The main aim of current report is to extend the knowledge obtained from analysis of footwear industry. Among the footwear industry, the Nike has been selected in current study as it is the most competitive company in footwear industry. The evidences form business analysis report has been considered as the bases of current report and it has also justified the selection of company. The report has been divided in four sections at large. Firstly, the description of Nike has been given in detail including the views on current position of company in industry. Secondly, the analysis of competitive position of the Nike has been analysed by relying on resource based approach, dynamic capability approach, knowledge based approach, value chain analysis and social network perspective. Followed by this, the analysis of internationalisation strategy of Nike has been carried out by considering the view of Greenfield foreign direct investment, strategic alliances and mergers and acquisition. Thirdly, the discussion will move to explanation of proposed expansion strategy and finally, the strategy evaluation will be carried out and recommendations will be made along with justification of suggested strategy.
The Nike is an American multinational corporation which has gained significant placing in industry for its approach of manufacturing and distributing foot wears and other accessories worldwide. The Nike is the world’s largest producer and supplier of athletic shoes and sports equipment. The Nike is headquartered near Beaverton in the Metropolitan area of US and it has offices in 45 countries across the world. According to the ranking of Clean Air-Cool Planet ranking, the Nike is at top third position among the environmentally friendly companies. The Nike has carried out recycling of shoes with an aim of benefiting both environment and communities. The Nike is considered as highly satisfying company for sports equipment and it has earned the revenue of US $ 30.601 billion. The Nike is relying on continuous growth approach with an aim of gaining unique position in industry and to stay ahead of competitors. Nike is the most innovative portfolio of authentic and relevant brands, which considers innovation as a fuel that powers the performance of company. One of the most motivational and desired aspect of Nike is that it offers endless belief on human’s potential and has a mission to inspire world’s athletes. The focus of Nike in humans has made it the most preferred brand for sportsman, which have enhanced customer base and competitiveness of the company.
The athletic footwear industry is highly matured and well developed industry which has significant prospects of growth and expansion in future. There are four target regions of athletic footwear industry including; Pacific Asia, North America, Europe and rest of the world (Zou, 2013). The business analysis has indicated that athletic footwear market of China is expected to increase at rapid rate due to increasing income level of Chinese consumers. Therefore, higher expansion rate is expected in Chinese region. The substantial athletic foot wear brands which have gained recognition at international level are Adidas, Reebok and Nike. The major market segments of athletic footwear are men and women and kids, to which men are occupying about 62% of footwear industry and women occupy 29%. The competitor’s analysis has depicted that Nike is one of the largest seller which occupies 50% shares in US and 35% in rest of the world. Whereas, the Reebok has 17% shares of US and 14 in other regions and Adidas has 6% shares in US and 9% in outside US (Complex, 2015).
In terms of expansion, the global footwear market is expected to grow at the rate of US $ 84.4 billion by the end of 2018 with compound annual growth rate (CAGR) of 1.80%. Likewise, the innovation has been considered as the main component of concern in global athletic footwear industry and improvements are brought to increase comfort level and experience of athletics (Chen at., 2001). The PEST analysis has indicated that all of the factors including; political, economic, social and technological have the potential to influence growth level of footwear brands at global level. The important findings of business analysis report on athletic footwear industry pertains to the fact that market of China is characterised by increasing opportunities for expansion of footwear industry. The main factors behind high growth prospects of Chinese market are the increasing awareness of health aspects which increases consumption of sports goods, high level of income and willingness to consume international brands.
The Nike is competing at international level with number of athletic footwear, leisure, apparel and sports equipment companies. The significant competitors of Nike are; Puma, Adidas, Reebok, V.F. Corp. and Li Ning. The drastically changing demands and preferences of consumers and constantly developing technology is offering higher level of uncertainty which is complicating the operational activities of company. There are some significant aspects which are serving as the base of competition in footwear industry including; product quality, innovation and development of new product, reliability of the product, loyalty and affiliation of consumers with products, prominence with professional athletics, types and number of brand endorsements, sponsorship of sports events and appropriateness of distribution and placing approach of company.
The resource based approach has been suggested in 1990 which has shifted the focus of researchers to firm specific effects with an aim of achieving sustainable competitive advantage (Barney, 1991). Since its inception, the resource based view has become the most significant approach for analysis of competitive position of company with the central premise that resources and capabilities of the firm serve as the basis of competing in long run. The approach of resource based view has fostered the organisations to look at the factors lying inside the organisation with an aim of contending with the requirements of industry. The inward view perspective offered by resource based view has served as the way of coping with strategic issues and further enabled the firms to gain sustainable competitive advantage (Barney, 2001). The resource based view is based on two underlying assumptions which are offering theoretical explanation of resources’ contribution in competitive advantage of firm. Firstly, it is assumed that diverse organisations in single industry could possess variety of resources such that they are heterogeneous in terms of resource base (Hamel, Doz and Prahalad, 1989). Secondly, the heterogeneity has the potential to persist over time because of lack of mobility potential and inimitable nature of some resources. The resource based view offers the viable explanation of performance differentials among different firms within market by providing that heterogeneity in resource bundle offers different level of efficiency and enables the firms to deliver high quality services to customers (Gioia and Chittipeddi, 1991). It has been highlighted by the scholars that resources of firm needs to be valuable, rare, inimitable and non-substitutable. The resources which possess these four perspectives are able to offer sustainable competitive advantage to firms. The intangible resources of the firm are expected to hold three perspectives including; information, knowledge and dynamic capabilities (Grant, 1996). The research on resource based view of the firm have offered new insight into innovative research providing that firms with heterogeneous and inimitable set of resources can develop the innovation potential.
In order to assess the resource capacity of the Nike, the VRIO framework can be applied. The VRIO framework is an integrated framework which provides basis of analysing resources base of the organisation (Hsu and Ziedonis, 2013). The VRIO defines resources in terms of its value, rareness, imitability and organisation of processes and procedures.
Value: The value of firm’s resources will assist to investigate the potential of resources in terms of enhancing responsiveness of company towards threats and opportunities in environment (Hunt and Davis, 2012). It is evident that Nike has remained leader of athletic footwear industry. Along with this, the vertically integrated nature of Nike’s manufacturing and incredible research and development has enabled the company to expand its business to informal wears. The Cole Haan of Nike has offered the first mover advantage to the company on the basis of invaluable resources of Nike. Similarly, the Nike Dri-Fit Sweat material has assisted the company to drain off competitive threat from the market. The ability of Nike to enter and excel the market is mainly based on value of company’s resources including its technology, research and development, human resources and internal operational efficiency. Along with this, the financial resource of Nike is indicating growth over the last decades and the firm is able to realise the value its investors enabling the Nike to grow through acquisitions and continual development of new products.
Rarity: The rarity of the resources refers to the extent to which resources of company are immobile and rare within industry. The resources of Nike are substantially unique in terms of ability of company to invent and reinvent their products with an aim of satisfying diverse needs of their customers. The highly competent and skilled human resources of the company are among the most significant tangible resources possessed by the Nike. The Nike has adopted the extensive training programs for enhancing skills inventory. The skills of competing employees are enabling the company to design innovative products which are satisfying the needs of athletes around the world and making the Nike world’s best seller of athletic footwear. The skills inventory of Nike possess the aspect of rarity. The tangible resource list of Nike is complemented by the contracts of company with sports legends which are responsible for promoting the brand. The assistance of legends in promotion of products has offered unique advantage to Nike, which is not possessed by any of its competitor. The NIKEA and Swoosh design trademarks are rare intangible assets which have increased the reputation of company in eyes of consumers. Finally, among the list of rare resources of the company lies the knowledge of company which has been strengthen through research and development of company. The relevant knowledge is just not leading to production of innovative products but it is also offering high quality wear to its consumers, which carry unique value in comparison to competitors.
Inimitable: The resources possessed by Nike are immobile across the industry and they cannot be easily imitated by competitors. The products of Nike depict the extensive research based knowledge about the customer’s preferences and best available technology to design the product which cannot move across industry and cannot be availed by competitors. Although, the duplication of research and development capacity of company is costly and complex, however, even after imitation of Nike’s product the hard task is to beat the perceptual dominance which has gained by Nike. The Swoosh of Nike are highly dominant, unique and they are very expensive to be duplicated. Likewise, the reputation of Nike is well distinguished by other similar brands which is immobile and is the source of long term competitive advantage.
Organisation: The procedures and operations of Nike are highly organised to foster effective exploitation of valuable, rare and inimitable resources of company. The leadership of Nike is exceptionally contingent which have encouraged innovative and flexible working environment with an aim of competing by offering high value to consumers. The Nike has experienced high and consistent stream of profitability over the years, based on the ability of company to maintain consistence on path of effective resource exploitation. The advisory board of Nike is comprised of trainers, athletes, doctors, coaches and equipment management that contributes to increasing level of customer’s satisfaction and help building competitiveness in long run.
The evidences from resource based view are suggesting that Nike has strong competitive position as the company has integrated set of tangible and intangible resources that cannot be imitated by its competitors. The Nike has successfully utilised its resources for bringing innovation in operations and production methods. The design of footwear is continually evolving based on unique set of company’s resources, which has enabled the Nike to gain unique position within industry. This can be considered as a substantial justification of highest shares being captured by Nike both in US and international market in comparison to other relevant brands in athletic footwear and apparel industry.
The knowledge based theory of the firm provides that knowledge is the most heterogeneous and exclusive resource of the firm that is socially complex and cannot be imitate, therefore, offer sustainable competitive advantage to firms (Kozlenkova, Samaha and Palmatier, 2014). Conserving the concept of knowledge based view of the firm it is evident that Nike has relied on enormous approach of developing continuous sums of knowledge and innovation since its inception. The major knowledge area of Nike are; the buying behaviour of customers, research and development of product design and new technologies, marketing and supply chain management. The culture of Nike is highly flexible which encourages creativity among employees and team based structure enables maximum sharing of knowledge. The numerous patents of company is reflection of its knowledge indicating that firm has unique knowledge resource which is making it competitive player within footwear and apparel industry (Lin and Wu, 2014).
The Nike has an integrated information system that is helpful in synthesising, enhancement and expedition of large scale knowledge of the firm. The information system is not only assisting to manage inter firm knowledge but is also offering ways of managing intra-firm knowledge. Both inter and intra-firm knowledge combine to enhance the ability of Nike to develop highly innovative products that are offering competitive advantage in long run. Along with this, the Nike has the potential to apply its available knowledge for development of new products and it has contributed to current competitive position of company by making Nike one of the best seller in industry. Further according to researchers, the mere possession of knowledge is not enough for competence of company (Teece, 2007). However, the translation and application of knowledge in newly possible context can improve innovation. The innovation not only uses existing knowledge but it also creates new knowledge and this is the reason that Nike has active research and development for utilisation and creation of new knowledge. Finally, the Nike has double loop learning and it has in its rapidly changing product lines, creative and innovative advertisement and continually improving supply chains, which is offering sustainable competitive advantage to Nike.
The value chain of the firm is comprised of activities from attainment of raw material to delivery of finished goods to the final consumers (Amine, Baack, Chao and Xie, 2015). The analysis of value chain of company assists in investigating the price competitiveness of focal firm in comparison to its competitors. The analysis of value chain can be carried out based on two activities including; primary activities and support activities (Prell, 2012). The primary activities are directly associated with operations of company to deliver higher value to customers, which are being supported by support activities.
Primary Activities of Nike: The primary value chain functions of Nike are encompassing design of Nike’s products at the top of list. The unique aesthetic has enhanced the value of Swoosh which represents the most recognised and valued logo among the athletics. In addition to apparent design and aesthetic of Nike’s product, the incorporation of technical innovation has added in performance level of users (Mellahi and Frynas, 2015). Followed by design, the production of Nike is highly effective as the world class supply chain of Nike has enabled the company to outsource major operations to the Asian countries which has enabled the company to produce low cost products. The core operations of the company including marketing and sales have enabled the company to become major player in market. The Nike has prominent feature of its marketing approach pertaining to consideration of legends and athletes for promotion of Nike’s products. The endorsement approaches of Nike has resulted in the development of brand’s label by the name of athletes such as; Air Jordan is inspired by Michael Jordan who was legendary figure of basketball.
Along with this, the distribution channels are being owned or leased by the Nike. In US, the Nike has five distribution centres while on other locations the Nike has 21 distribution centres of which the significant one is on Belgium and other in Japan. Being operating in international market, the Nike produces at international subsidiaries and then uses its own distribution centres for offering easy access to company’s products. In terms of customer’s service, the Nike has offered the opportunity to customers that they may provide feedback on website, through toll free telephone number or by retail outlets. The return policies of products are also clearly listed on website of company. The concern of quality is offered significant importance by Nike which is enabling the company to offer exceptional quality product to its customers.
Secondary Activities of Nike: The management style of Nike is mainly concerned about increasing innovation in processes and procedures of the company. The knowledge, skills and abilities play a major part in defining the effectiveness of value chain of Nike. The human resource management of the company is mainly significant for hiring and retaining highly skilled and qualified human resources which are the basis of competitiveness of Nike. Likewise, research and development of the Nike has fostered innovation of company which has been well supplemented through unique and effective technology of company. The research and development of the Nike has enabled the company to manufacture footwear by recycled material and has supporting production and operations of company by enhancing its efficiency by applying new technology. Finally, the culture of Nike is supportive towards employees which not only empowers workforce but also offers them positive working environment, which backs the supply chain activities and helps in attaining higher levels of competitive advantage.
The dynamic capability view provides that along with heterogeneous and immobile resources, the organisations need to possess the capability to utilise those resources for long term growth and competitiveness of firm (Agarwal and Selen, 2013). The resources cannot offer value, unless they are coordinated and deployed by the management of company in effective manner (Albaum, Albaum and Duerr, 2008). The Nike has capacity to exploit its unique and valuable resources in the manner which is helping the company to develop differentiated products for offering higher value to customers with an aim of gaining competitive advantage in long run. The Nike is heterogeneous in terms of retail sites, management and skills of its human inventory which has enabled the company to attain superior levels of performance through exploitation of its resources. Along with this, the value of production and supply chain management of the company is of significant value for the company (Augier and Teece, 2009). The Nike has outsourced 100% of its production to Asian countries which has enhanced the capability of company to enjoy market leading margins.
Nike has appropriately utilised its resources to design footwear that are healthy, comfortable and increase performance level of athletes. The Nike has diverse set of knowledge skills and abilities which is enabling the company to bring innovation in footwear and sports equipment for the purpose of increasing performance. The superior branding outline of Nike is contributing to noteworthy capabilities of firm and marketing approaches of company are contributing significantly in promotion of innovative products of company. It has served as the basis of making the products of company most valuable among the consumer relative to other similar products (Chien and Tsai, 2012). By utilising athletic legends in the commercial of company, the Nike has portrayed broader image of company as the one concerning about comfort and health of its potential consumers rather than only profitability (Cullen and Parboteeah, 2013).
Furthermore, the most important core competency of Nike lies in its research and development capability. The Nike has managed group of experts in the areas of biomechanics, exercise physiology, engineering and industrial design with an aim of offering solution to athletes which can reduce injury, enhance comfort level and improve performance. The integrated research and development of company has contributed significantly in dominating the product innovation and offering most comfortable footwear to consumers. The capability of research and development of Nike is developing cutting edge products that are not only capable of meeting the needs of athletes but are also setting fashion trends (Hatch, 1993). The Nike is one of the leading company in industry that has successfully balanced between satisfaction of consumer demands and profitability requirement of company by realising its resources through its knowledge, skills and abilities.
Social network theory recommends that there should be a social structure of the organisation with an aim of making strong ties with influential entities (Burt, 1997; Henseler, Ringle and Sinkovics, 2009). The Nike has a significant social structure based on the approach of Nike to effectively maintain its presence on social networks to communicate with key stake holders of its business. The Nike is maintaining number of separate Facebook pages for all of its product categories including; golf, snowboarding and Fuel band. Likewise, the company has two page of football, one for American version of football and other played by rest of world. The social pages of Nike on Facebook are featuring athletes in relation to its products with an aim of inspiring its potential consumers to like and purchase their product. Additionally, the Nike is showing its major marketing campaigns’ content on social channels to enhance the awareness of followers.
The Nike is focusing more on responding to the queries and interests of its stake holders through Nike.com feed which responds to large number of tweets on daily basis. It assists to strengthen association of Nike with key stake holders and also allow the company to analyse demands of potential customers regarding features and quality of products. The Nike’s social network has been considered as one of the most active customer service network which resolves questions and provides technical support to customers. On Pinterest, the Nike is managing single account that is Nike Women and it has successfully considered the demographic information of followers into account.
The Nike has its own unique social platform under the name of Nike+, having more than three million users with average use time of 3 times a week. The Nike has engaged its user in two way communication and it is maintaining that two way communication is the most critical element of digital ecosystem of company. The social platforms also offer an opportunity to foster communication among varying consumers of the Nike (Burt, Kilduff and Tasselli, 2013). The social structure of Nike serves as the way of establishing strong connection of the consumers with brands. By engaging in two way communication with consumers, the Nike has become able to incorporate the concerns of consumers in product design which can drive innovation and can increase satisfaction of customers. The Nike has maintained its approach of social relationship as creation of premium and dynamic experiences that may not only pursue opportunities in footwear industry but also strengthen customer base of company.
The notion of internationalisation has evolved largely over the past few decades and it can be defined as the dynamic capability of firms to enhance involvement in international market activities. According to scholars, there are various modes available to enter into an international market and their composition depends on the level of risk associated with them (Boyd, Dyhr Ulrich and Hollensen, 2012 Datta, Hemnann and Rasheed, 2002). At one end of the continuum, there is an option of contracting with local distributors, which is recognised as the lower level of risk and investment. Whereas at the other end of the continuum is the investment in the foreign country by establishing a franchise (De Wit and Meyer, 2010). The selection of appropriate entry mode is of vital importance for the strategic growth of the business in new market. The impact of both endogenous factor and exogenous facts is evident on selection of entry mode. The endogenous factors pertain to the potential of the underlying organisation, while the exogenous factors refer to the position of focal firm in international market or the industry of its operations (Dunning, 1988). There are three most significant entry modes including; foreign direct investment, international strategic alliances and merge and acquisitions.
The Greenfield foreign direct investment is the approach of foreign investment in which parent company develop its operations in foreign country. Theoretical explanation of foreign direct investment pins back to 1960s by the theory of Stephen Hymer about the association of foreign direct investment and multinational corporations (Dutot, Bergeron and Raymond, 2014). Further explanation was offered by neoclassical theories, which have reflected that motive of international trade lies in the cost of production differences between home and host country. The Greenfield foreign direct investment may associate with the construction of new production facility, development of distribution hubs and offices in foreign country (Efrat and Shoham, 2015). The Greenfield field investments are characterised to be associated with higher cost and higher risk in comparison to other investment modes such as brown filed investment. The increasing cost and risk is based on building the new manufacturing and production facilities. The companies pursuing Greenfield foreign direct investment starts from scratch and they carry out construction and train employees according to the standards and requirements of underlying company. This type of foreign direct investment allows higher degree of control to the sponsoring firm over operations, quality and training and sales.
Mainly the Greenfield foreign direct investments are motivated by the low labor and manufacturing cost in the foreign market in comparison to home country (Fajgelbaum, Grossman and Helpman, 2015). Along with this, the companies who pursue Greenfield foreign direct investment have higher level of capability to maintain control in foreign market and have enough stream of resources to establish new facility in foreign market. According to Erramilli and Rao (1990), there are three key determinants of foreign direct investments including; firm specific advantages, removal of conflicts and propensity to form an internationalisation strategy with significant potential to reduce risk. In order to exploit market opportunities in foreign market, the firms can invest in foreign markets to gain market power and competitive advantage. Followed by this, the Greenfield foreign direct investment can help in minimisation of conflicts by enhancing coordination d control in foreign market (Forsgren, 2015). Finally, the firm that is aimed at carrying out foreign direct investment needs to have the potential to formulate strategies for long term benefits of firm while mitigating risk.
There are number of risks association with Greenfield foreign direct investment. The Greenfield foreign direct investment requires favorable and strong relationship with the host country and political or economic conditions of the host country can have an impact on success of foreign project (Frynas and Mellahi, 2015). The foreign direct investment requires higher level of compliance with regulations of host country regarding tax, business laws and business culture. Therefore, the Greenfield foreign direct investment requires careful investigation of the host country and better knowhow could lead to long term benefits. In related vein, one of the associated risk of Greenfield foreign direct investment is that management of resources in foreign market could be difficult. Given these risks of foreign direct investment, the interested companies of Greenfield direct investment need to carry out an extensive research of the host country with an aim of identifying feasibility and cost associated with foreign project. They need to spend substantial amount of time and money for carrying out feasibility analysis of foreign market in order to overcome potential difficulties.
The strategic alliances refer to an agreement between two companies with an aim of pursing the agreed upon objectives while maintaining their independent identity (Katsikeas, 2014). The strategic alliance is formed mainly when the underlying organisations have set of unique resources that can enhance their expertise and ability to excel in market. The strategic alliance is characterised by long run relation between two companies based on win on win and mutually desired benefits that can bring innovation and competence for strategically alliance companies (Khalid and Larimo, 2012). The strategic alliances are being considered as an important way of carrying out an international business as it has lower level of intricacies in comparison to foreign direct investment. The participating firms of strategic alliance may share number of resources including; supply chain resources, distribution channels, manufacturing capabilities, funding for project, technology, research and development, skills, knowledge and other intangible resources.
According to Johanson (2013), there are four general criteria for identifying the effectiveness of strategic alliance between two countries. The underlying strategic alliance needs to be feasible for meeting the core strategic goal or objectives of the underlying organisations in strategic alliance. The strategic alliance should have the potential to preserve core competency of the underlying organisations with an aim of maintaining and enhancing their competitive position in relevant industry (Koh and Wong, 2015). Likewise, the effective strategic alliances are able to deal with competitive threat through their effective shielding mechanism. The strategic alliances further contribute to create strategic choices for the involved companies and finally, the effective strategic alliances have the potential to mitigate risks for the long term existence of the involved companies (Malhotra, Agarwal and Ulgado, 2003). The insight of strategic value of the underlying strategic alliance can be gained by carrying out an in-depth investigation of these five criteria and finding out the mutual benefits of involved companies.
The benefits of strategic alliances encompass sharing of risk among participating firms by complementing the strengths of each other. It also allow the firms to share knowledge based resources including; market knowledge, technological know-how, and knowledge of customers that helps to create pool of resources and offer synergy (Mathur and Singh, 2013). The strategic alliance offers significant growth opportunities by realising the brand image of participating firms and combine their strategic strengths together. Likewise, the time of market also improves by entering into a strategic alliance and pooling of expertise, knowledge and skills help to bring innovation and to meet demands of customers in effective manner (Moore, Doherty and Doyle, 2010). The costs related to manufacturing and accessibility to market can also be controlled and pooling of resources can help to generate economies of scale. Finally, the strategic alliance provides an opportunity of collaboration with local partners, enhancing the ability of company to reach target market in time with greater access to the knowledge of local taste and preferences (Negara and Adam, 2012). Therefore, the reliance of strategic alliances can serve as the way of gaining competitive advantage by pursuing less risk in comparison to foreign direct investment.
On the other hand, there are some drawbacks of strategic alliances as well. The extensive sharing of resources and knowledge in strategic alliance can lead to leakage of business secrets that act as the core competency of business (Onetti, Zucchella, Jones and McDougall-Covin, 2012). However, by carefully considering this aspect in contract, the secret of trade can be protected. The opportunity cost may also involve in strategic alliance requiring tradeoff between focus on strategic partnership and market opportunity (Pan and Tse, 2000). Finally, the uneven alliances may contribute to unequal distribution of business power which may hurt the benefits of partner with lower level of power. These disadvantages are needed to be taken into account and controlled for carrying out an effective strategic alliance.
The cross border mergers and acquisitions are recognised as the transfer of ownership from one party to another in international market. The merger is characterised by the consolidation of one company by another by relying on legal processes, while the acquisition refers to complete transfer of ownership from one entity to another including; assets, equity and stock (Ripollés, Blesa and Monferrer, 2012; Simons, 1994). The increasing globalisation has significantly contributed in cross border merger and acquisitions as it generates higher value for the local economy. The major motivations of cross border mergers and acquisition are as follows; the economies of scale, economy of scope, cross selling, synergy, geographical diversification, resource transfer and vertical integration (Roberts, 2015). The researchers have categorised these benefits in two motives; efficiency motive and strategic motive. The increase in economies of scale and scope contributes to efficiency of acquiring entity while the change in market structure helps in raising the level of strategic gains by increasing growth and profitability prospects (Stahl and Voigt, 2008).
In spite of benefits of cross border mergers and acquisitions, there are some challenges that are important to consider. Being operating in different countries, the two firms can have huge variation in their operations due to different regulations in respective countries of their operations (Ulrich, Boyd and Hollensen, 2012; Amine, Baack, Chao and Xie, 2015). The differences in regulations can lead to difficulty in integration of labors and tax issues could also arise. Differences in market and business structure of both involved countries can also lead to complications in merger process and comprehensive understanding of focal countries is necessary to smoothen the process of merger and acquisition (Wang, 2009). Likewise, cultural and structural differences between two entities can also lead to difficulties in cross border merger and acquisition and may require many changes at managerial level of organisation. In order to minimise this risk, the foreign firms can pursue help of consultancy firms or investment banks to ensure that domestic firm is presenting its information in accurate way and there is not overstating of firm’s resources and capabilities (Wiersema and Bowen, 2008). Finally, the economic risk, political risk, social risk and general risk factors can also contribute to hinder the success of cross border merger and acquisitions and need careful consideration and coping mechanism.
The footwear leader in United States, Nike has expanded its operations in number of foreign countries with an aim of selling its products worldwide and to capture higher share of international market (Doole and Lowe, 2008). It has been highlighted by the company that bulk of company’s overall growth come from the operations of company in overseas market. The global growth policy of 2015 was announced by Nike with the growth target of $ 27 billion by the end of fiscal year 2015 having focus on expansion in both domestic and international market through its portfolios including; Cole Hann, Converse, Hurley, Jordan Brand, Nike Golf and Umbro (Forbes, 2015). The Nike has shown significant presence in 190 countries and the Nike is planning to expand its operations in both developed and developing markets including; North America, Western Europe, Japan, China, Brazil and emerging markets (Douglas, Craig and Nijssen, 2001). The figure 1 is indicating the Nike’s revenue in terms of different segments in international market (Soni, 2014). It figure is indicating growth of Nike from second quarter of 2012 to first quarter of 2015. It is indicating that North America is the largest segment of Nike which is accounting for 90% of company’s revenue. It is followed by Western Europe that is offering significant revenue to company in first quarter of 2015.
Source: Soni (2014)
The emerging markets have also added significantly in growth potential of Nike which has become doubled in 2015 with $ 4 billion than that of 2010. The expansion in international market has continually added in growth level of Nike and the company is expecting to generate $ 6.2 billion from expanding its business in Chine by 2020 (Nike, INC., 2010). It is evident that among the emerging international markets, China could prove to be the high revenue generating market due to increasing attraction of Chinese consumers to sports and their increasing value of disposal income. It is important to note that expansion strategy of Nike is carefully considering the aspects of potential consumer’s taste and income level into account with an aim of realisation of organisational goals. The Nike has consumer focused strategy that is characterised by high market place potential and penetration approach of the company (Donaghu and Barff, 1990). It has been offered by the Charlie Denson, the brand president of Nike that “Our consumer focused strategy enhances our ability to deliver great product and elevated consumer experiences which will help grow the NIKE Brand to approximately $23 billion by the end of fiscal 2015” (Nike, INC., 2010). It has been noted that revenue of company for the year 2015 has been reported to be equal to $ 30.601 billion, which is more than the targeted revenue level of company (Forbes, 2015). Therefore, it can be argued that strategy of Nike has significantly contributed in achievement of company’s goal.
Furthermore, in all of target markets of Nike at international level, the company is relying on differentiation strategy that is enabling the company to offer innovative products to its consumers (Cullen and Parboteeah, 2013). The Nike has an active research and development department which has helped the company to respond quickly to the needs of consumers. The Nike has a history of innovating products as it has merged technology in its operations in the best possible manner (Complex, 2015). The brand differentiation strategy of Nike has allowed the company to establish strong position of company at global level. The unique identity of Nike’s brand has the potential to offer future success to the company in terms of market share. The differentiation strategy of Nike has enabled the company to gain competitive advantage at international level.
The significant aspect of Nike’s corporate strategy is comprised of its collaboration with different entities with an aim of gaining synergy (Sage, 1999). The Nike has cooperated with different companies to gain greater efficiency in developing, manufacturing and selling its products to extended segments of target customers. The Nike has pursued different types of strategic alliances including non-quality alliances, equality alliances and joint ventures. The highly significant non-equality alliance that has been maintained by Nike is its alliance with Apple through which the Nike has successfully combined sports products with the music (Josh, 2012a). The product line that has been created by the strategic alliance of Apple and Nike is the “Nike+ ipod”. Both the Apple and Nike has combined their unique resources and capabilities to create the product that is enabling the consumers to link their ipod with chip in Nike’s shoe with an aim of tracking their exercise and workout performance (Josh, 2012a). It is evident from the instance of Nike+ ipod that alliance with different partner can help to innovate in the best possible way that can create cooperative completive edge to both companies. In the technological sector, the Nike has carried out an alliance with Dutch Satellite Navigation Company as well that have enabled the both companies to develop GPS based sports watch and have opened up the new realm of competitiveness.
In the category of equal alliances, the Nike has established successful collaborations with international partners. The equality has been ensured in terms of product design, manufacturing and process of marketing. The Nike has successfully outsourced its supply chain to the overseas partners and the emergence in new markets is obtained at lower possible cost by relying on international strategic alliances (Sioridze, 2011). The strategic alliances of Nike are enabling the company to manage uncertainties in international market and it has also enhanced the potential of company to withdraw from markets that have declining growth potential (Sioridze, 2011; Soni, 2014). The strategic alliances with international players have enabled the company to consider local taste and preferences in their design of products. For instances in Malaysia, Yugoslavia and Hong Kong, the Nike has appeased the local taste through strategic alliances. Along with this, by carrying out alliances with companies in Japan and South Korea, the Nike has implied innovative and advanced production technologies that has helped the company to produce efficient product at low cost (Mellahi and Frynas, 2015). Along with this, the strategic alliances in China has helped the company to obtain advantage of low cost suppliers.
Moreover, the Nike has also entered in joint venture to gain competitiveness. The significant instance of joint venture of Nike is the development of Audio Sport Producer Company that has been jointly established by the Royal Philips Electronics and Nike (Sioridze, 2011). The Royal Philip Electronics is the leading brand European brand of electronic production industry. The joint venture of Nike with Philip has helped the company to manage risk in international market with an aim of adding new dimensions to Nike’s existing product line. On the basis of above discussion, it is evident that Nike has entered into number of international strategic alliances and this strategy of the company has helped to expand operations in both related and unrelated market with an aim of gaining significant competitive advantage (Stahl and Voigt, 2008).
Since its inception, the Nike has acquired significant number of companies in both footwear and apparel category that have proven to be of significant important in realisation of company’s goals and have generated synergy. Being the continual seeker of competitive advantage the Nike has grabbed mergers and acquisitions opportunities at the right time in the best possible way. Along with exploitations of significant competitiveness, the alliances with target firms are maintained to gain higher profits and shareholder’s value. The international mergers and acquisitions have also offer the Nike with greater market power. The Nike has availed only the strategically relevant mergers and acquisition opportunities with an aim of diversifying to gain substantial breadth in terms of products offerings. The first merger of Nike was aimed at gaining wider access to footwear market which took place in 1988 when the company acquired Cole Hann (Josh, 2012b). The second company was acquired by Nike in 1994, when the company acquired hockey giant naming Bauer. The acquisition of Bauer continued till 2009 that as partially sold by the Nike.
It has been highlighted by the researcher that major acquisitions of the Nike happened during 2000s and the Nike has acquired a major apparel company naming Hurley International in 2002 (Lynch and Lind, 2002). Followed by this, the Nike has carried out horizontal acquisition by taking control of Converse which was the all-time competitor of Nike. The Converse was one of widely known and strong shoe brand that had enjoyed many years of success. It has been highlighted by the research that Nike’s initiative to acquire Nike was the highly benefiting step of the company and it has added significantly in strengthening the brand market of the Nike (Malhotra, Agarwal and Ulgado, 2003). The Nike has continued to market the products of Cole Haan and Converse by maintaining their brand name. As the Cole Haan was high end fashion shoes for men and women and Converse was also maintaining its strong recognition among the consumers (Moore, Doherty and Doyle, 2010). Likewise, the Nike has sold the apparels for teenagers by maintaining the label of Hurley and has realised on the existing brand awareness and brand loyalty.
The Nike has maintained the “buy rather build” strategy and it has gained significant growth from purchasing well established brands with an aim of differentiation the sports footwear from other categories. Given these details, it is important to note that diversification strategy or mergers and acquisition strategy of Nike has allowed the Nike to own four main subsidiaries including; Hurley, Converse, Umbro and Cole Haan). The mergers and acquisition strategy of the Nike has increased the revenue of company by 68% from 2004 to 2015 (Josh, 2012b).
Nike is among the companies that has broadened its horizons in international market and it has decided to make decision to enter into foreign markets through foreign direct investments (Johanson, 2013). The Nike has entered through direct investment in soccer market that worth $ 2 billion and it has gained huge benefit from that business. Along with this, the Nike has submitted proposal in India for maintaining independent investment in along with maintaining its current franchising and partnership stores (Boyd, Dyhr and Hollensen, 2012). However, the proposal was not accepted due to policies of country towards foreign investment. It has maintained form the instance that Nike is willing to pursue foreign direct investment based on feasibility and policies of the foreign focal country.
It has been highlighted by the PESTEL framework that the environmental forces are highly important to consider by the businesses in the process of expansion. Along with other forces, one of the significant dimension that is needed to be considered by the multinational companies is political factor which offer huge risk for the success of business (McKellar, 2010). The political risk being exerted by political factors refers to the extent to which decisions and policies of host country can have an adverse impact on profitability and growth potential of the multinational company (Nike, INC., 2010). The political factors could range from revolutionary changes in country to financial changes in the country. These changes could be categorised in two aspects that is macro and micro which can have an impact on policies and practices of business organisations in international market.
The Nike has considered the political risk into account while making expansion decisions. Before entering into alliance with an international company or before acquiring any foreign entity, the Nike relies on vigorous approach of analysing the environmental aspects of the host country (Peretti and Micheletti, 2011). The strategies of Nike pertaining to expansion of company at global level including; acquisitions, equality alliances, non-equality alliances and joint venture have all offered due importance to economic and political conditions of the host country (Sioridze, 2011). The Nike has an active resource and development department that has enabled the company to research about the riskiness of foreign countries before making investments. The countries with higher risk index are further scanned for the performance level with an aim of making trade-off between risk and performance. After making trade-off, the Nike readily takes calculated risks that are highly lucrative in terms of growth and profitability of the company (Locke, Qin and Brause, 2007). Along with this, prior to entering into risky company, the Nike pursues the option of purchasing political risk insurance with an aim of securing its investment in case of political instability in host country. However, in order to pursue political risk, it is important to keep in account the premium rate and number of risk to be ensured. Therefore, the cost of doing business is subject to variation depending upon the country of operations.
Finally, the focus of each underlying strategy of company is one enhancing the performance levels of the company to desired extent. The strategies of Nike that have been analysed in current study have significantly lay their hands in strengthening the brand image of company. The Nike has successfully gained access to the international markets that has substantial growth potential.
The sales of Nike have increased at continual rate and expansion in international level has increased the number of employees of Nike to 62,600. The company has operated with its trade logo “just do it” and it is being recognised in all major regions of the world, including developed and developing countries (Shaw, 1999). The significant presence at global level and consumer focused strategy of company has generated revenue of US $ 30.601 billion, which was reported to be equal to US $ 24.1 billion in 2012. Therefore, it is evident that company has witnessed substantial increase in its revenue, which is reflecting the success of set of strategies being pursued by the Nike. The effective strategic course of the company is an integral contributor behind successful position of the Nike and this is the reason that Nike is one of the most preferred athletic footwear and apparel brand across the world.
One significant recommendation that is offered to Nike pertains to expansion of its business in China. Though the Chinese are in love-hate association with the western nations, however, for consumers of China the products manufactured by western countries are the symbol of status and pride. The Nike has already opened many stores in China which have witnessed significant growth by gaining competitive edge from prior leading Chinese brand of footwear, Li Ning. On the basis of business report analysis, it is note able that in China has captured 12% shares of athletic footwear market which in comparison to home country of Nike is much lower. It has been mentioned by Zhang Wanli, who is the social scientist in Chinese University that Nike has capitalised on selling status rather than usefulness in China. The statement is clearly indicating that Chinese consumers have higher readiness for Nike and the Nike has strong brand image in China. It has been highlighted by the researchers that strong brand image can not only enhance the sales of the products but it fosters brand loyalty which is associated with long term competitive advantage (Peretti and Micheletti, 2011).
Followed by this, it has been mentioned in the report that 50 million kids are expected to play basketball in China in coming years and this increasing trend of basketball in kids is an indication of the notion that Nike needs to expand its attention to this consumer segment. In order to enhance revenue from this customer segment, the Nike needs to develop attractive promotional campaigns that may focus on style along with comfort and performance enhancement of basketball footwear. The Jordan brand of Nike is one of the leading basketball brand of US which is currently offering $ 1.7 billion revenue to company. Therefore, it is strongly recommended that Nike needs to expand Jordan brand in China with an aim of availing basketball opportunity in China.
In addition to it, it is also recommended that along with maintaining its physical presence in international market, the Nike needs to expand its already operating commerce to sales stores market. It is of no doubt that physical operations of Nike in major countries of the World are offering noteworthy benefits to Nike in terms of increasing revenues. The Nike is also selling online through nike.com. It is being suggested to the Nike that it needs to expand its online services to all smaller regions across the world as it is mainly difficult for people living at country sides to approach the physical stores. While, some consumer prefer online purchasing over physical visit to retail outlet. (San, López-Catalán and Ramon-Jeronimo, 2012) The extensive reliance on e-commerce selling will enhance the reach of Nike to smaller regions, which are inaccessible through direct selling and it will strengthen the customer base of company further (Zhu and Kraemer, 2002). By offering mobile consumer services, the Nike will be able to serve its consumers anywhere, any time and through possible choices of the consumer in terms of accessibility. Therefore, the Nike needs to consider mobile commerce perspective at the core of its strategic approach with an aim of catalysing its performance.
In related vein, the Nike is one of the leading product centric organisation that has realized highest growth potential based on its unique and highly values product. However, the contemporary organisations need to develop relationship with customers. Currently, the Nike is laying its efforts to establish quality relationship with its customer by maintaining its presence on social media (Ramaswamy, 2008). However, still there exist a gap in terms of social relationship of Nike and it is important to recommend that Nike needs to focus on integrated social network development. The importance of strong social network has been highlighted by the scholars that its helps in establishing a linkage between customers and company that offers competitive advantage in long run (Winer, 2001; Tan, Yen and Fang, 2002).
In order to sustain its competitive position and to ensure growth in long run, the Nike needs to extend its growth strategy by carrying out mergers and acquisitions in unrelated industry with an aim of extending its product portfolio. Likewise, the analysis of Nike in current study have reflected that Nike is mainly engaged in horizontal acquisitions as it is only acquiring competitors in the industry with an overall aim of gaining synergy. However, there are many instances in industry that have carried out successful vertical integration by acquiring the suppliers of producers of the company. One significant example is of Zara, one of the renowned Spanish company, which instead of purchasing its clothes from suppliers, make at its own. The vertical integration with suppliers has assisted the company to manage its inventory in highly efficient manner (Atalay, Hortaçsu and Syverson, 2014). The vertical integration not only enhances the ability of company to access material in time but it also ensures quality and provide access to dependable distribution network (Lee, 2013). Given these benefits of vertical integration, which can be easily availed through merger and acquisition, the Nike needs to pursue this aspect in its growth strategy with an aim of strengthening both its suppliers as well as distribution side. It can help the company to smoothly access the target markets with greater efficiency and can help in gaining competitive advantage in long run.
Followed by this, the report has highlighted the joint venture of Nike with Apple and the resulting product that has combined a chip in athletic shoes with the Apple ipod creating Nike+ipod. This is indeed a revolutionary project and Nike can further growth by carrying out joint venture in unrelated industry. One significant instance could be the development of video game that combines the features of actual soccer and has the potential to motivate kids for playing outdoor. This is just the raw idea that can become the basis of a revolutionary product through competence and dynamic capabilities of Nike. Therefore, the Nike needs to expand its joint venture with technology companies to keep up its operations in the way that can result in evolutionary and highly innovative products.
Finally, along with keeping its focus on expansion in international market and development of innovative products, the Nike should also offer due placing to the aspect of sustainability. It is note able that Nike is considering the environmental sustainability into account and it is satisfying its key stake holders. It is recommended that Nike needs to contribute in community development projects as well, as it will be highly beneficial to develop strong brand loyalty. Although, the loyalty of Nike is based on association of Nike’s products with legends and athletes, yet with passing time the athletes get done with their profession and it may have an adverse effect on brand loyalty. Therefore, the Nike needs to establish loyalty that is long lasting and it can be obtained by considering the concerns of stake holders of the business.
All of these recommendations could help the Nike in maintaining its growth and development in the future. The Nike has desire to grow even more in international markets that are emerging and have high growth potential. In order to capture high shares in emerging markets, the Nike needs to rely on best strategic course of action that may be obtained by combining existing strategies of Nike with the recommended ones. The current report can be of huge significance for Nike and it guide development of new strategies that may benefit Nike in longer years.
The current report has served an important purpose to conduct the extensive management analysis of the Nike, which is the leading athletic footwear and apparel brand in United States. The Nike has unique tangible and intangible resources that are hard to imitate by the competitors and have offered competitive advantage to Nike. Along with this, the Nike has dynamic set of capabilities which are enabling the company to maximise its competitive advantage through resource exploitation. Likewise, the analysis of value chain and knowledge management has also reflected that Nike have substantial competitive advantage in athletic footwear and apparel industry. The Nike has relied on consumer focused strategy with an aim of expanding in international market that has assisted the company to identify the needs of consumers and to satisfy them with innovative products. The Nike has carried out strategic alliances at domestic and international level that are both equal and un-equal. The strategic alliance of Nike includes its alliance with Apple. The Nike has also carried out joint venture with Royal Philip Electronic. The Nike has also relied on mergers and acquisitions strategy and it has acquired; Cole Hann, Bauer, Hurley and Converse. The Nike has successfully managed political risk in international markets and all of the focal markets of the Nike have proven to be highly competitive. On the basis of strategic analysis of Nike, it has been recommended that company needs to expand its operations in China by focusing on basketball brand, Jordan. Likewise, the Nike needs to pursue mobile commerce aspects in its strategic initiatives. It has also been recommended that Nike needs to make a shift from its traditional product centric approach to the more integrated customer relationship approach. In addition to it, the recommendations have been made to Nike modify its growth strategy by supplementing it with the aspect of vertical integration through mergers and acquisition.
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