Nike Company - Success of the Business - Example

BUSINЕSS РLАN 2.0 Student’s name Course & code Professor’s name University City Date Executive summary The purpose of this business plan is to provide initiatives put in place by Nike to set up new lines of merchandise in the production. Through the research, it has been established that the company has many opportunities that are yet to be explored that would prove significant in regard to success of the business at the company (Baumann-Pauly et al 2015). Consequently, the propositions made in this plan demonstrate means through which the company can overcome the threats from the major competitors like Adidas and. This is discussed through discussion of lean supply chain to identify the feasibility and efficiency in the supply of both raw materials and skilled labour (Zink 2014). Besides, analysing the market and financial feasibility provides an insight into cost effectiveness that has been brought about by involvement of new technology in the production of Nike products since its establishment. Table of Contents 1. Title page……………………………………………………………………...……….1 2. Executive summary…………………………………………………………..…...…... 2 3. Introduction……………………………………………………………..…...………...3 4. Market feasibility………………………………………………………………...….…4 5. Technical feasibility……………………………....................................................…...6 6. Financial feasibility………………………………………...…...……………..………8 7. Human resource feasibility……………………………………………..…..………...10 8. Conclusion ………………………………………………………………………..….12 9. References……………………………………………………...……………..…...…13 10. Appendix A……………………………………………….………………….……….15 Introduction Nike Inc. was set up in 1967 under the Oregon state laws and is headquartered in Beaverton, Oregon, United States (NIKE FY2015 Annual Report 2016). The company has rolled out strategic plan for the 2020 fiscal year which involves introducing new production lines of new designs of sports jackets. The sports apparel industry has been grossing steadily with the improvement in living standards within countries and so it has created market for Nike Company. Nike is known to deal in sportswear, and footwear for sports like basketball and football (NIKE FY2015 Annual Report 2016). Due to the increasing interest in sports, many people are considering dressing in a more ‘sporty’ manner while attending training and also watching of the games. As such, it has been noticed that since no-participants dress casually, it is important to develop sports jackets for this purpose such that even the non-athletes can look the part while attending sporting arenas (Lim et al 2016). The existing sports jacket from other companies have failed to address the customers’ tastes and preferences in the manner in which they are made. Therefore, the proposed brand of sports jackets will take into considerations like breathability, fashion, and moisture wicking to satisfy the preferences of the customers and make it stand out (Wang et al 2014). In respect to Nike Inc., it can be seen that the company has already set up facilities for sportswear and therefore, it can be cheaper introducing new line of sportswear in form of sports jackets. This is because diversifying the business will enhance the company’s ability to claim larger market share without incurring much expenditure as it would for totally new line of merchandise. Having set up research and development centres, Nike will gain the necessary skilled labour for the realisation of the plan. Besides, the raw materials that are needed for the development of the jackets are the same materials used in the manufacture of other sportswear and therefore its acquisition will not present any problems to the company (Shishoo 2015). This retrospect paper seeks to provide analysis of Nike’s business plan by discussing the market, technical, financial and human resource feasibility. Market Feasibility Fitness and athletic apparel industry has become one of the leading business investments worldwide. For instance, the industry in Australia has gained a total revenue of $2 billion in the 2015 fiscal year. This indicates that the industry has developed to greater lengths besides the major competition experienced (NIKE FY2015 Annual Report 2016) With the increasing variety of sports, more people are going for fitness apparel as a way to prepare for participating in such games as indoor and outdoor sports and thus, developing sports jackets that are trendy and fashionable will meet the demands of the growing market (Lim et al 2016). Moreover, the trends and consumer attitudes has contributed to the growth of the industry since more people are trying to maintain body weight through keeping fit and avoiding obesity which has widened the market to including non-athletes into purchase of the jackets. Thus, the industry within Australia is projected to have annual growth rate of 7.6% by 2017 (Lu 2014). Considering the rate of annual growth, it can be deduced that the market for athletic and fitness apparel has not gained its full capacity. Being supported by the ever rising demand for high quality fitness clothing that is fashionable, the operators in the industry stand a chance of tapping into the trend and gain market growth (Chang et al 2016). For instance, the existing clothing has not included features like breathability, moisture wicking among others and therefore manufacturers of the sports jackets can include these features in the new products to widen the range of products and consequently gain new customers (Ferraro 2015). The sports jackets, being under sportswear is manufactured by various sportswear companies like Asics, Adidas, Puma and Lululemon Athletica (Shishoo 2015). These companies, having been established several decades ago, have gained much market share and therefore have penetrated most of the markets worldwide. Nike, being one of the leading players after Adidas has 35% control of the market worldwide. The customers for the fitness clothing initially included athletes among other sportsmen. Presently, the market for this industry has diversified to include trendy and fashionable customers are not into sports but are interested in keeping fit and trendy (Ferraro 2015). The projected number of customers for the sports jackets is 100 percent of the existing sportswear customers. This is because being a complimentary part of the sportswear, customers for footwear and spots tops will opt to buy a complimentary and fitting jacket since it is trendy and fashionable (Ferraro 2015). The government regulations on environmental protection have an impact on the growth of the industry. This is because for some time, the industry was used to manufacturing the products regardless of the material being biodegradable or not. Following the new regulations by UNEP on the environmental protection, the sportswear industries are required to produce biodegradable fabrics to reduce the level of pollution as a result of dumping of the used fabrics (Baumann-Pauly et al 2015). Moreover, the dynamics in the industry where marketing is being done more based on the internet presents a challenge to new products. This is because the products have not been experienced in the market yet and so the advertisement costs will be more in order to include pop-ups in the web browsers to influence the customer perception of the products (Zink 2014). Entry into the sportswear industry is restricted by a number of factors. For instance, entry into this industry requires the new company to invest more in terms of capital equipment which might not be possible for smaller companies. Besides, larger and stronger firms like Adidas and Reebok have gained stronger customer loyalties and therefore the survival of a new company will prove difficult (Zink 2014). Technical Feasibility The technology for use at the company will be developed in house for a number of reasons. One of the reasons as to why the technology has to be done within the business is that, after its development, it will be possible to modify it at specific times to provide room for discounting of premium customers (Zink 2014). Moreover, developing the technology within the business saves the company extra costs that can therefore be used in research and development for the employees. A combination of production means will be used in production of the jackets. For instance, Nike being contracted to produce the jackets since the company has established facilities that are well equipped to manufacture sports apparel (Talay et al 2015). Besides, the in house production will be used so as to boost the production quantities besides enabling the employees to gain experience in the production of the sports jackets. Nike has established strong market and distribution channels worldwide. Therefore, a combination of sales representatives and joint venture form of sales and distribution will be utilised in order to gain much market access just like the existing firms (Talay et al 2015). For instance, using sales representatives will enhance brand name recognition which provides grounds for future establishment under same name. Nike has established various research and development centres which are responsible for training employees in textile and apparel processing skills. This forms a basis for the investment in the sports jackets production since the necessary skills are available (Zink 2014). Besides, through the various marketing seminars conducted by the industry, the employees have gained the necessary skills needed in marketing of the new products and therefore making it possible for the survival of the company in the existing market (Talay et al 2015). Moreover, Nike has set up manufacturing facilities and equipment in most of the continents where suppliers can deliver the necessary raw materials on time at a favourable price. Having the raw materials like cotton of the highest quality supplied to the company makes it possible for the company to produce the sports jackets at low costs. The textile industry is charged with the responsibility of manufacturing biodegradable products which is an important in environmental preservation. Therefore, as a means to reduce environmental pollution as a result of the products, the company has indulged in supplying of litter cans besides promoting competitions that focus on allowing the public to collect used Nike products and delivering them to selected centres for cash. Basically, Nike has developed a strong brand name and a tick as a trademark that makes it to stand out. This feature, being governed under the company’s copyright is perceived as a mark of quality since the industry has had a reputable image in producing quality products (Lim et al 2016). Through the research, it has been seen that the use of sports jackets is currently limited to casual and sports scenarios. Therefore, the dressing code under official circumstances inhibit the market of the sports jackets under formal environments like schools. Presently, online marketing has become the leading channels of advertising and digital marketing. As such, the technology will have a positive impact on the market performance of the products since it makes it possible to include adverts in the web browsers depending on the past search trends for the internet users. Financial Feasibility According to the 2015 financial year, the total sales were $3.6 billion. In the 2016 fiscal year, the sales are expected to go up by 16.3%. The unit price for each jacket on average is $50. The research also revealed that the sales were 8 million units (Rudolph 2016). The financial dynamics are summarised in the table 1.0 below. Costs Structure Price per unit minus 73.4 Variable Costs 3,273 Gross Margin per Unit minus 23 Fixed Costs per Unit equal 50 Net Margin per Unit 23 Source: NIKE FY2015 Annual Report 2016 One Time Assets and Start-up Expenses($) Plant & Equipment 208,800 Leasehold Improvements 424,700 Initial Inventories 539,100 Research & Development 97,000 Legal 55,800 Experts 75,200 Operating expenses prior to break even 1,400,600 Source: NIKE FY2015 Annual Report 2016 The company expects a payback of $3.8 billion within the first three years. This is because involving lean management in the business allows the company to maximise on the profits while minimising costs (Rudolph 2016). Considering the current market structure, it can be deduced that the success of the business is guaranteed as a reward rather than a risk. this is because Nike has already established a brand name in the business which will appeal to the loyal customers and thus the success of the business (Lim et al 2016). The opportunity cost for Nike setting up a beverage business will definitely widen the market share for the company due to diversity in the products and services they offer. On the other hand, the company will have to incur more costs of setting up different facilities and equipment for processing compared to sports jackets which will utilise most of the facilities that are already set up (Chang et al 2016). Setting up new production lines will require extra funds which have not been allocated under the fiscal year which implies that the funding will have to be acquired through leasing out company assets. For example, the company will be required to form mergers with other companies like technology institutes to facilitate financing of the production. The gross margin for Toyota for the 2014 fiscal year was 23.8% while the net profit margin was 10.6% at the end of the 2014 fiscal year. 2014 return on investment was 12.8% compared to the 2013 ROI (NIKE FY2015 Annual Report 2016). General Financial Numbers(%) Gross Margin 23.8 Net Profit Margin 10.6 Return on Investment 12.8 Payback 50 Break even 77.2 . Source: NIKE FY2015 Annual Report 2016 Human Resource Feasibility The human resource at Nike requires highly skilled labour in the field of textile and apparel production (Lu 2014). Moreover, conducting digital marketing requires computer savvy employees for web design that allows for online advertisement. The various segments under the production of the sports jackets require experienced and skilled managers in the fields of marketing, production among others. The managers in charge of global HR is charged with the mandate to conduct market research and hire excellent employees who are motivated to work for the company (Ferraro 2015). The entrepreneur at the company is in charge of developing new ideas on the design of the apparel that the company is to manufacture. In the same manner, the technicians are responsible for keeping the production facilities and equipment up and running so that the company can have supply of the products in the market at a constant rate (Baumann-Pauly et al 2015). The ownership structure at Nike is structure in a downward manner so that the Board of Directors’ Chairman is at the top of the management followed by the CEO. The vice presidents for various segments like finance, Nike brand and finally the chief operating officers (NIKE FY2015 Annual Report 2016). By advertising job opportunities at the company through the website, the eligible applicants from around the world will be shortlisted for interviews. The employee compensation will depend on a combination of both the level of expertise and production. Basically, the most skilled personnel will earn more in order to motivate the other employees to go for further training which is important for the company (Lu 2014). As such, the employees will be motivated through providing incentives in form of money and paid leave. Besides, the employees in marketing section will require frequent refresher courses and attending marketing workshops to understand new methods of marketing (NIKE FY2015 Annual Report 2016). The quality in the products will be maintained through conducting research to understand the feedback from the customers which can be utilised in deciding the design and material that suits the customer’s preferences (Zink 2014). Moreover, with the growth of the company, more departments will be created to include sales managers, supervisors for various segments, and product merchandising which will be career choices for the employees. Conclusion Conclusively, the strategic business plan for Nike is set to develop new lines in merchandise through developing new designs of sports jackets. The product quality and the strong brand name is attributed to the fact that the company has engaged in research and development by setting up research and development facilities (Talay et al 2015). Besides educating the employees, the company is actively involved regulating environmental pollution through manufacturing apparel with biodegradable material. References Baumann-Pauly, D, Scherer, AG & Palazzo, G 2015, ‘Managing institutional complexity: A longitudinal study of legitimacy strategies at a sportswear brand company’, Journal of Business Ethics, pp.1-21. Chang, CC, Wu, HY, Lin, HH & Chang, HY 2016, ‘A Study of Customer's Perceived Quality, Perceived Value, Expectation and Satisfaction to Its Brand Loyalty: The Case of" Globe Trotter" Sportswear in Taiwan’, ASBBS Proceedings, vol. 23 no. 1, p.112. Ferraro, V 2015, ‘Smart Textiles and Wearable Technologies for Sportswear: A Design approach’, In 2nd International Electronic Conference on Sensors and Applications, Multidisciplinary Digital Publishing Institute. Lim, CH, Kim, K & Cheong, Y 2016, ‘Factors affecting sportswear buying behavior: A comparative analysis of luxury sportswear’, Journal of Business Research, vol. 69 no. 12, pp.5793-5800. Lu, J 2014, ‘The Role of Self-congruity on Chinese Young Consumers' Brand Evaluation and Brand Loyalty toward Sportswear Brands’. Nike.com. 2016, ‘NIKE FY2015 Annual Report’, [online] Available at: http://s1.q4cdn.com/806093406/files/doc_financials/2015/ar/index.html [Accessed 6 Oct. 2016]. Rudolph, M 2016, ‘A Financial Analysis of the Sportswear Company Adidas AG. Shishoo, R. ed., 2015’, Textiles for sportswear, Elsevier. Wang, F, Annaheim, S, Morrissey, M & Rossi, RM 2014, ‘Real evaporative cooling efficiency of one‐layer tight‐fitting sportswear in a hot environment’, Scandinavian journal of medicine & science in sports, vol. 24 no. 3, pp. e129-e139. Zink, KJ 2014, Designing sustainable work systems: the need for a systems approach’, Applied ergonomics, vol. 45 no. 1, pp.126-132. Talay, MB, Townsend, JD & Yeniyurt, S 2015, ‘Global brand architecture position and market-based performance: the moderating role of culture’, Journal of International Marketing, vol. 23 no. 2, pp.55-72. Appendix A Start-up Expenditures and Expenses Worksheet Item Total Cost Cash Required Land 700,000 Capital Equipment 1,500,000 Computer 400,000 Beginning Inventory 539,100 Start up Supplies 250,000 Licenses and Permits 100,000 Leasehold Improvements 300,000 Utility hookups & Installation 720,000 Advertising (Preopening) 520,000 Insurance 45,000 Total Estimated One-Time Cash Requirements 5,074,100 Source: NIKE FY2015 Annual Report 2016 Start-up Operating Expenses Start-up Operating Expenses Estimate No. of Months Total Cash Owners Salary 12 1,200,000 Employee’s salary, wages, benefits 12 700,000 Rent 12 1,440,000 Promotion expenses 3 330,000 Supplies and postage 12 240,000 Vehicle Expenses 12 960,000 Telephone 12 120,000 Travel 2 52,000 Interest 12 360,000 Maintenance 4 600,000 Total Cash Required to Cover Operating Expenses 6,002,000 Plus: Total One-Time Cash Requirements 5,074,100 Add 10% Safety Factor 1,107,610 Total Cash Required for Start-up 12,183,510 Source: NIKE FY2015 Annual Report 2016 Read More