Analysis of NIKE Inc.

NIKE Inc. is a leading sports apparel and footwear company that produces high-performance athletic gear that targets mostly professional athletes (Soni, 2014). The company also targets women with the Women’s Training division growing faster compared to the Men’s segment. The company has retained a large section of the market share over the years compared to its competitors. In 2011, the business had 11 percent of the market, and it increased to reach 20 percent in 2016. Estimates show that the brand may reach 35.01 percent of the market in 2024. The business faces stiff competition from other athletics and sports apparel producers, such as Adidas, Reebok, Puma, Fila, Converse, New Balance and Under Armour.

Analysis of Macro-Environment through PESTLE Framework

Political

Political factors are essential to the growth and performance of companies. They influence several matters related to businesses, for example, how and where they produce their goods and the level of profitability. The home country of NIKE is the United States. The country has excellent policies that support the growth of the brand. Some of the political factors that favour NIKE include the low-interest rates and a favorable tax regime. The Federal Reserve has raised the rates by a small margin of 1.5% to 1.75% (Davidson, 2018). The low rates are helpful to brands such as NIKE as they help the business to access credit to finance various functions. The Federal Reserve may raise the rates in the next two years to counter inflation, but it is not expected to make a significant rise in the rates. Recently, the US passed a new tax regime that offers tax breaks to corporations in a variety of ways. For example, businesses can claim tax reductions for employing trainees. The new tax laws benefit NIKE as it can save funds that can be used to develop its products and marketing efforts. The tax law will benefit the company over the next two years.

Economic

Although NIKE experiences minimal effects from the state of the economy due to its well-respected products, it is vulnerable to some economic factors. The collapse of the market in the US would have a major impact on the brand. Consumers may decide to move to lower-end products that are relatively inexpensive. However, the market in the United States remains stable and will remain stable for the next several years. One of the economic problems facing NIKE comes from outside the US. NIKE has followed a path of outsourcing the production of its goods to the Asian market (Klier 2012, p.4). Wages in the Asian region are on the rise forcing the business to spend more. The issue presents a problem for the ability of the company to control its costs. It could force the business to increase the price of its products in the coming years.

Social

The social factors favour the company. With the increase in chronic diseases, such as diabetes and cancer, people are becoming more health conscious.  The phenomenon is good for the enterprise as it will increase the demand for sportswear. However, the production of its products in Asia has heightened the problem of exploitation of labour in the region through sweatshops (Werther and Chandler 2006, p.160). The problem could bring challenges for the business particularly among consumers who place significant weight on ethical standards in the manufacturing of products.

Technological

Technology has presented benefits and challenges for most businesses. It has enabled them to innovate their products and processes but has also brought problems especially the quick spread of information. NIKE is affected by several technological factors. Social media is one of the factors influencing the business. It has benefited the company by enabling better interaction with consumers. However, it also causes problems for the business by making it easier to spread information especially negative publicity such as the issue concerning sweatshops in Asia. Technological advances allow the company to optimise its production processes and maximise the revenues it generates.

Legal

NIKE faces several legal issues that can affect its business over the next two years. One of the legal factors that face the business involves taxation. According to Hopkins and Bowers (2017), the Paradise Papers released last year revealing the names of people and companies operating offshore accounts to avoid taxes includes NIKE. The company has been hiding some of its income in tax havens to enable it to escape taxation in the US. Also, it has been using accounting malpractices such as charging itself for intellectual property to reduce its taxable amount. The problems could lead to lawsuits that may see the company pay huge fines. The company also uses dubious marketing practices that can lead to legal problems.

Environmental

Environmental matters are gaining increasing prominence in the world as people become more concerned with the sustainable use of the environment. NIKE’s uses masses production factories to manufacture its clothing and footwear. The use of these factories raises environmental issues concerning environmental pollution. NIKE is working to make its business more eco-friendly. As a result, the business is expected to see improvements in attention to the environment. However, until it addresses the problem it remains a major concern over the next two to three years.

Element

Strength of Influence

Explanation

Political

Weak

Stable policies and regulations

Low interest rates

Favourable tax laws

Economic

Weak

Rising wages in Asia

Stable US economy

Social

Strong

Awareness of sweatshops in Asia

Technological

Weak

Social media spreads a negative image of the company

Technology advanced production and innovative processes

Legal

Strong

Tax avoidance charges

Dubious marketing practices

Environmental

Weak

Consumers’ concern about the environment

Porter’s Five Forces

Competitive Rivalry

Competition in the sporting apparel and footwear market remains strong. Most of the businesses in the market are developing new products to differentiate themselves in the market, and they are also employing a variety of marketing strategies to gain a larger market share. Brands such as Fila, Adidas and Converse engage in new product development and marketing to differentiate their products in the market. The result is intense competition in the market.

Supplier Power

According to Porter (2008), powerful suppliers can affect a company in a variety of ways, for example, by increasing the prices of their supplies that increases expenses (p.85). NIKE’s suppliers have minimal control over the business. The company can buy its supplies from different regions of the world. Also, distributors of the materials have minimal control over the enterprise because it can contract people to supply the materials from different regions. As a result, the bargaining power of NIKE’s suppliers is low.

Bargaining Power of Customers

The bargaining power of customers relies mainly on their consumption capability and influences the position of a business in the market. NIKE has various brands and products that enable it to attract consumers. However, it faces a major threat from the competition who can provide customers with the same products that NIKE provides. The ability of consumers to switch to other products gives them significant power over the company. Magretta (2012) asserts that when customers have significant influence over a business, companies must change their operations and products to match the needs of the consumers.

Threat of Substitutes

The company has various competitors in the market who can provide substitutes for the shoes and sports apparel that it produces. Non-athletic footwear, such as K-Swiss, Sketchers, and Timberland can substitute the shoes made by NIKE. Also, clothing from different companies can replace the items made by the brand. As a result, NIKE faces significant threats from substitute products in the market that threatens to reduce its ability to attract consumers and gain a larger market share.

The threat of New Entrants

Today, Nike faces a minimal threat from new companies entering the market. Although the cost of machinery for producing sports apparel and footwear remains relatively low, consumers are more focused on established brands that have created a reputation in the market (Plunkett 2007, p.43). The issue has made it more difficult for new companies to enter the market. Another problem facing the entry of new companies in the market is the level of research and development needed to produce high-quality products. Businesses in the market invest significant sums in research and development, but they are able to recover the amounts through mass production and sale of items. New entrants may be able to invest the amounts, but consumer attitudes can threaten their ability to recover the amounts which stops them from entering the market.

Element

Strength of Influence

Explanation

Competitive Rivalry

Strong

Numerous competitors in the market

Supplier Power

Weak

Little influence over the company due to the availability of many suppliers

Bargaining Power of Customers

Strong

Consumers have variety and substitutes

Threat of Substitutes

Strong

Variety of substitutes

The threat of New Entrants

Weak

Brand reputation remains strong

The high cost of research and development

Strategies to Overcome Threats and Utilise Opportunities

NIKE, Inc. can use the opportunities and address the challenges identified in the PESTLE and Porter’s five forces. First, it needs to ensure ethical production of its products starting with closing the sweatshops in Asia. It should guarantee that the people working to produce its goods get adequate compensation and fair working conditions. Second, the brand should follow tax laws in the US. The present government led by Donald Trump has passed new tax legislation that favours corporations. NIKE should comply by reporting its incomes rather than hiding some revenues in offshore accounts. Third, social media is a valuable tool for marketing and gathering consumer feedback regarding its products. NIKE should use it to understand their needs and develop better products. The strategy will help to address the overwhelming the power that customers possess. It can enable the business to be more responsive to their needs. NIKE should also use the tool to be able to understand the market that will help it to overcome the pressure it faces from its competitors and substitutes. Through better engagement with consumers and responsiveness to their problems, the company can be able to overcome the intense competition it faces from competing brands.

References

Davidson, P. (2018). How Federal Reserve rate hike will affect mortgages, auto loans, credit cards. [online]. Available at https://www.usatoday.com/story/money/2018/03/21/how-federal-reserve-rate-hike-affect-mortgages-auto-loans-credit-cards/441177002/. Accessed May 21, 2018.

Hopkins, N. and Bowers, S. (2017). Revealed: How NIKE stays one step ahead of the taxman. [online]. Available at https://www.theguardian.com/news/2017/nov/06/nike-tax-paradise-papers. Accessed May 21, 2018.

Klier, K. (2012). Case study – Nike’s dispute with the University of Oregon in De Wit & Meyer. Munich: GRIN Verlag.

Magretta, J. (2012). Understanding Michael Porter: The essential guide to competition and strategy. Boston: Harvard Business Review Publications.

Plunkett, W. J. (2007). Plunkett’s sports industry Almanac 2008. Houston: Plunkett Research, Ltd.

Porter, E. M. (2008). Competitive strategy: Techniques for analyzing industries and competitors. New York: Simon and Schuster Publishing.

Soni, P. (2014). NIKE’s target market today and tomorrow. [online] Available at https://finance.yahoo.com/news/nike-target-market-today-tomorrow-210056686.html?guccounter=1. Accessed May 21, 2018.

Wertherm W. B. and Chandler, D. (2006). Strategic corporate social responsibility: Stakeholders in a global environment. London: SAGE Publications.