Nike Inc. is an international company based in the United States that sells sports apparel and footwear. The organization has been in existence since 1964 and continues to have a mega share of the United States’ sportswear market. Over the years, Nike Inc. has diversified its products to incorporate women’s line that has been a significant source of revenue for the organization. Nike Inc. has a solid brand image advanced by its quality products that last over a long time period. Additionally, Nike invests heavily in marketing, using celebrities and athletes to push its product sales in the global market. Despite stiff competition from renowned sportswear and gear producers, such as Under Armor, Reebok, and Puma, Nike Inc. has enjoyed considerable sustainability since its inception. However, the company’s SWOT analysis shows that its profits have been hurt in the past from government policies and political action. The extensive analysis of the United States’ trade policies designed for political purposes shows how Nike Inc. has been affected by the same in the past.
Business Environment
The business environment of an organization comprises stakeholders impacted by its internal and external operations. Primary stakeholders in a business context include employees, senior, mid, and junior management, clients, shareholders, communities, and the nation. Businesses with websites to push sales also have the online space as part of their environment. Typically, businesses adhere to trade policies formulated in their countries of operation and parent nations. Therefore, if a business has a global presence, it is subject to government rules in its various host countries. For instance, if a business operates in country A and B, which have different tax policies, its revenue income will be subjected to the two taxes according to nation of operation. Therefore, business the business environment is significantly impacted by government policies.
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In 2016, president aspirant Donald Trump promised Americans increased employment opportunities if he were to be elected in power. Trump told Americans that his government would redirect jobs outsourced by America’s multinationals to the United States. The mentioned president elect appeared to sell Americans false hopes, considering many multinational companies, such as Nike Inc., provided employment in China, where its products were manufactured from. Politically, Trump aimed to garner votes by impressing Americans. However, when elected in power, President Donald Trump started actualizing his promises. Therefore, President Trump imposed a tariff on all product imports from outside the United States to encourage local productions of goods and services.
Nike’s business environment was impacted negatively by the newly introduced trade tariff policies by President Trump. Firstly, the mentioned tariffs propelled a sharp increase in Nike’s finished product prices in the United States. While the multinational cut costs in raw materials and labor in China, importing its finished sportswear and gear into the United States became costly ( Ainsworth, 2016) . Nike Inc. was compelled to increase prices on its products, which were already deemed expensive by existing clients in the United States. The business almost retrenched its employees because of increased cost of production to sustain its revenue income base. Managers were hurt; Nike had acquired a negative brand image from President Trump’s tariff policy because of its products’ sudden price hike. Competitors who produced locally prior to Trump’s tariff policy began exploiting the gap Nike had created. Overall, the trading policy affected Nike’s internal and external business environments significantly, as explained.
Sustainability
When President Donald Trump imposed tariffs on imports to encourage diversion of production activities to the United States, he threatened Nike’s sustainability. Prior to President Trump’s election, Nike had transferred its operations to China because of the cheap labor and easily available raw materials available there. Therefore, Nike was able to sell its products at an affordable price because of the reduced costs of production it enjoyed in China. The business’ revenue income was sustainable and predictable and Nike had loyal customers. Competitors, such as Puma and Adidas, were not able to reach Nike’s level of profitable before the imposition of President Trump’s tariff plan on imports. However, when President Trump was elected in power, he began to actualize his campaign promises for political mileage. Other nations started retaliating by charging the United States high prices for products exported to the nation ( Evenett, 2019) . Nike had been producing part of its apparel in the United States, and was affected by the retaliatory moves of other countries. The organization had to pay high prices for raw materials sourced from other countries, which increased its cost of local production of apparel for sale. The cost of production was shifted to consumers, who began complaining of Nike’s exacerbated prices of footwear and sports apparel. Nike was accused of being exploitative and its customer loyalty base dropped significantly. The company’s profits dipped alarmingly, and it became clear that if Nike did not act, its sustainability would be threatened. Nike would close operations in most of its offshore countries if the cost of importing raw materials continued to be high.
Internal Resources
President Donald Trump’s tariff on imports threatened Nike’s sustainability and business environment significantly. The organization could end operations in many countries across the globe, primarily in those that opposed the new trade policy advanced by President Donald Trump’s administration. Moreover, as explained, competitors from other regions began selling their products at cheaper rates to outperform Nike in the long run. However, even if President Donald Trump’s trading policy presented a threat to Nike’s sustainability and profitability, the organization has strengths and opportunities it can leverage to retain its competitive position in the sports apparel market.
Firstly, Nike has high quality products that rival those of competitors. Therefore, even if the organization produced products at a higher price, it would still retain clients if its product quality remained as high as before. In the end, clients want value for their money, and Nike would have used the mentioned angle to advertise its products even after it was compelled to hike prices after President Donald Trump’s tariff imposition on imports. Secondly, Nike has a robust research and development patent. Therefore, the organization would have become innovative and produced a new product that would appeal to clients even if they would pay high prices for it. Nike could conduct an extensive survey to know competitors product weaknesses, and then use the information to design new sportswear and then sell its value to clients through intensive marketing campaign. Alternatively, Nike could mandate its design team to create a new product that will capture new markets that would not mind paying higher prices than usual.
Moreover, Nike could begin tapping into emerging markets to capture wealthy individuals in the region who would afford its newly priced products. Emerging economies, such as Brazil and China, would be alternative markets for Nike’s products to substitute churned clients from the United States. Further, Nike could begin targeting a different customer base, such as children, instead of the 15-40 age groups that involves itself in athletics. The new children’s line could capture new markets that would compensate for lost clients in the mentioned demographic section. Therefore, Nike could use the internal strengths highlighted to offset the negative impacts of President Donald Trump’s tariffs imposed on imports, as explained.
Communication
When President Donald Trump imposed tariffs on imports, Nike Inc.’s production cost increased. The organization was compelled to transfer the mentioned costs to customers, who began paying higher prices for Nike Inc.’s products. In response, the organization’s clients, who value low prices for high quality goods, began shifting consumption to other brands. Customers began abandoning Nike Inc.’s products for those produced by rival companies, which appeared cheaper. Consequently, Nike Inc. lost a large percentage of customers who were angered by the sudden increase of its product prices. On realizing the huge customer churn Nike Inc. had experienced, the organization decided to communicate to its loyal clients on the reasons for its sudden price increase for products that typically cost lower before. In a 2019 issue of CNN business, Nathaniel Meyersohn published an article titled, “Nike and Adidas to Trump: Tariffs on shoes would be catastrophic.”
The reporter noted that Nike Inc. sent out official communication to President Donald Trump complaining of the hiked prices of imports. According to Meyersohn (2019), Nike Inc. wrote a letter to President Donald Trump and complained, “ Any action taken to increase duties on Chinese footwear will have an immediate and long-lasting effect on American individuals and families…It will also threaten the economic viability of many companies in our industry.” Clients who viewed CNN’s official news on Nike Inc.’s situation understood the reasons for its sudden price increase for products. Additionally, the Footwear Distributors and Retailers of America (FDRA) posted the letter addressed to President Donald Trump complaining of the rising costs of shoes from China. In 2019, FDRA reported it filed official complaints on the increased tariffs on imported footwear under the Miscellaneous Tariff Bill (MTB). Considering Nike Inc. is a member of FDRA, then it clients may have concluded it communicated indirectly on the tariff policy implemented by the Donald Trump administration.
Company Image
President Donald Trump’s tariff policy imposed on imports for political mileage affected Nike Inc.’s brand image. The organization made losses in 2021 because of the trading policy imposed by the government on the institution. According to a Forbes article titled “Nike Misses Revenue Mark As Covid-19 Bottlenecks Continue to Plague Retail Brands” by Rose Celestin, Nike appears to lose clients, an implication that its brand image is worsening off. In the mentioned article, Celestin (2021) notes that Nike made an 11% revenue loss in North America, which provides half of its income globally. The author notes that Nike’s revenue loss in 2021 resulted from shifting consumer behavior propelled by supply chain issues. Additionally, Celestin (2021) records that Nike was impacted by increased logistic costs that affected imports.
One positive aspect the author is that Nike uses the lean production model of manufacturing. The organization outsources its apparel productions in other countries overseas to reduce on costs associated with producing its products. In the article, Celestin (2021) praises Nike for its production model where it minimizes costs for producing sportswear by using cheap labor and available raw materials in its offshore production sites. However, inventory flow for Nike was affected by the tariffs on imports created by the President Donald Trump administration, which propelled clients’ changing consumer behavior. Overall, Celestin (2021) notes that Nike’s brand image is weakening in North America because of the supply chain issues experienced by the organization.
Response
Nike Inc. could respond to the high footwear import prices it is currently experiencing in various ways. For instance, Nike could transfer part of its production to the United States and source for raw materials in bulk from outsourced countries of production. If the organization buys bulk raw materials, it could negotiate on prices from exporters. Therefore, Nike could pay lower prices for raw materials imported from other nations and then produce part of its products within the United States. If Nike uses the mentioned approach, it may recover lost clients because its cost of production will reduce. The company could then sell its sportswear at lower prices, which could recapture the attention of clients who began using competitor products after it hiked prices for products. Additionally, Nike could educate its clients on the reasons for increased footwear prices and emphasize its quality of products remains as high as before. Nike could use a client rewarding system, where loyalty is rewarded by discounts on products or a free supply of Nike’s new footwear.
Moreover, Nike could push the United States government to review the tariff laws imposed by former President Donald Trump and use the political angle to explain reasons for abolishment of the policy. For instance, Nike could indicate that President Donald Trump’s administration was irrational for imposing tariffs on imports and show how it is affected by the same. Nike could tell the Biden administration that President Donald Trump created the trading policy to please Americans but in the end, it hurts athletes in the country ( Meyersohn, 2021) . Finally, Nike could tell the Biden administration to abolish the tariff policy instituted by President Donald Trump because it affects the country’s GDP. Nike’s revenue income is used to grow the United States’ GDP and if the organization experiences challenges propelling profitability loss, then it cannot contribute as expected.
Impact
If Nike undertakes the mentioned routes, it may experience several impacts. In the short-term, the organization may have to hire new employees to work in the local manufacturing plant within the United States. After negotiating for reduced import prices, Nike will have to bear costs of constructing a new manufacturing plant within the United States and then control variable costs to minimize expenses that could be shifted to clients. Therefore, if the organization sets up a manufacturing site and begins operating within one year, it could recover initial costs within six months by intensively marketing its products and offering customers rewards. Therefore, financially, Nike will have to allocate salaries for new employees who will be hired, payments for government licenses, external auditors, and fixed costs, such as rent and insurance.
In the long run, Nike will regain its churned customers in North America. As mentioned, most of Nike’s clients resorted to use other product brands after it increased prices because of tariffs imposed on imports by the President Donald Trump administration. However, if the organization successfully convinces the Biden administration to lift the tariffs imposed on imports, then it could reduce prices for its sportswear. In the long run, clients will redirect their spending on Nike’s sportswear, which will increase its revenue income base. Finally, ethically, Nike could create a code of conduct that new employees hired in manufacturing sites based in the United States should follow. Nike could ensure that product quality remains intact even in new manufacturing sites and hire quality control teams to ensure the same.
External Resources
Currently, Nike is under the FDRA, which lobbies for its supply chain problems elimination. The mentioned entity regularly writes to the United States government mandating that it reduces the tariff on imports policy created by the President Donald Trump administration ( Tariff reduction initiatives , n.d.) . Reasons for the need to abolish the mentioned policy are often highlighted by the FDRA, such as the revenue loss experienced by footwear companies, reduction in the United States GDP contributed by footwear organizations, and high costs of purchase experienced by American households. Therefore, the role of external lobbyists is to contact necessary government bodies and argue against instituted trading policies from government action that hurts sports apparel production companies, such as Nike.
References
Ainsworth, R. (2016). Trump & VAT: NAFTA, Trade Barriers & Retaliatory Tariffs. SSRN Electronic Journal . https://doi.org/10.2139/ssrn.2919058
Celestin, R. (2021, March 19). Nike Misses Revenue Mark As Covid-19 Bottlenecks Continue To Plague Retail Brands . Forbes. https://www.forbes.com/sites/rosecelestin/2021/03/19/nike-misses-revenue-mark-as-covid-19-bottlenecks-continue-to-plague-retail-brands/?sh=313ad112309a
Evenett, S. (2019). 'We Can Also Do Stupid': The EU's Response to America First Protectionism. SSRN Electronic Journal . https://doi.org/10.2139/ssrn.3424862
Meyersohn, N. (2019, May 20). Nike and Adidas to Trump: Tariffs on shoes would be 'catastrophic' . CNN. https://edition.cnn.com/2019/05/20/business/nike-adidas-under-armour-china-trump-tariffs/index.html
Tariff reduction initiatives . (n.d.). FDRA | Footwear Distributors and Retailers of America. https://fdra.org/key-issues-and-advocacy/legislative-initiatives/
