For most of the industries, perhaps the information technology is the biggest factor which brought revolution to the way people do business. Internet has provided marketer a new thinking of direct selling to the end user of their products, and that is e-commerce. In late 90s, sports ware supplier’s starts to see the bright landscape of online direct selling. (Times 1999) Nike took a fast move and bravely entered the on-line direct selling market by establishing the website “Nike. com”. In 1999, the site offered 65 styles of footwear to the US customers who have internet access.
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Meanwhile, it also gives permission to other on-line retail stores to sell Nike products. The on-line store “Nike. com” enables Nike to collect first hand information from customers, and helps Nike to know better about them. In addition, through “Nike. com” the company offered its unique footwear product, and that is NikeID. (Nike 2008) Similar to Dell’s direct selling model, NikeID is a footwear product that offers the customer a chance to customize the product he/she is purchasing, and give visual to the customers of the customized product.
Again, this perfectly appeal to the youth customers who needs of individuality. Global Although Nike owns big proportion of the US market, on the Global perspective it is not so dominant. Rivals such as Adidas and Rebook are acting strongly in the competition against Nike. In order to increase its global competitive advantage, Nike should continuously differentiate its product, expand its product line and actively look for valuable business partners. However, diversification of product line requires massive research and development, and after the new products are created, marketing will be needed.
It is time consuming and money costing. Therefore, acquisition actions could be a good choice for Nike if it is deciding to produce new product lines. Through acquisition, Nike gains full access to the information that is required to produce, transport and sell the product. In addition, Nike can access all the existing logistic and distribution channels if the acquired company and meet the existing suppliers, and try to find potential business opportunities for itself. An example can be the Acquisition of Converse by Nike in 2003, adding classic twist into Nike’s product line. (Cnet, 2003)
Industrial environment and 5 force analysis Athletic footwear Industry Looking at the US footwear industry, imports have continually grown at a rate of 5. 6% each year since 1976. On the other hand, export kept declining in the past 10 years. As a result large amount of trade deficit is created in this industry. Most of the firms have shifted their manufacturing base into Far East, especially China. Statistic shows that china makes almost 68. 3 percent of footwear products imports in 2002. The local US industry is decaying due to pressure from low cost rival products flowing into the market.
In 2002, the domestic production reduced by 9%, only 100 million pairs is made in US. (Infomat, 2002) This industry is a monopolistic market however quite close to oligopoly, large organizations compete with each other, and set barrier to prevent new rivals to come in. The top 10 ranking suppliers occupied almost 70% of the total market share. Bargaining Power of Suppliers Since Nike outsource its Manufacturing process, Nike will not have a lot to do with raw material suppliers, most its supplier are finished product manufacturers.
These manufacturers are mainly based in Far East countries, where population density is very high. Take china as an example, its labor market is characterized as cheap and large quantity. The barrier of entering the footwear manufacturing industry is quite low, so that there are a lot of such manufacturers in this country. As a result, the situation of large number of manufacturers chasing limited orders is formed. Nike as the buyer in this situation who controls technology and large amount of order, it can select suppliers to produce its product.
In short, the bargaining power of suppliers in this industry is relatively low. Bargaining power of buyers Retailers who purchase supply from Nike dose not have strong bargaining power over Nike. Continuous product differentiation and extensive marketing activities has created very strong customer brand Loyalty for Nike. In many places, Nike footwear is always on the top selling list. Removing Nike products from its shelf will probably cause the sales of the retailer to reduce. Therefore, it is not wise to lose a supplier like Nike.
This gives good negotiation power to Nike over its buyers. On the other hand, for the end user of Nike products, most of them are influenced by Nike’s marketing strategies and became loyal customer, slight price increase will not become the reason to switch brand. Threat of substitute No significant threat of substitute is found in this industry. Athletic footwear is made to fit in all kinds of sport movements and enhance the comfort and performance during these activities. Its function is unique so that the motive of purchasing this product is very clear.
Other type of shoes dose not have the function to provide those benefit, so that customers with the motive to purchase a athletic footwear will not end up buying other kind of shoes. For instance, a soccer player will not buy a pair of leather shoes to play soccer, also, people will not buy soccer boot to attend party. Rivalry on competing firms As mentioned above, this market is similar to an oligopoly market. Small firms will not have sufficient power to compete with the large ones who dominates the market. Large firms compete with each other carefully.
The competition between these large firms is extensive. Basically, the battle occurs on R&D and Marketing. Everyone tries to differentiate its product from others, and apply latest technology into it, at the same time; firms fight a marketing war continuously. Firms in this market have mutual interdependence among each other. They carefully monitor each others moves, and set policies to compete with other’s policy. None of those large firms will start price competition, because it will only benefit the end users and reduce everyone’s profit margin.
Major rivals are Reebok, Adidas, Fila, converse (100% acquired by Nike),puma. Threat of New Entrant An oligopoly market usually consists of strong barriers for new entrant. Firstly, Most of these leading firms have already operating at a global level. Outsourcing manufacturer created huge cost advantage for them. In addition, massive R&D and advertising % Promotion is required for the firms to survive in this industry, and these activities cost a huge fortune. If the new entrant wants to become one of those firms, it has to start the business at a global level and invest huge funds on advertising and promotion.
This means they have to bear the risk of all these investments being sink due to unsuccessful marketing strategy. Conclusion In this report, Nike’s General Global environment is analyzed by looking at 6 aspects including demographic, economic, political and legal environment, sociocultural, technological and global. A few points from general environment should be addressed. Firstly, the appreciation of RMB has become a potential threat for Nike; However Nike’s strong bargaining power over suppliers overcomes the problem.
On the other hand, strong economic growth in china expands the potential market of Nike; marketing strategies should be taken to capture the expanding market share. Secondly, on the political aspect, the Chinese Export taxation policy has become a major threat of cost rising for Nike, switching a proportion of orders to other countries is recommended. Thirdly, Nike’s auditing process can be treated as a strong effort of solving working condition related problems. Last but not the least, On-line selling base “Nike. com” and the unique NikeID product have become another competitive edge of NIKE.
Moreover, after evaluating all the 5 force, it is found that Nike is on a very good position in its industrial environment. It has the strong bargaining power over its suppliers, and therefore it can maintain the current cost structure. Buyer’s power is also low, so that buyers will not be able to increase their price easily. In addition, no close substitute is found to be threatening. Although the competition among existing rivals is extensive, there will not be big threat of new entrant taking away big proportion of market share.