International Market Strategy Of Nike

International Market Strategy Of Nike Nike is a global company based in United States which employed more than 30000 people across the globe. This paper will talk about Nikes global presence and how Nike has achieved success in past years. We will discuss some facts and figures. This essay will employ literature review to support the evidences in case of dynamic capabilities of Nike and its competitive abilities. Nike is currently facing competition with Reebok and Adidas therefore it should take remain with its strategy of consistency so that the customers will not be puzzled and should take advantage of its brand name. Nike has been involved in never stopping controversies due to sweat shops but due to its preventable actions it gained publicity and today Nike is a stable brand name all over the world. Introduction: This essay will critically evaluate Nikes current international strategy and help to identify Nikes current strengths, weaknesses, opportunity and threats. This essay will also consider the political, legal and cultural issues which Nike can face while implementing any strategies in international markets. This strategy will also consider the threats of entering into a new market and supply of sufficient funds and labour in terms of applying the strategy. Taking any strategy into consideration will also involve an impact analysis and risk, therefore, any potential consequences and levels of risk involved and how to overcome those risks will be covered in the next section. Another section will talk about the never ending controversies which Nike has been facing due to its manufacturing factories in low labour countries. What strategies Nike is applying to overcome this situation and some recommendation for Nike. Finally, the essay will analyse the competition in the selected market, strategy adapted by the competitors and how Nike uses its brand power strategies to anticipate such threats. Nike- A Truly Global Company: Nike is the world market leader in athletic shoes and apparel and operates in more than 200 countries. Europe, Asia, North and Latin America are the main markets in which Nike sells its products, which makes it a truly global organisation. According to Mintel, 20%of the U.S. athletic market is controlled by Nike. The main products of Nike include footwear, sports equipment, men and women clothing and accessories. Nike is established in 1972 by former university of Oregon star Phil Knight which is now one of the richest people in America. Instead of manufacturing Nike designs and markets its products, while contracting for their manufacture from 600 factories scattered all around the globe, that employ around 650,000 people. (L. Hill, 2009) Nike has seen many ups and downs in the market and understands the value co-creation with customers. Nike has customers around the globe and it remains informed and connected with its customers which gives Nike a new source of value. Nike understands the use of involving customers into the business and therefore offers internet sites where customers can share their interactions and experiences, can give their suggestions. Nike can build trust and relationships with Nike community, can learn directly from customers and provide customers what they want which enhances the brand. Qualitative and Quantitative Performance Measures: Let us consider the overall financial performance of Nike across the globe. For the year ended 30/11/2008, revenues rose 11% to $10.02B. Net income rose 4% to $1234.8B (www.nikebiz.com). These financial figures are reflection of great success of Nike in global market as these are taken after assuming the price rise in U.S. and all the changes in the currency exchange rates have taken into consideration. As, it is clear from the figures provided, the revenues have increased tremendously in the year 2008, implies a higher sale of footwear in all the international markets which is obviously a good point to note, because in the period of recession where all the economies are going down, an increase of 11% cannot be neglected. Improved hedge rates year after year leads to higher gross margin which are reflected in the net income which has increased by 4%. (www.forbes.com) Table 1: Financial data Sales Profits Market Value Employees Assets $ 13.2 Billion $ 1.1 Billion $23 Billion 250000 $8.6 Billion Table 1 above gives the insights of financial structure of Nike plc, as it is clear from the figures in table 1 that Nike is strong in financial terms due to which it can increase its business globally. Company has enough capital to implement any international market strategy for example advertising in international markets, providing better services to customers, invest in the new planning etc. Table 2 below indicates that the company is moderately efficient in doing the business. The current ratio of -3 implies that company has sufficient liquid capital to enforce new marketing strategies and extending its business. Invest in promotional activities will also be a good idea. A gearing ratio of barely 2% suggests that company has spare debt capacity which is another benefit because Nike can apply for a loan if it will be needed, however the current condition of the company is adequately equipped in financial and capital viewpoint. Net profit margin of 8.1% suggests that Nike is competent in converting sales to profit margin. Table 2: Ratios On the next page: Net P/E ROA ROE Current Div/Yield Earning/Share Gearing Profit Ratio Margin ($) 8.1% 18.1 14.3 23.2 -3 1.3 4.4 0.2 Growth rate of Nike is indicated in the table 3 below which shows constant steady sales over the past years. A growth rate of 15% in one year and 7% over the last 7 years suggests that Nike is a big player in the market and is constantly playing at the same position. Its sales are increasing day by day due to the market strategy it applies, and the popularity it gained by sponsoring celebrity such as Michael Jordan and Tiger Woods. Just Do It the marketing phrase of Nike is buzz in the town and its swoosh logo gives it that different identity. Table 3: Growth Rates 1 Year 7 Years Dividend % 37% 9.03% Revenue % 15% 7% Earnings per share % 26.8% 17.5% Dynamic Capabilities of Nike Plant and equipment are the assets whose performance can be measured but Noto (2007) argued that brand name, reputation, particular technology and corporate culture with accumulated consumer information are some of the intangible assets which cannot be measured but are invaluable for a firms competitive advantage. Moller et al. (2002) supported the argument and said that a tightly coordinated supply and channel net are the prerequisite to establish a position in the field and keen demand of the customer reflects the strong brands example of both are Nike and Dell. The most effective way to manage and upgrade existing capabilities and resources and to convert the key weakness into strengths is- to outsource. Noto (2007) said that most of the automobile companies have become increasingly selective to choose the activities to perform internally. He also explained that in the athletic shoes and clothing Nike has contracted out many functions such as manufacturing and logistics which Noto argued as a clever step to negate the impact of key weaknesses. Nike undertakes marketing, product design and overall system integration itself but outsourced the other units to be economical. Moller et al. (2002) suggest that Nike with other big companies such as Benetton, Dell and IKEA has a well specified supplier and distribution system which made them efficient in terms of rapid growth opportunity, time compression, production and access to a wider customer base. Eisenhardt et al. (2000) suggests that for the long term competitive advantage Nike could also use dynamic capabilities to enhance existing resource configuration. Anti-globalisation Campaigns against Nike For all of the successes Nike has gained, it has repeatedly accused due to lots of issues for more than a decade. Many a times Nike stores have been targeted by anti globalisation protestors. News organisations such as CBS and several non government organisations such as Global Exchange based in San Francisco criticised the working conditions in foreign factories that supply Nike. According to Gelder (2006), in the race of globalisation, Nike, Coca-Cola and McDonalds are some of the brands which have become the representative of the massive power of large corporations for the anti globalisation movement. A brand is perceived differently in different culture or markets so it could be very catchy for an organisation to build a global brand. An organisation should be aware about the external environments in which it functions and should be very sensitive about its internal culture. It is very unreasonable to say that one strategy will fit globally because the rules and regulations and circumstances are different in different countries (Moore, 2003). And to position a brand competently in a different country needs a great skill to understand all the circumstances. A new but forthcoming field of research in international market strategy can be represented by low-income markets. Most companies are unaware of the potential of these markets and therefore these markets remain unexplored. To better understand customer needs and market characteristics it is very important to develop established ties and alliances with traditional and non-traditional partners in that economy. (Hill, 2009) Although Nike is a U.S. established company but all of its manufacturing is done in low wage countries like Vietnam. Nike is accused of manufacturing its shoes under the sweatshop condition in Asian countries which make a large hue and cry among the media. CBS 48 hours news report that these sweatshops are conducting their activities in unpleasant and unhealthy conditions. Young workers are paid low wages to work long hours and are exposed continuously to toxic substances in factories which can lead to serious health impairment. A foundation financed by labour unions and low-wage countries in 1996 said that Air Jordans popular range of Nike sneakers were made by 11 year olds who are working for 14 cents per hour in Indonesia. A newsletter published by Global exchange argued that most of the shoes of Nike are manufactured in countries like China and Indonesia which has governments that forbid independent unions and set the minimum wages so low that does not provide basic necessity of one person. Douglas and Wind (1987) suggested that a careful analysis of the forces driving towards globalisation and the obstacles to this approach will help the company to assess where the most attractive opportunities and the companys differential advantage in exploiting these, appear to lie based on the strengths and weaknesses. Keeping that in mind, Nike has answered all these questions time to time with new strategies and cleared all the issues and moved efficiently to correct them. Nike has handled the negative publicity over the sweatshops very expeditiously. Nike came in front and took this social responsibility to make a code of conduct to improve the working condition and to improve the conditions of workers and it has amended it time to time. It was advantageous for Nike as well as it remains in the news and gave the publicity to Nike in a way. As Levitt (1983) said a global producers patronage expands exponentially, when he offers his low cost internationally. Levitt suggested that customers with local preferences are also attracted towards the lesser prices offered by global producers. So, it can be said that the strategy of standardisation does not only responds to the worldwide homogenised markets but also expands markets with aggressive lower pricing. Therefore, to establish good public relations Nike took some more steps. It commissioned Ernst Young, an independent organisation to audit its subcontractors overseas factories (Rourke, 2000). When four Indonesian subcontractors are refused to abide by the companys standard for wage levels and working condition, Nike terminated its relationship with them. Stout (1997) argued that this made a positive image of Nike in media and enhanced its public image in Asian countries. Later, Nike adopted a standard according to which a person with 17 years of age or more can work and workers have to prove their age by submitting 3 documents certifying their age (Lee, 2000). Hill (2009) suggests when a company expand itself globally it also consider its consumers benefits, consumers must be served with high quality and low priced products. Some consumers however, prefer those products which caused less harm to others or which are produced in their own country and this is called ethical factor. Consumers can get the best combination of price, quality and ethical factors if provided by relevant information. And Nike consumers get all the benefits from paying low wages to Asian workers. Levitt (1983) suggested that low price regardless of feature preferences and heavy promotion regardless of price, always attracts and influence customers. Macro- Environmental factors Now, PESTLE framework will help us to analyse the macro- environmental factors affecting Nikes international marketing strategies and its business performance. Firstly, the government action certainly will have a great influence. Being a sportswear industry Nike is highly labour intensive and majority of manufacturing is held in low wage countries. As Nike is operating in 4 different continents, the government legislations will be different for different countries. Nike should strictly follow the rules such as minimum wage and child labour; it will make Nike a more socially responsible organisation. A great impact on market strategy will be done by environmental factors. So, Nike should consider in which market to sell, how to reduce pollution and ensure fair terms of trade which are observed by suppliers. A key to implement international strategy could be the demographics and socio-cultural influences. In 2000, in the western economies a great issue of ageing affected the buyers choice as it could lead to change the demand from sportswear to comfort wear shoes. Now-a-days, growing health awareness will result in the demand of sports and fitness commodities (Moore, 2003). Another factor affecting marketing strategy could be the technology, which is improving everyday and never predictable. For marketing and selling Nike is already using Internet web mode, any future marketing strategy should consider telecommunications and information technology advancements as they can go on twitter, face book as these websites are mostly accessed by youngsters which could be the fan of Nike. Finally, if Nike wants to think about some acquisitions or merger, it should take into account the investigation by Competition Commission which could block its activities taking into consideration the government policies. Because as Duguid (2005) suggests that such kind of business acquisition will be against interest of consumers and can lead to monopoly. Nike should not forget suppliers of raw materials like rubber, leather and cotton etc. because shortage of supply can play a big role in setting the pricing policies and applying the market strategies. Nike should establish good relations with suppliers because they can affect business strategies. As Nike operates its business globally, any strategy can have different implication on different culture so it should consider the adaptability, feasibility and suitability by the local people of that country. Competition and Recommendation: Nike faces direct competition from Umbro, Reebok, Puma, and Adidas, which are in a way, the rivals of Nike because they sell the same products and target the same customer groups. The current acquisition of Reebok by Adidas makes this competition more intense. The deal creates a much bigger Adidas a company of $12 billion against $14 billion of Nike. (Carr, 2005) However, both the brands Adidas and Reebok are very different in their culture; Reebok is more lifestyle brand than Adidas. Obviously, this deal will increase the amount of money spent on advertising from both the companies. But, in the past years, Nike succeeded because it didnt confuse its customers and even after acquisitions with skateboard it support its own brand and expand its parent reach without confusing customers. Karpin and Voola (2008) believe that consistency is the key aspect of brand management in the international context. Burghausen and Fan (2002) also supported him by arguing that consistency should not lead to complacency, and management should only make changes when a relevant opportunity is identified. Nike has the ability to influence a DIBC (Dynamic International Branding Capability) to shape the market opportunities around the brand. DIBC is the ability to manage the international branding process as a dynamic capability. So Nike should follow this strategy in future and try to remain dominant over its rivals through the marketing strategy. Nike has always come up with some innovative ideas. The differentiation strategy of Nike is quite competitive so Nike should ensure any international marketing strategy it applies should enhance its superior brand name. Implementation of brand differentiation strategy is allowed by Nikes brand name which is a tangible but important factor to ensure future success and maintain its current leadership and market share. Differentiation is one of the bases which allow Nike to gain competitive advantage. In general, Nike has used all the marketing campaigns possible in the past but it should consider the availability of resources in the different country. As Douglas and Wind (1987) suggested that one standardised strategy may be hampered due do the differences in the marketing infrastructure from one country to another. These may for example include differences in the availability and reach of various promotional media, in the availability of certain distribution channels, or retail institutions or in the existence and efficiency of the communication and transportation network. Such factors therefore may require considerable adaptation of strategy of local market conditions. The type of media available as well as their reach and effectiveness differ from country to country. For instance TV advertising, while a major medium in US, Japan and Australia, is not permitted in Scandinavian countries. Where TV advertising is permitted it may reach only a limited number of households, due to limited ownership of TVs as for example in South Africa, Nigeria or Indonesia. Similarly, in countries with high level of illiteracy the effectiveness of print media is severely limited. (Douglas and Wind, 1987) According to Levitt (1983), through supplying global markets Nike could achieve considerable economies of scale in production and marketing. He suggested that for high quality of products most of the people around the world are ready to compromise their preferences in product features, functions and design. Conclusion: Finally, Nike is a traditional product centric organisation but product was the end point of the consumer experience in past but, today it is the starting point. So, Nike should adopt a strategy to build customer relationship on a scale and scope as never before.