Executive Summary

This paper presented several strategic issues related to Nike. A SWOT analysis is performed for Nike, to understand both the key internal as well as external strategic issues facing Nike in the current business environment. Then, the strategic directions that Nike have utilized or pursued in the past are also being analyzed. Ansoff’s Matrix is used to explain the growth nature and strategy of Nike. It is found that Nike has been effectively utilizing market penetration, market development and product development strategies in the past, and is expected to continue doing so in the future. The implications from following these strategic directions or decisions are also outlined. The implementations of these strategies are found to have significant impacts or requirements against changes in the company structure, culture, management style, leadership issues, innovation and technological requirements. Lastly, based on the findings derived from the earlier sections, a few recommendations are provided on how Nike can further improve and grow in the challenging and changing business environment in the near future.

Introduction

Started with its humble beginning in 1962, Nike expanded fast and had grown into the market leader in the sports and fitness industry today. The brand name of Nike is well recognized in the footwear and apparel sector, whereby the company products are sold in more than 110 countries around the world (www.nike.com). In the following section, strategic issues facing Nike, Nike’s strategic decisions for expansion purposes, the implications from these strategic decisions as well as some suggestions for further improvement for Nike will be presented.

Key Strategic Issues Facing Nike

In this section, situational analysis for Nike using the SWOT framework will be performed. Through the SWOT framework, the key strategic issues, both internal and external issues facing the company will be outlined. Consistent with the SWOT framework, key strategic issues facing Nike will be researched by investigating the strengths and weaknesses of Nike, as well as the potential threats and opportunities facing Nike in the business environment. All of these four dimensions under the SWOT analysis for Nike are presented in paragraphs below. Table 1 below presents the summary of external and internal issues facing Nike under the SWOT framework.

Table 1: SWOT Analysis for Nike

Strengths of Nike. First of all, Nike is the market leader in the sport and fitness industry. As the market leader, the company stands to enjoys economies of scale in its production, marketing and management activities. The company is also having a wide range of product portfolio, which essentially serves as the one stop solution to cater for customers’ sporting or fitness needs. Nike has been a company with remarkable marketing capabilities. The company understands the consumers well, and it brilliant in advertising and promotion activities. Besides, Nike is also possessing strong product technologies, and is enjoying competitive advantages due to several patented products. The brand name of the company is also highly valuable, ensuring that Nike able to position its product at a premium around the globe.

Weaknesses of Nike. One of the critiques against Nike is that people had found that Nike suppliers are exploiting poor workforce in Asia to produce its products at a cheap rate, to be sold to the market with a premium price. This is creating bad publicity for the company.

Threats in the external environment. The threats facing Nike are mainly due to economic, social-cultural and competitor forces in the macro environment. In the new economy, both fashion and consumer tastes change at a fast speed. This is demanding fashion related companies to be responsive to the marketplace. Then, the economic outlooks in the West remain sluggish, volatile and gloomy. It was also reported that the US footwear market is stagnant. At such a time, the other part of the world is experiencing inflationary pressure, primarily due to capital flow from US to the East. Labor costs in China had increased tremendously, and such trend is expected to persist into the future. Demographics wise, the consumers with strong purchasing power, namely those baby boomers are turning over age 65. At such an age, Nike will need different value proposition to target for these groups of powerful consumers. Besides, competitors are merging to become more competitive. This could harm the profitability of Nike in the future.

Opportunities in the external environment. The focus of economic growth had shifted from the West to the East. The market size of the emerging countries are big, promising and is expanding fast. This is one of the greatest opportunities to be tackled by corporations around the world. Besides, it is also noted that due to rising purchasing power, people around the world are becoming more health and fitness conscious. Another obvious trend is that women around the world are gaining purchasing power very fast, and they tend to purchase more than men. Not only are that, due to the issues related to global warming, people around the world are getting more environmentally conscious. Consumers are demanding better, greener and more socially responsible corporations. Corporations are largely expected to exercise Corporate Social Responsibilities. Apart from that, information era has just begun recently. The rise of online businesses and social media network are presenting new opportunities to multinational corporations.

Judging from the findings derived from the SWOT framework above, several critical and strategic issues pertaining to Nike are discovered. These issues are:

1. The economic growth of the world is shifting from the West to the East.
2. The current consumers with strong purchasing power are getting older, and they unlikely require many of the products sold by Nike.
3. The changes of the new lifestyle, such as the consumers are becoming more health and fitness conscious, while demanding greener products are demanding Nike to re-position itself in the marketplace.
4. Inflationary pressures (due to quantitative easing by Federal Reserve) are expected to haunt the profitability of businesses in the next decades.
5. Nike need to concentrate more in enticing the women consumers, as their purchasing power are increasing, and yet they tend to spent more for shopping and other emotional purposes.

Nike’s Strategic Directions and Options

Starting from humble beginning, Nike has been able to grow fast consistently, first starting out in the US market, and soon expand to the global context. In this section, the development of Nike competitive capabilities and strategies employed to expand across global markets are being explored. For this purpose, Ansoff’s Matrix is applied as the theoretical framework guiding the analysis in the following paragraphs. Ansoff’s Growth Matrix is presented in Table 2 below.

Table 2: Ansoff’s Matrix

Market Penetration. Initially, Nike was called Blue Ribbon Sports (BRS). BRS started with a single product, which were shoes imported from Japan. The first successful market penetration of the company started in 1968, whereby the Cortez shoes designed by Bowerman hit the market with great success. This eventually leaded to the promotion of Nike brand in 1972. In 1978, the name of BRS was changed to Nike. Since then, Nike has been involved continuously in penetrating the market it is serving through aggressive adverting and marketing. Sport athletes endorsements are common (Fatsis, 1997). Research and development on the products, as well as comprehensive research into the market were carried out from time to time (Foster, 2001). For Nike, to penetrate the market is essentially the daily job of the management (Source: www.nike.com).

Market Development. In 1972, Nike started with its first market development strategy, whereby the company began to promote the shoes to a foreign market, i.e., Canada. Such an expansion strategy is one of the lowest risks at that particular point of time, as Canada is near to US, and the culture in Canada is similar to that of US. Soon, the market development strategy was launched in a larger scale, whereby Nike International Ltd was established in 1981 to spearhead expansion to overseas. Such a strategy is pursued as the growth of the company in US is slowing down (as almost 50% of the jogging shoes in US at that time were from Nike) (Richards, 1998), the company was forced to concentrate on the foreign market for further growth. Arming with a successful business model and products in US, Nike is fast to duplicate its success in the international context. Due to aggressive market development strategies, the company had already established itself with strong presence and popularity in Asia, US and Europe by 1995. For Nike, market development strategies never stop there. Instead of expanding to new market places, in 1999, Nike expanded to new market spaces, by selling its products directly to the consumers online. Since then, the rest are just history and Nike today is the market leaders in sports apparels and shoes market around the globe (Source: www.nike.com).

Product Development. In 1979, Nike developed new line of products, which is essentially a product development strategy for expansion purposes. The company started the product development strategy with clothing, and swiftly the Nike Air Shoes series with cushioning devices. In 1988, Nike acquired Cole Haan, to tap into the businesses of casual and dress shoes. Concentrating on designing and marketing shoes for serious athletes, Nike successfully offered more than 200 types of shoes to the market by 1982. Besides, Nike was also able to marketed more than 200 different types of clothing by that year. However, in 1983, the company experienced first quarterly drop in earnings and then continue to suffer financial losses in the subsequent year (Richards, 1998; Mason, 1992). In order to stop the bleeding, Nike consolidated its operations, and expanded into several new lines, such as the casual apparel for women, golf shoes, and tennis gear (Burke, 2008). Such a move revitalized the company, pushing the company revenue over the USD 1 billion mark for the first time in mid 1986. Later, the product development strategy continued. In 1994, Nike acquired Canstar Sports Inc, which is a leading maker of skates and hockey equipment. Thus, Nike essentially added more products into its product portfolio. Very soon, as in 1996, the Nike equipment division is established. Again, in 1998, Nike established a new unit, namely ACG (stand for “all-conditioned gear”) to tackle the extreme sport (such as skateboarding, mountain biking and snowboarding) market. In 200, Techlab was established to provide sport technology accessories to the consumers, mainly for those Gen-Yers in their twenties (Source: www.nike.com).

As presented above, it is obvious that successes of Nike are due to its systematic expansion strategies, as captured by the Ansoff’s Matrix. For Nike, both product development and market development strategies are constantly being pursued whenever the revenue hit a bottle-net, or the company is experiencing slow growth from its existing businesses. Based on the conditions of the market at each of the time, relevant products are introduced to the existing market, or introduction of existing product to new markets are implemented (Burke, 2008). It is also noted that for Nike, market penetration strategies is performed daily, whereby the management is committed to become the market leader in each and every of the market the company is serving. Up to date, diversification strategy is never an option for Nike. Most likely, the management believes that there is still much room for growth in the sport industry. Secondly, diversifications strategy tend to be risky, and it is reasonable for Nike to stay within its circle of competence to avoid losing focus in two distinctively different businesses.

Implementations of Strategic Options and its Implications

In order to implement any pre-defined or well-planned strategic directions or decisions, many issues must firstly be settled or dealt with. In other words, the determination and implementation of a strategic direction comes with a lot of implications. In this section, the several strategic decisions as well as the respective implications will be discussed. Each of the strategic decisions as well as the implications is presented in a single paragraph in the following sections.

In order to expand to a new market, the management is required to understand the cultural context of the other countries in more details. For example, the consumers; behaviors in other region around the world may differ. The socially and culturally acceptable marketing mix should be surveyed, and the possible customers’ attitudes towards value offering by a company should be investigated. Apart from that, it is also critical to understand the ethical reasoning of consumers from the other country, as they tend to have different background, experiences, expectations and preferences. Apart from that, the organizational structure and reporting structure need to be refined. Managers responsible for expansion to foreign countries, or to cater for management of operations, marketing and human resources in the other region around the world should be selected. The suitability of existing organizational culture, with proper and relevant adaptation to suit the local cultural context should be investigated and implemented. Leadership is critical as well, as to effectively manage the operations in other countries; a different set of effective leadership style may be required. For this, selection, training and development of local talents to manage local workforce may be suitable, and depending on the situation, different set of human resources practices, policies and guidelines may be required to effectively manage the workforce in the foreign countries.

In order to develop new products to cater for a similar market, innovation is highly important. For this, it is crucial for the company to acquire competencies and capabilities in term of technological edge to develop new and innovative products that will probably be received positively by the market. The research and development activities on new products offering are critical, as for Nike, acquiring of knowledge in the field of biomechanics, motion analysis, physiology, and sports performances are necessary for effective implementation of product development strategy. Not only that, new marketing campaigns are often required to introduce, advertise and promote the new products to the market, whereby formulation and implementation of a well-defined set of marketing mixes are essential to the success of the new product in the marketplace. In the new green economy, it is also critical to evaluate and ensure that the new products developed are socially responsible and environmentally friendly.

Recommendations

Based on previous findings presented in this paper, several recommendations for Nike to grow further or to achieve better performance will be suggested. There are a total of four viable suggestions for Nike to pursue to achieve greater success in the future, namely:

Nike should place more focus on market penetration and development in the emerging countries in the next decades. As it is discussed that the economic outlook in the West remain sluggish and weak, and it is also expected that several emerging countries in Asia will become the lead of economic growth in the next decades, it is reasonable for Nike to concentrate its marketing efforts in Asia. To remain as the market leader, Nike must take the opportunity to establish itself in the emerging countries as soon as possible.

Nike should focus on catering to sports, fitness and fashion needs of women around the world. It is discussed that women are getting empowered, more financially well being as their earning power increase. Apart from that, many researches indicate that women tend to spent more. As such, it is critical that Nike should take proactive actions to market to the female consumers, to cater for their needs, and to offer more products for the needs of women in the future.

Nike should develop new products for the baby boomers turning over age 65. As discussed previously, a large group of baby boomers, with high purchasing powers, are getting older than 65 now. It is likely that they do not need many of the products offered by Nike, as they can now only involved is less demanding exercises. Besides, these groups of consumers also have different needs. Thus, Nike should investigate and research the behaviors of these consumers and re-positioning itself (through a special division) to cater for the needs of the baby boomers in US.

Nike should continuously cut down operating costs through design and development of lean and efficient organization. Despite the volatile economic situations around the world, inflationary pressures are not something that can be neglected by policy makers and businesses around the world. The inflation of commodity and the rising labor costs in emerging countries are expected to eat into the profit margins of businesses. Thus, it is important to streamline the operation around the world, for more efficient value chain and business process, so that the costs incurred in daily activities can be reduced and minimized.

Nike should proactively exhibit Corporate Social Responsibilities. Last but not least, it is critical for Nike to exercise ethics and to act socially responsibly in conducting its business. Irresponsible conducts will definitely bring bad publicity to the firm, as evidenced from the events whereby the suppliers of Nike exploited the poor workforce in Asia in 1998. For sustainable growth, Nike should also focus on developing green technologies and consider the impacts of its operations to the environment.

Conclusion

Overall, it is studied that Nike is an outstanding organization, and had been achieving high growth since its inception through aggressive market penetration, product development as well as market development strategies. By staying with its core competencies, and being fully focused on the sports and fitness industry, the company soon becomes the market leader around the globe. However, the business environment is dynamic, and is changing fast. To maintain the current leader position in the world, it is crucial for Nike to adapt to the changing environment, by capitalizing on its strengths and form and execute strategic directions and initiatives to tap into various opportunities available in the macro environment.

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