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A SWOT analysis for Nike and there strategic capability

2795 words (11 pages) Essay in Marketing

5/12/16 Marketing Reference this

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Sustainable competitive advantage refers to the combination of elements of business strategy, which provides a company with substantial advantage over existing and future competitors (McLeish 2010). Since the current economic environment is characterized by increased competition, companies have no choice but to establish and maintain high levels of competitive advantage in order for their products to survive in the market and enjoy continuous profitability. The foundation of a firm’s competitive advantage is based on the available resources, company’s capabilities and the core competencies of a company (Hitt, Ireland & Hoskisson 2009). Company’s resources refer to a broad concept which encompasses the physical, human, social and organizational phenomena. An organization’s resources may either be tangible; physical assets which can be easily quantified or intangible; assets that are deeply rooted within the organization’s structure having accumulated over a long period of time. Intangible assets provide a company with increased competitive advantage since they are relatively difficult for competitors to imitate. Hence, an organization should heavily invest in intangible assets in order to achieve sustainable competitive advantage.

In a firm, capabilities exist when the available resources are purposefully integrated to achieve the pre determined tasks and objectives of the firm (Hitt, Ireland & Hoskisson 2009). Capabilities emerge from unique set of skills and knowledge possessed by the employees and evolves over time through constant development and transmission to the human capital within the firm. A firm’s core competencies are its capabilities that serve as a source of competitive advantage over its rivals. They are unique and distinguish a company from the rest of its competition in the industry by portraying the firm’s personality. Core competencies in firms develop over time through the process of accumulating and learning how to efficiently utilize various resources and capabilities. This often leads to innovations and inventions which promote efficiency within organizations. Sustained competitive advantage can only be achieved when rival firms are unable to imitate or duplicate a firm’s benefits of its strategies (Hitt, Ireland & Hoskisson 2009). Therefore, companies should seek to maintain high levels of competitive advantage through their capabilities, core competencies, and efficient use of the available resources.

Aims and Objectives

Nike, a Unites States based company which develops and supplies sports footwear, and apparel across the globe is a good example of a company that has established and maintained its competitive advantage through the above criteria. One of the major goals of NIKE is product innovation and product improvement (Lamb, Hair & McDaniel 2008). Through this innovation and constant product improvement, the company seeks to create business opportunities that set it apart from the rest of its competitors. Nike operates in more that 160 countries and employs an approximate one million people both directly and indirectly around the world (Nike 2010). This results in an increased need for the company to maintain its competitive advantage through its suppliers, shippers and other service provider who are in contact with final consumers. The company’s current competitive strategies are deemed relatively efficient since it remains as one of the most profitable companies in the industry. This is primarily due to Nike’s ability to withstand competition from other major firms in the industry such as Adidas and Puma through extensive strategic planning which has promoted its continuous ability to deliver unrivalled products in the global market.

The following study focuses on Nike’s strategy to achieve and maintain competitive advantage in the global market through strategic application of its capabilities as well as efficient utilization of both tangible and intangible resources within the company.

SWOT Analysis for Nike

Nike is a highly successful developer and supplier of athletic and sports wear and by 1998, the company controlled over 40% of the footwear market in the United States (Vogel 2006). Its strength lies in its brand name and reputation for high quality products and innovation. The company has gained world wide recognition for its innovative marketing strategies which features sports icons such as Tiger Woods and Michael Jordan. Being a very highly competitive organization, Nike’s move to sponsor top athletes in Olympic Games as a move to counter Reebok’s strategy of sponsoring the Atlanta Olympic Games was a clear indication of the company’s superior strategic planning which consequently earned it world wide recognition (Adam 2009). Nike’s brand name and the Nike’s ‘Swoosh’ have gained high recognition in the world market and it is widely acknowledged as the number one sports wear brand in the world (Adam 2009).

However, contrary to the practice of most modern organization, Nike does not embrace the culture of diversity. Even though the organization deals with diversified range of sports wear, the company’s income is heavily dependent on the sports wear market share which renders it highly vulnerable to rapid market changes. Nike’s labour conditions raised a lot of concerns when the media unveiled incidences of labour exploitation and child labour in the contractor factories and this negatively impacted on the image of the company. In 1996, life magazine published a story about child labour in Pakistan which featured a young boy stitching a Nike Soccer ball (Vogel 2006). Further, a report released by Earnest & Young in 1997 revealing that the workers in Vietnam producing Nike products were constantly exposed to hazardous materials proved more damaging to the company’s image in an age when foreign labour abuses had become the major focus of human rights movements.

Nike’s opportunities range from the Company’s global recognition which provides it with greater opportunities to venture into new markets. Nike can also diversify its processes by developing other sports related products such as sunglasses and jewellery which would increase the company’s revenue and profit margins. In addition, the company has an opportunity to capitalize on its Nike + technology in which a sensor placed on Nike’s foot ware interacts with Apple’s IPod to record distance covered as well as the calories burned by a runner (Kimball and Lussier 2009).

Threats: It is difficult to achieve price standardization in a global economic environment characterized by massive economic and currency fluctuations. Nike sells its products in different regions which are characterized by economic instabilities and this considerably reduces the profit margins (Adam 2009). The textile industry is also associated with some level of environment degradation. Therefore, Nike has to strive higher in order to acquire and maintain an eco friendly reputation. The retail sector has also become increasingly competitive with rival companies reducing prices as a means of attracting a larger consumer base. This poses a potential external threat to Nike as a response to such price changes may reduce the company’s profitability. Nike also faces a major threat emanating from the Adidas-Reebok merger. Adidas-Reebok signed contracts with NBA and NFI for apparel business which threatened to overtake the competitive advantage possessed by Nike.

Nike Capabilities and Their Contribution to Its Competitive Advantage

Michael Porter identified five competitive forces that are present in any competitive environment (Lussier & Kimball 2009). There exists rivalry among competing firms in the same industry and the firms compete for customers through price, quality and speed. Nike faces competition from Adidas-Reebok, Puma, and Fila and the company has to develop strategies through which it can overcome such competition. Potential development of substitute products and entry by new competitors also poses a major threat to the overall performance of a company. Bargaining power of a firm’s suppliers is therefore essential in determining its eventual returns. For instance, Nike uses private contractors to develop various products which awards them a great deal of power over these plants since it can easily switch factories (Lussier & Kimball 2009). Consumer satisfaction is the key to long term success of a business. Nike largely depends on its consumers for its profitability. Consequently, the company continues to offer high quality and appealing products in order to enhance consumer loyalty. In order to achieve and maintain competitive advantage, strategies applied by Nike must translate to capabilities of the firm and its external environment. Strategic planning highly facilitates in the creation of competitive advantage within the organization. This entails the strategic application of Nike’s unique capabilities and core competencies to the company’s advantage.

Nike’s branding outline’s the company’s personality and gives them the competitive edge in sports footwear, equipment and the apparel market (Graham, Roth & Dugan 2008). The company’s superior brand provides an opportunity for greater organizational capability for marketing its products. Hence their products are more popular among the consumer which is evidenced by Nike’s high market valuation relative to its rivals. Nike’s advantage further lies in the world wide recognition of its brand name and swoosh symbol which gives it a world wide status symbol. Their marketing commercials give the potential consumers a viewing pleasure that portrays Nike as a company committed to something broader than its own self interests. In addition, the company’s marketing strategy of integrating the Swoosh into the cultural fabric of sports proved very effective and paid off handsomely in the mid 1990s which saw the company’s annual growth increase to 40% (Papson & Goldman 1998).

One of the major capabilities of Nike lies in its core competencies in research and development (Snow & Miles 2001). The company has heavily invested in staffing itself with specialists such as bio mechanics, industrial designers, and exercise physiologist among others. With this pool of expertise, the company is able to remain at the fore front in Athletic foot wear research and development and has largely dominated product innovation and development in the industry. Further, the company consults key figures in the world of athletics that provide them with relevant information regarding consumer expectations on their products. This has promoted the company’s ability to develop cutting edge products that meet the needs of serious athletes as well as set fashion trends (Thomas 2003). Research specialists in Nike conduct extensive research and testing in order to develop new technologies that aim at improving their products’ performance and enhancing consumer satisfaction.

The economic challenge for many firms in sportswear industry involves balancing consumer demands for new and innovative products with pressures of increasing profitability (Thomas 2003). Manufacturing high tech products in diversified regions such as the South East Asia substantially reduces operational costs for Nike due to reduced labour costs and the presence of better developed supplier network.

Evaluation of Nike’s Strategic Capability

Ratio Analysis

Nike has continued to register higher financial performance in the recent years in comparison to its rivals. According to the Bloomberg Business week, as of May 2006, the company’s total revenue amounted to US $14,954.9 million and continued to increase in the subsequent years such that as of May 2009, the company recorded total revenue of US $19,176.1 million (Business week 2011). The net income also increased from US $ 1,392.0 million in 2006 to US $ 1,487 million in 2009. However, in 2010, Nike recorded total annual revenue of US $ 19.0 which marked a 0.8 % decline from the previous year (Business Week 2011). In contrast, Adidas attained total revenue of 10,084 million Euros in 2006, and as at the end of 2009, the company registered total revenue 10381 million Euros (Business Week 2011). The total income amounted to 483 million Euros in 2006 which drastically reduced in 2009 up to 245 million Euros. Adidas poses a major competitive threat to Nike especially after its merger with Reebok. This calls for extensive strategic planning on the part of Nike in order to maintain its superior competitive advantage in the industry.

Value Chains

Value chain analysis allows a company to identify the parts of its operations that adds value to it (Hitt, Ireland & Hoskisson 2009). Analyzing the activities that add value and those that do not is important because a company can only achieve high returns if the value created is greater than the cost incurred to generate the said value. The fact that Nike operates in numerous regions across the world demands for critical examination of value chains in a global context. The company has developed on a business system that has reconfigured the traditional shoe manufacturing value chain (Grant 2005). The company itself does not manufacture sports footwear. Rather, its contractor factories manufacture Nike’s products on their behalf hence Nike leaves the actual manufacturing element of the value chain to other companies. The company’s primary focus is therefore centred on vast and complex global network which involve extensive market research and design. This has enhanced the company’s competitive advantage over its rivals since it is able to concentrate more on improving consumer products through designing and constant improvement. In addition, the outsourcing strategy facilitated in the reduction of overall operational costs by venturing into regions that have low labor costs such as South East Asia. In contrast, its rivals such as Reebok both designs and manufactures its own products hence reducing the opportunities for extensive market research. Nike on the other hand focuses on designing and marketing elements of the value chain which helps it to create a sustainable competitive advantage over its competitors.

Nike’s impressive performance cannot be solely attributed to its strategy of production outsourcing in Asia. In fact, all its competitors have outsourced in South East Asia which has also provided them with cheap labour. Instead, Nike outperforms its rivals with its unique business model in which its brand name dominates its marketing strategy and signifies high quality and stylish sports footwear and apparel making it the most superior brand in the industry (Rugman & Verbeke 2005).

Nike is a lean organization with no factories of its own. In 2000, Nike contracted with over 500 different footwear and apparel factories across the world (Thomas 2003). These contractor factories must abide by Nike’s code of conduct which defines the factory’s obligations to workers and the company (Nattrass & Altmare 2002). Nike also established an education initiative in 1997 which provided an opportunity for contract workers to receive higher education. Nike’s impressive performance has seen the company receive numerous quality awards which have further promoted the company’s image among the consumers. For instance, in 2010, Nike was named among the top 100 corporate citizens and it was also named among the world’s top sustainable stocks (Nike 2010). The company’s brand name also plays a major role in promoting the company’s competitive advantage. Nike should therefore utilize its tangible and intangible resources efficiently in order to sustain its competitive advantage.

Manager’s Role in Development and Management of Capabilities

Management of capabilities within an organization entails data gathering and Interpretation, goal setting, resource allocation, and coordinating activities that managers undertake in acquiring, developing, and deploying an organization’s capabilities (Morecroft, Sanchez & Heene 2002). Competence based management theory addresses the real issues that managers face in the task of managing organizations. These issues are complex primarily due to the dynamic nature of the modern economy, systemic interrelationships that exist between resources and capabilities within organizations, the increasing need to develop a holistic view of the intersecting interests of resource providers and capabilities within organizations, and the cognitive challenge that involves striking a balance between organization’s resources and capabilities and the human resource (Morecroft, Sanchez & Heene 2002). Competent managers are therefore expected to cope with these fundamental aspects of the management task which are the four cornerstone of effective capability management.

Nike is one of the largest suppliers of sports foot wear in the world. The company emphasizes on supply chain management where managers focus more on marketing expansion, developing client management skills, and development of market-facing structures within the organization (Salaman and Asch 2003). The company’s management utilizes its engineering capabilities by mobilizing its pool of skilled engineers to develop innovative designs that meet the consumer’s needs. In Nike IHM, Inc the unique staff of professionals design specialized equipment and formulate unique blends using cost effective means which not only to provide cheap products to the consumer, but also ensures that such products are of high quality which consequently promotes consumer loyalty (Nike 2010). Nike’s management is also focusing on increased diversification whereby it lends its highly competitive brand name to an increasing range of products (DavenPort, Leibold & Voelpel 2006). From eyewear to golf instructions centres, Nike has evolved into a marketing service provider to companies in other industries hence taking its competitive advantage to a whole new level.

Conclusion

Due to increased competition in the modern economic environment, the importance of building sustainable competitive advantage is continuously being emphasized. Companies have developed strategies through which they seek to achieve competitive advantage by utilizing their resources, core competencies and capabilities to their advantage. In our study, Nike provides a clear evidence of the positive outcome of such strategies to overall business performance.

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