both at home and abroad. The company engages in community service and other philanthropic activities to boost its corporate image. The company show boxes are made of recycled materials; hence, it reduces the costs of packaging and also improves its standing on environment cleanliness. The company sponsors sports teams in NBA and AFL. The move is aimed at increasing its brand visibility. The company has experience that spreads over a century in making sportswear for the whole family. Weaknesses The company has no presence in many developing countries. In fact, the company concentrates on American and European markets. The company engages in the production of premium brands that are susceptible to be affected by economic conditions such as inflations and economic recessions. The company has not outsourced production from the United States to reduce costs of production. Opportunities The company can increase its revenues by diversifying to produce sports apparel. The New Balance brand is well recognized in the world. Thus, it can use this as a platform to launch manufacturing and retail activities in other countries in the world. Good brand reputation is likely to influence positive sales in the rest of the world. Threats Many substitutes which threaten the existence of New Balance products. Many strong competitors that have global reach and offer low prices for their goods. Lack of influence in emerging economies Increase in production costs in the United States due to labor laws. Conclusions and Recommendations for New Balance As noted above, New Balance has a good reputation that makes its brands popular. However, the popularity of the brand is strongest in the USA. The company does not have a strong global presence. As such, the revenues are lower compared to major competitors such as Nike. The company can improve its global presence, and hence revenues, by investing in global markets. The statement implies that global presence increases the sales thus more revenues. Another strategy that New Balance can employ is outsourcing all production activities. It is clear that the production in the USA is costly when compared to other emerging economies. High wages and expensive materials manifest the expensiveness of the USA. In this regard, New Balance can increase its revenues by contracting producers from countries such as China, South Korea, Indonesia and Vietnam. The suggestion of these countries is advised by the fact that there is plenty of skilled labor at a low cost. Further, raw materials such as leather are readily available. Competition is very rife in the industry. As such, New Balance Sports Shoe can enhance its market position by diversifying its production. Currently, its production is primarily based on the footwear. The company can increase its portfolio by diversifying to produce general sportswear. References Keuning, D. (2013). Management: A European perspective. London: Routledge. McFarlin, D. B., & Sweeney, P. D. (2011). International management: Strategic opportunities and cultural challenges. New York: Routledge. Nikes global market share in athletic footwear 2011-2020 | Statistic. (n.d.). Retrieved December 8, 2014, from http://www.statista.com/statistics/216821/forecast-for-nikes-global-market-share-in-athletic-footwear-until-2017/ NKE Income Statement | Nike, Inc. Common Stock Stock - Yahoo! Finance. (n.d.). Retrieved December 8, 2014, from http://finance.yahoo.com/q/is?s=NKE&annual Trefis Team. (2013, May 13). Why Nike Will Outpace The Sports Apparel Markets Growth - Forbes. Retrieved December 8, 2014, from http://www.forbes.com/sites/greatspeculations/2013/05/13/why-nikes-growth-will-outpace-the-sports-apparel-markets/ University of North Carolina. (n.d.). The Manufacturing Practices of Nike and its competitors. Retrieved December 8, 2014, from http://www.unc.edu/~andrewsr/ints092/vandu.htm Read More