Business Report. The Factors that Led to Success and Failure of Nike in its Venture across International Markets

Nike is considered to be one of the largest American suppliers of athletic shoes, apparel, and sports equipment. At the same time, this company and its brand are well-known worldwide. To a significant extent, this is the result of the strategy of the international markets expansion that is one of the main directions of the strategic development of the company. Obviously, this strategy provides the company to enter new markets and strengthen its position in traditional ones. At the present moment, the strategy of expansion is particularly important since the world economy tends to globalization and nowadays, multinational corporations, such as Nike, can hardly locate production in one country only but need to organize production in the regions which are either closer to the target market or where the production is substantially cheaper to the extent that the production in remote regions remain profitable even if the products are sold in a different part of the world.

However, despite the obvious progress and recent achievements of Nike, its leading position in many national markets throughout the world, its development and expansion was accompanied not only by remarkable successes but also by some serious failures which deteriorated the position of the company in very perspective markets. This is why it is necessary to thoroughly analyze the development of Nike and its international expansion and its results in order to objectively assess the extent, to which this strategic development was successful and whether the company’s successes outweigh its failures as well as the factors that contributed to both successes and failures of Nike.

Company Profile

Nowadays, Nike is one of the most popular trademarks which is basically focused on the production of athletic shoes, sports equipment and apparel. The company is based on Beaverton, Oregon where it was initially founded on the basis of its predecessor Blue Ribbon Sports in late 1960s. Since its foundation the company was characterized by the rapid growth and development. In this respect, it is necessary to underline that one of the basic missions of the company was to gain a possibly larger share of the market. At the same time, this strategy was realized quite wise for Nike’s philosophy was based on the idea that the company provides its customers, who are actually average people, with sports products of the highest quality, which use super stars in different sports. In such a way, the company attempted to create the image of its products as if these were products destined to the best sportsmen but accessible to average people, even though they are far from sport or sport achievements.

It should be pointed out that during the first decade of its existence the company has managed to attract leading sportsmen in its advertising campaign. For instance, Steve Prefontaine, an American record holder, and John McEnroe were among the first famous sportsmen who signed contracts with Nike and contributed to the growth of its popularity. However, it is worthy of mention that even in that epoch Nike’s policy was quite arguable and not very logical since John McEnroe was widely known for the public as having the reputation of a ‘bad guy’. Consequently, it was quite provocative and unusual that the company signed the contract with this sportsman, though such seemingly illogical and probably inexplicable or arguable decisions became a norm for Nike and, even nowadays, it is possible to find similar examples.

Nonetheless, the involvement of popular sportsmen along with the implementation of new technologies such as ‘Air’ technology (4) contributed to the growing popularity of the company’s products throughout the USA. However, in the course of time it became obvious that the national market is insufficient for the company and it needed entering foreign market. At this point the contracts with famous sportsmen known throughout the world turned to be very helpful. On the other hand, it is also necessary to underline very successful marketing and promotional policy of Nike.

For instance, it is possible to draw the example of the implementation of the ‘Air’ technology and its promotion. It should be said that to achieve positive results Nike signed a contract with Michael Jordan a basketball star. Remarkably, the first model of his signature shoe, Air Jordan, was banned by the NBA. However, the effect was probably unexpected as this ban has drawn an enormous amount of publicity (7).

However, the company, being steady progressing during 1970-s-1980s, faced a perspective of a serious crisis in the late 1980s-early 1990s. Basically, the company has already gained international acclaim and was popular in many countries of the world but the production of athletic shoes and sports equipment in its traditional regions, including the USA, Europe, and Japan became less and less profitable. As a result, the company had to shift its production in late 1980s to South Korea and Taiwan where the labor force was cheaper and gradually Asia became the main region where Nike’s products were manufactured.

Obviously, this was the result of the company’s strategy of the international markets expansion which implied not only sales of its products throughout the world but also the organization of production in the most profitable way, regardless national borders and traditions. This is why Nike turned to be able to shift the production from its traditional regions to new ones making the production cheaper but preserving sales rates due to the popularity of Nike brand.

In such a situation, it is not surprising that Nike’s CEO Phillip H. Knight’s forecast in 1996 that the company would double in size from USD 6 billion to 12 billion in revenues within just five years had almost been met for by 2003 the company had USD 10,7 billion in revenues (17). In this respect, it is necessary to underline that the fuel of this growth has been Nike’s international markets. To put it more precisely, worldwide revenues for the third quarter of 2003 increased eight percent to USD 3 billion, while revenues from the US, its traditional market, declined two percent two percent to USD 1,25 billion (17).

Consequently, it is quite natural that Nike heavily accounting on overseas sales for revenues growth. It should be pointed out that in 2003, international sales were 52% of the brand total and it was the first time international sales have surpassed US sales (17). Moreover, in 2006 Nike reported annual revenue for fiscal year 2006 of USD 15 billion. At the same time, the company keeps signing contracts with leading sportsmen to promote its products throughout the world.

Obviously, the progress made by the company in 1990s-early 2000s is really impressive, especially, in the situation of a serious competition. In this respect, it is necessary to remind that one of its major competitors was Reebok which currently has a merchandising contract with the National Football League and the National Hockey League in the US. However, this company was purchased by Adidas in 2006 and, at the present moment, it is Adidas that is the main competitor of Nike in international markets as well as in the US.

In such a way, within more than 30 years of its existence Nike has managed to become the world leading company basically producing sports equipment and athletic shoes and operating worldwide. In actuality, it has a few rivals among which Adidas is the most significant one but Nike’s position seems to be quite strong and its perspectives are really good.

Success Factors

Naturally, the leadership of Nike indicates at a great success of the company in its strategy of expansion and entering new markets worldwide. On analyzing the success of Nike, it is possible to single out several factors that contributed to the progress of the company.

First of all, it is necessary to underline that the company’s strategy to sign contracts with outstanding sportsmen turned to be very efficient. Since the first years of its existence Nike used the popularity of sportsmen to promote its products and nowadays, the company has contracts with sportsmen from different countries which are known practically in all countries of the world, including Michael Vick, Lleyton Hewitt, Roger Federer, the Brazilian national soccer team, English Premier League soccer team Manchester United, and many others (6). It is beyond doubts that the role of sportsmen in the modern market of sports equipment is extremely important and, naturally, their popularity is successfully exploited by Nike to promote its products.

Another, and probably one of the most important factors of Nike’s success in its expansion in international markets was the shift of production to Asia. In fact, nowadays practically all products of the company are manufactured in Asian countries, such as South Korea, Taiwan, China, Indonesia and Thailand. Notably, according to some specialists, 99% of the 90 million shoes Nike sells every year are produced in Asia, by a contractor workforce over 75,000 (2).

Obviously, such a shift had a positive economic effect on the development of the company for Nike managed to manufacture its products in Asian countries where the workforce is significantly cheaper than in the US, Europe or Japan. For instance, when Nike has just moved its production to South Korea and Taiwan the local wages of USD 1 an hour were as little as one-tenth of those in the US. No wonder that in 1991, “a pair of Nike sports shoes that sells for $150 in the United States is made by Indonesian women paid the equivalent of 58 cents a day’ (11) and the situation has hardly changed dramatically in recent years. As a result, the company has managed to minimize costs of production and not only sustain but double and the last year even triple revenues compared to the 1996.

Finally, the promotion and advertising campaign were extremely successful and not only due to sportsmen involved but also due to the wise strategy and image of the company and its products. In this respect, it should be said that Nike targeted at the mass audience creating a very prestigious brand which could be available to average people making them closer to their favorite sportsmen whom many customers simply imitated and bought Nike. Also, it should be said that such tags as ‘there is no finish life’, or more recent, though invented in 1980s, ‘just do it’ are also quite simple but extremely encouraging for customers making the company’s product extremely popular. Moreover, due to the simplicity of the tags they are understandable and easily perceived by all people regardless national or cultural peculiarities and norms. In such a way, Nike’s products have become really international.

Reasons for Failure

However, the progress of Nike was not so perfect as one might think of. In actuality, it s obvious that Nike was initially in a privileged position since originally the company did not have any rivals in its segment of the market. In this respect, it is worthy to note that its main competitor Reebook entered the market only in 1980 when Nike had already had over 10 years of experience of work in the field of sports equipment and athletic shoes. In such a context the fact that Reebok has eventually managed to gain a significant share of the market indicates at the failure of Nike to fully benefit from its dominant position in the market.

Paradoxically, but the dominance and the lack of competition was probably one of the major reasons for the failure of Nike at this point. However, on a profound reflection, this reason turns to be quite logical because it is obvious that the company got used its leading position in the market and had never faced serious competition before. Consequently, Nike was not ready to effectively resist to the new company, namely Reebok, entering the same segment of the market.

At the same time, it is necessary to remind that the dominant position that, in the case of Nike, was next to monopoly, and the lack of competition often threaten to deteriorate the quality of products manufacture by the company an that was probably another reason explaining the growing role of Reebok in the market and inability of Nike to totally surpass its main competitor.

In this respect, the shift from traditional regions of production such as Europe, the US and Japan was another reason which could deteriorate the quality of Nike’s products and decrease its competitiveness. It is obvious that the qualification of workers in Europe, the US and Japan was substantially higher than in other Asian countries where nowadays the manufacturing of Nike products is concentrated, including Taiwan, China, Indonesia and some others.

Moreover, such a shift provoked an unexpected reaction in traditional markets where Nike’s position were stable and even dominant, notably in Europe and the US. The reason was that the low cost of workforce in Asian countries, being beneficial for Nike, provoked strong opposition from the part of public, to the extent that certain organizations and movements suggested boycotting Nike products (13). Naturally, this undermined the position of Nike in well-developed countries such as the US or Europe. No wonder that nowadays the share of international sales surpasses that of the US.

Finally, the promotion and advertising campaign was not always so successful as it probably seems to be. For instance, the company was severely criticized for the use of the Beatles song “Revolution 1” in a commercial against the wishes of Apple Records, the Beatles recording company. Moreover, in some countries the advertising campaign practically totally failed. In this respect, it is worthy of mention that in 2004, an advertisement about Lebron James beating cartoon martial arts masters in basketball offended Chinese authorities, who called the ad blasphemous and insulting to national dignity and was totally banned in China. Naturally, such a conflict did not contribute to the growth of the popularity of Nike in China, especially taking into consideration the defining role of local authorities in economic life of the country.

Summary and Evaluation

Thus, taking into account all above mentioned, it is possible to conclude that the development of Nike was traditionally focused on the expansion in new markets and in the late 1980s this trend became dominant and led to the shift of the production to Asian countries. Moreover, due to the strategy of expansion the company has managed to enter many international markets and nowadays is one of the leaders of its segment of the market.

Obviously, such impressing results are based on several factors that contributed to the success of the company and which demonstrate the high level of professionalism and even genius of specialists working in Nike. Among the most important factors may be named the use of the popularity of famous sportsmen who signed contracts with Nike to promote its products. Also, simple and understandable tags contributed to the positive perception of the brand in different countries of the world. And, naturally, the use of cheaper workforce contributed to the growth of the company’s revenues.

However, there were also certain drawbacks such as inability to fully use initially dominant position and appearance of competitors such as Reebok and Adidas. Furthermore, the advertising campaign was not always successful and sometimes led to conflicts with local authorities as it was in the case of China. And, even, beneficial shift of production to Asia, provoked opposition and boycott of Nike products in some developed countries.

Nevertheless, Nike still remains the world’s larger producer of sports equipment and shoes and its position are extremely strong and stable.

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