Internal Analysis of Nike - Essay Example

Internal Analysis of Nike Name Institution Contents Contents 2 Abstract/ executive summery 3 Mission statement and vision 4 Environmental audit (PEST) 5 Competition 6 Organizational structure of Nike 7 Functional Analysis of Nike 8 SWOT analysis 9 Distinctive Competencies 10 Nike’s organizational culture 12 Weaknesses 12 Value Chain analysis 13 Marketing strategies 16 Break even analysis 16 Implementation of expansion 17 Limitations of the report 18 Conclusion 18 References list 19 Appendix 21 Abstract/ executive summery Companies are fast shifting focus to the international business environment in the wake of continuing globalization. The results of such moves are notable in increased market existence and subsequent amplified profitability. It should be noted that prior to effecting internationalization strategies, management must come up with effective evaluation of the markets and overall environment that a company seeks to engage in. This analysis should inform the company on the potential risks and advantages that the company stands to gain from the venture. Internationalization strategies vary from company to company. For instance, a company may opt to seek a different strategy after an in depth analysis of the target market and the type the business or the line of products the company deals in. However, there are three most common strategies that a company seeking to venture into a new market employs. Kirstein (2007, pp6) writes that companies can adopt an acquisition strategy while venturing into new markets. Nike like many international companies has the potential to expand its operations to increase its brand dominance and sustain profitability. Nike is a United States based company that develops and supplies sportswear as well as apparel worldwide. Founded in 1962, the company has one of the comprehensively perceived management systems that have made it have an established and a maintained competitive advantage over the decades. The company had an initial primary goal of distributing a low-cost Japanese high-quality athletics shoes to the American customers. However, the company has grown to be one of the best and dominant companies in the world that produce, distribute, and manufactures shoes at a consumer friendly price point to a global market. It is worth noting that the company employs a vibrant mission in developing it innovation and evolution in order to stay on top of the market. A carefully planed partnership between Nike and its’ producers ensures that the company has absolute cost advantage in the manufacture of its products especially the foot wear that are entirely produced outside the founding country that is USA. According to Schmitz (2005), Nike operates in over 160 countries in the world and employs over one million people from both direct and indirect perspectives. According to Carbasho (2010), Nike has a great zeal of promoting innovation and product improvements as stated in their missions and visions. In this way, the company has been at the forefront in creating business opportunities for itself thereby setting it apart from its competitors. Notably, the basic understandings of success in a company are directly attached to its internal function ability. This paper seeks to analysis the internal functions, through a comprehensive analysis of its value chain, organizational structure, culture, and VIRO analysis of Nike Company. The paper will also discuss some of the Nike’s key distinctive competences that make the company to have some of its professed competitive edge within the sporting industry. Mission statement and vision Nikes mission from the founders’ point of view is to provide every individual who wants to participate in sports activity with inspiration through innovation in the equipments and products that they produce. Generally Nike considers every person as a potential sportsman and therefore they envision a society where their products are the epicenter of all sporting activities. While innovation remains the core of Nike’s principles, it has also developed paradigms that will help all the managers at all levels its’ goals and objectives. These include the managers’ power to lead and inspire their teams and coaching them to drive the company forward. Like many recognized international brands, Nike’s major priority is the satisfaction of it’s customers through evolution and innovation to cope up with the current market trends. This vision of looking at each person as a potential sportsman sets Nike apart in its marketing strategy. It ensures that Nike capitalizes on creating a broader market not only within the sporting community but further beyond; a market without boundaries. Environmental audit (PEST) Nike having been founded in the united state of America has its headquarters there but operates in many countries making it an international brand. When a company successfully undergoes the internationalization process, the political and legal environment becomes varied depending on the host country of the market it is operating from. Nike has carefully planned it’s international strategy to ensure that it achieves absolute cost advantage in production while maintaining the quality and standards that allow it to compete at a global stage. Since the home ground of the company offers a stable political environment, Nike has less to worry about the political landscape. The international policy of the United States is also flexible to allow the company to outsource production from partner counties and this make operating the business fairly easy. The main market segment for this company would be able bodied individuals that still have the capability to take up sports. In most environments that Nike operates, the cultivation of a sports culture especially among young people has taken center stage. There are major sports leagues in these countries that inspire young individuals to take up sporting careers. In the United States for instance has a national basketball league that has been an attraction to many and youth in schools. According to Rodgers (1962), Nike has successfully used the diffusion of technology theory to capture external markets. This has been facilitated by the exploitation of the following that the major sporting events attract in the US and beyond its borders. As a culture of patriotism practiced by citizens of the US even in Diaspora, Nike has been able to substantially make inroads in foreign markets with carefully planed entry strategies. Competition Nike has to battle for the here of market with other companies like Adidas and puma. Addidas for instance is equally a well established international company with a well formulated vibrant marketing strategy. Currently it also uses the technique of marketing their products through great sports personalities with great emphasis on the consumer. To cope with the dynamic sports market, the company has in the recent times developed a division that focuses on research and creation of products that match the required standards. The company employs what they describe as ‘go-to’ strategy for marketing. This involves identifying groups that require their products most and designing goods that will appeal to them. In this way, the company has in the recent times allocated many resources to capturing a youthful market that have a high demand of sports gear. Puma on the other hand have also in the recent times adapted the research and innovation in order to stay afloat in the sports business. According to Sebastian (2013), puma has unveiled a re-branding strategy that will include the use of distinguished sports personalities to be able to revive the brand. From the analysis of the competition, it is evident that Nike is a global leader in the market of sports equipment. Effective analysis of the technological environment and its ability to exploit major marketing fronts has put the brand above the competitors. Organizational structure of Nike Nike traces its management structure from its founders’ initiatives and management instincts. Bill Bowerman and Phil Knight, the founders of the company, became partners at the convenience of sport. Even through the company has operational points in over 160 countries in the world; Nike has a matrix organizational structure. In this case, it has multiple lines of authority as set up by the founders, and some individuals that report to at least to two managers. The company’s employees report to team managers who on the other hand take these reports to the department mangers. The brands of Nike have many divisions within the company, with apparel for Nike brand, Converse, and Jordan brands forming examples of the major divisions of Nike created for specific products and tastes. More than that, there are functional departments of Nike such as Nike design and investor relations as part of the organizational structure of Nike Company. According to Harper, (2010), each brand consists of its own department to whom the team managers report to. In the same way, each brand has separate department managers who are allowed to act independently of the chief executive Officer (CEO). In what is regarded as horizontal organizational structure, the team managers and the employees make decisions regarding specifications and production while the department managers focus primarily on the policy-related issues of the company. The vertical organizational structure of Nike comprises of the company’s Chief Executive Officer (CEO), currently Mark Parker, and a board of directors who are chaired by the co-founder of the company, Phil Knight. Notably, the company employees are entirely responsible to both of the managers at every managerial level. Basing on Nike’s global popularity, Wong (2013) argues that Nike uses a matrix structure which is on order to allow the company to make better decisions and react effectively to the emerging issues in the market (Goldman, & Papson, 2000). Moreover, this structure makes it react quickly that the average department heads that may at some point be removed from the decision making processes Carbasho (2010). Through Nike, it has also been proven that both the functional and provisional structures can be applied in any management structure and thus become successful. More than that, it has made it very possible in terms of producing endless possibilities in the short-run and long-run goals within the organization. Functional Analysis of Nike The supply chain of Nike has a vivid and extensive plan of increasing Nike’s global dominance. Although the company’s headquarter is in the United States, all its production takes place outside the United States. In addition, the company makes a lot of sales outside the U.S. than in the U.S. A critical analysis of the functionality of Nike reveals that Nike’s supply chain begins with materials that are used in the production of its products (Goldman, & Papson, 2000). They include rubbers, plastic compounds, foams, nylon, leather, canvas, polyurethane films, and cushioning materials. The company majorly gets these materials at the locational sports of their manufacturing place. The company focuses more on designing, developing, and marketing globally its footwear. The company uses contract manufacturers to make its products. It is interesting to note that-with exception of the propriety air bag-almost every shoe manufacturing activities are scheduled outside the USA. For instance, apparel and equipment manufacturing are inclusive processes that take place in the USA and across the Globe. SWOT analysis Nike is known to be an industry leader in developing innovative new products. Nike draws its strength from its brand image globally. Nike has effectively marketed its products, and in addition the company understands the value of quality production. The company has embraced technology in its production hence a much more competitive edge (Wong, 2013). The following encompasses the Strengths, Weakness, Opportunities and threats of Nike Inc. Distinctive Competencies For a firm to effectively capture a fair share of the market, it must have a competitive advantage to its rivals. These competencies emerge over time through a learning process that takes place in the organization especially in regards to positioning of different resources and capabilities to a firm’s advantage. On its part, Nike’s core competencies are realized through effective marketing strategies and efficient and productive innovation (Goldman, & Papson, 2000). These two elements are the main source of value to Nike’s customers and are unique that they can be leveraged widely to most of their products and markets. It is true that Nike does not manufacture any of its own shoes, but it still commands the major market share of the athletic shoe and apparel. It success is attributed to its effective marketing strategy (Wong, 2013). That is, the company sells well designed and costly products owing to its status as a premium-brand. Nike attracts many customers through their brand image, with distinct logo identity with a striking slogan advert of the ‘Just do it’ (Goldman, & Papson, 2000). Through its use of famous stars and athletes, the company has a great image in the world footwear industry. The company’s innovative and creative product design is what differentiates the company from its main competitors. By establishing technology and innovation as its core corporate value, the company has pioneered four shoe-cushioning that is characterized by reduced risk, protection from impact, reduce shock and offer comfort (Goldman, & Papson, 2000). These innovations has improved the product performance thus comfort to users. The research and technical development department of Nike also has an important role to play in terms of innovation. Since the at the core of Nike’s mission is inspiration through innovation, the department acts as the anchor of Nike in the bid to remain relevant in the sports business by constantly auditing their products and coming up with new and high quality products. These products are what make Nike have a competitive advantage over its rivals. The result of the distinctive competencies will also be evaluated in the VRIO analysis. The VRIO analysis uses four criteria to evaluate distinctive competencies. These are evaluated as follows: Is it valuable? Is it rare? Is it difficult to imitate? Does the organization use it well? Nike’s organizational culture Organization culture forms part of an organizational success factors and many companies rely on the organizational culture to determine their performance and the firm’s industrial competitive advantages. Nike is among the companies that effectively reap from its culture. With an innovative and design culture, Nike has a well adapted and suited culture that runs through generation to generation. Its employees have the company’s maxims at finger tips and enjoys in the company’s enviable brands which are known worldwide and are deeply appreciated by athletes all around the world. With a cultural origin and background of digital and design innovator, Nike products have increasingly found the interest and association with millions of customers around the world. The company’s name has been built on the extreme commitments of its workers who have maintained their zeal out of motivations and better working environment. The sense of value, history of quality, and customer satisfaction are the mysteries and secrets of Nike’s corporate culture. Weaknesses While Nike strategically uses partners to produce its most of its products in order to have a cost advantage, it should be noted that this does not directly translate to bigger profit margins. This is due to the fact that Nike has a bloated promotion budget that includes huge amounts of money spent on sport personalities’ endorsement of their products. While competition has generally been low on some fronts, various companies like Adidas have also developed great interest in research and technical development and have been able to produce at times better products than Nike. This has also cut into the margins of the company through loss of customers. Value Chain analysis Many companies often use value chain as the actors and/or stages that are needed to bring their products or services to the market and thus to the final consumer of their products. Nike, just as these other companies use value chain as the means to bring their valued and inspiring sportswear to sportsmen and sportswomen. Not only does the company target sport personalities, but the company has a vast number of customers beyond the sporting community. According to Wong, (2013), Nike takes value chain as a direct connection and drive to decision making. It is like a web connection of all the company’s structural and functional connections and all the stakeholders of the firm. The quality and planning departments are responsible for the choices made for manufacturing (Carbasho, 2010). When manufacturing becomes more efficient and effective, little or no scrap is created and what remains are turned into materials an inputs for new products. According to Harper, (2010), recycling has worked effectively for Nike as the firm has majorly inclined to recycling as a way of reducing wastes as a means of improving, gaining and advancing on their technical design of products. This decision has increased the perceived company products values and quality. Schmitz (2005) also argues that working for the right manufacturers and partners is one of the positive expectations from value chain in the sense that there is better and improved insight and thus control of quality (Goldman, & Papson, 2000). The performance rates of the workers are improved as well through value chain. Notably, as argued earlier, choosing the right partner, according to Schmitz (2005), is among the best ways of moving Nike’s products and its capacity to track and gather relevant information on transportation issues and distributing the products to expected positions. More than that, each choice made at every point of the product production, distribution, and sales has a financial, environmental, and a social impact on the performance of Nike and thus are interconnected and dependent to each other. Based on Rothacher, (2004) assertions, value chain analysis plays an important role in Nike’s business operations. In this case, through critique of the activities of the company in relation to past and modern trends, the company is able to determine which activities that will create great value products to its customers. Nike in the same way operates in many regions in the world and thus needs some critical examinations of its value chains in the global perspective. Through its well developed system, Nike has been in a position of reconfiguring both modern and tradition shoe designs to suit different tastes and preferences. Moreover, Nike ensures that all of the contracted partners are capable of producing high quality products that will ensure its’ customers receive value for their money. In this way therefore, Nike has a great focus of global interconnection and network that require an extensive auditing of its’ value chain. This has been the background of Nike’s competitive advantage. As much as Nike focuses on marketing and designing elements of its value chain, the performance of the company and its competitive efforts has not been based entirely on the production and outsourcing strategies. It has also been supported by the creation of sustained profitability, value production, better pricing strategies and cost a minimization mechanism that works best over its competitors. This reputation of value chain has also been enhanced by Nike’s brand name, image, and its utilized tangible and intangible resources. The overview of Nike’s value chain is derived from many dimensions. Such dimensions are based on every product and partners, every decisions made, and numerous channels of distribution. Harper, (2010), explains that Nike’s system of value chain revolves around the following key factors; planning, designing, making, moving, selling, using, and reusing. Based on the current performance and positioning of the company in the industry, it is believed that these stages are more valuable in the chain for sustained profitability. It is also believed that these stages are critical in providing the best way to track, report, move, as well as measure the influence of the company in its’ global dominance. They are also very important in determining how decisions are made and their impacts to the company in terms of energy, climate, labor, wastes, water, as well as to the community. Just like other sportswear companies like Reebok, Nike derives its success from the capabilities and efficiency of the company’s management. Nike’s top management, middle management and the employees have a well motivated zeal and focused culture to make the company world’s number one in footwear production (Wong, 2013). Through better resources allocation, data gathering clear and effective interpretation of the company’s goals and objectives, Nike has been at the outstanding edge of the industrial competition. Moreover, the company has focused management that utilizes its streghts and coordinates activities that are required in undertaking, developing, as well as deploying the organization’s capabilities. Numerous challenges may have been witnessed based on interest intersections. However, the Nike’s management plans have devised some balance between the relevant stakeholders within the scope of the company’s visions. The company has also employed some aspects of supply chain management techniques in which case managers have focused more on expansion of market and product niches, development of client management skills, as well as focusing on developing market oriented products. It has therefore in this case, remained among the top and leading suppliers of sports wears globally. Marketing strategies Keeping prices low is a very common method of customer attraction. Nike in their attempt to cushion their customers from overwhelming pricing constraints designed an elaborate strategy to outsource the labor and raw materials for the production of their products to countries where labor and materials are cheap. It should be noted that Nike produces all it’s sports foot-wear from outside the United States of America. Considering their overall production of sports equipment, Nike produces about eighty six percent of its products in Taiwan and Indonesia (). This has a net effect on the pricing of their products. While keeping the production costs low, a company benefits from cost advantage over its rivals. However according to Nike this does not only influence their pricing, a grater percentage of the revenue saved from production is channeled towards the promotion budget. It should be noted that in the recent past Nike has spent a substantially huge amount towards its promotion as compared to other competitors. The effect of this expenditure is a sustained attraction of top class athletes to the firm which in most cases result in larger volume of sales. Break even analysis In order to reach profitability levels, Nike requires an increase the volume of monthly sales to a level that evens out the revenue spent on marketing. According to (Hambrick, and James , 2001), this can be due to the fact that Nike charges lower prices as opposed to it’s competitors. Even though Nike has an absolute cost advantage in production, it is important to not that this does not directly translate to the firm breaking even with minimum volume of sales. To reach break-even point, the volume of sale will have to cover the huge promotion budget that the firm has to shoulder. ( see appendix 2 table of sales). Implementation of expansion Nike can also apply the Uppsala mode of entry to these new markets. From the experience gathered in the previous expansions, Nike can decide to evaluate each market as the firm gradually takes on new market (Elgar 2003). This method has been further explained by Luostarinen (1979) that the firm must develop from experience gathered from past activities. By stretching their operations to countries like Taiwan and Indonesia, Nike has gained a considerable amount of experience in international business and the required strategies to capture these business environments. Online marketing and social media are also a great method of promoting a brand. It is estimated that nearly half of the world’s population utilize social media and this makes it a good platform for brand visibility. Using a diamond model is another method of expanding into new territory. According to porter, there are six factors which work together to create competitiveness and innovation (Trail, Bruce and Pitts, 1998). These factors include political, economic, social factors, demand and micro environment of the company. When applying this model it is important for the firm to first carry out an effective analysis of the business environment so as to clearly outline an entry strategy that fits the environment. Limitations of the report This report makes a number of assumptions that may not be majorly be the real world case of the company that it is referring to. The report does not rely on actual data that the company has from its operations but rather on data that is got from secondary sources of information. When performing the environmental analysis, this report relies completely on information that has been derived from previous research and no actual data has been formally gathered. This means that the information contained in the analysis may not be entirely accurate. Conclusion International business has become a lot more dynamic due to the varying business environments that each firm has to deal with. This has necessitated the development of tools to critically analyze and audit the business environment so as to remain relevant. It should be noted that many firms are shifting focus to a more customer related approaches in marketing so as to make inroads in different market segments. While promotion remains an integral aspect of international business, many international firms should specifically audit the markets that they want to enter to and devise strategies that will give them a competitive advantage. Research and technical development in a firm has a major impact on whether the firm will remain relevant or not. In delivering quality to the customers, a firm ensures that it grasps the loyalty of its customers maximizes its profits and stays up to date with modern trends. Finally, it is important to note that a business should exploit it strengths to the maximum when facing competition. This will enable the firm achieve a competitive advantage which might just translate to dominance in the field of business it is involved in. References list Bititci, U. S., & International Conference of the Manufacturing Value Chain (1998, Troon). (1998). Strategic management of the manufacturing value chain: Proceedings of the International Conference of the Manufacturing Value-Chain, August '98, Troon, Scotland, UK. Boston [u.a.: Kluwer Acad. Publ. Carbasho, T. (2010). Nike. Santa Barbara, Calif: Greenwood. Goldman, R., & Papson, S. (2000). Nike culture: The sign of the swoosh. London [u.a.: SAGE Publ. Harper, M. (2010). Inclusive value chains: A pathway out of poverty. Singapore: World Scientific. Hurd, A. R., Barcelona, R. J., & Meldrum, J. T. (2008). Leisure services management. Champaign, IL: Human Kinetics. Meier, A., & Stormer, H. (2009). EBusiness & eCommerce: Managing the digital value chain. Berlin: Springer. Rothacher, A. (2004). Corporate cultures and global brands. Singapore [u.a.: World Scientific. Schmitz, H. (2005). Value chain analysis for policy-makers and practitioners. Geneva: International labour office (ILO. Sebastian,J. (2013) marketing week journal available at http://www.marketingweek.co.uk/news/puma-unveils-strategy-to-unify-brand/4005737.article Wong, G. M. (2013). The comprehensive guide to careers in sports. Burlington, MA: Jones & Bartlett Learning. Appendix Table 1: The Geographical Breakdown of Nike’s Footwear Sale Market % of Nike Footwear Revenues by Region (Fiscal 2012) Annual Growth in Footwear Revenue (excluding currency impact) Fiscal 2012 First nine months of 2013 North America 44% 15% 16% Western Europe 19% 5% 10% Greater China 11% 25% -4% Emerging Markets 18% 27% 15% Central and Eastern Europe 5% 13% 9% Japan 3% 3% 3% The following table is the result of our VRIO analysis for nike: Is it Valuable? (V) Is it difficult to Imitate? (I)) Is it Rare? (R) Does the Organization use it well? (O) R&D- extensive brands collection Yes Yes Yes Yes Marketing- effective channel; affiliate partners Yes Yes No Yes IT& Operation- service-oriented platform, proprietary technology, data handling Yes No Yes Yes Service- maintain and expand the relationships with suppliers and GDS partners Yes Yes Yes Yes Read More