Nike is a multinational entity based in America where its headquarters are located and has international branches (Jin " Cedrola 2017, p. 127). The firm which leads internationally with regards to supplying athletic shoes as well as apparel manufactures, develops and designs footwear as well as accessories, apparel and equipment. Nike was established in the year 1964 and operates under the brand names Nike, Nike Golf and Nike Pro amongst others (Jin " Cedrola 2017, p. 128). The entity markets itself via celebrity endorsement as well as gaining publicity through sponsoring high-profile sports teams worldwide. Nike owns Converse Inc as well as Hurley International which are its subsidiaries and has divested a number of its businesses to concentrate on key optimal production areas. The entity has most of its shops operating in Asia and has been ranked amongst the best firms globally in terms of environmental-friendliness (Jin " Cedrola 2017, p. 128). It operates on a worldwide scope and employs at least 44,000 personnel (Jin " Cedrola 2017, p. 128). The company ran more than 1,142 branches globally as at 2017, including 700 contract factories (www.statistica.com, 2017). This paper explores Nike’s entry in the Chinese market with a focus on the global factors influencing the company’s strategy as an international business.
NIKE’S COMPETITIVE ANALYSIS
Nike’s market share growth rate in China began as early as in the early 2000s when it used to open 1.5 branches per day (Forney, 2004). The firm banked on the idea that the Chinese associated American products with status. By playing on consumer tastes and preferences, the company widened its share in China which has become its second largest market (Toh, 2017). The Chinese market is wide and growing and to capture it, Nike segmented it into domains by sports. Coupled with aggressive advertisements, Nike also teamed up with china’s government, eliminating barriers to entry for a foreign firm of its nature (Toh, 2017). It partnered with the country’s education ministry to enhance sports in schools. Nike’s main competitors in China include Adidas and Puma.
FIGURE 1.1 NIKE’S COMPARISON WITH ITS MAJOR RIVALS IN CHINA
(financials.morningstar.com, 2017)
Figure 1.1 exhibits a competitive analysis of Adidas, Nike and Puma in China. Adidas and Puma were earlier entrants in the market before Nike. However, when Nike entered the market it took over and has maintained a consistent competitive advantage as shown by the blue bar (financials.morningstar.com, 2017). In 2017 for instance, Nike recorded US $21.8 in revenue as compared to Adidas’s $10.36 billion and Puma’s mere $2.41 billion as seen in Figure 1.1 (financials.morningstar.com, 2017). However, following the entry of Under Armour in the Chinese market, the region is poised to encounter stiffer competition (Team, 2014).
HEADLINE FINANCIAL RESULTS
Nike recorded revenues amounting to $34 billion as at 2017, the same year when its net profit was $4.2 billion (financials.morningstar.com, 2017). The company is a going entity as it had a current ratio of 2.9 and a debt to equity ratio of 0.28 in the year 2017 (financials.morningstar.com, 2017). Nike’s share is currently priced at $79.68 (financials.morningstar.com, 2017). The company has exhibited a financially healthy status, an aspect which is largely attributed to its Chinese market, considering the fact that it is the company’s second largest domain.
GLOBAL FACTORS SHAPING NIKE’S STRATEGY AS AN INTERNATIONAL BUSINESS
TECHNOLOGICAL ASPECTS
In the international platform, competition is more intense for any business. As a result, technological innovation and inventiveness helps a company to attain sustainable competitive advantage (Borts 2018, p. 189). Nike faces competition from other apparel and footwear producers such as Puma, Under Armour and Adidas in the global platform (Borts 2018, p. 189). The company is amongst the eight entities which are conducting tests on the world’s very first 3Dimensional printer which is designed for manufacturing at the large scale level (Borts 2018, p. 190). Nike’s need to be creative has prompted it to turn to technology as a means of curbing competition. It has also turned to 3D printing because of its the level of its international production capacity which is large scale. To ensure that no company copies its brand, Nike has secured a lot of patents amounting to 19,500 globally (Borts 2018, p. 189).
DIGITAL MARKETING
Nike has also gone technological with advertising in the wake of a globalized world which is fond of the internet. The company’s website contains the option of several languages which different people across the globe can choose as they deem fit (Zeng 2017, p. 76). Social media has become a popular forum and companies are using the platform to reach pout to customers. Nike has the largest social media following amongst its competitors (Zeng 2017, p. 76). The company has taken advantage of the social media technology to penetrate the global market, especially the youth who form the largest number of the forum’s users. Its social media marketing strategy has enabled Nike to gain a competitive advantage.
REGIONAL FACTORS SHAPING NIKE’S STRATEGY AS AN INTERNATIONAL BUSINESS
An international business penetrating the global market is likely to be affected by regional cultural factors. In the Western world, jogging is a norm as opposed to the crowded streets of regions such as China (Zeng 2017, p. 78). When Nike ventured into the market at first, it was difficult to convince people to jog. The issue prompted Nike to adopt a new marketing strategy for the new regional culture. The entity began hosting Nike "Lunar Runs" in areas such as Beijing, Wuhan, Shanghai and Guangzhou (Zeng 2017, p. 79). The runs featured celebrities running while wearing Nike shoes to label the brand as ‘cool’. Zeng (2017, p. 79) notes that Nike’s adoption of celebrity advertising strategy, for example using Michael Jordan as its brand ambassador, worked to penetrate the new market domain and led to an increase in sales.
Health clubs are not popular in China (financialtimes.com, 2017). As such, Nike did not receive much attention when it joined the market. The Chinese like riding bikes to work but they do so while in street clothes rather than spandex (financialtimes.com, 2017). Additionally, Nike opts for the position of its ‘icon’ name to promote its products. The Chinese culture, with regards to parents, mainly view educational achievement and Nike’s ‘icon’ strategy did not raise the potential customers’ appeal (financialtimes.com, 2017). Moreover, it faced problems in Japan as the market is an aging one where sportswear does not sell well. The company had to adjust to the international market. It began concentrating in China through market diversification and used social media as well as celebrity advertising strategy to capture the market.
Nike employs many people in Asia, an aspect which is advantageous to it due to the low labor cost (financialtimes.com, 2017). However, the company is focusing on low-cost production as a strategy to increase its profits. As such, it is concentrating on technology for production. The strategy has already raised political concerns because it might lead to industrial effects such as increased unemployment (financialtimes.com, 2017). The company has contended that it is increasing its scale of operation and will still accommodate the current workforce.
COUNTRY SPECIFIC FACTORS
FOREIGN EXCHANGE FLUCTUATIONS
International businesses are prone to the risk of foreign exchange loss occurring. For instance, for Nike when the United States dollar gains value against the Chinese yen, the company loses its sales margins as its headquarters are in the US (Guyot, 2015). The entity has suffered from major losses due to fluctuation in foreign exchange rates (Guyot, 2015). The international business risk has made Nike adopt the strategy of netting off to mitigate the hazard. Netting off implies balancing expenses and receipts to avoid losing from currency fluctuations (Guyot, 2015). For example, lagging a payment so that it balances with a receipt with a similar amount as settled in a future period
COMPETITION
Nike is currently facing stiff competition in China. The two rivals Adidas and Puma are competing with the giant apparel and footwear entity for government contracts (Guyot, 2015). Coupled by a new entrant, Under Armour, the market saturation is increasing (Guyot, 2015). Nike has had to adopt the strategy of digital marketing and celebrity advertisement to sustain its sales.
ECONOMIC RECESSION
When China faced economic recession, the industrial sector suffered. The country had invested in capital expenditure which was not raking in profits, leading to an economic recession (Coombs " Laufer 2018, p. 204). Nike however remained intact because it had already established a foothold in the country. It maintained the strategy of aggressive marketing to lead in the apparel industry (Coombs " Laufer 2018, p. 205). As such, the company survived a foreign country economic slowdown, an aspect likely to bring down an international business in a foreign country.
SOCIAL MEDIA MARKETING AND CELEBRITY ENDORSEMENT AS NIKE’S STRONGEST STRATEGIES
Nike is the leading firm in terms of social media following amongst its competitors (Rein, 2009). Social media has become a favorite promotional tool for many companies in the contemporary times. Facebook alone has millions of followers (Rein, 2009). As such, social media is a major boost to Nike’s sales in a Chinese market which is technology savvy (Rein, 2009). Secondly, the firm’s major strategic strength is that of celebrity endorsement. Rein (2009) observes that by using the brand names Tiger Woods and Michael Jordan, Nike has managed to appeal to a large portion of the Chinese market.
CONCLUSION
Nike is an international business. It has faced many challenges internationally, more specifically in China, but through corporate strategies, the entity has managed to maintain a competitive advantage. As an international business, it ventured into the Asian and Chinese market which exhibit divergent characteristics. The company employed a netting off strategy to inhibit foreign exchange loss. It opted for celebrity endorsement and social media marketing strategies to penetrate a market which was culturally reluctant towards iconic brand marketing. The company has also adopted technological production and innovation to make production simpler in its large scale manufacturing facilities worldwide. As such, Nike has managed to maintain competitive advantage amidst international competitors such as Adidas, Under Armour and Puma.
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