Nike Inc: Entering the Millennium - Essay Example

NIKE INC: ENTERING THE MILLENNIUM How would you describe Nike’s revenue and profitability over the previous 20 years? What are the implications of your analysis for Nike going forward? Concerning the revenues for Nike Inc. in the previous twenty years, the total revenue has had some fluctuation. Beginning in 1978, the total revenue rose gradually from 1978 to 1986, especially driven by increased sales of other footwear. However, the year 1987 saw a drastic drop in revenues from $1.07 billion to 877 million, which can be explained by a drop in market share for Nike Inc. in the United States’ market. Nike’s market share dropped in comparison to major gains from Reebok. However, revenue rose for the year 1988 to $1.204 billion and continued to grow in 1989, doubling Nike’s revenue from the year 1987. Total revenue continued to grow steadily from 1988 to 1993, at which point the company saw a slight dip in revenue from $3.931 billion in 1993 to $3.788 billion in 1994. However, the company recovered to post impressive revenue results with revenue increasing impressively to $4.762 billion in 1995 to $9.187 billion in 1997 before slowing down, but still increasing in 1998. Nike’s revenues thus can be described as increasing steadily in the twenty-year period under consideration. Nike Inc. profits dipped three times between 1978 and 1987, also affected by a drop in market share. However, the profits increased fourfold by 1989, surpassing the major competitor Reebok by the year 1990, at which point its revenues were also, double those of Reebok. Nike’s profit continued to grow exponentially between the years 1990 and 1992 before stagnating for three years after that. In fact, in 1994, Nike’s profits dropped for a fourth time. However, its profits increased again in 1995 as its market share in sports footwear surged at the expense of Reebok’s share. Profits then rose steadily before sliding again in 1998 despite an increase in revenue. In this case, Nike’s profits have been fluctuating and, in fact, have dropped by the end of the period under consideration after stagnating for two years before that. Looking at these trends, Nike’s revenues have seen a gradual increase in the twenty years between 1978 and 1998 but the profits has seen fluctuations, dropping some six times. Looking into the new millennium, the revenues are expected to continue growing especially in the American market with the continued drop in Reebok’s market share, in the lucrative sport’s footwear market. However, the company’s profits are expected to stagnate as they compete with Fila and a resurgent Adidas for the global market, especially in Asia. Has Nike Been Successful For All Stakeholders? How Should We Measure Success? How successful a company has been for its stakeholders can be measured using the Return on Investment, also referred to as the Return on Net Worth. ROE is a company’s net income that is returned as shareholder equity percentage (Mintzberg, 1994: p34). ROE is used to measure the profitability of a company by revealing the profit that is generated by a company using money that is invested by the shareholders. The ROE is also used to compare a company’s profitability with that of a different company within the single industry. Investors and other stakeholders may also use the ROE to find out the return on common equity, which is a modification of the ROE formula by subtracting preferred equity and preferred dividends from shareholders equity and net income respectively. Shareholders could also divide the net income the shareholders’ equity average, which, in turn, can be calculated by adding equity of the shareholders at a period’s beginning to equity of the shareholders in the period ending and dividing by two (Williamson, 1996: p90). Finally, stakeholders can calculate ROE change for a period using shareholder equity figures from a period’s beginning as a denominator to determine the ROE’s beginning. The period ending shareholder equity can then be included as a denominator in the determination of ending ROE. A stakeholder, thus can, determine the change in profitability through calculation of ending and beginning ROEs. For a company to have high growth and, thus, be successful for its stakeholders, one would expect a company to have a higher Return on Equity while averaging the Return on Investment for a period of five to ten years would give one a better idea of a company’s historical growth (Williamson, 1991: p18). Using this, Nike has had mixed success as far as its stakeholders are concerned. For one, the Return on Equity has fluctuated many times in the twenty-year period between 1983 and 1998. However, the ROE evened out between 1991 and 1990, which gives a favorable average Return on Investment, showing that the company has successful growth. However, compared to its major competitor, Reebok, its Return on Investment has been lower most of the time from 1991 to 1998, showing that Reebok has more value for stakeholders as compared to Nike. Nike is also successful for its community, both globally and locally. They believe that sport is critical in empowering people reach their potential. They especially see sporting as a way of enhancing youth life skills, building teamwork and leadership, resolving conflict, and challenging racism (Becker & Gerhart, 1996: p110). Nike aims to be successful to its commitments to the community through using sport to foster social change. Instances of this include the Homeless World Cup, as well as increasing awareness of HIV/AIDS through sport. As a result, they were voted as the coolest brand in South Africa, which led them to create a campaign showing that using condoms was cool. This is revealing of just how successful Nike is as a corporate citizen to their external stakeholders. Internal stakeholders carry just as much importance to Nike, with employees being the most essential. Companies like Nike consider their employees to be more important than product models, its managers, adverts, celebrity endorsements, and innovations (Becker & Gerhart, 1996: p134). The company’s code of ethics contends that giving employees a healthy and safe environment is a major goal, which is evidence of just how important Nike Inc. feels its employees are to the company. Does Nike take on any additional responsibilities being a global market leader? Because of Nike Inc.’s fluctuating profitability, they have taken it upon themselves to delink profitable growth from continually constrained resources. Nike views the future as one where the world is transitioning from industrial economies to sustainable ones. They view this future as good for business, citizens, workers, communities, consumers, economies, and the company’s management (Kaplan, 1991: p34). To do this, Nike has taken up the added responsibility of moving on from incremental innovation to a disruptive model of innovation. Nike aims to delink growth from resource constraints by implementing changes at system wide level including in strategy and leadership models. To build competitive advantage, the company aims to raise the bar for its competition. This needs focus on collaboration and systems innovation across consumers, social influencers, industry, and government (Kaplan, 1991: p35). Nike operates in an industry that is globally competitive, coupled to market changes where national, regional, and local policies play a role on the impacts they portend and the way they can address them. The type of large scale changes to its system that are needed to have desirable impacts on society, while maintaining a vibrant business and community, needs movement by consumers, businesses, industry, and government (Kaplan, 1991: p40). It needs the company’s management to come up with common definitions and approaches, for instance, in how they approach assessment and sourcing factory performance through inclusion of progress expectations towards compliance to fair wages. However, because this definition ties to realities and policies like community vitality, inflation, minimum wage, and others that are out of Nike’s control, it requires intersection form from all parties regarding efforts that are required to come up with a joint vision for an improved business environment (Kaplan, 1991: p50). To achieve this, Nike has implemented plans and milestones to turn their vision into action. Nike Inc., as the leading athletic brand in the world, has committed itself to delivering inspiration, as well as innovation, to all athletes around the world. As Nike Inc. looks forward to the challenges that may threaten its position as a global market leader in the future, the company views its success as being reliant on their ability to make a transition into the sustainable mode of economy (Kaplan, 1991: p34). Nike Inc. is aware of the tremendous opportunity that lays in their application their core strength, innovation, in bringing about systemic changes in the equipment, apparel, and footwear industries. To this end, Nike Inc. takes on the responsibility of creating sustainable business models, as well as sustainable products, and unleashing athletes’ potential and their own potential through sport. In order to pursue these responsibilities and opportunities, Nike Inc. has moved into what they refer to as sustainable innovation and business, which moves beyond mere corporate social governance responsibility (Kaplan, 1991: p35). Nike has also launched numerous programs to help its vendors in addressing their problems, especially regarding quality of materials used and that of their waste. The vendors that enroll in these programs need to supply Nike with detail data that entail what processes they employ, as well as their policies, materials produced, and their waste management programs. Those who discharge more than fifty cubic meters of water every day as almost all of them do, are required to provide Nike with permits for water discharge and results from lab-water quality tests. They then use water insight that is a self-report for vendors developed by Nike for collection of data online. Data provided by various vendors, as well as the documentation, allow the water program to assess the compliance of these important partners with the local environment standards and their discharge units (Kochan, 1980: p65). They also assess whether they are compliant with their own quality guidelines that underwent development together with other competitor brands through the Business for Social Responsibility framework, which is a membership organization based in the US that focuses on corporate responsibility (Kochan, 1980: p76). Vendors who do not comply are then required to give a timetable and plan for improvement. Key measures include compliance with standards, and the total number of manufacturers and vendors who enroll in the water program. Assess the comparison of Nike and Microsoft The astronomical growth that has been witnessed in cultural influence and wealth of multi nationals over the last 15 years is traceable to an innocuous idea that was developed in the mid 1980’s during Nike’s and Microsoft’s rise; all successful corporations need, primarily to produce brands instead of products (Chandler, 1997: p56). Nike and Microsoft were pioneers who made the claim that goods production was an incidental part of operations and, thanks to victories in labor law reform and trade liberalization, they were able to outsource production of products to contracts, especially overseas. The two companies primarily produced brand images rather than things. The real work that the companies pursued was not manufacturing but, rather in their marketing (Barney,1991: p343). In various ways, the companies have actually shrunk, although not in profits. The two companies and their corporate obsession with identity of brands has waged war on individual and public space, especially on youthful identities, schools and other public institutions, possibilities for un-marketed space, and the nationality concept. Competitive branding turned into a necessity and, in the concept of manufactured sameness; differences based on image had to undergo manufacturing along with products. For instance, Nike Inc. has leveraged the deep connection that people have emotionally with fitness and sports. Sports apparel has now woven itself into people’s lives and fabric, which has given Nike the ability to leverage their emotions (Becker & Gerhart, 1996: p785). Nike Inc.’s brand has raised the bar by adding more sense of purpose in the experience of people, whether it is a challenge to them to do their best in fitness and sports or affirmation that the sports apparel that one uses matters. In fact, a new form of marketing theory holds that even barely processed and lowly natural resources should be used in developing a brand identity, which will give way to high premium priced markups. A corporation, with a marketing plan that is right, does not have to stay stuck in the business of selling products (Coase, 1937: p390). It can be argued that one can brand anything from corn grits, to chemicals, concrete, metals, brick, beef, and even sand. While not always being the intent of the company, the effect of advanced branding acts in moving the culture of hosting into the background and giving more attention to the brand. For Nike, it is not about sponsoring the culture but being the culture. Since the brands are experiences, values, attitudes, and ideas rather than products, they can also be culture. References Chandler, A., 1977. The visible hand : the managerial revolution in American business. Cambridge : Belknap Press of Harvard University Press. Barney, J., 1991. 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