Business 478
Section D600
CASE SYNOPSIS FOR:
Nike
Student Name:
Date: October 19, 2015
Alison Ho Yee Lee
Jason Li
Joanne Yolanda Wong
Pinky Wai Yan Leung
Wing Tung Yip
Xiaoyi Tian
FIRM HISTORY
Nike, Inc. was founded as an importer of Japanese shoes. By 2015 the company has grown to be the
world’s largest marketer of athletic footwear (Reference for business, 2015). The market that Nike has reached
includes the USA and the rest of the Americas, the Middle East, Europe, Asia Pacific and Africa (Nike Inc.,
2015). The mission of Nike is to bring inspiration and innovation to every athlete in the world (Nike Inc., 2015).
Nike’s precursor originated in 1962, a product of the imagination of Philip H. Knight (Reference for
business, 2015). Knight contracted with a Japanese firm that made athletic shoes, the Onitsuka Tiger Co. Knight
created Blue Ribbon Sports (BRS) in the course of setting up his agreement with Onitsaka Tiger and BRS
eventually grew to become Nike, Inc. (Reference for business, 2015). In the beginning of 1970s, BRS was able to
manufacture its own line of products overseas and introduced its Swoosh trademark and the brand name Nike. In
1974, BRS opened its first U.S. plant and further sought to expand the variety of its products (Reference for
business, 2015). In 1978, the company changed its name to Nike, Inc. (Reference for business, 2015). By the
1980s, Nike expanded to the European market. By 1982 the company’s line of products included more than 200
different kinds of shoes, including the Air Force I, a basketball shoe, and its companion shoe for racquet sports,
the Air Ace (Reference for business, 2015). Through product diversity, Nike has become a global sportswear
leader. In 2014, Nike Inc. was the largest apparel and footwear company in the world. The company’s global
value share is 2% (Euromonitor International, 2015).
Nike’s market leadership can be contributed to its brand image and loyalty. Despite having a solid
reputation for innovation, Nike has also developed celebrity endorsements to enhance its brand loyalty
(Euromonitor International, 2015). Nike has also taken the advantage of using social media such as interactive
apps and websites to keep consumer awareness of brand development high (Euromonitor International, 2015).
ENVIRONMENTAL ANALYSIS
Industry Environment
Bargaining Power of Suppliers: Moderate
Nike depends on inputs of fabrics like cotton, polyester and plastics for shoes and accessories, and
technological items for its FuelBand SE product (Nike+, 2015). Nike’s suppliers have bargaining power because
1
Nike is highly dependant on material inputs. On the other hand, Nike’s product line is highly diversified and
products are made with outsourced labour. These moves reduce the company’s dependence on particular
suppliers. These two opposing forces cancel each other out to make the bargaining power of suppliers moderate.
Bargaining Power of Buyers: Low
Nike does not rely on particular product line or single national market to make profit. It achieved
high sales in China. According to CFO Andrew Campion, China will help the brand reach $50 billion in
annual revenue by the year 2020 (Garcia, 2015). Nike’s success in entering other emerging markets
means it relies less on buyers in the United States or established markets All of these elements thus
contribute to a low bargaining power for the buyers.
Threat of Substitution: Low to Medium
According to Trefis, the intensity is low to medium regarding to the threat of substitute products
(Trefis Team, 2013). The worldwide demand for athletic footwear, apparel and equipment is expected to
grow in the future as customers cannot substitute for these products (Trefis Team, 2013). Continuous
innovation and introduction of new products means that it is more difficult for the black market to quickly
counterfeit the latest products.
Threat of New Entrants: Moderate
Non-athletic apparel companies may choose to diversify into athletics, and new companies can
outsource production for new shoes or clothing products at low cost. The potential that new players will enter the
industry is increased because there are few barriers. However, Nike has diversified its business and created new
product divisions using new technology. For example, the Nike+ line uses 3D printing to create customized shoe
designs and revolutionize its product distribution system so new entrants in its core product areas pose less of a
threat (Alcopra, 2015). Its technological product innovation reduces the threat of new entrants to moderate.
Industry Rivalry: High
There is high industry rivalry between the major players in Nike’s core market of athletic
footwear and apparel. New Balance, Adidas, and Puma are all very strong sportswear manufacturers that
directly compete with Nike’s offerings. Despite of the major players in sportswear industry, Nike has to
2
consider the emerging competitors. Rising competition from emerging players such as Under Armour and
Lululemon Athletica, which focus on niche market segments such as performance apparel and yogafocused apparel, also pose a threat to Nike’s share of selected market (Trefis, 2013).
General Environment
Economic segment
Although the global economy has been very unstable recently, it still does not affect customers’
willingness to spend money. In America, between September 2014 and September 2015, there was an
obvious increase in people’s spending on retail and food services. The number climbed from $437 billion
dollars to $447 billion dollars (CNBC, 2015). The positive trend explains that the demand for retail goods
and foods have been slowly increasing, and consumers’ spending appears to be growing at a fairly steady
pace. More growth is expected in the next three months.
Technological segment
Since the use of the Internet is increasingly common, more consumers are using online shopping.
By shopping online, consumers are able to compare products in different online stores. Consumers can
also save time and energy while doing online shopping at home, school, or work. Moreover, consumers
do not have to worry about their credit cards being misused or processed with unauthorized transactions if
they use a service like Paypal to pay for their purchases (PayPal, 2015). PayPal is an online payment
service that allows individuals and businesses to transfer funds electronically and has been proven safe
and secure (Crawford, 2015).
Global segment
Globalization creates many benefits to businesses who intend to go across national boarders. The
most beneficial consideration is cost reduction. When businesses enter international markets, foreign
exchange allows more products and services to be available, while also lowering costs, because of
specialization (Benefits of Globalization, 2015). Moreover, some Companies are moving towards
developing countries to acquire cheap labour. This not only gives the company comparative advantage,
but also creates employment and income generation to the people in the host country.
3
Demographic segment
There are a growing number of people who exercise daily and seek healthier lifestyles. This trend
increases the demand of simple and comfortable clothes. In addition, there are more different age-groups of
people try to get involved in daily exercises. For example, some children start involvement in sports at a very
early age because of parental influence. At the other end of the spectrum, there are seniors who try to exercise
in order to prevent diseases or maintain their independence as they age (Benefits of Exercise, 2015).
CURRENT SITUATION
Brand Value
Nike’s main source of comparative advantage stems from its brand value and its R&D. Nike utilizes
their “swoosh” logo and the “Just Do It” trademark to have extremely high brand recognition and brand value.
Nike makes it a priority to inspire their customers with the “Just Do It” and “Everyone with a body is an
athlete” tag-lines. Nike is ranked 18th in the World’s Most Valuable Brands 2015 by Forbes. This indicates that
Nike is able to generate massive earnings in industries where branding plays a major role (Forbes, 2015).
Research & Development (R&D)
The Nike Explore Team Sport Research Laboratory brings more than 250 years of sport research
experience to the company and it allows Nike to drive product innovation for athletes worldwide (NIKE Inc,
2015). Nike Flyknit technology rose on the stylization of fitness and became the sporty alternative to the street
sneaker. Nike does own a great many patents covering the Nike Air cushioning technology. From the Nike “Air”
running shoes models to Lunarlon foam material, Nike has gained huge brand recognition in the sports industry
(Loda, 2015). In Spring 2015, Nike updated the Nike Tech Pack collection with Nike Tech Aeroshield to provide
a lightweight barrier between athletes and their temperate surroundings (NIKE Inc, 2015). Meanwhile, Nike also
developed its Fuel Band fitness tracker and its own associated app, Nike + (Rougeau, 2015). Nike diversified the
function of its footwear design and has penetrated its brand into the apparel and wearable technology industry.
Supply Chain Network
Nike’s manufacturing network consists of over 700 factories in over 40 countries around the
world, allowing their inbound logistics to be efficient and cost effective (Leland, 2015). Yet, Nike does
4
not own factories for manufacturing its footwear and apparel. Instead, manufacturing is outsourced to
third parties. Independent contract manufacturers manufacture both Nike’s footwear and apparel outside
the US. Manufacturers in Vietnam, China, and Indonesia accounted for most of the footwear production.
By 2014, Nike had 5 primary distribution centres in the US and 16 distribution centres outside the US
These centres insure that the outbound logistics of their products are quick and efficient (Soni, 2014).
Financial Performance
Nike’s net income earned for the quarter ending August 31st 2015 was $1179 million This was an
increase of 23% compared to same quarter last year (NIKE Inc., 2015). Diluted earnings per share (EPS)
have also increased by 23% to $1.34. EPS is an indicator of firm’s profitability. We can observe that Nike
has better profitability than last year since there is higher gross margin ratio, lower operating expenses
and lower tax rate. Currently, Nike’s target is to reach $50 billion sales by 2020 because it believes the
trend of woman in sports and e-commerce will help it to achieve that goal (Zack, 2015).
Nike is the leading company in athletic footwear with 33.5% market share (Soni, 2014). The main
source of revenue is from footwear in the North American market. China is a potential growing market
for Nike as the revenue earned from there has increased by 36% over last year (NIKE Inc., 2015).
CURRENT STRATEGIES
Business Level Strategy
Cost Leadership
Nike management has outsourced all their shoes and apparel manufacturing outside the United
States (Brian, 1995) and is now cooperating with over 785 contract factories all over the world (e.g. in
Vietnam, China, and Indonesia) (Nike, 2014). Taking advantage of lower salary expenses, outsourcing
makes up over 80% of Nike’s revenues. Thus, Nike management can invest the extra profits into R&D
and postproduction activities. Such activities would include marketing and distribution and sales. These
activities, in turn, increase the potential for company growth (Brian, 1995). Outsourcing helps Nike
reduce their operating costs effectively and increase their competitiveness (McDaniel, n.d.). Thus
outsourcing enables Nike to price its brand at a competitive rate with other competitors in the industry.
5
Product differentiation
Nike management has a clear differentiation strategy. This strategy is to establish the company as
the standard in athletic wear (Martin, 2014). Their product differentiation is built on the power of the
brand, the relationship with well-known athletes and its high quality products (Zook, 2011). The Nike
Brand is the most powerful asset in their portfolio, accounting for almost 85% of total revenue (Nike,
2010). Nike has positioned itself not only as a leading athletic brand, but also as an influential fashion
brand (Martin, 2014). Through sponsorship advertisement with well-known athletes, customers are
compelled to purchase their athletic wear for competitive and recreational use (Silvestri, 2015). With their
great brand management, Nike provides an increased perception of their unique products (Thousand
Insights, n.d.). Even with a few differences compared to other products, Nike can still win loyal customers.
Corporate- Level Strategy
Innovation
Innovation is at the heart of Nike’s business growth strategy (Nike,2015). Nike continuously
focuses on delivering innovative new products and experiences in a more sustainable way. They
emphasise R&D to offer unique products to the athletes. For example, The Nike Sport Research Lab
(NSRL) is where athletes, scientists, engineers and designers converge to develop the key performance
insights that drive Nike’s innovation. In the NSRL, the focus is on biomechanics, physiology, perception
and athletic performance (Nike, 2013). Nike aims to produce athletic equipment that can eliminate injury
and maximize comfort with their science insights. Besides, Nike has developed Nike+, a fitness tracking
platform for users to track their exercise progress by apps and sport watches (Nike, 2015). Also, Nike lets
customers to customize their unique shoes with the idea of Design your own Shoes (Nike, 2015).
MAIN STRATEGIC CHALLENGES
Expanding in Women’s Apparel Market
With increase in disposable income levels and rising living standards worldwide, there is increased
demand for sports apparel made of advanced high-quality fabrics. The business analysts forecast the Global
Sports Apparel market predicts that the market will be growing at a compound annual growth rate of 4.32%
6
over the period 2014-2019 (PR Newswire, 2015a). The women’s lines in Nike represents 20% of Nike’s total
revenue and is expected to continue to outpace the men’s lines in term of growth. The crossover between
fashion and exercise has lead to more women becoming active and incorporating gear sold by Nike into other
aspects of their lifestyle (PR Newswire, 2015a). There is a potential for Nike to expand its business in
women’s apparel market. Yet Nike faces competition from both traditional sports brand rivals and those
producing fashion brand youth-focused apparel. Nike’s peer, in athletic wear, Under Armour, is actively
diversifying its sports lines and it is growing more quickly than Nike. As well fashion retailers like Forever 21,
H&M and Urban Outfitters have introduced over 100 active wear items for women (Kell, 2014).
Expanding in China Market
From Nike’s August 31, 2015 quarterly financial report, we can observe that the expectation of
future growth in China is 22% (NIKE Inc., 2015). Revenue earned in China is $886 million, which is a
30% increase over last year. Strong economic growth in China represents a great opportunity for Nike to
earn enormous profit there (BBC News, 2015).
However, cultural barriers will be the main challenge that Nike face during expansion. Nike needs
to design strategies to increase its visibility and popularize its brand name. For example, Nike’s current
branding is based on famous sport stars’ sponsorship. But it may not work as effectively in China because
academic achievement is being emphasized more than sports achievement (Trefis Team, 2015). Designing a
strategy that suitable for China’s culture affects whether Nike can gain more market share in China.
Intense rivalry is also a challenge for Nike. Competitors like Adidas and Under Armour want to
develop in the Chinese market as well. With better positioning strategy, Adidas’s market share in China is
getting closer to Nike (Forbes, 2014). How Nike utilizes its strengths and designs a suitable advertising
strategy will a challenge for Nike to come out ahead of its competitors.
Strengthening Competition
The main competitors in sportswear sector for Nike are Adidas, Reebok, Puma, Fila and Under
Armour (Mahdi, Abbas and Mazar, 2015). Facing such intense competition, customers may easily switch
brands because of better price, higher quality or newer styles (Mahdi, Abbas and Mazar, 2015). Although
7
Nike is still the leader in the footwear market, Nike has to beware of the threat of substitutes to maintain
its market share. Euromonitor 2015 highlights that Nike faces long-term challenges to maintain global
share (Euromonitor International, 2015).
Intense rivalry in the athletic equipment industry has been a major challenge to Nike. For
example, Under Armour has become a strong competitor to Nike in recent years. Nike earns $27.8 billion
annually, while Under Armour earns far less, only $3 billion (See Figure 1 in appendix) (Peterson, 2015).
The latter has been expanding rapidly with an incredible 32% increase in their sales in 2014 (Nazario,
2015), and even surpassed Adidas to become the second-largest athletic apparel company in the US
(Mirabella, 2014). Business Analysts are also optimistic on Under Armour’s long term potential in
footwear (Bidness Etc, 2015). Moreover, Under Armour has been aggressively gaining ground with the
NBA. Under Armour will become the official clothing outfitter for the NBA Draft Combine in 2018. This
invitation-only showcase in where “leading draft prospects participate in athletic testing, five-on-five
games, and interviews with teams ahead of the NBA Draft” (PR Newswire, 2015b). This endorsement
will give Under-Amour it an introduction to new players and could eventually threaten the position of
Nike as the league’s official on-court apparel provider (Rich, 2015).
Figure 1: Revenue Performance of Nike versus Under Armour
8
REFERENCES
Alcopa, W. (2015, Oct. 16). Nike is one step closer to being able to 3D-print shoes. Huffington Post. Retrieved
from http://www.huffingtonpost.ca/2015/10/16/nike-takes-one-step-close_n_8313950.html
BBC News. (2015). Nike Profit helped by Strong China Sales. Retrieved from
http://www.bbc.com/news/business-34355627
Benefits of Exercise. (2015). Retrieved from NIHSeniorHealth:
http://nihseniorhealth.gov/exerciseforolderadults/healthbenefits/01.html
Benefits of Globalization. (2015, July 21). Retrieved from Boundless:
https://www.boundless.com/management/textbooks/boundless-management-textbook/globalization-andbusiness-14/globalization-101/benefits-of-globalization-470-3958/
Bidness Etc. (2015, June 18). Under Armour top line growth is driving-optimism on Wall Street. Retrieved from
http://bidnessetcnews.tumblr.com/post/121838573976/under-armour-top-line-growth-is-driving-optimism
Brian, J.Q., & Hilmer, F. (1995). Make versus Buy. Mckinsey Quarterly 1995 Number 1, 48. Retrieved from
http://www.civ.utoronto.ca/sect/coneng/tamer/Courses/1299/Ref/startegic%20outsourceing.pdf
CNBC. (2015, Sept. 15). Retrieved from CNBC: http://www.cnbc.com/2015/09/15/us-retail-sales-aug-2015.html
Crawford, S. (2015). How PayPal Works. Retrieved from MONEY: http://money.howstuffworks.com/paypal.htm
Euromonitor International. (2013, August). Nike Inc. in Apparel. Retrieved from http://www.euromonitor.com/
Euromonitor International. (2015, June 01). Nike Inc in apparel and footwear (world). Retrieved from
http://www.portal.euromonitor.com.proxy.lib.sfu.ca/portal/analysis/tab
Forbes. (2014). Nike’s China Problem. Retrieved from http://www.forbes.com/sites/kenrapoza/2015/10/18/howlithuania-is-kicking-russia-to-the-curb/
Garcia, T. (2015, Oct. 16). While some consumer companies struggle in China, Nike stands out. Market Watch.
Retrieved from http://www.marketwatch.com/story/while-some-consumer-companies-struggle-in-chinanike-stands-out-2015-10-16
Kell, J. (2014). Nike makes a big push into the fast-growing women’s segment. Fortune. Retrieved from
http://fortune.com/2014/10/22/nike-women-business/
Leland, M. (2014). Nike’s Internal Environment. Retrieved from http://maggieleland.blogspot.ca/2014/02/nikesinternal-environment.html
Loda, R. (2015). Nike Running Shoes – Understanding the Nike Line-up. Retrieved from
http://www.runningshoesguru.com/2013/08/nike-running-shoes-2013-understanding-the-nike-line-up/
Mandi, A., Abbas M. and Mazar, T. (2015). A comparative analysis of strategies and business models of Nike,
Inc. and Adidas Group with special reference to competitive advantage in the context of a dynamic and
competitive environment. International Journal of Business Management and Economic Research.
Retrived from http://www.ijbmer.com/docs/volumes/vol6issue3/ijbmer2015060302.pdf
Martin. (2014, October 2). Stand Out from the Crowd, Examples of Differentiation. Entrepreneurial Insights.
Retrieved from http://www.entrepreneurial-insights.com/stand-crowd-examples-differentiation/
McDaniel, R. The Advantages of Outsourcing for Nike. Ehow. Retrieved from
http://www.ehow.com/list_7704795_advantages-outsourcing-nike.html
Mirabella, L. (2014, September 8). Under Armour surpasses Adidas to become No. 2 sports brand. The Baltimore
Sun. Retrieved from http://articles.baltimoresun.com/2014-09-08/business/bs-bz-under-armour-beatsadidas-20140908_1_armour-ceo-kevin-plank-market-leader-nike
Nazario, M. (2015, September 16). Under Armour just proved it’s a major threat to Nike. Business Insider.
Retrieved from http://www.businessinsider.com/under-armour-expects-revenue-to-double-2015-9#
Nike+. (2015). Nike Global. Retrieved from https://secure-nikeplus.nike.com/plus/products/
9
NIKE Inc. (2010, May 4). Nike, Inc. Introduces 2015 Global Growth Strategy. Retrieved from http://www
.nikeresponsibility.com/report/content/chapter/manufacturing#topic-introduction-manufacturing
NIKE Inc. (2014). Manufacturing. Retrieved from http://www.nikeresponsibility.com/report/content
/chapter/manufacturing#topic-introduction-manufacturing
NIKE Inc. (2015). Retrieved from http://about.nike.com/pages/company-profile
NIKE Inc. (2015, February). The spring 2015 Nike Tech Pack Collection. Retrieved from
http://news.nike.com/news/the-spring-15-nike-tech-pack-collection
NIKE Inc. (2015, October). NIKE Inc Reports Fiscal 2016 First Quarter Results. Retrieved from
http://investors.nike.com/files/doc_financials/2016/NIKE-Inc-Q1-FY16-Press-Release_FINAL.pdf
NIKE Inc. (2015). Nike explore team sport research lab. Retrieved from http://about.nike.com/pages/nikeexplore-team-sport-research-lab
PayPal. (2015). Retrieved from PayPal: https://www.paypal.com/cgibin/webscr?cmd=xpt/Help/general/TopQuestion6-outside
Peterson, H. (2015, February 18). Under Armour is expanding its empire. Business Insider. Retrieved from
http://www.businessinsider.com/under-armour-is-expanding-its-empire-2015-2
Reference for Business (2015). Company Profile, Information, Business Description, History, Background
Information on Nike. Retrieved from http://www.referenceforbusiness.com/history2/99/NIKE-Inc.html
Rich, G. (2015, August 10) Under Armour Challenges Nike Dominance With NBA Deal. Investors Business Daily,
p00. Retrieved from http://web.b.ebscohost.com.proxy.lib.sfu.ca/bsi/detail/detail?vid=5&sid=19d0d63ab454-4482-a5dd-39e660e98bef%40sessionmgr113&hid=115&bdata=JnNpdGU9YnNpLWxpdmUmc2
NvcGU9c2l0ZQ%3d%3d#AN=108804233&db=bth
Rougeau, M. (2015). Nike’s new Fuelband app lets you ditch the wearable. Retrieved from http://www.techradar
.com/us/news/wearables/nike-s-new-fuelband-app-lets-you-ditch-the-wearable-1284732
PR Newswire. (2015a). Global Sports Apparel Market 2015-2019 Retrieved from
http://www.prnewswire.com/news-releases/global-sports-apparel-market-2015-2019-key-vendors-areadidas-lululemon-athletica-nike-puma-and-under-armour-300027057.html
PR Newswire. (2015b). Under Armour and NBA Announce Global Marketing Partnership. Retrieved from
http://www.prnewswire.com/news-releases/under-armour-and-nba-announce-global-marketingpartnership-300125797.html
Silvestri, L. (2015, January 13). Nike Inc. Marketing Analysis. Prezi. Retrieved from
https://prezi.com/4hlbshix80gw/nike-inc-marketing-analysis/
Soni, P. (2014, December 4). An Overview of Nike’s Supply Chain and Manufacturing Strategies. Retrieved
from http://finance.yahoo.com/news/overview-nike-supply-chain-manufacturing-130048337.html
Soni, P. (2014, Dec. 29). Market Share Gain Spurs NIKE’s American Footwear Revenues. Market Realist. Retrieved
from http://marketrealist.com/2014/12/market-share-gain-spurs-nikes-north-american-footwear-revenues/
Thousand Insights. Porter’s Generic Strategies. Retrieved from
https://thousandinsights.wordpress.com/articles/on-strategy-planning/porters-generic-strategies/
Trefis Team. (2015). How Growing China Businesses Benefits Nike. Retrieved from http://www.trefis.com
/stock/nke/articles/298237/how-growing-china-businesses-benefits-nike/2015-05-28
Trefis Team. (2013, December 02). Nike Through The Lens Of Porter’s Five Forces. Retrieved from http://www
.trefis.com/stock/nke/articles/217421/marynike-through-the-lens-of-porters-five-forces/2013-12-02
Zack, G. (2015). NIKE Inc (NKE) aims to reach $50 billion in sales by 2020. Bidness Etc. Retrieved from
http://www.bidnessetc.com/55169-nike-inc-nke-aims-to-reach-50-billion-in-sales-by-2020
Zook, C., & Allen, J. (2011, November). The Great Repeatable Business Model. Harvard Business Review 2011,
107. Retrieved from http://thebeacongroup.ca/newsl/2011/Nov/businessmodel.pdf
10