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In this second report we will be looking deeper into the relationship between Nike Inc and the athletic & sporting goods industry. This report will analyze and give recommendations regarding the Business, Corporate, and International level strategies for Nike. Business-level strategies are “whom a company decides to satisfy, and how the company decides to satisfy those needs and desires” (p. 148).
Business level strategy analysis/recommendations
Nike’s major competitors consist of companies such as Adidas, Under Armor, and Rebook. To stay on top of their competitive game, Nike focuses on product differentiation and cost leadership. The main priority for Nike is to increase value to their stake holders, keep its market share within the industry, and prepare for the future with research and development. In report #1 we discussed how Nike has great product innovation, high quality products, and technology development. This ties in with their business level strategy by allowing them to differentiate themselves and increase their brand image.
Although low cost is another business level strategy, Nike does not participate. Nike products are high quality and customers are willing to pay the prices because of the value of self-esteem they see in the products. Nike provides this image that every product is specialized for the customer in need through NikeID (the shoe personalization feature) and other customization options. To provide such features Nike invests a lot into research and development to stay ahead of the competition and stay up to date with technology innovation.
Considering Nike’s well-known brand, I would find it beneficial for Nike to enter the earphones & headphones market. Athletic headphones have been taking over the market with companies like Bose creating headphones to wear while being active. “The usage of wireless headphones has been gaining high popularity over the years since they offer users freedom to manage wires, thereby increasing their mobility” (Earphones and Headphones Market). Not only would this increase Nike’s diversification because they are entering a new market, it would also create complimentary products. Nike would have an opportunity to sell more expensive shoes and bundle them with the headphones.
Corporate level strategy analysis/recommendations
Corporate level strategies are “choices strategic managers must make: (1) deciding in which business and industries a company should compete; (2) selecting which value creation activities it should perform in those businesses; and (3) determining how it should enter, consolidate, or exit businesses or industries to maximize long-term profit” (Hill, Charles 281). Nike takes advantage of this by having an ability to make changes in their value chain.
All of Nike’s products use the same resources and distribution channels. Nike uses vertical integration during the supply chain process when handling with producers, retailers, and providers (Soni, Phalguni). This is also an example of forward integration allowing Nike to increase their power over the suppliers. Considering Nike uses vertical integration they can “increase product differentiation or reduce industry competition when it (1) facilitates investments in efficiency-enhancing, specialized assets, (2) protects product quality, and (3) results inn improved scheduling” (Hill, Charles 290).
Although vertical integration has its benefits, it also has a chance to disintegrate; “when a company decides to exit industries, either backward or forward in the industry value chain, to its core industry to increase profitability” (Hill, Charles 293). Nike has yet to encounter vertical disintegration but considering it would increase their cost structure they are most likely avoiding this possibility. Nike provides products to its outlet stores, flagship stores, and retailers. They use vertical integration to sell a bigger range of their products at their flagship stores and give discounts at the outlet stores.
Nike has taken multiple stabs at vertical integration, but I believe a correct attempt at horizontal integration would also set them on the right path. Creating new products and brands is an example on horizontal integration, as stated before I believe that they would see benefits from entering the earphone and headphone market. Nike would have an opportunity to enter a new market and possibly integrate this new technology with their existing technology (Nike+ technology) to create a new audio product that would satisfy customers wants and needs.
International level strategy analysis/recommendations
Considering Nike has control over a significant portion of the domestic market they can go with an international strategy to increase growth. Nike uses exporting to “realize substantial scale of economies from its global sales volume” (Hill, Charles 262). Nike provides a manufacturing map that shows where the products are made, what materials are used there, how many Nike factories there are and the amount of factory workers. Currently Nike is producing finished goods in 41 countries with over 500 factories (Nike Manufacturing Map). Nike exports and imports their products to access “low-cost but highly skilled labor” (Hill, Charles 262).
In India, Nike “has made a proposal to the Department of Industrial Policy & Promotion under the commerce and industry ministry to set up fully-owned stores in India. Experts say the application by Nike is a sign of greater commitment of the brand to the Indian market. Fully-owned stores offer a lot more control over quality, consumer experience, and give freedom to the brand to choose locations for stores” (Soni, Shanil). Creating such a franchise means Nike “does not need to bear the development costs and risks associated with opening up a foreign market on its own, for the franchisee typically assumes those costs and risks” (Hill, Charles 264). Doing so will increase brand presence internationally at a low cost. One of the biggest disadvantages of Nike franchising in India is the lack of quality control. When you go to a McDonalds in Shippensburg you want the same experience at a McDonalds in New York. Same goes for Nike stores, but due to the lack of control Nike must monitor these franchises (like McDonalds does) to reduce the quality issue.
A recommendation I would make for Nike is improving working conditions globally. It is nice to see that they have a website designed to show the customers a transparent image of what the factories are like outside of the country. Although, it does not show the working conditions these factories provide. Improving these working conditions can increase the brand image locally (for the workers) and globally (sustainably). According to Jason Lemon in 2018, “A June report from the Clean Clothes Campaign (CCC) alleged that factory workers today receive even less of Nike profits than they did in the 1990s” and “in the three southeast Asian nations, average earnings for garment workers are 45 to 65 percent below the so-called “living wage,” according to CCC” (Kaepernick). Changing this would change the lives of the workers getting paid below “living wage” and show that Nike cares about the people creating their products.
- “Earphones and Headphones Market – Global Outlook and Forecast 2019-2024.” ReportLinker, Feb. 2019, Retrieved from www.reportlinker.com/p05289128/Earphones-Headphones-Market-Global-Outlook-and-Forecast.html.
- Hill, Charles W. L., et al. Strategic Management: An Integrated Approach: Theory and Cases. Cengage Learning, 2017.
- Lemon, Jason. “Social Media Users Call out Nike for Low Wages in Asia amid Colin
- Kaepernick’s Ad Promotion.” Newsweek, 6 Sept. 2018, Retrieved from www.newsweek.com/nike-factory-workers-still-work-long-days-low-wages-asia-1110129.
- Nike. “Nike Manufacturing Map:” Nike Sustainability – Interactive Map, Retrieved from manufacturingmap.nikeinc.com/#.
- Soni, Shanil. “Nike to Open Owned Stores in India.” Franchise Mart, 4 Sept. 2014, Retrieved from www.franchisemart.in/franchise/nike-open-owned-stores-india/.
- Soni, Phalguni. “An Overview of NIKE’s Supply Chain and Manufacturing Strategies.” Market Realist, 4 Dec. 2014, Retrieved from articles2.marketrealist.com/2014/12/overview-nikes-supply-chain-manufacturing-strategies/.
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