PEST Analysis of Nike - Term Paper Example

Teacher: PEST Analysis of Nike Summary Nike is a world-renowned company, and as a result, the company must focus on the macro aspect of economics. The firm must analyze and develop its strategies based on Political, Economical, Societal and Technological factors, which are referred to as the PEST analysis. The fact that the company is ambitious on reaching a large market, which is not only situated in its parent country (United States), it must use PEST to formulate strategies that are fundamental in maintaining as well as grow its customer base. As a supreme brand, Nike must seek to establish measures that will maintain its reputation and positive image in the global limelight. Political Analysis The US government has sought to create economical policies that are essential to foster the growth and development of business that either are situated or have their headquarters in the United States. Nike is a major beneficiary of these policies that have been implemented by the US government. In order to support the Nike brand, the US government has established fundamental measures that include low interest rates, an international competitive aspect of the tax system, stable economic environment, and vital economical resources for the benefit of the company. This has demonstrated to be a factor in the development of Nike. 1(Thottam, "A New Push against Sweatshops") The nature of the political situation in various countries is a vital factor that has played a part in the growth of Nike into a multinational company. The organization has expanded to China, which boasts of a highly stable government and political environment. It has proven to be a vital factor that has motivated the US Company to establish a plant in the country to reach a larger audience, especially in the eastern region of the world. Political stability in a country is critical in terms of establishing a solid platform for business growth in a region. A lack of political stability will generate uncertainty regarding a business’ future and hence a company will not seek to develop in a country posing political uncertainty. Economic Analysis The biggest problem that serves to affect the level of a company’s business is recession. When the latter occurred, Nike was adversely affected thus reducing its growth. With the US economy facing a down turn, it has resulted to reduction in consumer purchases. Consequently, this has affected the sales volume for the company. Nevertheless, Nike being a multinational company is able to rely on sales from other regions, particularly Africa, which was not as much affected by the recession 2(Stepp, "Nike is Right"). The main problem with the case of the recession is that it affected other regions such as Asia and Europe. Nike has a high volume of sales in Asia and Europe, in comparison to Africa. The fact that Asia has a high population density and Europe has popular sports brands, the sales level was adversely affected. Nike was among the companies that suffered from this recession. The recession limited the growth of the company, and may have resulted in the company having to close a number of stores in various regions to avoid continuous loses. Aspects such as labor costs and materials for production were increasing, which meant that Nike was constantly in the red (recording losses). If the situation continues with the weakening of the Euro and the Asian currencies, Nike may be in a recession as well based on shrinking growth, and Africa may not be the ideal solution in maintaining company sales (until Africa is eventually affected by the Recession). Society Analysis The general trend in society is the concern on health. The major stereotype in the United States is the fact that there are an increasing number of obese individuals. This has led to the increase in individuals joining fitness clubs. Nike can seek to capitalize on this factor by selling merchandise that is essential to those seeking to join fitness clubs. Shoes, overalls and accessories such as water bottles are essential for people who seek to exercise. This can increase the company’s sale and as a result, Nike would able to recover from the recession effect. As much as this may have been the case in the US, there was a major problem in Asia. The factories in Asia displayed poor working conditions, which brought the reputation of Nike in disrepute. The labor and working conditions were considered highly unsanitary and unsafe for human activity. The bad publicity created another cause for Nike to suffer a decline, which meant that the firm had to increase or improve its social responsibility by establishing better measures that will cater to the labor force in the manufacturing plant(s) in Asia. 3(Bernstein, "Nike's New Game Plan for Sweatshops") Technology Analysis Nike is highly involved with integrating technology, especially IT into its element of operation. The firm applies information systems as a tool for innovation, market segmentation, as well as different measures that separate the company from its competitors (establishing uniqueness in the products and the brand as a whole). As the leader in sports brands, Nike is highly reliant on Information Technology to create products, and distribution of the latter 4(Thottam, "A New Push against Sweatshops"). Using technology is highly important for fostering innovation in products; Nike uses technology to take steps that relate to improving products for the benefit of its customers. The company uses actual athletes in developing products as their products are mostly used by athletes. They provide essential feedback (market research) on how the firm’s products can be altered cater for the needs of athletes. In taking a step further, Nike applies technology to modify the products to suite athletes. The products that the company develops can be used by other customers who adore the athletes that use the company’s products. In fact, technology is important in improving the performance of athletes and customers, based on the sporting activities that they carry out. Market Analysis Nike has a prime focus on doing businesses with large sports companies, businesses and famous athletes. The reason for their strategy is based on creating products that appeal to the sporting companies and athletes, because their popularity is the basis of free marketing to their supporters and fans. The latter seek to have an affiliation to the athletes by purchasing attire and equipment that is used by athletes. It makes Nike’s marketing strategy easy and convenient in saving advertisement costs. The main market for Nike is the European market, where there is a lot of demand or popularity for various sports businesses. Football (soccer) teams such as Manchester United, Barcelona and even Arsenal are just a few of the popular soccer teams that are sponsored by Nike. Several individuals seek to buy their shirts and Nike generates revenue from the sponsorship. Industry and Current Strategy Nike strives to ensure it is ahead of its competition; hence it has become highly reliant on the use of technology to take their products to ‘the next level’. They have enhanced their sports products based on improving athlete performance. To achieve this, Nike uses the elements of science that would apply in increasing individual performance. For example, for sprinters such as Tyson Gay (famous American 100m sprinter), Nike developed a running outfit that is more aerodynamic and suited to cooling his body as he sprints, to allow the body to function effectively. His running shoes are designed based on lightness and comfort to increase speed and focus (cannot focus if the shoe is not comfortable). Nike has integrated aspects such as wind tunnels in their production in enhancing the aerodynamics of their products. It is the reason why the current strategy is based on technologically advancing their products. Porter’s 5 Forces Analysis Supplier Power: Level of supplier power is undermined by the buyer power, and hence they are focused on providing the Nike products based on demand. The general factor that limits the supplier power is based on the number of other sports brands such as Adidas, Umbro, and Lotto among other brands. The consumers all consider Nike to be the supreme brand, and seek to obtain the firm's products whenever possible. However, the availability of substitutes indicates that the buyers are not willing to spend unreasonable amounts of money on products, hence limiting the supplier power regarding selling products. Suppliers have limited power in selling Nike products due to the Brands power and alternatives. The suppliers will be influenced by consumer and not vice versa (supplier power influencing consumers). Buyer Power: There is a significant amount of buyer power when dealing with Nike products. This is based on the aspect of the availability of alternatives. This serves to limit the supplier power. The buyer power can be considered the reason that Nike moved majority of its production to China, where production costs are significantly cheaper. This has served to make some of the products cheaper. However, some products are still expensive, but it is because of the materials used in manufacture. The expensive products such as football boots are designed to increase an individual’s performance, and buyers are attracted to this factor, especially for the athletic consumers. Competitive Rivalry: Competitive rivalry is common for Nike. It can be considered that Nike only has the edge over Adidas, who have fierce competition with Nike for sports brand supremacy. Other companies such as Reebok, Umbro, Lotto, and Diadora are all part of the competition, but Adidas is considered the sole competitor that can dethrone Nike as the supreme sports brand. This competitive rivalry serves to push Nike to push the envelope in terms of product innovation as a measure of maintaining their supremacy. Even though Nike can be considered the leading sports brand, Adidas can be considered to be on level par with Nike. The Two brands dominate the sports brand, owning as much as 80% of the market-share. Therefore, Nike must always push the brand to greater heights, because Adidas is not far behind. One slip can adversely cost Nike, to come out second best to Adidas. Threat of Substitution: There is a huge threat regarding substitutes. The rival company Adidas produces every product that Nike produces, hence the major reason for the fierce competition. As a result, Nike has sought to empathize on applying technology to develop products that will make superior to other products. The aim is intent on limiting the numerous substitutes available by aggressively advertising and developing superior products that are better than the substitutes available. The use of sponsorship deals and using popular and admired athletes serves as a strategy to limit the possibility of losing consumers to other competing brands. Threat of New Entry: The saturation of the market (too many competing brands), implies that it will be difficult for new brands to establish a share of the market and they may close a few months of entry into the market. There are too many competitors in the current market and it limits the possibility of new competition. Another factor is the dominance of Adidas and Nike. The two brands have become household brands, and affecting their dominance will not be possible. Nike has a large grip on the market, and the only threat they face is Adidas. New competition will have little or no effect on the success or consumer volume of the Nike Brand. Conclusion The PEST analysis is crucial in providing an in-depth understanding of how macroeconomics is influential in the operations of Nike. Market analysis and industrial analysis are pivotal in the operations of the company and they are an indication of how important the organization must adhere to them in order to strategize how to improve the company. Some of the aspects are uncontrollable (Political and Economical); however, the company must use ideal strategies that will ensure that it can handle the change in any given situation. I believe that the aspects of strategy and the ideologies that the company utilizes are intent on implementing will serve to increase their profitability and appeal to the public. I say this because the global evolution is based on advancement in technology. With Nike using technology for product advancement, it will ensure that the company will continue to grow in both profits and market, ensuring that it is ahead of its competition Work Cited Thottam & Jyoti, A New Push against Sweatshops. TIME. 7 Oct. 2005. Web. 29 Feb. 2012. Stepp & William, Nike is Right, Mises Institute, 14 Mar. 2001. Web. 29 Feb 2012. Bernstein & Aaron, Nike's New Game Plan for Sweatshops, BusinessWeek. Web. 20th Sep. 2004. Web. 29 Feb. 2012. Read More