Competitive Business Strategy, Essay Example

Introduction

This paper presents an analysis of Nike Company that deals with the sale of Nike shoes for sports persons. Phil knight the CEO of Nike had taken sixteen years to build Nike into a competitive number one athletics-shoe company in US. During the development of Nike, Adidas a Germany company was dominant in the market and it owned about 80% of the market share. Knight marketing techniques and approach revolutionized the industry through provision of groundbreaking technologies that made Nike brand the most recognizable in the world. By 1980, Nike Company had dethroned Adidas in the market share.

The CEO owned almost half of the company shares. Before the company became Nike, it began as a small company known as Blue Ribbon Sport. The CEO of the company Mr. Phillip Hampson Knight was born in 1938 in affluent suburb of Portland. He becomes one of the best middle-distant runners in his high school track team. After his graduation he joined the university of Oregon(OU)m in Eugene where he become a team mate to Jim Grille who was his rival in the mile race under coach bill bower man’s track team.

Bowerman was a very good coach who manufactures athletes who gained notoriety as Olympians. Knighr always took number two in his career behind Grille. It is during this time of his athletics care that knight developed the idea of Nike. He said in one of his interviews that “if you ask where Nike come from, I would say it come from a kid who had the world-class ck administered at the age of 17 by bill Bower man. Not simply the shock, but the way to respond. He attached such honour to not giving up, to doing my utormost. Most kids did not have such adjustment of standards, that introduction to reality.” Knight was acknowledging that his company was because of the pressing spirit that his couch Bower man imparted in him when he was only 17 years. Bower man put emphasis on the type of shoed his athletes wore, thus, he ordered pars of Adidas shoes from Germany which were not available in US. He them modeled the shoes into ultra-light weight, custom-fit shoes exclusively for his athletes. Bowerman believed unique shoes could make his athletes fell they have a distinct advantage over other athletes because of the shoes they wore. Phillip knight become the first Oregon runner to wear bower man’s competition shoes in 1958.

After his graduation knight went for a tour in japane with the intention of investigating about the track shoe manufacturing companies to asses which one could be his supplier of truck shoes. With all the rudimentary knowledge of shoes from his many years of hearing from Bowerman, he settled on Onitsuka Company with a “Tiger” brand name as the only hope for US Track Shoe Export Company. Knight them formed Blue Ribbon Company after his return t US in 1963. Later in 1979, the company changed its name to Nike and by 1980 it become number one athletic shoe company in USA. It had grown its sales from $14 in 1976 to $270 in 1980.

This paper will analyze the firm’s external competitive environment, the firm’s internal environment and the overall competitive analysis of the firm in the market. The paper will address the above issues by using renowned business strategy tools like PEST-NED, porters 5 forces and SWOT analysis. Finally, the paper will propose some recommendation on what the company should do to remain or improve its competitive advantage in the market.

External environment of Nike firm/ company

This section of the paper employs the use of various tools to analyze the external environment in which the company is operating. Tools like PESTEL and porters 5 forces will be used extensively in this section to in relation to the company’s competitive environment.

Analysis of Nike’s external environment

PESTEL Analysis

PESTEL analysis is a business strategic planning tool that is employed to perform a thorough business macro environment analysis to determine the best decision to be made in any given instance to survive. It is a very useful business tool because businesses operate in constantly changing environment. In his review Philip Kotler, a Harvard professor, said that PESTEL is a vital strategic tool for measuring business potential, direction, growth or decline and current position. The acronym PESTEL stands for: Political, Economic, Social, Technological, Environmental and Legal forces. Nike Company can be analyzed in the following manner (Kotler, 1998).

Political

This has to do with politics of the day prevailing in country. It is generally assumed that if political temperatures are down; businesses tend to flourish and the vice versa is also correct. Nike being number one sportswear in the USA, its profits, turnovers, marketing sponsor ships and advertising surmount all other sports wear companies. This company is not only positioned as a market leader but also leaders in the industry labor practices initiatives. Although Nike had suffered bad publicity over the last decade, for various reasons, it is best placed in the political climate as an ethical company. This gives it a good public reputation, which keeps on strengthening the brand name. neutrality of USA political temperatures as well as Nikes commitment to industry leading transparency in matters related to social responsibility made the company to be named as the top US company and one of the top ten companies in the world in the current sustainability global reports program. Nike company external environment had a lot of political pressure; the company suffered entry mode regulations, intellectual property rights were infringed on when tiger took it to court.

The company did not face any issues with taxation laws in California. When the company went public, many people bought share in it helping it to grow and compete more favorable with Adidas and tiger brands. The major issue which affected the reputation of Nike company is employee wages and benefits (Kotler, 1998).

Economic

The increased demand for the products in the sporting clothing market in USA over the last 20 years provided a great opportunity for Nike Shoe Company. The only good quality brand, which existed in the US market, was Adidas shoes from Germany which were very expensive and not available. This economic situation provided a very good environment for Nike brand to take root very quickly due to its availability and affordability. Nike is usually making much profit due to its increased sales and lowered costs through economies of scale it is enjoying. Nike enjoyed an economy with high national income. This boosted the demand for its products. The affordability of interest rates made the CEO of Nike to borrow funds, which he used to expand the business. The strong US currency made importation f the shoes from Japan easy. This led to the selling of the Nike shoes Adidas from Germany even though both brands had the same quality. This environment gave Nike a completive advantage over Adidas brand.

During the development of Nike Company USA experienced very good economic stability, inflation was held in control and thus wage demands for employees remained normal. This was a great boost to Nike because it was able to maximize the profits by exploiting cheap labor especially at the industry in Japan. Although the company enjoyed the benefits of good economic climate, it also suffered some finical challenges, for instance, when knight the CEO wanted to solve BRS’s financial problems by wanting to offer 30% of the company to the public in May 1970 failed. The attempts of marketing the company as “sports-taking” an offer to key employees to buy some stock from the company they helped build was poorly received making the CEO to scrub off the offer. Hayes facilitated an agree meant with the Californian banks which show the credit line of BRS expanded. In addition, his inclusion in the group of investors led to generation of more funds for the company growth (Booch, 1996).

Social factors

They are cultural aspects that are perceived to affect the business either in a positive or negative manner. They include such factors as age structure, demographics, rural-urban migration, literacy levels, leisure activities, changing lifestyle and gender role. Those factors are linked directly to the market potential and the customer needs. For example in USA, labor pool is growing. This has led to the firms paying pension to their employees to increase because the staff is living longer. The company targeted athletes and their need for quality affordable shoes. Change in the customers need and preferences for high quality affordable sport gear and the changing lifestyles increased the pace of product change to fit the customers’ needs. The fact that Adidas shoes were expensive and hardly available in US market led a rush into the BRS shoes arrival in the US market because they met customer’s needs of quality, affordability and availability. Majority of Nikes manufacturing takes place in developing countries where more than 500000 workers are employed. This has made the company to struggle with transparency issues due to its vastness. However, the launch of transparence 101 program will help I ensuring that the public is made aware of everything the company is doing. The practices in each factory should be in line with the company code of conduct.

Technological

These trends in new technology keep on advancing on daily basis. Technology can create new products and services as well as phase out existing ones. For instance, mobile telephone created new business for GSM carriers whereas it spelled doom for other business like the postal and courier services. Technological advancement and diffusion of technology in the manufacture of Nike shoes led to quality improvement and competitive advantage. This has played a major role in benefiting the consumers and the organization returns on investment. Nike employs specialists in the areas of exercise psychology, engineering design, and related fields to run the business. They also utilize research committees and advisory boards made up of athletes, coaches, trainers, and other experts to consult and review designs, concepts and materials for the improvement of the products. Employee athletes and other athletes’ wear-test sport wear and evaluate the design of the products and development. Technical innovations in the design of footwear, apparel and athletic equipment is stressed so much so that product are produced that reduce injury, enhance athletic performance and improve comfort.

Environmental

These include such factors as climate and weather changes in a period. Changes in environment are hard to determine or control and they have greater impact on businesses either directly or indirectly. Nike Company has put many efforts towards creating a better world. The implementation of sustainable product innovation cycle has helped the company to advance in creating products, which are sustainable and go beyond customer satisfaction. The cycle guides their operations and that of their suppliers since environmental impact occurs at every step in Nike product process. The use of organic cotton plays a major role in preserving and protecting the environment and health of people living near cotton growing areas. The environmental plan exhibited by Nike has helped in building very strong public relations and has enticed many customers and investors. Many American investors are environmental conscious, thus they feel strongly involved in environmental protection by investing in organizations, which they feel are ethical environmentally. Nike shoes are greener and more ethical as compared with other products in the USA market. Nike shoes are easier to recycle, and the solvent use of reduced by over 85% when compared with other brands like tiger and Adidas.

Legal

Legal factors have to do with government regulations that come into play from time to time. They relate to legal environment of an organization and the impacts hey impose on the performance of an organization in the market place. They include health and safety laws, consumer law, competition law, employment law, and discrimination law. Nike has face many legal issues in its process of growth and development, for instance,

Stakeholders vs. Nike

Nike stakeholders sued Nike claiming that Nike executives withheld negative news and profited from m the results. The allegations stated that the actions of Nike led to increase in stock.

Katimi vs knight

Legal issues emerged between the CEO of Nike and the company, which was supplying the spores of Nike in us, market. Katimi the manager of Japanese company decided to terminate the contract of supplying shoes to Nike because knight had Brocken the contract by selling product from other companies. Despite the knights defense that Nike was a hedge incase the contact to RBS was overtaken. Kitami was able to discover that knight had betrayed him by selling Nike corteges brands in the back storeroom. This matter was solved in court. Despite that, legal challenges Nike passed through still it emerged to be leader in USA market.

Michael porter’s 5 force model

This is a strategic business-planning model that was advanced by Michael porter in the 1980s. Since then it has become a very useful business tool for managers who either want to rise to the top or those who want to revive businesses that have fallen. Porter’s model is pegged in five cornerstones; these are buyers, substitutes, suppliers, competitors and new entrants (Porter, 2008).

Figure 2 Michael porters 5 force model

Buyers: they include both existing and potential customers to the business. Nike has a client a huge client base in the US market. By the end of 1972, the first year of Nike brand, 250,000 running shoes and 50, 00 pairs of basketball shoes had been sold and the sales had increased by 60 %. The company received many customer orders until the demand was about to outdo the supply. There is likelihood of Nike getting customers that are new with the current improvements introduced in the products. Since Nike products are durable, available and affordable, many athletes and casual general, population demands for them a factor that raises the demand for the products. Although other competitors like Reebok ere stiffly competing Nike, Nike brand had gained a very strong name in the market, which makes it hard to be scraped from peoples mind (Porter, 2008). Nike must continually market its product and differentiate its brand against the competitors so that to increase sales and market share. The strong brand identity of Nike plays a critical role in the buying behavior; strong brand gives consumers loyalty and trust. Since Nike dethroned Adidas, it has enjoyed strong brand identity. With Nike, buyers have a chance to select the color of the shoes they want and the option of personalizing the footwear with their names.

Suppliers

Prompt supply of the shoes ensured that competition was maintained at high tone. The transition of RBS to Nike marked the climax of competition. Many suppliers were contacted and Nike stores were plenty of products for every customer need. There are many suppliers in his industry, the fact that the suppliers have little differentiation, makes their bargaining power no existent. Only, letter, rubber, and cotton are the commodity items available in the market. Nike a conglomerate has an advantage and power over its suppliers. Thus, the suppliers tend to depend on it for survival. In addition, Nike and Adidas have standardized their input procedures, concerning the material used; labor force, supplies, services, and logistics this has made it easy for firms to switch between supplies quickly and cheaply.

New entrants

As far as the sportswear industry is concerned, new entrants to the market is always a potential threat that cannot be ruled out. However, given the fact Nike is an old boy in the industry it has an upper hand of leading the pack at least for now. The already established brand name and the loyalty of customers make it hard for new entrants to compete Nike. However, rumors Reebok dethroning Nike were shocking to the CEO and the customers. The introduction of more products by Nike keeps on challenging new entrants. Furthermore, utilization of new technology in manufacturing and constant innovation of new sportswear for women, athletes and casual wear keeps at bar newcomers in the US market. The introduction of new services such as promotions and incentives to lure and attract athletes than half of what other players in the industry are providing shows that Nike is prepared to fight off new entrants to the market who may want to lure customers with new products (Porter, 2008).

Substitutes

Unless you are a monopoly, the type of services and goods you offer will always have substitutes elsewhere. Thus if your customers feel dissatisfied they will easily move out. In this new US Nike sportswear company, the possibility of getting drawback from substitute’s products is quite limited. Therefore, Nike has a bright future in this regard. However, the recent rise of Reebok is a treat, which Nike need to watch. Failure of Nike to manufacturer aerobic shoes created a loophole, which Reebok capitalized to dethrone Nike by the end of 1987. Athlethic footwear products have very low consumer substitutes an there are little alternatives to switch. Some substitutes could be sandals, boots, dress shoe or bear feet. Due to performance, specifications of the product consumers are not likely to substitute. For example a basketball player will not were boot to play basketball. Thus, athletic footwear has no real substitute.

Competitors

Nike has a lot of competitors as far as sportswear industry is concerned.. There are quite many players in the industry all competing for the few customers available. Large firms such as Nike and Adidas have grown immensely and they compete for the market over the last two decades. The companies have expanded globally due to emergences of internet marketing and e-commerce. Competition is fierce particularly in footwear industry and the competitors who dominate the market do so with strategic marketing, strong brand identity, aggressive sales, and very high capital expenditure. The recent emergency of Adidas-Reebok merge has posed a lot of challenge to Nike. Nike had dominated the footwear market in US making then a dominate force worldwide. However, with the recent merger of Adidas and Reebok has posed a threat to Nike market share.

Internal environment

Internal environment of an organization denotes the forces that affect the performance of the organization in the market from within. Nike has many forces, which affects its competitive advantage in the market. The company mission vision, values and goals all form the internet environment, which determine its performance.

Routes to competitive advantage

Innovation

Nike should keep on with the pace of techno innovation. This will improve its products differentiation and increase the customer base. Innovations o foot wear for the athletics that makes runner fill like they are bear footed will compete Adidas and other brands which produce products which are heavy.

Marketing

Marketing will help the company to increase sales and reduce costs. Utilization of internet for marketing will provide Nike with an intangible asset such as market research and consumer buying trends. Through data retrieved from consumer’s Nike will be able to analyze and monitor the buying behaviors. Market research helps them to generate data to be used in analyzing the market trends to organize promotions and marketing campaigns.

Price

Nike has no problem with the price, this is because it acts as prices setter alongside Adidas and Reebok. Nike sells its products at whatever price because of an inelastic demand for its products. Expensive promotions don for Nike produced tuned consumers to believe that Nike produces quality products, which are worthy whichever price they will charge. More so, Nike does not gain competitive advantage through the prices they charge customers.

Competitiveness using ansoff matrix

The matrix consists of four strategies to enable Nike gain competitiveness in the market.

Market penetration: market penetration will not occur with the case of Nike which is already established in the market. However, Nike will attract new customers and non-uses of their products.

Product development

This affects Nike greatly because it continues to produce products for the same market. Development of new products could result in creating new customers for them. Therefore, if Nike wants to remain competitive, development of new products is the best way to go about it.

Market development

This one will not affect Nike because it focuses its products in particular known markets. If Nike changes its market, it has the potential of using or developing a new strategy to conger it.

Diversification:

Nike needs to diversify its product range by introducing new products into the market. Currently it only deals with the limited products although it has the potential of diversifying its products.

SWOT analysis

This is the analysis of the organizations internal features, which matter a lot in placing the organization in he market (Bigelow, 1980). The acronym SWOT means

S-strengths

W-weaknesses

O- Opportunities

T –treats

Strengths

• Nike is a global brand and is number one sports brand in the world. it is famous an recognizable easily with its trademark “just do it”
• Unethical views which tainted the image of Nike have been gradually ironed out by the efforts of management
• Has strong control over its distribution channel.
• Nikes financial position is very strong with little long-term debts.
• The company has experts who carry out innovative designs in footwear. They even allow consumers to design their own shoes
• Nike company is very competitive with a very strong management team and excellent cooperate strategy in all its markets.
• Nike is very efficient in service delivery. It does not have factories, hence does not tie up cash in building s and manufacturing worked. The company is very efficient in research development. This is evidenced with its innovative product range. The company manufactures its products where they will use the lowest possible cost. This gives then the advantage of taking products to wherever prices will be high more cheaply.

Weaknesses

• Despite the organization having diversified range of products, it is still dependent on its share of the footwear in the market for business income. This make s it vulnerable incase the market shae decreases or if the company fails to cope up with current market trends.
• Saturation of the market with Nike brand may make consumers to get sick of Nike brand and shift to other smaller individualized brands.

• The poor working conditions of Nike workers in overseas factories portrays a negative image of the company

Opportunities

• Nike has benefited from product development. Nike brand is strong and if firmly defended by its owners who believe that it is not a fashion brand. This gives Nike the opportunity of its products not becoming unfashionable before they wear out.
• Building of strong global brand recognition is another opportunity of developing the business internationally. Emerging markets like china and India has new generations of consumers so penetrating such markets is a great opportunity. Worked cup and world Olympic events are well positioned to market Nike brand.
• Increased female participation in athletics is an opportunity for the aerobic female wear product from Nike
• Expiration of new technology and innovation makes Nike to remain top in the market.

Threats

• Exposure of Nike to international nature of trade is dangerous incase of trade barriers. Its costs and merging keep on fluctuating because of buying and selling its products using different currencies. This international exposure may mean that Nike if manufacturing and selling at loss for this issue faces all global brands.
• Sport shoes and garments market is very competitive. The traditional view of high quality Nike products produced at low costs is what Nike is capitalizing on in reaming competitive and top in the market. This is no longer used as the basis for sustainable competitive advantage. Other competitor like Reebok and Adidas are producing alternative brands that may take away the high market share of Nike.
• Treats and pressure Nike is facing from human rights campaigners over fair trade and wages in overseas factories potentially damages the brand name and customer loyalty.
• “Sweatshops” portray negative image
• Economic constraints in North American countries and Asian countries are a big treat.
• Challenges of import and export duties threatens its growth
• Strong competition from major competitor such as Reebok and Adidas in all its aspects of business.

Recommendations

1. The current policy of widening the range of sport activities can be continued and expanded. Nike can venture into new markets such as fishing, walking, and hiking which has little entrance barriers. Nike can also expand its market to UK to serve the demands of customers as Mintel investigation report showed.
2. Nike can exploit the opportunities available other than sports and clothing industry. It nay likes to join other companies to expand its product portfolio.
3. Nike should begin a campaign against counterfeit products in sportswear industry. This will increase Nike’s profits and improve PR by becoming more ethical
4. Nike can benefit from economies of scale if they look for new product and upcoming brands to take over while still being an alternative brand for Nike.

Works cited

Bigelow, J. (1980) Strategies of Evolutionary and Revolutionary Organizational Change, Academy of Management Proceedings, 4p, 1 diagram.

Booch, G. (1996) Object Solutions: Managing the Object Oriented Project, Addison-Wesley, London UK.