Nike Is The World Leader In Athletic Apparels

Published Date: 02 Nov 2017

1.0 Introduction

Nike is the world leader in athletic apparels. Nike started off as Blue Ribbon Sports in 1964 by Philip Knight and his coach Bill Bowerman and it is the distributor of Japanese Onitsuka Tiger shoes. The first retail store of the company was set up in Santa Monica in the year 1966. However, the relationship between Blue Ribbon Sport and Onitsuka Tiger was ended in 1971 and finally the company decide to launch its own line called "Nike". Nike went to public in the 1980’s and it successfully earned 50% of the market share in the United Stated. "Just Do It" was the named one of the top five slogans of all time by a 1999 article in "Advertising Age". Nike first product was track running shoes. But now they are also producing jerseys, short, base layers and equipment for a wide range of sports such as baseball, tennis, basketball, golf, volleyball, cycling and so on.

Many global companies seek to enter emerging country today in order to enjoy the satisfactory in term of profit, brand reputation, competitive advantage and market share. Of course, Nike, the giant sport wear company has also been entering into various potential countries such as China, India, Thailand, Vietnam, Pakistan, Philippines, Malaysia and Indonesia. India is one of the countries that Nike places the great importance to.

Athletic shoes and apparels have become a staple in wardrobes worldwide as a result of increasing fitness and fashion quotient among both men and women. India’s huge population base, rapid growth of economy, rising of income level, changing of lifestyle and consumer preferences have boosted the growth of sportswear industry. Large youth population and increasing brand awareness among younger generation allow Nike to leverage its international brand status and market effectively. Nike has increasingly been perceived as a fashion brand and the trend for fashion merchandise creates opportunities for Nike to develop more variety of sports and fashion accessories that tend to be associated with higher profits.

From the research, India is the largest market among the world in terms of its sheer size along with China. With the huge potential, India is one of the most promising and progressively growing economies in the world. Thus, Nike will go into worldwide by entering to Indian market. The increasing of number of sport events and activities in India provides the opportunity for the industry to growth and expand. The market is estimated to be worth INR 50 billion in 2010 and is expected to reach INR 120 billion by 2020. Those sport wears include apparels, footwear and accessories.

Due to the labor employment rate in India, they stressed that India is facing the rising on labor force and they must create adequate employment opportunity to associate with the rising labor force to reduce unemployment. Even India’s unemployment rate has dropped from 8.2% in 2004-2005 to 6.6% in 2009-2010, the number of jobless labor is still huge in absolute terms. Therefore, the labor force available in India is more than enough. Besides, the labor legislations shown in India stated there are no national minimum wages for hiring labor. Therefore, Nike can lower down the cost on hiring workers in the retail shop.

2.0 Analysis

2.1Gains

Nike has entered into India for over 10 years via licensing agreement with local company. However, what make Indian market so attractive to those global companies such as Nike? What Nike could gain from their investment in India? Has Nike being successful by entering to India?

Changing of demographic in India

Demographic in India has experienced big changes. According to report, the urban per capita GDP has increased up to 6% and has made India become an attractive market to foreign companies. Nowadays, the younger generation of Indian consumers are more willing to spend and are more prefering to foreign brand apparels (Padmanabhan, 2012). Refer to the population data, India’s population has increased to 1.22 billion in year 2012 and the over 50% of the population are young generation which is below the age of 25 (Population of India, 2012). This is one of the gains for Nike which its core audience is towards younger consumers. Besides, the purchasing power of the Indian consumers has risen simultaneously with the expanding of middle-class consumer and it is expected growing continuously in the following ten years (India’s bright prospects and short-term challenges , 2012)(Appendix1). According to the U.S.-India Business Council, there are approximately 300 million "middle-class" individuals with a purchasing power parity of US$30,000 per year. Hence, many global companies would like to compete on this market stage to grab the attention from these group of consumers. Nike’s core audience is targeted to upper segment and young people. This is just rightly fit to the market condition of India. One of the strategies that being adopted by Nike to win their position in India is they associate their brand with the popular game in India - cricket. This has brought Nike company a number of sales. Refer to the annual report of Nike in year 2012, 19% of the Nike brand were sold in various countries include India (Nike Inc, 2012).

New FDI policy

In the year of 2012, government of India (DIPP) change the new rules and allow the foreign investment from 51 % to 100 % operation in India .The policy is passed on January (Gupta, 2012). This policy is benefiting to Nike and directly opens doors for Nike to operate in India with lesser barriers. The FDI policy in India now is treating company that has wholly-owned subsidiaries in manufacturing as Indian companies and thus, is allowed to sell products for Indian consumers. Previously, Nike entered India via licensing agreement with Sierra Enterprises, but now Nike has its own subsidiary which is Nike India Private Limited. This is benefiting to Nike to increase the company’s sales volume (Gupta, 2012). Besides, Nike is able to exercise maximum control over its operation in India. In addition, the wholly-owned subsidiaries of foreign companies in India are flexible to carry out activities in the country (Bahri-Mehra). Therefore, Nike can gain flexibility on doing business in India.

Gain popularity and improve reputation

Sponsorship on sport event is always help in gaining more benefits. It offers advertising opportunities because the fans that are loyal to a particular sport team then will extend their loyalty to the team sponsor’s brand. Hence, the fan base is a ready database to target by the company (Benifits of Sponsorship, 2013). This has creating opportunity to Nike to improve their popularity. The Cricket and football is popular among India local citizens. Competitions and events are often held by the local association and the respondent to those competitions and events is quite active. India cricket and football association which is Board of control for cricket in India (BCCI) has governed the cricket in India and All India Football Federation (AIFF) is an India football association. All the national competition and event are planned by these associations. Hence, there are many sport matches and events held in India. The year of 2011, India was held a large competition which is the ICC Cricket world cup. Indian team won the competition of cricket world cup (Appendix 3); Nike has rewarded the team and also sponsored apparel to T20 kit for a team in order to improve their reputations in the country. Besides that, Nike also has sponsored jerseys to Indian footballers. They had signed a seven-year contract .Contract mention that Nike will sponsor to the All India Football Federation (AIFF) (team, 2006). This is the platform for Nike to win Indian consumers in the future.

2.2 Shortcomings

Competitor and Low market shares

Competitor and low market share issue are one of the shortcomings for Nike in operating in India. Although the new India FDI policy attracts Nike enter to India, but it also attractive to other foreign companies, such as Adidas, and Puma. Therefore, Nike was facing fierce competition in Indian market especially in the sport wears and apparel industry. Adidas, Reebok and Puma are major competitors of Nike in Indian market. Nowadays, Reebok is the market leader in India and Adidas is ranked the second (Venugopal, 2012). Nike has lower market share as compare to Reebok and Adidas in India. Data shown that Reebok occupied 46 % of the India’s market share, Adidas occupied 21%, Puma occupied 6%, other brand occupied 16% and Nike is only occupied 11% of market share in India (Venugopal, 2012)(Appendix 2). Throughout the years, Nike, Reebok and Adidas were competing fiercely in the India market stage. These three companies have increasing their marketing effort in order to stand out the cloud among each other. From the news report in 2010, in order to gain more revenue, Nike has doing sponsorship on eight of the national teams playing in the football world cup and at the same time retailing the team uniform (Amit Sharma, 2010). However, Adidas at the same time come out with their offensive strategies by launching 95 football products and sponsor on 12 world cup football teams. Reebok India however was catching consumers by sponsorship of apparel on the India’s football teams. The company has also tied up with IPL franchisees to sell merchandise within IPL match venues for cricket (Amit Sharma, 2010). These were the evidences of the fierce competition among the three big companies in India. However, Nike still lost in the competition. According to Forbes, 75% of the $1 billion sportswear in India is controlled by Reebok and Adidas. Nike India’s revenue is accounted for only 1% of Nike’s total sales as Nike India’s market share is closer to 11% (Nike Has A Long Road Ahead Of It In India, 2011). This has reflected that Nike still have a long distance to go in India.

Inadequacy of retail space in India

Retail store chain in India is still facing a big challenge. This directly affects the operation in retail sector. The rental is high especially the central sites. Refer to the report, the rental in Mumbai, Delhi and Bangalore has risen about 50% in 3 years and account to large portion of profit margin of retailers in India (KPMG, 2009). Moreover, store space is less for the retail store in India as most of the stores are located at the central sites in India such as Mumbai and Delhi. The inadequacy of retail store space in India has creating challenge for foreign company. According to report, India retail space is the lowest in the world which is per capita at 2 sq. ft. (0.19 m2) per person (Dr.Chandrasekar.K., 2013). Moreover, the lack of spaces to store SKUs causes the problem of wrong delivery of the SKUs and lead to the loss of sales. Retail store is critical to Nike to capture the market share. The inadequacy of retail store space in India is a big challenge for Nike to operate in India. According to Ravi Kallayil, director of operations at Nike India, Nike India needs to make sure the products are available in shop when customers need it. This is one of the ways that company can make sales. On the other hand, there are many collections are introduced by Nike in a period of time. The inadequacy of store space to store products may cause the products are not available as complete collections, and that leads to loss of sales (How Can Your Company Build an Excellent Supply Chain? Let Us Count the Ways..., 2007). Thus, the inadequate of store space in India has brought the bad impacts to Nike.

Lack of intellectual property protection in India

India is one of the countries that lack of intellectual property protection. According to the intellectual property index by U.S Chamber of Commerce, India scored the lowest for intellectual property protection (Palmer, 2012). One of the serious intellectual property violations in India was counterfeit. A lot of products were counterfeited and sold in the Indian market. India is ranked the 15th place in the world wide counterfeit market and encountered losses to about USD 5.094 billion (Losses to Counterfeit Goods by Country). Mumbai and Delhi are the main cities that seized by the counterfeit products. According to news report, over a hundred shops in Delhi's Gandhinagar market were found stocking and selling counterfeit 'Nike' goods in wholesale and retail. Nike had conducting anti-piracy raids toward over hundred shops in the market and had seized huge quantity of goods bearing the 'Nike' name (PTI, 2002). Counterfeit brings bad impacts to Nike. Counterfeit has causing the company to lose a huge number of sales. The New York Times reported on Nike loses millions of dollars of sales to counterfeiters. According to report, the counterfeit products bearing Nike logos being seized ranges around 3-4 % which represents about 43 million US Dollars (Baiker, 2006). In addition, consumers that fall into the trap of the counterfeited products might disappointed with the poor quality and thus, damage the company’s image and reputation.

3.0 Recommendation

3.1 Competitor and Low market share

One of a strategy to strengthen the company’s competitive advantage is to establish the Nike retail shops in places where people shop, work and play. Besides, Nike retail shop can also set up in the well-known retail stores such as Metro and Carrefour to attract customers. Therefore, the expected customers will pay more attention to the Nike brands and create brand recognition. When the consumption of the Nike products increases, they will spread the positive word-of-mouth. It will increase the profit of the company if there are many customers purchase Nike products. For instance, McDonald’s have set up their restaurants in places where people play, shop and work. The restaurants are established at theme parks, giant retail stores like Wal-Mart, Amoco and other gas stations, and in the heart of cities. This will help to increase the ratio of that company and achieve global expansion (Buck, retail oversaturation, mcdonald's and others find, has its limits, 1997).

In addition, Nike can use guerilla marketing strategy to attract more and more customers. Guerilla marketing is an advertising strategy that involves a low-cost unconventional marketing tactics to gain higher sales. This advertising strategy can always reach large target audience and in addition help the company to save cost on advertising. Therefore, the company can hold more cash flow on hand from the cost-saving marketing strategy and spend more capital in other company’s operations. This allows the company to improve their productivity and efficiency. For example, Nike can launch an advertisement called "Nike Run through the Wall Optical Illusion". This advertisement spans two buildings. The first one got a cracked image in the shape of the running man while the second one has the actual runner with the Nike logo.

Furthermore, viral marketing is also an effective strategy to attract customers. It is a marketing phenomenon that facilitates and encourages people to pass along the marketing message. It can be delivered by word of mouth or by the Internet and mobile network. It depends on a high pass-along rate from a person to other person. If the advertisement is able to spread widely, many people will concern about the brand. So, the company needs some opinion leader or famous ambassador to help them to spread the information. They can take the form of video clips, text messages, or webpage. For instance, McDonald’s has promoted a campaign which is customer download a free logo with the mascot holding a sign with a website’s address. It will attract more traffic to the website and increase the consumption rate in McDonald’s. The logo can be used as mobile phone screensaver, when friends see the logo, they will share the logo together (mobile marketing). Nike can also promoted the free logo which the famous ambassador holding the sign of the website. Therefore, it will create viral to the company.

3.2 Inadequacy of retail space in India

The retail store in India is facing lack of space to store or display product. We suggest that online shopping will be able to overcome this problem. Base on the research, the Internet user in India is increasing. "Apparel has been the fastest growing subcategory in retail and reaches 13.4% of online users in India," the study added. Besides, retail category penetration has increased to 60% reach and has grown to 37.5 million unique visitors a month, it said. (India among fastest growing Internet markets, 2012)

Nike’s website in India has already existed (nike.com(IN)). What the company has to do is to hire Internet specialist to set up online shopping program. Hire specialists may incur cost but it brings convenient for customer and save time and cost of customer and supplier. Besides, it will help to improve customer satisfaction and customer retention. The cost of doing online shopping program will be able to recover in the long term as the improving of customer satisfaction and customer retention, increase the sales and profits.

Besides, it is believe that by setting up online shopping program, Nike will be able to compete with Reebok, since Reebok has already start using online shopping (Reebok.IN). The existing customers have established the behaviour of doing online shopping, hence, this strategy will not be a disturbance to customer. In contrast, this strategy is able to fit with the customer behaviour and compete with Reebok.

In addition, online shopping is able to minimize the problem of counterfeiting. In London 2012 Egypt Olympic team get ‘fake’ Nike shoes, it shows that counterfeiting issues is very critical (London 2012: Egypt Olympic team get 'fake' Nike kit, 2012). A normal person is unable to recognize whether the product is original or not, only the manufacturer know how to differentiate it. Nike’s online shopping website is a trusted place to buy the original products as the website is fully controlled by Nike itself. Thus, the customer buy product from Nike website is able to buy the original one. This will prevent customer from buying the counterfeited product.

3.3 Lack of intellectual property protection in India

Counterfeiting is a hard-to-solve issue in the world market. There are a huge number of counterfeited Nike’s apparels around the world. It is a long term issue that always concerned by the Nike. We suggest that Nike can take action against the sales of imitated products. Let the India’s shoemakers help police bust stores that sell counterfeits. To protect the worldwide brand, Nike can have cooperation with India police and federal agents to avoid and control the counterfeiting issue. Those shoemakers can provide information to police and those shoemakers’ identity will be kept confidentially. With the reliable sources, the police can take action efficiently and control the counterfeiting issue effectively. There is another case in Milwaukee. Nike representatives have joined Milwaukee police and federal agents to crack down on small stores selling knock-off Nikes at a fraction of the retail price. They use confidential informants by making "controlled buys" with marked cash. Once Nike confirms the shoes are fake, police get search warrants, raid the stores, seize the shoes and arrest the seller. (Bruce Vielmetti, 2010).

We believe that India police can solve the counterfeiting problem since the India police had busting many counterfeit cases effectively. The Pioneer reported that in a major breakthrough, the district police arrested a member of a gang involved in the counterfeit currencies. The police have seized counterfeit currencies worth Rs 1.10 lakh from the arrested youth. (Indore: Police seizes counterfeit money, 2011). In August 2011, Delhi police swept into a store and seizing, in addition, they reported that a "huge" stock of counterfeit cosmetics, including those labeled as Revlon, Ponds, and Dove were raid.  The high crime branch of the Delhi police arrested three persons, including a woman. Delhi police seized massive amounts of packaging material, dye machines and goods with Lakme and Dove trademarks. (India police bust counterfeit "factory" for Revlon, Ponds, Dove labels - India a rising counterfeiting center September, 2011).

Another way that is Nike can use the RFID technology to avoid the counterfeit problem. RFID system is a proper security measures can assure product authentic. The Nike manufacturer can insert the RFID tag into each product to protect consumer and Nike intellectual property. The RFID interrogator will show the information from RFID tag that inserted in each authentic product. The interrogator would generate a response for the tag to validate. For the counterfeiter, they produce those counterfeiting products without any labeling information. The interrogator cannot show any information on the counterfeiting product and this will help to reduce the victims that fall into the trap of counterfeit market.

The necessary precondition for the effectiveness of this scheme is that the product must withhold the information until getting the assurance of authentication from the interrogator. The tag must expect the interrogator to provide information which proving its authentication. This piece of information is one that only an authentic manufacturer can provide. Nike may choose to protect its brand and products from piracy using RFID technology. If they embed authentication tags within the shoes, then distributors are able to build reputation and consumers can feel save and confident when purchase products from the company. (Eustace Asanghanwa, Crypto & RF Memory Applications)

Conclusion

In conclusion, we found that India is a suitable market for Nike to enter. There are a few reasons for Nike to enter in India such as their demographic in the country. The population of India was the highest after China. For sure, the purchasing power of the citizen in India was slowly increasing. Moreover, cricket and football are very popular sports in India, therefore, Nike have a chance to improve their reputation via sponsorship to the popular cricket or football team in India.

However, Nike is also facing some problems when operating in India. One of the main limitations is the competitor and low market share issues of Nike India. This is because although we mention that the new India FDI was attracting for Nike to enter, but at the same time it is also attracting other foreign companies to enter such as Adidas, Puma. Besides, inadequacy of retail space and also lack of intellectual property protection in the country also become the problems for Nike in India.

Therefore, we have provided some recommendations for Nike to overcome the problems. We suggest Nike to set up retail shop at the well known giant retail store and using guerilla marketing to catch the attention from consumers. Besides, online shopping is one of the methods that the company can use to overcome the problem of inadequacy of space to display and store the products. Other than that, we suggest that Nike may cooperate with India police and federal agents to control the counterfeit issue and at the same time adopt technology, RFID to reduce the counterfeit products of Nike.

Lastly, we learned that if we want to operate a company into a certain country, we have to think from every single area, it only can let the company to be success. In addition, we also learned that it is very important to analyse the situation and condition of a country so that the company able to success enter the country. When we enter into the market we must think what is the benefit that the market can give us and if the shortcoming is more than gain, then the company should not enter to the market.

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Appendix 1

Untitled

India’s rising middle-class population. (India’s bright prospects and short-term challenges , 2012)

Appendix 2

page_74_20120512

Market share of sportswear brands in India. (Venugopal, 2012)