Nike Inc Environmental, Organizational Financial Analysis, and Business Strategy, Business Segment Performance - Example

Running Head: ANALYSIS OF NIKE INC. Analysis of Nike Inc Name Institution Date Table of Contents 1.0 Introduction ……………………………………………………………………………......... 3 2.0 Environmental Analysis …………………………………………………………………...... 3 2.1 Political Analysis ………………………………………………………………………......... 3 2.2 Economic Analysis …………………………………………………………………………... 3 2.3 Social Analysis …………………………………………………………………………........ 4 2.4 Technological Analysis ……………………………………………………………………… 4 2.5 Entry Barriers ……………………………………………………………………………….. 4 3.0 Organizational Analysis ……………………………………………………………………... 5 3.1 Strengths 5 3.2 Weaknesses 5 3.3 Opportunities 6 3.4 Threats 6 5.0 Financial Analysis and Business Strategy 7 5.1 Financial Analysis (2004-2009) 7 6.0 Conclusion and Recommendation …………………………………………………………………. 9 1.0 Introduction Nike is among the world’s largest sports equipment and apparel brands. Its manufacturer, Nike Inc., is a listed company, based in Beaverton, Oregon. It is the market leader in the sports apparel and athletic shoe industry and definitely a high performer. It has an overall labor force of over 30,000 across the world. Nike Inc. was established by Philip Knight and Bill Bowermanon in January 1964 and originally named Blue Ribbon Sports, later changing to Nike Inc. in 1978. In addition to manufacturing, it runs retail stores named Niketown. It sponsors many of the world’s top athletes and teams and has a famous trademark swoosh logo. The company has about 18,000 retail accounts within the United States alone and through collaboration with independent distributors, subsidiaries and licensees, operates in about two hundred countries (Firestein, 2006). Like any other international firm, Nike is faced with business challenges, especially the global economic downturn. Nevertheless, it has managed to uphold a steady growth since 2004 (Ramaswamy, 2009). This paper provides an analysis of Nike Inc., indicating the environmental forces acting on it and how it has managed to cope, emerging as the world’s leader in its market. 2.0 Environmental Analysis 2.1 Political Analysis There is the need for the government to come up with economic policies which will promote business growth. Nike has so far been assisted by American government policies that facilitate the advancement of its products. The support is especially granted in the form of macroeconomic stability, minimized currency adjustments, minimal interest rates and an international model of a tax system (Locke, 2008). These are important components of Nike’s success. 2.2 Economic Analysis So far, the greatest economic threat to Nike is the current economic recession. The American economy is at the moment facing a major downturn. There is shrinkage in consumer purchases. The economic crisis in Asia also impacts on Nike as its products are made in Asia. Labor costs together with costs of raw materials are also rising. The weakening of the Euro and recession in Asia lowers Nike’s sales. However, the aggregate sales results for athletic footwear have remained stable. The international market in this case compensates the variances observed in sales especially between the lean and peak times (Ramaswamy, 2009). 2.3 Social Analysis There is a raised level of health consciousness in today’s world. Issues such as exercise and diet are greatly emphasized. Consequently, more people are choose to join fitness clubs. This has raised the demand for fitness-related products especially exercise wear, equipment and shoes. Nike is a major beneficiary of the health awareness. It in the past however did not predict the problems that would arise from information about human rights abuses in Asian sweatshops, which contributed to a slowing down of demand (Morgan, Rye & Mirvis, 2009). 2.4 Technological Analysis The company adopts the use of Information Technology (IT) in its marketing procedures, for instance segmentation, innovation and differentiation. Its leadership is partly due to the application of IT at every stage of product development and distribution. Nike has been able to harness all the components of its environment to promote its marketing and as a result record considerable success (Taylor, 2002). 2.5 Entry Barriers There exists very high level of competition in the market and it is also characterized by a high level of maturity. Industry leaders are known. Such leaders, for instance Reebok and Nike are responsible for shaping the market. As a result, past leaders such as K-Swiss are almost invisible today. The stiff competition that exists has served to limit the entry of other competitors in the market. One other obstruction to entry is the Economies of Scale. So as to be competitive far and above the others, companies within the industry have to compete in every way for instance pricing, quality and production processes. The characteristics are hard to achieve in the absence of resources that can only be owned by established manufacturers. Yet another barrier is access to Traditional Distribution Channels. The leaders are clearly dominant in retail shelves. The smaller brands are considered by consumers as too risky when compared to the established names for instance Reebok and Nike (Locke, 2008). 3.0 Organizational Analysis 3.1 Strengths Nike has throughout time remained a competitive organization. It has been a major sponsor of some of the world’s most famous athletes, hence managed to gain impressive recognition. The company does not have any factories. Rather, its strategy involves non investment in buildings or manufacturing workers. Because of this, it has a very lean structure. In addition, it is good at study and makes development through which it possesses an innovative and ever-evolving product range. When prices go up and it is possible to produce the company’s products at a lower cost elsewhere, Nike moves its production there. Another major strength is the name being a global brand. Its famous swoosh logo is recognized everywhere (Ma, 1999). Among the company’s strengths is also its effective board of directors. The board is composed of two groups of people, independent and management directors. Having a dual characteristic in the board of directors is beneficial because it ensures that there is a combination of individuals who are directly involved with the company and external parties who bring with them a different form of experience, as a result of which the management is able to make decisions that are more outside the box. The board handles an oversight role in terms of formulation of strategy. The management analyzes the existing internal environment and comes up with decisions basing on such analysis. Due to the extensive marketing research that is carried out, it has been possible to continually upgrade the apparel segment in order to make it more fashionable (Taylor, 2002). 3.2 Weaknesses Identifiable weaknesses include the inadequate of diversity within its product range. Nike predominantly relies on its held share of the shoe market. This leaves it vulnerable to the negative possible effects of changes in the market. Secondly, the sports apparel and footwear sector is very sensitive to price. While Nike has its retailer, a large proportion of its income comes from sales to retailers. The retailers often provide very similar conditions to consumers. Margins end up becoming squeezed while retailers attempt passing part of the competition due to low price forward to Nike. The company’s inability to predict problems related to its factory and labor conditions at various of its factories abroad has also led to negative publicity hence reduction in sales, especially now that consumers and the society in general is demanding socially responsible organizations (Taylor, 2002). 3.3 Opportunities Opportunities offered include the characteristics of the brand. Nike is considered not to be a fashion brand. Consumers who wear it however at times buy them for non sporting uses. Some analysts note that Nike is indeed a fashion brand among the youth. This offers opportunities, as a product ordinarily loses its fashion value even before wearing out, for instance through replacing their worn shoes. Secondly, there exists the opportunity to come up with products for instance jewelry and sunglasses. Such products usually have high profit margins (Morgan et al., 2009). 3.4 Threats Threats facing the company include competition. Current competitive strategies are fast becoming outdated. Competitors are ever developing alternative brands that that would eat up Nike's niche. In addition, the firm is vulnerable to the internationalized nature trade. Transactions are made in various currencies margins and costs thus end up being unstable through long durations of time. This might imply the incurring of losses by Nike. Price competitiveness is also a threat. It implies that buyers always seek lower prices (Ramaswamy, 2005). The idea that buyers are able to shop around for better deals is in itself an external threat. 4.0 Business Segment Performance 4.1 Footwear The footwear segment accounts for 52% of the company’s revenues. Nike specializes in the manufacture of athletic footwear, especially for soccer, running and basketball. It also manufactures sporty casual shoes such as the Air Force Ones line. The sales for this segment have been on the rise, reaching 14% in 2008 or $9.7 billion. The growth of this segment is attributed to an overall 8% rise in footwear sales for Europe, Africa and Middle East (Locke, 2008). 4.2 Apparel This segment provides about 28% of Nike’s revenues. The company offers sports apparel for instance t-shirts, running shorts and branded apparel. The sales in this segment totaled $5.2 billion in 2008, an impressive 14.4% rise from the previous year alone. The growth trend in this segment is due to a 25% growth in emerging market sales and also in China (Morgan et al., 2009). 4.3 Equipment This segment accounts for 6% of total company revenues. Nike manufactures sports equipment for instance balls, golf clubs and protective equipment. The sales within this segment were $1.07 billion as at 2008, a rise of 9.5% from 2007. This was due to an 18% growth in sales around Europe (Ramaswamy, 2009). 5.0 Financial Analysis and Business Strategy 5.1 Financial Analysis (2004-2009) The company’s sales grew by 52% as from 2004, to $18.6 billion as at 2008. (just-style.com, 2009). The gross margin of the company has generally experienced growth in the five years beginning 2004. In 2006 for instance, it stood at 44%, dropping to 43.9% in 2007 and 45% in 2008. During the financial year that ended on 31 May 2009, the revenue experienced a tiny growth of only 3% at $19.2 billion. Its net income dropped by 21% to reach $1.5 billion. (just-style.com, 2009). 5.2 Reasons for the Performance (2004-2009) As from 2004 through to the year 2008, there was a consistent and rising trend in the company’s performance. As earlier noted, the level of sales rose to $18.6 billion as at 2008, a growth of about 52% with 2004 as the base year. The reason for this inclination was that there was an expansion mainly in footwear’s emerging markets. Here, there was a general improvement in the level of consumer purchases. Among the most significant aspects of its market segment were in china and Russia. In Russia, there was a noted rise of a about 25% in revenues while in the case of china there was a growth proportion of more than a half within the year 2008 alone. Within the Asia Pacific region in general, there was a marked revenue growth of 26% as at 2008, while in the case of Central and South America there was a similar growth by 21%. in the case of Europe , middle East and Africa, there was also an average growth of 19% while in the United States of America it was noted to have grown by 4%. Considering the population densities of the emerging markets, a growth in sales within them had considerable effect on Nike’s general pattern of growth (just-style.com, 2009). During the financial year ending 31 May 2009, there was only a slight growth of about 3%, although the revenues were at a large figure of $19.2 billion. This was because of small price increases that were implemented by the company. These led to the relative shrinking of demand. The trend was also due to the lowering of close-out sales. This was due to an improved corporate inventory management, especially as from 2007. The $1.88 billion net income achieved in 2008 was a 100% rise as compared to performance in 2004. The existing slowdown in the global economy has also had a considerable effect on Nike sales and is expected to continue doing so. During the first half of 2010, the negative effect is expected to continue even further (just-style.com, 2009). 5.3 Business Strategy Nike’s business strategy essentially seeks to always factor in customer needs in the products and come up with the most innovative ways of meeting the identified needs. As from 2004, the company has sought to develop its retail stores, consequently of which it has been able to sell its products at retail prices. Distributors and manufacturers together earn about 12% profit for every shoe while retailers earn 13%. Through retail selling therefore, Nike has been able to take up both revenue streams, amounting to 25% (Ramaswamy, 2009). Between 2003 and 2004, Nike’s market for its products grew by approximately 12%, translating to $7.5 billion. Between 2004 and 2005 however, it rose by 6%, or below $4 billion. In 2007, the sales growth was 2%, or $44.4 billion. This was due to a diminished consumer spending coupled with a growth in popularity for low-performance footwear. In spite of the slow growth however, the company has always remained in front of its competitors, with a 9% growth in sales during the first quarter of 2009 (Ramaswamy, 2009). Nike uses a combination of traditional and non-traditional channels of distribution in the almost 200 countries that it operates in. The primary markets however remain to be Europe, the U.S., the Americas and Asia Pacific. It has about 20,000 retailers across the globe. These include Nike’s factory stores, NikeTowns, Nike stores, Web sites and Cole Haan stores, all of which stock Nike's products. At the moment, the company holds 33% of the world’s market for athletic footwear. In an attempt to adapt to the rapid changes being experienced in the global markets, the company has modified its strategy. While it initially advertised while targeting the mass market, nowadays it focuses on specific identified sports markets for instance soccer or golf. Instead of having a distinction between apparel and footwear divisions, it is at present organized into the specific activities (Morgan, 2009). 6.0 Conclusion and Recommendation Nike is a successful company. It has a good mix of environmental and organizational features that have helped it to remain competitive. It has abundant resources, both human and capital, that have enabled the maintenance of effective operations. The emphasis on technological innovation and research has also assisted in maintaining a steady growth in spite of challenges. In order to boost the competitiveness further, there need for the company to diversify further. For instance it could develop and sell video games, jewellery and sunglasses thus helping to diversify its operations. There is also the need to strictly enforce codes of conduct among its suppliers and subsidiaries in developing countries. Scandals relating to poor handling of workers in factories are an evitable problem. The headquarters should thoroughly vet employee relations and workplace conditions of its associates so as to maintain humane standards. Further, the company should intensify its presence in areas such as Africa, as the markets there are underexploited. References Firestein, P. (2006). Building and Protecting Corporate Reputation. Strategy & Leadership. Vol. 34 Issues 4. Just-style.com (2009). US: Nike Q3 Profit topples 47% on Charges. Retrieved 8 September 2009 from  Landrum, N. (2008). A narrative Analysis Revealing Strategic Intent and Posture. Qualitative Research in Organizations and Management: An International Journal. Vol. 3 Issue 2. Locke, R. (2008). Beyond commercial regulations of Conduct: Work Organization together with Labor Standards at Nike's Supplier. Human Resource Management International. Vol.16 Issue: 1. Ma, H. (1999). Creation and Preemption for Competitive Advantage. Management Decision. Vol. 37 Issue 3. Morgan, G., Ryu, K. & Mirvis, P. (2009). Leading Corporate Citizenship: Governance, Structure, Systems. Corporate Governance. Vol. 9 Issue 1. Ramaswamy, V. (2005). Keeping Nike on the Right Track: The Knight Way to Manage. Strategic Direction. Vol.21 Issue 11. Ramaswamy, V. (2009). Up and Running: Nike Customers are the Secret behind Increasing Value. Strategic Direction. Vol. 25 Issue 6. Taylor, S. (2002). Longest Hang Time: The Jordan Brand's History is Proof that Nike Can Never Get Too Much of a Good Thing. Footwear News. Vol. 1. p20 Read More