CASE ANALYSIS

On
Nike’s dispute with the University of Oregon

Background of the Case

The paper relates that back in 2000, Nike, the world's leading athletic apparel and
equipment mogul, ended their tradition of generous donations to the University of Oregon
(UO) as a result of UO's comments about the lack of employee-protection in the global
economy. The paper analyzes the case with the addition of recommendations for future
courses of actions for both the University of Oregon and Nike decision-makers.

Company History

In 1962 Phil Knight, developed a plan to make low-cost running shoes in Japan and sell
them in the United States as part of his work toward an MBA degree at Stanford. After
graduation, he teamed up with Bill Bowerman, his track coach at the University of Oregon,
to realize his dreams.In 1964 with $500 each, they started the Blue Ribbon Sports
Company.In 1972, Blue Ribbon Sports received a trademark on its Swoosh logo and
introduced the Nike Brand name.In 1980 Nike goes public, offering 2 million shares of
stock. The company continued its growth in sales. In just 12 years company revenues went
from $1.96 million to $919 million.

Mission Statement

“To bring inspiration and innovation to every athlete in the world”

VISION Statement

“Innovate for better world”

Unleashing potential through sport. In the last two years, Nike has invested $100 million
worldwide in community-based sports initiatives. By 2011, NIKE is expected to invest
another $315 million. These investments will be used to give excluded youth around the
world the chance to play because as access to sport can enhance their lives.
Nike will provide products, resurface playing fields, support community-based programs,
and help young people create their own communities. This is all will be the NIKE “Let Me
Play commitment.”
Three core values of the company are honesty, competitiveness, and teamwork. Despite
its size, Nike operates with a minimum of hierarchy. As a result, there is a lot of
collaboration and consensus decision-making. Commonly held values are imperative in
such a matrix organization.

STRATEGIC ANALYSIS

To analyze and evaluate the strategy, it is necessary to understand the internal and external
forces in the environment. To begin with, we did a basic SWOT analysis of Nike and then
performed an extensive Porter’s five forces analysis of the footwear industry in the US and
the emerging markets from Nike’s point of view.

SWOT Analysis:
Strength Weakness Opportunities Threats
 Brand Image  Under constant  Emerging  Mature industry,
 Market leader scanner of Human markets susceptible to
in most of the rights companies due  Can be a recessions
world to its history of leader in  Dependence on
 Diverse unethical labor developing contracted suppliers
product portfolio practices environmentall – compliance issues
 Strong  Premium player y sustainable  Ever Changing
advertising in a price sensitive business customer
 Experienced sector preferences
Management  Dependence on
team endorsed athletes
 Seasonal
business
 SITUATION ANALYSIS (EXTERNAL & INTERNAL)

Porter’s Five Forces (Emerging Markets)

Threat of New entrants

(High)
Less/Not explored Markets i.e.
everyone will be interested
Non Sophisticated market needs
Local players advantage –
Conservative government
policies to help local players
Buyer Power (Very
Supplier Power High)
(Low) Customer needs to be
Rivalry (Very High)
Cheap labor, needing jobs educated
Fierce Competition from global
in South East Asia High price sensitivity
brands E.g Adidas, Puma,
Raw Materials are Brand image to be re-
New Balance etc
abundantly available established
Local players with cultural
Cheap resources, Need to educate and
advantage and price
commodity items catch retailers,
competition
distributors etc

Substitutes (Low)
Bare foot, walking with slippers
e.g. India
Leather boots and slippers

As we see in the five forces analysis picture above, most of the attributes pertaining to
Supplier power and Substitutes remain the same.
Threat of New entrants: (High)
Since the markets are quite new and unexplored, every big player in the world is looking to
enter into these markets. The market is less sophisticated and customers will get satisfied
with basic level products. Hence, less capital is needed to produce basic level goods.
Since there is no major brand following, it is not capital intensive for a new entrant to enter
into a regional market.
Buyer Power: (Very High)
The buyer power remains high in both developed and emerging markets. However, the
reasons for that differ as follows: The customer is not aware of the product or brand. The
retailers and distributors need education to do the business and operations and hence, it is a
daunting task for making them move from their regular local vendors to a new vendor.
Threat of Rivalry: (High)
The overall threat of rivalry is high here as well, arising from two dimensions: Global
competitors like Adidas, Reebok, Puma etc
Competitor Analysis
To understand the position of Nike in the industry, it is important to perform a competitor
analysis. Nike’s major competitors in the footwear industry are Adidas & Reebok, New
Balance, Puma, Sketchers and other players combined together.
Market Share:
As of 2007, Nike has a dominant global market share of 31% followed by Adidas and
Reebok together at 22%. The corresponding figure in US hovers around 36% followed by
Adidas and New balance at distant second and third. i

Financial analysis:

Earnings Current
Company Mkt Cap
per share ratio
Nike
From the analysis 3.51
shown above between the major competitors, it35.42B
is quite obvious that 2.97
Nike is leading the market in most of aspects. However, the company to note here is Under
Puma 13.63 3.66B
Armour as this company has high growth rate despite the fact that other companies are
2.19
experiencing Adidas
a slow sales growth. Nike should 1.95 8.80B
put some effort to study the strategy of this 1.58
company.
Under Armour 0.98 1.63B 3.73
New Balance Priva
Advertising strategy:
The advertising strategy differs from company to company. Generally, Nike believes in
spending 5-7% of its revenues in advertising and endorsement. Nike has planned to spend
$4.2 Billion until 2014 for endorsements alone. With the huge size of Nike, it is tough for
other companies to allocate a big amount for their marketing expenses.

Branding Strategy:

Nike has invested a lot so far in developing a premium brand that implies high quality and
care for the customer. Nike has a wide range of products ranging from athletics to life style
and also in different price ranges. Therefore, it is always a challenge to fight against brand
dilution within Nike.

Organizational Analysis:
Nike Inc. has established its position in the sports footwear, apparel, accessories and
equipment industry as the leader in the market. Upon team’s deliberation regarding the
case, it was found out that the problem of the company is the outsourcing of its
manufacturing process. Nike was bombarded with a series of protest resulting to negative
publicity due to the lack of implementation on International Labor Standards which was
further aggravated due its sluggish responsiveness and actions.

KEY SUCESS FACTORS

If a company is able to establish brand awareness, they will have a significant advantage in
grabbing consumer's attention and, therefore, market share. In today's society where
consumers have significantly less time to shop and compare, brand awareness is critical. If
an established brand name effectively conveys the messages of quality and dependability,
consumers will automatically go to that brand relying on the image that has been created
when they don't have time to shop around.
Manufacturing efficiency is something that companies are constantly striving for as well.
Athletic shoe manufacturers must balance the costs of labor, raw materials, shipping,
import tariffs, and technological advancements. In an effort to keep costs down, the
industry has been looking to overseas sourcing. This reduces the risk of losing revenue if
one region which a manufacturer incurs problems. Favorable legislation regarding foreign
manufacturing has led to a huge increase in foreign sourcing. Overseas production and
sourcing can lower material, and labor costs.

Strategies

To dissect the case, among Nike’s key strength is its Marketing strategy. They have an
excellent marketing strategy wherein they have created a globally recognized trademark of
“Just Do It.” This was highlighted with the right selection of endorsers from different well-
known sports (tennis, football, basketball, athletics, soccer, etc.) that help build up their
reputation particularly in footwear industry. One great example of this is Michael Jordan,
wherein millions of sales were generated with him endorsing Air Jordan’s basketball shoes.
This will not push through without the competency of its Research and Development
department. With its superiority in this field, Nike always offers innovative athletic
supplies which capture the interests of the market.

In addition, as a global leader, Nike’s decision making team is good in regulating its global
selling and advertising (discussed above), global channels, packaging decisions, price
decisions and competitive price decisions. In terms of its global channels, the movements
of their manufacturing and distribution plants have been strategically located that
accelerated their growth. Appealing packaging attracts the consumer attention and lures
them to buy their product even at the premium price.

Through its diversified product line ranging from sports footwear to sports equipment,
Nike captures a bigger market share. This is evident on the 7% share in athletics apparel
and 31% on footwear. In summary, this is highlighted its percent profit margin per year.
This also shows that they are financially strong and stable.

On the other hand, weakness points are also evident in Nike’s system. The team found
three (3) weaknesses. The foremost problem that captured even the public’s attention is its
lack of environmental and labor responsibility across its outsourced manufacturing plants
(Note: All manufacturing is being outsourced). They were accused of poor working
conditions, exploitation of cheap overseas labor and force ‘labor-camp” like working
conditions. To be specific labor unions from Vietnam had raised the issue concerning the
above practices. Although they are not the one directly involved in manufacturing their
product, the unions sees that the root cause of this kind practices is the system (no policy)
of Nike wherein it triggers the manufacturers to such kind of bad practices. Moreover,
because of its lack of responsiveness the issue had worsened.

Another problem was its extensive outsourcing controls are very weak and standard
practices are not set. They have no “Grading System” or “Balance Scorecard” applied to
their manufacturers. That’s why they don’t know what’s happening in the manufacturing
plants of their subcontractors if they are practicing unfair labor practices that adds up to
their bad reputation.

Finally their Strong dependency on footwear sales specifically for men that neglects to
cater the female market. They had focus their sales income on their sales on male footwear
neglecting other opportunities on selling and creating more innovative products other than
men footwear they haven’t foreseen the opportunity arises in selling products with the
female market and other apparels as well.

Environmental Analysis

Nike must also put its attention in developing its E-commerce since there is an increasing
demand of products available on-line. The company must adapt to the emerging
technological world they must find ways on how to reach their customers especially the
youths that access information’s over web interface and must be able to make it easy for
customers to order via internet and new products are readily available for customers to
purchase and reserve via internet.

Since there is increasing number in population and female participation in athletics Nike
can capture this market by creating innovative and diversified products for both men and
women and also youths that not only in athletics but for everyone and Nike products can be
an everyday use.

With the increasing number of population, customers change of preferences and fashion
styles can create an opportunity for Nike to have diversified products that will match with
customer’s preference not only what they want and need but having a fashion sense as well,
that will put Nike products as a fashion trend and everyday lifestyle.

In the opening of the global market due to Globalization. Revisions and generations of
international trade standards such as the GAAT and NAFTA. Since Nike was able to
compete globally and having 45% of global market share. Nike should be able to take the
opportunity to have alliances with other nations that will give them an advantage they
could increase their quotas imports and decrease their tariffs and taxes in one country over
the other. They could also take advantage of lower labor cost and in addition an advantage
of access raw materials suppliers.

Lastly Nike can create products with the growing development on sports science and
introduction of new sports. Nike has the ability to create innovative products that are
suitable for athletes use why not create also products for all sports and other new sports by
doing so they are not only known in making better quality shoes in basketball but also with
other sports such as tennis, running, golf, swimming, volleyball and so on…

The group also deliberated four threats that Nike might face and should be able to answer
competitively and positively. In terms with the Foreign countries (where they outsource
their process) have the potential to create financial problems due to foreign currency
fluctuations and interest rates. Political unrest can create fluctuations to the local
currency. It will affect not only their production but also their sales. They must learn the
rules and regulations of that country and have an alternate back-up plan in case of
fluctuations and interest rates are unstable.

In regards with the Black-market (Imitations) of their designs could decrease sales and
could adversely impact its image. Because they outsource their production with
subcontractors in each country where they create their products it is a lot of risk on their
part for this subcontractors might be producing a low cost product that are similar with
their designs which can be sold on black market. Nike must reformulate their policy
contracts with their subcontractors and be careful in doing business with tem in order to
protect the interest of their product as well their reputation.

Another is the Merging and/or Acquisitions of competitors Nike must be able to be not
only having a competitive advantage against their competitors but also be globally
competitive. They should invest on their research and development department that will
lead them with much more cutting edge products that competitors could not compete with
it.

Lastly in terms of Loss of market due to cost oriented customers versus company’s high-
end products. Nike must be able adapt with customers that are cost conscious that they
look first at the price instead of looking the products quality first. Nike must be able to
develop a low cost product but still have good quality having affordable products that a
middle class can also buy will give them also a competitive advantage.
Strategic Issues

Poor/Unfair labor practices (having Corporate Social Responsibility)

Nike Develop standards for outsource process and affiliate itself to organizations that
promotes highest standards. Change its business practices through improving conditions
on foreign manufacturing plants and highlighting issues such as: Wages- Nike must check
the country’s where their plants are located to check the minimum or the fare wage that
would be given to the employees hired by their subcontractors which they had already
implemented it is good that they revised their contracts with their subcontractors and made
sure that fare wages are given to its employees they had also made an agreement not to hire
children. But they had also to examine the working conditions that their subcontractors
given to its employees though they don’t manage the plants and its up to their
subcontractors to give and check the working conditions of their hired workers but still
Nike has to have a corporate responsibility to check and have auditors to monitor if their
subcontractors meets what is in the agreement not only in a yearly basis but we believe it
should be on a monthly basis and they have to have spot audits to have a surprise check if
the agreements are maintained to their standards or to the country labor practice standards.
Employment terms and conditions- as we have said Nike was able to specify on their
agreement or to their code of conducts to honor all applicable local government labor and
environmental regulations with the subcontractors of the country where their plants are
located they had improved their working conditions stop hiring children that at first was
unknown to the company but now they are taking part to have the corporate social
responsibility with the workers that their subcontractors hire. That made them to clarify and
answer to the issue of the age requirement that their subcontractors hire children that was
against labor practices. They specified to the agreement that their subcontractors will not
hire younger than 15 years old. Another issue is the Safety and Environmental issues Nike
was able to answer with this issue by joining with AIP that has concern for the safety not
only with its workers but also caring for the environment they had stop using lead instead
use lead free materials for the rubber soles of the shoes they are manufacturing anything
that are harmful to the human and also to the environment they had minimize using such
toxins with the materials used by their plants.
Industry partnership (Manufacturing their own products)

Develop and coordinate very strong linkages with country and factory managers.Build
strong alliance on to products and services that promotes health and wellness. Further
expand its involvement in sports related activities. Take proactive approach towards
becoming socially responsible and improving public relations. Also, ensure transparency
and accountability.

Recommendations

Focus on Technology and Innovation: With the market being mature in US and
developed countries, product differentiation is the best tool to gain market share. Nike
should continuously invest in product design and innovation to be always with a leading
edge over the trailing competitors. Focus on setting up a reliable Information system that is
capable of handling complex supply chains in a fool proof manner.

Revisit branding strategy: Cheap and low cost footwear should be decoupled from the
existing Nike brand. They might be sold under a different name, but not Nike. This might
help savor the premium brand image of Nike and help convey one message to our brand.
For example, Nike starter shoes should be sold as just starter and not Nike starter.
Follow both Differentiation and Pricing based strategy:
With the market matured in the US and developed countries, the competition comes down
to getting more market share than any other competitor in the business.
Invest on sustainability research
It is high time Nike begins to invest more on its sustainability research. Companies like
Corp watch are consistently watching Nike and this issue of environmental pollution will
eventually come up. Nike should also work with its collaborators in all forms to have
efficient sustainable supply chains. This overall might reduce the costs for Nike and benefit
the whole society as well
i
Christoph Dolleschal, "adidas," Equity Research, Commerzbank, 28 February 2008.