Purpose of Study
Discuss about the Business Analysis for Expansion of Nike?
This report is about expansion of Nike Inc in two regions Brazil (Latin America) and China (Asia) for which market analysis will be done. Nike Inc. is a sports retailer multinational company that manufactures sportswear, including sports shoes, apparels and sports equipments. Nike has been successful in his business expansion in the European Market, American Market and in Greater China because of the unmatched quality it offers. In this report business analysis with respect to market conditions is done to justify the business set up in these particular regions. (Lin & Lin, 2009) Nike Inc. is one of the world’s biggest manufacturers and suppliers of athletic shoes, apparels and sports equipments is a multinational Company of America which is located in Beaverton, Oregon. The company was founded in 1964 by Phil Knight and Bill Bowerman. The company is engaged in designing, development and manufacturing of various sportswear, especially shoes and apparels, equipments and services. Nike footwear is exclusively crafted for athletic use, with its main focus on innovative design and unmatched high quality manufacturing. The future plan of Nike Inc. is to expand worldwide sales direct-to-consumer by approximate 3.0 times in the upcoming 5 years, ranging from $6.7 billion in 2016 to $17 billion by 2021. Online sales are estimated to increase to $7.2 billion by 2021 for which Nike is looking to increase the percentage of sales by starting new stores and investing in digital innovation and technology. (Nike, Inc., 2010) Nike has an expansion plan of the brand in all six of its geographic segments in the developed region (Western Europe, North America & Japan), and considerably investing in its developing market regions (Eastern & Central Europe, Greater China and Emerging Markets)
Purpose of Study:
The main purpose of the report is to analyze the situation of Expansion of Nike in the regions where it does not exist presently. To meet this objective following are the objectives for the report that need to be achieved:
- Analysis of Micro and Macro factor that affects the sports retail market and recommendations.
- Analysis of Internal Business Factors of Nike Inc.
- Evaluation of Market Potential.
- Screening Criteria and Justification for selection.
- Market Entry Strategy
- Adaptation for Nike’s marketing mix to ensure differences in recognition of culture and consumer behavior.
The process by which a company develops an apparent perceptive of each individual market and then assess its substance for other markets and for the company in which the business functions is termed as situation analysis. As clear from the current scenario(Refer Appendix A) global business environment has become dynamic, more competitive and complex, for which there is a great need for the managers to be aware of the immediate situation, and also about the possible effect of changes that takes place in surrounding areas. The current environment of Nike shows the brand. In this report the individual market of Nike is assessed in the terms of sales and profit.
Situation Analysis
Evaluation of individual market: The illustration below shoes the revenue break-down of each individual market where Nike is doing good business. These evaluations are carried for last three years which shows the remarkable growth and gives an opportunity to expand the market.
The strategies for Market Expansion are:
- Collective distribution channels among diverse product lines, minimizing cost
- Large Size offers chances in influencing competition.
- Resourceful use of production services reduces cost.
Current Environment:
The current situation is analyzed for the Revenue performance, Earning per share Performance, Return on invested Capital, Stock Performance (Refer Audit Report)
Revenue Performance: it shows the five year compound annual growth rate based on financial year 2015 revenue of $18324 million. This revenue presents the result of continuous operations.
Earnings per Share: this shows the amounts that have been stated to reflect Dec 2012, 2 for 1 split and result of continuous operations.
Return on investment: it includes the quarterly earnings of investor relations
Stock performance: A comparative analysis is done between Nike and S&P over total returns to assure the reinvestment of dividends over five years.
Pestle analysis (Refer Appendix A) is a systematic study of various external factors that affect an organization. With reference to appendix A which gives the brief over the social factors, economic factor, geographical factors, political factors, legal factors and the environmental factors that affect Nike and which needs an important consideration while expansion.
As per the SWOT analysis (Refer Appendix E (i)) which explores the Strength, Weakness, Opportunity and Threat of Nike. It shows that company has lots of strength with effective manufacturing techniques, innovation in technology, creativity in design which gives the opportunity for expanding the market. It is though evaluation done by SWOT analysis that one comes across the strength, weakness, opportunities and threats. One needs to pay more attention towards the weakness and threats and develop an effective strategy to overcome that so that it does not create any hurdles in the growth and development. With reference to Appendix E (i) strength of Nike is one of the best and innovative corporate amongst the first 50 corporate and has got a remarkable recognition for the same. The issues that it faced in Vietnam, Pakistan and Cambodia which was related to wages and child labor respectively should be overcome by some well proposed solution. It is with product differentiation that Nike has bright chances of Expansion. The brand visibility can be increased by starting some sports academy to foster the talent. The threat to Company is the competitors like Reebok, Adidas, Puma and for this Nike has to prepared a unique plan for marketing and has do more on innovation lines.
Summary of Key Issues
The market selection process is a critical decision which is based on the evaluation of market potential and the critical factors mentioned in Ansoff Matrix (Refer Appendix E (ii)) like Market penetration, Product Development, Market Development, Diversification which are responsible for product expansion and shows the scope of growth. As per the analysis done in Ansoff Matrix, it is clear that Nike did a great business in past years which gives an opportunity to make expansion, the innovation in the product and technology is the driving factor for such expansion. After the evaluation done by the analysis the result is discussed below
Evaluation of Market potential
For the successful establishment of any organization, it is important to evaluate the market potential with respect to its competitors. The major competitors of Nike are Adidas, Puma and Reebok in the market of Latin America and China for which evaluation is done.
- The merger of Adidas and Reebok can cause threat in the development as the market share of both companies can increase.
- Further development in international markets such as upcoming markets and encourage growth and development in the Japanese and European markets. (CRPatna, 2010)
- Operating margins and gross margins can be improved by supply chain management -, better sourcing, product costs, lean manufacturing etc.
- Improvement in managing inventory, outstanding day sales, payable outstanding and management of working capital
- Meeting the customer expectations by providing them innovative and high quality product.
- Spending more on marketing and innovation to compete the merger of Adidas and Reebok.
- Improving the relations with all retailers & using multi channels innovatively to sell and promote its different brands to multiple customer segments
- More focus to be given on creative design, growth and promotion of products and minimizing time to market
- Development of retail chain as a feasible and lucrative option to compete with retail consolidation.
- Alleviate the leadership team and plan an effective strategy for future development. (Parker, 2009)
Reasons for Market Selection:
Based on the various theories like Porter five forces and competitive advantage is the fundamental reasons for the market selection (Refer Appendix B). The reasons for selecting the market are discussed below:
Brazil (Latin America)
The very first reason for selecting Brazil (Latin America) is that this region has less number of Nike stores and outlets which gives an opportunity to establish the business here. The other reasons with respect to screening criteria for market selection in Brazil are as follows:
- Latin America in past years has altered itself into a fast growing nation and rising economies which gives an opportunity for Nike to establish the business set up here.
- The level of the public debt is less as compared to the other country’s economy, which shows that people are financially and economically strong.
- The internal consumption of products and export of commodity is increasing from the past few years, which show that the customer demand for good products is increasing.
- This progress has increased the internal demand by the people, which has become an attraction for investors to make new investment in various industries such as consumer goods, electronics and high-technology. The region is also getting advantages from a latest transformation in international manufacturing strategy for big multinational companies. (Soni, 2014)
China
- China’s rising sporting environment and rising middle class are important opportunities for investment.
- Nike wants to develop its profitability and product mix in the Chinese market to take benefit of the changing scenario.
- The Chinese section takes advantage from the government of China for making efforts to enhance consumer spending.
- Consumer spending puts up to ~35% of Chinese Gross Domestic Product (GDP). The government of China is taking innovative steps to improve consumer spending to improve the country’s economy.
- Consumer spending is expected to be a critical driver for growth in China. This is an additional advantage for consumer flexible companies like NIKE, for considering the growth in sports and marketing sports in China
With reference to Appendix C and Appendix D which discusses about the BCG and GE matrix it is clear that what can be done to expand the market share and develop the business and product for remarkable growth. The market entry strategy is based on the resource based view and value chain analysis. (Refer Appendix C & D) Resource based view is about the availability of types of resources both tangible and intangible that are required for company development and growth. Value chain analysis is about the various internal factors that contribute to adding value to the products at each level.
The internal factors that need to be considered during the market entry strategy are discussed below:-
- Competitors: The main Competitors of Nike Inc are other companies that manufacture the sportswear, especially Adidas which has almost equivalent revenue in the year 2015. The other competitors of Nike are PUMA, LaCrosse Footwear Inc., K-Swiss Inc. and Dick’s sporting goods. The best way to deal with the competitors are innovation in the product design and manufacturing, high quality and effective marketing strategies online and offline.
- Collaboration: For effective product promotion and marketing it is necessary to associate and collaborate with some high selling brand. The association with them can have a remarkable impact on the customer. Nike has collaborated with Apple to sale Nike iPod Sports kit.
- Suppliers: Quality is the biggest concern for manufacturing a commodity for which a company must be sure of the third party from whom they are outsourcing their services. Nike outsources its footwear production from the Asian Market, which manufactures the product independently. This somehow becomes a factor that gives an idea of expansion in the Asian market.
- Public: It is important to maintain the company’s reputation for which company has to make sure that production process and product quality does not affect the environment. So it is important to have control over the contract manufacturers to ensure the better product with conformance to quality standards.
- Intermediaries: Apart of having an official online store, there are some third parties that also sell the Nike products like Amazon, Myntra, Flipkart, Sports Direct, Scooh, Footlocker etc. The company must keep a track on such sellers which may deceive the customers in their name by manufacturing duplicate products that may affect the reputation of the brand. (MEYER & BERNIER, n.d.)
Recommended Market Entry strategy in Latin America and China
Market Entry Strategy by Nike
Whenever any company decides its launch in a new region, it has to be a great pomp show with innovative and creative ideas as First impression is a last impression. The Entry decision in the international market will strongly influence the company’s decisions of marketing-mix. The company has to decide over (1) goals of target market, (2) target product and market, (3) time of entry, (4) the mode of entry, (5) plan for marketing and (6) a system to control and monitor the performance in the entered market. These are the crucial decision that the company has to make while making entry in any new market. Nike has its main focus on offering innovative product with promising quality and has established its strong roots in the sports retail market. Also the product promotion strategy has a high investment which surely gets remarkable results in the sales performance. (Nike Team, 2012/2013)
Market Selection Process
Brazil (Latin America)
- The Summer Olympics 2016 in Brazil are the biggest and brightest opportunities for Nike to enter the Latin America’s market. Nike’s venture there is ready to become one of the largest companies in the world.
- Being a part of the market strategy of Brazil, Nike can introduce a new range of innovative products in every 3 months, creating high volumes on the specified date of launch.
- It is important to manage the flexibility to ensure that product launch is managed effectively and efficiently.
- Nike can also collaborate with DHL Supply Chain to execute a well organized shipping program in Brazil.
- DHL will dynamically respond to request order from Nike using order management system and fulfillment processes and system, well coordinated and planned shipment and managing delivery services.
China
- The market entry strategy that should be adopted by Nike in the markets of China for the purpose of expansion has to be very innovative. China is the largest country to source the products like footwear and apparels from Nike which is the most important factor because of which Nike is interested in expansion. (Xinhua, 2011)
- Nike should plan some innovative strategy that strengthens the company’s competitive benefit against the other brand competitors.
- Creative and innovative designs can play a significant role to take leadership in the market of China for which Nike has to work on these grounds.
- Entering the market of China during some sports event can be an additional benefit for which Nike has to be well prepared to launch its new product by endorsing it from a sports celebrity.
For planning a marketing strategy it is important to carry the screening criteria for the countries where there is a chance of potential growth (Refer Appendix B and Appendix C). After screening the marketing strategy is planned for successful launch and implementation.
Screening Criteria
The screening criteria for the Nike’s product can be carried on four stages
- Select the statistics and collect the data
For establishing the business in Brazil and China it is important to collect the socio economic data of that country. With the help of such statistics, it becomes easier to monitor about the economic status and lifestyle of the people. Since Nike Brand is leading in quality for which it has high prices, it becomes important to check that the people will be able to afford the products or not. Spending on the business development, but less number of people are able to afford can become a problematic situation as it will only result in the loss.
- Establish significance of region indicators
A constant sum allocation technique can be used to determine importance weights of these regions. In this technique simply allocate 100 points across each set of indicator as per the importance to achieve the company goals. In this technique a kind of checklist is prepared to check that the regions meet all the requirements necessary for the growth of the organization in that country. (Tick, 2013)
- Rating of region in the pool of each indicator
After evaluation a comparative analysis should be done on the same parameters for different regions to see which region withstand the strategic requirements of Nike. The region that meets the maximum requirements can be selected as the region for development.
- Compute the overall score
At the end all the weights calculated for each country to meet the requirements can be summed up to see which country meets the maximum requirements. With such techniques it becomes easy to justify the development and expansion of Nike Corporation in such regions. (Pondiuni Team, 2015)
Marketing Strategies: Nike has a very strong strategy for marketing which helps in increased sales and earn outstanding profits which are discussed below:
- Customer interest is key priority.
- Strategy based on needs
- Confidence on the products manufactured.
- Benefits of the products should be identified.
- Embrace the innovation and technology.
- The strategy of Marketing by Nike Inc. is a significant factor in the success of the company.
- Nike is ranked as a finest-brand that sells beautifully crafted and innovative product with highest possible quality.
- Nike entices customers with its marketing strategy that promotes the image of the brand which is achieved by idiosyncratic logo and the advertising motto: “Just do it”.
- Nike endorses its products by funding agreements with professional teams, celebrity athletes and various athletic teams of college.
- The growth of Nike is dependent on its marketing mix that consists of the four P’s i.e. Product, Price, Place and Promotion (Refer Appendix D).
- The four P’s of marketing gives an overview of how marketing strategy has to be planned for the effective launch and promotion of the product.
- Product design should have unique features, comfort, innovation, creativity and the price of the product should be relevant to the product comfort, design and innovation.
- The place where it is supposed to be launch should have the opportunity for the growth and the promotional strategy should be effective to attract the customers.
From the above discussion, it can be concluded that Nike already has developed its roots in the major parts of the world with its exclusive product range and quality. The innovative design, high quality and the comfort it provides is the most promising feature that boosts the expansion plan in any region of the world. The region selected in this report is Latin America and China for expansion is because these are the two regions that can be explored for business establishment and the potential it has for the growth of the industry. Various theories have been discussed which helps in decision making process for market selection and gives the opportunity for the growth such as Porter five forces, BCG matrix, GE matrix, SWOT analysis, PESTLE analysis etc. The various factors that are required for any business organization for its growth and development are met in these regions. For which it is recommended to establish a Nike industry in these two regions.
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