Analysis on NIKE
Since 1980s, the word “globalization” has become a popular term among economists. It leads to the combination of local culture and phenomenon’s including technological, economics, political and sociocultural force. (Sheila, 2004) During the last two decades, rapid development in information technology has accelerated the globalization process of the world economy, and created lots of opportunities and new challenges for the organizations which have capable resource to globalize. Many of such companies took the chance and expanded their business across borders.
However, operating in countries which has different culture and political background is extremely risky, therefore, organizations need to apply effective strategies to help them reduce minimize the risk, and take good advantage of globalization. Strategy is both planned deliberate actions and unplanned emergent activities; on a business point of view, it is defined by Mike & Peng as a firm’s theory about how to compete successfully. (Mike & Peng, 2006) At the global level, a well designed strategic management enables multinational companies to survive in extensive competitions and overcome risks involved in cross-border operations.
This report will take Nike as an example of successful multinational organization, its general business environment including demographic, Economic, Political/legal, Sociocultural, Technological and Global will be analyzed, also
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Later in 1978, Blue Ribbon Sports is officially renamed to Nike, INC. (Hincker, 2008) Now, Nike has already become the world’s No. 1athletic shoes and sports wear equipments supplier. In the year 2007, Nike has achieved total revenue of $16 billion USD, a $1. 3 billion increase from 2006. In 2008, Nike hired 30000 employees worldwide, and its rank in Fortune global 2008 has reached No. 153. (Nike, 2008) In the late 1980s, Nike decided to switch its operating system from manufacture oriented into market oriented, which has now became its core operating strategy.
This system efficiently applies all the resource that is related to the company to the most suitable places. For instance, dropping the manufacturing process and pass it to manufactures based in Far East greatly reduce the manufacturing cost for NIKE products, so that Nike can provide customers with cheaper products. All Nike needs to do, is train these manufactures to become capable of producing Nike products, and inspect carefully on the quality of the products. In addition, apart from cost saving, outsourcing manufacture also saves Nike heaps of time and resource on plant, management resource and equipments.
Therefore, Nike is able to apply most its resource on marketing and research & development, now those two aspects has become Nike’s best competitive edge. Nike is positioned at a premium sport and foot ware brand, its marketing strategy is based on the Nike logo and a slogan called “just do it”. Basically Nike’s marketing strategy is carried out through sponsorship agreements with the famous athletes, and then uses these celebrity images to enrich its advertising appeal. Famous athletes such as Michael Jordan, Roger federer and Renaldo have participated in these marketing campaigns.
(Nike 2008) General Environment Demographic of Nike Customers Basically Nike is targeted at youth who are aged in the range of 13 to 24, both male and female. This group of population is mainly consists of high school, college students and people who started working but still participate in sport activities. Basically, Nike’s athlete’s foot ware appeals to most popular sport activities including basketball, soccer, tennis and running. This helps Nike to make all its targeted population to become potential buyers. Idol effect is extremely useful on marketing this population group.
For example, most young basketball players see Jordan as their idol, thus they will probably purchase the shoes Jordan wares to play basketball. The income of this population group is relatively low or totally depends on parents. Take the US market for example, the American teens has an averaged spending of $1742 annually in 2003, with girls spending approximately $1964 and boys spending $1536, and a half of those spending are made of clothing and accessories. Economic environment Take china as an example where Nike products have already being marketed and selling.
China now has the world’s second largest economy ranking behind the US. The total GDP in 2007 is over $7 trillion US dollars. Since the last decade, China has been growing at an enormous rate of above 10% average annual GDP growth. It has become the largest manufacturing base of the world. Now in many developed countries, it is very common to see a product that is made in china. (China Economic Review, 2007) Nike is one of the companies that seeks manufacturing contract with Chinese manufacturers. However, the continuing appreciation of the exchange rate of RMB has made the cost of importing Chinese made goods more expansive.
For companies like Nike that purchases a massive amount, this will become a problem. However, this did not significantly affect Nike because it has strong bargaining power of its supplier which will be discussed later in the 5 force analysis, therefore, the cost of supplier will not rise significantly. Nike can also switch a proportion of products that is manufactured in china into other countries such as Vietnam and India to avoid cost rise. The good news is that China has over 8% growth on average personal income annually.
(China Economic Review, 2007) This means the living standard of Chinese people is growing at a very fast pace. Nike product is marketing at a premium level; faster income growth will provide bigger market for Nike. Therefore, it is recommended that Nike should continue to put strong emphasis on marketing and promotion in China to build up strong loyalty among existing and potential customers. Political/legal Firstly, let us take a look at the political issues. The relationship between US and China is always closely related to the business in both countries.
Especially, since 1995 China has became the primary target for anti dumping. (Yu fei, 2007) For example, the Europe anti dump action against Chinese lighter manufacturers and US anti dump against Chinese socks manufacturers, both case has left suppliers millions of unshipped products and suppliers heaps of un-collected orders. Since that, businesses realize how powerful government and political intervention is. During the last 3 years, the US government feels the pressure of made in china goods and kept pressuring the PRC government to appreciate RMB.
Addition to that, in 2005 Chinese Government took the action to increase the exporting tax for all textile products, also it changed its rebate policy by reducing VAT refund from 17% to 11% (American general business association, 2007), both these policies directly reduce the after tax profit of exporting manufacturers and trading agencies. Obviously, these manufacturers will pass some proportion of these costs to its buyers, which will directly lead to cost rise for Nike. Socioculture and ethic issues Nike’s marketing strategy and promotion campaigns helps Nike to become part of the subculture of its target consumers.
Its brand slogan “Just do it” associates with the meaning of “be cool and do what you like”; it fits into the mind of youth consumers. In addition, Nike frequently holds and sponsor events that are relate to sport and youth activities. For example, the Nike summer showcase has already been held for 9 years, each year hundreds of youth basketball players participates in the event. (NBE, 2008) Through continues marketing effort, Nike educates its customers that when they are purchasing Nike product, at the same time, they receives extra value associates with Nike stories.
Michael Jordan was the first celebrity athletes selected by the marketing team of Nike, start from 1984, Jordan’s image are used on television and print ads of Nike, and a slogan of “be like Michael” was created to associate Jordan’s success with Nike products. This campaign has effectively attracted Jordan supporters, and built up strong customer loyalty among them. However, during the last few years, Nike’s brand image was affected by social problems, it suffered from ethical issues associated with its contract manufacturer hiring under age worker, bad working and safety condition and not paying minimum wage.
People in the US started to use the term “Sweatshop” to describe companies like Nike and Gap who has working condition issues (Global exchange, 2007), in addition large Chain super markets such as Wal-mart and Target are also affected. These companies are forced to invest millions of dollars to launch an auditing process, design and set up standards and requirements for the suppliers to comply before they place orders with those manufacturers.
The result of adding this extra process is extra cost that produces $0 return, also the time delay before they can place order and that decreases efficiency between supplier and buyer. However, although the manufacturer’s working condition and labor policy seems dose not have much to do with Nike, but the effort of adding auditing process will positively help the suppliers to change their working condition and build up the mind of human rights.