NIKE

Executive Summary

Nike hit the ground running in 1962. Originally known as Blue Ribbon Sports, the company focused
on providing high quality running shoes designed especially for athletes by athletes, at competitive
prices.

Today, Nike is the world's leading maker of athletic shoes, equipment and apparel.

Nike has invested highly on marketing. It has signed exclusive and expensive marketing deals with
some of the world's top athletes to promote its products. Nike’s marketing campaigns featured
winning athletes as spokespeople, and winning teams as an indication of Nike success.

Nike enjoys a strong competitive position. It is always innovative and produces high quality products
with superior technology.

Nike products are sold in about 110 countries worldwide. The manufacturing process of Nike is done
by independent contractors, primarily located overseas.

The company enjoys a strong competitive position, but it cannot continue at its current pace, it has
to adjust to the external environment threats and opportunities in order to remain competitive.

Table of Contents

Nike’s history and Growth: 1

Nike’s internal environment 2

Management philosophy 2

Strengths 3

Weaknesses 4

Nike’s external environment 5

Rivalry 5

Barriers to Entry 5

Opportunities 5

Threats 6

Conclusion of SWOT analysis 7

Corporate Level strategy 8

Vision 8
 Mission 8

Goals 9

Corporate-level strategy 9

Subsidiaries 9

Business-level strategy 10

Compensation Programs and Social Responsibility 10

Ethical Conduct 11

Recommendations 12

References 13

Nike’s history and Growth:

In 1962, Blue Ribbon Sports was founded by Philip Knight and his coach Bill Bowerman as an
importer of Japanese shoes. Primarily, the company operated as a distributor for Japanese shoe
maker Onitsuka Tiger, now ASICS. The founder, Philip knight, believed that high tech shoes for
runners could be manufactured at competitive prices if imported from abroad. Philip H. Knight was a
Stanford University business graduate and he was a member of the track team as an undergraduate
at the University of Oregon. After he finished up his bachelor degree in business, he travelled to
Japan, and he got in touch with the Onitsuka Tiger Co, a Japanese firm that made athletic shoes, and
arranged to import some of its products to the United States on a small scale. Knight was convinced
that Japanese running shoes could become significant competitors for the German products that
they were dominant in the American market. In order to set his agreement with Onitsuka Tiger,
Knight invented the “Blue Ribbon Sports” to satisfy his Japanese partner's expectations that he
represented an actual company, and this hypothetical firm eventually grew to become Nike, Inc.

The company's profits grew quickly, and in 1966, BRS opened its first retail store in California. The
relationship between BRS and Onitsuka Tiger was reaching an end by 1971. Then BRS prepared to
launch its own line of footwear, which would bear the newly designed Swoosh by Carolyn Davidson.
The Swoosh was first used by Nike in June 1971, and was registered with the U.S. Patent and
Trademark Office on January 22, 1974. In 1972, BRS changed its name to Nike Inc. which was derived
from the Greek goddess of victory.

By 1980, Nike became number one athletic shoe company by reaching a 50% market share in the
U.S. athletic shoe market; the company went public in December of that year. Its growth was due
largely to 'word-of-foot' advertising. Throughout the 1980s, Nike expanded its product line to
include many other sports and regions throughout the world.

From the start, Nike’s marketing campaigns featured winning athletes as spokespeople. The
company signed on its first spokesperson, runner Steve Perfontaine, in 1973. The use of professional
athletes in its advertising campaigns was both effective and efficient for Nike. In 1985, Nike signed
up then-rookle guard Michael Jordan as a spokesperson. In 1988, Nike declared its first ads in “the
just do it” campaign.

Later and after entering the European market, Nike became actively involved as a sponsor of soccer
youth leagues, local clubs, and national teams. The big break came in 1994, when the Brazilian team,
the national team for which Nike had real sponsorship, won the World Cup. The victory led overseas
revenues to surpass U.S revenues for the first time.

Today Nike dominates the athletic footwear market. Nine of the 10 top selling basketball shoes, for
example, are Nikes. Nike introduces hundreds of shoes each year for 30 sports, averaging one new
shoe style every day of the year. Swooshes abound on everything from wristwatches to golf clubs to
swimming caps.

In the light of management theory, the founder had played the role of the entrepreneur who
committed organizational resources to develop innovative goods and services. He decided to expand
internationally to open new markets for the company’s products. Nike’s management is in
accordance with the administrative management theory. They focus on identifying the principles
that will lead to the creation of the most efficient system of the organization and management. Their
theory evolved to organizational environment theory with an open system that takes in resources
from its external global environment and converts them into goods and services that are sent back
to the environment for purchase by customers. Nike enjoys high synergy between its individuals and
departments which led to the current success of this firm.

Nike’s internal environment

Management philosophy

Nike products are sold in about 180 countries worldwide. The three main product lines of Nike's
brand - footwear, apparel and equipment - are made by approximately 600 contract factories that
employ more than 33,000 workers in 46 countries around the world. The manufacturing process of
Nike is done by independent contractors, primarily located overseas. However, Nike is involved in
the design, development and marketing processes. In addition to its wide range of core athletic
shoes and clothing, the company also sells Nike and Bauer brand athletic equipment, Cole Haan
brand dress and casual footwear, and the Sports Specialties line of headwear featuring licensing
team logos. The company has relied on constant innovation in the design of its products and heavy
promotion to build its growth in both U.S. and foreign markets.

Nike's deliberate approach to lean manufacturing includes worker empowerment - giving factory
workers the skills and abilities needed to manage production and immediately address issues as they
arise, such as quality or process improvements. These changes put decisions closer to the worker,
and require a high level of support to ensure all workers have the skills and confidence to
consistently produce quality products. We believe our lean manufacturing approach holds great
promise for worker empowerment and for building a more skilled and equitable work force. Nike’s
approach is in harmony with Theory Y which set positive assumptions about workers that lead
managers to create a work setting that encourages commitment to organizational goals and provides
opportunities for workers to be innovative and to exercise initiative and self-direction.

Strengths
Nike’s distinctive competency is in its marketing strategy, particularity in the area of consumer brand
awareness and brand power. Its famous marketing campaigns and sponsorships programs were the
leading factors behind its growth and success. Nike spends a substantial amount of funds on
advertising because Nike believes that trough effective promotion and advertising it can reach its
customers and build interest for its products. Also, it can differentiate its position in the mind of
consumers and establish brand loyalty through marketing. For example, the "Just Do It” campaign,
and symbols like the Nike "Swoosh’, couple with famous sports icons, serve as instant reminders of
the Nike Empire.

Moreover, another key competency of Nike is that its quality products and brand image could not be
easily imitated. Nike became an icon in the footwear industry, and its brand power is very difficult to
replicate. Few companies have such a recognizable brand image and the available resources to keep
promoting this image. This eventually translates into added value for consumers. Also, consumers
use to associate Nike image with high quality products, and this is due to the various marketing
campaigns that emphasized fitness, competition, and sportsmanship in their minds. And this image
cannot be easily duplicated by other competing companies by simply enhancing the physical
characteristics of their products.

Besides, the key strengths of the company could be summarized as follows:

* High brand awareness as a result of high and successful marketing efforts.

* Nike has worldwide distribution line which helps it to be a global brand that is widely
recognizable.

* Nike’s high market share is major asset for the company.

* Nike does not do the manufacturing process for its products, it has no factories. Thus, it does
spend funds in buildings manufacturing facilities and paying wages for workers. This makes a very
lean organization.

* Nike is strong at research and development, as is evidenced by its evolving and innovative
product range. Nike has special laboratories and engineering teams which cooperate on developing
and executing new ideas. Also, Nike does direct research to the athletes by accompanying them
during their training to find the best products that suit their needs. Furthermore, Nike develops
always superior technologies to compete with others.

* The production facilities are located close to raw materials and cheap labor sources. They have
been strategically placed in their locations for just this purpose. In general, the facilities are located
further from most customers, resulting in higher distribution costs. However, the cost savings due to
the placement of production facilities allows for cheaper production of products despite the higher
costs of transportations. And, as Nike continues to expand globally and enter new markets around
the world, these dispersed facilities will prove to be beneficial.

Weaknesses

A key weakness in Nike is the previous social responsibility performance. Nike suffered a decrease in
sales and revenue due to bad publicity in 1997 as a result of its international labor policies. Since
then, they had attempted to overcome the bad press by raising and enforcing minimum age
requirements for employees in overseas factories. Nike attempted to regain its mid-90's momentum
as shown in 1998’s recovery, but the loss of Michael Jordan as their spokesman and the Asian
financial crisis put an obstacle in front of them.

Besides, the key weaknesses of the company could be summarized as follows:

* The organization does have a diversified range of sports products. However, the income of the
business is still heavily dependent upon its share of the footwear market. This may leave it
vulnerable if for any reason its market share erodes.

* The retail sector is very price sensitive. Nike does have its own retailer in Nike Town. However,
most of its income is derived from selling into retailers. Retailers tend to offer a very similar
experience to the consumer. So margins tend to get squeezed as retailers try to pass some of the
low price competition pressure onto Nike.

* In general, Nike’s products are considered to be of higher quality and as a result have higher
prices relative to our competitors. While the prices are realistic given the nature of the products we
offer to our consumers, at times our consumers may not agree.

* The loss of incremental spokespersons and key sports figures. This could hurt the brand image of
Nike, since that image was established on the ground of these figures.

Nike’s external environment

The footwear industry and NIKE are both at the maturity stage in terms of life cycle. A maturity
stage, however, does not mean that NIKE’s profit growth is at a zero level. Rather, the company
generates stable sales and its profits increase with new management strategies, new product lines,
expansion into new markets, and continued demand for its premium footwear products. Footwear
manufacturers and retailers will continue to attract customers by introducing new lines of products
and brand diversification.

Rivalry

Rivalry in the clothing and footwear industry is very active. Many new sports companies are
attracted to this market due to high and promising profits. Nevertheless, NIKE faces only few
competitors that come close to its size and product differentiation. The company’s major
competitors include Adidas-Solomon, Reebok, and Fila USA, the latter of which is a privately held
company.

Barriers to Entry

Many barriers exist in front of the new entrants, first of all Nike invested heavily in Research and
Product development and succeeded to produce innovative products with high quality and superior
technology. Moreover, Nike has invested and achieved the most amongst any other sports company
in developing cushioning systems that reduce shock, distribute pressure, and provide comfort for
athlete’s feet. Secondly, Nike enjoys high brand equity among the world, and its brand image could
not be imitated. Thirdly, patent protects Nike’s effort in developing the technology it is using in the
footwear production which is the “Air” technology, and also leads to product differentiation which
keeps Nike competitive in the market.

Opportunities

Opportunities and threats are always present in the external environment and the company needs
to pay attention to them in order to response quickly and effectively.

Product development offers Nike many opportunities aligned with fashion trend. Even though, Nike
is defended by its owners whom truly believe that it is not a fashion brand. However, consumers
that wear Nike products, do not always buy it to participate in sport, some of them would argue that
Nike is a fashion brand. This creates its own opportunities, since product could become
unfashionable before it wears out and consumers need to replace shoes. Thus there is the need to
introduce new and innovative designs to the market in order to benefits from this fashion trend.

Another opportunity is the free global market. The business could also be developed internationally,
building upon its strong global brand recognition. There are many markets that have the disposable
income to spend on high value sports goods. For example, emerging markets such as China and India
have a new richer generation of consumers. Also, there are global marketing events that can be
utilized to support the brand such as the World Cup (soccer) and The Olympics.

Finally, a new market that could Nike enters is the e-market. E-tailing, or customer-designed internet
merchandise, is threatening the traditional distribution channels and providing new opportunities
for reaching more costumers and increasing sales. Moreover, e-commerce eliminates the "middle-
man" distributors and allows for increasing profitability and more efficient operations.

Threats

The industry has reached a level of maturity. While style and technology in athletic apparel and
footwear has reached a leveling-off point, the important aspect now is for companies to differentiate
their lines.

The key threat for Nike is market saturation. The problem is that the athletic shoe market is already
full of different brands and companies. Now, there is very little room for new companies. There is
also very little room for new product innovation and growth of market share for companies like Nike.
Since Nike is currently holding the lead in the market as far as market share, there is little room for
them to expand. Nike is now competing with other athletic companies as well as companies that just
sell clothing or other types of shoes. If all of these other companies merely gain a small percentage
of the market, Nike will be one of the main companies to start losing market share.

Besides, Nike is exposed to the international nature of trade which makes Nike vulnerable to
fluctuating foreign exchange rates. It buys and sells in different currencies and so costs and margins
are not stable over long periods of time. Such an exposure could mean that Nike may be
manufacturing and/or selling at a loss. This is an issue that faces all global brands.

Furthermore, the market for sports shoes and apparels is very competitive. The model developed by
Phil Knight in his Stamford Business School days (high value branded product manufactured at a low
cost) is now commonly used and to an extent is no longer a basis for sustainable competitive
advantage. Competitors are developing alternative brands to take away Nike's market share.

As discussed above in weaknesses, the retail sector is becoming price competitive. This ultimately
means that consumers are shopping around for a better deal. So if one store charges a price for a
pair of sports shoes, the consumer could go to the store along the street to compare prices for the
exactly the same item, and buy the cheaper of the two. Such consumer price sensitivity is a potential
external threat to Nike.

Finally, the current financial crisis is a major threat for all companies. Beside the financial drawbacks
of the crisis, the economic situation causes possible customers to cut spending and move towards
money savings. Consumers are becoming savvier and may lean towards discounted items.

Conclusion of SWOT analysis

Nike had followed a clear functional strategy in order to get a competitive advantage over its
competitors. First of all, they worked hard to achieve superior efficiency by working on reducing
costs through moving production overseas and depending on outside contractors. Second of all, Nike
always strived to achieve superior quality, its products have all the attributes that customers
perceive as being superior to those found in competing products such as design, styling,
performance and reliability. And through providing high quality products they created a brand-name
reputation which strengthens the company’s image in the industry. Third of all, the firm had always
worked on achieving superior innovation, speed and flexibility. Innovation is in the core mission of
Nike, they have their own laboratories and they empowered their employees to be creative and
innovative. This innovation is translated into the uniqueness of their products that rivals lack. Finally,
they try to attain superior responsiveness to customers. They had always tried, and from the
beginning to satisfy the needs of their customers and give them exactly what they want. They used
to accompany athletes during their training to find the best products that suit their needs.

Nike has much strength that helped the company to attain a competitive position in the market. This
was translated by its high market share both in the U.S market and in the global market. The
marketing strategy of Nike is a key success factor for the firm, however, recently they lost some of
the figures that helped them attaining their current brand image, and Nike must find new
spokespeople and sponsors new winning soccer teams in order to maintain its position in the
market.

Nike could overcome the threats within the industry in relying on its strengths and taking advantage
of the available opportunities. For example, its strong research and development policy will help the
firm in introducing new fashion products with the same high quality that suit athletes and thus fight
against the high competitive market and at the same time take advantage of the increasing interest
in fashionable products.

Corporate Level strategy

Vision

The vision statement of Nike is: “To bring inspiration and innovation to every athlete in the world.”
Nike will continue to produce the quality products that they have provided in the past. Most
importantly, Nike will continue to meet the ever-changing needs of our customers, through product
innovation. Innovation is at the heart of NIKE, Inc.’s business growth strategy. Today, Nike’s
corporate responsibility approach has evolved from focusing on risk management to one that utilizes
their natural focus on innovation to transition into a business that is more sustainable, Nike wants to
bring people, planet and profits into high synergy and balance for a lasting success. This means a
focus on sustainable manufacturing, sustainable product development and creating a sustainable
marketplace. They will design products and influence their supply chain to create less waste;
promote equitable and empowered workers in contract factories; and protect access to sport for
everyone across the globe.

Mission

The mission of the company is to be a company that surpasses all others in the athletic industry.
Nike plans to maintain its position by providing quality footwear, apparel and equipment to
institutions and individual consumers of all ages and lifestyles.

Nike works to make its products easily available worldwide through the use of retail outlets, mail
order and the company web site. Nike’s management believes that their success lies in the hands of
their teammates, customers, shareholders and the communities in which they operate. They
promise to keep this in mind with the execution of every decision within the company.

Goals

Nike goal is to achieve growth in the global market. With high revenues targets, they are hoping to
reach this goal by a consumer-focused strategy. In 2010, Nike a number of ambitious goals as stated
in their annual report:

1. Put investing in sustainability as a key innovation/R+D priority on consumer brands’ agendas.

2. Fast track innovation through investment and collaboration.

3. Launch the GreenXchange as a platform for enabling the sharing of intellectual property to fast
track changes efficiently.

4. Build an advocacy agenda to push for large-scale policies and investments in sustainable
innovation as a key enabler of global economic competitiveness.

Corporate-level strategy

On the corporate level, Nike has a plan of action to manage the growth and development of the
organization to maximize its long term ability to create value. To this they will innovate to deliver
enterprise-level sustainability solutions, Integrate sustainability into the heart of the NIKE, Inc.
business model, and Mobilize key constituents (civil society, employees, consumers, government
and industry) to partner in scaling solutions.

Nike had already adopted an international expansion strategy and they grew globally to be the
leading athletic brand in the world. Also, they had diversified their business; they adopted related
diversification and created subsidiaries to achieve their expansion goals.
Subsidiaries

Nike markets its products under its own brand as well as Nike Golf, Nike Pro, Nike+, Air Jordan, Nike
Skateboarding and subsidiaries including Cole Haan, Hurley International, Umbro and Converse. Nike
also owned Bauer Hockey (later renamed Nike Bauer) between 1995 and 2008. In addition to
manufacturing sportswear and equipment, the company operates retail stores under the Nike town
name.

Nike has many subsidiaries, such as Bauer Nike Hockey Inc., which are yet another way the company
segments its product lines. Specifically, the Bauer Nike Hockey Inc. subsidiary manufactures and
distributes ice skates, skate blades, in-line roller skates, protective gear, hockey sticks and many
other licensed apparel and accessories that make Nike stand out in its industry.

Other wholly-owned Nike subsidiaries include Converse Inc., which designs, markets and distributes
athletic footwear, apparel and accessories; Cole Haan, which designs, markets and distributes luxury
shoes, handbags, accessories and coats; Hurley International LLC, which designs, markets and
distributes action sports and youth lifestyle footwear, apparel and accessories; and Umbro Ltd., a
leading United Kingdom-based global football (soccer) brand

Business-level strategy

NIKE, Inc. continues to be a growth company, to take advantage of the favorable opportunities and
find ways to counter threats so as to compete effectively in the industry. The firms’ strategies are
clear and the need to focus innovation against creating sustainable business opportunities has never
been clearer than it is today. They will focus on identifying new ways to create value and generate
positive returns on investments for their business, shareholders, workers and the environment.

Nike triggers consumer insights and uses research and development to design premium
performance athletic products that are innovative and of high quality. They contract with
manufacturers to make and ship products to retailers around the world at the lowest possible cost.
Then, they create demand for the products through massive marketing and advertising campaigns.

Nike invests highly in research and development and marketing efforts in alliance with a product
differentiation strategy. On the other hand, Nike locates its facilities around the world in order to
produce at the lowest possible cost in alliance with a price leadership strategy. Thus Nike is using a
combined business strategy comprising of price leadership and product differentiation.

The aim of Nike is to be competitive and protects its market share from competitors. It is working
hard to grow both locally and globally, and thus they are working on multilevel business strategy.

Compensation Programs and Social Responsibility

The performance Sharing Plan (PSP) is one of Nike’s employees rewards programs. Nike has an
annual bonus plan that rewards employees based on Nike's performance (to reward team success)
and individual performance (to reward your contributions to that success).

Another plan is the “Employee Stock Purchase Plan” which suggests that employees contribute 1%
to 10% of your pay through payroll deduction to buy NIKE stock at 15% off the fair market value.
Moreover, Nike will focus its commitment to all stakeholders by continuing to make steps towards
being a company that sets the precedents in social responsibility. Nike is continuously making efforts
to ensure that all employees and members of its surrounding communities are treated in a manner
that is in line with its mission. Nike has made many alliances with human rights organizations in an
attempt to ensure labor rights for employees of the industry overseas. Nike is committed to treating
their employees with the utmost respect, and this is reflected in the compensation and human
resource policies. Also, Nike is committed to making sound decisions in regards to the environment,
resources, and the fight against pollution.

Nike is trying very hard to act in a socially responsible manner. They are being more proactive
towards the environment. Nike’s commitment is to create extraordinary performance products for
athletes while managing their business within nature’s limits.

This vision helped them focus their effort and resources where they can make the most impact. For
instance, through innovative design, they can design out waste, chemicals and energy, and design in
new materials and new approaches. Nike calls this concept “Considered Design”. “Nike Considered”
started as a product initiative that challenged designers to “Consider your impact. Consider your
choices. Consider design, consider innovation, and consider solutions.” When they integrated this
elevated consciousness into the design process, they maximize the value of the products and
minimize the impact of their production. Nike reduced waste and CO2 emissions across the whole
supply chain. They are producing recyclable products, trying to save water, energy and other scare
resources in their production, and protecting the climate when producing.

Ethical Conduct

NIKE, Inc. has a code of ethics for all employees called Inside the Lines. It defines the standards of
conduct that employees are expected to follow and it includes a range of topics on employee
activity, ethical behavior, product safety, legal compliance, competition and use of resources. Also,
Nike expects its suppliers to share their standards and operate in a legal and ethical manner. While
Inside the Lines addresses the behavior of NIKE, Inc. employees, the Code of Conduct addresses
contractors that manufacture Nike-branded products. It directs them to respect the rights of their
employees and to provide them with a safe and healthy work environment.

In their first beginnings, Nike had followed an obstructionist approach; the issue of child labor who
were not working under legal and ethical conditions led me to this conclusion. However, under the
pressure of social responsibility they had to adopt a different ethical approach in order to protect
their brand image, they moved to an accommodative approach. They clearly communicate legal
issues and ethical code of conducts internally with their employees and externally with their
suppliers and contractors. Also, they are trying to balance the interests of different stakeholders.
Nike is very interested in looking responsible and ethical in the eyes of the society.

Nike communicates this approach in its annual, “We learned early on in our corporate responsibility
journey the dangers of not engaging and not listening. Today, we see engagement with multiple
stakeholders as a key enabler of both risk mitigation and innovation.” As a consequence, Nike
engages with a broad range of stakeholders on an ongoing basis, including civil society, industry,
government, consumers and shareholders.
Recommendations

It is highly recommended that Nike find new spokespersons for its brand, since it has lost key sport
figures who had led to the brand image that Nike enjoys now.

Nike has a wide range of products, this could help in product expansion and increase consumer
choices; however this fact may dilute the brand image of Nike, it is better for the company to
restructure its product line, remove non-profitable products and invest more on the profitable ones.

Nike is vulnerable to retailers pricing strategy, if the company starts marketing itself in the e-market,
it will overcome this issue and open new markets for its products. Also it can sell more customized
and differentiated products.

Finally, I would say that Nike is successful company, with remarkable stories of success, and it could
maintain it is current competitive position in the future by investing on human resources and on
innovation.

References

http://condor.depaul.edu/aalmaney/StrategicAnalysisofNike.htm

http://www.nikebiz.com, Nike’s official website

http://www.slideshare.net/kusmulyono/nike-environmental-analysis

http://en.wikipedia.org/wiki/Nike,_Inc.

http://nyjobsource.com/nike.html

St. John’s University Student Managed Investment Fund 2004, all rights reserved. 8000 Utopia
Parkway, Jamaica, NY

http://ivythesis.typepad.com/term_paper_topics/2009/08/business-strategy-nike.html

http://sneakernews.com/2010/05/06/nike-introduces-2015-global-growth-strategy/

NIKE, Inc. Corporate Responsibility Report FY07-09