Nike considered getting traction on sustainability

Nike considered getting traction on sustainability.

Nike considered getting traction on sustainability

 

Nike, a company specialized in manufacturing sportswear for athletes, was established in the early 1960s by Phil Knight and Bill Bowerman. It was eventually incorporated in 1969 and has been growing and expanding the variety of its offerings. Currently, Nike is the largest manufacturer of athletes’ shoes and other sportswear. It is involved in developing, designing, marketing and selling of sporting equipment, apparel, and accessories. The company also offers services to the sports world. This paper will explain the mission and vision statements of the company, offer an analysis of the sportswear industry, analyze Nike’s value chain, and make recommendations to the senior management of the company regarding sustainable competitive advantage.

Mission and Vision Statement

The company has been involved a number of activities that have evolved over time depending on the demands and preferences of the customers. Therefore, the company has not had a solid vision or mission statement to that effect. Typically, a mission statement captures the general operations of the business while the vision statement offers a speculative perspective about the business. The official mission statement of Nike is “To bring inspiration and innovation to every athlete in the world.” This mission is founded on the notion that as long as an individual has a body, he or she is an athlete (Smithson, 2016). This perception was developed by the founder Bowerman, implying that the company produces the sportswear for anyone interest rather than a specific group of athletes. Apparently, the mission statement has three distinct components namely inspiration, innovation, and every athlete in the world. The inspiration component of the statement is founded on the notion that everyone should have a winning mindset. The innovation component is based on the fact that Nike invests heavily on research and development to continuously improve the existing range of products through technology. Finally, the last component of the statement implies that the company targets virtually all potential consumers of its products in the different market segments across the globe.

Notably, the company does not have an established vision statement. However, it can be inferred from the future aspirations of the company that the vision is majorly on sustainability of the economy, environment, and business profitability. The company is committed to ensuring that it creates a beneficial proposition for everyone involved in Nike’s business. Therefore, it would be prudent for the company to develop and publish a vision statement that will clearly outline its future aspirations as a global leader in athletic equipment, shoes, and apparel (Smithson, 2016).

Scenarios and Industry Analysis

Five-Force Analysis of the Sportswear Industry

The sportswear industry has many key players that are in constant competition for the ever growing sports market. However, the dominant companies in the industry include Nike, Adidas, and PUMA. The three companies serve a wide range of athletes ranging from football, basketball, to field events among others. Consequently, the companies have to battle out for dominance to expand their financial bases, market share, and brand awareness. Porter’s five forces will be essential in a comprehensive assessment of the business situation posed by the companies within the industry. These forces play a crucial role in determining the strength of a company’s current and future competitive positions.

The Porter’s Five Forces

  1. Barriers to Entry

The sportswear industry is highly profitable and most companies would like to venture therein. However, there are many barriers that that have been placed by the existing market players to discourage new entrants. First, the notion is created and spread that the company must have the capacity to sustainably produce sports accessories and shoes on large scale basis. This implies that the costs of operations will be too high for most of the companies to attain.  Secondly, there is intensive research and development within the industry since customers always want customized products. This implies that the interested company must have a very stable financial base to support and maintain the tempo. Therefore, only the strong companies such as Nike and Adidas thrive.

  1. Bargaining power of customers

Apparently, the number of buyers who have a high bargaining power in the market far outweighs the number of firms in the industry.Therefore,every company has the duty to market itself aggressively through strategies such as differentiation and appropriate costing so as to gain a larger market share and make a larger sales volume. This is because the buyers more often than not compare specifications and process from different firms in the industry and finally buy from the most appealing seller. In fact, the emergence of electronic commerce and increasing online shopping platforms has given buyers more accessibility to competitors. The sportswear companies are currently making use of these digital revolutions to create intimacy with their customers by offering them a chance to give product specifications more precisely. This has contributed immensely to brand awareness in the industry among customers and prospective buyers.

  1. Bargaining power of Suppliers

The production process of the sports shoes, accessories, and equipment involved many raw materials that are typically supplied by a wide range of vendors. However, the bargaining power of the suppliers is significantly low or non-existence in some instances since there is no differentiation in their supplies. Additionally, the input materials are widely available in large quantities and they are offered in fixed forms. The main ones include leather, rubber, plastics, and cotton. The suppliers have no means to alter the original forms of these materials, but the sportswear companies can make different items from then same materials. Therefore, string firms such as Nike keep the suppliers dependent on them and often dictate quantities, logistics, and labor.

  1. Threats of substitutes

Apparently, there is low propensity of substitution by buyers in the sportswear industry. This is because the firms within the industry have been keen on meeting the demands of the customers and making shoes, accessories, equipment, and apparel in an almost similar fashion. Therefore, the substitution options left for the customers could be unrealistic such as sandals or working out bear feet. However, the penetration of counterfeit sports products into the market cannot be underestimated. The black market has been on a constant rise and providing counterfeit products at relatively lower prices to the ever growing customer base. Therefore, the concerned firms should consider protecting their brands and letting the customers know about how to confirm genuine products.

  1. Competitive rivalry within the industry

There are many firms that have ventured into the lucrative sportswear industry over the recent years.  These include but not limited toReebok, Joma, and Brooks that strive for market share from giant companies such as PUMA, Nike, and Adidas. The companies are known to scramble for countries that participate in major global events such as the world cup, Olympics, as well as domestic and regional sporting activities such as football leagues, marathon, indoor games, and field events. Notably, all the major players in the industry are well endowed with capital and manufacturing capabilities. Therefore, the companies are only left with the option of appealing to their customers and prospective markets through strong brands, reasonable pricing, sponsorship deals, and entry into new markets especially in the developing nations.

Based on the 5-forces analysis of the sportswear industry, it is clear that it would be a lucrative venture if the barriers to entry could be overcome. This is because the customer base is large with the potential of an increase as more people tend to join sporting events for fun, career, and for health purposes. Additionally, there are plenty of suppliers of the raw materials, implying that the costs of acquiring the materials could be relatively lower due to competition among suppliers. More so, there are few or no substitutes of the shoes and accessories, implying that profitability of the firms in the industry is high. Nevertheless, the huge capital base required could be the main barrier. This is because besides hampering the production process, aggressive marketing campaigns as well as investment in research and development could be a real challenge due to inadequate financial resources.

Nike’s Resources and Capabilities – Value Chain Approach

There are various ways in which the position of a company can be assessed on the basis of resources and capabilities. However, the most efficient approach to use is the value chain approach since it evaluates how a company has been able to utilize it resources and capabilities to have a competitive advantage in the market. The value chain comprise of primary activities and secondary activities. Under primary activities, Nike is involved in inbound and outbound logistics, marketing and sales, as well as production, that is, operations. Under secondary activities of the value chain, Nike is involved in the management of human resources, research and development, and the use of appropriate technology to develop innovative products in line with the mission statement.

Inbound and Outbound logistics

Inbound logistics is concerned with the materials and resources entering the company for the purpose making finished products. On the other hand, outbound logistics is concerned with the distribution channels and processes for the finished goods and services. Apparently, Nike being a global giant distributes its products to almost 150 countries. The products move through a complex supply and distribution chain, but supplies and exports are received and cleared by registered agents within the logistic network of the company. Raw materials and finished goods are transported in bulk to reduce the operation costs, improve the inventory control and checks, and reduce the risk of loss. Notably, Nike relies on three main modes of transport to ensure efficiency within the supply and the distribution chains. These are ocean carriers, global couriers, and airfreight forwarders. Additionally, the management of the logistics function is in-house and the company does not outsource supply chain management. This implies that there is no risk of middlemen who more often than not disrupt the networks through dubious transactions.

It is also worthwhile to note that Nike has invested heavily in corporate social responsibility to ensure that the suppliers of the raw materials operate in friendly environments. Also, they ensure that the communities around their manufacturing plants are safe through reducing carbon emissions and other toxic gasses. Additionally, the company has partnered with renowned shipment company, Maersk, to ensure that the transportation through the sea is safe. This has really made the company to review constantly its supply chain. However, the wide supply chain network may prove difficult for the company to maintain, exposing the company to its competitors such as Adidas (Barrabi, 2016). Shipping to various countries that have different tariffs and export/imports requirements is a major challenge for Nike.

Marketing and Sales

This element of the supply chain deals with assessing the scale of production based on the brand recognition and reputation. Additionally, the company needs to consider the pricing of its products to remain appealing to the customers whose loyalty to specific brands may be unstable. In this regard, Nike has invested heavily in using celebrities such as Michael Jordan to increase the reputation and status of the brand. This creates exemplary brand equity that competitors cannot withstand while the company makes bottom line profits out of it. Moreover, there are several trademarks under Nike such as Swoosh that feature prominently in TV advertisements and online commercials through celebrities wearing branded pants, bands, shirts, and shoes. Additionally, Nikes continually conducts market research to determine the changes in the market share. This helps the company in designing appropriate marketing campaigns. It is also important to note that through the aggressive advertisements and the quest to escalate the sales, Nike sells beyond the products. The buyers are left with the feeling of excellence and victory after buying Nike-branded products.

However, despite the efforts to promote the brand and increase sales as well as market share, Nike faces the problem of convincing prospective customers in new markets. This is because some brands are identified with certain regions, for instance in the United States, Nike is undoubtedly a dominant brand. Nevertheless, some sections of Europe prefer Puma and Adidas brands. Additionally, there is a problem in premium pricing of products while competitors offer similar products at lower prices, For instance, when Michael Jordan retired in 2003, Air Jordan’s were costing $200 but some buyers decided to switch brands for the cheaper options (Schlossberg, 2016). In addition to these weaknesses, the company has also experienced numerous scandals such as producing footwear and apparel in sweatshops and mistreating workers. Some of the brand ambassadors have also experienced scandals. This places the company in a risky position since it may lose customers make it difficult for penetrating new markets.

Production and operations

Under this element of the supply chain, various factors such as designing of products, management of the supply chain, innovation, outsourcing manufacturing, and quality control are considered. Notably, Nike does not outsource manufacturing but has its own facilities. This is because the in-house manufacturing is perceived to be cost effective and quality of materials is easily monitored and classified. Also, the company has a host of specialists and technicians and business leaders who are capable of optimizing the operations of the manufacturing process. In their foreign manufacturing facilities, Nike utilizes local labor rather than employing expatriates as a way of cutting labor costs. Moreover, the company’s main goal I s quality innovative products, therefore, concentrates much on quality control and assurance.

Secondary activities

Among the secondary activities that Nike conducts is Human resource management. Apparently, the company hires individuals who are self-motivated and recruited by a strong management team. This ensures that the people employed are competitive and able to adapt to new working conditions due to the evolving manufacturing technology.  Additionally, the human resource function is capable of ensuring that the employees of the company get constant training and have continuous improvement assessments. More so, Nike keeps its employees motivated through promotions, flexibility, allowing the employees to suggest new methods of production, and offering commensurate remuneration.

Secondly, Nike has instituted effective infrastructure through which formulation and implementation of strategies is monitored. For instance, the company has a robust information technology system that tracks all the transaction within the supply chain. Besides, the company has an online platform called Nike+ where registered members can place orders or lodge complaints or suggestions. This places the company above its competitors since the customers are handled carefully by a great team of customer service. Finally, Nike is compliant to regulations of the various governments where it operates. This ensures that processes are verified and the development and market strategies are adhered to in order to avoid loss of market share.

The other element of secondary activities within the supply chain that Nike considers is technology development. This is strongly hinged upon research and development that form the core of the company. This is accomplished through the Nike Sports Research Lab where various experts such as engineers, designers, and athletes meet to develop state-of-the-art products through technological simulations (Nike News, 2013). Typically, the athletes are subjected to certain controlled conditions where they exercise using Nike products and the defects are noted and corrected in real-time. This ensures that the products get a perfect touch before being released to the market for commercial purposes. Consequently, the athletes gain confidence in the brand and loyalty develops henceforth.

With regard to the entire value chain, Nike can develop further by ensuring that the supply chain for raw materials and distribution chain for the finished goods are optimized to ensure that the right quantities are delivered to the market at the optimum costs.  Additionally, the company should invest further overseas especially in developing nations to ensure that its physical presence is reflected in profitability. It would also be prudent for the company to consider price leadership as a method of acquiring and retaining a larger customer base. This would imply reducing the products on premium prices so that they are affordable to the athletes and the public in general. Finally, the scandals that arise among the brand ambassadors and production chains should be solved amicably and reduced significantly. These would ensure that the value chain is perfect and the products offered would be perceived to be from a reputable brand, therefore, quality would be guaranteed.

Business and Corporate Strategies

Achieving sustainable competitive advantage

Based on the market industry evaluation, it is clear that the sportswear is a very competitive industry, especially with new entrants. The business rivalry between Nike and Adidas could see Nike lose a portion of the market share and a reduction in its profitability. To avoid such as scenario, the following recommendations can be made to the senior management: First, the operations of the company need to be boosted through improved customer service both physically and on the online platforms. This would involve restructuring the manufacturing and distribution process through the implementation of functional level strategies. Secondly, the activity in research lab should be increased so that the company can maintain its position as the leader of product innovation globally. Thirdly, the company should be aggressive on the online platform since most customers today prefer using online shopping as opposed to visiting actual business premises. However, the delivery systems should remain as robust as they are with slight improvements to ensure that products reach the customers in reasonable time as specified in the order.

Additionally, Nike is supposed to strengthen its market research machinery to ensure that the current trends and changing consumer demands are traced in real time. This would ensure that the competition does not stand a chance of filling a market gap as quickly as Nike. This would also imply that once the trends and demand changes are noticed, the appropriate products should be produced with efficient facilitation. More so, due to the global presence of the company, it would be prudent to adopt effective programs to manage the risks associated with fluctuations in the foreign exchange rates. This would ensure that the company remains profitable amid economic turbulence. Finally, the company can consider diversifying into the unsaturated female athlete segment. This would entail developing fashionable products with sporting capabilities. In this regard, the company can also consider the dynamic youthful generation and develop trendy sporting accessories.

 

 

Reference List

Barrabi, T, 2016. Nike Under Pressure From Surging Competitors. [Online].Available from < http://www.foxbusiness.com/features/2016/09/27/nike-under-pressure-from-surging-competitors.html >[Accessed 7 October 2016].

Nike News, 2013. Nike Sports Research Lab Incubates Innovation. [Online] Available from < http://news.nike.com/news/nike-sport-research-lab-incubates-innovation > [Accessed 7 October 2016].

Schlossberg, M, 2016. Nike is facing 3 major challenges to its business. [Online] Available from < http://www.businessinsider.com/nike-is-facing-3-major-challenges-2016-6 >[Accessed 7 October 2016].

Smithson, N, 2016. Nike, Inc. Vision Statement & Mission Statement. [Online] Available from < http://panmore.com/nike-inc-vision-statement-mission-statement >[Accessed 7 October 2016].

 

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Nike considered getting traction on sustainability

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