The brand name “Nike” is one of the most recognized around the globe. The name is synonymous with high-quality athletic shoes, apparel, and accessories in the minds of many people worldwide. Perhaps it is the compelling marketing that commands attention. Or maybe it is the association between the brand name and its famous endorsers, such as Tiger Woods and Michael Jordan. Alternatively, it may be Nike’s cutting-edge sporting vision and technology that entrances multitudes of consumers. Quite conceivably, it is a combination of these factors that has propelled Nike to the top of its industry.
However, not the entire of Nike’s story is ideal.
In recent years, the company has faced criticism in connection with its use of contract labor in developing nations. The purpose of this case is to provide an understanding of the company’s background, its general business strategy, and its use of contract labor. The Athletic Apparel and Footwear Industry The athletic apparel and footwear industry experienced steady growth for more than two decades, beginning in the early 1980’s.
For example, the volume sales in the footwear market are projected to reach 13. 3 billion pairs by the end of 2012, and by the year 2015, the world footwear market is forecast to reach $195 billion.
Consumers were not just professional athletes, but ordinary men, women, and children who wore athletic apparel for both sports and leisure. The industry became more fashion-oriented, resulting in higher levels of innovation and cutting-edge technology. As a result of the emphasis on style and fashion and customers’ demands for improving performance and comfort, the industry experienced short life-cycles for individual products. The industry was characterized by fierce competition in global markets. Industry leaders jousted for supremacy in the professional, female, and youth segments.
By 2005, the U. S. market was considered to be mature, and global markets were likewise rapidly approaching maturity, resulting in intensified competition for market share. There also was heated competition for advertising and promotional licenses, particularly between the two industry giants, Nike and Adidas. For instance, Adidas sponsored one of the world’s premiere soccer clubs, Real Madrid, while Nike sponsored Manchester United, also a world class soccer club in Great Britain. Adidas was also the Official Supporter of the Athens 2004 Olympic Games and the Germany 2006 World Cup in soccer.
However, Nike’s presence was very evident in the World Cup: many teams in this tournament wore uniforms emblazoned with the unmistakable swoosh. The athletic footwear and apparel industry has enjoyed a measure of stability beginning in the 1980’s, due in part to the high barriers to entry that new firms faced. There were high start-up costs due to expensive raw materials; costly innovation, technology, and advertising; and the high market share held by the industry’s leaders. Existing companies achieved economies of scale that were not available to potential new entrants.
In addition, established companies had distinct identities and brand-loyal customers. New entrants would have needed to match these companies in research and development and advertising expenditures to win over customers loyal to the other brands. The world economic recession has affected the world footwear market with sales witnessing erosions in developed countries and growth slowing down considerably in developing countries. The decline in income levels have reduced the spending on clothing especially apparel and footwear (including casual, outdoor, sports, and formal footwear).
Tight liquidity and financial constraints have redefined value and have induced simplicity in lifestyles and this marks the beginning of shifting consumer focus towards value for money bargains. The recession induced price sensitivity, and trading down to lower price points, has therefore constricted revenues in the marketplace, even though expanding opportunities to value brands and private label brands. Premium priced branded athlete footwear market, which exhibited resilience at the start of the recession, has witnessed quick deterioration in business opportunities, with the number of sports participants and enthusiasts declining.
The economic pressures of the recession impacted consumers’ interest in taking up sports, and the drop in sports participation is reflected in the widespread postponement of renewal of club membership fees. Against this backdrop, the global market for athletic footwear is expected to increase at a modest pace during 2007 through 2015 period. Nike, Inc. – From Humble Beginnings… Although headquartered in Oregon, U. S. A. , Nike operated around the world. As of 2006, the company employed approximately 26,500 individuals worldwide.
From humble beginnings, Nike had risen to lead the athletic footwear and apparel industry. Nike began life in 1964, co-founded by Bill Bowerman and Phil Knight. Bowerman was an Olympian, then an Olympic coach, then head track coach at the University of Oregon from 1948 to 1973. On a trip to New Zealand during the early 1960s, he noticed people running for and for the sheer joy of running. The concept intrigued him, and upon his return to the United States, he started the country’s first running club. He also wrote a book entitled “Jogging” in which he explained how to run for fun and fitness.
During Bowerman’s tenure at the University of Oregon, he had coached a young middle distance runner named Phil Knight. Knight wrote a research paper arguing that cheaper, high-performance Japanese shoes could overthrow German dominance of the U. S. athletic shoe industry. On a trip to Japan, Knight contracted with the Onitsuka Tiger Company to sell its quality athletic shoes in the U. S. He made up the name Blue Ribbon Sports (BRS) in 1962 and formed a partnership with Bowerman in 1964, each partner investing $500 in the business (Nike Timeline, 2006).
Bowerman designed most of the prototypes and made suggestions for improvement to the Tiger Company, while Knight distributed the shoes from his father’s basement and out of the back of his car at track meets. In 1965, Jeff Johnson, Knight’s former track competitor at Stanford University, became the first full-time employee of BRS. Under his guidance, BRS opened its first retail outlet in Santa Monica, California, in 1966 (Nike Timeline, 2006). In the following year, the company was incorporated. In 1971, Carolyn Davidson, a graphic design student that Knight met at Portland State University, designed the swoosh for $35.
Later that year, Jeff Johnson devised the name Nike, after the Greek goddess of triumph and victory. “Nike” edged out Knight’s idea of calling the company “Dimension 6” (Nike Timeline, 2006). In 1970, Bowerman created the first running outsole by pouring liquid rubber into his wife’s waffle maker, an innovation that forever changed the design of running shoes (Nike Timeline, 2006). In 1972, Nike and the Onitsuka Tiger Company parted company. Later that year, Romanian tennis player Ilie Nastase became the first professional athlete to sign an endorsement contract with Nike.
Nike’s signing of American record-holder track athlete Steve Prefontaine in 1973 led to many athletes converting to the new brand. In 1974, the waffle trainer was introduced and quickly became the best-selling training shoe in the nation. Subsequent endorsement contracts, advertising campaigns, and athletic footwear innovations (such as Nike air cushioning shoes in 1979) established Nike as a force to be reckoned with. In 1986, corporate revenues exceeded $1 billion for the first time (Nike Timeline, 2006). … To Industry Leader In 2005, Nike generated total revenues of $13. 7 billion, an increase over 2004 of 11. percent. Nike held 40 percent of the global market for athletic shoes and apparel (Nike, Inc. , Datamonitor, 2005). Adidas’ acquisition of Reebok in January 2006 made that company a serious rival to Nike’s industry dominance, cornering 20 percent of the worldwide market (Nike, Inc. , 2006, Hoover’s Company Records). The remaining 40 percent market share was divided among other industry contenders, such as Puma AG Rudolf Dassler Sport, K-Swiss, Adams Golf, Callaway Golf Company, and Columbia Sportswear. Nike continued to lead the industry, largely due to its strong international presence.
In 2003, Nike’s international sales outstripped its U. S. sales for the first time; in 2005, international sales generated 62. 7 percent of all revenues. Nike sold about 200 million pairs of athletic shoes, and the footwear division contributed 53. 1 percent of all sales for 2005. In 2007, Nike’s revenue totaled $16. 326 billion, making a total gross profit of $7. 16 billion. In 2012, for the quarter ended 29 February, Nike’s net income rose 7% to $560 million from the same period last year. Nike said that worldwide future orders for its footwear and apparel, scheduled for delivery from March to July 2012, came to $9. billion – up 15% from the same period last year.
In North America, Nike’s revenues surged by 17% to $2. 15 billion, and in China, gained by 25% to $694 million. Revenues in Western Europe, which has been suffering from sluggish growth and a debt crisis, rose by 4% to $962 million, but these are expected to increase prominently this summer, with the European football championships in Poland and Ukraine and the 2012 Olympics in London. Finally, the total revenues rose 15% to $5. 8 billion. In January, Nike agreed compensation in a dispute with workers in Indonesia over unpaid overtime.
Its Indonesian subsidiary will pay $1 million to about 4,500 workers. Nike’s Vision, Mission and Values An effective and successful Vision statement is powerful and compelling, conveying confidence and inspiring views of the future. The importance of a Vision Statement should not be underestimated. One good paragraph will describe the values, services and vision for the future. The main reason for an organization’s existence is to follow through on the mission, vision values, and goals taking into considerations all key stakeholders. However, every company has different set of stakeholders varying in power and significance.
The Nike organization uses the collaborative process in functional areas identifying the key stakeholders to facilitate appropriate interactions. “In defining the company, strategic managers must identify all of the stakeholders groups and weigh their relative rights and their relative ability to affect the firm’s success” (Pearce & Robinson, 2009). Resourcing the key stakeholders to recommend strategic action plans that support the organizational structure and facilitate the organization’s success. The Nike Mission is “to bring inspiration and innovation to every athlete in the world and if you have a body you are an athlete” (Nike, 2010).
This refers to the fact that Nike exists to supply everyone in the world with the shoes, equipment, or apparel that if anyone has a body then anyone has the potential of becoming an athlete. From the start one understands that Nike intends to merchandize to the world of athletes or people who have a body. That is a huge undertaking, which involves various sets of stakeholder groups. The mission is the catalyst that drives the organization. The stakeholders have power to influence the process of accomplishing the mission, vision, values and goals.
However the stakeholders groups have varying ideas, goals, objectives and expectations on how to accomplish the mission. “Thus claims must be reconciled in a mission statement that resolves the competing, conflicting and contradicting claims of stakeholders” (Pearce & Robinson, 2009). The mission must be clear and concise with a solitary purpose that represents the firm’s goal. Nike’s vision is “to help Nike, Incorporated and our consumers thrive in a sustainable economy where people, profit, and planet are in balance” (Nike, 2010).
By integrating information from the various stakeholders roups, rethinking pass mistakes and processes will allow Nike to continue, implementing sustainable principles. This information enables Nike to make changes in the industry and in the company. Identifying challenges, brainstorming solutions, deciding and acting to evaluate, monitor, and reevaluate if the vision is in line with expectations. Nike’s values are formed by the strategy teams whose primary focus is to work repeatedly on each part of the vision, strategy, factories, environment, community people, and culture the process keeping Nike in line with working toward the goals of Nike organization.
The goal for Nike is believing in the partnerships formed valuing the opportunity to work together with all stakeholders in the apparel industry and to share best practices. Nike has built a stronger relationship with the European governments by considering legislation that will form the future of the clothing industry in areas such as recycling, environmental labeling, consumer awareness, and sustainability. Nike supports the goal of partnerships that bring solutions to enhance sustainability throughout its supply chain and helping the world.
Nike’s mission, vision, values and goals take on the responsibility living up to these stated purposes. Working together to provide inclusiveness, and diversity inventing ways for people, products and profit to thrive for the Nike organization. Creating systems that work together with partners to rethink, reshape, and analyze challenges. Each component builds upon the other to accomplish primary reasons that Nike exists, for the athlete, the planet and to profit. A company’s core philosophy has the power to influence, inspire and challenge employees on a daily basis.
Nike, being the progressive company they are, employs an emergent strategy, one that originates in the interaction of an organization with its environment. Nike’s philosophy is of an extremely importance, not only because of the great success it has garnered Nike and their products, but also because of the continuous call to creativity and innovation it facilitates. The Nike core purpose, “experiencing the emotion of winning and crushing your competition”, is also important in developing the foundation of a brand promise and value proposition.