Nike's Business Strategy and How Effective It Is

Introduction 

The paper aims to determine and summarize the Nike Company's business strategy and to measure its effectiveness using various mechanisms such as theoretical approaches, analyzing and evaluating the organizational structure, and its overall competitive advantage, including the market environment analysis. By doing so, this paper seeks to measure the degree of Nike's success in the global market and establish its prospects for the future. Additionally, the paper aims to measure the effectiveness, applicability, and sustainability of the ethical approach adopted by Nike, and how that approach impacts the organization's growth strategy. 

Theory 

According to Collins and Rukstad (2008), the elements of an effective strategy statement include objective, scope, and competitive advantage. They point out that any strategy statement must begin with an objective. This sets a clear roadmap for achieving the target. And judging by the nature of unbounded landscape competition, it is crucial to define the scope of the business that draws boundaries on the operation landscape. The other critical factor is the competitive advantage. The theory points out that unless a company points out what makes its operations unique, it may not draw sufficient investors. 

The Power of Network Effects (Alstyne, Parker & Choudary, 2016) points out that the engine of the industrial economy is supply-side economies of scale. This theory holds that massive fixed costs and low marginal costs imply that firms achieving higher volumes of sales have a lower average cost of doing business (production). This advantage allows them to reduce prices, further increasing sales volume. This is what the article terms as a business platform. These platforms influence forces within the ecosystem through platform participants (suppliers, producers, and consumers) creating value for the organization. 

Porter (1996) holds that competitive organizational strategy requires unique activities. It is about being different from other players in the market and choosing a distinct set of activities to deliver a peculiar mix of value. This strategic positioning is based on producing a subset of an industry's products or services, serving most or all the needs of a specific group of customers, and segmenting customers who are accessible in different ways. These positioning strategies can be summarized as variety-based positioning, needs-based positioning, and access-based positioning. 

Theory Comparison 

While Collins and Rukstad hold that the elements of effective strategy management include objective, scope, and competitive advantage, Alstyne, Parker and Choudary hold that low costs of production resulting in high production volumes is the most effective strategy in management. Porter, on the other hand, maintains that strategic management requires unique positioning in the market. All these ways are useful in determining the effectiveness of a company's strategic management; what gives them the competitive market advantage over others producers. 

However, one fact all these theories agree on is the fact that effective strategic management should be based on competitive advantage. A business needs to establish itself uniquely in the market to attract both investors and customers. But in determining the effectiveness of each theory, Collins and Rukstad take a more convincing and inclusive approach, since they also highlight other factors other than the competitive advantage that is key in determining the effectiveness of a strategy. 

Nike Incorporation Company 

Nike Incorporation is an American-based company whose primary activity is in the design, development and global marketing and selling of athletic footwear, equipment, apparel, accessories, and services (Nike, Inc., 2018). This global producer sells its merchandise through Nike-owned retail stores and digital platforms, retail accounts and independent distributors, licensees and sales representatives in all virtually all countries in the world. All Nike products are manufactured by independent contractors. Nearly all the footwear and apparel products are produced outside the United States, while equipment products are produced both in America and abroad. These products are offered in six categories; Running, Nike Basketball, the Jordan Brand, Football (soccer), Training, and Sportswear. All these products and the subsidiary brands are sold systematically through wholesale or directly to consumers, following the distribution channel of each product or subsidiary (Nike, Inc., 2018). 

Based on the Porter (1996) model, the overall growth strategy of Nike can be evaluated as follows. Porter holds that strategy requires competitive advantage driven by positioning. Variety-based positioning implies engaging in producing specific products or services only known to the producer. Nike follows through in this variety-based positioning through the production of designer brands. Nike Basketball, Jordan, Running, and Sportswear are brands only known to Nike Incorporation. Nike engages in producing only athletic footwear and subsidiaries, thereby being better placed to concentrate its production on this line of output, establishing itself as a designer brand in the market, banking on competitive advantage. Nike's strategy is also needs-based positioned (Porter, 1996). By producing only athletic footwear, Nike majors on satisfying the needs of the athletic fraternity. Access-based positioning has also seen Nike through one of its subsidiaries, Hurley, headquartered in Costa Messa, California design and distribute a line of action sports and youth apparel and accessories under the Hurley trademark within the North America geographic operating segment. These three positioning strategies have allowed the overall growth of Nike on a global scale. 

According to Collins and Rukstad (2008), the elements of an effective strategy statement include objective, scope, and competitive advantage. Concerning the objective, Nike's principal business activity is the design, development and worldwide marketing and selling of athletic footwear, apparel, accessories, equipment, and services. This clear objective helps drive the operations of Nike on the global scale, while still allowing it room to provide geographically-tailored merchandise. The second element is the scope. Nike has a clearly drawn geographical scope of operations. Supplied by 124 footwear factories and 328 apparel factories globally, Nike can develop products in different geographical locations through their subsidiary brands headquartered in Boston, Costa Messa, and such places. "Sales and operating results are reported within the respective NIKE Brand geographic operating segments" (Nike, Inc., 2018). The last element is a competitive advantage. The principal competitive advantage Nike has over its competitors is its global, yet localized production of a unique line of footwear; its ability to produce a global designer, yet domestically modified merchandise. 

Regarding Nike's competitive environment, the athletic footwear, apparel, and equipment industry are highly competitive on the global basis with such competitors as Adidas, Anta, and the likes. But what makes Nike unique, according to The Power of Network Effects (Alstyne, Parker & Choudary, 2016) is its supply-side economies of scale. Nike's massive fixed costs and low marginal costs imply it can achieve higher volumes of sales through a lower average cost of doing business (production). This advantage allows them to reduce prices, further increasing sales volume. Nike attributes this to consumer connection and affinity for brands and products, developed through marketing and promotion, and customer support and service (Germano, 2018). Another factor that can be associated with Nike's low costs of productions is the availability, and connections, with different global suppliers. "Effective sourcing and distribution of products," it says, has been vital in ensuring its low-cost production (Nike, Inc., 2018). When the cost of production is low, the volume of production goes up, and subsequently, the prices of the products go down, further attracting a broader market base. Nike attributes its success in the market to this cycle of supply-side economies of scale. 

In establishing Nike's degree of success, and establishing the prospects for the future, it is essential to consider its financial growth in the last three years, mainly in terms of sales and profits. The gross profit (in a million dollars) moved from 14,971 in 2016 to 15,312, recording an increased net income of 4,240 from 3,760 in 2017 (Nike, Inc., 2018). For the period ended May 31, 2018, the gross profit moved with a negative margin to 15, 956. However, this negative margin, the first in more than five years, can be attributed to factors that are not production-related, seeing as it is that the organization was able to increase in revenues with more than $2 million. Judging by this overall steady growth pattern, Nike's financial progress is in line with the long-term financial goals of high single-digit revenue growth, gross margin expansion as much as 50 basis points, and low 30% rate of return on invested capital ( Germano, 2018). Already the returns on assets are on a low 8.4% from 19.0% the previous financial year. With such data in mind, it is safe to say that Nike has a high degree of success so far, and by establishing the right mechanisms in place, it will be easier to achieve the long-term financial goals. With this, the corporation looks forward to a future of as high prospects of success as $150 million market capitalization in the next fiscal year (Nike, Inc., 2018). 

Ethics is a critical factor in the organization's growth strategy. By creating an environment that is mindful of its obligations to the community, and in creating the right environment for consumer, investor and supplier relationships, Nike will be better placed in convincing either, or all of these parties into business. Already the organization's sustainability in global production is bearing fruit as far as regional coordination is concerned. Nike adopts a sustainability approach that forms the network between the various points of production and suppliers, where one can easily chip in for the other. For instance, in the sustainability program, the Costa Mecca production unit can increase or decrease its production to promote the Hurley market production. Ethics in strategy management, on the other hand, has allowed Nike to form working relationships with investors, a fact that has been critical in lowering the investor turnover over the years. 

Strategic management can be interpreted from an industrial network perspective revealing strategic tools. Strategic Tools (ST) can be viewed as an integrated part of the network pattern of mobilizing resources, linking activities and relating actors. ST can either be interaction-facilitating or interaction-creating. Strategic tools must be seen in relation to others as they are used in strategic action. They are strategic when used to affect the long-term development of important business relationships. These strategic tools can be used by the Nike management to link the activities between the various points of production. In this case, they could be interaction-facilitating. But they could also be utilized to create interactions with new markets, producers and suppliers. Being a global company, Nike always has the potential to expand to more than one store or distributor in a country, as such, these expansion interactions need to be created and facilitated effectively through the use of strategic tools. 

Conclusion 

In conclusion, it can be perceived that the theories in this study all provide a practical approach in determining and measuring the strategy concepts of business, necessary to measure the progress and the prospects of the industry. However, since the theories offer different insights into strategy, it is essential to consider more than one theory when analyzing the competitive advantage, or the overall growth strategy of a company. It helps in adopting an all-around holistic approach to the study of strategy management. 

References 

Collis, D. J., & Rukstad, M. G. (2008). Can you say what your strategy is?  Harvard business review ,  86 (4), 82-90. 

Germano, S. (2018). Nike posts growth in home market. Wall Street Journal . Retrieved from https://www.wsj.com/articles/nike-posts-growth-in-home-market-1530229379 

Nike, Inc. (2018). SEC filings-10k . Retrieved from https://investors.nike.com/investors/news-events-and-reports/?toggle=filings 

Porter, M. E. (1996). What is strategy?. Harvard Business Review , 74 (6), 61-78. 

Van Alstyne, M. W., Parker, G. G., & Choudary, S. P. (2016). Pipelines, platforms, and the new rules of strategy.  Harvard business review ,  94 (4), 54-62.