Nike`s Business Analysis

Nike’sBusiness Analysis

InstitutionAffiliation

Tableof Contents

Introduction 4

History of Nike Inc 4

Vision and Mission 5

Vision 5

Mission 5

Business Initiatives and Objectives 5

Foreign Market Decisions 6

Competition 6

Economic-Geographic Environment 7

Social-Cultural Environment 7

Political-Legal Environment 8

Company Structure 9

Financial Strategies, Results and the Business Risks 9

Earnings per share, EPS 10

Business Risks 11

Promotion Strategy 11

Product and Target Market Planning 12

Human Resources 12

Distribution Strategy 13

Information Management Systems 14

International Business Success 14

Conclusion 15

References 16

ExecutiveSummary

Thegrowth and success of a company is measured by its determination andthe guest to go global. This amounts to proper business planning andresilience in economic, political, social and the technologicalturbulences. Nike Inc. abbreviated as NKE, has risen above theseshocks with support from a firm management board and effectivegovernance. Sound management practice has enabled the company tobecome one of the leading designer and producer of athleticsfootwear, equipment, and apparels. The company has dedicated itsproduction and product distribution to ensure that every athletecomfortably participates in various competitions. Nike management hasbeen advocating for the expansion of both domestic and global marketsby coming up with viable business strategies. Enhanced managementstrategies have seen the company outwit its competitors. This has notonly increased products demand in the US market but also spread toglobal markets. Currently, it has grown roots in 43 countries with anintention to hit 55 countries by the end of the year.

Introduction

Thegrowth of the sports industry was witnessed in the mid of 20thcentury. It was sparked up by the growing sportsmanship, theincreased number of games rolled out and the major championships likeOlympic Games. Nike Inc. is one the most successful company in thesports industry with dedicated global marketing and the sale ofathletic shoes, apparels, and sports equipment. So far, it has wonalmost half of the world’s sportswear market share.

History of Nike Inc

NikeInc. was established in 1964 and later registered in 1971 in theUniversity of Oregen. Philip Knight founded the business alongsideMr. Bill Bowerman who was an athletics coach. The company’sheadquarters is based in the city of Beaverton. The company began asan athletic footwear retailer and later expanded to a businesscorporation under the leadership of Bill. They made quick winsthrough single merchant sales at the track meetings in a vehicle. Theprofits grew and led to the opening of a retail stores in the SantaMonica, California (MoranSendraet al., 2015).Currently, it has employed 1,069,020 people all over the worldworking in the factories and its supply chain networks.

Currently,the company is leading in the sporting market and dominating thelarger portion of the US market and other forty-two countries throughits highly networked branches and six hundred and sixty-six factoriesall over the world. Nike business is thriving and currently enjoying47% of the total domestic market in footwear manufacturing. Its saleshave hit $3.77 billion in the last three years alone. For thepreceding three years, the company`s net income has been growing at$2,690 million, $3,270 million and $3,760 million for the financialyears that ended in 2014, 2015 and 2016 respectively. The company hasalso spread and set up manufacturing factories in Asia, Europe andboth North and South America. Nike has been in Asia for more than twodecades with extensive networks of 500,000 people directly involvedin the production. It adopts outsourcing business strategy throughcontracts (Quinnand Hillmer, 2012).Most of the factories in China, South Korea, Vietnam, Philippines,Taiwan, and Indonesia are fully owned by the contractors runningproduction, solely for Nike sportswear products.

Vision and Mission

Thecompany’s vision and mission reflect the company business andprovide a general action plan for the business development and thefuture strategic business formulation.

Vision

Thevision of the company has three pillars with the key emphasis on thecorporate social responsibility. It is designed to help the companyand the clients operate in a sustainable economy with stress on thebalance between the people, company profits, and the planet. Thevision underscores company and the customers as the key players inthe pursuance of its goals and the future economic sustainability.

Mission

Nikemission is designed to inspire every athlete to greater heights intheir careers. The company is geared towards inspiring everyoneaspiring to be an athlete and also professional athletes throughsupportive and innovative ways seen in its continuous improvements onits products.

Business Initiativesand Objectives

NikeInc. is a publicly traded company owned by several shareholders. Thefuture business objective is to ensure that the business createswealth to the shareholders which is realized through increased sales.The company has re-engineered manufacturing of superior products andbuilds a strong customer loyalty by maintaining the integrity of itsglobal brands so as to increase its sales. Further, it has alsodesigned several sports gear and apparels that has won 47% of thedomestic market (O`Reilly, 2016). The company has also adopted areliable corporate social responsibility by working on measures thatreduce water wastage, pollution and focused on profit-driven goals ina bid to enhance social and sustainable corporate objectives.

Foreign MarketDecisions

Nikehas conquered foreign markets with its extensive chain anddistribution networks. Through the networks, it has stretched out tothousands of sports people. So far it has big operations globallywith its operations with more than 1,600 factories. The company hasalso enhanced its brands and trademark valued over $10 billiondollars (MoranSendraet al., 2015).Similarly, it has supported and built firm partnership with thecountries and global professional athletes through supply of qualitysportswear. The brands and the global network in forty-threecountries have strengthened the financial muscles of the business andwith committed governance transformed both domestic and the globaloperations.

Competition

Thesportswear and apparel industry experiences stiff competition fromseveral key players. However, Nike Inc. has come out to be a highlynetworked sports company with elaborated systems that has suppressedits major competitors like Reebok, Adidas, Converse and the NewBalance controlling a domestic market share of 16%, 6%, 3% and 3%respectively. The ability to harness core skills, business strategyand the quality products has seen the company earn 47% of the U.Sdomestic market while the remaining 25% is shared by small businessrivals such as K-Swiss. Nike Inc. has perfected its business strategyof business development and production through outsourcingengagements (O`Reilly, 2016). It has increased its production throughits global factories and distributions networks. The setting up ofthese factories reduces the cost of manufacturing and distributionsince they are located in countries like China, Indonesia and Vietnamwhere labor is cheaper. It also enhances the competitive advantagethrough cost management and the availability of cheap resources.

Economic-GeographicEnvironment

Thesuccess of Nike is attributed to the geographical diversification. Ithas enabled the company stands the test of economic troubles and theslumping sessions. This is affirmed by the global production ofwell-known brands and coupled up with business efficiencies witnessedin its revamped shipping centers in China. Nike Inc. has not onlyenhanced reception and distribution of merchandise, but it has alsoincreased annual sales by 25-30% per year with an anticipatedincrease above the average annual increase. The climatic conditionshave not affected its business. In fact, the access to the waterwayshas eased the cost of shipping and distribution of its productsglobally (MoranSendraet al., 2015).Economically, the company has leveraged on its unique taste and powerof its portfolio in enhancing business growth, building rapport withthe customers and also managing business risks. The company enjoysmanufacturing incentives and subsidies in the US and has eased itsspread to several states. The Far East has been undergoing economicchanges and it has led to the reduced production costs and eventuallyencouraged large-scale production of cheap sportswear. The economicchallenges that have been pulling back the company are thefluctuations of oil prices that have increased variable costs and theforeign exchange fluctuations (MoranSendra,Nilmeier, Liem, and Perkowski, 2015).

Social-CulturalEnvironment

Understandingthe culture and the community morals contribute to the success of thebusiness. The social aspects shape the business by increasing demandfor sports gear and the apparels as seen in the healthy lifestylesand the fitness centers. This is also boosted by the aging retireeswho have free and ample time to spend on sporting and keeping fit,thus increasing the sales. Moreover, the company has dedicatedbusiness channels that focus on the demands of the youngsters and theyouths aged below 35 years. The social institutions do not have asignificant influence on the types of sportswear to be worn. Nikeonce suffered some social setback in 1996 when it contractedSweatshops in Vietnam. The company received critics for violatingminimum wages and lack of overtime payments (Safko,2010 and Durazo et al., 2015).It was said that the company subjected its employees to poor workingconditions in the free trade zones. There have been social concernsmounting up against the company in China based factories as wellwhere the residential hostels have been netted to prevent employersfrom attempting suicides.

Political-LegalEnvironment

Politicalstability has influenced the business operations of Nike Inc. The UShas enforced its economic policies to suit the growth and sales ofnot only Nike’s products. The macroeconomic factors such asfavorable interest rates, good tax systems and the stable currencyhave been the major factors impacting the success of the company.However, Asia has numerous production centers and the unrest in theregion has taken a toll on the profits of the company. This has ledto fluctuations of import and export tariffs and the foreign directinvestment. Nike has plans to revoke outsourcing contracts where thepressure is exerted to ensure manufacturing jobs are withdrawn backto the U.S. The relationship between China and the US is growing weaksince China is accused of spying US operations and infringement ofintellectual property rights which may result to a shift inproduction. There are also counterfeits flooding the markets andusing Nike’s market brand. Counterfeits in the market hamper theproduction process and impair the sales margin. The operations ofNike Sweatshops may face legal suits having been accused ofexploitations of the local workforces in the free trade zones(Dickson&amp Chang, 2015).

Company Structure

NikeInc. has a sound strategic plan that specifies its product goals,alliances and the business entry modes. In March 2009, Nike statedplans to smoothen its business operations by bringing its productscloser to the market. Through these initiatives, it has developedglobal market shares in North America, Europe, Japan, China andemerging markets (MoranSendraet al., 2015).It has opted for quality products but on cheaper production costs asevidenced by the outsourcing contracts. It has also ventured intodevelopment and the redesign of its products to meet customers’expectation and win their loyalty. Currently, the company is strivingto surpass the half of the domestic market with anticipation of theglobal increase in sales especially in China and the emergingmarkets. Management has adopted financial analysis processes on theprobable cost management practices of reducing the production costs.Focus on the outsourcing for its cheap labor, availability of the rawmaterials, and eased access to the market through waterways and therecycling of waste materials depict some of the strategies Nike isemploying to build a strong market base (Quinnand Hillmer, 2012).Similarly, it has ventured into the research centers in the US andthe Asian continent where its business team shares customers’expectations in addition to the employment of expatriates who movearound the Asian factories to monitor productions.

Financial Strategies,Results and the Business Risks

Nikebusiness success is quantified in the tables below for the past 5financial years:

$ millions

2012

2013

2014

2015

2016

Revenue

24,120.0

25,330.0

27,790.0

30,700.0

32,460.0

Cost of Goods Sold

13,620.0

14,410.0

15,340.0

16,750.0

17,990.0

Gross Income

10,500.0

10,930.0

12,440.0

13,940.0

14,470.0

Consolidated Net Income

2220.0

2460.0

2690.0

3270.0

3760.0

EPS (Basic)

1.2

1.3

1.5

1.9

2.2

Table1: Income Statement components over the past 5 years

Assets ($ millions)

2012

2013

2014

2015

2016

Total Assets

15,770.0

17,940.0

18,930.0

21,600.0

21,400.0

Total Liabilities

5,390.0

6,790.0

8,100.0

8,890.0

9,140.0

Total Equity

10,380.0

11,160.0

10,820.0

12,710.0

11,160.0

Table2: Statement of Financial Position components over the past 5 years

Forthese past years, there has been an upward trend in businessoperations and more specifically production and marketing. Theconsolidated net income has increased by 69% over the past five yearsindicating that the business is moderately doing well however, itonly needs steer more sales in 2016-2017 financial years so as tosurpass $ 3,760 net income (Magiera, 2016).The assets and the equity are equally on the upward trend except in2016 where a small reduction both in assets and liabilities occurred.The total liabilities are increasing and this is evidenced by theincreased expansion and venture into the global markets and the needto fund the global development. There is a projectionthat cost estimates figures will dropsincethe company has revamped its factories and warehouses in China whichis yet to increase sales and reduce the cost of sales(MoranSendraet al., 2015).

Earningsper share, EPS

Theaccelerated growth in the earning per share underscores the fact thatthe business is creating value to the shareholders wealth. Theseresults encourage the shareholders to pump in more capital orreserves to ensure that they earn maximum profit.

Figure1: A graph for past 5 years

BusinessRisks

Thecompany has survived several economic downtimes due to its globaloperations. Operations in various countries support the headquartersin a number of ways: cost minimization, increased sales, and largecustomer base. This is evidenced by the various global establishmentssupporting each other from China and Europe. The only big challengefacing its operations are the currency fluctuations and the exchangerates, global prices fluctuations and the global socio-cultural,political and the business shocks.

Promotion Strategy

Nikehas minted its fortunes from rigorous product promotions. The majorpromotion techniques adopted are sponsorship agreements with teamsand celebrity athletes, advertising on the televisions, internetmarketing, and national uniform and apparel deals as well as takingpart in campaign partnership. The cost of promotion is always high,and it demands company resources. In 2014-2015, the company withdrewthe renewal contract to supply Manchester United with sports gearciting the high cost associated to the deal. The company has alsobeen keen on the business environment when airing its adverts so thatit doesn’t offend the public. However, it had once suffered when itwas sued by Apple having copied the Beatles song. It also had torebrand Joe Paterno child care facility after the sex abuse scandalin the Penn state.

Product and TargetMarket Planning

Thecompany has a clear product and target market plan that narrows downto the sports people. It designed Swoosh, as its footwear businesswhich led to its incorporation in 1974. Nike instilled the power ofvictory and associated itself with the slogan, ‘the goodness ofvictory.’ The brand has won a majority of athletes and footballteams’ sponsorships and thus giving Nike a platform to sell more.The company signed a business deal to support Ilie Nastase, aprofessional athlete who became a brand ambassador (MoranSendraet al., 2015).The deal gave the company outlook and transformed its global sales.The company product also focuses on the luxury and the middle-classpeople’s demands. This has been the success pillar and haspropelled its sales and this explains the likelihood of attaining a50% market share in the US. In addition, Nike has ventured into theinternational markets Europe, Africa, China and Asia supported byaggressive advertisements and televised commercials.

Human Resources

Thesuccess of Nike Inc. relies on dedicated human capital that has ledto immense growth over the past years. Currently, the number of itsemployees stands at 1,069,020 globally running its operationssuccessfully. The HR department adheres to capacity building anddevelopment of its employees so as to deliver better results in theirworking stations. The geographical locations may result in differentlabor relationships and agreements, but the company managementaffirms that its practices are fair. Though there have beencomplaints on how its contractors treat its workers particularly inAsia and China the company has assured that the issue was addressedand the employees are comfortable. The performance appraisals and thecompensation accessed annually and even periodically monitor theprogress, and the potential of employees. In order to motivateemployees, the company rewards their efforts through promotions andbonuses (MoranSendraet al., 2015).

Polycentricstaffing principles have served Nike over the last few years. Thecompany has been engaging locals to work in the factories in a bid toensure that they achieve the stipulated goals and objectives. Thelocals tend to understand the domestic market and are better placedin the local factories so as to foster coherence with the community.The expatriates are said to be the best team to push for globalsuccess of the company and at the same time represent the interestsof the interests of the shareholders. The company has not executedethnocentric staffing well and the regiocentric staffing has workedup to the colossal extent where regional teams say from America orAsia work in their regions by shaping up the business set up.

Distribution Strategy

Thesupply to domestic, regional and the international markets demands aclear roadmap to ensure the product reaches the destination.Elimination of lead time is one of the major issues the company isstriving to attain. Some Nike products are heavy, and thisnecessitated the establishment of the local factories to easedistribution and trim down the operating costs. The waterways and theair transport have facilitated access to the international marketswhile good road network has enhanced domestic distributions. Theclientele and the distributions networks have been the epitome ofNike’s global success. The wholesalers and commercial retailershave played a pivotal role in the sale of its merchandise. However,there have been distribution challenges posed by the politicalinstability and the currency exchange rates that have seen thecompany struggle in its foreign markets (Mahdiet al., 2015).

InformationManagement Systems

Informationmanagement systems have been resourceful in decision-making. ISsystems enhance the generation of business reports based on the pastfigures and used to project into the future. Budgets are alsogenerated based on the prudent accounting principles and reliance onthe past figures to give future estimates. Nike has an excellent andextensive supply chain management supported by scheduling that hasperfected its operations management (MoranSendraet al., 2015).Further, the company has also enhanced its production throughautomation of its centers and processes in addition to enhancedquality production. The coordination within its premises and globalpartners is integral, and it has ensured continuous qualityproductions. The US government agencies have been key players in thesector by providing the required business trends and essentialresearch facilities engineered to come forth with new designs. Nike’sfinancial statements are prepared based on the US accountingprinciples and the inventory control measures.

InternationalBusiness Success

Thecompany is financially stable with promising prospects in profits andearnings per share. This is also affirmed by the unquestionablelong-term and short-term solvency and its profits growing annually.The emergence new markets and the specialized markets have pushed thecompany into the global limelight and build its business strength.Nike has reported an upward increase in net profits in 2012 to 2016from $ 2.2 billion to $ 3.7 billion (MoranSendraet al., 2015).In addition to the increased profitability, the company has alsooutsmarted its rivals in the footwear and apparels specializedindustry. This is well depicted in the increasing sales and reducedcost of sales. Nike adopted the latest technology and focused onreducing the environment impact by redesigning its products lifecycle towards meeting the environmental protection standards (Jacobs,2015).The company is also facing the social concerns on its practices inAsian countries where it is employing under-aged and poorlyremunerating them. Poor remuneration and human labor trafficking aresome of the issues that have negatively impacted the company. Waterand air pollution have also been witnessed in some Asian countrieswhere the factories and the facilities are termed as the largestpolluting agents. The company has however turned the problem of curedwaste rubber into a business venture by introduction Regrind outsoleswhich are available to the public.

Conclusion

Thefortunes and business challenges in the foreign market entry areinevitable. Nike globalization strategy is driven by the need toincrease sales and create value. This has come to reality because theprofits have been growing yearly for the past five years.Profitability is attributed to its brands and the high demand in themarket. At the same time, the location of its business premises andespecially manufacturing factories has provided an easier accessroute to the market (Mahdiet al., 2015).China, Europe and the Asia have played a role in the past and thecompany anticipates total increase in sales by 25% in the nextfinancial year. Moreover, the success is tied up to the diseconomiesof scale where business has engaged strategies such as outsourcing toreduce the production costs. This has received criticism from the USthat the company is taking away job opportunities and also subjectedthe company to the foreign currency fluctuations and the politicalturbulences (MoranSendraet al., 2015).The company should, therefore, address the issues by coming up withmodels that ensure timely production so as to avoid storage costs andalso relocate to countries that are politically stable and withenough sources of raw materials.

References

Dickson,M. A., &amp Chang, R. K. (2015). Apparel Manufacturers and theBusiness Case for Social Sustainability. Journalof Corporate Citizenship,57,55-72.

Durazo,Y., Manning, M., &amp Wright, G. (2015). Effective Training forInternational Cross-Cultural Collaboration and Leadership.Cross-CulturalCollaboration and Leadership in Modern Organizations,63.

Jacobs,D. G. (2015). Practicalexample of base source optimization: footwear profiling at Nike, Inc(Doctoral dissertation, Massachusetts Institute of Technology).

Magiera,F. (2016). Financial Statement Analysis.&nbspCFADigest,&nbsp40(1),85-86. http://dx.doi.org/10.2469/dig.v40.n1.61

Mahdi,H. A. A., Abbas, M., Mazar, T. I., &amp George, S. (2015). AComparative Analysis of Strategies and Business Models of Nike, Inc.and Adidas Group with special reference to Competitive Advantage inthe context of a Dynamic and Competitive Environment. InternationalJournal of Business Management and Economic Research,6(3),167-77.

MoranSendra,M., Nilmeier, T., Liem, T., &amp Perkowski, T. (2015). Nike Inc.

O`Reilly,L. (2016).&nbsp11Things Hardly Anyone Knows About Nike.&nbspBusinessInsider.Retrieved 5 October 2016, fromhttp://www.businessinsider.com/history-of-nike-facts-about-its-50th-anniversary-2014-11

Quinn,J. B, &amp Hillmer, F. G. (2012). Strategic outsourcing. TheMcKinsey Quarterly,(1), 48-71.

Safko,L. (2010). Thesocial media bible: tactics, tools, and strategies for businesssuccess.John Wiley &amp Sons.