Nike

A Global Business
Neil Colombini Kayla Madsen Nikki Scott CJ Stauffer 12/18/2008

Nike--2 History The nationally respected University of Oregon track coach, Bill Bowerman and track athlete Phil Knight founded Nike in 1964. Originally called Blue Ribbon Sports, the two initially distributed shoes from the Japanese shoe manufacture, Onitsuka Tiger to athletes throughout the state of Oregon. Phil Knight often sold shoes from the trunk of his car after track and sporting events. Their main inspiration for venturing into the athletic shoe business was to provide athletes with better quality shoes. Blue Ribbon Sports quickly ended its relationship with Onitsuka Tiger and officially became Nike, Inc. in 1978. The company took its name after the Greek goddess of victory and developed the world renowned Nike swoosh logo along with a new innovative athletic shoe design. Within just two years Nike became public in 1980, controlling 50% market share of the US athletic shoe market. Today, Nike is the worlds largest athletic footwear and apparel supplier. The company employs more than 30,000 people globally. The Nike World Headquarters, located near Beaverton Oregon, is home to more than 6,000 employees. The companys innovative designs, development and marketing strategies of high quality footwear, apparel, accessory, and equipment are all factor of Nikes continuing success. For the fiscal year ending May 31, 2008, Nike reported record revenues of $18.6 billion. Line of Business

Nike--3 Nike markets its products under its own brand as well as Nike Golf, Nike Pro, Air Jordan, Nike Skateboarding and subsidiaries including Cole Hann, Hurley International, Umbro and Converse. Nike also owned Bauer Hockey between 1995 and 2008. In addition to manufacturing sportswear and equipment, the company operates retail stores such as Niketown, NIKE factory outlets, and NIKE Women shops. Nike sells its products throughout the US and in more than 180 other countries. Core Competencies Core competencies are capabilities that serve as a source of competitive advantage for a firm over its rivals. Core competencies emerge over time through an organizational process of learning how to position different resources and capabilities to a companys advantage. Nikes core competencies exist in their effective marketing strategies and their innovative product design. These two elements provide much value and benefits to Nikes consumers, are not easy for competitions to imitate, and can be leveraged widely to most of their products and markets. Although Nike does not manufacture any of its own shoes, the company is still todays leader in selling athletic shoes and apparel. Nike's marketing strategy is an important component of the company's success. Nike is positioned as a premium-brand, selling well-designed and expensive products. Nike lures customers with a marketing strategy

Nike--4 centering on their brand image: a distinctive logo (the swoosh )

and the advertising slogan "Just do it". Nike promotes its products by sponsorship agreements with celebrity athletes, professional teams and college athletic teams, creative advertisements, and professional athlete endorsements. From 1972 to 1982, Nike relied almost exclusively on print advertising. Most of the early advertising was focused on a new shoe release, essentially outlining the benefits of the running, basketball or tennis shoe. In 1982, Nike aired its first national television ads, created by newly formed ad agency, Wieden & Kennedy, during the New York Marathon. The first television ad marked the beginning of a remarkably successful partnership between Nike and W& K that remains intact today. Not only was television advertisements a huge success for Nike by reaching mass markets, but also the companys creative, eye catching & inspirational commercials are key factors that created such a strong brand image for the company. Nike also has earned the Emmy Award for best commercial twice since the award was first created in the 1990s. Nike has signed top athletes in many different professional sports to endorsement deals in order to further promote their products. Nike's first professional athlete endorser was Romanian tennis player Illie Nastase, and the company's first track endorser was distance-running

Nike--5 legend Steve Prefontaine. Today the company has numerous athlete endorsements from golf pro Tiger Woods, Basketball phoneme Kobe Bryant and tennis pro James Blake. Nike also sponsors various minor events including Hoop It Up (high school basketball) and The Golden West Invitational (high school track and field). Nike uses web sites as a promotional tool to cover these events. Nike also has several websites for individual sports, including nikebasketball.com, nikefootball.com, and nikerunning.com. As of February 29, 2008, Nikes endorsement and sponsorship obligations are around $3.4 billion. The companys innovative and creative product designs are what truly set Nike apart from their competitors. Focusing one of its corporate values on technology and innovation, Nike has pioneered four shoecushioning systems that reduce shock, distribute pressure, protect from impact and offer comfort. These technological developments include: Nike Air, Nike Air Max, Nike Air Zoom, and Nike Shox. It is these innovations that improve performance and bring comfort to Nike consumers. Nike has also created an online website that is ideal for customization. The NIKE ID Web site provides a fun and easy way for users to customize and buy footwear and athletic gear. The site transforms the visitor into a designer, allowing them to apply their choice of designs, colors and materials to a broad range of shoes, bags and equipment. NikeID was the first of its kind when it was launched in

Nike--6 2000 Nike again, revolutionized the way the world looked at sneakers and how consumers buy them. By focusing on their core competencies, Nike has remained the world's leading supplier of athletic shoes and apparel and a major manufacturer of sports equipment with revenue in excess of $18.6 billion in 2008. SWOT Analysis Strengths A main strength of Nike is the incredible brand awareness. The swoosh is the symbol of Nike and says Nike in all languages. Nike is the #1 shoemaker in the world and largest marketer of athletic footwear holding a 37% market share globally. Nike has over 22,000 retail stores in 160 countries. In addition to its wide range of core athletic shoes and apparel marketed under the flagship Nike brand, the company also sells footwear under the Converse, Chuck Taylor, All Star, and Jack Purcell brands through wholly owned subsidiary Converse Inc. and sells under the brands Starter, Shaq, and Asphalt in the discount retailer channel through another subsidiary, Exeter Brands Group LLC. The firm also sells Nike and Bauer brand athletic equipment; Hurley surfing, skateboarding, and snowboarding apparel and footwear; and Cole Haan brand dress and casual footwear. (Answers.com, 2008) Nike predicts 2009 revenue to be up by 17% to $5.4 billion, which means Nike, would have 28 consecutive quarters of year over year

Nike--7 growth. One of the reasons for this success is that Nike has contracts and is attached with literally every important sports icon in the world. Just this last year the Nike brand was featured in the top basketball, golf, and tennis stages in the world. Not to mention the impact the Beijing games had on the Nike brand. All the Chinese stores set records for sales. 8 out of 10 players on both the men and womens basketball teams wore Nike shoes. In major global sports, soccer and basketball, Nike leads in both. (Nike, Inc., 2008) Weakness The Nike organization prides itself on innovation. They are constantly updating and inventing new products for the market. However, even though this strategy works it may be risky putting all your eggs in one basket. The real question is what strategy does Nike have when the consumer doesnt care about innovation? This is not major weakness of the company, but it should be taken into consideration when analyzing. Theres no question that Nike has been on a sort of chopping block when it comes to organizations like CorpWatch, etc. Although none of the allegations may be true, it is a sure weakness of the company that they let these allegations be considered. If you are corporation as large as Nike and use the resources they have, mainly the outsourcing of work, I am surprised that Nike did not take into account what issues might arise from doing so. Ideally Nike should not be involved in

Nike--8 unethical practices, but if they are they need to be able to hide it, or else that is a major weakness to the company. The retail sector Nike sells to is very price sensitive. Nike does have its own retailer in Nike Town and the outlet stores. However, most of its income is derived from selling into retailers. Retailers tend to offer a very similar experience to the consumer and it is difficult to tell how one retailer is different from the other. The result is that margins tend to get squeezed as retailers try to pass some of the low price competition pressure onto Nike. (Marketing Teacher, 2008) Opportunity The opportunity of Nike grows with every sports star that rises using the brand and every family that grows financially and capable of buying their products. The major opportunity in this day is China and its massive economic growth rate. Being the global company it is Nike has noticed, and revenues in China have increased 50%. Not only China, but Russia and Brazil grew 40% and 30% over the last year. In the new era of knowing your carbon footprint Nike has the opportunity to show that even though they are a billion dollar organization, they do care about the environment. There is the opportunity for Nike to produce athletic wear from manufacturing waste and extend eco-friendly projects like the Reuse-A-Shoe Program aimed at further recycling. (Business Teacher, 2008)

Nike--9

Threats Nike faces an interesting time with the meltdown of the US economy and possible world recession. Recession proof comes to my mind, because numbers for Nike havent declined. It appears that consumers will buy their Nike shoes no matter what the financial situation is. However, it is still a major threat. It is too big to ignore, not only for Nike, but for any company selling retail products. Even with the large market share Nike has, competition is always a threat. Fila, Addidas, and New Balance are still around and are the major competitors to Nike and their customers. A final threat Nike faces is the issue of Nikes questionable labor conditions/issues/practices. Do they or do they not employ small children and pay them pennies per hour? The question remains and Nike will argue that they are doing everything within their guidelines but cases like these can severely tarnish or break a company. In the past these issues havent seemed to bother too many people, but Nike should be aware of this issue (and Im sure they are) as it could come back at anytime. In fact, if you Google the word Nike the final webpage on the front page of Google is a website to boycott Nike. I will argue Nike can consider this to be a threat. Organizational Design The Nike organizational structure is hybrid of the geographical design and the product based design (see Figure 1). What this entails is

Nike--10 that managers of certain areas respond to both their geographical Vice President and their product Vice President. Interestingly enough, there is no formal communication link between the two different Vice Presidents, but this structure Nike has created has allowed overlapping management responsibilities and fluid leadership structure. Global Strategies and Environmental Practices Nike is moving forward strong in the global market. They are prepared to be the leader in soccer shoes and apparel by the next World Cup Championship in 2010 and they are making deals and pushes that really demonstrate their competitive edge. Nike Inc. managers said Tuesday they will add 100 new company stores worldwide over the next three years as part of a plan to reach $23 billion in sales by 2011 for the world's largest athletic shoe and clothing manufacturer. This is not only a push to go more global but also part of their current global strategy to make it more possible to customize and individualize Nike. Their newest strategy is putting emphasis on individuality and appealing to each sport and athlete in a way they have never done before. The current breakdown will be into 6 broad categories that will help define their biggest markets: soccer, basketball, running, men's training, women's fitness, and sports culture. This change in both their structural organization as well as opening of stores will be a big move. There is potential here for growth but also the pros and cons need to be evaluated in order to better understand why they are doing this.

Nike--11 Although expansion is always seen as good, how could this possibly be compromising to Nike themselves? Opening so many more stores could make it so that Nike is competing with Nike. However, with the broadening of their 6 categories and the awareness being arisen in many new countries this could actually be a great potential for Nike and their brand. Getting their name out there, particularly to countries where there is such a large population allows for Nike to make this extreme increase in stores since In the soccer realm Nike has already had one big win over its German competitor Adidas by signing a $506 million dollar contract with French National team Le Blue who previously had been with Adidas for approximately 30 years. Not only this but they have also signed Ronaldo de Assis Moreira more commonly known as Ronaldinho in the soccer world to join famous athletic stars Michael Jordan, Lebron James and Tiger Woods to have his own line of Nike merchandise. This also includes a symbol and a line of soccer wear that will hopefully appeal to many young soccer generations who see the Brazilian as a soccer superstar. Not only is Nike always evaluating and re working their marketing strategy at home as well as internationally, they are also pendent on where their next biggest potential will be. As most in the business world know, Brazil, Russia, India and China BRIC are the biggest emerging countries with potential for huge growth due to their up and coming

Nike--12 populations and markets. Taking these geographical aspects into consideration Nike has determined Russia, India and China to be its main focuses due to high growth rates and the fact that they have determined China to be their future number two investor for products. One of the biggest parts of any global strategy in todays world involves technology and the use of the internet. Nike is now making its online website more available for customizing as well as ordering. They have adapted this page in many ways. When you first log onto the website you first chose where you are located in the world, then secondly you chose the language in which you would like to communicate. With over 14 languages to choose from and 100 locations this is just another piece of evidence that shows how Nikes global strategy reaches every part of the world. When one enters the European web page for Nike, advertisements are more directed towards soccer, or ftbol as known by in Europe, and famous sports icons are front and center on the page. When looking at Nikes United States region, the emphasis is more on Basketball, Golf, NikeID and Nike+ which are more customized versions of Nikes lines of apparel. This easy access and targeting of different needs of the consumer in different ways and languages permits Nike to hold on to that number one spot as shoe makers. Nike has also proved to flourish in developing new brands and markets while it is pairing with many other shoe companies as well as brands to widen its potential target market.

Nike--13 As long as anyone can remember Nike has always been a global company and with this global aspect comes many responsibilities. Since 1993 Nike has had a team called NEAT, the Nike Environmental Action Team whose mission is to develop answers to the problems that Nikes businessand the sports industry as a wholepose to the environment and how they could integrate these into the everyday companys business practices. This team has been essential in the planning and development of many ideas and sustainable practices that are carried out very frequently. In 1997, NEAT wrote a company policy that implemented these ideas and in 1998 was distributed to over 2000 employees. It consisted of the following principals: Integrate principles of sustainability into all major business decisions. Scrutinize environmental impacts in day-to-day operations and throughout every stage of the product life cycle. Design and develop product, materials, and technologies according to the fundamental principles of sustainability. Promote sustainable practices throughout the supply chain and seek business partnerships with suppliers who operate in a similar manner. Educate employees, customers, and business partners to support the goal of achieving sustainability.

Nike--14 Not only did Nike implement this policy over ten years ago, they have made remarkable and noteworthy sustainability efforts such as their recycle a shoe and their water quality control. Among many others are chemical reduction, corporate boxes, customer catalogs, organic cotton and plastic tank tops. All of the boxes used for shipping as well as shoe boxes are post consumer recycled and they have been making efforts to use post consumer recycled products in other mean of advertising such as catalogs, posters, etc. Environmentally Nike is taking the right steps to prove their commitment to doing better by the world and making their company more sustainable. Nike did not just recently get on the green bandwagon of 2008 but has been working towards renovating and innovating their products and lowering their pollution for many years. This is what weve been up to at Nike: challenging our assumptions, evolving our perspective, building a new approach, considering how we can harness the power of our business to influence social and environmental change and the power of that change to help our business grow Even though Nike received a bad rap for an incident in the 1990s and most pair Nike with the word sweat shops, Nike is making distinctions and changes to become a more global friendly and worldwide supported in all aspects. The fact that looking at Nikes online website you can find information on their global footprint and social impacts reflects that this company is dedicated to movement towards

Nike--15 building responsibility as a global company. Understanding Nikes global footprint and prioritizing areas where we have the greatest environmental and social impact is essential for building a robust business case for corporate responsibility and prioritizing our efforts. Diversity and Inclusion As we have discovered throughout our class, we all understand the importance of employees and their happiness in order to successfully run any business. Due to the magnitude of Nike and their number of stores and manufacturing plants throughout the world, they have taken the time to recognize the importance of each individual and what they can contribute to the team. For this reason, Nike does not call its employees, employees, yet, team members because each part of the team has something to add to the business. They have also admitted that they have a very large array of workers and this brings many diverse cultures and points of views together. At Nike, Diversity and Inclusion is what drives creativity and innovation. It takes every one of our over 30,000 employees working at the top of their game for Nike to reach its highest potential. And we know that outstanding teams are composed of diverse people, backgrounds and skill sets. This is a crucial factor in Nikes diplomacy in their many locations and globally. In identifying these differences they have set apart the opportunities to better understand how their teams will work together and what

Nike--16 adversity they may face because of this. In order to strive to reach this mission they have put into action these strategies:

Cultivate diversity and inclusion to develop world-class, highperforming teams

Ignite change and inspire critical conversations around diversity, inclusion and innovation

Create venues and environments for open dialogue, diverse opinions and a multitude of perspectives

All of which will in future venture apply and assist them in working more efficiently and having more satisfied employees for longer periods of time. Degree of Cultural Integration Although Nike is one of the leading global companies to this day, its important to study and analyze how they first became global. Within the analysis its important to examine their methods of integrating the company to the different cultures. Over the years Nike has shown that their initial global expansion actually did not work too well, which induced the negative media coverage about poor working conditions in their manufacturing plants. Nike brought the American Consumerism marketing approach to Asian countries that later led to some critical issues and concerns. However, the interesting fact about Nike is that they managed to conduct their business globally, without owning any manufacturing plants in Asia.

Nike--17 Nike first started its mass producing system by going international straight from the onset. They looked into the Asian countries to find cheap quality labor. In 1964 Nike signed a contract with Onitsuka Tiger Company who produced cheap but quality shoes for Nike. Unfortunately in the 1970s the price for shoe materials increased about 300%, giving Nike a big incentive to move to different countries. They later looked into Taiwanese and Korean manufacturers and sent their own Nike production staff to train and oversee the plants. Due to the inherent cost efficiency Nike was experiencing in the Asian plants, they decided to open up manufacturing plants in Europe and America. Regrettably, Nike encountered a loss of almost $1 million US from the European plants which led to their conclusion that it was cheaper to produce in Asia and transport to Europe and America, regardless of transportation costs and foreign tariffs. As years passed, the cost of shoe equipment and labor costs rose to astronomical proportions and were forced to look into different countries as the South Koreans were able to produce for their own local companies. Therefore Nike expanded and made contracts with producers in the Philippines, Thailand, Malaysia, and Hong Kong. Nike then saw great opportunities in China and wanted to expand even further. Upon arrival Nike requested that their Taiwanese managers would train and oversee the Chinese factories. However, Nike faced diplomatic and cultural problems with the Chinese government (Locke &

Nike--18 Siteman, 1999). Chinese officials denied any Taiwanese or Korean managers to enter and train in the state owned factories. This created a problem with the factory workers when they attributed little flexibility, almost no management to worker motivation, and the distribution networks were much undeveloped. Due to the immature workforce system and low volume of production Nike lost close to $1 million US. Luckily, in 1989 Taiwanese managers were allowed to enter China and manage their own foreign owned factories. Thus, Nike moved to the foreign owned companies with the Taiwanese management system and was back on track. The success of these factories, in terms of sales revenue, made it appear as if Nike was culturally integrating their company very well into the Asian market. This belief soon came to a halt when the US public was made aware of Nikes unethical treatment and regulations within their Asian plants. Countless individuals and companies were forced to reanalyze Nikes global attributes and rethink how the company as a whole operated. The first reports were noted during 1997 in Indonesia as US reporters entered the premises. Nike contracted about a dozen factories employing approximately 120,000 people. Ninety percent of the labor forces in the majority of the factories were women, ages 1920. Korean managers were brought in for their managerial and training skills; however, several laborers claimed they feared their managers

Nike--19 because they would take wages away if the quality of the shoe was under the minimum requirement. Some managers were fired by Nike staff after learning that they would beat the workers if they didnt meet their quota (Stanford, 1998). The factories were often 100 F with paint and glue fumes engulfing the air quality. Many reporters claimed they almost fainted by just standing in the plant. The workers were often wore no shoes and worked severe overtime shifts. Some of the factories had employees working 12 hours a day, six days a week. This created a bigger problem as Nike did not conform to Indonesian law. Compulsory overtime is illegal in Indonesia; however the governmental enforcement lacks persistence. Managers also failed to educate the workers of their legal rights, using the lack of knowledge to their own advantage. Indonesian plants often provided living spaces for the workers so they could live and work on the same premises. Approximately 10,000 people lived in the factories on their own free will because of how much cheaper it was compared to their normal living conditions. Three meals a day were provided, with a mosque, chapel, and even convenience stores. Nike seemed to be culturally responsible in this area, respecting the local religion practices. Despite Nikes little effort to effectively manage an international production factory, in 1997 10,000 out of 13,000 workers went on strike, demanding they be paid the new governmental minimum wage of

Nike--20 $71.37 US/month (Stanford, 1998). Nikes inherent response to this strike was that they paid their workers attendance allowance, meaning that they wage would stay the same if they lived on the premises. They also argued that $2.46 US/day was more than they would make and covered 90% of their essential living costs. However, due to the large size of workers on strike, Nike agreed to pay the new minimum wage. Nikes factories in Vietnam faced the same obstacles as Indonesia. In Vietnam, Korean and Taiwanese contractors opened up 15 shoe and apparel plants employing almost 50,000 workers. Labor strikes around the country provoked the government controlled newspapers to attack Nike and their horrible working conditions. For example, the monthly minimum wage for state owned factories was $20 US whereas foreign owned factories, in which Nike operates, wage was $45 US. Nike was accused of paying the state owned minimum wage for the first three months the factory was open. This caused much controversy mainly because workers maintained that their income was not sufficient to sustain their family. Only half of the Vietnamese workers were able to save money from their paycheck. By law, 1% of every workers paycheck was deducted for governmental health insurance (Stanford, 1998). Conversely, Nike also deducted their own amount from the checks, claiming they offered workers Nikes health insurance. After these reports were made public, Nikes CEO Phil Knight pronounced in a

Nike--21 speech in 1998 that because of the absence of Nikes local management team, the Nike product has become synonymous with slave wages, forced overtime, and arbitrary abuse. After much controversy over wages and working conditions, the US media became more apparent to the public eye as child labor was revealed in Nikes factory in Pakistan. The city of Sialkot is the center for manufacturing and exporting labor-intensive goods in Pakistan. This city is a magnet for foreign investors bringing in $385 million of US exports. Instinctively, Nike took an opportunity that led them to high quality hand stitched soccer balls. 70% of all quality soccer balls are produced in Sialkot for well recognized sport companies such as Nike, Reebok, and Adidas (Locke, 1999). Regardless of Nikes success in the Pakistan market, a TIME magazine article was published showing a child stitching a Nike soccer ball. This allegation regarding child labor became a wake up call to Nike, exclaiming that their international human rights policies severely need to be repositioned. According to Maria Eitel, Vice President and Senior Advisor for Corporate Responsibility at Nike, this represented a critical event for the company in terms of its understanding of globalization, international labor standards, and corporate responsibility. Within the next few weeks the Sialkot Chamber of Commerce then signed the Atlanta agreement which eliminated child labor in the soccer ball industry. Nike also welcomed and scheduled foreign worker inspectors when they established the Labor Practices Department in

Nike--22 1996. Nike insists that any of its contractors caught employing child workers must remove the child from the factory, continue to pay the childs wages, and pay for the childs school fees until he/she reaches legal working age. These reports from Goodworks International visited several Asian production facilities and gave mostly negative responses. These critiques argued that Nike did not take their Code of Conduct seriously across seas. The Nike Code of Conduct was established to form a stronger relationship between foreign factories and ethical treatments and standards. The Nike Code of Conduct begins with, Implicit in that act was the determination that we would build our business with all of our partners based on trust, teamwork, honesty, and mutual respect. We expect all of our business partners to operate on the same principles (Nike, 2004). However, Goodworks International reported that in some factories the Code of Conduct was not posted on the walls and if they were they were usually in languages the workers could not read. What they Goodworks reported next was a very strong point to why Nike has been failing to maintain ethical status. Expatriates are an essential means to effectively communicate between two cultures. Some factories lacked expatriates all together. One of the factories we visited in Vietnam is owned by a Taiwanese company, the plant manager is a Taiwanese and most of the line managers are Taiwanese. The lack of indigenous management in these factories tends to

Nike--23 undermine communication between manager and workers (Goodworks International, 1998). In some Vietnam factories the expatriates management staff did not speak the local language fluently. It will be interesting to see where Nike takes their company in the future. Its uncommon to hear about the negative stories about Nike anymore. It seems they have either succeeded to adequately adapt themselves to the foreign cultures, or they spend a lot of money hiding it. Nonetheless, Nike has shown that it is possible for companies to begin internationally, but has poor standings in terms of a positive degree of cultural integration.

Figures

Nike--24
Figure 1

Nike--25 Works Cited Answers.com. (2008, May 1). Nike Inc. Information from Answers.com. Retrieved December 1, 2008, from Answers.com: http://www.answers.com/topic/nike-inc Business Teacher. (2008). Business Teacher. Retrieved December 10, 2008, from Nike SWOT Analysis: http://www.businessteacher.org.uk/business-resources/swot-analysisdatabase/nike-swot-analysis/ Locke, R., & Siteman, A. (1999). The Promise and Peril of Globalization: The Case of Nike. Boston: MIT. Marketing Teacher. (2008, December 1). Nike, Inc. SWOT. Retrieved December 10, 2008, from Marketing Teacher: http://www.marketingteacher.com/SWOT/nike_swot.htm Nike, Inc. (2008). Q1 2009 Earnings Conference Call. Beaverton: Nike. Stanford. (1998). Nike: Managing The Non-Market Environment. Standford Graduate School of Business.