Nike

The Challenge

Legal, Cultural, and Ethical Challenges that Nike Faces in Global Business
This hub examines the Nike Sweatshop Debate, and addresses the following:
a) Summarizes Nike’s case focusing on key points.
b) Describes the legal, cultural and ethical challenges that confront Nike as a global
business.
c) Determines the various roles that the host government played in this particular
global business operation.
d) Summarizes the strategic and operational challenges facing global managers
illustrated in Nike’s case.

 Nike - Successful Global Business doesn't come without Challenges.

Once a company, like Nike, decides to become a global entity, it will often experience an
increase in profitability. Unfortunately, companies like Nike must overcome some difficult
obstacles before establishing a successful business in a foreign country. Some of the issues
of concern are child labor laws, wages, and outsourcing’s effect on sales. Because of this,
most widely known companies have presented various cases to defend their positions on
conducting business in the foreign country. One such example is a Nike sweatshop labor
case that stirred up a large amount of controversy over ethical business practices. Even
though Nike has attempted to recover from the bad press it received about the sweatshops,
it still struggles to defeat the negative feelings from people across the United States. Thus, a
summary of the case, the legal, cultural and ethical challenges, an understanding of the
roles the host governments play, and the strategic and operational challenges faced are
important to gain a thorough understanding of the issues and case.

Most people could easily define Nike and are familiar with the products offered, like the
customized options available in the Nike store online, Nike Sportswear, Nike Women, Nike
Basketball, and Nike Football. These products, among others, have led Nike to a profit of
$15 billion in 2006 and a catchy “Just Do It!” slogan (Hill, 2009). The company outsourced its
manufacturing plants to several countries in order to lessen costs and become more
efficient in productivity. The outrage and protests that followed were far from what Nike
expected; the company was labeled as forcing “children to slave away in hazardous
conditions for below-subsistence wages” (Hill, 2009). As a result, protestors of globalization
and human rights activists criticized Nike for taking advantage of the workers overseas and
placing them in a destructive working environment. Moreover, the fact that Nike was
making billions of dollars and still failed to provide a safe working environment only made
matters worse. After Nike realized it was the target of several protests and complaints
against globalization, it recognized the need for safer work environments and an adherence
to certain standards for each of the overseas factories. The factory workers were forced to
work exceptionally long hours to fulfil quotas and had to follow strict rules during work for
below minimal pay despite having “77 percent of the employees in Vietnam suffer from
respiratory problems” (Hill, 2009).
Therefore, the legal, ethical, and cultural challenges began to add up for Nike and it was
time for the company to confront them.

The majority of challenges Nike had to overcome involved ethical issues and debates. Even
though Nike was providing jobs to those who may not otherwise have one, it was paying “a
mere $1.60 a day to Vietnam factory workers when the living wage is at least $3 a day” (Hill,
2009). Nike could have avoided this challenge by paying each employee worker the living
wage of the country he or she lives in to purchase necessary items. Moreover, the living
wage is a cultural expectation which Nike failed to meet that led to protests. Another ethical
issue involved “a report that found workers with skin or breathing problems had not been
transferred to departments free of chemicals and that more than half the workers who
dealt with dangerous chemicals did not wear protective masks or gloves” (Hill, 2009). The
debate was over the unsafe conditions Nike was providing its factory workers while it
experienced continual increase in profits. Nike was also criticized for failure to follow child
labour laws by hiring children who were not allowed to work and forcing them to work
overtime for below minimal pay. For example, “according to Global Exchange, in one
factory, owned by a Korean subcontractor for Nike, workers as young as 13 earning as little
at 10 cents an hour toiled up to 17 hours daily in enforced silence” (Hill, 2009). Exposing
workers to harsh and toxic chemicals including carcinogens were also factors that placed the
company at odds with human rights activists. The company attempted to redeem itself by
stating “it had formulated an action plan to deal with the problems cited in the report, and
had slashed overtime, improved safety and ventilation, and reduced the use of toxic
chemicals” (Hill, 2009). Even tough Nike took steps to improve the accusations in the report,
it should have been corrected once it was aware of the conditions and provided each
worker with a fair and safe work environment.

Ernst & Young was the accounting firm hired by Nike to conduct an audit of its business
practices; however, the discovery became public knowledge instead of remaining
confidential. Another host government that played a role is “one-time hired U.S.
Ambassador to the United Nations and former Atlanta Mayor and Congressional
representative Andrew Young”; his role was to “assess working conditions in
subcontractors’ plants around the world” (Hill, 2009). Unfortunately, there were accusations
made that stated discrepancies in his report and the method by which the report was
conducted. Moreover, “Nike joined a task force called Fair Labor Association to assess
whether companies are abiding by the code and banish sweatshops in the shoe and clothing
industries” (Hill, 2009). The debate over independent auditors performing audits of overseas
factories came from the “United Students Against Sweatshops to ensure a truly
independent audit” (Hill, 2009). Nike is a widely recognized brand, which is the reason
several other host government became involved in the sweatshop case.

The strategic and operational challenges Nike faces are vast and will require a large amount
of time and effort. This is especially true because the operational practices and strategies
Nike previously adhered to was no longer effective; rather, those practices began to hinder
its success. One operational challenge Nike faces is the development of a strict monitoring
system in its factories overseas. On the other hand, hiring a firm to ensure accurate
accounting reports are produced is a strategic challenge. Moreover, determining a country
to set up another factory in is both a strategic and operational challenge. Nike faces several
challenges; however, it can achieve continual success through an effective operational and
strategic plan.

Therefore, the factories and sweatshops established overseas by Nike launched a debate
regarding whether Nike was in compliance or violation of ethical guidelines and regulations.
Despite several attempts, Nike is still the focus of protests regarding violation of child labour
laws and unsafe working environments. Moreover, numerous governmental organizations
have worked with Nike to ensure safe and ethical business practices and to monitor the
sweatshops Nike established overseas. Consequently, Nike was forced to change its
operational and strategic plans drastically in order to remain successful and appease labour
and civil rights unions. The case of the Nike sweatshops demonstrated how difficult it can be
for a business to become global because of the different rules and regulations established
by that country. 
 SWOT Analysis Nike, Inc.

Strength.
 Nike is a very competitive organization. Phil Knight (Founder and CEO) is often
quoted as saying that 'Business is war without bullets.' Nike has a healthy dislike of is
competitors. At the Atlanta Olympics, Reebok went to the expense of sponsoring the games.
Nike did not. However Nike sponsored the top athletes and gained valuable coverage.
 Nike has no factories. It does not tie up cash in buildings and manufacturing workers. This
makes a very lean organization. Nike is strong at research and development, as is evidenced
by its evolving and innovative product range. They then manufacture wherever they can
produce high quality product at the lowest possible price. If prices rise, and products can be
made more cheaply elsewhere (to the same or better specification), Nike will move
production.
 Nike is a global brand. It is the number one sports brand in the World. Its famous
'Swoosh' is instantly recognisable, and Phil Knight even has it tattooed on his ankle

Weaknesses.
 The organization does have a diversified range of sports products. However, the
income of the business is still heavily dependent upon its share of the footwear market. This
may leave it vulnerable if for any reason its market share erodes.
 The retail sector is very price sensitive. Nike does have its own retailer in Nike Town.
However, most of its income is derived from selling into retailers. Retailers tend to offer a
very similar experience to the consumer. Can you tell one sports retailer from another? So
margins tend to get squeezed as retailers try to pass some of the low price competition
pressure onto Nike.

Opportunities.
 Product development offers Nike many opportunities. The brand is fiercely defended
by its owners whom truly believe that Nike is not a fashion brand. However, like it or not,
consumers that wear Nike product do not always buy it to participate in sport. Some would
argue that in youth culture especially, Nike is a fashion brand. This creates its own
opportunities, since product could become unfashionable before it wears out i.e. consumers
need to replace shoes.
 There is also the opportunity to develop products such as sport wear, sunglasses and
jewellery. Such high value items do tend to have associated with them, high profits.
 The business could also be developed internationally, building upon its strong global
brand recognition. There are many markets that have the disposable income to spend on
high value sports goods. For example, emerging markets such as China and India have a new
richer generation of consumers. There are also global marketing events that can be utilised
to support the brand such as the World Cup (soccer) and The Olympics.
 Threats.
 Nike is exposed to the international nature of trade. It buys and sells in different currencies
and so costs and margins are not stable over long periods of time. Such an exposure could
mean that Nike may be manufacturing and/or selling at a loss. This is an issue that faces all
global brands.
 The market for sports shoes and garments is very competitive. The model developed
by Phil Knight in his Stamford Business School days (high value branded product
manufactured at a low cost) is now commonly used and to an extent is no longer a basis for
sustainable competitive advantage. Competitors are developing alternative brands to take
away Nike's market share.
 As discussed above in weaknesses, the retail sector is becoming price competitive.
This ultimately means that consumers are shopping around for a better deal. So if one store
charges a price for a pair of sports shoes, the consumer could go to the store along the
street to compare prices for the exactly the same item, and buy the cheaper of the two.
Such consumer price sensitivity is a potential external threat to Nike.
Nike implemented a number of marketing strategies to sell its products. One of the most
important considerations is its marketing mix, better known as the 4P’s.
Nike is a global sports shoe giant company. It is the largest seller of athletic footwear in the
world, holding the lion share of 33% of the global market. The company has production
facilities in Asia, sales facilities in almost 200 countries, and customer service and other
operational units worldwide.
The marketing mix or the 4 Ps of Marketing are Product, Price, Place (distribution) and
Promotion. Nike's 4Ps are the following:

1. Product
Nike offers a wide range of shoe, apparel and equipment products, all of which are currently
its top-selling product categories. Nike started selling sports apparel, athletic bags and
accessory items in 1979. Their brand Cole Haan carries a line of dress and casual footwear
and accessories for men, women and children.
They also market head gear under the brand name Sports Specialties, through Nike Team
Sports, Inc. They sell small amounts of plastic products to other manufacturers through Nike
IHM, Inc. Bauer Nike Hockey Inc. manufactures and distribute ice skates, skate blades, in-
roller skates, protective gear, hockey sticks and hockey jerseys and accessories.
2. Price
Nike’s pricing is designed to be competitive to the other fashion shoe retailers. The pricing is
based on the basis of premium segment as target customers. Nike as a brand commands
high premiums. Nike’s pricing strategy makes use of vertical integration in pricing wherein
they own participants at differing channel levels or take part in more than one channel level
operations. This can control costs and influence product pricing.
3. Place
Nike shoes are carried by multi-brand stores and the exclusive Nike stores across the globe.
Nike sells its product to about 20,000 retail accounts in the U.S. and in almost 200 countries
around the world. In the international markets, Nike sells its products through independent
distributors, licensees and subsidiaries. Independent distributors need not adapt to local
pressures because the 4Ps of marketing are managed by distributors.
4. Promotion
Promotion is largely dependent on finding accessible store locations. It also avails of
targeted advertising in the newspaper and creating strategic alliances. Nike has a number of
famous athletes that serve as brand ambassadors such as the Brazilian Soccer Team
(especially Ronaldinho, Ronaldo, and Roberto Carlos), Portuguese Soccer Team (especially
Cristiano Ronaldo and Nani), FC Barcelona football star (especially Lionel Messi, Andres
Iniesta, Xavi and many more), Lebron James and Jermane O’Neal for basketball, Lance
Armstrong for cycling, and Tiger Woods for Golf.
Nike also sponsors events such as Hoop It Up and The Golden West Invitational. Nike’s
brand images, the Nike name and the trademark swoosh; make it one of the most
recognizable brands in the world. Nike’s brand power is one reason for its high revenues.
Nike’s quality products, loyal customer base and its great marketing techniques all
contribute to make the shoe empire a huge success.
Nike, originally known as Blue Ribbon Sports, was founded by University of Oregon track
athlete Philip Knight and his coach Bill Bowerman in January 1964. The company initially
operated as a distributor for Japanese shoe maker Onitsuka Tiger, making most sales at
track meets out of Knight's automobile.
The company's profits grew quickly, and in 1966, BRS opened its first retail store, located on
Pico Boulevard in Santa Monica, California. By 1971, the relationship between BRS and
Onitsuka Tiger was nearing an end. BRS prepared to launch its own line of footwear, which
would bear the newly designed Swoosh.
The first shoe to carry this design that was sold to the public was a soccer shoe named
"Nike", which was released in the summer of 1971. In February 1972, BRS introduced its first
line of Nike shoes, with the name Nike derived from the Greek goddess of victory. In 1978,
BRS, Inc. officially renamed itself to Nike, Inc. Beginning with Ilie Nastase, the first
professional athlete to sign with BRS/Nike, the sponsorship of athletes became a key
marketing tool for the rapidly growing company.
The company's first self-designed product was based on Bowerman's "waffle" design. After
the University of Oregon resurfaced the track at Hayward Field, Bowerman began
experimenting with different potential outsoles that would grip the new urethane track
more effectively. His efforts were rewarded one Sunday morning when he poured liquid
urethane into his wife's waffle iron. Bowerman developed and refined the so-called 'waffle'
sole which would evolve into the now-iconic Waffle Trainer in 1974.
By 1980, Nike had reached a 50% market share in the United States athletic shoe market,
and the company went public in December of that year. Its growth was due largely to 'word-
of-foot' advertising (to quote a Nike print ad from the late 1970s), rather than television ads.
Nike's first national television commercials ran in October 1982 during the broadcast of the
New York Marathon. The ads were created by Portland-based advertising agency
Wieden+Kennedy, which had formed several months earlier in April 1982.
Together, Nike and Wieden+Kennedy have created many indelible print and television ads
and the agency continues to be Nike's primary today. It was agency co-founder Dan Wieden
who coined the now-famous slogan "Just Do It" for a 1988 Nike ad campaign, which was
chosen by Advertising Age as one of the top five ad slogans of the 20th century, and the
campaign has been enshrined in the Smithsonian Institution. San Franciscan Walt Stack was
featured in Nike's first "Just Do It" advertisement that debuted on July 1, 1988.
Throughout the 1980s, Nike expanded its product line to include many other sports and
regions throughout the world.
Acquisitions

 As of November 2008, Nike, Inc. owns four key subsidiaries: Cole Haan, Hurley
International, Converse Inc. and Umbro.

 Nike's first acquisition was the upscale footwear company Cole Haan in 1988.

 In February 2002, Nike bought surf apparel company Hurley International from
founder Bob Hurley.

 In July 2003, Nike paid US$305 million to acquire Converse Inc., makers of the iconic
Chuck Taylor All Stars.

 On March 3, 2008, Nike acquired sports apparel supplier Umbro, known as the
manufacturers of the England national football team's kits, in a deal said to be worth
£285 million (about US$600 million).

 Other subsidiaries previously owned and subsequently sold by Nike include Bauer
Hockey and Starter.

Nike produces a wide range of sports equipment. Their first products were track running
shoes. They currently also make shoes, jerseys, shorts, base layers etc. for a wide range of
sports including track & field, baseball, ice hockey, tennis, Association football, lacrosse,
basketball and cricket. Nike Air Max is a line of shoes first released by Nike, Inc. in 1987. The
most recent additions to their line are the Nike 6.0, Nike NYX, and Nike SB shoes, designed
for skateboarding. Nike has recently introduced cricket shoes, called Air Zoom Yorker,
designed to be 30% lighter than their competitors'. In 2008, Nike introduced the Air Jordan
XX3, a high performance basketball shoe designed with the environment in mind.

Nike sells an assortment of products, including shoes and apparel for sports activities like
association football, basketball, running, combat sports, tennis, American football, athletics,
golf and cross training for men, women, and children. Nike also sells shoes for outdoor
activities such as tennis, golf, skateboarding, association football, baseball, American
football, cycling, volleyball, wrestling, cheerleading, aquatic activities, auto racing and other
athletic and recreational uses. Nike is well known and popular in youth culture, chav culture
and hip hop culture as they supply urban fashion clothing. Nike recently teamed up with
Apple Inc. to produce the Nike+ product which monitors a runner's performance via a radio
device in the shoe which links to the iPod nano. While the product generates useful
statistics, it has been criticized by researchers who were able to identify users' RFID devices
from 60 feet (18 m) away using small, concealable intelligence motes in a wireless sensor
network.

In 2004, they launched the SPARQ Training Program/Division.

Some of Nike's newest shoes contain Flywire and Lunarlite Foam. These are materials used
to reduce the weight of many types of shoes.
In the video game Gran Turismo 4 there is a car by Nike called the NikeOne 2022, designed
by Phil Frank.

Manufacturing

Nike has contracted with more than 700 shops around the world and has offices located in
45 countries outside the United States. Most of the factories are located in Asia, including
Indonesia, China, Taiwan, India, Thailand, Vietnam, Pakistan, Philippines, and Malaysia. Nike
is hesitant to disclose information about the contract companies it works with. However,
due to harsh criticism from some organizations like CorpWatch, Nike has disclosed
information about its contract factories in its Corporate Governance Report.

Human rights concerns

Nike has been criticized for contracting with factories in countries such as China, Vietnam,
Indonesia and Mexico. Vietnam Labour Watch, an activist group, has documented that
factories contracted by Nike have violated minimum wage and overtime laws in Vietnam as
late as 1996, although Nike claims that this practice has been halted. The company has been
subject to much critical coverage of the often poor working conditions and exploitation of
cheap overseas labor employed in the free trade zones where their goods are typically
manufactured. Sources of this criticism include Naomi Klein's book No Logo and Michael
Moore's documentaries.
Nike has been criticized about ads which referred to empowering women in the U.S. while
engaging in practices in East Asian factories which some felt disempowered women.
During the 1990s, Nike faced criticism for use of child labor in Cambodia and Pakistan in
factories it contracted to manufacture soccer balls. Although Nike took action to curb or at
least reduce the practice of child labor, they continue to contract their production to
companies that operate in areas where inadequate regulation and monitoring make it hard
to ensure that child labor is not being used.
In 2001 a BBC documentary uncovered occurrences of child labor and poor working
conditions in a Cambodian factory used by Nike. In the documentary, six girls were focused
on, all of whom worked seven days a week, often 16 hours a day.
A July 2008 investigation by Australian Channel 7 News found a large number of cases
involving forced labour in one of the biggest Nike apparel factories. The factory located in
Malaysia was filmed by an undercover crew who found instances of squalid living conditions
and forced labour. Nike have since stated that they will take corrective action to ensure the
continued abuse does not occur.
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 centering around a brand image which is attained by
distinctive logo and the advertising slogan: "Just do it". Nike promotes its products by
sponsorship agreements with celebrity athletes, professional teams and college athletic
teams. However, Nike's marketing mix contains many elements besides promotion. These
are summarised below.

Advertising
From 1972 to 1982, Nike relied almost exclusively on print advertising in highly vertical
publications including Track and Field News. Most of the early advertising was focused on a
new shoe release, essentially outlining the benefits of the running, basketball or tennis
shoe. In 1976, the company hired its first outside ad agency, John Brown and Partners, who
created what many consider Nike's first 'brand advertising' in 1977. A print ad with the
tagline "There is no finish line" featured a lone runner on a rural road and became an instant
classic. The success of this simple ad inspired Nike to create a poster version that launched
the company's poster business.
In 1982, Nike aired its first national television ads, created by newly formed ad agency
Wieden+Kennedy, during the New York Marathon. This would mark the beginning of a
remarkably successful partnership between Nike and W+K that remains intact today. The
Cannes Advertising Festival has named Nike its 'advertiser of the year' on two separate
occasions, the first and only company to receive that honor twice (1994, 2003).
Nike also has earned the Emmy Award for best commercial twice since the award was first
created in the 1990s. The first was for "The Morning After," a satirical look at what a runner
might face on the morning of January 1, 2000 if every dire prediction about Y2K came to
fruition. The second Emmy for advertising earned by Nike was for a 2002 spot called
"Move," which featured a series of famous and everyday athletes in a stream of athletic
pursuits.
In addition to garnering awards, Nike advertising has generated its fair share of controversy:

Kasky v. Nike
Consumer activist Marc Kasky filed a lawsuit in California in 2002 regarding newspaper
advertisements and several letters Nike distributed in response to criticisms of labor
conditions in its factories. Kasky claimed that the company made representations that
constituted false advertising. Nike responded that the false advertising laws did not cover
the company's expression of its views on a public issue, and that these were entitled to First
Amendment protection. The local court agreed with Nike's lawyers, but the California
Supreme Court overturned this ruling, claiming that the corporation's communications were
commercial speech and therefore subject to false advertising laws.
The United States Supreme Court agreed to review the case (Nike v. Kasky) but sent the case
back to trial court without issuing a substantive ruling on the constitutional issues. The
parties subsequently settled out of court before any finding on the accuracy of Nike's
statements, leaving the California Supreme Court's denial of Nike's immunity claim as
precedent. The case drew a great deal of attention from groups concerned with civil
liberties, as well as anti-sweatshop activists.
Beatles song
Nike was the focus of criticism for its use of the Beatles song "Revolution" in a 1987
commercial, against the wishes of Apple Records, the Beatles' recording company. Nike paid
$250,000 to Capitol Records Inc., which held the North American licensing rights to the
Beatles' recordings, for the right to use the Beatles' rendition for a year.
Apple sued Nike Inc., Capitol Records Inc., EMI Records Inc. and Wieden+Kennedy
advertising agency for $15 million. Capitol-EMI countered by saying the lawsuit was
'groundless' because Capitol had licensed the use of "Revolution" with the "active support
and encouragement of Yoko Ono Lennon, a shareholder and director of Apple."
According to a November 9, 1989 article in the Los Angeles Daily News, "a tangle of lawsuits
between the Beatles and their American and British record companies has been settled."
One condition of the out-of-court settlement was that terms of the agreement would be
kept secret. The settlement was reached among the three parties involved: George
Harrison, Paul McCartney, Ringo Starr; Yoko Ono; and Apple, EMI and Capitol Records. A
spokesman for Yoko Ono noted, "It's such a confusing myriad of issues that even people
who have been close to the principals have a difficult time grasping it. Attorneys on both
sides of the Atlantic have probably put their children through college on this."
Nike discontinued airing ads featuring "Revolution" in March 1988. Yoko Ono later gave
permission to Nike to use John Lennon's "Instant Karma" in another ad.

Minor Threat ad
In late June 2005, Nike received criticism from Ian MacKaye, owner of Dischord Records,
guitarist/vocalist for Fugazi & The Evens, and front-man of defunct punk band Minor Threat,
for appropriating imagery and text from Minor Threat's 1981 self-titled album's cover art in
a flyer promoting Skate boarding’s 2005 East Coast demo tour.
On June 27, Nike Skateboarding's website issued an apology to Dischord, Minor Threat, and
fans of both and announced that they tried to remove and dispose of all flyers. They state
that the people who designed it were skateboarders and Minor Threat fans themselves who
created the ad out of respect and appreciation for the band. The dispute was eventually
settled out of court between Nike & Minor Threat. The exact details of the settlement have
never been disclosed.

Horror ad
In this ad, a parody of horror films, Olympic runner Suzy Favor-Hamilton is running a bath in
a remote wilderness cabin when a chainsaw-wielding masked killer appears. Hamilton is
obviously in much better shape than the would-be killer and, thanks to her Nike gear,
sprints away. The final shot shows the killer out of breath, limping away and ends with the
tagline, "Why Sport?" which is quickly answered with "You'll live longer."
First aired during the opening ceremony of the 2000 Summer Olympics (Friday), the ad titled
"Horror" generated roughly 200 complaints (according to NBC) that caused the network to
pull the ad by Sunday. ESPN followed suit, but the ad continued to air with little or no
controversy on several other networks, including FOX, WB, UPN and Comedy Central.
Protesters argued that the ad made light of violence against women, while others claimed it
was just too scary to watch, especially for children who enjoy watching the Olympics. Nike
spokespeople retorted it was meant to be humorous, and to satirize the typical horror flick
where a helpless woman was destined to be slashed. Hamilton herself stated the ad was
inspirational, since it is the woman who defeats the man.

Chinese-themed ad
In 2004, an ad about LeBron James beating cartoon martial arts masters and slaying a
Chinese dragon in martial arts offended Chinese authorities, who called the ad blasphemous
and insulting to national dignity and the dragon. The ad was later banned in China. In early
2007 the ad was re-instated in China for unknown reasons.

Pretty
In the run up to the 2006 U.S. Open, Nike began running Pretty, a television advertisement
featuring Maria Sharapova. The ad was a popular and critical success, and went on to win
several of the industry's top awards, including two Cannes Gold Lions.

Place
Nike sells its product to more than 25,000 retailers in the U.S. (including Nike's own outlets
and "Niketown" stores) and in approximately 160 countries in the world. The company also
has a program called NIKEiD at nikeid.com, which allows customers to customize designs of
some styles of Nike shoes and deliver them directly from manufacturer to the consumer.
Nike sells its products in international markets through independent distributors, licensees,
and subsidiaries.

Sponsorship
Nike pays top athletes in many different sports to use their products and promote/advertise
their technology and design.
Nike's first professional athlete endorser was Romanian tennis player Ilie Năstase, and the
company's first track endorser was distance running legend Steve Prefontaine. Prefontaine
was the prized pupil of the company's co-founder Bill Bowerman while he coached at the
University of Oregon. Today, the Steve Prefontaine Building is named in his honor at Nike's
corporate headquarters.
Besides Prefontaine, Nike has sponsored many other successful track & field athletes over
the years such as Carl Lewis, Jackie Joyner-Kersee and Sebastian Coe. However, it was the
signing of basketball player Michael Jordan in 1984, with his subsequent promotion of Nike
over the course of his storied career with Spike Lee as Mars Blackmon, that proved to be
one of the biggest boosts to Nike's publicity and sales.
During the past 20 years especially, Nike has been one of the major clothing/footwear
sponsors for leading tennis players. Some of the more successful tennis players currently or
formerly sponsored by Nike include: James Blake, Jim Courier, Roger Federer, Lleyton
Hewitt, Juan Martín del Potro, Andre Agassi, Rafael Nadal, Pete Sampras, Marion Bartoli,
Lindsay Davenport, Daniela Hantuchová, Mary Pierce, Maria Sharapova, Serena Williams.
Nike is also the official kit sponsor for the Indian cricket team for 5 years, from 2006 till end
of 2010. Nike beat Adidas and Puma by bidding highest (US$43 Million total).
Nike also sponsors some of the leading clubs in world football, such as Manchester United,
Arsenal, FC Barcelona, Inter Milan, Juventus, Shakhtar, Porto, Steaua, Borussia Dortmund,
Red Star, Aston Villa, Celtic and PSV Eindhoven. Nike will also sponsor Dundee United from
summer 2009.

Introduction
Nike operates within the sports footwear and apparel market. Originally designing and
producing running shoes, their portfolio has broadened to include a wide range of sports
and leisure wear. This is all endorsed by top sporting personalities.
This environment is fairly stable although terrorism and Sars has affected consumer
confidence and supply networks.

Mission Statement
In its mission statement Nike expresses that it requires doing business in a responsible way,
leading to sustainable financial growth. With the advances in technology, HR practices, the
well informed and trained work force, there is very little left to differentiate organisations.
Being seen to go further than the minimum required on social issues can attract and retain
customers. This green cleansing attracts attention to the organisation; they are viewed as
caring and social responsible.
A report, on the business practices of Nike through its supply chain accused the organisation
of being involved in poor working conditions, violations of labour rights, low wages and
harassment of its workforce. Nike takes these reports seriously. On the basis of the research
findings the company has intensified the monitoring of its suppliers.

Past options To build its business with all of its partners based on trust, teamwork,
honesty and mutual respect; this is expected to be returned, expecting
business partners to operate on the same principles.

Rationale Nike does not want to only do what is required by law, but also do what is
expected of a leader

Future Review and monitor closer the actions of business partners

Options

Rationale To prevent bad publicity, which can damage the organisation

Critical To demonstrate to consumers the high value within the organisation to

Success CSR.
Factor

Change of
Focus

Theorist Hummels, H and Timmer, D.2004 agreed that these reports were needed,
Although Mullin, L. 2005 stated that it could be just green washing

Nike’s Function

Past options The company focus on design and development

Rationale This reduces long term debt has the benefit of not tying capital up in plant
and equipment

Future
Options

Rationale
 Critical Reduced size of premises therefore reduced costs. Vital to have innovative
Success employees. Products are viewed as innovative
Factor

Change of
Focus

Theorist Johnson, G & Scholes J 2004 agreed that this was a cost effective method of
production

Production Within several of these countries there have been problems with production,
distribution and political problems. With the change in relationship between the USA and
Vietnam and China, these are new production venues that Nike could explore.

Past options Produce goods in the Far East

Rationale Keeps costs down

Future Vietnam and China

Options

Rationale New trade agreements, present sites are switching manufacturing to

electrical goods

Critical Maintaining current standards, closer working relationships, retaining

Success customer loyalty by guaranteed standard of product
Factor

Change of A shift to a more managed production

Focus

Theorist All organisation need to watch changes in political and economical

Shareholder matrix
Surrounding all organisations are stakeholders, all with varied levels of authority, power and
interest towards the organisation Mendelow (1991) considered a matrix that classifies the
level of power and interest a stakeholder has in an organisation. Although once each group
of stakeholders is recognised, it cannot be assumed that their level of interest will remain
the same (Mendelow (1991) cited in Scholes, K. & Johnson, J 1997:198). Jones (1995) argue
that the stakeholder framework is practical for considering business and society issues,
because it identifies the sources of a corporation’s social obligations and its set of
stakeholders (Jones (1995) cited in Rowley, T. 1998:28).
Therefore by Nike concentrating on their stakeholders it has placed Corporate Social
responsibility high on their agenda. The organisation has to demonstrate transparency in all
actions and reporting. This can cause conflict with the shareholders. Common in stakeholder
theory is compromises on both sides that can obviously haze over differences; this primary
characteristic is accepted as contra-distinctiveness from the shareholder value. This was
discussed by Friedman, (1993) that the ultimate purpose of a company should be serving
the interests of its shareholders (Friedman, (1993).

Value chain
Nike’s supply chain provides a clear view of the extent of the global nature of the company.
Nike’s headquarters are in America; however, virtually all of its production takes place
outside of the United States.
Nike’s supply chain upstream begins with the materials used in the production of its
products. Many of these materials used in production are available in the locations which
the manufacturing takes place, but some specialised materials have to be imported to the
manufacturing company.

Past options Outsourcing of all production

Rationale Reduced costs

Future Outsource with stronger control

Options

Rationale Speed up reporting of any problems in production, the supply chain, the
greater the distance the slower the reporting of problems

Critical Reduce problems associated with distance, i.e. quality, consistency and
Success value
Factor

Change of Although still outsourcing, they would gain more control over production.
Focus

Theorist Johnson, G & Scholes J 2004, agreed that Nike can be too far from the site
of production

Past options Target USA

Rationale Demand and growth for footwear in the US was rapid.

Future Future option is to enter EU markets

Options

Rationale To expand into growing markets as US is near saturation.

 Critical organic growth as well as by acquisition, also brand name, goodwill-
Success therefore there is a match is CSF to succeed
Factor

Change of Maybe have to target marketing in a different way

Focus

Theorist When markets are reaching saturation, new markets need to be identified
to prevent decline in sales. Johnson, G & Scholes J 2004,

Distribution and Retailers

Nike has a strong network of retailers in 200 country world wide through distributors,
licensees and subsidiaries’. Within the USA there are 18000 stores that retail Nike products.
These are well established channels.
Nike made itself heavily dependant on one retailer Footlocker, representing 10% of their
revenue. When Footlocker reduced their purchasing form Nike, it created a reduction in
turnover in the short term. Organisations that are over dependant on one retailer are open
to cash flow problems, if the retailer switches suppliers, reduces purchasing or ceases
trading.

Past options Although they have numerous retailers, they were heavily dependant on
one out let chain

Rationale To sell top of the range products

 Future To negotiate partnerships deals that allow for the choice of product for the
Options retailer

Rationale To prevent sudden withdrawal of products

Critical Customer being able to rely on source of product. If withdrawn they may
Success find an alternative product
Factor

Change of Closer working partnerships

Focus

Theorist Organisations that are over dependant on one retailer are open to cash
flow problems, if the retailer switches suppliers, reduces purchasing or
ceases trading.

Nike has a future, but can also ship overnight when needed. Although the futures method is
currently working for Nike,

Past options Futures ordering system

Rationale a 6 month lead time for product orders, always knowing what is needed in
production

Future
Options

Rationale

Critical This is responsive to the market trends, but can also help retailers plan
Success stock.
Factor

Change of
Focus

Theorist Any change or threats within the markets could leave them overstocked
Sales
In addition, consumer sales outside of the United States exceeded sales in the United States
in 2003 with only 43% of the company’s sales coming from the US In Europe there are
difficulties in entering the market, the single currency and the trade rules make entry
difficult for large organisations.

Past options Target the US

Rationale Growing market, but is now reaching saturation

Future Target new markets, including e-commerce

Options

Rationale To avoid a reduction in sales

Critical Entry to the markets, by advertising and targeting the audience. Ensuring
Success accurate and quick picking of the customers order
Factor

Change of Shift to global marketing, selling world wide from the web targeting
Focus Generation Y.

Theorist By tailoring marketing to the customer needs Nike has been successful in
the past and continues to be today.

Nike Branding

Past options Global brand

Rationale Consumers are willing to pay a premium price for; as they imply credibility,
high quality and up-to-date global trend.

Future When companies are bought trade under their name

Options

Rationale Moving into a new market with a brand that is already global you can
reduce cost of introductory and follow-up marketing programs.

Critical Ensures customer loyalty and to widen portfolio

Success
Factor

Change of Concentrating on core products as Nike, allowing growth in new diverse

 Focus markets

Theorist Significant scales of economy are achieved Aaker 2000, this is in terms of
brand development, packaging and manufacturing

Marketing
Sports personalities have endorsed the Nike product, although with numerous different
sports and countries targeted this has been costly. The amount each personality has
received is considered high. This forces the competitors to market their products in the
same way. Trends within the industry have increased the number of female consumers.
With advertising Nike has targeted segments of the market, this costly. Nike should review
their advertising policies (Groucutt, J. et al 2004).

Past options Sports personalities have endorsed the Nike product, although with
numerous different sports and countries targeted

Rationale To target all types of sport by choosing personalities which are at the top of
their sports?

Future To chose personalities that appeal to a wider audience

Options

Rationale To reduce advertising costs

Critical
Success
Factor

Change of
Focus

Theorist Groucutt, J. et al 2004

4ps
The athletic shoe industry is highly competitive as well as a demanding market where fierce
competition, price conscience consumers, and constant changing market trends and fads
have all been attributing factors in how a manufacturer responds.
Highly focused brand includes Nike, Adidas, and Reebok, they target a precise market.
However, there is evidence that a brand will widen its target market as it reaches a greater
level of maturity. In the case of Nike, for example, there was a move into new sports areas
away from the running heritage. Nike’s target audience has moved from more masculine
towards female and Generation Y.
Price is related to Product, through the characteristics of the brand, it’s packaging and
overall image. People are buying into an ideal, not just the item. Consumers believe that
there is a link between quality of a product and the price. Consumers question what they
are getting for their money. Brand Management, customer awareness and loyalty, is directly
linked to the price, therefore maintenance of the relationship between brand images;
quality and price have to be consistent.

Models used in Analysis

Swot analysis
This analysis will summarise key issues from the business environment and the strategic
capacity of Nike. This can be used to judge future strategic options.

 Strengths

o Product Range

o Capacity for innovation

o Distribution expertise

o Single Brand

o Stars endorsement

o Contract manufacturing

o Large portfolio of products

 Weaknesses

o Single Brand

o Too many stars endorsement

o Contract manufacturing

o Spread portfolio of products

o Reliant on retailers

o Reduction of target market

 Opportunities
o New Markets
o E commerce
 o Research and development
o Increase product line
o Product diversification
o Change target market
o New manufacturing countries
 Threats
o Competition
o Fashion Trends
o Contract manufacturing and copying of product (intellectual property)
o Consumer lifestyle changes
o Competition
o Bad press associated with Nike
o Outlets cancelling orders
o Sars

Pestle
This will consider environmental influences on the organisation, both in the past and with
future strategic plans.

 Political

o Striking dock workers

o Political unrest in the production countries

o Terrorism in the home country

 Economic

o Slow down in the economy

o Reduction in consumer confidence

o Barriers of entry to the EU

o Contract manufacturing

 Socio-cultural

o Brand conscious consumers

o Change in buying habits in younger people

o Generation Y prefers other types of footwear

 o Increase in the female share of the market

o Corporate social responsibility

 Technological

o Speed of change of product

o Design Ability

o Speed of News reporting

 Environmental

o Reuse a shoe

o Sustainability philosophy

o Climate impact
 Legal
o Threaten action by underage workforce
o Poor employment record
o Corporate social responsibility
o Contract manufacturing and copying of product (intellectual property)
o Trade agreements

Supply Chain
Like every large IT undertaking, the team responsible for the implementation of Nike Supply
Chain (NSC) began with a set of specific, stated goals:

 Enhancing Nike’s ability to respond to changing conditions;

 Reducing inventory and capital investment risk;

 Improving service to meet customer/consumer needs;

 Improving process, information and product quality; and

 Providing an efficient global supply chain with local implementation

Porter’s 5 forces
This model is used to identify the sources of competition, and how to gain advantage over
them.
 Potential Entrants

o Other sportswear manufacturers expanding their portfolio

o Cheap copies from the Far East

 Buyers

o The buyers of sports footwear have changed in the past decade.

o There has been and increase in women purchasing the shoes,

o Generation Y has a different tastes and purchasing methods.

 Substitutes

o When required for professional use there is no substitute goods, but as a

fashion item there are many other goods that could be purchased.

 Suppliers

o Using production facilities in the Far East has give Nike economies of scale.
Although there are now problems arising from these factories, they are
switching to making there own goods, labour and political unrest causes
delays in manufacturing and shipping of the goods,

 Competitive Rivalry

o Reebok, offering more choice of shoe, introducing endorsement by sports

personalities, sponsoring sporting leagues

o Adidas have recovered from the problems that plagued them, and have a
good product mix, covering a wide range of