Various Crisis Situations of Nike - Essay Example

NIKE - CASE ANALYSIS AND DISCUSSION Nike - Case Analysis and Discussion Please put here Please put here EXECUTIVE SUMMARY This paper is about a case analysis of Nike Inc., the sports gear giant. The paper discusses the various crisis situations which hit the company in the recent past and also attempts to discuss the different measures taken by the company to handle such situations and help improve its market share and brand value. The various decisions and changes that have been made in the organization have also been discussed as part of the analysis. The benefits and outcomes of all such decisions which were made by the management of the company are also highlighted. Introduction Nike Inc. is a company that has come to symbolize both the benefits and the risks inherent in globalization. During the year 1998, the company was under attack for allegedly exploiting overseas factory workers. In the past few years, the Nike Corporation has offered a microcosm of the issues surrounding consumerism and the global free market economy. Nike, like many other corporations from the economized world, has been criticized for exploiting laborers in manufacturing plants relocated to less economized societies. This exploitation has appeared grosser in that they are producing luxury products for over consumptive economized societies and disproportionally reward their star endorsers with lucrative contracts. The mounting criticism and campaigns against Nike, however, have not had much impact on a key part of their market, urban African-America (Watts, 2000). Poor African Americans understandably have some difficulty extending concern for abuses of workers overseas when the injustices they face in their own country are similarly acute. Although multinationals are eager to pursue the opportunities of increased global integration, they are increasingly aware of the reactions which their strategies induce - both at home and abroad. As part of the analysis of the case study of Nike Inc., this paper examines the difficulties and complexities that the company had to face with respect to its overseas labor problems. Discussions Exploitation of overseas workers of the company The labor practices that the company followed with respect to its overseas laborers was the major crisis that the company is facing (Lee, 2000). Nike developed a strong working relationship with two Japanese shoe manufacturers, Nippon Rubber and Nihon-Koyo, but as costs/prices increased in Japan over the course of the 1970s Nike began to search for alternative, lower-cost producers. During these same years, Nike opened up its own shoe factories in Maine and New Hampshire, hoping to develop a reliable and high-quality source to supply its growing domestic market. At the same time, the company also began to cultivate potential suppliers in Korea, Thailand, China and Taiwan. Over time, as Korea and Taiwan also began to develop, costs began to rise in these countries as well. As a result, Nike began to urge its suppliers to re-locate their operations to other, lower-cost countries. The company worked with its lead suppliers to open up manufacturing plants in Indonesia, China and Vietnam. By guaranteeing a significant number of orders and by placing Nike employees at these new factories to help monitor product quality and production processes, Nike was able to help its lead vendors establish an extensive network of footwear factories throughout Southeast Asia (Locke). The same factors that permitted Nike to grow at an impressive rate over the last several decades - taking advantage of global sourcing opportunities to produce lower cost products and investing these savings into innovative designs and marketing campaigns - have also created serious problems for the company in recent years. Though analysts and many others feel that the management of the company is responsible for this crisis, it cannot be said so. The company and its management cannot be 100% responsible since it is the sub-contractors who operate and create conditions for workers. Low-cost manufacturing is Nike's strategy, and it is realized by outsourcing the manufacturing process to cheap labor countries. If Nike were responsible for all of working conditions of workers at sub-contractors' factories, it would cost more to make shoes (123helpme.com, 2000). However, it is necessary that Nike should monitor minimum working conditions so that workers will not die from Karachi, which might be lead to a big issue. Nike should hold the standards regarding safety and working conditions that are prevailing in that country. However, when the sweatshop workers try to tolerate the conditions and wages, firms that are making investment in that country should not intervene into the movement. Shift of teen fashions and the Asian Economic Downturn Nike is a global brand. It is the number one sports brand in the World. Its famous 'Swoosh' is instantly recognizable, and Phil Knight even has it tattooed on his ankle. Despite being a global brand and having a strong brand power, the organization's sales of its sneakers and sports apparel hit a brick wall. The organization does have a diversified range of sports products. However, the income of the business is still heavily dependent upon its share of the footwear market. This may leave it vulnerable if for any reason its market share erodes. The retail sector is very price sensitive (Marketing teacher.com, 2000). Nike does have its own retailer in Nike Town. However, most of its income is derived from selling into retailers. Retailers tend to offer a very similar experience to the consumer. Margins tend to get squeezed as retailers try to pass some of the low price competition pressure onto Nike. Product development offers Nike many opportunities. The brand is fiercely defended by its owners whom truly believe that Nike is not a fashion brand. However, like it or not, consumers that wear Nike product do not always buy it to participate in sport. Some would argue that in youth culture especially, Nike is a fashion brand. This creates its own opportunities, since product could become unfashionable before it wears out i.e. consumers need to replace shoes. In order to overcome this crisis of decreased sales, the company was replaced with new employees who are pretty experienced in the industry. One quotable example here is the appointment of a chief financial officer from PepsiCo Inc. Nine of Nike's 41 vice-presidents have worked at the company for fewer than two years, compared with just one of 27 four years ago. The new team is immersed in the effort to reinvent Nike. Newcomers are heading initiatives that include a unit charged with reaching non-traditional markets, particularly extreme-sports enthusiasts such as skateboarders and snowboarders. Others are revamping Nike's manufacturing and logistics systems (Lee, 2000). In the mid-'90s Nike blew away competitors such as Reebok and Adidas as its sales increased from $3.8 billion in 1994 to $9.2 billion in 1997. Investors reaped a 320% increase in the stock price from Jan. 1, 1995, to a high of 75 in early 1997. But in 1998, the sprinter pulled up lame. Sales plummeted in Asia and stalled in the U. S. For the fiscal year ended May 31, sales slipped 8%. Even after overseas markets recovered late last year, Nike's domestic sales rose a paltry 2%. Now, the company has lowered sales projections for the current year to an increase of just 3% to 4% from last year's $8.8 billion. Nike's new lean focus helped it eke out a 13% increase in net income last year. But hopes for a 31% gain in 2000 were dashed when Clarke told analysts that earnings would come in slightly below estimates for this year and next. Starting in 1997, thousands of fickle teens suddenly switched from Nike Air Jordan's to hiking boots and casual leather shoes. In 1994, athletic shoes accounted for 38% of all shoes sold in the U. S.; four years later, that had slipped to 31%, according to industry researcher Footwear Market Insights. Of course, that's still a healthy slice of the overall market, and Nike dominates the category with a 40% share. Nike's own sales slide was accelerated by its lingering association with arrogant millionaire athletes and overseas sweatshops. The reason behind this shift was due to the anti-Nike sentiment which was ferocious with the company's overseas workers. As a measure to handle the situation, the company made efforts to make a real progress with respect to this issue. An example that is apt to be cited is the literacy program which the company started for workers in Indonesia. Even activists acknowledge some basic improvements in working conditions. For instance, Nike has replaced the solvent toluene, which can produce harmful fumes, with water-based cement on most production lines. Separation of the department of extreme sports products The business unit that makes products of extreme sports was separated from the other product units of the company. The new and separate unit was called ACG which is the short form of "all-conditions gear." The ACG group moved into its own floor in a building away from the main footwear business and built its own staff, budget, and marketing plan. In the initial stages of this move, many people did not understand the reason behind the company making such a move. Actually, Nike has failed to build credibility among fans of non-traditional sports, a small but important demographic that tends to originate fashion trends among teens. When it comes to the Generation Y which is in fact individual-oriented, it is not as relevant as it is with the former. Even kids were not very impressed with the product quality of the company. An example relevant to this context is that a 10-year old kid at YMCA Skate Park in Encinitas, an organization which Nike helped to re-build by donating $100,000 as donation, states that "Nikes aren't good at all, they wear down easily, and they're not comfortable." In order to change this perception, ACG was created as a separate unit. This unit was put under the leadership of a 17 year veteran named Gordon O. McFadden, of Norwegian outdoor-apparel maker Helly Hansen. Four of the five top ACG executives are outsiders, hired from places like Dr Pepper/Seven Up Inc. and Fila Holding. A skier, snowboarder, and mountain biker himself, McFadden, 49, is developing new products, such as a $175 snowboarding jacket with a dozen pockets designed to hold such essentials as gloves, goggles, and headphones. To learn these markets, he's putting 15 or 20 designers in a studio close to the action in Southern California, the epicentre of the skateboarding and surfing worlds. And ACG will soon take the wraps off a clog-like shoe, the Rufus, that it hopes will slow the onslaught of "brown shoes," the hiking boots and other casual footwear that many young customers prefer over athletic shoes. Conclusion In order to overcome the various crises which were presently hindering the company's growth at a global level, the company's CEO Knight has taken several important measures which helped to bring the crises situation of the company under control. The company is in need of a new image to go with the other measures taken. The company has also taken various initiatives to changes its marketing and promotional activities. The advertising campaigns were also given a new perspective. There are also plans to open up new stores at ski lodges and outdoor resorts which help in better promotion of the company's products. The company even got into cyberspace in order to increase its presence and identification among the younger generation who are more connected to the cyber world. Nike has no factories. It does not tie up cash in buildings and manufacturing workers. This makes a very lean organization. Nike is strong at research and development, as is evidenced by its evolving and innovative product range. They then manufacture wherever they can produce high quality product at the lowest possible price. If prices rise, and products can be made more cheaply elsewhere, Nike will move production. Nike is a very competitive organization. Phil Knight (Founder and CEO) is often quoted as saying that 'Business is war without bullets.' Nike has a healthy dislike of is competitors. At the Atlanta Olympics, Reebok went to the expense of sponsoring the games. Nike did not. However Nike sponsored the top athletes and gained valuable coverage (Marketing teacher.com, 2000). Recommendations The main aspect of strength for any business to be successful is the understanding that the management of the organization has got with its human resources. This is the aspect that has gone wrong in the case of Nike Inc. The management has got certain problems with its overseas workers like for example exploitation, payment of lesser wages etc., because of which the workers in the overseas units of the organization have created a ferocious anti-Nike sentiment and this has in turn lead to the decrease in the sales figures of the company. As of this issue is concerned, it is recommended that the company tries and identifies the various problems as perceived by its overseas workers and take necessary steps to help solve any such issues. Secondly, there has been a shift in the teenage fashions and many youngsters shifted from using Nike products and started using other brands. This requires the company to take every care with respect to the quality of its products. Total Quality management is the need of the hour for the company. The company also needs to change its advertising campaigns and try and design advertisements which are more attractive and catchy. This will help the company to rebuild and rejuvenate its brand image which is very much necessary at the moment. Bibliography 1. (ICMR), I. C. (2003). Introduction ot Organizational Behaviour. Hyderabad: ICFAI Center for Management Research (ICMR). 2. (ICMR), I. C. (2004). Marketing Management. Hyderabad: ICMR. 3. 123helpme.com. (2000, May 3). Preview. Retrieved March 14, 2008, from 123Helpme.com: http://www.123helpme.com/preview.aspid=79146 4. Badu, E. E. (2002). Macro Environment Analysis for Strategic Management. Libri , 2-6. 5. Byrne, J. W. (2003). Straight from the Gut. New York: Warner Books Inc. 6. Cook, C. (2007). Managing Change and Innovation. Prentice Hall Inc. 7. Ernst, R. (1998). Global Operations & Logistics. USA: John Wiley & Sons. 8. ICFAI Center for Management Research (ICMR). (2005). International Marketing and International Business. Hyderabad: ICFAI Center for Management Research. 9. Keerti, D. B. (2008, 02 02). Professor - ICFAI Business School. (R. V, Interviewer) 10. Lee, L. (2000). Can Nike Still Do It. Business Week. 11. Locke, R. M. The Promise and Perils of Globalization: The Case of Nike. MIT. 12. Marketing teacher.com. (2000, April 1). SWOT Analysis Nike Inc. Retrieved mARCH 14, 2008, from Marketingteacher.com: http://www.marketingteacher.com/SWOT/nike_swot.htm 13. Watts, J. (2000). CASE STUDY - GHETTO YOUTH AND NIKE. Read More