Free Case Study About Nike. A Global Company
Researchers forecast that the world sports wear industry may exceed $126 billion in 2015. The market is determined by a trend to more active, healthier lifestyles, with women and older people getting more active.
According to Pearson (2014), the sports and fitness clothing market of the world is very fragmented, there are a lot of brands, from simple cheap brands to very expensive prestigious names. In such an environment, even very successful brands must work hard to keep their market share. Challenges that sports apparel companies face include tough competition, changing trends in fashion, and price-conscious consumers.
The fitness and sports wear market of the US is the world’s largest. The Asia-Pacific and EU are far behind the United States in terms of their market share. The world’s market of sportswear is very competitive. Main players in the market are Adidas, Reebok, Nike and Puma (Pearson, 2014).
Nike is a US company, one of the biggest market players, that has a very good reputation throughout the world due to the quality of its products; it offers competitive prices at the same time. Nowadays, every person, even a child, knows Nike and usually prefers to purchase its products among other brands. Nike sportswear is comfortable and affordable for almost everybody.
The company’s history begins in the early 1960’s and shows its dynamic development during more than five decades. According to Lin and Lin (2009), NIKE, Inc. was established in 1962 as a Japanese shoes’ importer. Its founders, Phil Knight and Bill Bowerman, were working as partners and the name of the company was Blue Ribbon Sports. Today, Nike possesses a share of global sportswear market of approximately 37%. The products of Nike are sold by approximately 22,000 retail shops in the United States and in over 160 countries around the world. There are four segments of products in the company: footwear, equipment, apparel and other. These segments of products make 52%, 28%, 6% and 14% of the revenue of Nike respectively.
The company sells its products under the Nike brand as well as Nike Pro, Nike Golf, Nike+, Nike Skateboarding, Air Jordan and subsidiaries including Hurley International, Cole Haan, Converse and Umbro. Bauer Hockey (later - Nike Bauer) was also owned by Nike in 1995-2008. Besides manufacturing equipment and sportswear, the company owns Niketown retail stores. Nike sponsors different sports teams and athletes around the world (Lin and Lin, 2009).
Nike moved into “other sectors also (sports and apparel equipment) and extended its sales to Latin America, Europe and Asia” (Locke, 2002).
Nike is involved in various things: “a manufacturer of consumer goods, a product designer, a corporate responsibility leader, brand communicator, a portfolio of authentic brands. Nike’s business everywhere has a singular focus on innovation” (NIKE, INC. A GROWTH COMPANY, 2015).
According to Lin and Lin (2009), Nike is a very energetic and competitive company. The reason why Nike has very strong competitive advantages is because its products are produced at factories in Asian countries, where the cost of labor is low. Thus, they can concentrate on project research and marketing image. It is probably the most successful sports brand in the world. Their well-known slogan “Just Do It” is popular in the whole world” (Lin and Lin, 2009).
Nike cares not only about its profits, but also about the sustainability and social responsibility. Responsibility and quality are the main things for Nike, and this is one of the main reasons for company’s popularity and global success.
The internalization of Nike began due to the global trend to outsourcing of the production in order to keep the prices and quality on the reasonable level. Many companies working in the different fields seek where to manufacture their products for the lowest possible prices. One of the best regions for production outsourcing is Asia.
According to NIKE a global company (2015), the history of Nike as an international company began when it established a subsidiary in Taiwan (1975), now it has offices all around the world. Almost all shoes of Nike brand are manufactured in Asia. Nike does not produce their products themselves; they use contractor companies for production. All of the raw materials can be supplied in the contracting countries, but most of the technology development is performed in the United States.
Now Nike is a popular and successful brand. Its expenses on brand marketing make US$1 billion every year that is equal to 10% of the total revenue of brand (NIKE a global company, 2015).
Nike is a global company. The main reason for its globalization was the outsourcing of its manufacturing outside the United States.
Now most researchers and business people speak more about the pros of globalization. This process has also its cons, but they are less significant compared to the advantages.
As we can read in the research of Manolică and Roman (2012), globalization of multinational corporations has many advantages, including their own international network production system. These companies try to improve the opportunities available due to the certain production factors existence that can be successfully used in various countries. They are flexible that allows quick change or modification of strategies. Globalization provides transnational corporations with the opportunity to concentrate on the most profitable operations, with a positive trend of development in the coming future (Manolică and Roman, 2012).
Nike does not produce its products. According to Beder (2002), the company only markets and designs them. Around 550,000 employees work in 50 countries in 700 factories to manufacture products of Nike. The cheap labor force makes possible for Nike to spend large amounts on marketing and design, provide large salaries for executives, have large profits, and maintain the price of the shoes, which the middle classes can afford in many countries. Products, the price of which is $16.75 to produce, are sold in the United States for approximately $100” (Beder, 2002).
According to Lin and Lin (2009), around 80% of Nike contractors’ workers are 18 to 24 aged women. Nike employs Asian manufacturers for most kinds of its production. Now the contract factories are situated in Vietnam, China, Thailand, Indonesia, and etc. The right of labor is among the most significant issues for Nike. Nike has implemented principles for standard maintenance. For instance, when the child labor issue happened, Nike has proclaimed that no workers under the 18 years old age are allowed to manufacture footwear, equipment or accessories. No one worker under the minimum required age can be employed.
Advantages of globalization include, according to Globalization (2015), rapid increase of productivity in case countries manufacture services and goods in that they have a comparative advantage; standards of living may go up quickly; cheap imports and global competition provide a lid on prices, so inflation is most probably will not derail the growth of economy; an open economy gets fresh ideas and innovation from other countries; export activities often produce more income than other activities (Globalization, 2015).
Nike has been a global company for several decades already. At the beginning, its products were popular only in the United States, but later the company expanded their markets to the world extent.
As we can read in the research of Locke and Siteman (n.d.), according to the legend of the company, the business model of Nike was created by Knight, when he attended Stanford Business School in 1960s. Knight realized his plan while high-quality, lower-cost Japanese manufacturers were starting to take over electronic and consumer appliance markets of the United States, the leading footwear producers (for example, Adidas) were still producing their shoes in the countries with higher-cost labor, like Germany and the United States. By contracting shoe manufacturing to lower-cost producers in Japan, Knight thought that Blue Ribbon Sports might undersell their competitors and enter the market. Consequently, Blue Ribbon Sports started to import high-quality sports shoes from Japanese Onitsuka Tiger. Together with the sales growth to around $2 million in the 1970s, Blue Ribbon Sports stopped working with Onitsuka and started to subcontract its own shoes line.
The brand of Nike was established in 1972, and in 1978 the organization changed its name to Nike, Inc. officially. Nike developed a good relationship with two manufacturers of shoes from Japan, Nihon-Koyo and Nippon Rubber, but as prices/costs increased during 1970s in Japan (due to a tighter labor market combination, the influence of the first crisis on the economy of Japan, and a change in the yen/dollar rate of exchange as a consequence of “Nixon shock”), Nike started to look for the other, lower-cost manufacturers.
During these years, Nike established its own factories in New Hampshire and Maine, intending to create a high-quality and reliable supply source for increasing domestic market. The organization also began to develop relations with the potential suppliers from Thailand, Korea, Taiwan and China. By the 1980s, when costs continued growing in the United States and Japan, and when the government of Korea created several of incentives to increase footwear manufacture in Korea, Nike closed their factories in the United States and purchased almost all of the products from Asian countries. In the early 1980’s, 86% athletic footwear of Nike brand came from Taiwan and Korea.
Later, as Taiwan and Korea also started to develop, labor costs began increasing there also. Consequently, Nike asked its contractors to move to other countries with lower-cost labor. The company cooperated with its most important suppliers to start producing plants in China, Indonesia and Vietnam. With the help of significant orders quantity guaranteeing and by relocation of Nike employees to the new countries in order they can control production and product quality processes, Nike helped its vendors to create a large footwear factories’ network in the Southeast Asia (Locke and Siteman, n.d.).
At the moment Nike still has many subcontractors in the Asian countries that helps the company to keep its position in the market and develop successfully.
Nike is a very strong brand. “Nike is one of the 100 Best Corporate Reputations in the World” (Global RepTrak™ 100, 2015).
Brand loyalty is a function of attitudes and behavior. According to YEE and SIDEK (2008), it is a preference of a consumer to purchase a certain brand in a category of product. It happens as consumers are convinced that the brand has the right image, product features, or quality level for the good price. Buying habits are created on the basis of this perception. Consumers first try one product of the brand and, in case they are satisfied with it, they continue purchasing the same brand as it is familiar and safe.
Brand loyalty factors include “product quality, brand name, style, price, promotion, store environment, and quality of service” (YEE and SIDEK, 2008).
Nike listens to its consumers’ opinion. According to Ramaswamy (2008), consumers no longer need to be passive users of the propositions offered by the companies. They are now connected, informed, networked, and empowered to express their thoughts, thanks to engagement platforms and search engines (e.g. Google), the increase of interest Internet-based groups’ quantity, and widespread social interaction and communication technologies. Consumers have learned how to make their ideas and opinions heard with the help of these tools and how to be involved into the process of value creation” (Ramaswamy, 2008).
The US sportswear manufacturers keep the largest share in the market. Similar to the other US companies (e.g. Adidas and Puma), it is very popular also due to the fact that it is a US company. Everybody knows that most well-known sportswear brands come from the United States.
Nike uses outsourcing strategy very actively. As mentioned above, it makes possible for the company to keep the prices and quality on the reasonable level. We can also speak about the positive sides for the countries where the production is located. For example, it adds a lot of working places that is very helpful to some Asian economies.
Globalization is changing the ways, in which interaction of nations occurs. Local economies get integrated, as the capital and goods flow across borders increases (Hanson, 2001).
A practice of outsourcing can be defined as having a high mobility level of, it may be attracted in a country easily, but it can leave the country also quickly (Alexandrova, n.d.).
There also moment when Nike should be very attentive to its international subcontractors. “The globalization perils are working conditions, wages, work safety and the rise of the AntiNike movement” (Locke, 2002). There were several issues with Nike, when the subcontractors used the child labor at the factories that caused a lot of problems for the company and its reputation.
Nike also created its code of conduct in 1992 and have obliged all the contractors around the globe to comply with it, because its goal is to provide the standard to follow in case they would like to work with Nike (Unc.edu, 2015).
We can conclude that Nike is a successful company and a very strong brand. There are many reasons for it including its policy, management, staff qualification and constant working on innovations. But one of the most significant reasons for its continuous fame is correctly organized outsourcing and supply chain. According to Guthrie (2012), an effective supply chain is responsive to priorities of changing by keeping schedules on time, costs in line, and, that is more important, providing companies with the possibility for growth” (Guthrie, 2012).
According to the information of Sportswear Sector M&A update (2014), the global market of sportswear has powerful and clear trends, which have provided significant tailwinds for the growth or sector. While the market of the United States is still the largest sportswear market by its size, sportswear is getting a global, emerging market with the increase in such districts that are expected to achieve high-single to mid double-digit pace during the coming few years. The most important trends in the industry are as follows: rising wellbeing and health awareness throughout the world, active participation in sports rates increase, technically advanced and innovative products development and casual design popularization” (Global Sportswear Sector. M&A update, 2014).
The decision to globalize and to outsource its manufacturing process was crucial for Nike’s development. Besides ensuring competitive prices and high quality of products, it was also very helpful to popularize Nike products worldwide and make the company as strong as we know it now. Current trends in the market confirm that the business will grow and the demand for sportswear will increase. The main reasons for it are the changing lifestyle trends, accepting of the more casual style by the offices and increase of the people quantity willing to practice sports. By the moment no obstacles are seen for the Nike to remain one of the best brands in the world and to develop further.
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