Contents

Page

• Background Note 2

• SWOT Analysis 3

• Porters 5 Force Model 4

• BCG Matrix 5

• Problem Identification 5

• Strategic Alternatives / Choices 6

1. Nike Functions 6

2. Value Chain 6

3. Sales 7

4. Distribution & Retailers

5. Branding 9

• Marketing 9

• Policy Formation & Action Plan.

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1
 NIKE Inc.

Background Note

NIKE Inc. is a participant in the Non rubber Footwear Industry, an

industry that manufactures all types of footwear except protective
rubber and rubber-soled footwear. Its primary business activity
takes place in the primary industry sub classification of Athletic
Footwear. Within this sub classification NIKE is considered number
one with, Reebok running a close second.

NIKE sells its product through some 25,000 retail stores in the
United States, and globally, it sells through independent distributors
and licensees in 160 countries. The Athletic Footwear Industry is
highly competitive, however, the market share data shows NIKE
and Reebok as the major players in the industry.

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 manufacture wherever they can
produce high quality product at the lowest possible price. If prices
rise, and products can be made more cheaply elsewhere (to the
same or better specification), Nike will move production.

Nike is exposed to the international nature of trade. It buys and sells

in different currencies and so costs and margins are not stable over
long periods of time. Such an exposure could mean that Nike may
be manufacturing and/or selling at a loss. This is an issue that faces
all global brands.

NIKE has faced public relations problems in Far East locations. Nike
is characterized of making its equipments in countries which
are in the developing phase, having very cheap labor,
authoritarian government and lack of human rights appeal
and union movement.

In doing this it has made greater margins on the cost of lower wages
to its workers. The negative publicity regarding Nike's
activities in Asia has come from a variety of sources.
Vietnamese activists have called for a boycott of Nike products
because of the company's activities. Nike faced problems in
Pakistan using child labor in manufacturing. Nike is also criticized for
using sweatshops in countries like Indonesia and Mexico. The
company has been subject to much critical coverage of the often
poor working conditions and the exploitative-ness of the cheap
overseas labor.

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 SWOT Analysis

This analysis will help summarize key issues from the business
environment and the strategic capacity of Nike. This can be used to
judge future strategic options with rationale outlook.

External Analysis

• Opportunities
o Product diversification & New
Markets
o Increase product line & Changed
target market
o New manufacturing countries
o E Commerce

• Threats
o Competition & Fashion Trends
o Contract manufacturing and copying of product
(intellectual property)
o Consumer lifestyle changes
o Sars / Negative publicity

Internal Analysis

• Strengths
o Product Range & Capacity for innovation
o Single Brand & Stars endorsement
o Contract manufacturing (Cost Advantage)
o Distribution expertise
o Large portfolio of products
o Research & Development
o Brand Equity

• Weaknesses
o Single Brand & Too many stars endorsement
o Contract manufacturing (indirectly involved in
Child labor)
o Spread portfolio of products
o Reliant on retailers
o Reduction of target market

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 Application of Porters 5 Force model

This model is used to identify the sources of competition, and how

to gain advantage over them.

• Potential Entrants
o Other sportswear manufacturers expanding their
portfolio
o Cheap copies from the Far East.
• Substitutes
o When required for professional use there is no
substitute goods, but as a fashion item there are
many other goods that could be purchased.
• Buyers
o The buyers of sports footwear have changed in
the past decade.
o There has been and increase in women
purchasing the shoes,
o Generation Y has a different tastes and purchasing
methods.
• Suppliers
o Using production facilities in the Far East has
given economies of scale to Nike. Although there are
problems arising from these factories, they are
switching to making there own goods, labour and
political unrest causes delays in manufacturing and
shipping of the goods,
• Competitive Rivalry
o Reebok, offering more choice of shoe, introducing
endorsement by sports personalities, sponsoring
sporting leagues
o Adidas have recovered from the problems that
plagued them, and have a good product mix,
covering a wide range of sports.

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 BCG matrix

Nike

• Nike is established within its markets, benefiting from

economies of scale.

• Places Nike in the Cash Cows category on the

Matrix.

• Cash cows market growth has slowed, and the products

hold a fairly stable market share.

Problem Identification / Issues

• A global slowdown in retail sales and consumption, has hit

Nike hard. In fiscal 2009 (ending May 31, 2009), Nike's
revenue grew only 3% to $19.2 billion, with net income falling
21% to $1.5 billion. Growth in emerging markets and
Asia, which had driven sales growth in 2008, was flat in
Asia and down 19% in Europe, the Middle East, and Africa.

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 • Nike had faced problems after sub-contracting in the Far East
getting negative publicity due to usage of child / cheap labor
in the past.

• Should Nike be held responsible for working conditions in

foreign factories that it does not own, but where sub-
contractors make product for Nike?

• Suggest rationale & critical success factors as strategic

choices for big scale business from India.

Strategic Alternatives / Choices

Nikes Function

The company has focused on design & development and

emphasizes on having innovative employees. Critical Success
Factor being - Reduced size of premises therefore reduced
costs.

There have been problems with production, distribution due to

political problems in many countries. Also experienced bad name
earned in the Far East owing to problems related to poor labor
conditions etc. The change in relationship between the USA and few
Asian countries, other alternatives can be explored by Nike to
sustain their leadership in the footwear market.

Critical Maintaining current standards, closer working relationships,

Success Factor retaining customer loyalty by guaranteed standard of product.

Value chain
While viewing the criticism & accusation faced by the company, it is
felt that Nike is not 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-

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contractors' factories, it would cost more to make footwear.
However, Nike should monitor working conditions & operate within
the countries legal environment

Nike’s supply chain provides a clear view of the global nature of the
company. Nike’s headquarters are in America, however, virtually all
of its production takes place outside of the United States.

Nike’s supply chain upstream begins with the materials used in the
production of its products. Many of these materials used in
production are available in the locations where the manufacturing
takes place, but some specialized materials have to be imported
from other sources.

Past options Outsourcing of all production

Rationale Reduced costs

Future Options Outsource with stronger control & specific directions.

Rationale Evolve a system of speedy reporting / regular and continuous monitoring of

quality, problems in production, supply chain.

Critical Success Reduce problems associated with distance, i.e. quality, consistency and
Factor value.

Change of cus Although still outsourcing, they would gain more control over production.

Sales

Nearly 50 % of the company’s sales were coming from the US in the

past. In Europe there are difficulties in entering the market, the
single currency and the trade rules make entry difficult for large
organizations. New sales strategies were formed & implemented
with change in focus. By tailoring marketing to the customer needs,
Nike has been successful in the past and continues to be today.

The athletic shoe industry is highly competitive as well as a

demanding market where fierce competition, price conscience
consumers, and constant changing market trends have all been
attributing factors in how a manufacturer responds. Price is related
to the product, through the characteristics of the brand, it’s

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packaging and overall image. People are buying into an ideal, not
just the item. Consumers believe that there is a link between quality
of a product and the price.

Past options Target the US markets.

Rationale Growing market, but is now reaching saturation..

Future Options Target new markets segments, including e-commerce

Rationale To avoid a reduction in sales

Critical Success Entry to new segments, by advertising and targeting the audience. Ensuring
Factor accurate and quick picking of the customers order..

Change of Shift to global marketing, selling world wide from the web targeting Generation Y.
Focus

Distribution and Retailers

Nike has a strong network of retailers in 160 countries world wide

through distributors, licensees and subsidiaries. Within the USA
there are 25000 stores that retail Nike products. These are well
established channels.

Past options Although they have numerous retailers, they were heavily dependant on one
out let chain

Rationale To sell top of the range products

Future Options To negotiate partnerships deals with few key outlet chains & continue to have
numerous retailers.

Rationale To ensure wider spread of business

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 Critical Success Ensure availability of product at key retail store to grab sales.
Factor

Change of Closer working partnerships

Focus

Nike sells its products in international markets through independent

distributors, licensees, and subsidiaries.

Nike made itself heavily dependant on one retailer Footlocker,

representing 10% of their revenue. When Footlocker reduced their
purchasing form Nike, it created a reduction in turnover in the short
term. It is imperative that organizations that are over
dependant on one retailer are open to cash flow problems, if
the retailer switches suppliers, reduces purchasing or
ceases trading.

Nike Branding

Brand Management, customer awareness and loyalty are directly

linked to the price, therefore maintenance of the relationship
between brand images, quality and price have to be consistent.

Past options Global brand

Rationale Consumers are willing to pay a premium price, as they imply credibility, high
quality and up-to-date global trend.

Future Options Company can use its brand name to enter into new markets / segments.

Rationale Moving into a new market with a brand that is already global, one can reduce
cost of introductory and follow-up marketing programs.

Critical Success Woo new customers & widen portfolio

Factor

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Change of Focus Concentrating on core products as Nike, allowing growth in new diverse
markets

Marketing

Nike's marketing strategy is an important component of the

company's success. Nike is positioned as a premium-brand,
selling well-designed and expensive products. Nike lures customers
with a marketing strategy based on a brand image which is attained
by distinctive logo and the advertising slogan:

"Just do it"
Nike promotes its products by sponsorship agreements with
celebrity athletes, professional teams etc. In the run up to the
2006 U.S. Open, Nike began running Pretty, a television
advertisement featuring Maria Sharapova. The ad was a
popular and critical success, and went on to win several of the
industry's top awards, including two Cannes Gold Lions.
During the past 20 years especially, Nike has been one of the major
clothing/footwear sponsors for leading tennis players. Some of the
more successful tennis players currently or formerly sponsored by
Nike include: James Blake, Jim Courier, Roger Federer, Lleyton
Hewitt, Juan Martín del Potro, Andre Agassi, Rafael Nadal, Pete
Sampras, Marion Bartoli, Lindsay Davenport, Daniela Hantuchová,
Mary Pierce, Maria Sharapova, Serena Williams. Nike sponsors
several of the world's top golf players, including Tiger Woods, Trevor
Immelman and Paul Casey.

Nike is also the official kit sponsor for the Indian cricket
team for 5 years, from 2006 till end of 2010. Nike beat
Adidas and Puma by bidding highest (US$43 Million total).
Also sponsored China Olympic 2008.

Highly focused brand includes Nike, Adidas, and Reebok, they target
a precise market. However, there is evidence that a brand will widen
its target market as it reaches a greater level of maturity. In the
case of Nike, for example, there was a move into new sports areas
away from the running heritage. Nike’s target audience over a
period of time has also moved from more masculine alone towards
female and Generation Y that justifies their market leadership.

Now that the trends within the industry have changed with
increase in number of female consumers, Nike must review
their advertising policies and future option could be to

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choose a brand ambassador that appeal to a wider audience
and that may as well contribute to reduce advertising costs.

Policy formation & Action plan

India is emerging as one of the preferred destination for outsourcing

business whether it is IT, commodity trading or manufacturing.
Accomplished with various recourses within the country, bigger
capacity manufacturing units may help Nike maintaining its position
at a much lower cost considering adequate feed stock, low labour
cost, established infrastructures available in India.

Considering expansion, contract manufacturing in India &

distribution to entire Asia pacific region, Nike may try to increase its
share thru footwear / apparel segments while understanding of
trade policies prevailing in the country with stable Government in
place.

Must emphasize towards enhancing Nike’s ability to respond

to changing conditions & act to :

• Maintaining current standards, closer working relationships,

retaining customer loyalty by guaranteed standard of product.

• Eliminate problems associated with distance, i.e. quality,

consistency and value & ensure Improving of process,
information and product quality.

• Entry to new segments, by advertising and targeting the

audience.

• Introduce reasonable cost products to middle / lower class

consumers.

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 • Select a brand ambassador that appeal to the local
inhabitants.

• Promote E- Commerce

• Provide an efficient global supply chain with local

implementation.

• Provide intensive training to key personals to promote better

coordination & enhance control.

In conclusion, Nike's future growth would primarily derive

from its foreign operations. As the footwear industry in the
domestic market has slowed, Nike has to expand
aggressively in foreign markets in terms of outsourcing
manufacturing & sales like India. Nike pays more dividends
in comparison to its competitors; the firm should reinvest
that money in aggressive expansion in foreign markets
rather than giving back the shareholders the profit.

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