EXECUTIVE SUMMARY
This study was conducted to analyze the strategies selected and employed by Nike Inc
during 1990 to 2000 to deal with the rising criticism from the media and public. This study
employed Porter’s strategic forces analysis to analyze the strategies deployed by Nike in between
1990-2000. The study also used Porter’s five forces analysis to understand the opportunities and
threats faced by Nike Company during that period of time.
The study also explored which of the Whittington’s systemic and Processual schools of
thought was relevant to Nike‘s strategy during 1990 to 2000 with respect to its growing criticism.
Further, this study also identified which of Mintzberg’s cultural and environmental schools of
thoughts applied to Nike between the years 1996 and 2000 in terms of its strategy development.
The findings revealed that Nike’s decision to move to Asia had strategic implications
involved in it. The company tried to position itself as a manufacturer of differentiated products
and to gain cost leadership from its competition. The five forces analysis suggested that the
company had an edge over its competition and the suppliers had very low bargain power due to
Nike’s vast number of subcontractors. The global share of the company was more than 45% and
it enjoyed a unique position with its innovative and carefully designed products.
The findings also suggested that the Nike Company employed Mintzberg’s
environmental strategies to find a way to deal with the criticism aimed at the company. The
findings also suggested that the Whittington’s Systematic school of thought was applicable to the
strategic moves employed by Nike Inc.
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TABLE OF CONTENTS
Title Page#
Terms of Reference ……………………………………………………………..…………….5
Introduction: Nike Inc …………………………………………………………..…………….6
Porter’s Strategic Model: Nike in Asia ……………………………………………………… 7
Porter’s Five Forces Framework ……………………………………………………………...9
Going Global Benefits Nike ………………………………………………………………….11
Whittington’s Systematic and Processual schools of thoughts ………………………………13
Processual School of Thought ………………………………………………………………..14
Systematic School of Thought ………………………………………………………………..15
Nike’s Approach in 1990-2000 ……………………………………………………………….16
Mintzberg’s cultural and environmental schools of thought: a comparison ………………….18
Environmental School ………………………………………………………………………...20
Nike’s strategy in 1996-2000 ……………………………………………………………….…21
Findings …………………………………………………………………………………….….23
References…………………………………………………………………………………….. 25
Appendices …………………………………………………………………………………….26
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LIST OF APPENDICES
TITLE PAGE#
APPENDIX A NIKE CASE STUDY: NIKE’S dispute with the
University of Oregon in De Wit & Meyer
2004: 933-940 26
4
LIST OF FIGURES
FIGURE NAME PAGE#
Figure 1 Business information in focus in environmental school 20
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TERMS OF REFERENCE
Derek Hardwood, Module leader at Sunderland Business School, University of Sunderland, has
requested this report on the Nike’s dispute with the University of Oregon in De Wit & Meyer, to
analyze the strategic moves employed by Nike Inc to deal with the growing criticism and public
movements against the company. The report was to be submitted to him on Monday July 11,
2011
BASIC INFORMATION
I have employed various measures to understand and analyzed the strategic moves employed by
Nike Inc during the period of 1990 to 2000. Porter’s generic strategies model was analyzed and
employed on Nike Inc to understand which strategy was adopted by Nike Inc when outsourcing
its work to Asian sub-contractors. Porter’s Five Forces model was also employed on Nike Inc for
the period of 1990-2000 to find out the opportunities and threats faced by the company during
that period.
Likewise, Whittington and Mintzberg’s strategic schools of thoughts were compared and studies
with reference to Nike Inc’s strategies during that particular period of time.
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INTRODUCTION
NIKE INC
Nike is the world leader in the manufacturing of sportswear and gear with more than 47%
market share across the globe. The company is among one of those companies who are only
Fortune 500 Company located in Oregon. The company has more than 700 shops around the
world and has offices located in 45 countries outside the United States (NikeBiz). It has most of
its factories in South East Asia including Indonesia, China, Taiwan, India, Thailand, Vietnam,
Pakistan, Philippines and Malaysia (NikeBiz).
In the year 2000, Nike had contracts in 46 countries with 565 subcontractors. The
company was enjoying 45% global market share. It had various outsourcing units in Taiwan,
Indonesia and South Korea.
The subcontractors were not offering their workers wage rates as per international
standards. The factories were divided into four main divisions; production, chemical, stitching
and Assembly section. The production goal was so extended that the workers had to work over
time, without incentives, to meet the goals. The workers were often abused physically and
verbally by their supervisors. Many people were likely to be the patients of liver cancer, kidney
disease, heart attacks, infertility and many skin related disease in future due to poor working
environment. (Nike Case: Appendix A).
In early 1990’s, many campaigns started against the company and its factories across the
globe. In October 1996, a 48 hour report was aired about Nike’s sub contractors and their factory
operations in Asia revealing its business practices and downgrading behavior of subcontractors
to their workers (Nike Case: Appendix A).
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Nike underwent various environmental and human right concerned activities to wash out
the affects of negative publicity and was very successful in its pursuance against the media and
rivals.
PORTER’S STRATEGIC MODEL: NIKE IN ASIA
Like many other organizations, Nike Inc moved its operations to South East Asia mainly
in Taiwan and South Korea. This move strategic move, as per Porter’s strategic models, was
based on the combination of cost leadership and differentiation strategy.
COST LEADERSHIP
Porter (1980, 1985) suggests that a company can become the leader of an organization
through managing its operational and other functional costs. The companies that follow this
strategy are called lowest-cost producers in the industry. According to this strategic model, if a
company adopts cost leadership strategy, it can maximize its profits at a standard market price.
The companies master cost effectiveness in all the activities of a value chain. The cost leadership
does not imply that the company will be selling its products at low price. Lynch (2003) reported
that there are many companies in the industry who are charging higher or equal to their
competitors while maintaining low cost efficiency and reinvesting the extra earning further into
the business.
DIFFERENTIATION STRATEGY
The differentiation strategy refers to the firm’s attempt to position itself unique in its
relative industry with some value ad-ons to the buyers. This strategy involves the combination of
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one or more attributes offered in the products that are valued by the buyers in the industry and
uniquely positioning itself to meet the needs and wants of the customers.
Porter (1980) argued that the firms, who engage in differentiation strategy may incur
additional costs like advertising cost, cost of posititioning itself as a differentiated product or
service based company.
Nike carefully planned its strategies to position itself in the industry. The Nike’s move to
hire Asian sub-contractor was of high importance to the company to maintain cost effectiveness
in the operations and functions. The company’s attempt to sub contract Asian contractors was
based on the strategy to master cost leadership. Nike had lot of benefits involved behind this
strategy among them the chief ones were lowest possible labor cost, direct access to the raw
material suppliers and low tariff rates.
While Nike’s attempt to employ differentiation strategy to outsource its most of
manufacturing in Asia and its aggressive marketing activities allowed it to topple its competitors
in the industry. The differentiation strategy used by Nike had three fold benefits to the company.
The benefits came from extensive research and development by the research labs in the company
to maintain innovation. The company became able to deliver high quality products at low cost.
Lastly, the effective marketing strategies and celebrity endorsements increased the awareness of
its products.
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PORTER’S FIVE FORCES FRAMEWORK
In order to understand the threats and opportunities Nike had during the time period of
1990 to 2000, we have used Porter’s five forces framework to analyze Nike’s position in the
market.
SUPPLIERS POWER
Distribution and sub-contractors mastery
Access to cheap labor and raw materials
Tariff and duties of a country
Nike had 565 contract factories in 46 countries. The bargaining power of suppliers was
relatively very low.
The number of employees fluctuated in the factories due to their strict working hours and
failure to meet the production target.
The rapid change in the production process in the factories was to cause serious issues to
the production of products to the company.
The increased allegations on the company may end up suppliers increasing the wage rates
of their workers which can ultimately increase the cost of production.
BUYERS POWER
The company was offering differentiated products to its customers
Products were carefully designed to meet the needs of athletes and fashion trends.
Competitive products all compete on differentiation
The Nike’s image was badly affected by all the negative publicity
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Many customers sent their used Nike shoes to the CEO of the company to show their
discontent towards Nike’s activities in Asia.
The biggest threat company had been that its products were charged at very high price
which could have triggered the buyers’ need to switch to the low price brands.
The buyers stopped buying its products with the perception that these are not sweatshop
free.
Many current and potential buyers, students of various institutions, started their
consortium called Workers Rights Consortium to support the workers rights in the Asian
factories, thus further affecting Nike’s image.
THREAT OF SUBSTITUTES
The company was engaged in effective marketing campaigns to diffuse the negative
impact of media exposure.
But the hate among people may have triggered the sale of substitutes in the market.
THREAT OF NEW ENTRANTS
The threat of new entrants was practically non existent at that time. Nike was a market
leader with 45% global market share. The company had strong and well established brand
name therefore it had no threat present at that time.
Another reason for no new entrants was that the cost of production was already very high
for the then present market players. So for successful penetration in the industry high
capital was required. The new entrants don’t usually have high capital in the beginning
which results in their market failure.
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INTENSITY OF RIVALRY BETWEEN FIRMS IN THE INDUSTRY
Nike had intense competition with then market players like Adidas, Puma, Fila etc.
The competitors were also engaged in aggressive differentiation strategies.
Nike, with respect to its competitors, had strong market position and brand identity
Nike was engaged in celebrity endorsements and it offered cutting edge products to its
customers
The negative publicity in 1990-2000 severely injured the company’s image and gave
edge to the competitors to rise and take part in the negative publicity.
GOING GLOBAL BENEFITS NIKE
Nike, with 41% market shares (Reuters, 2010), dominates the global market for the
athletic footwear and apparel earned the revenue of $ 19014 million in year 2010 (financial
report, 2010). The company is outsourcing all of its work without hurting the quality of its
products; Nike still is a market leader. The international sales of the company are more than 60%
of its total revenue enabling the company to receive 51% gain in the profit (business week,
2007).
Going global has benefited Nike through various aspects the chief ones among them are
increased market share and customer base. Going global offers the advantage of targeting new
group of customers whose preferences meets Nike’s products and reduced labor costs.
The company forecasts rise in its revenue up to 40% by the year 2015 by opening new
stores and penetrating new markets where the Chinese markets are of great importance (Reuters,
2011). The Nike’s Chinese business units are currently earning more than $ 2.4 billion for its
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products and the company executives expects that this rate will double within next five years
(Reuters, 2011). This athletic shoe and cloth manufacturing giant has gained substantial growth
in emerging markets by offering and marketing its non Nike brands in markets like Turkey,
Russia and Brazil (wikinvest, 2011).
The company has adopted the strategy to open small number of outlets in United States
and sell through national retail outlets. The Chinese markets have few malls available currently,
therefore, the company has formulated different strategy for Chinese markets. The Chinese
markets have more than 5000 shops that focus single sport item. The completion is very less in
china resulting in less discount rate to the consumers and higher profit margins. This strategy has
lead to more than 37% profit margin to the company in Chinese markets as compared to 23% in
Northern America (CNN money, 2011). The diverse product offerings are one of the biggest
advantages to Nike for its global expansion (business week, 2007).
The global revenue of the company has increased a lot but the business practices in U.S
markets are not very favorable as they were before the recession hit the country. The company
has to face challenges like increasing costs, freight charges and fluctuating currency rates (Nike
Inc, 2011).
The company’s success in the international markets is the collective effort to connect its
brands to the emotions, culture, and endorsement with the local celebrities. Nike joined United
Nations project to promote human rights in the year 2000 since then the global image of the
company have improved enormously and earned it more than 1.1 billion dollars revenue from its
business in Asia (Czinkota, 2008).
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WHITTINGTON’S SYSTEMATIC AND PROCESSUAL SCHOOLS OF THOUGHTS
In 1977, Whittington proposed four different approaches that were targeted to measure a
specific period of time. He provided four indicators to measure those approaches. The indicators
are: deterministic or emergent nature of people, single goal or pluralistic towards the
achievements of goals, the style of their strategies, and the influence of those approaches on the
people respectively.
Indicators Processual Systemic
Deterministic Deterministic Emergent
Single goal or Pluralistic Plural Plural
Strategy style Crafted Embedded
Influences Psychology Sociology
Period (decade of influence) 1970s 1990s
Processual school of thoughts involves deterministic nature of people with pluralistic
approach towards their goals and strategies. The strategies are crafted for the organization and
this school of thought has direct influence on the psychology of people and the factors associated
to them. This approach took fame in the late 70’s.
Systematic school of thoughts involves the emergent nature of people with the pluralistic
thoughts towards the goals and strategies. They follow embedded style of strategy formulation
and this school of thought has impact on the sociology and social lives of people and the
interlinked factors. This approach influenced late 90’s era.
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PROCESSUAL SCHOOL OF THOUGHT
In Processual school of thought, Managers assume that they can intervene in the process
and improve their chances of success in the markets in the future. This approach is based on the
situations and scenarios and the planning is done according to these scenarios.
The scenario based planning may involve the following:
Solving a current problem or giving solutions to the questions
Implement the permanent solutions
Mind opening of people
The strategy to be strengthened
To find a way out of a puzzled situation
To communicate solutions to the problems
To develop necessary skills to cope with the problem
To teach the participants about the strategic dealing of situation
Van der Heijen (2005) explains that future cannot be predicted and thus it is uncertain to
us. He further states that we can interpret the events and develop a process theory to find out the
reasons of its occurrence. According to him, we can learn from these situations and these
situations guide our strategies. He considers these events and scenarios very powerful for the
following reasons:
Reflects the uncertain situations
Allows coherence from different disciplines of the world
Findings are based on real life context
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Provides the reasons of the occurrence
SYSTEMATIC SCHOOL OF THOUGHT
Granovetter (1985) argued that the business is an economic activity which cannot be
carried out separately from our social life. The economic activates we adopt are the
amalgamation of our societal relations, family, country and profession. These societal relations
have great impact on our decisions and actions pertaining to them and these factors guide our
behavior. Therefore the personal and social factors shape our economic activities and decisions.
Huff (1990) further emphasized that these factors that guide our strategies are not related
to cognition but to the culture. Culture is a social system which effects and get affected by our
life, economic activities etc. (Gergen 1994). Whittington (1993) explained that the culture,
history and societal norms have significant impact on our growth and investment in the business.
From this it can be derived that the strategies are dependent on the culture.
Rouleau & Seguin (1995) provided four different forms of approaches based on the
organizational theories. They believed that these strategies and theories have close connection
with each other. According to them, this connection follows the same pattern to the studies
proposed by Whittington (1993).
This school of thought emphasizes on the organizations as a open system which
transforms input into outputs. This system took fame in 1960s and had a strong impact on the
managerial thinking about different techniques to relate company with external and internal
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environmental factors. This school of thought focuses on the whole organization, its involvement
in the environment and its requirements to achieve the balance.
NIKE’S APPROACH IN 1990-2000
Nike had to face lot of external criticism around the globe during 1990 and 2000. There
were lots of activities in action against the companies, particularly Nike, to educate the people
about the bad practices of the company, their working conditions and low wage rates etc. The
negative publicity had profound impact on the brand image of the company and company
management took reasonable steps to stop the impact to further destroy the brand image.
Nike considered the external and internal factors, according to systematic school of
thought, in its consideration to cope with those activities against the company and its global
image. The company took part in the Fair Labor Association (FLA) to ensure that the labor will
be given their rights, and assured the health and safety measures at work place.
The low wage rates, poor working conditions were the external factors that had
influenced the company as a whole. Nike announced the code of conduct to be followed and
made it mandatory for it and its sub contractors. The company announced that it will hire people
to monitor the activities of its sub contract factories to further ensure the code of conducts are
followed and respect is given to the workers. The company further implemented changes to
assure that the ventilation system, surgical masks, gloves, shoes, proper medication etc. to be
given to the workers working for the company.
This strategy of taking things seriously and devising a corporate social responsibility for
the company had good impact on the over all image of the company and saved a great fortune
from being ruined in terms of negative image. The company’s efforts to take action against its
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sub contractors and employing reasonable measures to create check and balance saved the
company from lot of implications imposed on the company and its operations, thus, saving the
face of the company and its revenue.
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MINTZBERG’S CULTURAL AND ENVIRONMENTAL SCHOOLS OF THOUGHT: A
COMPARISON
SR CULTURAL SCHOOL OF THOUGHT ENVIRONMENTAL SCHOOL OF
THOUGHT
The cultural school of thought involves the The environmental school of thought involves
1.
collective approach to the formation of the reactive approach towards the formation
strategy. of strategy.
2. The cultural school of thought involves The environmental school of thought involves
various groups and departments of an the reaction and response of external
organization. The strategy is formulated by environment towards the operations and
the collective and cooperative process of strategies adopted by the company. This
understanding among the various school of thought is helpful to devise
executives at an organization. The strategies in accordance of those responses.
strategies formulated under this school of This school of thought considers the
thoughts represent the views, ideas, culture environment as a prime actor towards the
of the organization. strategy formulation and implementation.
3. This school of thought is based on the
This school of thought is based on
external factors, primarily on biology.
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anthropology.
This school of thought focuses on the roles The main focus is given to the factors that can
4.
of society, the belief system, values, norm affect the strategy formulation. Those factors
and their relative importance in the process come from the external environment.
of decision making and their impact on the
strategies of an organization. This school
of thought presents the factors that are
resistant to bring the change within an
organization and plays important role when
it comes to mergers and acquisitions.
5. Cultural school of thoughts is based on the Environmental school of thoughts is based on
cultural norms and values of people, the external factors affecting the business of
therefore, it can be vague to sometimes. the organization; this may lead to vague and
The unclear views and understanding about un-clear issues that can hinder the implication
the factors of society can further lead to the of strategies within the organization. The
resistance towards the change. All the strategies formed on the basis of
information collected via this school of environmental dimensions are less useful to
thought can be used against the the company and are mostly unrealistic to the
organization, its strategies and goals. company and its requirements.
This school of thought often measures and
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6. This school of thought measures the compares the contingency theory from the
cultural dimensions of people, their cultural organizational perspective as well as the
perspectives, appreciates inquiry and situation based leadership within the
Ashridge mission model. organization.
ENVIRONMENTAL SCHOOL- strategy formation as a reactive process
The Proponents of this school of thought takes the strategy formulation process within an
organization as a reactive process initiated due to the external factors (Mintzberg, 1998). The
organizational strategists try to understand the external pressures imposed on the organization
and considers environment as a primary actor.
Figure 1- Business information in focus in environmental school
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This school of thought sees environment as a main component of strategy development
process. The organizations and their leaders consider the environmental forces before devising
their plans. This school of thought was emerged from contingency theory. The organizational
theorists suggested that the organizations are affected by these factors at large. While the
academic theorists suggested that the strategies are affected by the political powers and the
environmental factors.
This school of thought states that the environment is has the central importance in the
strategy formulation process and the organizations must respond to these factors and adapt
themselves to the environment.
NIKE’S STRATEGY IN 1996-2000
According to environmental school of thought, Nike’s strategies were greatly influenced
by the external environmental factors. The rising criticism by the media in country had led Nike
to re-formulate its strategies to meet the requirements of the people and the company. The
criticism around the country, low wage rates, activists that foster the negative publicity of the
company and various others had influenced the company’s ability to devise its strategies to
accord with these external factors and save its public image.
The company underwent various strategic changes like its participation in President
Clinton’s Apparel Industry Partnership (AIP) to develop certain measures to ensure that the
apparel and footwear are not manufactured under sweatshop conditions. The AIP aimed to
strengthen decent and humane working conditions at workplace.
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The company further launched its Corporate Social Relationship (CSR) strategy in the
public to further strengthen itself as a responsible citizen and a company. The Nike’s
management promised its commitments to environment and labor force with the public through
its CSR strategy.
Nike participated in Fair Labor Association (FLA) as a next step of its positive publicity
in the country and across the globe. FLA aimed to monitor the working conditions of the
different manufacturing companies including Nike to figure out what is happening there and
initiate reasonable measures to seize any wrong doing in the factories.
These and other environmental measures attempted by Nike were part of its
environmental strategy to strengthen its public image against all the harm done by the criticism
of the media and newspapers in 1990’s. These strategies were designed to cope with the
environmental factors that affected the organizations capabilities.
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FINDINGS
This study was conducted to study the market leader of sport gear and apparel
manufacturer in USA; Nike Inc, to understand the strategies adopted by the company to tackle
the worsening conditions it faced back in 1990 to 2000.
The findings of the study revealed that the company had faced lot of criticism during late
nineties. In order to save the face of the company the company management devised measures
and strategies to sustain the company in the market.
The company had an edge over its competitors through aggressive marketing strategies
and it was continuously trying to face its brand image from getting hurt from the campaigns
against the company. The company’s suppliers had very low bargaining power this helped the
company to formulate the business plans of its own choice. The negative perceptions were
developing in the minds of buyers and this had seriously affected the buyers’ decision to
purchase company’s products.
The findings revealed that company engaged in various environmental causes and human
rights concerns to fight against the labor right issues and environmental pollution cases. The
company’s efforts saved it a lot of fortune.
The comparison between the Mintzberg’s cultural and environmental school of thoughts
revealed that Environmental school of thought was more closely related to the Nike’s efforts to
save its face and build a positive rapport across the globe.
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Lastly, the analysis of Whittington’s systemic and Processual schools of thoughts
suggested that the Nike Inc was deploying systemic approach for the formulation of its strategies
and their implementation across its factories.
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Appendix A
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