Internaland External Environment of Nike
Overviewof the Company
Nikeis an American company which operates within the sports industry. Thecompany controls over 50% of the market share in the country. It isalso one of the leading brands in European, Asian, and Africancountries among others. The company develops a range of productswhich meet the needs in every sport such as football, rugby, cricket,and basketball among others. The company`s success arises from itsability to remain relevant to the current standards and trends,deliver high-quality products and services, maintain close workingrelationships with staff and supporting companies, and retain itscustomer loyalty in the midst of increased competition. This paperseeks to explore various aspects of the organization’s internal andexternal environment and establish how they influence its operations.
Thesegments of the General Environment of Nike (PESTLE Analysis)
Factorssuch as taxation rates, trading policies, and the stability of thegovernment vary in each country and affect the survivability ofinternational companies. Nike, being an international corporation,experiences different types of political influences from variouscountries (Winterson, 2013). For instance, the United States is amongthe countries with the best policies such as low-interest rates, anda well organized international tax agreements. These aspects canfacilitate the growth and success of a particular enterprise.However, the dynamic nature of the tax and manufacturing laws affectsNike’s performance given that it produces physical goods. Thepolitical instability in some countries, particularly in the MiddleEast and Africa, also compromises customs-related processes, thusmaking it difficult to import raw materials and export finishedproducts.
Theyinclude macroeconomic issues such as the rate of employment,inflation, interest rates, and the general status of the economy.These factors are different in each state, thus subjecting Nike tomixed experiences regarding growth and profitability. The mostinfluential variables in this sector include the collapse of markets,especially in the developing states, due to economic recession(Winterson, 2013). When a given economy of a country stagnates orrecedes, consumers of various products are forced to switch tolow-end products. Nike is likely to be affected because it produceshigh-quality products, consequently offering them at relativelyhigher prices compared to other products.
Thissegment focuses on population demographics such as cultural andsociological changes. For instance, people’s consciousnessregarding health has increased with time, thus facilitating theirshift to a better lifestyle. Nike is known to customize its productsand market the related brand in a way that convinces people that itlooks out for their health. For instance, they develop running shoeswhich enhance performance as well as comfort. However, the companyhas received a lot of criticism regarding its production processeswhich has long been regarded as dubious and harmful to workers.
Nikehas embraced social media and used it to develop a comprehensivemarketing and advertising programs to enhance their brand image andconvince people to buy their products (Winterson, 2013).Correspondingly, Social media provides an avenue for collectingvaluable information-based metrics which the company uses to enhancethe quality of their products in a way that meets the needs of peopleor a particular market segment. It has also used informationtechnology to optimize the processes related to its supply chain.Specifically, it has improved the communication processes between thecorporation and its suppliers and distributors. Additionally, itenables consumers to shop and pay for products from the comfort oftheir houses or offices. However, social media has also been used tocriticize the company’s production processes.
Nikehas been forced to develop rapid adaptation strategies to deal withthe urgently changing trade policies in all the countries where itoperates. The enterprise has faced challenges emanating from legalrestrictions because of its widely criticized sweated labor and othernegative characteristics of its production processes. Theorganization was forced to close its production factories in Pakistanfollowing the legal processes resulting from the adverse claims.
Nike’sgreen initiatives and interventions have enhanced its image in themarket. In fact, the company received ISO 14000 certificationfollowing its overall policy which emphasizes on conserving andimproving the environment (Winterson, 2013). On the other hand, itsmass production factories have been negatively viewed because theyemit harmful gasses into the atmosphere, thus contributing to globalwarming. Like all companies, Nike has been challenged to develop oradopt renewable energy rather than using petroleum and natural gas tosupport its processes.
Thetwo segments which rank highest in their influence on Nike are thepolitical and economic factors because they directly affect thecompany’s survivability and are difficult to control because theydepend on governments’ activities. For instance, high taxation andinterest rates increase Nike’s operation costs in some countries,consequently affecting the prices of products in the market. In thiscase, the company may have to compromise its quality standards toprovide cheap products. Alternatively, it may stick with offeringhigh-quality goods at high prices, but lose a section of the marketwith fewer resources. Secondly, economic recession reduces people’scapacity to spend. Therefore, sports-related products are likely tobe treated as less priority to individuals with less disposableincome.
Rivalrywithin the Industry
Thecontemporary sports industry is characterized by increasedcompetition. Nike experiences competition in the global market forathletic footwear, apparel, and equipment from equally establishedcompanies such as Adidas, Puma, V.F Corporations, and Asics. Smallercompanies such as Under Armor have also been emerging and growingsteadily over the past few years.
BargainingPower of Suppliers
Nike`sproducts are manufactured by third-party contractors in Vietnam,China, and Indonesia. No factory in these countries is responsiblefor more than 6% of the company`s brand production. However, the costof switching manufacturers is high, thus forcing the organization tostick with its traditional producers. In general, the bargainingpower of suppliers is low.
BargainingPower of Customers
Thebargaining power of clients is high because of the intensecompetition in the market. Consumers can choose different productsfrom various companies such as Adidas and Asics. As a result, Nike isunder pressure to enhance the quality of its products and review itsprices to remain relevant. It has also become mandatory for theorganization to adopt comprehensive and efficient brand managementand marketing strategies to compete effectively.
Threatof New Entrants
Nike’sbrand is widely recognized in the industry. Therefore, it will bedifficult for emerging companies to reach its level. Additionally, itrequires a lot of resources to establish a business in the sportsindustry. These elements lower the threat of new entrants to theorganization.
Threatof Substitute Products
Athletic footwear, apparel, and equipment cannot be substituted.Consequently, the demand for these products is likely to grow in thefuture. The only concern is the increasing number of counterfeitgoods which are liable to appeal to people with fewer resources anddilute the company`s brand.
Thisassessment reveals that rivalry within the industry and bargainingpower of consumers are the greatest forces which influence theperformance of Nike in the industry. In the past, the companyintensified its marketing and advertising campaigns to redress theincreased competition in the market. For instance, it endorsed asignificant number of sports personalities as well as teams toimprove its market appeal and brand awareness. It also focused oncollecting essential information regarding consumer preferencesthrough enhanced engagement platforms such as social media. Throughthis approach, they have been able to improve their products anddevelop new ones. Additionally, the company engaged in extensiveresearch which aimed at enhancing the comfort and performances oftheir offers. This approach was fruitful in maintaining the loyaltyof their customer base. The company is likely to intensify its brandawareness campaign further through an integrated marketing approachin the future. It is also liable to cut its production cost, thusgetting an opportunity to lower product prices in the market with theaim of attracting more customers.
Nikehas the most valuable and recognizable sports brand in the world dueto its partnerships with legendary players such as Michael Jordan(Mahdi et al., 2015). It also has a very viable production strategy. Additionally, its products have been made unique throughcomprehensive research processes. The company can use itscost-cutting strategies as a platform for reducing the price of itsproducts, thus attracting more customers. Enhanced image and productquality are likely to create a moat around the company’s intereststhus ensuring continued customer loyalty.
Thecompany’s greatest weakness is the poor labor practices of itspartners which attract negative criticism from people. The managementshould develop policies which would ensure that their partners,including suppliers, manufacturers, and distributors treat theiremployees respectfully and equitably when it comes to wages andsafety of working place. Therefore, any company which deals or wishesto deal with Nike will be forced to review its labor practices toascertain that they meet the pre-set conditions and standards.
Therapidly expanding economies such as China and improving markets likeIndia and Brazil provide the opportunity for continued growth andprofitability (Mahdi et al., 2015). The company can solidify itspresence and brand in such regions ahead of others.
The company`s greatest threat comes from well-established competitorssuch as Adidas and Asics. It can be neutralized by cutting productioncosts to create more leverage for reducing product prices, therebyattracting more people compared to the competition. Price is the mostimportant factor of consideration when people decide to buy goods andservices. They are likely to buy high quality, yet low-pricedproducts to minimize their expenditure.
Resources,Capabilities, and Core Competencies
Nike`s core competencies include best cost-cutting strategy. Itoutsources manufacturing services from low-cost labor regions such asVietnam (Mahdi et al., 2015). It also has a broad differentiationstrategy which ensures that it covers every market segment. Forinstance, it has products for men, women, and children. Secondly, itoffers various accessories such as apparels and gloves todifferentiate its products further. This approach aims at meeting thediverse needs of the people in the market.
Nikehas adequate physical, financial, organizational, and research-basedresources which they can use to expand into new markets and introducenew products. For instance, it has over 800 buildings worldwide.Correspondingly, its ROI is stronger than the industry’s, a factwhich ensures that it has the strongest financial position in themarket. Additionally, it has over 50,000 employees in the world tocater for its labor demands (Mahdi et al., 2015). The organization`sexperiences and research knowledge form the basis of furtherinnovation and product improvement. They also have a strong brandname which can be used to market related products and services.
Nikeis a lean organization because it does not participate in themanufacturing of its products (Strange, 2011). The fact that thecompany contracted third party factories to carry out the productionprocess provides the opportunity to concentrate on building itsbrand, engaging in extensive research, and enhancing its marketingfunction (Strange, 2011). As a result, it has been able to developand produce products which offer higher appeal in the market comparedto competitors. They are often associated with comfort, great design,and enhanced performance. However, the company can still create morevalue to consumers by reducing the price of their products.Outsourcing labor implies that the organization has reduced itsproduction costs. The related benefit can be distributed along itsvalue chain to customers.
Mahdi,H. A. A., Abbas, M., Mazar, T. I., & George, S. (2015). AComparative Analysis of Strategies and Business Models of Nike, Inc.and Adidas Group with special reference to Competitive Advantage inthe context of a Dynamic and Competitive Environment. InternationalJournal of Business Management and Economic Research, 6(3),167-77.
Strange,R. (2011). The outsourcing of primary activities: theoreticalanalysis and propositions. Journalof Management & Governance, 15(2),249-269.
Winterson,J. (2013). Artobjects: Essays on ecstasy and effrontery.Random House.