Company Description
Nike Inc. is a multinational corporation that deals with the design, development, and production of different varieties of sports products. The company focuses mainly on the sports industry. Its head offices are at Beaverton, Oregon. Murphy and Mathew (2012) allege that Nike Inc. is a global manufacturer and dealer of sports apparel and shoes. It also sells an assortment of performance equipment, which includes socks, bags, timepieces, eyewear, protective equipment, and sports balls among others. The company’s revenue is over $32.4 billion according to the 2016 financial report. Moreover, Nike has over 70,000 workers globally (Kell, 2016). In the United States, the majority of the workers are from minority groups (see Appendix A).
The company was established in 1964 under the name Blue Ribbon Sports and later changed its name to Nike Inc. in 1971. Currently, Nike uses its brand to sell merchandise. It also sells its products under numerous subsidiaries such as Hurley International and Converse. Apart from producing sportswear and equipment, Nike runs multiple retail stores. The company sponsors various teams and sports events across the globe. Today, Nike runs over 700 production factories and operates in at least 42 countries (Murphy & Mathew, 2012). The company does not disclose sufficient information about its operation bases. Nike’s success hinges on its operations strategy. The company contracts out most production processes to foreign subsidiaries. The application of lean manufacturing and material consolidation techniques has contributed to the current success. Nike continues to dominate the sports apparel industry. Currently, there are allegations that the company’s sports shoes give runners an unfair advantage over competitors.
Nike International Strategy: Overview
Nike Inc. has invested in three geographic regions, which are North America, China, and Western Europe. The company targets these areas due to the high demand for sports apparel. North America and Western Europe are known to be homes for many athletes. Additionally, the regions host numerous international sports events, thus serving as a good market for Nike Inc. For instance, North America is renowned for baseball and football. The company produces a lot of football and baseball merchandise that are sold not only to players but also fans of these major sports. Nike also has establishments in Asia and Latin America. The company has plans to invest in emerging markets in Central and Eastern Europe. Nike applies global strategy in its international market.
The company’s headquarters have significant control over all the subsidiaries in overseas. It helps to guarantee consistency in product development and minimize redundancy. Nike makes sure that it manufactures standard products across the subsidiaries. Moreover, it endeavors to standardize operations and marketing strategies. Since the headquarters make all the decisions, the company has a centralized research and development facility. The corporation has a state-of-the-art research and development (R&D) facility in Portland, Oregon. The American facility is responsible for designing sports products and works in liaison with manufacturers located in China, Vietnam, Malaysia, Pakistan, and other countries. The company has chosen to centralize its R&D facility to guarantee the production of standardized merchandise in all the overseas manufacturing plants.
Nike Inc. competes with other global companies like Adidas, Li Ning, Reebok, Toys R Us, and Under Armor. One of the primary strengths of Nike Inc. is the production of standard products across the globe. The centralization of the research and development facility enables the company to make sure that all subsidiaries use standard procedures to manufacture various products. It underlines the reason the company’s products are similar across the world. Indeed, customers can identify Nike products with ease in any market. The global strategy helps to improve organizational efficiency and reduce redundancy. Nike ensures that products reach the market on time. Moreover, elimination of redundancy helps the company to cut down on operations costs. Low production and operations costs help Nike Inc. to boost its bottom line. The strategy is invaluable concerning the product life cycle.
It enables the company to organize for the introduction of new merchandise into the market. One of Nike’s major weaknesses is that it does not value the needs of local markets. Instead, it pays attention to the global market. The centralization of research and development facilities prevents individual subsidiaries from operating autonomously. The subsidiaries cannot manufacture sportswear based on the needs of the local market. The global strategy denies Nike the opportunity to exploit local markets fully. Another weakness of the strategy is that it subjects Nike to operational risks. Changes incorporation or labor laws in the overseas countries may have dire consequences on the company. Additionally, political instability or natural disasters in the countries would interfere with the smooth operations of the company. The company’s investment in research and development coupled with outsourcing will help it to achieve both short-term and long-term goals. The corporation has control over operations costs, which are a major impediment to organizational growth. Nike will continue to expand its international market due to its efficient global marketing strategy.
Nike Global Strategy: Marketing Approaches
Nike sells most products in North America, Western Europe, Greater China, Japan, and Central and Eastern Europe. The company’s primary market is North America, which accounts for 44% of Nike’s total revenues (see Appendix B). According to Ko et al. (2012), Nike’s marketing strategies and investments targeted countries that show steady economic growth, changes in lifestyle, and increased disposable income amid households. The corporation targets North America, Greater China, and the European market due to sustained economic growth and changes in lifestyle. Many people in these countries engage in physical activities as a way to stay healthy. Thus, the demand for sports apparel is high in nations. The increase in the level of disposable income means that a lot of people can afford Nike’s products (Hill & McKaig, 2015).
Nike uses customized marketing strategies to attract customers in these segments. For instance, the company uses technology to develop sports shoes (Nike Mag), which guarantee the safety of athletes and make them feel comfortable (Mahdi, Abbas, Mazar, & George, 2015). Nike has also developed a sports bra and tights meant for women. Indeed, the company is in the process of transforming women’s fitness into a multi-billion dollar business domain.
Soni (2014) alleges that Nike sells its products through three primary channels. The company distributes merchandise through wholesalers across the globe. Nike has numerous retail outlets globally that enables it to sell directly to customers. Moreover, the company uses its website to market sportswear and other products. Nike’s mode of communication entails liaising with retailers and sweatshops to ensure that it reaches a broad range of consumers in emerging and target markets. The company has a multichannel platform dubbed “Nike Digital Sport”, which enables it to interact with customers in the American and European markets. Customers get an opportunity to share their experience with Nike products and give recommendations on the possible improvements.
Nike International Marketing Strategy: Logistics Approach
Nike Company does not run apparel and footwear manufacturing industries. Instead, it outsources the production of sportswear to manufacturing companies overseas. Taylor (2012) claims that Nike’s footwear is produced in China, Vietnam, and Indonesia. The primary reason for selecting these countries is the availability of raw materials and cheap labor. The technological aspect of the production of footwear is done in the United States. The procedures that do not require high technology are outsourced to these countries. Nike’s apparel products are manufactured in China, Thailand, Pakistan, Indonesia, Vietnam, and Malaysia (Wang, Wang, & Wang, 2016). The company chose these countries due to the availability of semi-skilled labor and raw materials. Additionally, the states are renowned for the production of textile products.
Nike Global Strategy: Human Resource Management Approach
Nike Inc. does not own manufacturing plants but relies on outsourcing. The company understands the importance of human resources to the success of its foreign subsidiaries. Arora and Aggarwal (2012) claim that Nike works in partnership with contract factories to ensure that employees have adequate skills to facilitate lean production. The company helps to build the managerial capacity of individual plants and encourages them to promote employee empowerment. Kell (2016) argues that Nike relies on the local workforce because it is cheaper than exporting workers to overseas factories. However, the management of the subsidiaries comprises foreign experts. The company helps contract facilities to recruit and retain a skilled workforce. Nike’s objective is to cut down on operations costs, minimize employee turnover, and create employment opportunities for the locals.
According to Arora and Aggarwal (2012), Nike does not depend on agents or wholesalers in most of its businesses. Instead, the company recruits production workers on a regional basis to supervise and manage production. Currently, Nike has over 1000 production managers across the globe. In Vietnam, the company has a corporate responsibility team comprising 100 employees. Nike Inc. requires all suppliers to sign a code of conduct that obliges them to abide by established local labor laws. The vendors are supposed to offer good remunerations to workers and improve working conditions (Lund-Thomsen & Coe, 2015). In spite of Nike having a code of conduct, the company is accused of not being strict with its suppliers and distribution partners. For instance, most sweatshops that sell Nike’s brands do not abide by the corporation’s code of conduct. Nike has done little to make sure that the sweatshops comply with its code of conduct.
In the past, Nike faced numerous lawsuits due to child labor and poor working conditions in most subsidiaries. Additionally, the rate of employee turnover was untenable. Today, the company has engaged in corporate social responsibility (CSR) programs aimed at enhancing working conditions and discouraging child labor. It discloses the names of all its contract factories and the salaries scale of their employees. Moreover, Nike has formulated stringent laws that prohibit subsidiaries from exploiting employees. The company cuts ties with contract factories that contravene the laws.
Nike Inc. can serve as a primary source of employment for locals in the developing nations. The fact that the company outsources semi-skilled and unskilled functions means that it does not require exporting workers from developed countries. Allowing Nike to invest in a developing nation would not only help to create job opportunities to the locals but also boost their living standards. The company believes in building the capacity of local employees. It would go a long way towards equipping the workers with technical and leadership skills that might be essential for national development.
Nike International Strategy: Analysis
Benefits
A developing nation will significantly help from Nike’s operations because of job creation. The company will create jobs for semi-skilled and unskilled employees who will contribute to the county’s economy through tax (Samuels, 2014). It will go a long way towards helping the local government to reduce the unemployment rate in the country. The company is notorious for establishing lasting relations with contract factories. Thus, employees are guaranteed of getting permanent jobs. Nike encourages employee training to facilitate lean production. Consequently, the local human resources will have an opportunity to advance their skills giving them a chance to get jobs in other industries. Allowing the company to outsource its functions to a developing nation would benefit both the country and the citizens.
Costs/Risks
Nike is a multinational corporation and has adequate financial resources to produce apparel and footwear at cheap prices. As a result, the company is likely to pose a significant threat to local textile industries (Samuels, 2014). It would lead to some people losing their source of livelihood. Additionally, Nike is blamed for not enforcing labor laws. Allowing Nike to establish operations in a foreign country may lead to the exploitation of the local workers. The company’s sweatshops or contract factories may take advantage of its reluctance to exploit employees.
Appendixes
Appendix A: Composition of employees in the United States (Kell, 2016)
Appendix B: Nike’s revenue by segment (Soni 2014)
References
Arora, J., & Aggarwal, G. (2012). Operations management at Nike: From breakdown to achievement. International Journal of Management Research and Reviews, 2(7), 1293-1300.
Hill, C., & McKaig, T. (2015). Global business today (4th ed.). Ontario, Canada: McGraw-Hill Ryerson Limited.
Kell, J. (2016). Majority of Nike’s U.S. employees are minorities for the first time. Web.
Ko, E., Taylor, C., Sung, H., Lee, J., Wagner, U., Navarro, D., & Wang, F. (2012). Global marketing segmentation usefulness in the sportswear industry. Journal of Business Research, 65(11), 1565-1575.
Lund-Thomsen, P., & Coe, N. (2015). Corporate social responsibility and labor agency: The case of Nike in Pakistan. Journal of Economic Geography, 15(2), 275-296.
Mahdi, H., Abbas, M., Mazar, T., & George, S. (2015). A comparative analysis of strategies and business models of Nike, Inc. and Adidas Group with special reference to competitive advantage in the context of a dynamic competitive environment. International Journal of Economic Research, 6(3), 167-177.
Merk, J. (2013). Global outsourcing and socialization of labor: The case of Nike. New York, NY: Routledge.
Murphy, D., & Mathew, D. (2012). Nike and global labor practices: A case study for the new academy of business innovation network for socially responsible business. Web.
Samuels, B. (2014). Managing risks in developing countries: National demands and multinational response. Princeton, NJ: Princeton University Press.
Soni, P. (2014). Nike’s global markets: Top revenue earners. Web.
Taylor, D. (2012). Global cases in logistics and supply chain management. New York, NY: Cengage Learning.
Wang, Z., Wang, Y., & Wang, J. (2016). Optimal distribution channel strategy for new and remanufactured products. Electronic Commerce Research, 16(2), 269-295.