Understanding how globalization affects a company will be analyzed to explore how Nike Incorporated handles the multiple risks and capitalizes on the benefits of such expansion. As Nike has faced immense growth and criticism due to the complex business model that has led to the number one position in the athletic footwear industry. It has been a challenge to balance strong organizational performance along with required corporate ethical standards expected for a global leader. A critical evaluation of Nike Inc. will be completed using marketing theories as a guide such as PEST, Marketing Mix, and SWOT analysis. Whereby an understanding of how the company strategy in operations has led the company from its current situation to recommendations for a better future position.
Phil Knight along with his partner Bill Bowerman started Nike in 1964. They invested $1,000 in the company Blue Ribbon Sport as import distributors of athletic footwear. The first suppliers sources were premium quality athletic shoes from Japan. Today Nike is a household word throughout the world as an industry leader in marketing, design, and distribution in athletic footwear and sportswear (Nikebiz. com 2011).
Marketing Mix - Price
The business model has not changed much since its inception as the company does not generally manufacture athletic shoes. They mainly have other countries manufacture them at a low price point where labor and raw materials are less costly, and resell them after branding them at a markup price for a profit. Nike mainly expands their business by investments in research and design development, along with marketing plus sales to attract more manufacturers. These new suppliers in turn compete to build Nike product designs. The idea to import from great quality producers like Japan came to Knight when in college at Stanford (Nikebiz. com 2011). The plan was to buy lower cost yet finest quality footwear from country's like Japan, then resell in the U.S. And other high demand areas such as Europe and Australia at a premium price.
Marketing Mix - Place
While other athletic footwear companies like Adidas who were once the market leader continued to design and manufacture their own shoes in the U.S., Germany, and other places where the cost of production was high, Knight recognized the advantage of outsourcing manufacturing shoes in lower cost countries (Nikebiz. com 2011). As Blue Ribbon Sports started to reach millions of dollars in sales by the 1970s, they tried expanding into designing their own shoes. The new name of Nike came into existence in 1978 as the company started selling under their own brand.
The Nike brand was launched in 1972, and the company officially changed its name to Nike, Inc. In 1978 (Nikebiz.com 2011). There were mainly a couple of manufacturers in Japan that were the suppliers of shoes to Nike. They were Nippon Rubber and the other was Nihon Koyo, they continued to be successful in business together throughout the 1970s. However, eventually costs begin to grow due to the International crisis that affected oil prices and raised the value of the Japanese Yen in relation to the U.S. dollar (Nikebiz.com 2011). At this point it became clear to Nike that a new supplier was needed that could provide the highest quality product at lower costs. Nike decided to try manufacturing and opened a plant in the U.S. To gain more control over their product. They also pursued new foreign suppliers in Korea, China, Taiwan, and other countries where labor and other resources were still at lower prices (Nikebiz. com 2011). The U.S. plant could not compete with the foreign producers so by 1980, Nike abandoned domestic manufacturing. Opting instead to continue with the original business model of outsourcing manufacturing (Nikebiz.com 2011).
With both Korea and Taiwan as the chief producers of Nike products, costs once again increased to the point that Return on Investment was not as profitable as necessary to meet the costs of production. Nike begin to work with these manufacturers in a bold new initiative to promote them to move their manufacturing plants outside their own country to other less costly nations around the world in order to benefit from low cost labor and resources, see Table 1 (Nikebiz. com 2011). Other plants were eventually opened by Nike foreign manufacturers as plants were built in countries in Southeast Asia. Nike contracted with those manufacturers willing to move to sell high volumes of product and also to help supply marginal managerial support in running the plants.
Table 1: Factories Based on Region and Product (Nikebiz 2011).
Current Situation of the Footwear Industry
Marketing Mix - Product
While the athletic shoe market has grown tremendously over the past twenty years, there are only a few companies that are supplying footwear products. Some of the statistics associated with the number of athletic shoes sold are over $5 billion in sales in the late 1980s to today where there are over $15 billion purchased each year. The number of shoes that have been bought by consumers in the U.S. is a staggering 340 million pairs in 2001 (Locke 2010). The dominating companies are Nike, along with Reebok and Adidas who have held the top positions for over a decade.
Nike Current Situation
At present the number of Nike goods produced span over 700 different factories in over 50 countries (Locke 2010). The total number of workers outside Nike domestic holdings is more than 52,000. Internally Nike has nearly 23,000 employees. Nike has only 22,658 direct employees. There are many different types of shoes that are produced. Over 1,200 varieties of footwear are now offered. The type of products not only include footwear but sports apparel and even equipment. Expansion has increased to markets in Latin America, Europe, Australia, and in Asia as well (Locke 2010). The amount of revenue generated has now exceeded $20 billion.
Marketing Mix - Promotion
Nike takes its competition seriously and has became very skillful at promoting its products through athletic events around the world. They have learned to hone in on the athletes that can give them the most advertising clout by sponsoring the athlete in return for marketing coverage and the opportunity to put their name on Nike products.
The company has no production costs or expense related to factory maintenance, resource costs, raw materials, or heavy equipment costs. There are no factories owned by Nike. Revenue is not bound up in real estate, equipment or labor.
Nike has a lean organizational structure that is primarily focused on research and development. This allows the management team to focus 100% on how to grow the business vs. The day-to-day duties of a manufacturer. Leading to cutting edge innovations that consumers demand.
Manufacturing is fluid for Nike as they hire the factories that can give the best quality at the lowest price. Production is flexible able to shift to the best value for the highest quality.
Brand name known around the world. Nike has a strong brand image that is instantly recognizable.
Though Nike has expanded into other product offerings. Its primary source of revenue is in footwear. If the market trend toward footwear ever dries up, so will the majority of Nike revenues.
A similar problem exists in the sales channel. Nike primarily sales through retailers. There is only one Nike retailer namely, Nike Town (Locke 2010). Yet most of the income is filtered through third party retailers. If there is a turn in their willingness to promote Nike products there are plenty of competitors offering similar products.
Use of foreign manufacturers has caused problems since Nike does not govern labor practices. They have been accused of supporting slave labor, mistreating workers in low income countries, child labor infractions, and unfavorable working conditions.
Though Nike sees itself as an Athletic Footwear provider. It is still considered a Fashion Brand as well. Many of its customers buy for fashion not athletic performance. Because of this there are fads where shoes are only popular for a season. This creates opportunities in offering different selections for different trends or seasons. Thereby one customer may purchase more product (Locke 2010).
Expansion of the market into sportswear accessories for additional revenue beyond sportswear and footwear such as sunscreen, beach wear, sunglasses, waterproof sport watches and so on.
Further international development in sponsoring sporting events worldwide such as Championships, Race cars, soccer, and the Olympics (Locke 2010).
Expansion into more countries retail chains such as India where there are now many consumers that have reached a higher income level.
Recognition and redemption by leading the industry in fairer labor laws for…