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.

Nike designed different products that were low cost and affordable to the Chinese. It also
developed products specifically for China, based on feedback from the consumers. Nike found
several opportunities with the growing middle class population in China, who were looking at
buying high-end products.

From the early 2000s, Nike started taking part in China's Olympic bid. Once Beijing was selected
to host the 2008 Olympics, Nike went all out to sponsor several teams and it expanded its
presence across the country. It made a huge impact during the Games, and its sales increased by
53% in the quarter ending September 2008.

But Nike could not maintain the momentum it had achieved during the Olympics over the next
few years. Both globally and in China, Nike was not doing well. Though the global business fell
back on track, the China business continued to be a problem area.

One of the major reasons cited for the problems was the glut in inventory after the Olympics and
the new products being produced were not to the liking of the Chinese. In 2013, Nike came out
with a “Reset” strategy and decided to apply the insights it had gained from its “Category
Offense” strategy it had used in North America to China.

Under this program, Nike segmented different points of distribution - sports, athletic training,
basketball, football, running, sportswear, and women's training. Each major city was treated as
a different market, and specific strategies were developed for each.

This strategy had a positive impact, and Nike's China sales started to grow in the first quarter of
2014-15. After that, there was no looking back for Nike in China. China was projected to emerge
as the largest market for footwear and apparel in the world with the government formalizing a
policy to make sporting a growth industry. The number of people moving into the middle class
was also projected to increase. All these factors were expected to offer a plethora of
opportunities to Nike.

However, there were some challenges too. Experts warned that the Chinese economy was on the
path of a slowdown, with growth that was said to be the slowest since 2009. Several industries
were affected, especially manufacturing and heavy industries. In such a scenario, whether Nike
could maintain its momentum in China remained a question.

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.

ABOUT 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 labour 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 upgradation, 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.

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.

EXHIBITS

Exhibit 1 – Nike Inc. on track with China “Reset”

By Jonathan Ratner, Financial Post, September 16, 2015

China is Nike Inc.’s third-largest market, accounting for approximately 10 per cent of sales, but
it’s also the company’s most profitable. Nike’s EBIT margins in greater China are about 32 per
cent, compared to almost 14 per cent for the company on the whole.

As a result, it’s reasonable for investors to be concerned about how a slowdown in the Chinese
economy might impact the sportswear giant. But Deutsche Bank analyst Dave Weiner isn’t
worried and sees a clear path ahead for Nike in the country.

Year-to-date growth in some Chinese retail sectors has slowed, but the athletic industry remains
strong, with revenues in the first half of 2015 up 16 per cent on an annual basis.

“Nike’s China game plan is resonating with consumers,” Weiner told clients, highlighting the
company’s premium and performance/fashion offerings.

With both revenues and order books outpacing peers, Nike’s “reset” plan (creating more
product differentiation, boosting consumer satisfaction, improving merchandising) is working.

As is often the case in China, government initiatives are playing a big role in the athletic retail
sector. The country’s State Council is implementing initiatives to grow sport as an industry, with
the goal of boosting its value to US$785 billion by 2025 — a compound annual growth rate of
13.4 per cent.

Weiner noted that the plan includes increasing fitness participants in places such as schools,
assigning more land use for sport, focusing on soccer and basketball, and encouraging private
and foreign investment.

“In our view, the Chinese government is monetizing the industry to promote health,
employment, and national pride,” the analyst said.

He estimates these initiatives will drive Nike’s China revenues to US$12 billion by 2025 and add
more than 150 basis points to the company’s operating margin.

Weiner boosted his fiscal 2017 earnings per share forecast to US$4.70 from US$4.64, and his
price target on the stock to US$125.

Exhibit 2 – Nike’s “Category Offense” Strategy

By Erlich Bachmann, Alumni, Harvard Business School, December 10, 2015

Nike’s business, like the athletes who best represent the brand – LeBron James, Rob
Gronkowski, Neymar, Serena Williams – is outperforming the competition. In 2015, the
domination extended outside of sporting apparel for the 50+ year-old company and into a
broader context as Nike spent most of the year leading the Dow Jones Index while booking $30
million in revenue and CEO Mark Parker was named Fortune’s Business Person of the Year. With
revenue targets of $50 million by 2020 the future looks bright. How does an established
company maintain such momentum? First, by focusing on the mission established by its
founders, Phil Knight and Bill Bowerman: bring inspiration and innovation to every athlete in the
world. Bowerman (Track & Field Coach of Phil Knight in the University of Oregon USA) said “if
you have a body, you’re an athlete”.
Then they took this mission and aligned it to a business model and an operating model, together
called “Category Offense”. Category Offense, announced in 2010 realigns business units around
consumers allowing a large global brand to communicate with its consumers and to provide
innovative products to meet their needs.

Nike is the leading sports apparel provider in the world and reaches its consumers directly
(through Nike.com or Niketown stores) and through retail partners (e.g. Footlocker, Dick’s
Sporting Goods). Nike incorporates their iconic partners in sports around the world, including
the National Football League, Team Brazil in global football, and soon the National Basketball
Association, to reach consumers world-wide. Business units are focused on specific consumer
segments – e.g. running, basketball, football – and matrixed through geographies – e.g. North
America, Greater China, and Emerging Markets – in order to best communicate with the
consumer and establish consumer demand for innovative athletic products.

Through this “Category Offense” model, Nike is finding significant growth opportunities by
focusing on opportunities across verticals as new trends emerge. For example, as online
shopping has emerged and legitimized, Nike has deftly shifted their growth towards the higher
margin direct-to-consumer channel.

As boutique, experiential brands have expanded the women’s athletic apparel market, Nike has
adapted their in-store experience and products, revamping stores and introducing community
oriented products like the N+ Training Club. In the last 2 years, Nike has completely stripped
down their retail outlet and applied its product design principles to create the experience that
lifestyle consumers have come to expect.

Focus on geography as well as consumer segments has enabled Nike to pave the way to greater
success in China to the tune of a $6.5 billion revenue goal by 2020 as China’s middle class has
emerged and fitness become more of an emphasis. Nike’s engagement with the consumer and
their ability to adapt to emerging trends allows the company to deliver for athletes and
consumers world-wide.

Nike’s operating model supports this agility with a relentless focus on innovative design and a
lean, responsive supply chain. The creative culture of the company is enabled by the Nike
campus in Beaverton, Oregon. The Nike campus is an active, athletic workplace where every
team member is an athlete and an innovator. State-of-the-art (and science) labs are employed
to constantly reassess current product offerings and launch new iterations for the athletes they
serve. A lot of science goes into Nike innovation, and Nike also partners with their superstar
athletes to gather data and athlete insights.

Exhibit 3 – GDP of China

The Gross Domestic Product (GDP) in China was worth US$14200 billion in 2019, according to
official data from the World Bank and projections from Trading Economics. The GDP value of
China represents 11.72 percent of the world economy.
Note: The gross domestic product (GDP) measures the national income and output for a given
country's economy. The gross domestic product (GDP) is equal to the total expenditures for all final
goods and services produced within the country in a stipulated period of time.

Exhibit 4 – China GDP break up and details

Exhibit 5 – Initiatives by Nike Inc. to Popularize Sports in China – Nike Extends
Partnership With Chinese Athletic Association

Kathryn Kuchefski, January 23rd 2020, medium.com

Nike and the Chinese Athletic Association have extended their current partnership to run
through the 2032 Olympic Games. The deal was announced on January 8th at a press conference
that included Nike Global Sports Marketing executive vice-president John Slusher and with CAA
president Duan Shijie.

“This partnership with Nike announced today will hopefully allow both parties to capitalise on
our synergies and strengths, as part of the opening up of the Chinese sportswear market,” stated
Cai Yong, the vice-chairman of the CAA.

“We look forward to working with Nike to increase interest in track and field, as part of our
national goals to build a strong sports economy and physically active citizenry.”

The partnership extends Nike’s commitment to both supply training equipment to Chinese
national athletes and introduces a variety of initiatives to promote athlete development in
China.

“Nike is committed to promoting the development of Chinese track and field and its athletes for
many years, and this renewed contract once again shows our confidence in the future of the
sport in China,” stated Craig Mossback, Nike’s vice-president for sports marketing in China and
Japan, and global business affairs.

The various initiatives will offer overseas training bases for Chinese athletes, top tier training
camps run by Nike, and coached by some of the best coaches from around the world. The
partnership will also assist in the promotion of cooperation between the CAA and other athletic
associations around the globe.

The CAA also signed a strategic partnership with the Shanghai Institute of Sport earlier in the
week. Per the agreement, the SIS will build a development facility to both reform and promote
athletics in China. The SIS, one of China’s oldest sports universities, will also build an athletic
school along with facilities for the national team.

“In the future, both sides will work together to establish a training, competition, learning and
research platform that gradually develops China’s track and field industry towards
professionalism, marketization, and internationalisation,” stated CAA president Duan Shijie.

The development and growth of sports in China is paramount to both the Chinese government
and its citizens. Not only is there a focus on youth sports, but also creating an environment to
foster the development of top tier athletes. If such growth continues, the sports industry could
account for 4% of the total GDP by 2035, making it a pillar of the national economy.
Exhibit 6 – Initiatives by Nike Inc. to Popularize Sports in China – Nike Announces
Results of the Active Schools Innovation Award in China to Fuel the Culture of Sport
and Play for Chinese Youth

BEIJING, July 24, 2017 /PRNewswire/ -- Through a joint effort with the National Elementary and
Secondary School Sports Education Steering Committee and the China Education Development
Foundation, Nike announced the results for Nike's Active Schools Innovation Award yesterday
evening at the Water Cube National Swimming Centre in Beijing.

After evaluating over 1,000 cases, the panel of judges decided on the final award winners: 28
teachers were recognized for Innovation in Culture of Sport; 25 teachers were awarded for
Innovation in PE Lessons; and 47 teachers won awards for Innovation in Extracurricular PE
Activity. Of these winners, 30 teachers will be given an opportunity from the Nike Community
Impact department to visit the U.S. for exchange and training.

"PE teachers are messengers who share knowledge and culture about physical education. All of
you are the 'heroes' who ignite your students' love for sports and motivate them to take part in
sports activities. You hold one of the greatest and most important jobs. Your dedicated efforts
help children grow up healthy, and your devotion deserves attention and recognition," said
Angela Dong, Vice President and General Manager of Nike Greater China. "Nike will continue to
work with the Ministry of Education to collect and recognize excellent cases from the Active
Schools program, promoting innovative practices in physical education and fostering sports
culture in Chinese schools, so together we can pass on the power and joy of sports to even more
children."

Legendary Chinese athletes Li Na and Liu Xiang attended the event as award presenters, and the
award ceremony culminated with the appearance of the world's top soccer player Cristiano
Ronaldo, who came to the Beijing event as part of his "Ignite Brilliance" trip to China.

The Active Schools program is part of a long-term strategic partnership between Nike and the
Chinese Ministry of Education that aims to encourage children to get active both inside and
outside the classroom. As part of this collaboration, the Active Schools Innovation Award is
designed to encourage and reward innovative practices for physical education in primary
schools, as well as share and promote related experiences, best practices and achievements
across regions. The awards also aim to motivate more front-line PE teachers to use innovative
ways to encourage children to participate in and become passionate about sports activities.

"Physical education is an integral part of education. Sports are not only beneficial to one's
health, but are also a means to cultivate one's personality, build character and foster team spirit.
All of this stems from allowing students to truly experience the joy of sports," said Wang
Dengfeng, Director of the Department of Physical Education and Art Education under the
Ministry of Education. "The Active Schools Innovation Award is a significant explorative effort
by the Ministry of Education to bring in social resources to support physical education. I hope
that with the implementation of the Active Schools initiative, more outstanding role models will
emerge from the PE teaching field to help promote youth sports in China."

Winning Examples of Innovation Recognized by Li Na, Liu Xiang and Cristiano Ronaldo

Liu Jianhua, winner of the award for Innovation in Culture of Sport and volunteer teacher in Yire
Village of the Erqi Township in Meigu County, Liangshan, Sichuan Province, made the most of
existing facilities at his school's rural location to encourage children to get active. This included
regularly showing sports videos to students and organizing a school basketball team and
cheerleading squad.

Zhang Jing, a PE teacher from the Dongsheng District 4th Primary School of Ordos, Inner
Mongolia, innovated from the ordinary by taking advantage of simple equipment to create new
group exercises that enabled full, active participation from all of the students.

Li Na presented the Innovation in Extracurricular PE activity award to Zhang Jing and others, and
noted, "I started playing tennis when I was 6 and have met many excellent teachers and coaches
during my career. I have benefitted from their support, guidance and encouragement
throughout my life. I hope the Innovation Award event will attract more public attention for PE
teachers, giving them more recognition and respect."

Guo Heng, winner of the award for Innovation in PE Lessons and a teacher from Longxi Special
Education School, Gansu Province, originally taught math but volunteered to become a PE
teacher at a school for the hearing impaired. After joining the school staff, he began to learn
sign language and organized a track and field team for deaf students to give them the
opportunity to participate and ultimately develop a love for sports.

Liu Xiang, who has participated in several previous Active Schools programs, presented the
award for Innovation in PE Lessons, and noted: "Children cannot grow up healthy without the
right instructions from PE teachers. We should give you our special appreciation for all your hard
work. I hope the Active Schools program brings sports culture and knowledge to more areas in
China, and eventually helps even more children get active."

Lv Shaowu, winner of the award for Innovation in Culture of Sport, is a teacher from Hekou
Primary School of the Yongji Township in Longxi County, Dingxi City, Gansu Province. Combining
his love for soccer and passion for promoting the healthy growth of children, Lv Shaowu
volunteered to work as a PE teacher and designed a comprehensive curriculum for children
which covers warm-up exercises, basic skills, team training and soccer knowledge. In the
absence of sufficient teaching facilities at his school, Mr. Lv bought sports equipment at his own
expense. This not only encouraged the children to get moving, but also ensured that they are
able to freely enjoy engaging in sports activities under appropriate guidance at school.

In recognition of his contribution, Lv Shaowu was presented with a pair of CR7 Mercurial
Campeões boots by Cristiano Ronaldo, who appeared at the awards ceremony and stated, "I'm
thrilled to be here and to celebrate all of the PE teachers who are inspiring young athletes in
China. The work you do is very important. Congratulations on this award, and thank you for all
that you're doing with the kids at your school. You are making a difference in their lives."

75 pairs of the CR7 Mercurial Campeões boots inscribed with unique numbers were created by
Nike for Cristiano Ronaldo to honour his remarkable achievements. Additionally, 49 pairs of
these shoes are being auctioned in partnership with Alibaba. Nike will match the proceeds, and
the combined funds will be donated to the China Education and Development Foundation,
Nike's Active Schools program and Lv's HeKou Primary School.

"I had never dreamed of standing face-to-face with Cristiano Ronaldo. Soccer is like my second
life. Helping more children fall in love with and enjoy soccer is the greatest joy for me. It's an
unforgettable experience for me to be recognized and encouraged by Cristiano Ronaldo. I will
continue to work even harder," said Lv Shaowu.

Exhibit 7 – More about NIKE, Inc.

NIKE, Inc., based near Beaverton, Oregon, is the world's leading designer, marketer and
distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety
of sports and fitness activities. Wholly-owned NIKE, Inc. subsidiary brands include Converse,
which designs, markets and distributes athletic lifestyle footwear, apparel and accessories; and
Hurley, which designs, markets and distributes surf and youth lifestyle footwear, apparel and
accessories.

About Nike Community Impact:

Nike believes in the power of sport to move the world and unleash human potential. However,
the world is moving less and less, and today's generation of children is the least physically active
ever. That's why Nike works to get kids (ages 7-12) active early and for life, because kids are
made to play, not to sit still, and active kids are happier, healthier and more successful. Together
with its employees, partners, consumers and athletes, Nike also supports important causes
which strengthen communities across the globe.

Nike has operated in China for 35 years. It employs more than 8,000 people directly in its
Shanghai headquarters and Taicang Distribution Centre. It also hires 40,000 people in its partner
stores and another 145,000 in its supplier base. Nike's presence and popularity in China is huge
— the sportswear giant netted 17% of the $10.7 billion in revenues it made last quarter (July –
Sept 2019) in Greater China. The sportswear giant's CEO reaffirmed its commitment to the
region last month: "Nike is a brand of China for China." Sales in China grew 24 percent last year
(2018) to $6.5 billion, the company's highest rate of global growth.

Nike started its international manufacturing in Japan, but by the 1980s, it had moved almost all
of its manufacturing to South Korea and Taiwan. Nike opened its first factory in Mainland China
in 1981. The vast majority of real Nike shoes are made in factories in China, Vietnam, and other
Asian countries. India too has a lot of places that manufacture all types of Nike products. An
important part of Nike's development was by having Michael Jordan on board as a brand
representative. The company soon changed from a U.S. shoe distributor to a worldwide brand.
In 1980, Nike had got 50% of the market share in the U.S. sports shoe market. In 1981, Nike
International was created to get overseas sales going. The heart of Nike, Inc.'s growth strategy
is innovation. According to them, their relentless focus to be better leads them to create the
world's most innovative sports equipment. This philosophy and determination determine the
way they approach to corporate responsibility in today's marketplace.

Nike's target market is largely consumers ages 15–45. Nike has focused its marketing efforts on
the digital space in recent years. The company went high-tech with its push into digital sports
and e-commerce. The company introduced the Nike+ running sensor in collaboration with Apple
(AAPL).

Nike considers the most beneficial way to price their products in order to make the most profit
possible. Another type of pricing strategy Nike uses is segmented pricing. Nike adjusts their
prices of products according to their target market.
 Nike's cost leadership generic strategy sustains competitive advantage based on costs. In this
generic strategy, the company minimizes production costs to maximize profitability or reduce
selling prices. In the late 1990s, Nike reduced costs and the selling prices of its athletic shoes
and other products.

Nike is positioned as a premium-brand, selling well-designed and very expensive products. As

same time Nike tries to lure customers with a marketing strategy focussed on a brand image
which is attained by distinctive logo and the advertising logo: “Just do it”.

Exhibit 8 – NIKE, Inc. Consolidated Statements of Income (US$ in millions)

12 months ended May 31, May 31, May 31, May 31, May 31, May 31,
2019 2018 2017 2016 2015 2014
Revenues 39,117 36,397 34,350 32,376 30,601 27,799
Cost of sales (21,643) (20,441) (19,038) (17,405) (16,534) (15,353)
Gross profit 17,474 15,956 15,312 14,971 14,067 12,446
Demand creation
expense (3,753) (3,577) (3,341) (3,278) (3,213) (3,031)
Operating overhead
expense (8,949) (7,934) (7,222) (7,191) (6,679) (5,735)
Selling and
administrative expense (12,702) (11,511) (10,563) (10,469) (9,892) (8,766)
Operating income 4,772 4,445 4,749 4,502 4,175 3,680
Interest income 82 70 27 12 6 5
Interest expense (131) (124) (86) (31) (34) (38)
Interest income
(expense), net (49) (54) (59) (19) (28) (33)
Other income
(expense), net 78 (66) 196 140 58 (103)
Income before
income taxes 4,801 4,325 4,886 4,623 4,205 3,544
Income tax expense (772) (2,392) (646) (863) (932) (851)
Net income 4,029 1,933 4,240 3,760 3,273 2,693

Exhibit 9 – American “Streetball” culture spreads in China because of Nike

With more than a century of growth, Greater China’s basketball roots have spawned a hoops-
obsessed nation of more than 300 million current active participants. The explosion of popularity
in the last 20 years has quickly fuelled the country’s passion to play, watch and closely follow
the sport and its athletes. As the world’s leading sports brand, Nike is committed to help young
athletes in Greater China develop their skills and knowledge of the game.

Through its partnership with China’s National team, Chinese Taipei and Team Hong Kong since
1996, 1997 and 2007, respectively, Nike has committed to growing the game at the team level.
In almost 20 years of partnership, Nike continues to provide Chinese players with basketball’s
leading footwear and apparel innovations, in addition to tailor-made training programs,
coaching and training clinics.
Since 1996, Chinese has sent 10 elite athletes, including Yi Jianlian, Wang Zhelin and Zhou Qi, to
the Nike Hoop Summit, the premier global basketball game for high school-aged boys that
features America's top seniors playing against a World Select Team. The event has become a
showcase for participants moving on to play basketball collegiately and professionally.

Furthermore, hundreds young Chinese players, including Zhou Qi, Dingyan Yuhang and Gao
Shang have received access to high level training and competition opportunities through Nike’s
annual All-Asia Camp which has been held in China since 2002.

Nike not only focuses on the development of professional basketball in Greater China, but also
understands the value in growing grassroots basketball; it was the first brand to organize high
school basketball in Mainland China in 1998. Last year, this initiative reached a new milestone
with its expansion to over 200 teams.

Nike was a strong catalyst growing the amateur game in 1997, a pivotal year for basketball’s
development in Greater China. That year the brand introduced 3 vs. 3 basketball to China along
with Taiwan’s High School Basketball League (HBL), which hosted 30,000 fans for this season’s
2015 HBL Boy’s and Girl’s Finals. This strong legacy of growing the game fuelled this year’s launch
of the CBA 3 vs. 3 League.

To help Chinese youth train and understand the importance of fundamental skills, Nike
basketball has released a series of training videos via its digital and social media platforms.
Featuring a variety of elite athletes and coaches, the videos have been viewed over 10 million
times.

Additionally, Nike provides consumers with a one-stop-shop at 18 experiential stores

throughout Greater China, offering premium basketball products and enhanced experiences
true to the sport. With the revamped Nike.com website, customers now have more colours,
sizes, styles and customization options available.

Exhibit 10 - How Nike, Apple have succeeded in China

By Angus Grigg, Feb 18, 2015, Financial Review (Edited)
As the mercury edged into double figures on Friday evening, a group of young men sat outside
the Nike Lab in Shanghai playing cards and smoking.

They were waiting for 90 sets of limited-edition trainers to be released at midnight and were
prepared to endure the cold for the privilege of handing over 1500 yuan ($310) a pair.

While most of the shoes bought that evening ended up being resold online at double the price,
the demand for these supposedly rare trainers neatly demonstrates how the world's biggest
sporting-goods company has turned around its business in China.

After six woeful quarters of negative, then only modest, growth, Nike rebounded in the most
recent reporting period and delivered sales growth of 20 per cent across China.

It was an uptick that surprised many and has provided a user's manual of sorts for the many
others struggling to turn a dollar in China.

Nike's strategy, at the most basic level, was to ditch the mass market and position itself at the
higher end.

Not the luxury end, but the area targeting upper-middle-class consumers.

Nike's success has highlighted a new divide among foreign companies in China – those slugging
it out at the lower end of the market are struggling, while the strong brands at the higher end
are finding a new acceptance among consumers.

"Consumer" is the key word here.

Corruption crackdown

For much of the last decade, many foreign companies have prospered in China by selling into
the so-called "gifting market", which has nothing to do with consumers.

It was basically a mechanism where luxury handbags and expensive booze were handed over to
government officials as part of a larger bribe to win favour.

The more expensive the gift, the better, as it was often exchange for cash at a later point.

That game ended two years ago with President Xi Jinping's corruption crackdown, forcing many
foreign companies to recast their business in China and have a real relationship with consumers.

At the same time, as the high-end market was being decimated, the lower end was also taking
a hit from the country's broader economic slow-down.

This has seen the likes of Coca Cola and Unilever struggle as the new emerging consumer class
becomes more cautious.

PwC's estimates these two factors saw the fast moving consumer good market (FMCG) in China
slow by 8 to 10 percentage points last year, compared with the average over the last five years.

The accounting firm estimates the average growth rate across the sector last year was just 4 per
cent.

"For every company that managed to exceed that rate, there were many others which
underperformed it – some very significantly," the firm said in a note to clients recently.
The divide between those exceeding the sector average and those falling well short can be
roughly determined by their position in the market.

Differentiated growth

Beer and carbonated drinks are showing no growth, while Apple is booming.

Like Nike, its success has been targeting the upper-middle market.

In the most recent quarter it generated a staggering $US16.14 billion ($20.6 billion) of revenue
in greater China, up 70 per cent on a year ago.

This was helped by the release of the new iPhone 6 and better distribution deals with the local
mobile phone companies.

But its brand position has surely played a part.

Despite a long period of underperformance in China, Apple refused to drop prices and compete
with the myriad of players at the lower end of the smartphone market. Its strategy was
vindicated when it got the product right for China – a bigger screen on the iPhone 6 – and the
right distribution partners.

PwC now describe China a "differentiated growth market".

In plain language that means the days of everyone doing well due to high rates of economic
growth are over.

The message couldn't be clearer: in China, position yourself at the higher end and sell to real
consumers.

Free excerpts of the Original Case written by Indu Perepu for IBS Center for Management Research (2016) have been taken. Further
inputs are from Prof. Shasank Kalyan, BE, MBM (Asian Institute of Management, Manila, Philippines). Contact
suncons29@gmail.com for distribution and reproduction rights. All rights reserved. April 2020.

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