A PEST analysis Essay
Political and Legal Forces – The European Commission wants to assist new European footwear manufacturers into the market by imposing a combination of quotas and tariffs on shoe imports from China and Vietnam. This may push production costs higher as cheap labour may not be legally available to mass produce Nike’s footwear. This will result in Nike having to increase the selling price of the footwear to accommodate the higher production costs.
The legal framework put in place by the EU has also prevented companies joining forces to reap monopolistic profits and controls the size of companies to prevent excess market power of any particular company. Economic Forces- Nike trades internationally and so is exposed to the nature of international trade. “It buys and sells in different currencies and so costs and margins are not stable over long periods of time” (Marketing Teacher). This means Nike may be manufacturing and selling at a loss, however this situation is apparent for all Global companies.
Social/Cultural Forces – the UK currently adopts a fat culture which could result in less consumers of sport goods but there has been government schemes and a push by the UK economy as a whole to be more healthy
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Technological Forces – Nike continue to be innovators in the footwear industry and strives to innovate the best footwear and sports apparel possible. Nike were one of the first company’s to implement the idea behind Nike ID footwear, which offers customised footwear created by the customer on the company website. Other technologies have been innovated by Nike such as the air cushioned soles that first recognized Nike as being a footwear innovator. Footwear is becoming more and more advanced and it is crucial that Nike continue to develop new ideas and designs to cater for the consumers.
Advertising is more predominant in everyday life and media can be delivered via internet, television, radio and other technologies so it is easier for companies to promote their products. Micro elements can be split into four categories. In the following categories I have explained the microenvironment within which Nike operate and the way each category affects Nike: Customers – Customer needs are changing and it is important that Nike keeps up with current trend and fashions.
Nike have endorsed footwear with famous sports people which sells the product itself and Nike often set the trends however it is important to stay ahead of the fashions so constant research and development is needed to stay competitive. Nike are always the first to try and develop footwear for every major sporting activity, for this reason they need to be able to discover new and upcoming sports and develop products before competitors with ideas that are innovative and new.
Competition – Nike is the leader in the Footwear market worldwide however there are other large organizations that compete for the market share and in the UK footwear market it is assumed C&J Clarke holds a slightly higher market share in the UK footwear market than worldwide leading competitors Nike or Adidas. Distributors – Nike are such a large and established organization that they have a lot of market power and so has its fellow competitors.
Most of these large companies that take most of the UK footwear market share sell to retailers and so retailers have the buying power and can put pressure on organizations like Nike to push prices down, hence why the footwear industry is so price competitive. Suppliers – The top companies in the footwear market produce most of their products in the East where labour costs are lower so they can produce products cheaper and thus sell at a cheaper and more competitive price.
From further research I found that in the UK footwear market it “generated total revenues of $9. 8 billion in 2005, an increase of 3. 7% since 2004, representing a compound annual growth rate (CAGR) of 2. 7% for the five-year period spanning 2001-2005” (Data Monitor). Also, the market volume “grew by 3. 8% in 2005 to reach a volume of 326. 7 million pairs” (Data Monitor). This shows the UK footwear market is getting more profitable and is growing.