CASE 1 ; NIKE IN CHINA

Abstract

US-based Nike, Inc., the world’s leading designer, marketer, and distributor of athletic footwear,
apparel, equipment, and accessories, has had a presence in China since the 1970s. The low wages and
talented manpower in China encouraged Nike to shift some of its production from other countries to
China. However, Philip Knight, one of the founders of Nike saw China as a huge market for Nike.

The consumer presence of Nike in China started in 1981. In order to encourage and build a sporting
culture in the country, Nike sponsored several clubs and sports related events, including professional
leagues. It launched professional sporting leagues and was instrumental in building the American
‘streetball’ culture in China...

INTRODUCTION

In September 2015, US-based Nike, Inc. the world’s leading designer, marketer, and distributor of
athletic footwear, apparel, equipment, and accessories, announced that the sales of its footwear in
Greater China had increased by 36% and that of its apparel by 22% during the quarter ending August
2015. The news sent Nike’s stock surging by 9%. Orders scheduled for delivery between September 2015
and January 2016 grew by 30% in China.

Nike projected that its Greater China business would grow at an average of 15% a year to achieve sales
of US$ 6.5 billion by 2020 while its global sales would reach US$ 50 billion. Experts said that with the
Chinese government mandating sports as a growth category, Nike was all set to grow further in the
market. The news of Nike performing well in a country that was undergoing macroeconomic changes
and where several other companies were reporting declining revenues came as a surprise to the
industry experts...

BOUT NIKE

Nike was founded by a track athlete, Philip Knight (Philip), and a track coach at the University of Oregon,
Bill Bowerman (Bill) in 1964. In 1957, Philip was studying at the University of Oregon and it was here that
he met Bill who was the athletics coach. Philip and Bill realized the need for a low cost but good quality
running shoe. At that time, leading track shoes were being produced by European companies. These
shoes were made of leather, had very bad cushioning, and used steel spikes for traction. Philip and Bill
started to design shoes that were lighter, better padded, and featured waffle like patterns in their
rubber soles. These models didn’t see much commercial success. Later, when Philip was doing his MBA
at Stanford University, he did a marketing research dissertation on the US shoe manufacturing industry.

He proposed in his dissertation that low cost, high quality running shoes could be imported from Asian
countries like Japan, where labor was cheaper, and sold in markets like the US. Philip was confident that
cheaper shoes that were of good quality would be highly successful in the US market and could end the
domination of German companies in the industry..
SCALING THE GREAT WALL

Philip had always thought China was a market which held huge potential for Nike. In the 1970s, when
Nike started a subsidiary in Taiwan, it was given Nike’s original name ‘Blue Ribbon Sports’. This was
because Philip was not keen on using the name Nike in Taiwan, as China considered Taiwan to be a
renegade province.

Nike started manufacturing in China during the 1970s. Philip visited China in 1980, when the country
was emerging out of the Cultural Revolution. At that time, Nike’s sales were US$ 150 million and the
company was all set to go in for an IPO. At that time, China had not yet become the manufacturing hub
for the world and was nowhere close to becoming the fastest growing market in the world. Philip,
however, felt that China offered several opportunities, with its low wages and talented manpower. He
was of the view that with some up gradation, the factories would be able to produce what Nike wanted.
Within a year he started negotiating with the Chinese Communist party. At that time, the government
was moving slowly toward economic liberalization. Deng Xiaoping, who succeeded Mao Zedong was
looking at doubling China’s GDP by the end of the 1980s...

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NIKE FOR CHINESE

Nike’s consumer presence in China started in the 1980s. In 1981, it opened a small marketing office in
the country with six employees. It started to make its presence felt in the market by sponsoring several
sports related events, including professional leagues. Nike launched professional sporting leagues, and
was instrumental in building the American ‘streetball’ culture in China...

NIKE GROWS WITH CHINA

In 2000, top officials of Nike China met to decide on their strategy for the Olympic Games of 2008. At
that point, Beijing was competing with other cities – Toronto, Paris, Istanbul, and Osaka – to host the
Games. Earlier, Beijing had lost out to Sydney in its bid to host the 2000 Games, and the Chinese
government was determined to succeed this time around. This required the International Olympic
Committee to select a host city. Each member of the IOC had one vote. The members voted for the cities
and several rounds were conducted until one city received a majority of the votes (The city that received
minimum votes in each round was eliminated)....

THE FALL

After the Olympic Games of 2008, there was a growing demand for athletic gear and athletic footwear.
Several brands invested heavily anticipating high sales, but the demand was short lived, and several
companies were forced to close down their stores. ..

THE REJIG

In 2013, Nike adopted the ‘Reset’ strategy in China in order to achieve profitable and sustainable growth
and reposition the brand in the market. Under this strategy, Nike applied the insights it had gained from
the ‘Category offense’ strategy it had used in the North American market in the Chinese market. This
was a part of Nike’s plan to translate its key strategies into locally relevant executions. ..

LOOKING AHEAD

Experts said Nike had managed to turn its fortunes around by repositioning itself as a high-end brand
targeting the upper middle class, instead of a mass market brand. They said with the changes in the
Chinese economy, those companies that catered to the mass market were struggling, whereas high-end
products were gaining ground by finding acceptance among the consumers...

SOLVE THE FOLLOWING ISSUES

Nike’s entry and expansion strategies in China

How China went on to become one of Nike’s most important markets

Explain Nike’s efforts to popularize sports and related activities in China

What challenges faced by Nike in China

What problems faced by Nike in China after the 2008 Olympics

Describe Nike’s ‘Category offense’ strategy and understand how it helped Nike gain lost ground in China.

What future strategies that Nike needs to adopt in China in the face of the changing macroeconomic
situation in the country.
CASE 2 Battling Perceptions: The Next Challenge in Huawei's Globalization Agenda

ABSTRACT

This case discusses the journey of Shenzhen-based networking and telecommunications equipment and
services company, Huawei Technologies Ltd. (Huawei), and its emergence as a global brand from China.
Huawei entered the Chinese telecommunications equipment market in 1987. Despite its late entry, it
quickly made its presence felt, outwitting giant international telecommunications companies in the
process. The company was also hugely successful in the developing markets such as Russia and Africa.
However, Huawei faced several challenges in mature markets such as the US, Australia, and Europe.

In 2011, the company started facing opposition in the US, Australia, and the European Union for its
telecom equipment. Both the US and Australia alleged that Huawei entered backdoors into its
establishments at the behest of the Beijing government, giving China a better chance to spy on the US.
The allegations had their roots in the past association of Ren Zhengfei (Ren), Huawei’s founder, with the
PLA...

INTRODUCTION

On September 29, 2015, the efforts of Shenzhen-based networking and telecommunications equipment
and services company Huawei Technologies Ltd. (Huawei) to win broader global consumer appeal
received a major boost when American multinational technology company, Google Inc. (Google),
unveiled its high-end smartphone Nexus 6P, developed in collaboration with the company. Analysts felt
that the partnership with Google gave Huawei an opportunity to make inroads into the US consumer
market. Commenting on the deal, Ian Fogg (Fogg), senior director at the consultancy, IHS Technology,
said, “[The deal with Google] opens up a route into the US market to raise visibility for Huawei
smartphones. Huawei will be particularly pleased if this can be a bridgehead into the US market.”...

HUAWEI – FROM SHENZHEN TO GLOBAL MARKETS

The history of Huawei Technologies Ltd. (Huawei) dates back to 1987 when Ren Zhengfei (Ren), a former
military engineer at People’s Liberation Army (PLA), founded the company in Shenzhen with the aim of
making it the backbone of China’s communications industry.

The company started as a sales agent for a Hong Kong company selling private branch exchange (PBX)
switches with an initial investment of US$ 3400. Since Huawei was a private company, it had to face the
challenge of raising capital. Unlike state-owned companies in China which could raise funds from the
government-owned banking system, private companies in the early 1990s had access to limited sources
of funds. Huawei was thus unable to bid for important contracts. The company was forced to borrow
money from large enterprises at steep interest rates of 20 percent to 30 percent. But Ren and his
cohorts used the funds wisely and invested around US$ 20 million in research and development (R&D).
By 1990, it had acquired enough resources to open its first research laboratory. In the same year i.e.
1990, the company made its own PBX and started selling the switches to hotel networks at prices lower
than those of imported devices (Refer to Exhibit I for Huawei’s Milestones). ...

LEADING THE CHINESE TELECOM EQUIPMENT MARKET

In 1992, Huawei surveyed the situation in China and observed that there were market and infrastructure
deficiencies. The national telecommunications infrastructure in China was poor and profit margins were
low. Also, foreign manufacturers were focusing on the big domestic players in urban China and
neglecting the rural Chinese market. Sensing a potential in the untapped rural market, Huawei seized
the opportunity and started supplying domestic communications equipment to the rural market. The
company’s sales staff penetrated into China’s numerous townships and counties, creating a powerful
operations base for supporting firm survival....

ENTERING GLOBAL MARKETS

In the mid-1990s, the Chinese domestic telecommunications networking equipment market was
dominated by giant international telecom equipment companies. Their dominance led to Huawei having
a relatively weaker position in China. Ren believed that the Chinese telecommunications market was the
largest and one of the most open markets in the world attracting global telecommunication giants into
China. As a result, Ren felt that, “The best food has all been eaten up by the global giants and what we
can do is to have those leftovers.”..

THE CHALLENGES

Though Huawei achieved huge success in several global markets, the US was a different story altogether.
Despite bidding several times since the company first entered America, Huawei failed to win a single big
contract from top-tier carriers such as AT&T, T-Mobile, and Verizon. The US telecom companies had had
long relationships with home-grown suppliers such as Lucent, Motorola, and Cisco. Moreover, the US
telecom majors felt that while the telecom equipment manufactured by Huawei was fine for emerging
markets, it was not reliable or suitable for the 24/7 service required by networks in the US. Though by
2011, Huawei had developed some of the most innovative and fastest equipment in the telecom
industry, it continued to face resistance in the US......

HUAWEI’S RESPONSE

In response to the allegations made by the US against Huawei, Ren said, “We have never sold any key
equipment to major US carriers, nor have we sold any equipment to any US government agency. Huawei
has no connection to the cyber security issues the US has encountered in the past, current, and
future.”...

BYPASSING CHALLENGES IN TELECOM MARKET – FOCUSING ON NEW ENGINES OF GROWTH

Despite Huawei trying to catch up by hiring several multinational public relations, advertising, and
marketing agencies to improve its image, it continued to face a ban in the US telecom market. In the US,
the company had no contracts with Tier 1 carriers.....

THE RESULTS

Even as Huawei was grappling with the issue of gaining brand recognition, it was named one of BrandZ’s
‘Top 100 Global Brands’ of 2015 in May 2015...

LOOKING AHEAD

While Huawei’s aim going forward was to conquer the US consumer market, according to Yu
Chengdong, head of Huawei’s consumer business, some industry watchers felt that the company lacked
the appeal of Apple and Samsung for high-end smartphone consumers.....

ANSWER THE FOLLOWING ISSUES

The case is structured to achieve the following teaching objectives:

How effective is Huawei’s lobbying efforts for tackling espionage accusations against the company.

Design a cohesive global corporate communications program to proactively address media speculation
about Ren’s close ties with the PLA..

Tackle concerns related to lack of openness and transparency at Huawei.

What strategies that help Huawei achieve brand recognition in the intensely competitive US smartphone
market and enterprise market.

How to they Apply strategies for Huawei to become a US$ 100 billion company by 2020.