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Commodity Chains and Marketing Strategies Nike and the Global

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					    Commodity Chains and
    Marketing Strategies: Nike
    and the Global Athletic
    Footwear Industry
Miguel Korzeniewicz, Ch. 18, pp. 163-172
(Excerpted from Korzeniewicz, “Commodity
Chairs and Marketing Strategies…,” in Gereffi &
Korzeniewicz, eds., Commodity Chains and
Global Capitalism,1994)


                                                  1
Global Commodity Chains (GCC)
 GCC: the complex global network of
   economic links which ties together groups,
   organizations, and regions involved in the
   production and distribution of goods

 GCC analysis is a development of the world-
   system or global-system perspective (which,
   themselves grow out of dependency theory)


(Gereffi & Korzeniewicz, eds., Commodity Chains and Global Capitalism, 1994)

                                                                               2
GCC challenges idea that “development” in
capitalism is contained within nation-states

 Development in context of capitalism is a
    global process

 GCC tracks the organizational, geographical,
    & cultural dimensions of world-wide chains for
    the manufacture & distribution of goods
         e.g.,clothing, automobiles, food, & drugs



(Gereffi & Korzeniewicz, eds., Commodity Chains and Global Capitalism, 1994)

                                                                               3
Focusing on the distribution segment of GCC

 Inadequate attention has been paid to the
  design, distribution and marketing nodes
  within a GCC

     Yet these are often the sources of innovation
      that allows firms to capture greater shares of
      wealth in a commodity chain




                                                       4
Athletic footwear market shows how
GCCs are embedded in cultural trends

 Marketing & consumption patterns in “core”
  shape production patterns in peripheral and
  semi-peripheral countries

 The social organization of advertising,
  fashion, and consumption shapes the
  networks & nodes of GCCs



                                                5
Trends in the US Athletic Shoe Market


 Continued phenomenal rates of growth
 Highly segmented by consumer age groups
 Teenagers the most important consumers
     Athletic shoes constructed and promoted
      among teens as important & visible symbol of
      social status and identity



                                                     6
Sports footwear market highly
segmented by:

 Consumer age group
 Model/target sport
 Price
     Price rather than appearance & functionality is
      the key factor differentiating athletic shoes as
      status symbols



                                                         7
Nike Corporation has become the largest and
most important sneaker company in the US


 In 2004, Nike’s share of market is 42%
   # 2: Adidas (27%)
   # 3: Reebok (12%)




                                              8
The key to Nike’s rise?
 ability to capture a succession of nodes along
  GCC, increasing its expertise and control
  over critical areas:
      design

      distribution

      marketing

      advertising




                                               9
US Athletic Footwear Industry % Market Share
           by Sales Volume (2004)

                                         Nike
                 111                     Adidas
             3 2
         5
                                         Reebok
     6
                                         Puma
                        42
                                         New Balance
12
                                         Sketchers
                                         K-Swiss
                                         Vans
             27
                                         Asics
                                         Saucony   10
The most fundamental industry
innovation is the creation of a market

 constructing a convincing world of symbols,
  ideas, and values harnessing the desires of
  individuals to the consumption of athletic
  shoes (165)




                                                11
Pd. 1: Gaining control over import &
distribution nodes of GCC (1962-1975)
 Nike sells tens of millions of sneakers in the
  US annually, yet all manufacturing operations
  are conducted overseas

 Nike begins importing shoes from Japan


 Nike concentrates its design, distribution, and
  marketing activities in the US


                                                   12
Nike is the archetype of a global
sourcing strategy: subcontracting

 Nike originated by importing shoes from
  Japan
     It has subcontracted nearly all of its production
      overseas ever since


 Nike’s VP for Asia-Pacific: “We don’t know
  the first thing about manufacturing.”


                                                      13
Pd. 2: Marketing as an upgrading
strategy (1976-1984)

 Nike enhances competitive position by
  extending control to marketing

 Nike redesigns subcontracting strategy to
  seize new opportunities in Southeast Asia
     First in South Korea & Taiwan
     Later, China, Thailand, and Indonesia


                                              14
Pd. 3: Design, advertising, and return
to the semiperiphery (post-1985)
 Another period of high growth based on
  innovations in product design and advertising
     “Air Nike” comes out
     Nike signs its most popular endorser, Michael Jordan


 Continued targeting new niche markets
     e.g., aerobics & athletic apparel


 Subcontracting strategy changes again
     returns to South Korea for more specialized,
      sophisticated, and experienced manufacturers
                                                             15
Conclusions
 Case study confirms a division of labor between core
  & peripheral/semi-peripheral countries
      Core specializing in services
      Periphery/semi-periphery specializing in manufacturing


 Korean and Chinese firms produce the actual shoe,
  as US-based Nike promotes the symbolic nature of
  the shoe – and appropriates the greater share of
  value from sales



                                                            16

				
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