FACULTY OF MANAGEMENT AND

ENTREPRENEURSHIP
BACHELOR OF ENTREPRENEURSHIP

MBB2502 PRINCIPLES OF MANAGEMENT

GROUP ASSIGNMENT

NAME/MAT NOR HAMIZAN BIN MOHD TAIP

RIC NO.
(BEN16041139)
PREM
RICHELSTER
LECTURER NURDIANA SUKARNA
DATE
1ST JULY 2016
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TABLE OF CONTENT

1.0 INTRODUCTION TO NIKE............................................................................3

1.1 NIKE COMPANY BACKGROUND...................................................................................4
2.0 ORGANIZATIONAL STRUCTURE AND DESIGN OF NIKE..................................6
3.0 THE ORGANIZATION AND ITS ENVIROMENT................................................8
3.1 THE INTERNAL ENVIRONMENT...................................................................................8
3.2 THE EXTERNAL ENVIRONMENT..................................................................................9
4.0 NIKE CORPORATE STRATEGY....................................................................10
4.1 BUSINESS STRATEGY............................................................................................... 10
4.2 CURRENT STRATEGY................................................................................................ 11
4.3 PORTERS GENERIC STRATEGY (DIFFERENTIATION/LOW COST LEADERSHIP/FOCUS)
...................................................................................................................................... 12
5.0 NIKE DECISION MAKING MANAGEMENT....................................................12
6.0 PROBLEMS AND ISSUES THAT NIKE HAVE ENCOUNTERED..........................13
6.1 LOW WAGES IN INDONESIA.....................................................................................13
6.2 HEALTH AND SAFETY PROBLEMS IN VIETNAM..........................................................14
7.0 CONCLUSION..........................................................................................16
8.0 REFERENCE............................................................................................ 17

1.0 INTRODUCTION TO NIKE

NIKE, is the largest seller of athletic footwear and athletic apparel in the world
with subsidiaries in over 200 countries across the world, has attempted to keep
itself on the cutting edge of technology. Nike has been launching new technically
advanced shoe models from time to time, backed by innovative advertisements,
celebrity endorsements, successful associations (college teams) and event
sponsorships.
When it faced a crisis in the late 1990s, Nike decided to strengthen its
management, overhaul its information systems, and streamline supply chain
management. Since then, Nike has been achieving rapid growth by using
aggressive marketing tactics.
However, the company still faces many challenges in the wake of changing
fashion trends, the falling sale of its higher- priced shoes, and increasing
competition. The case discusses the evolution of Nike's marketing strategy and
the company's various initiatives to strengthen its competitive position in a
changing environment.
For the year ended 31st May 2004, Nike, a leader in the global sports shoes
industry announced a vastly improved performance, earning almost $1 billion on
sales of $12.3 billion. Earnings had increased by 27% while orders worldwide
went up by 10.7%. Nike's return on invested capital was 22%, up from 14% four
years ago. Having completed a $1 billion share repurchase, Nike had plans to buy
back shares worth $1.5 billion over the next four years.
Nike had faced a crisis in the late 1990s. Many analysts felt this was because its
creativity had not been backed by operational discipline. Nike had operated on
instinct, often guessing how many pairs of shoes to produce and hoping it could
offload them in the market. In the past few years, Nike had tried to balance
creativity with a strong business focus. Nike had overhauled its information
systems to get the right number of shoes to the market more quickly. The
company had also streamlined logistics and strengthened its management team.
It focused on more efficient management of its portfolio of brands -- Cole Haan

dress shoes, Converse retro-style sneakers, Hurley International skateboard gear,

and Bauer in-line and hockey skates.
As 2004 drew to a close, Nike realized it could not underestimate powerful
competitors such as adidas. When founder Phil Knight resigned on 18th
November 2004, it marked the beginning of a new era at Nike under the
leadership of William D. Perez. Perez had earlier been president and chief
executive of S.C. Johnson & Son.
Nike's athletic footwear products were worn for both casual or leisure purposes.
Running, basketball, children's, cross-training and women's shoes were Nike's
top-selling product categories.
Nike also offered shoes designed for outdoor activities like tennis, golf, soccer,
baseball, football, bicycling, volleyball, wrestling, aquatic activities, hiking, and
other athletic and recreational uses. Nike sold sports apparel, athletically inspired
lifestyle apparel, as well as athletic bags and accessory items.

1.1 NIKE COMPANY BACKGROUND

Nike was involved in the design, development and worldwide marketing of high
quality footwear, apparel, equipment, and accessory products. The largest seller
of athletic footwear and athletic apparel in the world, Nike offered its products
through approximately 18,000 retailers in the US and various independent
distributors, licensees and subsidiaries in nearly 200 countries around the world.
Independent contractors manufactured most of Nike's products. Footwear
products were mostly produced outside the US, while apparel and equipment
were made both in the US and abroad.
Nike often marketed footwear, apparel and accessories in "collections" of similar
design or for specific purposes.
Nike also marketed apparel with licensed college and professional team and
league logos. Nike sold sports balls, timepieces, eyewear, skates, bats, gloves,
and other equipment designed for sports activities, swimwear, cycling apparel,
maternity exercise wear, children's clothing, school supplies, timepieces, and
electronic media devices.
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Nike also sold various plastic products to other manufacturers through its wholly
owned subsidiary, NIKE IHM, Inc. and plastic injected and metal products to other
manufacturers through its wholly-owned subsidiary, BAUER Italia S p A.
Nike sold a line of dress and casual footwear, apparel and accessories for men
and women under the brand names Cole Haan, CH, Gseries by, Cole Haan, and
Bragano through its wholly-owned subsidiary, Cole Haan Holdings. Nike's whollyowned subsidiary, Bauer NIKE Hockey Inc., offered ice skates, skate blades, inline roller skates, protective gear, hockey sticks, and hockey jerseys, licensed
apparel and accessories under the Bauer and NIKE brand names. Bauer also
offered various products for street and roller hockey. Another wholly-owned
subsidiary Hurley International offered a line of action sports apparel (for surfing,
skateboarding, and snowboarding) and youth lifestyle apparel and footwear
under the Hurley brand name. Sticks, and hockey jerseys, licensed apparel and
accessories under the Bauer and NIKE brand names. Bauer also offered various
products for street and roller hockey. Another wholly-owned subsidiary Hurley
International offered a line of action sports apparel (for surfing, skateboarding,
and snowboarding) and youth lifestyle apparel and footwear under the Hurley
brand name.

2.0 ORGANIZATIONAL STRUCTURE AND DESIGN OF NIKE

Nike believes that there are endless possibilities for human potential in
sports. The company also likes to believe that there are endless possibilities for
their business to grow. One of their goals is to create business opportunities that
set Nike apart from the competition and provide value for their shareholders. The
world headquarters for Nike is located near Beaverton, Oregon which is a suburb
of Portland. The Pacific Northwest is the birthplace of Nike, but now there are a
total of more than 160 Nike companies all around the world. This shows that they
really do act on the endless possibilities aspect of their organizational
structure.
Within all these Nike stores around the world, there are more than 30,000
employees of the company across six continents. Each of these employees
makes sure to bring their own contribution to the companys mission statement:
to bring inspiration and innovation to every athlete in the world. Another mission
statement of Nike is to experience the emotion, competition and crushing
competitors.
The organizational structure of this company deals a lot with competition.
Since Nike is a business revolving around athletics, competition obviously plays a
significant role. Besides the theme of their merchandise, the company also must
be competitive in the markets they are placed in all over the world. Nike has
many competitors in the United States alone, as well as in foreign markets. They
like challenge, and seek to accomplish both short-term and long-term goals. Nike
is a company that is about exploring boundaries and increase potential. What
they portray of their business to their target market also reflects the company in
itself.

NIKE Organizational Structure:

3.0 THE ORGANIZATION AND ITS ENVIROMENT

3.1 THE INTERNAL ENVIRONMENT
Internal environment are the events and trends inside an organization that
affect management, employees and organizational culture in either a positive or
negative way (Williams & Mcwilliams, 2010). Typically, the internal forces are
things that occur within the organization and are by-and-large under the control
of the organization. It is influenced by the owner of the organization and often
mirrors their values.
Internal environments are important because they affect what people
think, feel and do at work. (Williams & Mcwilliams, 2010) The key component in
internal environments is organisational culture, which is the set of key values,
beliefs and attitudes shared by organisational members. The internal
environment includes all elements that are endogenous to the organization,
which are influenced to a great extent and totally controlled by it.
Phil Knight who is the founder of the Nike company is an incredibly
competitive person. He loves sports and he absolutely loves athletes. When he is
with athletes, hes like a little kid, his personality changes and he adopts another
level of energy. And its that passion, and that tremendous respect that he has
for athletes, that has driven Nikes culture. Nike is now full of people like that
( forbes, 2012).
Nike company is very good at developing a strong organizational culture.
Though employees need to work for long time they still enjoy working at Nike
because it offers a comfortable environment for employees. To motivate
employees to work hard Nike has set up the benefits program which provides
employees with the opportunity to stay fit, ensure the wellness of their families,
and create a positive working environment. That is why every branch provides for
variable health coverage, fitness center memberships, time off, retirement
savings, and more.
The benefits in NIKE:
1. Health insurance
2. Life & Accident insurance
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3. Disability insurance
4. Retirement Savings Plan with a company contribution
5. Employee Stock Purchase Plan (15% discount)
6. Paid vacations and holidays
7. Paid sabbaticals
8. Product discounts
9. Onsite fitness center/fitness discounts
10.Transportation allowance/discount
11.Tuition assistance

Nike is more than just a place to work, its a comfortable and stimulating
environment filled with full-service facilities designed to help you perform better.
From leading-edge sports research labs and footwear and apparel design facilities
to highly-touted childcare and pre-school centers, Nike campus life reflects the
companys value and interest in its employees career growth and balance of
work and family. They make employees feeling like they are working in the big
family so that employees can work hard at their job. In addition, the campus also
features a fully equipped gym, a running track, basketball and tennis courts, and
a football field, where employees can use this kinds of equipment to relax
themselves or cultivate their hobbies.

3.2 THE EXTERNAL ENVIRONMENT

External environments are defined as the events that occur outside the
company or the organization, which that has the potential and attributes to alter
and influence or have an effect on the actual environment (Williams and
McWilliams, 1958). For example, if a company that sells cheap unhealthy foods,
people will eventually buy it because theyre mainly cheap (Williams and
McWilliams, 1958). The unhealthiness will change the environment outside the
company because people are getting unhealthy and obese (Williams and
McWilliams, 1958). This will make an impact to there consumers; people are
changing to more better and healthier foods (Williams and McWilliams, 1958).
The company must change both its environment.
There are 5 most important priorities for Nikes external environment:
The first priority is presence, this is a very important character because
Nike sponsors a huge number of athletes to wear various Nike products, such as
shorts, shoes, clothes, and etc. All the famous footballer, soccer players, and
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basketball players to wear the Nike products because when the consumers sees
their favourite athletes wearing Nike products during sports events they might
consider to buy them because of the product durability, quality and performance
(Larson, 2011).
The second priority is relevance, Nike must convince consumers that their
product it relevant and useful in their lives because if it were not, (Larson, 2011)
athletes would not use them and consumer will lose interest in the products.
The third priority is performance, Nike must deliver all the promises to their
consumers, showing that the various product by Nike is reinforced by designed,
development of the product, and making the athletes wearing the latest products
(Larson, 2011).
The fourth priority is advantage, this character is just the advantages of
Nikes product to attract the consumer by showing all the benefits to the various
products such as, the high quality material, high performance, the durability of
there products (Larson, 2011).
The fifth priority is bonding, this is the last character it is one of the most
important. Bonding is when the customer realizes that Nike is tailor made for
them in any expectations. Nike uses customers feedback in order to bond with
their loyal consumers (Larson, 2011).
In order for Nike to maintain there brand strength is to keep on doing these
customer relationship to have the consumers loyalty and having a strong
relationship.

4.0 NIKE CORPORATE STRATEGY

4.1 BUSINESS STRATEGY
Nikes current market development strategy encompasses both product
differentiation and marketing differentiation. Nike differentiates its products from
its rivals based on perceived superior quality (product differentiation).
Furthermore, Nike conducts marketing differentiation by using diverse advertising
and marketing campaigns to provide a unique and exclusive image. In the unique
value proposition, Nike defines their innovation to create a value and increase the
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consumer demand by creating a need. Besides that, Nike offers customers

reasons to keep preferring the brand over competition from rivals through
differentiating their products by offering superior quality products and creating
innovative must have products as well as delivering exceptional consumer
experiences in retail and online. Furthermore, Nike has the opportunity to build
deep personal connections between the consumer and brands by promoting
fundamental elements of the brand which help consumers notice, recognise and
recall the brand name. For example, Nikes tagline just do it and celebrity
endorsements such as Tiger Woods.
Furthermore, Nike caters to three demographic market segments: men,
women and children. Nike Research and Development is conducted frequently to
analyse the market in terms of new emerging trends in sports wear, physical
capabilities of individuals, scientific and technological advancements in sporting
equipment, athlete attire/accessories as well as design preference.
The evidence of Nikes differentiation strategy can be seen within their
decision to employ professional athletes to promote their products. For example,
Tiger Woods endorsement of Nike led to the introduction of Nike into the golf
industry and eventual creation of golf products. Further evidence can be seen in
Nikes international marketing. Nike associates its brand with the most respected
and well-known world sporting events for example Olympic Games and Soccer
World Cup.

4.2 CURRENT STRATEGY

At the core of the current strategy Nike, Inc. is employing is the idea of
sustainability. Sustainability in terms of operations, sourcing, manufacturing,
regulations, innovation, and people. Nike, Inc. has been able to successfully
integrate a strategy focused on sustainability into their business model. The
current strategy is one where business model and sustainability collide effectively
and efficiently.
Because of the uniquely focused strategy, Nike, Inc. is able to place emphasis on
innovation that is disruptive which is a key objective for the company. The
strategy also enables Nike, Inc. to leverage competitive advantages over the
competition. Competitive advantages then become sustainable competitive
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advantages because of the ability to take advantage of economies of scale and

highlight the successes of the manufacturing and supply chain process. Nike,
Inc.s current strategy of sustainability is part of the culture of the company
which is reflected in the positive growth over recent years. The strategy is
effective.

4.3 PORTERS GENERIC STRATEGY (DIFFERENTIATION/LOW COST

LEADERSHIP/FOCUS)
Since the footwear market is highly competitive, companies are striving to
provide the best possible deals to the consumers. This means that they are trying
to cut down costs. Since Nike outsources its manufacturing to other countries, it
doesnt have any capital tied up in machinery, equipment or factories. This
means it doesnt have any expenses that may arise out of maintenance.
Nike also lays heavy emphasis on Differentiation and continually strives to
innovate and develop its products. The introduction of Nike+iPod sports kit in the
year 2008. This enables runners to log and monitor their runs via iTunes and the
Nike+ website.

5.0 NIKE DECISION MAKING MANAGEMENT

Nike's Operations management concerned about forecasting, controlling,
designing, operating, and scheduling business operations in the production of
Nike foot ware. Its excellent management that has been developed and
ameliorated during the long term operation has enabled that business operations
to be efficient and at the same time using as few resources as required. It is also
effective in terms of satisfying customer demands, and thus it has become one of
the key issue that Nike develop prosperously despite the fierce competitions with
other foot ware giants such as Adidas, Reebok, Puma, etc. The operation
management system includes manufacturing and production systems, equipment
maintenance management, production control, industrial labor relations and

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skilled trades supervision, strategic manufacturing policy, systems analysis,

productivity analysis and cost control, and materials planning.

Nike started with dispersed production strategy as it is too small to

construct its own production line and cannot support to recruit a large number of
staff as well, especially in USA.. Everything has both sides, and such strategy
become its superiority in later time. It invited European designers to design for
Nike sport shoes, then produce them through Asian manufacturers. It was its
utmost objective to minimize its cost at that time in order to survive. The
management strategy had been successful, and has greatly reduced the
production cost. Nike had no more than 48 staff in 1972, compared with 3000 in
Adidas at that time. However, the sales volume has increased nearly 1000 times
during 12 years based on such operation management, from 1 million to 10
milliard dollar. The forward-looking operation management strategy had been an
effective support for the brand to become the biggest foot ware company in USA.

6.0 PROBLEMS AND ISSUES THAT NIKE HAVE ENCOUNTERED

The same factors that permitted Nike to grow at an impressive rate over the last
several decades taking advantage of global sourcing opportunities to produce
lower cost products and investing these savings into innovative designs and
marketing campaigns have also created serious problems for the company in
recent years. Already in the 1980s, Nike had been criticized for sourcing its
products in factories/countries where low wages, poor working conditions, and
human rights problems were rampant. However, over the course of the 1990s, a
series of public relations nightmares involving underpaid workers in Indonesia,
child labor in Cambodia and Pakistan, and poor working conditions
in China and Vietnam combined to tarnish Nikes image. As Phil Knight
lamented in a May 1998 speech to the National Press Club, the Nike product has
become synonymous with slave wages, forced overtime, and arbitrary abuse.
How Nike, a company associated with athleticism, health and fitness, and
innovative marketing and design, came to become the poster child for the anti
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globalization movement provides an interesting window into the potential risks

and problems which globalization creates for all multinational corporations. In
what follows, we provide not a comprehensive review of the various abuses of
which Nike and its suppliers have been accused in recent years, but merely three
anecdotal illustrations of the kinds of problems the company has confronted.

6.1 LOW WAGES IN INDONESIA

In the early 1990s, Nike products were being manufactured in six Indonesian
factories, employing more than 25,000 workers. Four of these factories were
owned by Nikes Korean suppliers. As Nikes presence in Indonesia increased, the
factories supplying its products (about six million pairs of shoes per year) came
under greater scrutiny. Reports by a variety of NGOs and labor activists claimed
that these plants were rife with exploitation, poor working conditions, and a
range of human rights and labor abuses. Many Indonesian shoe factories did not
even pay the minimum daily wage (at the time, 2,100 rupiah or about US$1).
They petitioned the Indonesian government for exemptions to the legal minimum
wage, claiming it would cause them hardship to pay. According to official
Indonesian government calculations, this minimum daily wage only covered 70%
of the basic needs of one individual let alone a family. Nikes Korean suppliers
were seen as especially stingy with wages and abusive to local workers. One
worker at Nagasakti Para Shoes, a Nike contractor, said that she and other
Indonesians were terrified of their South Korean managers: They yell at us
when we dont make the production quotas, and if we talk back they cut our
wages. The plight of workers in these factories became publicized through the
skillful use of media by several NGOs. Jeff Ballinger, founder of Press for Change,
(but at the time employed by the Asian-American Free Labor Association, a
branch of the AFL-CIO), spent nearly four years in Indonesia, exposing low wages
and poor working conditions in factories producing Nike goods. In 1993, CBS aired
a report about workers struggles at Nikes Indonesian suppliers, featuring
Ballinger. In 1994, harsh criticism of the companys practices appeared in an
array of different publications: The New Republic, Rolling Stone, The New York
Times, Foreign Affairs, and The Economist. At first, Nike managers sought to
ignore and/or deflect these criticisms, arguing that the Indonesian factories were
owned and operated by independent contractors, not by Nike. Nikes Vice
President for Asia at the time claimed that Nike did not know the first thing

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about manufacturing. We are marketers and designers. The companys general

manager in Jakarta argued, They are our subcontractors. Its not within our
scope to investigate [allegations of labor violations]. But by the mid-1990s, Nike
instructed its Indonesian contractors to stop applying for exemptions to the legal
minimum wage. In April 1999, after the Indonesia government raised minimum
wages to 231,000 rupiah/month (US$26), Nike announced that it would raise
wages for workers employed by its suppliers above the legal minimum wage,
from between US$30-37.50 per month.

6.2 HEALTH AND SAFETY PROBLEMS IN VIETNAM

In November 1997, an Ernst and Young audit of one of Nikes Korean
subcontractors, the Tae Kwang Vina Company operating in Vietnam, was leaked
to an NGO called Transnational Resource and Action Center (TRAC) later
renamed CorpWatch. At that time, Tae Kwang Vina employed over 9000 workers
and produced more than 400,000 pairs of Nike shoes per month. The Ernst and
Young audit, commissioned by Nike, reported serious health and safety problems
at the Tae Kwang Vina plant. Toulene concentrations were said to exceed between
6 and 177 times acceptable standards in certain sections of the plant. (Toulene is
a chemical solvent that is known to cause central nervous system depression,
damage to the liver and kidney, and various skin and eye irritations). The report
also claimed that chemical releases in the plant had caused numerous cases of
skin and heart disease, and that respiratory ailments, due to excess dust, were
rampant in other areas of the factory. According to the report, personal protective
equipment was not provided at the factory and working conditions and work
hours at the plant were in violation of Nikes code of conduct.
News of this report, which appeared in the New York Times and other
leading newspapers, ignited another wave of indignation over Nikes relations
with its suppliers. This incident was particularly damaging for Nike since the
report came from Ernst and Young, a leading accounting and consulting firm that
Nike had hired to audit its suppliers factories. In addition, the Tae Kwang Vina
factory had been one of the factories former Ambassador to the UN Andrew
Young had previously visited, as part of a study tour of Nike suppliers sponsored
by the company. In his report of Nikes suppliers, Young did not mention the
serious health and safety issues at the plant. In short, more than simply another
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example of poor working conditions at one of Nikes suppliers plants, this

episode called into question the companys honesty about and commitment to
labor and environmental/health standards. These three events, combined with
the numerous others that were reported in the press, created a major public
relations problem for Nike. (Appendix C traces the number of negative articles
about Nike that appeared in major publications.) Increasingly, labor and
environmental problems at Nikes suppliers factories were becoming a major
problem for Nike itself. These events made Nike a target for the anti-globalization
and anti-sweatshop movements. Several NGOs decided to focus most of their
attention on Nike and the various problems found among its suppliers. Web sites
focusing solely on Nike and its alleged abuses appeared on the world wide web
and were used by NGOs and various activist groups to share information,
coordinate protests, and further embarrass the company. Consumer and labor
groups organized boycotts of Nike goods and pickets at Nike shops. Under
pressure from several student groups, some universities cancelled their orders
with Nike to produce collegiate athletic products. As a result of these various
activities, the companys hard-earned image began to tarnish.

7.0 CONCLUSION
Nike, Inc. is a company rooted in competition. From equipping athletes with the
finest sports equipment in the world to continuously improving their own
management performance, Nike dominates its competitors. Phil Knight and Bill
Bowerman probably could not have imagined in 1962 to what degree their $500
investments would yield in 2000. They did know that product quality and
innovation would help athletes to achieve greater goals. Nike still operates on
this philosophy today. It is one that has helped athletes and stakeholders alike to
realize athletic and financial greatness. Despite a changing marketplace for
athletic footwear, we will continue to expand our product lines and marketing
reach to become a more powerful global brand.

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8.0 REFERENCE
Nike Inc.(2012). The Nike foundation. Retrieved August 26, 2013, from http://nikeinc.com/pages/thenike-foundation
Forbes.(2012). What You Need To Know About Nikes Phil Knight. Retrieved August 26, 2013, from
http://www.forbes.com/sites/johnclarke/2012/09/10/what-you-need-to-know-about-nikes-phil-knight/
Williams, C. & McWilliams, A.(2010) MGMT. Organisational environments and cultural. P59.
Australia: Cengage Learning Australia Pty Limited.
Claudiu, C. S.& Andrei, P.& Gabriela, P. M. (2011). Internal Environment Analysis Techniques.
Annals of the University of Oradea, Economic Science Series. 2011, Vol. 20 Issue 2, p731-736.
Larson, D. (2011). Global Brand Management Nikes Global Brand. ISM Journal Of International
Business, 1(3), 1-14.
Williams, C., Mcwilliams, A. (2012). MGMT (1st Asia-Pacific ed.), controlling (pp45-58). Cengage
Learning: Alison Green

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