Nike Inc Strategy Analysis - Case Study Example

Nike Inc Strategy Analysis Name: Professor: Institution: Course: Date Word count 3000 Table of contents 1.1 Executive summary………………………………………………………………………4 1.2 Introduction……………………………………………………………………………….4 1.2 Environmental analysis…………………………………………………………………..5 1. 2.1 Micro environment …………………………………………………………….5 1.2.1.1 Customers……………………………………………………………..5 1.2.1.2 Suppliers………………………………………………………………6 1.2.1.3 Employees…………………………………………………………….6 1.2.1.4 competitors…………………………………………………………….6 1.2.2 Macro environment……………………………………………………………..9 1.2.2.1 Economic………………………………………………………………9 1.2.2.2 Political and legal factor………………………………………………………………..9 1.2.2.3 Socio-cultural factor……………………………………………………………………10 1.2.2.4 Technological factor…………………………………………………………………10 1.2.2.5 Environmental factors…………………………………………………………………11 1.3 Critical success factors……………………………………………………………………11 1.3.1 Product differentiation…………………………………………………………………….11 1.3.2 Marketing capabilities……………………………………………………………………11 1.3.3 Research and development………………………………………………………………12 1.3.4 Design and Innovation …………………………………………………………………….12 1.4 Resource analysis…………………………………………………………………………….13 1.4.1 Goodwill …………………………………………………………………………………13 1.4.2 Human resources…………………………………………………………………………13 1.4.3 Financial resources………………………………………………………………………14 1.5 Core competencies………………………………………………………………………..14 1.6 Strategic fit analysis………………………………………………………………………14 1.6.1 Strengths……………………………………………………………………….15 1.6.2 Weaknesses…………………………………………………………………….15 1.6.3 Opportunities ………………………………………………………………….15 . 1.6.4 Threats…………………………………………………………………………16 1.7 Conclusion………………………………………………………………………………16 References…………………………………………………………………………………..17 1.1 Executive summary Since its inception in 1962, Nike Inc has emphasized on linking its vision and mission in its operation to meet the organizational goals. The company boosts of its lead in the market with a well know brand name globally. Nike Inc operation is affected by both internal and external environmental factors which determine the company strengths and weaknesses, opportunities and threats. The company has enough resource to keep it in lead over its competitors and concentrate on its innovation and design. 1.2 Introduction Nike inc. was formed in 1962 as a Blue Ribbon Sports by Bill and Phil Knight and later changed its name and in 1972 Nike Inc was launched. Nike Inc is the biggest manufacturer worldwide which specializes in production and sale of athletic foot wares, apparel and sport equipment. The company operates globally and now operates at 180 countries around the globe with a capacity of nearly one million employees. Nike Inc announced revenue of $19.0 billion for the fiscal year ended in May 2010. In 2011 fiscal year the revenue increased by 10% and reached 20.9 billion (Annual report, 2011, p.16) Nike Inc mission is “to bring inspiration and innovation to every athlete in the world” “if you have a body you are an athlete” and its vision statement is “to carry on his legacy of innovative thinking, whether to develop products that help the athletes of every level of ability reach their potential, or create a business opportunity that set Nike apart from the competition and provide value for our shareholders”. Nike Inc operates in global market and has continued to put effort on providing quality products and emphasizing on constant innovation and aggressive marketing which has kept the company on lead. (Dolleschal, 2008).Nike uses distribution channels such as company owned stores and websites or sport retailers such as foot wears to market its products 1.2 Environmental analysis. All company operates in a macro and micro environment. Micro environment refers to actors close to the business which has a direct impact on its strategy while macro environment refers to external factors which affects the entire operations of the organization but has nothing to do with the organization itself (Ritson, N.2011). 1.2.1 Micro environment A micro environment consists of, customers, employees, suppliers, shareholders and competitors (Ritson, N, 2011). 1.2.1.1 Customers Nike Inc is has a big market share globally. As per its mission which is to represent the highest service standards within and beyond the industry by building loyal consumer relationship around the globe. Nike Inc target market involves competitive, exercise enthusiasts, particularly running, who enjoy the knowledge of their distance and pace and its target group age ranges from 17-35 years of age (Larmann, E, 2001).Nike operates in Europe, Middle East and Africa and Asia. 1.2.1.2 Suppliers Nike sportswears are manufactured using raw material which includes, leather, rubber and cotton. The suppliers for these products are many in the industry and therefore the company is able to acquire the raw material at a cheaper price. This minimizes the cost of production and maximizes profit (Mashra, D, 2011, p.2) 1.2.1.3 Employees According to Nike annual report, (2011) Nike Inc directly employs more than 300,000 globally who includes designers’ marketers’ accountants and analytical professional. Nike contracts with manufacturers employs more than 800,000 workers. Each of the employees is responsible and contributes their skills, experience and knowledge to fulfill the mission statement. The company has its own internal guideline and code of conduct to ensure proper working conditions. Each employee is recognized as an individual and a team player and because each one has a specific something to add for the success of the business. Culture diversity creates a world class, high performance team. This diversity of employees creates a venue and environments for open dialogue, diverse opinions and different perspective outlook (Petkova, P, and Pitabaraman, S.2010, p 6-7). 1.2.1.4 Competitors The sportswear and sport equipment market is a very competitive. The major competitor of Nike Inc is Adidas which is the big manufacturer and provider of sportswear located in Germany. (Larmann, E, 2001). According to the US Athletic Retail report, 2009 Edition, Nike has approximately 50% of the global market share of athletic sportswear while its biggest competitor Addis had only 16%. 1.2.2 Macro environment The microenvironment consists of factors that are beyond the control of the business. This consist of economic, political, legal, socio-cultural, technology and environmental factors (pestel analysis).The porter’s five forces model has also been used to evaluate the industry in which Nike Inc operates. 1.2.2.1 Economic Nike operates globally and therefore any change in economic forces brings both threats and opportunities. The global economic recession, consumer purchasing is slowing down because the market share has reduced in United States. The fluctuation of financial currency and exchange rate is a threat to the operation of the company. International brand building recognition and operating globally is an advantage to the firm. (Mishra, D, 2011, p11) 1.2.2.2 Political and legal factor As Nike Inc is an international company, changes in political and legal measures affects them. In 2005 the European Union initiated in investigation regarding foot wears imported from China and Vietnam. They argued that the products were of low quality. (Nike Annual Report, 2011, p5). In 2006, Turkey government imposed a regulation on importation of footwear, apparel, and sport equipment in order to protect their local manufacturing shoe companies. The import duty has increased 20-30% on all import sportswear products regardless of the country origin and this if this is applied then this means that the market share for the Nike Inc is reduced or its product may become more expensive for the customers to buy. (Nike Annual Report, 2011, p.6) 1.2.2.3 Socio-cultural factor Being a global company, Nike Inc operates at different socio-cultural environment. The Nike Inc customers are more brand-minded and their preferences are changing gradually to more fashion oriented. As the company uses websites to advertise for its product, most of the young websites are using the internet to access and buy the products. Most of the young consumers are motivated to buy the products for leisure and women consumers have dominated the athlete shoe market because of the changing lifestyle. (Mishra, D, 2011, p11) 1.2.2.4 Technological factor Nike Inc is well known for its innovative products. Nikes has patents to all its technological practices. Nike coalition with Apple has came up with a Nike+ package which consists of pair of running shoes, an iPod nano, and a Nike+ iPod sport kit. The kit consists of a kit which when a person runs, the iPod tells the distance, pace, and calories burned via voice feedback that adjusts music volume as it plays. Another Nike technology in use is that which allow the customer to design their own shoe. The customers are allowed to choose their own colors’, and mascots to create shoes which define their personality. This technology provides a touch screen which allows the customers in designing the shoes. The Nike self lacing automatic shoes is an innovation which is to be implemented. the shoes provides the automatic lacing system and a set of stripes which can be automatically opened and closed to switch between a loosened and tightened position (Mishra,D,2011) 1.2.2.5 Environmental factors These factors are natural environmental factors which affects the company strategic planning. The earthquake in Japan led to loss of lives and therefore reduction of the number of customers. Change of climate in USA to a cold weather has demand more Nike products and therefore increase of sales Porter’s Model Nike Inc, Michael porter’s framework for competitive strategy serves as the model to understand competition environment. Porters five critical element which measures the degree of competition that exists are threats of new entrants, the bargaining power of suppliers, rivalry among existing competitors ,bargaining power of buyers and the threat of substitutes.(Ritson,N,2011,p.42-46) Threat of new entrants Nike Inc is the leader in the sports industry and it has established itself firmly with strengths like unique brand name and higher financial capabilities combined with high human resource. Therefore the company has been on the competitive edge because of its innovation in sportswear. The company brand is recognized worldwide and has a huge population of loyal customers. The company has focused on different segments of customers and designs products for women, men and children. Nike is successful in popularizing its footwear, apparel and sports accessories. For any company to enter to this industry the firm must invest a lot of finances to reach others. Therefore the threat of new entrant is low. (Mishra, D, 2011, p, 11) Rivalry among existing competitors The rivalry among the existing competitors in the sportswear market is very high. Nike Inc is facing a stiff competition from its competitors like Puma, Reebok, and Adidas.the companies are growing at a very higher rate and have already established themselves firmly in the industry. The firms are well recognized worldwide and have created loyal customers .to increase their sales more they also sell their products online as Nike does allowing them to increase sales and minimize operating costs. The four large firms invest in building a brand identity and therefore the competition is stiff hence making the rivalry high. (Mishra, D, 2011, p11) Threats of substitute There are few alternatives for the athletic footwears, the available substitute of athlete footwear includes boots, flip-flops and sandals but these cannot replace the sportswear in any sporty event. Therefore the threat of substitute is low because there is no real substitute. There are also lesser substitutes available for athletic garment. (Mishra, D, 2011, p, 11) Bargaining power of suppliers The bargaining power of suppliers is very low in competition environment of Nike Inc. The raw materials required to produce Footwear are leather, rubber and cotton. These raw materials are abundant in the market and therefore are sold at a lower price because the suppliers are many and therefore each supplier quotes a low price for it to sell more. Nike Inc has an advantage over the suppliers because it can decide on whom to buy from since they are many. (Mishra, D, 2011, p, 11) Bargaining power of buyers The bargaining power of buyers is very high. The power of buyers in the sportswear industry is distributed among many companies which provide the products. There is large number of buyers relative to the number of firm in the industry. When buyers are many for the company to stand a good competitive position the company should invest in providing high quality products at a cheaper price than its competitors. Nike Inc products are very expensive compared to its close rival Adidas. Therefore the consumers may prefer other companies’ products since they are cheaper than those of Nike. Therefore the bargaining buying power of the buyers is very in the industry. (Mishra, D, 2011, p, 13) 1.3 Critical success factors Critical success factors are most significant factors which determine the future of the company. It gives a view on where the company is expected to succeed or to fail. Nike critical success factors include distinctive marketing activities, extensive research and development, effort to innovate and design a consumer oriented products, product differentiation and extensive manufacturing, innovation and distribution capabilities. (Mishra, D, 2011) 1.3.1 Product differentiation Nike Inc product differentiation emphasizes on branding of the products, design of the product, exclusive and exceptional customer service, high quality products and new product development (Grant, 2010).this has helped the company to boost its profits through the sale of different products. In product differentiation whereby Nike produces a variety of products it reduces the risks of losses because if one product fails theirs is another one to compensate the loss. (Equity research, 2003) Nike designs its products to meet the customers need. Although most of its foot wares are designed for athletic purpose. The company designs their products for differently, for men, women and children. The products are designed for running athletes, leisure and casual purpose. The company also designs products for children like, school clothing, time pieces etc (Equity research, 2003) 1.3.2 Marketing capabilities Nike operates globally and sells its products in different market segments. To reach these markets segment the company sells its product under other brand names in particular markets. The company uses companies like, Cole Haan Converse Inc, Hurley International LLC Umbro Limited and Nike Golf. These companies have expanded market share for the company and in fiscal year 2009, they brought a total of 13% of the total revenue. (Lancelloti, Ruiz, 2010) 1.3.3 Research and development Research and development is one of the critical success factors of Nike Inc. The research team of Nike is working hard to design footwear, apparel, and athletic equipments that help reduce injury, enhance athletic performance while maximizing comfort. The Nike staff includes specialist in biomechanics, chemistry, exercise physiology, engineering, industrial design. The company also has advisory boards made up of athletes, trainers, equipment managers, orthopedists, podiatrists who consult with them and review designs, materials, concept for product improvements and compliance with product safety regulations. The athlete employees are engaged under sport marketing contracts and product test during design and development process. (Nike Annual Report, 2011 p, 4) 1.3.4 Design and Innovation Nike Inc innovation focus has contributed to its success. The company has introduced different types of foot wears, apparel, and other sport equipment which are of high tech. To meet its mission of innovation, the company is committed in innovating consistently in design, manufacturing, recapturing the marketplace, recycling and reusing. To implement this company has an “innovation lab” with mission to deliver enterprise-industry-level sustainability solutions. (Nikebiz Inc, 2011) 1.4 Resource analysis Resource analysis important to the company because it shows the resource the company has which will help the company implement its strategies. The resources are both tangible and intangible. 1.4.1 Goodwill (good reputation) The most important resource which Nike Inc can boost of is its good reputation in the entire world. The company is well known for globally for provision of its high quality cheaper footwear, apparel, and sport equipment since 1962.Due to its reputation the company has being able to maintain the lead in the sp[ort industry for a long time ahead of its rival Adidas. (Mishra, D, 2011, p, 7) 1.4.2 Human resources Nike Inc has a powerful and equipped human resource. The company has specialists in different field which helps in idea generation for new products, research and development, designing and marketing of their products. The company has athlete whom they employ to test their product before it goes to the market. Its program on training human recourses is a vital for its success. The company trains contractor manufacturers on lean manufacturing and this helps the company in its production of quality products. (Nike Annual report, 2011) 1.4.3 Financial resources The financial resource of Nike ranges from its inventories and more other valuable assets. At the end of fiscal year which ended in May 2011. By February the company had inventories worthy $2.5 billion, up by 18 percent from February 2010. Cash and short term investments at period were $4.5 billion, while share repurchases by the third quarter were a total of 5.5 million shares approximately $468 million. Nike total assets increased by 7% from 2010 and reached to 20.9 % 14,478 million (Nike Annual report, 2011). The performance of Nike Inc has indicated a healthy performance. This is important because it assist the company to realize, strengths and opportunities for excellence. 1.5 Core competencies The Nike Inc core competencies are design and innovation. The two competencies have brought environmental, labor and social change to the company. Focusing on the two competencies the company discovered potential and positive influence on reduction of waste material, managing natural resources, renewable energy and factory conditions (Nike Inc, 2011). 1.6 Strategic fit analysis To determine whether the company is strategic fit, it requires examining both internal and external environment. The company resources and capabilities assist the firm to exploit its opportunities, and find ways to avoid threats while taking advantages of their strength and reducing its weaknesses (Ritson, N, 2011, pg 16). SWOT analysis is used in analyzing strengths and weakness, opportunities and threats of the company. 1.6.1 Strengths The Nike Inc has a well known product brand. Its products brand is recognized all over the world and most of the customers buy the brand because of its fame. Their products are of high quality and therefore this is a big strength to the company. The company has effective marketing strategy, capacity innovation, strong research and development, strong distribution channel, and strong relationships with its customers globally. This has impacted on the profitability of the company (Mishra, D, 2011, p.3). These strengths provides a better position for Nike Inc 1.6.2 Weaknesses The weakness of Nike Inc include, oversee manufacturing dependency since they doesn’t have their own factories, decreasing of market share in united state, high products prices compared to its strong rival Adidas, currency exposure and medium retail presence who minimizes the products profit. These weakness have lead Nike Inc to face a stiff competition in the market and therefore reducing its market share and profits. 1.6.3 Opportunities Nike inc opportunities for growth and gain more profit includes, expansion into the emergent market, continuing demand in product innovation, growing segment of women athlete, increase of sporting events like FIFA and Olympic and increase of desire to work out or exercise. These opportunities are creating new markets and therefore increasing the company’s revenue. The opportunity provides a foundation for the company to plan on how to face competitors. 1.6.4 Threats The threat of Nike Inc includes strong industry competition especially from Adidas, Puma and other sportswear companies, global economic recession and fluctuation of currency. These threats are is blow to the company because the company profitability will fall. In order to compete fairly Nike Inc should focus on how to handle his threats. 1.8 Conclusion Since its formation Nike Inc main aim was to provide high quality products at a cheaper price globally. Nike Inc enjoys a lead in the industry and it has enough resources to compete with its competitors. Its weakness and threats are few and the opportunities and strengths overpower them. References Dolleschal, 2008. "adidas," Equity Research, Commerzbank. [Accessed on 13th Nov, 2011] Equity research, 2011. Apparel Footwear & Accessories. Makers Look to China for Growth. http://www.marketwatch.com/story/equity-research-on-nike-inc-and-coach-inc-apparel-footwear-accessories-makers-look-to-china-for-growth-2011-10-19 [Accessed on 13th Nov Grant, R. M., John Wiley & Sons, .2010. Contemporary Strategy Analysis http://www.heacademy.ac.uk/assets/bmaf/documents/publications/IJME/Vol8no3/9IJMEBookReview.pdf . [Accessed on 13th Nov 2011] Koncept Analytic. 2009. USA Retail Market Report. Strategic report on Us Footwear and apparel market. [accessed on 13th Nov 2011] Lancellotti, and Ruiz P, .2010. NIKE, Inc.NKE http://docs.google.com/viewer?a=v&q=cache:CqT_Q4y1zTwJ:leeds-faculty.colorado.edu/madig [Accessed on 13th Nov 2011] Larmann e, .2001.Nike Inc. Situation Analysis http://webcache.googleusercontent.com/search?q=cache:Oi2F9jbix7kJ:www.ericlarmann.com/ADMAN%2520Situation%2520Analysis.pdf+Nike+Inc+competion+analysis&hl=en&gl=ke [accessed on13th Nov 2011] Mishra, D., 2011.Nike Strategic Management. Pardue University Calumet. http://www.slideshare.net/divya-mishra/nike-competitive-advantages> [Accessed on 13th Nov 2011] Nike Annual report ending May 2011, from 10-K, Securities and Exchange Commission;Washington D.C. http://www.sec.gov/Archives/edgar/data/320187/00011931251119491/d10k.htm#toc179621_9 [Accessed on 13th Nov 2011] Petcova,P and Pattabiraman,S.,2010.Nike Inc, and the footwear industry. Strategy and competitive analysis. http://www.scribd.com/doc/38643840/Nike-strategy-Analysis-Final-Jun-2010 [Accessed on 13th Nov 2011] Ritson, N, .2011.Strategic Management. [Book boon http://bookboon.com/en/textbooks/management-organisation/strategicmanagement [Accessed on 13th Nov 2011] Read More