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Nike is the world's number one sports shoe-maker that has gained a global image and reputation. Founded in 1964 by Phil Knight and Bill Powerman, Nike has done an excellent job since then up until now, especially it had earned a tremendous triumph in the mid-90s. To understand what contributed to the Nike's success up until the mid-90s, an examination of the internal and external environment using SWOT analyses can be quite useful.
No.1 global brand name in the athlete shoemaker.
Mass-marketing capability with celebrity endorsements.
Strong company's culture based on trust, teamwork, and mutual respect which employees were very proud of.
Strong R&D with an integrated system resulted in wide ranges of innovative sports shoes.
Innovative designs; catchy slogan "Just Do It"; popular logo "Swoosh".
Found an easier and cheaper technology to make the shoe's outsole.
Always develop superior technologies to compete with others.
Worldwide distribution lines.
Healthy finance situation; highest market share in the industry.
No manufacturing factories means no sunk costs and investments in infrastructures.
Had 350 subcontractors employed nearly 500,000 workers by 1982 outsourced from low-wage countries in Asia.
Too many limited editions; too many special runs.
Had diversified range of products (apparel, equipment, etc.) with large volume without a clearly understanding of demands.
Unproven brand stretches.
Negative image because of disregard of labour ethics in its overseas factories (poor working conditions, children labour, exploitation, etc.)
Wide ranges of products (equipment, apparel, etc.) help earn higher profit.
Joint venture with a Hollywood talent agency.
Change in consumer's taste - Nike also perceived as a fashion brand name.
New markets from developing countries (China, India, Vietnam) with people have higher disposable income to spend on high-value goods.
Global events for marketing opportunities (World Cup, The Olympics).
EU is changing into one Euro currency.
Entering global and free-trade market like NAFTA and GATT.
Globalization - Lower import tariffs and entry to cheaper labours and materials.
Laws in China and Vietnam banned workers from forming autonomous unions which helped Nike take advantage of labour costs.
Unstable of currencies exchange rates, price of oil and gold.
Price increase in transportations, raw materials and labours lead to unstable costs and margins.
Competitive market for sports and garments made Phil Knight's model no more a sustainable competitive advantage.
Negative image due to sweatshop issues and avoid taking responsibility of factories' exploitations and bad working conditions.
The ever-changing nature of fashion stakes.
Easy to become the target of publicity because of the leading position.
Consumers are more price-sensitive.
Economic downturns in US and in Asia (1997) had large effects worldwide.
Globalization means more newcomers coming in.
Anti-dumping regulation in EU.
High endorsement fees paid to athletes and celebrities.
Long-term endorsers might not be fashionable anymore.
As the table has shown, Nike had a quite considerable amount of strengths. The most important strengths contributed to its success were the leading position in the new high-performance sports shoes market along with the marvelous marketing efforts and broad distribution lines that helped it earn the brand-recognition and high reputation worldwide as Nike realized that it should be a marketing-oriented company rather than a production-oriented company. Furthermore, the notion to outsource the production in low-cost countries in Asia had added lots of margins and avoided the need to pour money in manufacturing buildings and employee trainings. As a consequence, Nike only needed to focus on the innovative designs that could catch people's attention at first sight.
In 1990s, there were numerous chances for Nike to take advantage of and spread out its 'swoosh' throughout the world. It could be the globalization that brought back lots of opportunities; for instance, the right access to the low-cost labours and materials as well as tariffs reduction. It also brought back the prospect for market expansions in the developing countries (China, Indonesia) due to the increases in disposable income and brand-awareness of people. In addition, Nike could take chance to do marketing and market expansions in global events like World Cup and The Olympics, which attracted lots of attention. Change in consumer's preference could be counted in also. People tended to move toward to fashion-trend as they were no longer buy Nike's products just for sports participation - people could buy a new pair of trainees as they were becoming unfashionable. Given the trend, Nike fostered its brand via marketing efforts and slapping its logo on diversified range of products - glasses, clothing, jewelry, etc. As a result, the company celebrated 20th anniversary in 1992 with its revenue reached $3.4 billions. (NIKE, Inc., 2006)
The Porter's five forces framework here may portray a clearer image of Nike in the 1990s. The framework shows that in term of bargaining power of supplier, it was relatively low due to the mass amount of subcontractors that Nike could choose to outsource its products. Besides, threats of new entrants and substitutions were also small because of the huge barriers that discouraged newcomers to enter the athlete shoes market. Nonetheless, there were an increase in retailer and consumer bargaining power as they were becoming more price-sensitive and more fashion-oriented. In conslusion, Nike was significantly powerful in the industry in those years than today as more and more newcomers have found niche markets to enter the field.
Michael Porter's Five Forces Framework:PTDC0008.JPG
With SWOT and Porter's frameworks, it is unambiguous that Nike Company was in a superior position with tons of efforts, had a fine financial liquidity and was in a favorable environment with numerous opportunities opened up. Therefore, it was not strange that Nike could achieve a tremendous success since the beginning until the mid-1990s.
However, though it had been that successful, Nike had to experience a downturn in profit in 1997, which made Nike have to look back its strategies. There were many macro-environments that had quite huge effects on Nike's triumph that resulted in a dramatic drop of market share from 47% to 40% and profit by 69% at the end of 1997 (Angwin, Cummings, and Smith, 2011). Just what was wrong with Nike's coolness? An assessment via the ESTEMPLE framework could help us look at the situation then.
EU is changing into one currency.
Asian financial crisis in 1997 had considerable macro-effects.
US economic growth is slow down.
Unstable of currencies exchange rates, price of crude oil and gold.
Raising crude oil price caused a boost in price of transportations, raw materials, energy and a drop of consumer's disposable income.
Change in consumer's taste in athlete shoes: more fashion-oriented.
Protesters opposed the treatments of workers in the contract factories.
Consumers in many countries boycotted the products.
The use of petroleum-based solvent instead of water-based solvent in manufacturing plants made air difficult to breathe.
Nike has integrated system to develop products.
The use of petroleum-based solvents and glues in manufacturing plants caused dizziness, nausea, and breathing problems among workers.
Media investigations focused on abuses at Nike's overseas contract factories and problems with its endorsers such as Ronaldo and Mike Tyson.
Negative public image due to the refusal to have any responsibility with contractors and PR spokesperson's declaration in public made the situation worse.
The magazine 'The Big Issue' asked British people to boycott Nike.
Anti-Nike websites as www.boycottnike.com.
Entering in global trade with NAFTA and GATT.
Anti-dumping regulation in EU.
The law in China and Vietnam banned workers from forming independent labor unions.
The bribery between Nike and Andrew Young, former US ambassador to the UN, was disclosed to the publicity media.
Nike's factories disregarded the environmental regulation.
Violation of labor codes; for instance, contractors' factories employed children under-18, which violated the countries' regulations of minimum age for working or paid no attention to the safety and healthy working conditions.
Disrespect of labour ethics in overseas plants: working over hours, exploitation, sexual harassment, insufficient wage, verbal and physical abuses, etc.
When reflecting on the weaknesses and possible threats as well as looking at the ESTEMPLE framework, we can see that in general, the year 1997 was a tough year for Nike to overcome, as there were many external aspects impacted on the company. The Asian financial crisis originated from Thailand in July 1997 played a significant role in the economic downturns not only in Asia, US but also in many parts of the world. It contributed to the instability in currencies and oil price, which in turn led to increases in raw materials, transportations and energy costs and especially, consumer's disposable income was not as much as before and the reduction in revenues led to a drop in profit by 69%. Another major factor that added to the decline in 1997 of Nike's sales was the disputableness of Nike's figure due to 'sweatshops' issue in developing countries. The contractors had violated a numbers of "Codes of Conduct" in countries like Vietnam and Indonesia since they disrespect the labor ethics as well as labor and environmental regulation (The Indian Institute of Management and the World Bank).
In late 2009, one of the most famous Nike's endorsers, Tiger Woods, involved in an adultery scandal that shattered his elite image. Whereas other companies, such as Accenture consulting firm and AT&T telecoms dropped his image, Nike still took a stand beside him to support his family (Angwin et al., 2011). There could be some reasons behind Nike's action.
Firstly, it is obvious that Tiger Woods plays a key role in Nike's strategy since this stakeholder had been given his own sub-brand name - TWG - in Nike'golf segment. It just focuses on his talent, as Tiger Woods is always the greatest golf player in the world means that using him as a role model would also means that Nike is always the best brand that has the best golf equipments that you can find as "We really focus on him as a great athlete and that's the part that we care deeply about" (Edwards, 2010).
Secondly, it seems smarter and more ethical for Nike not to abadone him as other companies have done. Nike's action shows that it did learn from their mistake in the late 1990s as it refused the liability with overseas factories. Nike did not avoid its responsibility and relationship with Tiger - the company has stood with him to help him overcome this scandal together with Nike.
Nike's Stakeholder power/interest matrix:
Reccomendations for Nike
With Porter' five forces framework and the generic strategy, we can see that the present environment is more competitive than before as there are new faces such as Sketcher, Creative Recreation and Brooks from US coming in. In my opinion, for Nike to survive in this fierce battlefield, it should change its strategy from being in cost leadership into intergrated cost leadership - differentiation strategy as global competition increase, which would bring back many benefits like the ability to adapt more quickly and to learn new technologies. Also, it should strive to gain a more positive global image via regarding the "Code of Conduct" in labour issues. Besides, Nike should not concentrate too much money spending on long-term endrsements as they might quickly become unfashionable in this fashion trend today and the company could try it best to manage its fashion shoes lines as there is a change in consumer's taste about the athlete shoes.