Summary
Nike is an American multinational corporation incorporated in Oregon in 1967 dealing with apparel, footwear, and other training and sportswear products. Nike’s international markets accounted for 61 percent of sales, while sales in the domestic market accounted for 39 percent in the fiscal year 2021 (Nike, 2022). Among its peers, Nike leads in almost all aspects, including but not limited to profitability, market capitalization, and brand visibility. The company’s innovation and reputation for quality separate it from its peers and are a great source of competitive advantage. Like any other company worldwide, Nike is affected by external factors, including laws and regulations, the economy, technology, demographics, social issues, suppliers, competitors, new entrants, substitutes and complements, and customers.
Laws and Regulations
Trademarks and patent laws are essential for Nike because they ensure a competitive advantage. In total, the US has registered trademarks in at least 170 countries. Copyright and trademark laws are strictly enforced in the US. Still, in some international markets, especially in Asia, some of Nike’s most profitable products have been copied and sold as Nike products. Further, trade policies such as tariffs and other trade restrictions negatively affect Nike’s competitiveness because it is 61 percent reliant on its international business. Tax rates and tax laws also affect Nike’s competitive advantage by affecting its profitability and the price of some of the raw materials used to make its products. Other laws that affect the company include labor laws in the US and overseas, compensation laws, company laws, and other laws that affect the establishment, operation, and maintenance of an international business.
The Economy
The global economy and the economic conditions in the US affect Nike’s competitive advantage by impacting its core customers’ purchasing power and disposable income. In 2021, the global and the US economy rebounded from a short-term recession caused by the halting of economic activities due to the coronavirus (PricewaterhouseCoopers, 2021). However, inflation rose rapidly in most countries, offsetting any benefits that economic growth caused. Additionally, the global economy is in the middle of a supply chain crisis impacting business because raw materials and products are not arriving on time. Inflation, economic growth, and supply chain disruptions affect Nike’s competitive advantage and sales of its products.
Technology
Since the debate on sustainability emerged, companies have spent massive amounts of money researching how to manufacture their products sustainably. In this regard, Nike pursued a policy of sustainability with the goal of manufacturing products that protect the environment (SEC, 2021). These products ensure the company’s strategic and competitive advantage is maintained in the long term. However, other companies and entrants into the industry have been pursuing similar technology that may offset Nike’s investment in sustainability.
Demographics
According to Nike’s SEC filings, no single demographic makes up more than 10 percent of its market (SEC, 2021). While this is prudent, the demographics in most of its markets are changing. In the United States, China, and Europe, the population is getting older, which will significantly impact the company’s competitive advantage. Most of the company’s popular brands are popular with younger customers. As they grow older and the rate of population growth stagnates, the company may need to innovate new products to target more senior generations. However, Africa’s population is much younger than the rest of the world, and incomes are rising, which presents an opportunity for Nike to explore (Kariba, 2020).
Social Issues
Like in the 1950s and 1960s, the world is in transition as the world gives room to new thinking and perspectives. The social issues driving the conversation today include equal pay, LGBTQ rights, police brutality against black and other racial minorities, and in some parts, the environment. As a major corporation with customers globally, Nike’s actions and utterances regarding these topics are scrutinized and analyzed in media and academic circles. Any wrong word and the company risks losing a significant part of its customer base. Thus, in its operations, the company must always be conscious of social issues or risk alienating a considerable market segment which could affect sales.
Suppliers
For a manufacturing company like Nike, a good relationship with the suppliers must be maintained. Maintaining a good relationship requires the company to pay a fair price on the raw materials, pay on time, and communicate clearly and effectively. Without suppliers, the company cannot produce shoes, clothes, and other products for its customers. Thus, a good relationship that sees on-time supplies boosts Nike’s profitability. Further, a good relationship with suppliers could lead to discounts and other favorable supplier conditions, saving the company money and improving its profitability. A negative relationship leads to supply chain and price issues that negatively affect profitability.
Competitors
Nike competes with small and large apparel, sportswear, and companies that manufacture other Nike products. Some of the most notable competitors include the German conglomerate Adidas; others include Puma, Under Armor, Li Ning, and V.F corporation (SEC, 2021). Besides traditional competition, these companies are investing in technology that could erode Nike’s competitive advantage and lead to the company losing a significant portion of its market. Further, these competitors use a multispectral strategy to their competition, where they compete with Nike on price, quality, innovation, and market share.
New Entrants
Now and then, new entrants enter the apparel and footwear industry because there are far fewer entry restrictions. Despite Nike being a globally recognized brand without a significant market share, these new entrants disrupt the market and may limit brand visibility, especially when backed by renowned celebrities. However, Nike’s market is niche-specific, and some of these celebrity-backed sportswear and apparel companies cannot match the company’s competitive advantage and marketing prowess. Thus, while limits to new entry are few, Nike’s competition is limited to its traditional competitors because of some limits faced by new entrants.
Substitutes and Complements
Most Nike products are specifically tailored to serve athletes’ needs and lovers of sneakers and shoes. Thus, while competitors and start-ups are investing in new technology to produce some of Nike’s profitable products, no viable alternatives and complements are being explored that could replace Nike’s products.
Customers
Nike invests in young and upcoming athletes and celebrities who influence various market segments to purchase its products to maintain its competitive advantage. The company also undertakes aggressive media and social media campaigns to sensitize customers and potential customers about its product offerings. These campaigns and collaborations have led to massive brand awareness globally and created a loyal and almost fanatical customer base. These loyal and passionate customers purchase their favorite Nike products as soon as they hit the store, regardless of whether or not they need the product. Their actions and loyalty are a source of competitive advantage that positions Nike well above competitors and assures that its future products will have a ready and enthusiastic market.
References
Kariba, F. (2020). The Burgeoning Africa Youth Population: Potential or Challenge? Cities Alliance. Web.
Nike. (2022). Nike. Just do it. Nike.com. Web.
PricewaterhouseCoopers. Global economic outlook 2021: Rebound will drive growth at record speed, while new investments could mark a turning point in the fight against climate change. PwC. Web.
SEC. (2021). Nike – Annual SEC 10-K Report for 2021. Inline XBRL Viewer. Web.