Strategic Analysis for Nike, Inc.
International Business StrategyMGT 6369Spring 2015Dr. Kaveh MoghaddamUniversity of Houston- VictoriaAuthored by: Group 5 Norma EspinosaJon HutchensTeresita Ibarra UriarteKenneth TuttleMichael Venegas Strategic Analysis for Nike, Inc.21945603840480Table of Contents TOC \o "1-3" \u 1.0 Executive Summary PAGEREF _Toc417140615 \h 32.0 Company History PAGEREF _Toc417140616 \h 32.1 Background PAGEREF _Toc417140617 \h 32.2 Purpose of this study PAGEREF _Toc417140618 \h 43.0 External Analysis PAGEREF _Toc417140619 \h 53.1 General Environmental Analysis PAGEREF _Toc417140620 \h 53.1.1 Political and Legal Segment PAGEREF _Toc417140621 \h 53.1.2 Economic Segment PAGEREF _Toc417140622 \h 63.1.3 Socio-Cultural and Demographic Segment PAGEREF _Toc417140623 \h 63.1.4 Technological Segment PAGEREF _Toc417140624 \h 73.1.5 Global Segment PAGEREF _Toc417140625 \h 83.1.6 External Environment Driving Forces PAGEREF _Toc417140626 \h 83.2 Industry Description PAGEREF _Toc417140627 \h 93.3 Five Forces Analysis PAGEREF _Toc417140628 \h 103.3.1 Threat of New Entrants PAGEREF _Toc417140629 \h 113.3.2 Power of Suppliers PAGEREF _Toc417140630 \h 123.3.3 Power of Buyers PAGEREF _Toc417140631 \h 133.3.4 Power of Substitutes PAGEREF _Toc417140632 \h 143.3.5 Intensity of Rivalry PAGEREF _Toc417140633 \h 143.3.6 Summary of Five Forces Analysis PAGEREF _Toc417140634 \h 143.4 Industry Competitors Analysis and Analysis of their Anticipated Strategic Moves PAGEREF _Toc417140635 \h 153.5 Industry Key Success Factors PAGEREF _Toc417140636 \h 174.0 Internal Analysis PAGEREF _Toc417140637 \h 184.1 Organizational Strategy Analysis PAGEREF _Toc417140638 \h 194.1.1 Corporate Mission PAGEREF _Toc417140639 \h 194.1.2 Products and Services PAGEREF _Toc417140640 \h 194.1.3 Strategy (Corporate Level and Business Level) PAGEREF _Toc417140641 \h 204.1.4 Organizational Culture and Core Values PAGEREF _Toc417140642 \h 214.1.5 Leadership PAGEREF _Toc417140643 \h 224.2 Financial Analysis PAGEREF _Toc417140644 \h 224.2.1 Valuation Analysis PAGEREF _Toc417140645 \h 234.2.2 Growth Analysis PAGEREF _Toc417140646 \h 244.2.3 Profitability Analysis PAGEREF _Toc417140647 \h 244.2.4 Management Efficiency Analysis PAGEREF _Toc417140648 \h 254.2.5 Summary of Financial Analysis PAGEREF _Toc417140649 \h 254.3 Value Chain Analysis PAGEREF _Toc417140650 \h 264.3.1 Support Activities PAGEREF _Toc417140651 \h 264.3.2 Primary Activities PAGEREF _Toc417140652 \h 285.0 SWOT Analysis PAGEREF _Toc417140653 \h 305.1 Critical Strategic Challenges PAGEREF _Toc417140654 \h 305.2 Core Competencies/Capabilities PAGEREF _Toc417140655 \h 375.3 Strategic Fit (SWOT) Analysis PAGEREF _Toc417140656 \h 41References PAGEREF _Toc417140657 \h 44Appendix PAGEREF _Toc417140658 \h 511.0 Executive SummaryWhen a consumer is looking for footwear or athletic apparel, the first place many people turn to Nike, Inc. Nike, (NYSE: NKE) is the largest manufacturer of shoes, apparel and other accessories in the world. Nike is an American-based multinational company, which designs and manufactures a broad range of athletic apparel, equipment, and other accessories for golf, baseball, football and other sports. (Nike, Inc., 2014) The purpose of this study is to provide a detailed internal and external analysis of Nike, Inc. The project study begins with the company history of Nike followed by a detailed internal and external environmental analysis and concludes with a value chain analysis. In the external analysis, the general environment will be carefully examined to determine the driving forces affecting the athletic apparel industry. The external review will discuss the current industry situation and major players competing in the industry, follow by a conclusion summarizing the critical factors that Nike must employ to be successful. Throughout the pages to follow, recommendations will be provided, and implementation strategies reviewed as potential solutions to current Nike strategic issues. Overall, the details of this company analysis will shed more light into the strategic health of Nike resulting in a clear competitive analysis of the enterprise.2.0 Company History2.1 BackgroundOne of the most well-known brands in the world, Nike was founded in January of 1964 as Blue Ribbon Sports, with dual $500 investments from Phil Knight and Bill Bowerman. Bowerman and Knight formed the company in hopes of selling quality Japanese shoes in the United States. After a brief working relationship with the Japanese fizzled in 1971, Blue Ribbon Sports launched their line of footwear and changed the company name to Nike, named after the Greek Goddess of Victory. (Wikipedia, 2015)More than just shoes, Nike has blossomed into an industry leader paving the way through innovative designs, global marketing campaigns, second-to-none manufacturing and distribution techniques. Nike manufactures footwear and apparel mostly outside of the United States, but reaches consumers all over the world through thousands of retail stores as well as their online site. Over the past decade, Nike has established itself as a major player within the sports apparel industry. The company has consistently grown their global market share year over year and spends strongly on both marketing and technology to enhance their brand and numerous product lines. Today, Nike is the world’s largest manufacturer of footwear, apparel, and accessories. Company revenues were in excess of $27 billion dollars for fiscal year 2014. Nike sells products under Nike, Converse, and Hurley with a majority of the company’s revenues coming from footwear and apparel. (Nike, Inc., 2014)2.2 Purpose of this studyThe purpose of this study is to provide a detailed external analysis of Nike, Inc. The project study begins with the company history of Nike followed by a detailed external environmental analysis. In the external analysis, the general environment will be carefully examined to determine the driving forces affecting the apparel footwear and accessory industry. The following industry analysis will discuss the current industry situation and major competitors in the industry, follow by a conclusion, to summarize, the key factors that Nike must employ to be successful. Throughout the pages to follow, recommendations will be provided, and implementation strategies reviewed as potential solutions to current Nike strategic issues. Overall, the details of this mid-term project analysis will shed more light into the strategic health of Nike resulting in a clear competitive analysis of the company.3.0 External Analysis3.1 General Environmental AnalysisThe general environmental analysis is necessary to evaluate a company's strengths, weaknesses, opportunities, and threats. A thorough external analysis allows a company to adapt its direction and strategy as needed. The critical components of an external analysis include the political, economic, social and technological segments. As part of this study, each of these areas will be analyzed to provide a precise strategic external analysis of Nike, Inc.3.1.1 Political and Legal SegmentGlobal companies within any industry must stay apprised of the political and legal segments within those countries in which they operate. Monitoring this section will help ensure a business remains ahead of changes in laws or governmental regulations. There can be several benefits to operating within countries that have favorable tax systems and stable currencies, including gaining financial flexibility to grow the business and taking advantage of certain economic policies. Stability within country should allow the company to thrive once established, but if the company is not monitoring changes, the seemingly smallest change can bring negative ramifications to any business. (Makos, 2013)The United States, while slowly recovering from a recession, has seen relatively stable conditions over the last several years. A multinational company that maintains headquarters in the United States has been able to take advantage of these circumstances. While conditions may be stable currently, it is important that a company stay focused on the ever-changing laws and regulations that might negatively affect the way a company does business. Whether tax changes, worker rights, child labor laws, added or increased manufacturing controls, the way a company does business can quickly change and require adaptation to continuing operating profitably. Failure to adapt can bring penalties, fines or even lawsuits, costing the company significant money in legal fees or fines. (Makos, 2013)3.1.2 Economic SegmentThe U.S and global economies can have a significant effect on the textile industry. A world recession has resulted in decrease consumer spending, currency exchange rates, and interest rates can also have an impact on economies and the industry. The U.S. economy is recovering from a recession, and the retail industry has certainly felt the effects. Companies should benefit as the economy continues to recover, and consumers find increases in the amount of disposable income available to spend on sporting goods and accessories. An economic turn-around should have a positive effect on the retail industry. According to the US Bureau of Labor Statistics, the unemployment rate is in steady decline, reflecting 5.7 percent at the end of January 2015. (U.S. Department of Commerce, 2015) As more of the unemployed find work, there should be a natural increase in spending within the retail segment. (Wagner, 2014)Another economic factor a large global manufacturer is the benefit from the lower cost of labor in other countries, where companies can comfortably outsource and pay lower wages. Lower priced labor can create a competitive advantage for a business, through lower cost to manufacture goods for sale. (Strange, 2015)3.1.3 Socio-Cultural and Demographic SegmentSociocultural, the part of the internal environment, is focused on the attitudes and values of the society such as workplace diversity and environmental concerns. The demographic segment concentrates on target market characteristics, such as gender, age, income distribution, geographic distribution, and occupation. (Makos, 2013) Target market characteristics are some of the most important factors to any industry but have extreme importance within the consumer cyclical sector. (Ken Research, 2012) The socio-cultural segment is a major driver for a consumer products company. The typical consumer pays very close attention to what celebrities do, and if a celebrity is to purchase a particular brand, consumer demand for that product or brand naturally rises. Apparel manufacturers must stay close to the cultural climate in order to adjust for the increase in the application for a particular type of clothing. In the US, people of all ages are getting more serious about taking care of themselves. Increases in health-conscious consumers are paying off for athletic apparel companies who are experiencing higher demand for fitness products, shoes and other equipment. (Trefis, 2013)3.1.4 Technological SegmentThe technological segment examines innovative enhancements, and other activities focused on the creation of knowledge or implementation of systems that are translated into new processes, products, or other items for sale. (Makos, 2013) Examples of technological enhancements that help with the process enrichment are the implementation of more efficient distribution mechanisms and backend computing platforms. These systems help retailers sustain demand surges along with planning for the consumer needs regionally and ensure manufacturers can track applications of specific products and adjust the output to meet those requirements. (Internal Revenue Service, 2014) Companies such as Wal-Mart spend a significant amount of their technology budget tracking consumer spending habits. Understanding consumer habits and trends allows the retailer to position the most appropriate products and services within their stores along with streamlining costs and distribution.Aside from supply and demand benefits, the consumer often requires technologically advanced products and the inherent technology within the product must evolve as fitness evolves, in order to give athletes a competitive advantage. Excellent products must be readily accessible to the consumer and technology is often used to sell and market products. Products are often made available through direct to consumer capabilities such as internet websites giving companies a significant advantage when moving into emerging markets.3.1.5 Global SegmentAs discussed in the political section above, there are ever changing laws and restrictions that will play a significant role in the way companies do business globally. The world economy may provide an entry for a company with which they might expand further, through cheaper labor and manufacturing costs. The global segment lends insight into the part of the environment which includes global market expansion opportunities, changes within existing markets, international events and other cultural considerations to expansion into world markets.It will prove important for the company’s executives to stay close to the global segment in order to take advantage of emerging markets. If a corporation is successful at establishing a brand within emerging markets, competition will struggle to enter and sell goods and services within these same markets.3.1.6 External Environment Driving ForcesThe major driving forces within the apparel and accessories industry are:Sociocultural Trends – The effect of lifestyle changes and attitudes of society seem to be ever-evolving and can have an acute effect on the apparel industry. As discussed previously, the sports apparel industry has a profound reflection of society and vice versa. When a celebrity chooses to wear a brand, society takes notice and will often follow suit, which builds brand loyalty. Sports are heavily corkscrewed into the attitudes, beliefs and followings of a large number sports fans across society. Even those individuals who are not sports fans are influenced by the biggest celebrities in sports. The cultural climate can drive the demand for a particular type of clothing especially when it comes to the health-conscious consumer.Globalization –The impact of sports can be felt around the globe, and the company must take advantage of their worldwide brand to increase their sales globally. Whether it be through sponsorship of Olympic Games or sponsorships of athletes with global name recognition, companies can surely increase sales by focusing on the global customer marketplace. There are risks associated with global expansion, including fluctuation of currency, improper cultural considerations and in-country political unrest that can do irreparable harm to a company or brand.3.2 Industry DescriptionIn fiscal year 2014, Nike achieved nearly 27 billion dollars in revenues from an industry that consists of companies designing and selling clothing, footwear and accessories. Nike manufactures and sells through traditional stores as well as their brand of Nike brick and mortar stores called, Niketown. While clothing and shoes are to most a basic necessity, purchases are often made less often and when consumers need to update their wardrobes. Rare purchases leave the industry susceptible to economic uncertainty and downturns, leaving consumers with the need to cut their budgets to pay for higher necessity items such as food and gas.The textiles and apparel industry consists of companies that manufacture clothing and accessories from yarn and other knit fabrics. There is a broad array of product lines created through the manufacturing process, including fashion clothing, outerwear, active wear, camping products, hats, gloves and foundation garments.According to Forbes, the market for the global sporting apparel has a value of more than 140 billion dollars. This figure takes into account the consumer purchases of many different product types such as athletic footwear, exercise equipment, and athletic apparel, all of which Nike and its competitors are looking to grab market share. (Statista, 2014)The Unites States Census Bureau estimates that the population of the United States is current 318 million people and is growing at over 3% annually. (U.S. Department of Commerce, 2015) As the global population continues to grow, the market size should continue to grow as well. An increasing fitness conscious consumer base, searching for comfortable, yet stylish footwear and apparel, should result in a growth rate of 4% over the next few years, reaching nearly 180 billion dollars by 2019. (Trefis, 2013) Nike is uniquely positioned to take advantage of the footwear and apparel industry, through their wide variety of offerings. A stated above, consumer demand is expected to continue to increase given the health conscious consumer and more Americans paying close attention to their health that includes regular workouts to achieve desired weight and health goals.Nike is the clear leader in the US athletic apparel market and has continued to gain competitive edge with innovative marketing techniques that place the company’s brand in front of millions of people each year.3.3 Five Forces AnalysisThe five forces model of competition is the creation of Michael Porter of the Harvard Business School. His framework implies that an industry is influenced by five forces, and the risk-adjusted rates of return should be constant across firms and industries. These five forces consist of those forces close to a company that affects its ability to serve its customers and make a profit. A change in any of the forces normally requires a company to re-assess the marketplace. (Peng, 2014, p. 35)Nike can use the understanding of the five forces to develop an edge over rival firms and better to understand the industry in which they operate. Nike product offerings fall into three broad categories, which include athletic footwear, sports apparel, and performance equipment.A breakdown of each of these five forces in relation to Nike follows.Summary of Five Forces AnalysisSummary of Five Forces AnalysisAthletic FootwearSports ApparelPerformance EquipmentNowFutureNowFutureNowFutureBuyer LeverageLLLMMMSupplier LeverageVLVLLLMMThreat of New EntrantsMMHVHVHVHThreat of SubstitutesLVLVHHHHIntensity of RivalryHVHVHVHVHVHProfit PotentialHVHHHMHRating Key: VL = Very Low; L = Low; M = Medium; H = High; VH = Very High; N/A = Not Applicable3.3.1 Threat of New EntrantsThe competitive pressure associated with the threat of new entrants into the market is something all industries must consider. When a product or service is, successful others want to reap the benefits, thus look to enter the market. The threat of new entrants into the footwear and apparel industry is low. A substantial capital investment is required for entry into the marketplace, and established companies have achieved the benefit of economies of scale necessary to fend off potential new entrants. Footwear and apparel companies face trade protectionism due to uncertain global economic conditions. (Ken Research, 2012) If trade laws are implemented the result could be higher product costs and lower industry profits, which deters new entrants. Another area that Nike and their competitors have done an excellent job of establishing is product differentiation. Nike has a well-established brand, and consumers now expect the brand to deliver high-quality products. Thus, new entrants struggle to create product differentiation to the point Nike has maintained. However, the low entry barriers of online competitors and ‘untapped’ emerging markets are areas of concern for Nike. Thus, Nike needs to improve their business continually to stay ahead of the competition and keep barriers to entry high.3.3.2 Power of SuppliersUnderstanding power of suppliers is to understand how strong the competitive pressures stemming from supplier bargaining power and seller-supplier collaboration are within the industry. The bargaining power of vendors in Nike’s case is relatively low. Nike has a large number of vendors, with which the company has developed strategic partnerships. (Nike, Inc., 2014) The company has about 150 footwear suppliers located in 14 countries and 430 apparel suppliers located in 41 countries. (Nike, Inc., 2014) Nike is an important customer of these suppliers, thus lowers the bargaining power of industry suppliers.Nike faces the risk of disrupted operations if future events prevent it from acquiring products from suppliers. In particular countries, however; due to Nike’s large number of providers, this would only create a short-term operational disruption. Their agreements with suppliers give Nike the right to offer a product that is only available in their stores or online marketplace. These advantages provide leverage when competing, especially when consumers find a branded product so well liked. Suppliers are highly unlikely to integrate vertically and become a rival of Nike. The company’s brand is very strong globally. Therefore, a company attempting to build a brand from the ground up will encounter a significant financial commitment.Nike needs to consider how many suppliers exist for a particular product and how costly seller switching costs might be for their offerings. When Nike builds brand loyalty, it puts the supplier at a disadvantage to switching to another apparel company because the consumer demand will decrease initially over the confusion as to where to purchase the product. If Nike can continually meet the revenue needs for a particular supplier, there is less chance that increased supplier bargaining would occur. The products Nike providers are not overly complex in nature, thus the opportunity for additional providers stays consistent and more could come at any time.3.3.3 Power of BuyersThe buyer’s bargaining position is something that Nike needs to stay close to, but not spend much time worrying about their position, considering their industry domination. Nike products provide a quality of life enhancement for many athletes and have established a brand that many consumers have built loyalties. (Nike, Inc., 2014) While the buyer switching costs are low, and the company must stay focused on the overall value and brand of their offerings. Nike should continue to utilize marketing to increase buyer awareness and ensure brand loyalty is unsurpassed. The company has taken strides to train their workforce in hopes that better overall industry knowledge will result in increased revenues. (Nike, Inc., 2014) Training their workforce to understand how to cross-sell will allow employees to position the overall benefits of the company’s offerings to each buyer. Nike sells its products to thousands of retail accounts, independent distributors, licensees, and directly to consumers in various regions including North America, Latin America, Europe, and Asia. Although Nike has a large number of buyers, no single customer accounted for more than 10% of worldwide net sales in 2014. (Nike, Inc., 2014) Also, Nike’s high brand recognition lowers the bargaining power of buyers.3.3.4 Power of SubstitutesAlong with the threat of new entrants, the power of substitutes is one of the most important factors Nike must consider when doing business. Companies can offer substitutes at lower prices, but Nike has and must continue to differentiate their products and services and understand the external environment. Differentiation will position the company to improve continually and stay ahead of substitute offerings. Counterfeit goods are and will continue to be Nike’s biggest concern. When Nike finds counterfeit products, the company challenges these products on the basis of trademark, design patent, and intellectual property infringement. (Nike, Inc., 2014) The overall threat of substitute products is low for Nike, because, as discussed previously, Nike has a well-established global brand and substitute products, especially counterfeit goods, are typically inferior in quality.3.3.5 Intensity of RivalryNike operates within the global footwear, apparel, and equipment industry, which is highly competitive on a global basis. Nike is a market leader that produces all of the products that fall within this industry and, therefore, competes with a large number of athletic footwear and apparel companies on an international level. Adidas has been Nike’s primary competitor, but more recently Under Armour has passed Adidas as the number two brand in the sports apparel industry. (Mirabella, 2014) New Balance, Crocs, and Puma are secondary competitors. While the competitive rivalry within the industry is high, Nike can address rivalries by changing prices, improving product differentiation, enhancing the use of channels of distribution and exploiting relationships with suppliers. (Mbalectures, 2011)3.3.6 Summary of Five Forces AnalysisThe sports apparel industry offers a low barrier to entry and a seemingly ever-increasing buyer demand. Nike is uniquely positioned to take advantage in an industry that is relatively stable and contains a limited number of genuine rivals, but with a constant threat of new entrants, the company must stay focused. Nike has over 150 footwear suppliers in 14 countries and an even larger number of apparel providers, which lowers the bargaining position of any one supplier. A wide variety of associated products, gives Nike an advantage of rivals, in that the company can weather the storm if demand decreases for any one product line. A strong brand presence has positioned Nike for long term sustainable revenue growth. Therefore, Nike must continue to extinguish counterfeit goods when they surface to prevent harming the brand. 3.4 Industry Competitors Analysis and Analysis of their Anticipated Strategic MovesA competition analysis is important in that it lays the groundwork for the focus areas a company might look to address as part of their overall strategy. Nike must thoroughly understand their competition to position themselves better to continue their dominant position and to adjust when necessary, to the moves of their rivals.Nike is firmly in the pole position as the industry leader in the sportswear apparel, the leading competitors in the industry are Adidas, Under Armour and Crocs providing footwear to compete with Nike. (Ken Research, 2012) Nike’s primary competition is as follows:AdidasAdidas is a German multinational company based in Bavaria, Germany. The company consists of the Reebok sportswear company, Taylor Made Golf Company, along with Rockport. Adidas is considered the largest competitor for Nike and produces many of the same products, including watches, clothing and footwear. (Adidas Group, Inc., 2014, p.?46)Under ArmourUnder Armour, Inc. is an American sports clothing and accessories company, based in Baltimore, Maryland. The company is a supplier of sportswear and casual apparel and began offering footwear in 2006. Under Armour’s, growth trajectory is something Nike needs to monitor as Under Armour is looking to take market share. (Under Armour, 2014)Crocs, Inc.Crocs, Inc., provides casual footwear for men, women and children. The company has established sort of a cult following and had scores of fans all over the globe. According to the company’s website, Crocs has sold more than 200 million pairs of shoes, including their famous clog, sneakers, sandals and boots, in more than 90 countries. As a footwear provider, Crocs, is eating away at profits Nike could gain through a more casual line of footwear. (Crocs Company | All things Crocs, 2015)While Nike continues to position themselves to fend off competition, their most formidable competitors will be positioning themselves to take on the mega-company, hoping to grab a bit of market share. Adidas will continue attempts at signing the biggest names in sports to their brand in an effort to keep the company at the forefront of the sports apparel industry. If one of Adidas’ big name sports stars runs into trouble or get injured, the company will look to replace that athlete with another. As Nike’s biggest pure competitor, Adidas is sure to expand operations in the United States in an attempt to take market share. Under Armour is a viable competitor and seems to be gaining more brand recognition. The company is signing talented young superstars in hopes of reaching a younger audience, which will help the company grow over the long term. These competitors as a whole will look at areas where Nike is not as strong, such as hunting apparel, baseball, wrestling and lacrosse to take advantage of untapped markets.The data within the external analysis above shows Nike has a substantial advantage over other competitors with their extremely strong brand name and recognition in sports apparel and footwear. Nike is continuing to show signs of revenue growth and make acquisitions where necessary to fend off competition or add to their portfolio. The company must stay focused and continually improve in the advancement of footwear technology as rivals will be lurking and looking to take advantage if Nike slips.3.5 Industry Key Success FactorsKey success factors (KSFs) are those competitive factors that most affect industry members’ ability to prosper in the marketplace. Key success factors may include specific product attributes, resources, competencies, competitive capabilities, or intangible assets with the greatest impact on future success in the marketplace. (Mbalectures, 2011)Within the sports apparel industry, three key success factors stand out as most impactful to a company’s success. Firstly, marketing to create a supreme brand image can benefit a business over the long term. A strong, notable name allows for a sustainable advantage over current rivals and heightens the barrier to entry for new competitors looking to enter the industry. Companies often look to the world’s most well-known and influential celebrities to wear their products and build brand awareness. Marketing through influential celebrities develops a recognizable, premium brand and results in increased revenues. (Mbalectures, 2011)Secondly, a company that offers a broad range of related products can sustain downturns in the market or lessening of demand for a particular product line. When a corporation offers a wide array of related products, they can couple products to provide more value for the consumer. For example, in the sportswear and apparel industry, a vendor can offer discounts on accessories upon purchase of a shirt/shorts combo, or throw in free socks with the acquisition of shoes. The perceived value-add for the customer is greater, which also leads to increased bottom line revenues. (Mbalectures, 2011)The third-way companies can also gain competitive advantage is by addressing research and development and manufacturing to ensure they can adjust quickly to market demands. Adjusting to consumer preferences by quickly making the proper adjustment to the company’s product offering, lends a distinct advantage over the competition. If a business can make it to market first and even set an industry trend that the company will consistently establish themselves as a market trendsetter and leader. Tightly aligning R&D with manufacturing, grants a company with the ability to develop new products and even influence buyer preferences through marketing campaigns. As discussed earlier, there has been a recent rise in the number of fitness conscious consumers in the United States. A nimble and aggressive company is in a position to exploit this trend and maximize profits in the short term. (Mbalectures, 2011)4.0 Internal AnalysisThis section focuses on the microenvironment or the internal analysis of Nike, Inc. The internal analysis helps identify the core competency of the company along with aligning value proposition to the marketplace. A proper analysis helps business analysts understand the competitive advantages and create a good market position. Exploiting core competencies, allows firms to develop value-creating strategies superior to their competitors and position themselves to obtain a foothold on the leadership position or better aligns with the methods necessary to reach leadership capacity. (WebFinance, Inc., 2014)4.1 Organizational Strategy AnalysisNike is an American-based multinational company and the largest manufacturer of shoes, apparel and other accessories in the world. The company designs and manufactures a broad range of athletic apparel, equipment, and other accessories for golf, baseball, football and other sports. (Nike, Inc., 2014, p.?47)4.1.1 Corporate MissionNike’s mission statement is "To bring inspiration and innovation to every athlete in the world." This mission statement shows the clear, concise direction the company is going. Nike simply wants to be the preferred provider of inspiration for every athlete. The company’s strategy is to attract and keep customers by becoming the preferred provider for every athlete in the world. As part of this strategy, they focus on delighting customers, operating their business efficiently, and growing their business. (Nike, Inc., 2014, p.?1)4.1.2 Products and ServicesBringing inspiration to every athlete in the world is serious business for Nike. Nike sells its athletic footwear and apparel globally and focuses on eight key categories, including running, action sports, basketball, soccer, men’s and women’s training, action sports, golf, and sportswear. Nike sells its products through retail affiliates, through their wholly owned Niketown stores as well as online through . The company offers its products to men, women and children across all the main global sports, with operations in Japan, Europe, China and emerging markets. (Reuters, 2015)Nike has built a unique and profitable way of doing business. Nike wants bring inspiration to every athlete, no matter their demographic. Nike accomplishes this by offering a wide array of athletic apparel and accessories that can be worn as athletic wear or casually. The company generates a majority of revenue from their footwear sales, followed by apparel and equipment. (Nike, Inc., 2014, p.?47)4.1.3 Strategy (Corporate Level and Business Level)Nike Corporate Level Strategy. Nike pursues an international diversification strategy. Its geographic market scope is extensive; “substantial presence beyond geographically and culturally neighboring countries”. In fiscal 2014, US sales accounted 46% of total revenues; the other 54% of sales came from international markets. Nike’s operating geographic segments are: North America, Western Europe, Central & Eastern Europe, Greater China, Japan, Emerging Markets, and Global Brand Divisions. Revenues in 2014 (millions): $12,299 (44.2%), $4,979 (17.9%), $1,387 (5.0%), $2,602 (9.4%), $771(2.8%), $3,949 (14.2%), and $125 (0.4%) respectively; Converse $1,684 (6.1%) (Nike, Inc., 2014a).International branch offices and subsidiaries of NIKE are located in Argentina, Australia, Austria, Belgium, Bermuda, Brazil, Canada, Chile, China, Costa Rica, Croatia, Cyprus, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Korea, Malaysia, Mexico, New Zealand, the Netherlands, Norway, Panama, the Philippines, Poland, Portugal, Russia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Arab Emirates, the United Kingdom, Uruguay, and Vietnam.Nike Business Level Strategy. Nike targets customers with enough disposable income to afford its branded products and all the benefits perceived with having the brand. The company makes emphasis and uses diversification as a tool to support its product differentiation. Through its “Affiliation” dimension, Nike is constantly improving its products to delight customers and reinforce their relationship (Sioridze, 2011). In order to enhance its brand and build brand loyalty, Nike follows a differentiation strategy; its team focuses on designing and delivering unique products perceived as valuable (Sioridze, 2011). Under this competitive strategy the company’s key functional areas are: R&D, marketing, and sales. Nike assigns a great amount of resources to support the design and manufacture of innovative high-quality products and market and distribute them using creative communication channels (Nike, Inc., 2014a).Nike segments its market geographically: the Americas, Europe, the Middle East, Africa, and Asia (Nike, Inc., 2014a), and then by demographics: men, women, and children. Also, these demographics are examined and analyzed “in term of physical capabilities, sociological needs, and design preferences” to further segment the market, offering both footwear and apparel, in the sport categories: running, football (soccer), baseball, basketball, tennis, and more (Sioridze, 2011).4.1.4 Organizational Culture and Core ValuesNike has built a very strong culture over time and has done a wonderful job maintaining the foundational views developed by Knight and Bowerman back in the late sixties. Just like the company’s mission statement, discussed earlier, leadership has tried to instill those same values in the company. Nike asks their 56,000 employees to strive to tap into their innovative nature and develop innovative, yet easy to use products that inspire those who use them. (Farfan, 2015) Nike also asks their leadership team to lead with excellence using the core principles of Lead, Coach, Drive, and Inspire. This leadership focus drives values to their global workforce.The company does not seem to have an explicit list of core values, but does focus heavily on sustainability and innovation. Sustainable innovation is referenced heavily on the company’s website and through . Nike understands that the enterprise must understand impacts, risks and opportunities of doing business. (Nike, Inc., 2013) Whether it is the environment or business challenges, Nike has proven the company understands where risk lie and seems focused on delivering sustainable and safe products and services.4.1.5 Leadership“The brightest leaders create opportunity and inspire other to do their best work” (Nike, Inc., 2014b). Nike’s leadership is represented through its corporate governance board of directors. The chairman, Philip Knight, is a co-founder and director since 1968 and his work is key in the creation and global leadership of Nike brand. Knight’s strategic leadership has facilitated the growth of the company; he has built a brand identity culture to fully engage the organization members with the brand. “The bridge from organizational brand image to external brand image was readily and tactfully assembled through Nike’s methodical use of athletes in working to mainstream and assimilate the brand within the global society” (Neiderhauser, 2013).Nike’s leadership and success have also been achieved through the implementation of its “Code of Business Conduct & Ethics”. This code provides the principles and guidelines to the entire organization for how to conduct business (Nike, Inc., 2014b).As of May 31, 2014, Nike had 56,500 employees worldwide. The company identifies the relationship with its employees as excellent with no unions, except for some employees in emergent markets where it is required by law. Also, in some European nations it is required to comply with “national collective bargaining agreements”; Nike’s operations have never been interrupted for a labor disagreement (Nike, Inc., 2014b).4.2 Financial AnalysisIn the financial evaluation section, analysis of the company’s performance for the past three years will be conducted. This performance will be compared to their nearest competitor, as well as the industry and the S&P 500 when applicable and/or available. The information was gathered from various sources, including the company 10Ks, competition 10Ks, and other finance resources. The analysis includes four categories: Valuation, Growth, Profitability, and Management Efficiency.4.2.1 Valuation AnalysisValuation is an attempt to estimate the market value of a firm or its financial assets. In order to perform a valuation analysis, price to earnings, price to sales ratios, and price to book will be used. We will evaluate the effect of Nike’s stock and revenue on their ability to compete and hold an overall value. Nike’s common stock trades on the New York Stock Exchange under the symbol NKE. Table 1.2 in the appendix indicates the intra-day quarterly high and low price per share of NKE common stock over the past two fiscal years. When comparing Nike’s stock to industry competition the company indeed holds their own. Graphic 2.1 in the appendix shows Nike’s stock in comparison with Adidas and Under Armour. Under Armour is outpacing Nike as far as stock growth and will prove a formidable competitor in the near term. The price to earnings (P/E) ratio reflects the price investors are willing to pay for every dollar of company revenues. (Dow Jones & Company, Inc., 2012) Just put, investors are paying a dollar amount for every $1 of the business's earnings. P/E ratios are also known as the stock multiple. In Graphic 2.8 and 2.9, Nike’s P/E ratio for FY14 was 28.53 while Under Armour’s was 80.05. Another way to look at a company’s valuation is to evaluate the price to sales ratio. The sales to price ratio are a firm's stock price divided by its sales revenues. For FY14, Nike shows a Price/Sales ratio of 2.82 while Under Armour reflects 5.32 in Graphic 2.8 and 2.9. Lastly, the price to book ratio, which the ratio of a company’s share price over its book value, is a great way to gauge value. In FY14, Nike has a 7.17 while Under Armour has a 12.15, which might tell an investor that Nike is a better value, considering current stock price. (McClure, 2015)An investment decision should be made in combination with other indicators. The P/E ratio for Nike is in line with the industry average while Under Armour is much higher and should be investigated further. Both Nike and Under Armour calculate price-to-sales ratios, significantly greater than the industry average. High ratios suggest that both companies are active industry players.4.2.2 Growth AnalysisNike and Under Armour alike, have performed very well over the past three years. Total Revenue, Gross Margin and Net Income have all grown substantially. Nike’s results from operations over the past three years if reflected in Graphic 2.3. Under Armour shows a strongly in Graphic 2.8 amongst all three categories. While Nike is dominating as far as total revenues, Under Armour has almost doubled revenues in the past three years and is proving to be a considerable threat to take market share. From 2012 to 2013, Under Armour grew by 27%, while Nike, during the same time frame grew 8%. 4.2.3 Profitability AnalysisA profitability analysis shows how well a company performs in relation to its income. In order to gain better insight into a corporation’s profitability, an investor can consider a company’s Profit Margin and Operating Margin. In Graphic 2.2, the margins for Nike are shown for the trailing twelve months. Nike has improved each year since 2012 and outperformed its competitors in this area. A company’s operating margin is a measurement of what proportion of an enterprise’s revenue is left after paying production costs. (Investopedia, 2015) For the trailing twelve months, Nike has a 13.45% operating margin while Under Armour is keeping pace with 11.48%Profit Margin measures how much out of every dollar a company keeps as earnings. (Investopedia, 2015). For the same period, Nike returned a 10.07% while Under Armour finished with a 6.75%. Even with higher revenues and operating costs, Nike has been able to return higher margins that its competitors.4.2.4 Management Efficiency AnalysisThe management efficiency analysis shows how much money the managers can obtain from their assets. In other words, this analysis shows how well a company is using its assets to generate sales. Management efficiency ratios include Return on Equity and Return on Assets. For FY14, Nike has a Return on Assets of 13.52% and a Return on Equity of 26.01% while Under Armour returned a 12.05% and 17.31% respectively.4.2.5 Summary of Financial AnalysisThe financial analysis conducted for Nike reveals that the company is in a strong and healthy financial state.??Revenue has nearly doubled for Nike over the last 10 years (Nike, Strategy. 2014).? The corporation’s return on invested capital, and diluted EPS performance have increased over the last five years. Particularly, Nike’s strong performance over the last three years has been a result of increased sales throughout all divisions within the company (Nike, Strategy. 2014).??Nike’s above average net profit margin shows that the company is more profitable than the average firm within the sporting goods industry.?The increase in product types and steady flow of sales came from all regions of the world that Nike operates in.? Most notably however, is Nike’s footwear division contributing to a significant portion of company’s revenues (Nike. 2014).Nike’s financials demonstrate management’s ability operate with high efficiency.? The company’s ROA provides support that management is using its assets efficiently to generate earnings.? The company’s low asset turnover figure gives evidence that high profit margins are in part, due to management’s ability to efficiently run the operations of the company.? Nike’s higher ROE (higher than the industry average), demonstrates that management has made wise decisions with the money reinvested back into the company (Yahoo. 2015).?? Furthermore, evidenced by the ROIC figure earned at the end of the fiscal 2014 year, management is utilizing well, the capital it has invested into its business (MorningStar, Nike Inc Class B. 2015).4.3 Value Chain AnalysisUnderstanding a firm’s value chain grants a stakeholder with a view of how a company uses its resources and capabilities to add value. (Peng, 2014, p. 67) A value chain is typically divided into primary and support activities. Primary activities involved with a products’ creation, sale and distribution to buyers, along with service after the sale. Support activities provide the abutment for the primary activities. After a company has identified all of the components of its value chain, the analysis provides a comprehensive overview of activities. A reliable analysis allows the appropriate elimination of certain activities that may be detrimental and the further development of activities that are advantageous to the business. (Mbalecture, 2011)4.3.1 Support ActivitiesSupport Activities include firm infrastructure, human resource management, research and development, and procurement. An evaluation of a company’s infrastructure evaluates processes such as general management, planning, financing, and accounting of the organization (Hoskisson, Hitt, & Ireland, 2006).4.3.1.1 Structure (organizational chart, communication system, etc.)The foundation at Nike has been installed since the company’s incorporation in the early 70’s. Phil Knight has empowered his management team and employees through a simple yet powerful mission statement that makes a statement about bringing inspiration and innovation to every athlete in the world. The statement contains an asterisk that references back to the co-founder Bill Bowerman, and his beliefs that anyone with a body is an athlete. (Nike, Inc., 2014) This deep rooted foundation is still in place and rings true with Nike’s more than 56,000 employees. Nike’s organizational structure if flat. (See Table 1.1) Flat organizations can be described as an organization within which employees report to teams led by a manager, which ultimately reports up to a department manager. Nike is broken up into departments by brand. Each department makes decisions independent of the CEO. (Chestnut, 2015) A matrix organization allows the company to adjust quickly to market demands, independent of what other brands are experiencing. Flat organizations are empowered by company leadership to make calculated decisions without consulting the CEO.As discussed in the financial analysis section of this report, Nike is financially strong with very low debt. The company has shown the ability to achieve single digit revenue growth over the past several years.4.3.1.2 Design, Research and Development (R&D)Nike places significant time and effort into their research design and development of their entire products line. The company’s stated in its annual report, “We believe our research, design, and development efforts are key factors in our success”. (Nike, Inc., 2014) Not only has Nike established a brand that continues to excel through design, but also provides comfort and enhanced athletic performance for athletes of all ages. The company’s dedication to producing innovative, technological shoes and apparel.Nike has a staff of specialists, made up of scientists, athletes, podiatrists and other experts that focus on the science of exercise and sports to produce superior products. (Nike, Inc., 2014, p. 49) These experts not only review and modify designs, but also suggest improvements to the company’s manufacturing processes to ensure a high quality products enters the distribution stream ever time. Superior products, keep the customer happy and the brand untarnished.Aside from design and development, Nike prides itself on the use of market research to ensure they stay close to what the consumer expects in an innovative product line.Technology has been and will continue as a driving force behind everything Nike manufacturers. Excellent products, build a great brand and Nike has cornered the market on sports apparel with one of the biggest brand names in the world.4.3.2 Primary Activities4.3.2.1 Input (tangible and intangible resources)Tangible assets include manufacturing facilities, raw materials, and financial resources. Intangible assets are those that cannot be seen or touched, such as patents and brands. (Peng, 2014, p. 65) One of Nike’s biggest strengths is its brand. According to Forbes Fab 40 from 2014, Nike’s brand is worth nearly 16 billion dollars. (Forbes, 2015) This intangible resource has the company ranked consistently at or near the top of Forbes annual list of most valuable brand names.Nike’s supply chain is another competitive advantage over rivals. Nike employs a just in time manufacturing strategy, which means goods are shipped as soon as they are ready for sale. Nike does not rely on any one select supplier yet leverages numerous suppliers all around the globe to ensure that supplier power is never too high. Through good supplier relations, Nike assures these suppliers are dedicated to helping Nike produce the highest quality products with the best raw materials possible.4.3.2.2 Operation Processes (e.g. production, logistics, product/service cost structure)Nike manufactures just about all of its footwear outside of the United States, which allows the company to take advantage of lower labor costs in other countries. What is unique about Nike is that they rely on 150 footwear factories in 14 countries, operated by independent manufacturers of which not one is responsible for more than 5% of production. (Nike, Inc., 2014) A limited number of supplier allows Nike to stay in control of the supplier manufacturer relationship.Most of Nike’s apparel manufacturing occurs in Vietnam, China, Indonesia, and Malaysia. (Nike, Inc., 2014) A very similar operation to that of the footwear manufacturing has been constructed for apparel as well. Nike has over 400 factories located in more than 40 countries handling the production of the company’s apparel. Just like with the footwear side of the business, this keeps manufacturing costs low and allows Nike to take advantage of manufacturing economies of scale.Nike maintains firm control over their distribution channel and sells to thousands of retail stores throughout the world. (Nike, 2014, p 48) The company maintains nearly 20 distribution centers globally to ensure customers can receive the products in a timely manner. High-quality products along with many choices in complimentary products, allow Nike to charge a premium for their products lines.4.3.3.3 Marketing and Customer ServiceNike has been able to sign some of the biggest names in sports to lend celebrity endorsement to the company’s brand and reputation. The biggest name the company has even signed is Michael Jordan. His celebrity has single-handedly generated billions of dollars in sales for the business and his Jordan brand is synonymous with Nike. Nike seems to have weathered the storms that surfaced with some of its sponsor athletes, such as Lance Armstrong, Michael Vick, and Tiger Woods, without missing a beat. The company has been able to overcome controversies due to the vast array of offerings maintained within their portfolio of products. It seems as if Nike has been able to elevate the brand successfully above any one athlete or sport.Another one of Nike’s strengths is the diversity of products that are offered to consumers. Whether a new pair of shoes, a track jumpsuit, sunglasses or socks are the list, consumers can buy from third party retailers or Nike’s branded store called Niketown. Nike also has partnerships with the likes of Apple, and the companies have come together to develop a running sensor that communicates wirelessly, via Bluetooth, to Apple products. This technology tracks running speed and distance and automatically uploads to Nike’s website so that users can monitor their performance through a web browser and share with friends. Gathering data from users of Nike technology is a marketer's dream. Consumer data allows Nike to build a better relationship with its customers and increase sales revenues through direct marketing of new products to a group of known users.Another avenue that has allowed Nike to get closer to its customers is their online capabilities. Through , customers can not only bundle goods, but they can also custom design shoes and have the newly minted shoes shipped directly to their homes, giving them a one-of-a-kind, personalized item.5.0 SWOT Analysis5.1 Critical Strategic Challenges5.1.1 OpportunitiesHow will economic changes affect industry growth? The recovering economy discussed in the PEST analysis has brought favorable economic conditions that are expected to lead to global industry growth opportunities. Lucintel (2012) is a market research firm that analyzed the sporting goods industry’s future potential. Lucintel concludes that by 2017, the global market is expected to be valued at $266 billion with a compound annual growth rate of 4% between the years of 2012 and 2017. According to the Trefis team (2013), the global athletic footwear market alone is expected to grow at a compound annual growth rate of 1.8% to $84.4 billion by 2018. Although the market is currently dominated by North America, emerging markets have favorable growth potential. In the Asia-Pacific region, the industry’s compound annual growth rate is estimated at 3.3% (Kumar, 2014). In India, the sporting goods industry is also expected to grow at an annual compound growth rate of 10.6% between 2013 and 2018 (Kumar, 2014). GDP, disposable income, and consumer spending are factors that make this issue a fundamental challenge because they determine the growth or decline state of the industry. Industry growth opportunities in domestic and emerging markets offer organizations the chance to expand, however; failure to address this issue will cause Nike to forgo expansion opportunities. Industry growth resulting from economic changes creates a strategic issue because Nike must ensure that its development efforts support its corporate mission and values. How will marketing towards women affect sales? Athletic goods, especially footwear, are mainly marketed towards men. This implies that male adults make up the highest demographic group of product sales. Consistent with this implication, the 2013 sales breakdown of athletic footwear for men, women, and kids was 59%, 22%, and 20% respectively (Powell, 2014). However, women’s footwear does make up the second largest consumer category. Limited marketing efforts are employed in the industry to target specifically women. This creates a marketing opportunity for Nike to increase sales by calling all women to wear Nike products. The availability of products that satisfy women’s needs is a factor that makes the issue a fundamental challenge. This becomes a strategic issue because Nike must determine how to utilize its brand reputation, innovation, and other strengths to effectively market products that target women and strengthen their customer loyalty. Eventually, other companies will realize the existence of this marketing opportunity and will take steps to capitalize on it. If Nike does not address this issue, the company may lose sales of women’s products to competitors. How will health consciousness affect profitability? The current social trend is a rise in health awareness. Members of society have begun taking measures towards healthier living by improving their diets and increasing their fitness levels. Participation in physical activity is a factor that makes this issue a fundamental challenge because fitness levels have a direct relationship with the demand for sports goods. In this case, rising participation in fitness activities such as exercising and playing sports, results in an increase in demand for athletic goods. The level of physical activity is represented by the number of gym memberships that have increased “from 36.3 million in 2002 to more than 42.8 million by 2011” (IBISWorld, 2011).? The rise in health consciousness creates the opportunity for Nike to increase its profitability. This becomes a strategic issue because Nike must effectively utilize its internal strengths to increase sales to health conscious consumers. However, failure to address this issue will prevent Nike from maximizing profitability and capitalizing on the health trend. What are the Top Two Strategic Issues? Favorable industry growth and the rise in health consciousness are the top two strategic issues that confront Nike as it heads into the future. Each issue was evaluated on the basis of potential impact; the issues with the greatest perceived favorable impact are regarded as the most important. Global industry growth is perceived to have a significant impact on Nike because the possibility of expansion may allow the company to increase market share, profitability, and brand awareness. The rise in health consciousness is perceived to have a significant impact on Nike because it allows the company to capitalize on this trend and increase revenues across all product lines including men’s and women’s footwear, apparel, and sporting equipment. However, marketing Nike’s products towards women may only result in a revenue increase among women’s categories rather than across all categories. This illustrates that the potential benefits of industry growth and health consciousness exceed the benefit of marketing Nike’s products towards women.5.1.2 ThreatsWill the Projected Global Economic Conditions affect Nike’s Performance?The projected conditions of the global economy will challenge Nike’s ability to maintain market shares within the industry that it operates in. With the global financial crisis behind us, worldwide economies are recovering at different rates. According to the United Nations, the growth of the world’s gross product is projected to increase over the next two years. Interest rates worldwide are expected to make a gradual increase during the upcoming years. The dollar/euro exchange rate is assumed to depreciate over the next two years, dropping from 1.34 in 2014 to 1.21 in 2016. The appreciation of the dollar over the next two years is expected to place a restraint on US export growth. (United Nations New York, 2015, 2015, p. 3)While most economies around the world have seen recovery, there remains much room for improvement. Mainly, the unemployment rate has either gotten worse or remained below satisfactory for many nations. Of primary importance are the extremely high unemployment rates in the European nations and the significantly high unemployment rate in the U.S (5.5% unemployment rate with approximately 8.6 million unemployed) (United States Department of Labor, 2015). In the United States, much of the unemployment results have been due to the baby-boomers reaching retirement age, a higher number of discouraged workers, and an increase in skills upgrade. Over the next two years, the unemployment rate is not projected to make a significant change for the better. (United Nations New York, 2015, 2015, p. 3)The increase in a nation’s labor cost can implicate different economic conditions. During a recession, labor costs can be greatly influenced by the increase in labor wages and/or commissions. Confirmed by the Bureau of Labor Statistics, such was the case in 2013 and 2014 when the average compensation costs for workers increased in the US as the national labor productivity decreased (United States Department of Labor, 2015). With the US economy growing, the national labor cost over the next two years is expected to increase, resulting in an increase of labor costs. Subsequently, to offset labor costs, corporations within the US will most likely increase product prices to maintain financial goals (Keythman, 2013).As previously mentioned, Nike will be faced with increased global interest rates, the appreciation of the US dollar and depreciation of the dollar/euro exchange rate. Furthermore, Nike will be faced with significantly high global unemployment rates. Finally, Nike will be faced with an increase in the cost of labor. The question is whether Nike has the resources to combat these threats while delivering a product that is of equal quality and affordable to many. As highlighted throughout this report, Nike is utilizing its strong financial portfolio, organizational design, technologically advanced equipment, and healthy relationships with other companies to provide a product that is innovative and affordable. Furthermore, Nike has a plethora of suppliers and manufacturers that are producing products at already very low costs. Additionally, Nike has little influence on the cost of raw materials. Finally, Nike has little influence on the unemployment rate in the countries in which Nike’s target market resides. It appears that Nike may have no choice but to increase its product prices. Thus adding to the population of people who already cannot afford to purchase Nike’s goods. The consequence of not attempting to meet the challenges of the global economic conditions could result in a loss of profit for the company.Does the Production of Counterfeit Products Pose a Significant Threat to Nike?Nike faces the challenge of combating counterfeit products. One well-known threat to the athletic footwear industry is the never-ending supply of counterfeit products. In 2013, the global volume of counterfeit goods amounted to roughly $210 billion (The European Confederation of the Footwear Industry, 2013). Over $1.7 billion worth of imitation goods was confiscated at the US borders alone (The International AntiCounterfeiting Coalition, 2014). Additionally, three percent of the total replica items confiscated at the American borders belonged to the footwear industry (roughly $55 million MSRP). Less than one percent (roughly $3 million) belonged to sporting goods, and roughly seven percent belonged to wearing apparel/accessories. Twenty-nine percent of all replica items seized were made up of sports jerseys. (The International AntiCounterfeiting Coalition, 2014)Replicated products are mostly produced in developing countries, where people manufacture counterfeit products as a source of income. (International Labour Organization, 1996) According to the Department of Homeland Security, China remains the primary source for manufacturing replica goods and pirated materials (The International AntiCounterfeiting Coalition, 2014). As long as there is a consumer demand, there will most likely be a supply. Companies that maintain strong brand images, commonly fall prey to the underground market, because of the demand for their products.According to the International AntiCounterfeiting Coalition, the number of counterfeit items is growing with no sign of slowing down. Between 2005 and 2012, footwear was part of the top five items seized at the US borders. The Coalition projects that in 2015, global trade in replica goods and pirated materials will reach $177 trillion. (The International AntiCounterfeiting Coalition, 2014)What are the Top Two Strategic Issues? The overwhelming number of producers of counterfeit items is an immense challenge to Nike. The company is very limited in its capability to directly challenge every counterfeit production agency. Instead, Nike is forced to support financial organizations that combat the manufacturing of replica items or engage in example lawsuits against such entities. Individuals demonstrating their demand for replica items do so primarily because of financial constraints. (The International AntiCounterfeiting Coalition, 2014) For Nike, adhering to its corporate values of producing innovative and quality products means doing so at the expense of providing relatively cost efficient products. Thus, many people concerned with owning a particular brand while not worrying about the quality will express more interest in the counterfeit product due to the cheaper cost. Not attempting to meet this challenge provides an opportunity for the illegal underground market to take shares away from Nike.The two threats previously described were chosen based on Nike’s inability to control the external factors. Furthermore, out of the many threats that Nike is faced with, Nike is least capable to combat these two distinct challenges given the company’s strengths, weaknesses, values, and mission. The projected global economic conditions and ongoing production of replica items will significantly influence people to seek substitute items based on financial reasons.5.2 Core Competencies/Capabilities5.2.1 StrengthsA MOST (Mission, Objectives, Strategy, Tactics) analysis perspective is utilized to identify the strengths that make Nike the global leader competitor in the sporting goods industry.Strong R&D resources and capabilitiesIt is the mission of Nike “To bring inspiration and innovation to every athlete in the world” which has been firmly embedded in the entire organization. Therefore, the company has focused on building R&D capabilities that are key to maintain a leadership position in the athletic footwear market (Nike, Inc., 2014). Through technical innovation, Nike designs, and manufactures high-quality products that “help reduce injury, enhance athletic performance, and maximize comfort” (Marketline, 2014). The company has an “explore team sports research lab” which is dedicated to providing knowledge and insights to create performance innovations across Nike’s product offerings. This team focuses on four disciplines: biomechanics, physiology, perception, and data science and uses a variety of advanced test methods for the capture of motion: 3D motion analysis, foot pressure measurement, accelerometers, foot morphology, and others (Nike, Inc., 2014). Nike’s strong R&D capabilities help the company to build brand loyalty and revenue growth.Strong Brand PortfolioNike has maintained a global market dominance trough a strong brand portfolio and an extensive international diversification strategy. It is the largest seller of athletic footwear and apparel is the world; holds more than 14% global market share. “The company's dominant market position is built on its portfolio of strong brands like NIKE, Jordan, Converse, and Hurley” (Marketline, 2014). Strong Financial PositionNike can enhance shareholders value because of its healthy financial performance; it generates plenty of free cash flow. This cash flow is used to “fund an aggressive buyback program” which allows the company to invest aggressively in R&D in order to outperform competitors and raise barriers for new entrants (Hellman, 2014).Efficient Global Supply Chain ManagementNike “creates value through the configuration and coordination” of its marketing, design, procurement, manufacturing, and multi-channel distribution activities. The integration of diversified and innovative resources and capabilities of the company allow Nike to have a very strong and interdisciplinary infrastructure base. Some of these resources and capabilities are a reliable IT system in all the supply-chain activities, e-commerce, top management empowerment, strong financial position, effective compliance processes, and others (Alqararah, 2014).VRIO Analysis for Nike’s Resources and CapabilitiesNike’s most relevant strengths are assessed in this section using VRIO framework analysis. (Table 1.2 in Appendix) The company creates value through a highly reliable and well-developed supply chain management. The firm’s ability to purchase raw materials in bulk, establish long-term relationships with local suppliers, use different distribution channels to reach and serve domestic and international markets, overcoming liability of foreigners, is considered highly valuable in the sporting goods industry and lead to competitive advantages.Nike’s R&D capabilities can be classified as rare. Nike has built some of the most cutting-edge products in its industry (Alqararah, 2014). The company is continuously investing in new technologies to design quality products with high functionality and sustainable operation processes (Nike, Inc., 2014) which builds a sustainable competitive advantage.It is very hard and costly for competitors, or potential new entrants try to imitate Nike’s resources and capabilities. Its strong financial performance allows the firm to reinvest in its core competencies: innovation and marketing. Also, according to Forbes, its brand name is among ‘The World’s Most Valuable Sports Brands 2014’; in that year, was estimated to be at $19 billion. The efficient global supply chain management and the innovative R&D and marketing activities are also hard to imitate because of the intangible capabilities implicit.Nike’s valuable and hard-to-imitate assets are exploited by the organization thanks to its ability to permeate the company’s business and corporate strategies throughout the whole organization. Knight’s strategic leadership has facilitated the growth of the company; he has built a brand identity culture fully to engage the organization members with the brand. “The bridge from organizational brand image to external brand image was readily and tactfully assembled through Nike’s methodical use of athletes in working to mainstream and assimilate the brand within the global society” (Neiderhauser, 2013).5.2.2 WeaknessesLack of Revenue DiversityNike is heavily dependent on footwear sales as the primary source of revenue. As a dominant brand, with a stranglehold on the worldwide market of athletic shoe sales, Nike has clearly established itself as a leader in the athletic apparel space. The quandary Nike faces is how to dominate all aspects of athletic apparel as it has shoes. During the fiscal year 2014, Nike revenues reached nearly 28 billion US dollars (Graphic 1.7). Of the revenues generated during fiscal 2014, 16 billion dollars came from footwear (Graphic 1.8). The company states in its 2014 Annual Report, “Our new products may not receive consumer acceptance as consumer preferences could shift rapidly to different types of performance products or away from these types of products altogether.” (Nike, Inc., 2014) Lack of sales strength over a broad, diversified product set, leaves the company vulnerable to a sagging market. If the market erodes and consumer spending on higher priced shoes declines, Nike will need to react. A broad and deep product portfolio will assist in not only responding to trends, but also in generating revenues is sales in other areas slump. It is almost impossible for a company to predict consumer preferences. Attempting to predict these choices entails a high level of risk and can often have an adverse effect on a company’s financials. Nike can combat any slumps and lessen the burden of lagging sales by implementing a product diversification strategy.High Priced BrandEndorsing superstars such as Michael Jordan, Kobe Bryant, and LeBron James, generates an enormous global demand for Nike branded products. As a result, Nike charges premium prices for their brand, which put many of their products out of reach for many consumers. There have been countless reports of robberies for Nike shoes, and when new versions hit the markets, stores have been broken into before the shoes even go on sale. The brand dilemma that comes with the negative press regarding their shoes and other accessories is something that Nike needs to consider. Price conscious consumers could look to other brands as lower cost alternatives.The company could look to differentiate themselves further by offering their brand exclusively through Nike branded stores and online outlets. This would lessen the risk that consumers may opt for the other brand based solely on price. Nike should look to manufacture and sell less expensive shoes without sacrificing quality.5.3 Strategic Fit (SWOT) AnalysisNike has been in business for over 40 years and has shown the ability to adapt to the changing landscape of sports apparel. The company’s passion for serving athletes is evident is the way they develop the most innovative products and services to help athletes of all ages reach their full potential. The relentless focus on the needs of the athlete fuels growth and powers the company’s ability to deliver long-term values for shareholders.The company offers a broad range of products complemented by several services which provides the unique advantage of cross selling and increasing the average customer spend. With the following SWOT analysis, Nike’s strengths, weaknesses, opportunities, and threats will be outlined.Summary of Nike SWOT AnalysisStrengths (Internal)Weaknesses (Internal)Global Brand AwarenessEfficient Distribution ChainStrong R&DStrong Financial PositionLack of Revenue DiversityHigh Priced BrandOpportunities (External)Threats (External)Sales in Emerging MarketsWomen’s Athletic SectorHealth Conscious ConsumerCounterfeit ProductsAggressive Global CompetitorsGlobal Economic ConditionsStrategic Recommendations(Based on Threat) Catering to higher competition: Nike faces tough competition from footwear brands such as Reebok, Adidas, Puma, Converse and Fila. In order to deal with these tough competitors in the market, the organization should be able to reveal itself as valuable (Andreassen et al. 2008). The competition in the footwear market is tough, but the prevalence of a highly acknowledged brand value based organization will help the company to re-define itself in the ever dynamic and globalized world. (Based on Threat) Global Patent program: Nike needs to adopt further a prominent step in order to stop imitation of its products. Imitations have caused immense damage to the strength and brand value of the company. The company can adopt a patent based strategy. (Based on Threat) Utilizing free cash flow for adoption to technological advancements: The Company is a large footwear based brand with free flow cash. The company should utilize it for establishing more market power through distributors. Retailers mostly have the chief power of buying from most footwear companies. However, most of these large companies forget that doing this possesses an immense trouble to the prospects and state of growth for a company. (Based On Opportunity) Nike should also consider the production of its products in regionally based laboratories in all the nations where Nike distributes its products. This in turn will help the company to elongate its opportunities and keep its distribution channels near to its inventories in turn leading to sustainable supply chain management and efficient production. This would also imply that the company needs to identify the complete opportunities available in the market without which the value of the company will not be apprehended. (Based On Opportunity) Catering to women based products: The industry of athletic equipment, has an ever evolving and dynamic nature with constant push in the possible boundaries. Sports no longer have been determined from a classical perspective with two teams involved but now sports have become personal for people. Today, women and men are both involved in games with an ever increasing rise in women footwear sales. It will be further apprehensive for Nike if it provides a chance for segmentation of customers such as women and small children and differentiate its products in this way further in order to strengthen its marketing strategy. (Based on Opportunity) Using brand value to advertise rather than celebrity based advertisements that involve higher investment: This should be used by Nike while promoting its products as the company spends more on its advertisements (Ballantyne 2006). Furthermore, Nike should embrace the growth that it enjoys in Asian nations, UK, and Australia. These areas are a hub for Nike’s considerable growth. Nike, therefore, needs to consider the ever-changing needs of the customers and diversify their shoes or footwear. More opportunities should be seized by the company in the domain of social media for engaging with broad base of customers enormously in order to make sure that new high technology gadgets are linked with the platforms of social media (Berry 2008). Such customer contact has power of phenomenal nature because it helps in gaining a single click visibility, generating enhanced customer based interaction and hence helping Nike to collect data on choices of the customers and their further preferences as well.ReferencesAdidas Group, Inc. (2014).?adidas Group - 2014 Annual Report. Retrieved from , TW. & Olsen, LL., pp. 309–28,2008, The impact of customers' perception of varying degrees of customer service on commitment and perceived relative attractiveness, Managing Service Quality, vol. 18, no. 4Ballantyne, D., pp. 3–6, 2006, Guest editorial: Getting your way in business, Asia-Australia Marketing Journal, vol. 4, no. 1Berry, LL., 2008, pp. 6–8, Guiding and inspiring performance through a service strategy, Customer Service Management Magazine, no. 12Chestnut,?D. (2015). Nike's Flat Organizational Structure | eHow. Retrieved?March?10, 2015, from Company | All things Crocs. (2015). Retrieved?March?10, 2015, from Jones & Company, Inc. 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Employment Situation Summary. Retrieved from Department of Homeland Security. (2014). Intellectual Property Rights Seizures Statistics Fiscal Year 2013. Retrieved from US Department of Homeland Security website: . Department of Commerce. (2015, March 3). New Census Bureau Report Analyzes U.S. Population Projections. Retrieved?March?10, 2015, from Armour. (2014). Under Armour, Inc. - Annual Report & Proxy. Retrieved from Armour. (2015). Under Armour Sports Clothing, Athletic Shoes & Accessories. Retrieved?March?12, 2015, from . (n.d.). Analysis of the Retail Apparel Industry | . Retrieved from , Inc. (n.d.). What is internal analysis? definition and meaning. Retrieved from . (2015). Nike - Wikipedia, the free encyclopedia. Retrieved?March?15, 2015, from 1.1- Executive Corporate OfficersNameAgePositionPhilip H. Knight76Chairman of the Board of DirectorsMark G. Parker58President and Chief Executive OfficerDavid J. Ayre54Executive Vice President, Global Human ResourcesDonald W. Blair56Executive Vice President and Chief Financial OfficerTrevor A. Edwards51President, NIKE BrandJeanne P. Jackson62President, Product and MerchandisingHilary K. Krane50Executive Vice President, Chief Administrative Officer andGeneral CounselBernard F. Pliska52Vice President, Corporate ControllerJohn F. Slusher45Executive Vice President, Global Sports MarketingEric D. Sprunk50Chief Operating OfficerThe information in Table 1.1 was obtained from Nike’s 2014 Annual ReportTable 1.2- VRIO Framework for Nike, Inc.Graphic 1.0- Organizational ChartGraphic 1.1Fiscal 2014HighLowDividends DeclaredFirst Quarter66.8559.110.21Second Quarter79.8763.500.24Third Quarter80.2669.850.24Fourth Quarter80.0970.600.24Fiscal 2013HighLowDividends DeclaredFirst Quarter54.3243.890.18Second Quarter50.4245.300.21Third Quarter55.5548.460.21Fourth Quarter65.9153.490.21The information in Table 1.2 was obtained from Nike’s 2014 Annual ReportGraphic 1.2- Nike Annual Revenue Growth (previous 10 years)Graphic 1.3- Nike Annual Net Income (previous 10 years)Graphic 1.3- Nike Key Ratios (previous 10 years)Graphic 1.4- Comparison of 5 yr Cumulative ReturnGraphic 1.5- 5-year stock comparisonGraphic 1.6- Nike Key StatisticsGraphic 1.7- NKE 3 yr Historical Look-BackGraphic 1.8- NKE Global Revenue BreakdownGraphic 1.9- Textile (Apparel) Competitive LandscapeGraphic 2.0- Under Armour Income StatementGraphic 2.1- Adidas Income StatementGraphic 2.2- Under Armour Results of OperationsGraphic 2.3- Under Armour Key Statistics ................
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