Nike Company Analysis Essay
Being the world’s leading innovator in athletic footwear, apparel, equipment and accessories, Nike holds to their mission to bring inspiration and innovation to every athlete in the world (Bowerman, 2011). Not only does Nike design, develop, and sell a slew of products and services to help athletes, they also market sports-inspired products for everyone else whom Nike classifies as an athlete because in their eyes, if one has a body, then they are an athlete.
Nike’s main driver is in its emphasis on sports, however it is in the apparel industry. At the end of fiscal 2011, Nike, Inc.’s affiliate businesses contributed approximately $2.7 billion of the company’s $20.9 billion in revenue (Bowerman, 2011). In this fast paced industry run strictly by demand, Nike tops the apparel world beating out a fashion icon in Ralph Lauren and two large conglomerates by the name of VF, which owns brands like Jansport, The North Face, Wrangler and Timberland; and PVH, which owns Calvin Klein and Tommy Hilfiger (Fortune, 2012).
Nike must solve for a nearly never-ending array of variables. This paper will cover some of Nike’s business–affecting forces in terms of analyzing their macro and micro economical forces. In addition to the factors, economic
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The Macroeconomic Environment of Nike
Macroeconomical factors are those external forces that are uncontrollable and that can affect how a business operates. With these factors being so out of the control of the business, these often lead to a variety of changes in operating, management, production, and marketing. These factors will be categorized using the PESTEL (Political, Economical, Social, Technological, Environmental, Legal) framework, which is designed to provide managers with an analytical tool to identify different macro-environmental factors that may affect business strategies, and to assess how different environmental factors may influence business performance now and in the future (BusinessMate, 2009).
Political From a political standpoint, government must create economic policies that will foster the growth businesses. Nike, fortunately, has been helped by the US policies that enable it to advance its products and business. The support allowed Nike, by the US government particularly in the general macroeconomic stability (government sponsored enterprise obligations), stable currency conditions (foreign subsidiaries major banks and money market funds) and the international competitiveness of the tax system, form the foundation critical to Nike’s growth (NIKE, INC., 2012).
Related essay: Nike: Public relations
Being such a mainstream multinational company being sold in approximately 170 countries and employing roughly 38,000 employees across 100 sales offices and showrooms, about 65 administrative offices and more than 700 retail store worldwide (Nike Responsibility, In Fiscal Year 2011, 2011), Nike is subject to income tax and a variety of other taxes in the U.S. and numerous foreign jurisdictions (NCRR, 2012). With that said, Nike recognizes and complies with all tax laws and regulations governed above them. As a result, Nike closely monitors, with the help of governments, changes in tax laws and advocates, when necessary, in avoidance of double-taxation (NCRR, 2012). Nike will work diligently to advocate any unfair regulations that would adversely affect their profitability, primarily when compared to other competitors (NCRR, 2012).
Economic By far, the largest threat for Nike would be the economy. During recession, Nike’s growth will be adversely affected. With our own economic strife in the U.S., Nike is feeling the pinch of the economic recession internationally. This severely hinders Nike’s day-to-day production because their goods are manufactured in Asia. Consumer demand in China has declined due to a weakening economy. Revenues for Nike in the China region increased by just a mere 2% in Q1 fiscal 2013 compared to a 15% increase in the same quarter last year (NIKE, INC., 2012). China’s economy continues to struggle as the GDP growth rate plummeted to 7.4% in the third quarter of 2012 (Dailymail UK, 2012).
When compared to Nike’s overall 16% revenue growth, Europe (primarily the Western Europe region) has been slow. Contributing roughly 20% to Nike’s revenues, Western Europe last three quarters had a growth of -5%, 4% and 7%, respectively, compared to Nike’s growth figures of 11%, 16%, and 21% (NIKE, INC., 2012). It is believed that Europe’s weak economy is the culprit behind its slow growth. The United Nations reported that after Europe grew by 1.5 per cent in 2011, aggregate GDP is expected to contract by 0.3 per cent in 2012 with only a modest rebound of 0.9 per cent predicted for 2013 (UN, 2012). Also you can read the answer on “what can be concluded about the demise of the knights of labor?“
Social Nike believes in in the awesome power of the human potential thus by using their size and reach, they can be a catalyst for long-term change that empowers support for local communities addressing the basic needs for health, safety and vitality; especially where they live, work and play (Nike Responsibility, Community, 2011).
Nike, being the massive global company that they are, is enabling the “scaling up” of the power sport by using their employees, consumers and investors. Coming from simple, direct investment ventures that turn into widely adopted and implemented programs, Nike has be doing its part to impact the lives of people worldwide. For the past five years, Nike has worked with CARE, a leading humanitarian organization fighting global poverty, to fund and convene partners to create Sport for Social Change Networks in southern Africa, eastern Africa, Brazil, the United Kingdom and the United States (Nike Responsibility, Scaling Power of sport, 2011).
In addition, Nike has contributed numerous other society programs to further prolong their efforts in the lives of many: Homeless World Cup, which uses football (soccer) as the entry point to help more than 50,000 people annually get back on their feet; Grassroots Soccer/Nike(RED), raise awareness and funds thru community-based football programs designed to educate youth about HIV/AIDS; Magic Bus, trained volunteer coaches in local villages throughout the country of India enabling them to reach hundreds of thousands more children through organized sports; Let Me Play, China-based initiative has connected with children of migrant workers in 11 Chinese cities to promote teamwork, confidence, gender equity and social integration through sport; and Student Run LA, which has operated a running and mentoring program that coaches students to run a marathon, while also providing the support they need to graduate from high school (Nike Responsibility, Scaling Power of sport, 2011).
Technology Being the world’s leading designer and maker of athletic apparel and footwear, Nike continues to win over these “lifestyle” consumers as well as sports professionals through innovation and superior technology. Its would seem that every year Nike is trying to outdo themselves and with that said, here are a few of the most recent technological advancements Nike has created (in no particular order):
An ecosystem of digital products and experiences designed to measure, motivate and empower you to improve. By tracking your progress and allowing you to share your sports data, Nike+ offers you ways to measure up, compare, compete and excel (Nike, 2013).
Soft, yet resilient foam core encased within a supportive foam carrier for lightweight, ultra-plush cushioning, springy response and support. This innovative foam, invented at Nike and 30 percent lighter than traditional Phylon, allows the force of impact to be more evenly distributed and helps reduce painful pressure points on your foot (Nike, 2013).
* Technology consisting of strategically placed filaments that function like cables on a suspension bridge and offer support precisely where it’s needed. These strong filaments are applied to a minimalistic shoe upper, reducing weight to create Nike’s lightest footwear. Paper-thin fabric covers the top of the foot, with the Flywire technology attaching to the outsole and holding the foot in place (Nike, 2013).
Yarns and fabric variations are precisely engineered only where they are needed for a featherweight, formfitting and virtually seamless upper. While reducing shoe weight is one aspect of helping runners, the Nike Flyknit upper is also engineered for a precision fit, creating a feeling of a second skin (Nike, 2013).
Environmental In a world that resource driven, Nike uses innovation as a driver to conserve water, increase our energy efficiency, reuse and recycle our products. Through this innovation Nike states that believe they “need new modes of collaboration and new ways of thinking, making, delivering, reclaiming and processing derived from scientific advancements in fields far beyond our industry (NCRR, 2012).”
Nike’s approach to these new innovations and collaborations come in the form of what they define as Environmental Preferred Materials (EPM), which are materials that have significantly lower impact on the environment in one or more categories of chemistry, energy, water or waste (NCRR, 2012). With these EPMs, Nike is able to achieve sustainability through their products especially in collaboration with Creative Commons in what they call GreenXchange. Nike and Creative Common believe in the power of open innovation and share a vision of creating a digital platform and system that promotes the creation, sharing and adoption of technologies that have the potential to solve important global or industry-wide sustainability challenges (NCRR, GreenXchange, 2012). In essence, GreenXchange will be the benchmark for the industry to adhere to along with implementing common practices to bridge the gap between the development and utilization of green technologies. See also list of microeconomic policies
Legal Nike’s manufacturers are all contracted thus posing a potential risk for the company. Case in point, Nike was involved in potential sweatshop-condition and child labor lawsuits in the late 90s and early 2000s (Wilsey & Licktig, 2000). In 2005, Nike was the first company in the industry to disclose its factory list. Nike is committed to supply chain transparency by updating public disclosure of the contract factories worldwide that are producing Nike-branded product (NCRR, 2012). In 2009, Nike added 42 new factories but not by putting each one in a critical approval process especially if they have not worked with Nike in a timeframe of 18 months (NCRR, 2012). In keeping with these factories and their labor, over the past decade Nike has been slowly revitalizing their image in corporation with the Fair Labor Organization thru audits (NCCR, 2012).
The Microeconomic Environment of Nike
Microeconomical factors are factors close to a business that has a direct impact on its business operations, decision–making freedom and overall success. The following section covers the micro factors of customers, suppliers, shareholders and competitors.
Customers Since the London Olympics there has been a strong customer demand for Nike products, which helped them charge past their competitors. Just like any other consumer products maker, Nike faces rising costs for packaging, fuel and other raw materials. In addition, the weak economy in Europe and softening in China is likely to weigh on results to a degree (Bloomberg, 2012). Laws of Supply and Demand come into play especially with this surge of interest with Nike products from this point onward. The Laws of Supply state that as the price of a good or service increases, the quantity of goods or services offered by supplier’s increases and vice versa. Whereas the Law of Demand states that, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease and vice versa (McConnell, Brue & Flynn, 2012). Read also which helps enable an oligopoly to form within a market?
The change in demand and or supply becomes microeconomic relationship market demand, which is the level of individual demands in the market for a product: the level of desire for all people in the market for the product (McConnell, Brue & Flynn, 2012). With the exposure at Olympics and such sports regionally, Nike has opened doors for everyone in regional and global markets. Since Nike is established on every conceivable media outlet, it has created an increase in market demands for fashionable athletic footwear and apparel. For Nike to be even more prosperous in the market, they need to formulate a plan that will increase their profits by taking risks and going off the market demands set forth by their customers.
Suppliers By the end of 2009, Nike contracted roughly 600 factories in 46 countries to manufacture products. Around this same time Nike began executing long-term consolidation strategies in order to streamline their supply chain thus resulting in a 10% supplier decrease (NCRR, 2012). Being such a vital element of Nike’s supply chain, suppliers are key to maintaining the company’s opportunity to further their creation of positive economic, social and environmental change (NCRR, 2012). Suppliers, in their own right, face challenges including misinterpretations and not too mention the overlapping or conflicting requirements from a diverse demand curve, which is the inverse relationship between price and quantity demanded for any product (McConnell, Brue & Flynn, 2012).
Shareholders As a shareholder of Nike, these individuals are instrumental in the prioritization of key issues and the development of Nike’s corporate responsibility policies. Earlier on when Nike was just getting started that they learned the dangers of not engaging and not listening. Nike sees these engagements with multiple stakeholders as a key enabler of both risk mitigation and innovation (NCRR, 2012). In November 2011, Nike had raised its dividend 16 percent (Bloomberg, 2012). This past quarter, Nike reported to their shareholders a declared dividend of $ .36 at the end of their fiscal year coming from an initial fiscal year of $ .31 (NIKE, INC., 2012).
Competitors For the most part, Nike is in a free market industry which oligopoly behavior. The reason for “most part” is that the barriers of entry, factors that prohibit firms from entering an industry, primarily lie with the economies of scale and how the current companies in the market have sufficient sales to achieve these scales (McConnell, Brue & Flynn, 2012). Nike is such a large company that they and their competitors have been reaping the benefits of the economies of scale. Prime example would be that of an oligopoly behavior called game-theory done with Nike and Adidas (McConnell, Brue & Flynn, 2012). Game theory assumes consumers would make rational decisions, but as we all know, feelings often disrupt our rational decision-making processes, often resulting in irrational choices that we perceive as satisfying (McConnell, Brue & Flynn, 2012). In essence, game-theory will elude to a concept called reciprocity strategy, which is when the same oligopolistic repeats strategic situations over and over again where Nike and Adidas are mutually interdependent on pricing, advertising and product development year after year (McConnell, Brue & Flynn, 2012). The more complex the company is the more manageable the scale can be. Given market demand, only a few large firms or, in the extreme, only a single large firm can achieve low average total costs (McConnell, Brue & Flynn, 2012).
With the analyzed macro and micro environmental factors in the Nike Corporation, one can see that the company must be in-tune with every aspect of a decision no matter how large or small the benefits may be. Whether it is a new technological innovation or improving a certain process, it requires due diligence on the decision makers part to research exactly who will be affected both in a direct and indirect manner. It would seem that decision making at Nike, Inc. is similar to an onion and its layers. Each layer is as important as the last and it would lose structure if one of those layers were different in a uniformity sense. On the same token, uniformity is needed in all companies, like Nike, in order to keep the long-term success in line with how they handle and incorporate the macro and micro factors in their daily operations.