Analysis of Nike Corp. External Environment
Incorporated in 1967, Nike is one of the largest global manufacturers of the sports clothing, footwear, and accessories. The company is engaged in the design, development, production and distribution of the complete product line for athletes, casual sports activities and apparel, equipment. With the annual revenue of USD 30,6 million in 2016, outlining a stable growth of 10,4% per annum over the past five years,the company is also the largest manufacturer of athletic shoes and sports equipment (USSEC, 2015). Nike's business model is based on incremental and breakthrough innovation and strong strategic partnerships with the organizations, which are able to bring out-of-the-box solutions to the customers, such as Apple. The organization has been growing drastically over the past decade. The growth came as a result of organic expansion in new geographical regions and market segments as well as through inorganic growth strategy based on Merger and Acquisitions (M&A). Some of the most critical acquisitions, made by the organization in the recent history includes Cole Haan, the upscale footwear company, Bauer Hockey, Starter and England's National Football team's kit. These strategic purchases allowed fast market entry and strengthening of Nike position in soccer, casual sports apparel and footwear as well as provided access to new technologies and skills. While the competition remains strong on the market, with the core rivals including Adidas, New Balance, and Puma, the company have adopted an appropriate strategy to maintain its competitiveness through innovation on the market (YF, 2015).
Analysis of External Environment
Given the size and the large scale of international operations of the company, both, the economic and the social factors play the critical role in the development and sustainability fo the business operations. It is important to recognize the differences and the variations in the degree to which each of the specific factors affects the company based on the geographical location. Taking into account the specificity of each operation, the focus of this document is on three major influences, which have relatively equal impact on Nike's activities across the countries. From the economic perspective, instability of the currency exchange rates and the oil prices represent one of the major threats and influences on the costs of the company. The past years and the global economic prices made the company draw more focus on the cost-effectiveness of its supply chain operation and placed pressure on profit margins, based on the overall increase in the unit cost of their products (USSEC, 2015). Another important factor is the positive forecast for the sports footwear and apparel market. According to Global Industry Analysis,Inc. (2015), the total market is expected to grow to over USD 192 billion by 2020, majorly due to the growing middle class and consequent demand in emerging economies. This will leverage the maturity of the domestic economy and allow further growth of Nike (GIA, 2015). Finally, the development of the mobile technology and the growing potential of the e-commerce market due to the wider access to the internet, availability and affordability of smartphones and the development of the digital technology, outline the major social impact on the company. Given the digitalization trend, the company will continue growing its e-commerce platform and outreach and strengthen its competitive advantage through linking the product wit the opportunities in the digital world, such as the partnership with Apple and Nike Run product.
Most Critical Influences
Given the analysis of the major impacts, it is possible to argue that the digitalization of the consumer market and the growth of sports apparel and footwear markets are some of the most critical factors, which will shape the direction of the industry and the company specifically. The reality shows that the competition is getting stronger and with the cost pressures, coming from the external environment, the company will have to focus on diversification of the markets and sales channels. Taking into consideration the growing potential of emerging economies and the opportunities to grow market presence not only through physical but also e-commerce presence, the above factors constitute the tremendous opportunity for the organization like Nike, which is already focused on innovation.
Nike's business model, as it was previously mentioned is focused on innovation and early-adapter model, where the company aims at building customer loyalty through a unique experience and inimitable product attributes and quality characteristics. With that in mind, Nike has a strong competitive advantage, when it comes to entering new markets and increasing online sales, as the customers have trust and confidence in the brand.
Recommendations for Business Action
Taking into account the growth ambitions and the strong position of the company on the international market, it is critical that the organization continues pursuing the innovation-focused market strategy. While today, the company looks majorly at customer-side innovation and enhancement of customer experience, the economic environment demonstrates the need to bring innovation focus to the cost-side of the business as well to overcome the pressures of such factors as oil prices and the instability of the exchange rate. Together with the identified economic and social trends and given the stability of the financial position of Nike, it is possible to make the following recommendations. First of all, bring in a new project team with the stronger focus on cost-driven innovation, developing technology and methodology to reduce dependency on transportation and logistics costs. Secondly, it is recommended that Nike places the strong focus on growing its online sales in the economies with high operational costs and easy access to the internet. Increased online sales will reduce the dependency on physical locations performance in direct-to-consumer sales and allow optimization of the assets in general (Sadler, 2003). Finally, it is important to continue building on strategic partnerships with the suppliers to ensure long-term contracts, making the company stronger int terms of its bargaining power when it comes to the transportation and logistics prices.
References
Sadler Ph (2003). Strategic Management. 2nd Edition. London: Kogan Page Limited
USSEC (2015). Nike Annual Report 2015. Form 10-K. 2015. Web 30 July. 2016, http://s1.q4cdn.com/806093406/files/doc_financials/2015/ar/docs/nike-2015-form-10K.pdf
YF (2015). Nike, Inc. Competitors. Yahoo Finance [Online[. 2015.Web 30 July 2016, https://finance.yahoo.com/q/co?s=NKE+Competitors
GIA (2015). Key Facts. Global Industry Analyasis, Inc [Online]. Web 30 July. 2016, http://www.strategyr.com/MarketResearch/Sports_and_Fitness_Clothing_Market_Trends.asp
