Business Strategies of Nike - Essay Example

Case Study Analysis Executive Summary Nike is considered as one of the leading brands in the world’s apparel, footwear and equipment industry. In the given case study, the strategic integration of Nike’s women fitness business has been presented. In this report, the strategic analysis of the women fitness business of Nike has been done from the information given in the case study. First of all, STEEP analysis and porters five forces analysis has been done to analyze the external environment of the company. It has found that women fitness industry appears very attractive for the new and existing companies because of the growing market. In the next section, industry analysis has been done to analyze the structure of the industry. It has been found that Nike is facing significant direct and indirect competition however, because of the capabilities of the company; it has been able to improve its business operations. The financial analysis shows a strong financial position of the company. In the last section the business level strategy of the company has been discussed and challenges have been highlighted. Finally, recommendations have been given to improve business strategy. External Analysis STEEP analysis 1. Social Increasing Women’s sports-orientation as evident from growing trend of women’s participation rates in new and established sports, gym memberships etc 2. Technological Changing technological trends even in the women’s footwear industry such as designs of women’s footwear are based on woman’s biomechanics such as air bags are designed in consideration to right pounds per square inch 3. Economic Women fitness market growth rate was from 5 to 8 percent Increasing women spending power for example Nike team found that women in U.S. spend $7trillion each year 4. Ecological Ecological regulations on environmental protection, recycling and ingredients used in manufacturing are increasing Bigger companies are competing and investing heavily in corporate social responsibility to improve their image 5. Political The operations of international companies are affected by the relationships between the home country and host country Porter’s Five Forces Model 1. Purchasing power of buyers The purchasing power of buyers is lower because of the large number of buyers in the industry 2. Purchasing power of suppliers The purchasing power of suppliers is higher because of the limited resources 3. Threats of substitutes Threats of substitutes is significantly higher because of the increasing market competition 4. Threats of new entrants Threats of new entrants is very high because of the increasing number of new companies and new brands launched by existing companies and less barriers to entry and exist. 5. Competitive rivalry within industry The rivalry within the industry is increasing which is changing the competitive structure of the market. From the Porter’s five forces analysis, the women fitness industry appears very attractive. Competitor’s analysis Nike’s major competitors include Reebok (domination in women’s aerobics). Adidas appeared as a major competitor of Nike in women’s market because it introduced fashion performance business by introducing fashionable athletic wear. In the Yoga market, Nike faced competition with Puma’s brand Olive. New Balance also appeared as a direct competitor of Nike in women’s market. Nike was leading in women’s running market. In apparel sector, Nike’s major competitors were Reebok and Adidas and company’s shares were very low because of fragmented market structure. Because of changing in competitive market, Nike also faced competition from various other small or large brands like Under Armour, Danskin and Lulu Lemon etc. However, Nike has the advantage that an integrated women fitness service is offered by none of the company. Industry Analysis As stated in the case study (2006), in the global branded footwear industry, Adidas acquired Reebok and had the second largest market shares of 34 percent. Nike was the leader in branded footwear industry with 38 percent market shares. The other international footwear brands competing in this industry include Puma, Umbro, Mizuno and Asics. The market structure of global apparel industry is more fragmented as compared to footwear industry and relatively more companies are competing in this product area. In 2005, the three dominant brands including Nike, Adidas and Reebok made up 15 percent of the total sports apparel market in the United States. Internal Analysis Nike main business focus was footwear with 66 percent of business however, company was also operating in sports apparels and equipment product lines which were 28 percent and 6 percent of company’s total business. Main Capabilities Innovation is a core company’s value and the capability of the company to introduce innovative products has brought competitive advantage for Nike. The matrix organizational structure promoting teamwork based culture is another capability of Nike. Moreover, strong leadership of the company also plays a significant role in strategy planning and implementation. Core competencies Innovation Initiative-driven Communication approach Teamwork culture Good financial position Financial Analysis As information given in the case study, the revenues of the company have increased by 9 percent which shows growth in revenues. The profitability of the company can be analyzed from the fact that net income has increased by 15 percent in a year. Moreover, the dividends have also increased. SWOT Analysis Strengths Strong brand image in the global athletic footwear, apparel and equipment industry Nike as a brand was built on inspiration and the products introduced by the brand are based on innovation Market leader in global branded footwear industry with 38 percent of shares The company is initiative-driven Weaknesses Disintegrated business operations Different timelines for each business of Nike to bring its products in the market which caused disintegration in operations All business units of Nike including apparel, footwear and equipment lack collaboration both at global and regional level Leading position in only a few categories not all Functional representatives were not participating in significant business activities Conflicting priorities between global and regional teams Different level of centralization and decentralization across different functions Because of organizational matrix structure, every initiative of the company has to be justified otherwise great opposite used to emerge Inability to leverage collective power Competition among Nike’s business units over the allocation of resources Opportunities Growing women’s sports-orientation and fitness awareness has created opportunities for Nike Threats Changing market structure as competition is increasing because of the entrance of a number of companies Business Level strategy Nike’s business strategy is to inspire and challenge people through its brand and then offering innovative products to meet their needs and to obtain competitive advantage. Nike develops its own three years corporate strategy which was then pursued by regions and businesses to develop their own strategies. For example, the business strategy for the Nike’s footwear was made more specific to use in the women’s fitness market. Challenges Because of the matrix organizational structure, a challenge for the teams to negotiate on strategic decisions was to influence each other especially in the absence of indirect reporting structures. Because of the turnover of the employees, conveying strategies to the new people and increasing their passion and involvement also appears as a challenge Because of a complex organizational structure, competition in the business units is significantly higher and all business units have to compete over business resources Recommendations The complexity of the organization is increasing which is increasing competition among the business units therefore; women fitness market and other businesses should be more decentralized. There is a need to increase communication between different components of supply chains operations so that collaboration can be increased and lapses could be reduced Reference Case study Read More