Nike is a leading manufacturer of shoes and sportswear, and has achieved tremendous success around the world. In this report, Nike’s business environment was analyzed using Pestle analysis and Porter’s five forces. The company’s internal environment was analyzed by using SWOT analysis, value chain analysis, core competencies, and competitive advantage. It was concluded that Nike is a leader in its business, operates in a competitive business environment and uses a business strategy that ensures its short- and long-term success. It can be recommended that Nike should take advantage of the opportunities available to it and reduce threats.
Nike, the world-renowned brand of athletes, is also the largest and best brand of footwear and sportswear in the world. While Nike designs products for sports use primarily, its popularity as a clothing for leisure continues to grow worldwide. The company continued to focus on two important things – product innovation and product quality. Founded in 1967, Nike has gained world-class reputation for its excellent product quality and marketing strategy (Anon., n.d.).
Business environment analysis
External analysis means examining the company’s industrial environment, including factors such as competitive structure, competitive position, dynamics and history. At the macro level, external analysis includes macroeconomic, global, political, social, demographic and technological analysis (Elearn, 2008).
Nike’s international brand has expanded rapidly, as evidenced by its growing revenues over the past five years. Its share of non-US revenue exceeded 50% in 2017. However, the United States remains the largest market for Nike, accounting for about 46% of its total revenue. Its major suppliers of shoes are 127 shoe factories located in 15 countries. Nike has the largest number of Nike suppliers in Asia, accounting for more than 90% of its shoe production. In 2017, Nike spent $ 3,341 million on marketing and promotion. Nike also spends a lot on advertising plus R & D. The brand is experiencing a faster growth in e-commerce through its active websites in more than 45 countries (Anon., n.d.).
Taxes and industrial rules and regulations are very important in mind. There may be several political rules of export laws that may affect a multinational company to distribute its products globally.
Developed countries have an almost stable economy with the same purchasing power of customers. Nike can also develop favorable economic policies to target developing countries. The economic factors that could be an opportunity for Nike are the economic stability of the developed economy, and the rapid growth of developing markets can once again be seen as the Organization’s greatest opportunity.
People actively participate in fitness clubs and sports competitions. Nike can take advantage of this dynamic social dynamic by offering its high quality sports products. The important social culture factors are increasing wealth opportunities for individuals. Product safety is another important area to consider when it comes to social and economic factors. Improve attitudes towards the positive side and enhance leisure time.
Nike is very interested in marketing and technology techniques. It primarily includes marketing information systems (MIS) to innovate their business operations. The technology used to produce products must be monitored, delivered to customers, and all these activities are promoted through the latest technologies to compete with competitors. The technological externalities affecting Nike are investment in R & D among companies that pose a threat as well.
Eco-friendly products are gaining more acceptance by customers and government alike. Nike should focus on its production techniques to get these types of products to gain a greater market share in the sports industry. The expansion of environmental laws has been a good area when it comes to environmental factors. Climate change is another important factor to be observed.
Legal rules and regulations include the copyrights of shoe designs and clothing produced by Nike against its competitors. In addition, some regulatory bodies also impose rules on the business process such as child labor and employment laws. The expansion of health and safety rules in some countries is always exploring new opportunities for companies (PANDEY, 2017).
Porter’s Five Forces
Supplier bargaining power (low):
Suppliers are small compared to Nike, and are spread around the world with little financial strength. There is a very large part of Nike’s supply chain in Asia, because of the availability of excess raw materials, and cheap labor there. Furthermore, Nike partners are only those who can match their quality standards. Nike has established rules and regulations relating to work, product quality and other things including the environmental impact that suppliers must follow.
Bargaining power customers (high):
Nike is focusing not only on product innovation but quality to better meet the needs of the new generation. They also design better customer experiences to retain them. This is somewhat controlled by strong brand image, marketing capabilities, level of trust and customer loyalty.
Threat of substitute products (moderate):
There are a large number of brands that operate domestically and internationally in the global market that sells sports shoes and apparel. The overall threat of alternative products is moderate due to Nike’s brand image as well as trust and customer loyalty.
Threat of new entrants (low):
As brands enter a smaller and local level, it is very difficult to build a market-leading brand of small investment. There is a very big investment in building a large brand like Nike which requires investment in infrastructure and technology as well as human resources and marketing. There are also legal barriers that prevent new brands from practicing the market.
Competitive rival (high):
While the number of major brands playing in the international market is limited, the level of competition remains very high because each brand invests heavily in product quality, innovation, marketing as well as research and development (LISA WURDEN, 2015).
Nike’s Internal Analysis
Internal analysis is an exploration of the company’s efficiency, cost position and market competitiveness. An internal analysis often involves measures that provide useful information about the company’s strengths, weaknesses, opportunities, and threats – SWOT analysis. Data generated by internal analysis is important because it can be used to develop strategic planning objectives to sustain and develop business (Elearn, 2008).
Value Chain Analysis Nike
Inbound Logistics: Nike has a global procurement team to manage the procurement part of supply chain management. Including selection and communication with appropriate suppliers of appropriate goods and services. In recent years, it has seriously focused on sustainability and is working to reduce its environmental impact. The number of suppliers is now lower in number and who remain committed to the quality and sustainability standards of Nike. Its supply strategy gives priority to suppliers who want to exceed minimum standards and can strictly follow the rules on sustainability. At Nike, almost all of its products are manufactured by independent contractors. The focus in all these manufacturing facilities remains on transparency, quality and sustainability, which is why only the most responsible are becoming part of their supply chain. Products obtained from these suppliers are sent to different markets through the regional offices and distribution centers of Nike (Barrientos, 2019).
Outbound logistics: External logistics is an extremely important part of Nike’s value chain. There are more than 500 factories manufacturing Nike products in 42 countries. Products shipped from these manufacturers must be sent to Nike distribution centers to retail stores for sales. Nike has used a series of regional distribution centers to meet the needs of its retail stores so customers do not have to wait long for a new product after it is released. An efficient distribution system also helps manage deliveries and shipments. The Memphis and Tennessee distribution system keeps shoes, clothing and equipment for the Nike and Jordan brands distributed to individual and wholesale customers as well as Nike retail stores. Its European logistics campus is located in Belgium, enabling a faster and smarter supply chain management (Barrientos, 2019).
Operations: Nike is headquartered in Oregon, North America. It is also Nike’s largest office with the largest number of Nike employees. Nike also has offices in Europe, the Middle East, Africa, Greater China, Asia Pacific and Latin America. The brand is located worldwide, and each of its offices serves wide geographical areas in many countries.
Sales and marketing: Regardless of its great quality, Nike is internationally renowned for its excellent marketing strategy starting with the Swoosh logo and can be found in all Nike products. However, Nike also invests heavily in marketing and athletes such as football celebrities are used to market their products and brand and promote them. The video marketing strategy is highly appreciated by Nike fans. Nike’s main sales channels are both physical and online. Their own stores, including retail stores, factory and online sales sites and mobile phone sales channels are sold directly to customers. It also uses a mix of independent distributors, licensees and sales representatives worldwide for sales (Ahmed, 2016).
Technique: Nike’s production strategy has innovative technology at its core, and sustainability has become an important focus in the production and supply chain. Nike uses the best technologies to reuse the waste generated by its plants.
HRM: A global organization like Nike relies on a large number of skilled staff. Globally, Nike employs more than 70,000 people. It has created a culture and an environment that promotes diversity and inclusiveness.
Management: For Nike, quality is a very important focus. Therefore, the entire procurement team is dedicated to the analysis and evaluation of qualified suppliers. Only suppliers who can guarantee more than minimum quality requirements, remain in their own supply chain.
Solid Infrastructure: Nike headquarters is located in a state-of-the-art building with a lake and excellent facilities for its staff (Ahmed, 2016).
Core competencies of the Nike
- Brand Name: Nike is a world famous brand of sports shoes, apparel and equipment.
- Modern Technology & Innovation: Nike has always focused on modern technologies, product innovation and growth by investing in a better customer experience.
- Product quality and style: The quality of the product and the stylish designs have always been a priority for Nike, which has resulted in the popularity of its products as clothing for entertainment.
- Marketing possibilities: Nike’s excellent marketing capabilities are distinguished by its brand portfolio (UKEssays, 2018).
Nike’s Competitive Advantage
Competitive advantages are the conditions that allow a company or country to produce a commodity or service of equal value at a lower price or in a more favorable manner. These conditions allow the product entity to achieve more sales or margins than its competitors in the market. Competitive advantages are attributed to a variety of factors including cost structure, brand, quality of product offerings, distribution network, intellectual property and customer service (Porter, 1980).
Behind Nike’s success, there are fantastic business and marketing strategies in addition to some excellent sources of sustainable competitive advantage:
- Global Presence – The global presence of the brand is also a major source of advantage.
- Brand image / property rights – The brand enjoys a very high level of trust between its customers and the market as a whole.
- Customer loyalty: Based on the high level of satisfaction generated by Nike, it enjoys great loyalty to customers compared to its opponents.
- Supply chain management: The excellent management of the supply chain is also a major source of competitive advantage of the brand (Godfrey, 2015).
Nike’s SWOT Analysis
SWOT analysis is a simple technique used to design business strategies. Each character in the shortcut represents an important aspect in the process. S means strengths in work or organization. W means the weaknesses that the company must address if it wishes to maintain its competitiveness and sustainability. ‘O’ is for opportunities that reach a peak in a particular industry. Analysis of segment ‘O’ helps the company identify situations, events and factors that can be exploited. Finally, T refers to threats that refer to factors inside or outside the work that may make the implementation of the strategy difficult or impossible (Böhm, 2009).
- Strong core brand. The Nike brand itself is one of the strongest – if not the strongest – names in the entire sporting apparel industry. In most parts of the world, Nike is one of the first companies to come to the public’s mind when they think of stylish sneakers.
- Brand portfolio diversified. Although the Nike brand itself is incredibly strong, the company has a variety of brands beyond that. This suggests that Nike has its foundations well spread throughout the shoe industry, allowing it to overcome the painless changes in preference.
- Low cost product. Because many Nike products are manufactured in developing Southeast Asian countries such as Indonesia and Thailand, Nike has very low labor costs. What’s more, Nike also uses relatively inexpensive materials for many of its shoes. Together, these factors – cost of labor and cost of materials – allow Nike to manufacture its shoes at very low prices.
- Relying on the US market. In 2018, more than 40% of Nike’s revenue came from the US market; this shows a significant dependence on the US market as part of Nike’s business model. If US tax or legal policies change, which in any way affect Nike’s ability to sell in the US market, it will seriously hurt the profits of the sportswear company.
- Manufacturing outsourcing. Despite the low cost associated with overseas manufacturing products, there are already downside to doing so. On the one hand, overseas manufacturing requires you to either create a custom manufacture that works in the country you have chosen or outsource to your existing manufacturers. Nike chose to do the latter, which means that its products are not always high quality.
- Focus shoes. Although Nike is relatively diverse within the shoe industry itself, Nike has not diversified much across other industries. Although the shoe industry may remain here, Nike may consider expanding its horizons.
- The growing market. There are more and more people in this world, and a lot of them are gradually becoming more active. Together, these two factors are compounding the creation of a constantly growing shoe market. If played correctly, Nike must be able to get a large part of the business of this growing market, allowing the company to increase its profits.
- Developing markets. Since countries around the world are richer and richer, citizens in developing countries have more disposable incomes. In regions such as Southeast Asia, growing disposable income represents an opportunity for new markets to sell products. If Nike can market itself in these emerging markets, it can increase its reach and reduce dependence on the US market.
- Responsible manufacturer. In many Western countries, there is an increasing trend to know where the products came from and how the environment and workers were treated. This is another chance for Nike. If they are able to brand themselves as a manufacturer responsible for sporting goods, they may be able to increase their penetration into the market among the most environmentally conscious consumers.
- Taxation. There is growing debate about how much money is given to large corporations when it comes to tax matters, and their freedom to pay low taxes may end someday. This would provide a much lower net profit than Nike.
- Competition. Nike competes in a highly competitive sportswear market, with other big names such as Adidas, PUMA and Reebok ready to snap on any new opportunities. As such, Nike needs to walk very carefully to ensure that it is not replaced with one of these elements, or – dramatically less – not losing a potential return.
- Counterfeiting. Like many valuable brand goods, Nike clothes are subject to large amounts of counterfeiting. Counterfeit goods from Nike are available everywhere – even online. Nike needs to develop a strategy to ensure that counterfeiting does not affect its core business model, perhaps by taking legal action against counterfeiters or with a smart marketing campaign that encourages consumers to buy the real thing.
Thanks to its very strong brand and low cost, Nike has managed to net several billion dollars on an annual basis. Unfortunately, Nike is largely dependent on the US market and its small variety outside the footwear and sportswear markets. Nike needs to be cautious about the threats associated with these vulnerabilities, and other challenges such as taxation or fraud. Fortunately, Nike has many opportunities to grow its business, including making the most of the rapidly expanding apparel market (Eric MacIntosh, 2019).
Nike is the world’s largest brand of footwear and sportswear which has focused on product innovation and marketing to achieve growth. Its excellent marketing capabilities have helped its superiority among a range of brands. Competitive pressures against the brand continued to grow. To maintain its growth rate, the brand must retain a focus on product innovation and marketing. They can also try back integration because they rely heavily on independent manufacturers in their own supply chain. Nike is a well-known brand that attracts consumers in the market. Continuous product innovation and effective distribution network make sure that the sporting goods of the company are accessible to consumers. However, the company must reduce excessive dependence on the US market. Acquisitions and expansion in emerging markets can help the company maintain its position at the top of the sporting goods industry. If the company fully embraces digitization, its sales may grow exponentially. The company faces some threats, but continues to progress with confidence. Overall, Nike’s outlook is bright and positive.
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