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I- COMPANY PROFILE
1) Nike?s overview
Nike Inc. was incorporated in 1968 under the laws of the state of Oregon, USA. The general business activities can be described as follows: design, development, and global marketing of high quality footwear, equipment and accessory products.
Nike is the largest seller of athletic footwear and athletic apparel in the world. The Nike swoosh is one of the most recognizable business logos on earth. It is more than a symbol of great brand marketing. Nike has revolutionized the way companies approach the athletics market. The company digs into any niche related to sports, including technological breakthroughs, retailing, sports management and sports promotion.
Nike deals in a very consumer orientated market. This means that the demand for the Nike’s goods heavily depends on the popularity of the various fitness activities. The company adjusts continuously their product mix in order to meet demands. It manages its business carefully, leading in aggressive marketing styles and innovative products.
When P. Knight and B. Bowerman created Nike, they decided to create a company to win, for the ?ultimate victory?. This idea has been influencing Nike (the Greek Goddess of Victory) every day and it has been a dramatic success.
(millions of dollars)199919841989
Total Net Income451299167
They have built a remarkable company, which has emerged as one of the world’s greatest brand names. It is said that Nike posesses a reputation comparable to those of McDonald’s and Sony . Nike has outpaced its closest rivals.
Moreover, this success is reflected by the stock price of the company. During 1994 and 1997, the stock price nearly quintupled.$100 invested in Nike stock ten years ago would have been worth $ 1,432 on May 31, investment in the S&P 500 Index would have been worth $ 527.
Why such a success? In launching Nike, Knight paid attention to several emerging trends:
The rapidly growing interest in sports, both as participatory and viewing event.
The sharply increasing adulation of top athletes.
The obsession with health and physical activity.
The centrality of sports among teenagers? lives.
The increased ?fashionizing? of products.
2) What does Nike sell? How? And where?
Nike sells the product to 20,000 retail accounts in the U.S and through a mix of independent distributors, licensees and subsidiaries in approximately 110 countries around the world.
Most footwear products are produced outside the U.S (see the table) while apparel products are produced both in United States and abroad (Bangladesh, China, Hong-Kong, Indonesia, Malaysia, Mexico, The Philippines, Singapore, Sri Lanka, Taiwan and Thailand).
FOOTWEAR% of production
As more fully explored in section II, this point is a key one because Nike has been accused of using child labor and abusing human rights in Asia.
Nike?s athletic footwear products are designed primarily for specific athletic use, although a large percentage of the products are worn for casual or leisure purposes.
Running, basketball, cross-training are currently on top-selling product categories. Nike also sells shoes for outdoor activities, tennis, golf, soccer, base-ball, football, bicycling, volley-ball, wrestling, cheerleading, aquatic activities, auto racing and other athletic and recreational uses.
Nike sells sports apparel covering each of the above categories, as well as athletics bags and accessory items; and a line of equipment under the Nike brand name, including sport balls, timepieces, eyewear, skates, bats?Nike also owns a line of dress and casual footwear and accessories under the brand name Cole Haan.
Bauer Nike Hockey Inc, Nike?s subsidiary, manufactures and distributes ice skates, skates blades, in line roller skates, etc? The headquarters are in Montreal.
Nike?s sales are composed of:
Major business line% in Nike?s revenues
Equipment and others2
The revenues per region:
United States57 %80 %
Europe26 %14 %
Asia10 %2 %
Americas7 %4 %
3) Financial Highlights.
This chapter deals with both revenues and basic corporate data
Evolutions of the revenues (in millions of dollars):
The revenues declined for the first time since 1994.
Financial highlights for the last three years:
Year ended 31 May199919981997
Cross Margin %37.4%36.5%40.1%
Basic earnings per common share1.591.382.76
Return on equity13.7%12.5%28.5%
Revenues decreased 8% for the year 1999 but the net income increased to $ 451 millions. 3 of the 4 regions were down in revenues with Europe the only exception. If we are to believe P. Knight, there are 3 main explanations:
- Revenues in Japan fell by one third due to Asian crisis (particularly in Japan).
- M. Jordan retired.
- The NBA was forced to truncate its season due to a prolonged labor dispute.
Two important decisions were taken in 1999. Nike actually cut the operating expense by almost $200 millions (9% reduction in headcount). Nike also decided to tackle the problems of inventories by cutting inventories by 14%.
Millions of dollars199919981997
Cost & Expenses
Cost of sales5,4946,0655,503
Selling & Administrative2,4262,6242,304
Income before income taxes7466531,295
Concerning the evolution in each region, 2 main points:
United States: the entire athletic apparel market was negatively affected by the strong demand for a number of more fashion-oriented brands; so Nike tries to modify its organization to be more in sync with how consumers buy athletic apparel.
Asia still remains a strategic region for Nike despite the bad results these last 2 years. Actually, two most important ?sport- battle? between Nike, Reebok and Adidas are going to take place in or near Asia: the 2000 Olympics in Sydney and the 2002 World Cup in Japan and Korea.
4) Over the financial data, the Nike spirit is different.
A good example to illustrate this point is to read Nike?s letter 1999 to shareholders: it begins with Armstrong?s victory in the last Tour de France, the soccer world championship?and finishes by Bill Bowerman?s retirement.
Nike?s products are not shoes but M. Jordan, T. Wood, C. Lewis, P. Sampras, M. Johnson? In this industry, a key point is the retirement of a player or the last winner of Wimbledon. It is fascinating.
Another good example is to keep in mind P. Knight’s last interview in France; he answered with arrogance a French journalist: ?My business is different, I don?t sell yogurt, I sell dreams.?
II- Major Trade and Investment Objectives, Interests and Operations.
When P.Knight and B.Bowerman first formed Nike in 1968, they both have a passion for running, but they didn?t have purpose. Then an idea struck. Nike, the Greek Goddess of Victory. The company and the products will stand for winning, for the ultimate victory. Nike?s strategy always has been to create a brand with a winning image.
But, to be first again, again and again, Nike has to cope with several difficulties; success remains an ongoing process.
I am going to discuss the company?s major trade objectives and the specific trade issues that have arisen.
1) A new battle : the soccer business
As I put it in the first section, Nike is suffering stagnation in its revenue. The overriding problem remains how to increase the revenues because of a slowdown in the US market and Asian crisis. As the traditional American market is saturated, Nike has no choice but to diversify. The only solution is soccer and it is definitely Nike?s major trade objectives for the next few years. In 1996, Knight told investors that his $6 billion company would double revenues within 5 years ; without doubt, Nike is obliged to look abroad to deliver on Knight?s promise.
Before 1994, Nike had all but ignored the multibillion-dollar soccer world, depending instead in its core basketball and running-shoe franchises and apparel for growth. Nike has shifted its sights overseas. Soccer would allow Nike to develop a more sweeping global strategy. Actually, basket-ball is still a fringe sport outside the United States; jogging is a distinctly American passion; and as for baseball and football, don’t ask!
Nike has spent hundreds of millions of dollars to gain sponsorship of world-class teams and players. ?Nike is trying to build over the last couple of years what Adidas has done over the last 50.?
Nike has set World Cup 2002 as its deadline for becoming the Number 1 and hopes to conquer the soccer field with the same kind of technical superiority that made it famous in running and basketball.
2) The marketing strategy
The sponsorship of key athletes with ?star appeal? such as M. Jordan or T. Woods, and the global advertising seem to underpin the company?s success. Nevertheless, facing the stagnation of its revenues, the company has had to change its marketing strategy.
a) ?You don?t win silver, you lose gold? is utterly outdated?
Since the beginning of 1998, Nike has been trying to modify its market strategy, thanks to a new general marketing director called De Florio, the ?man behind the pitchers?
This strategy is well illustrated in its cross-training campaign, in which Major League Baseball?s top pitchers (Greg Maddux, Tom Glarin, Randy Johnson) want to be sluggers like Mc Gwire. People appreciated, they considered it as the first ?only Nike could do that?.
The strategy is definitely being more human. According to De Florio, it is important to do that and get back to things like the swoosh and ?Just do it?; because it can be said that few years ago Nike forgot its premium message.
Making sports accessible is the essence of Nike. That?s a long way from ?you don?t win silver, you lose gold?
b) The dilemma: the end of ?endorsers? or a new Michael Jordan?
The heyday of athletes as professional endorsers has come and gone.
Nike?s advertising strategy always has been to create a brand with a winning image. Until recently, Nike never ran product-related ad campaigns. What Nike did was clever, edgy advertising that grabbed consumers? attention. The company was always so confident that it was never useful to push the product themselves?. The strategy was ?high profile, successful athletes would build a winning brand for consumers to associate with.? .
But today, Nike is compelled to re-engineer its strategy at a time when basketball stars are drawing less and less idolatry. Marketers are saying that today?s teen are looking more for footwear and apparel that expresses their individuality rather than the fact that there are fans of famous basketball players.
So, stars still drive its advertising but the company has added some product spots to counteract a saturated sneaker market in the U.S. Heather Lockear are among stars enlisted for more relaxed, improvisational Nike ads.
?It is not about moving away from the elite and pro athletes,? said P. Knight. Be it in 1990 or in 2005, they will continue to be a powerful influence and they are still a key point of the work.
It is the official explanation, but in my opinion, the overriding problem remains the substitution of M. Jordan. The best basketball player in the history of NBA was the ?best marketing product? in the world; Nike didn?t sell shoes, they ?sold M. Jordan?.
Who is the new Jordan? O? Neal is not a ?money-time? player, G. Hill is disappointing, Duncan is not a ?show-time player?. K. Bryant can become the new MVP with P. Jackson but he signed for Adidas.
Where is the new hero? In soccer? It is not enough famous in United States?
Innovation is the engine of long-run economic growth. Nike has been one of the best leaders in the economic world concerning innovation?. Three or four years ago, when we watched ad TV campaign in France, our reaction was ?My God, only Nike can do that?.
That is the reason why I do not like when Nike uses H. Lockear for the new ad campaigns. Nike does not innovate, they just follow the pack?(H. Lockear did so many ad campaigns and she is not an athlete). They transform the ?swoosh spirit?.
The basic point is to create an environment in Nike?s office were the best creative work could be done. In a big company, it becomes more and more difficult: ?Big is beautiful? but it can lead to important disadvantages. Tom Peters: ?Sure, you read the data from the systemic market research. But at the end of the day, it is a very healthy dose of intuition that leads you to invent something that is a little bit special. You have to have the guts to try things that are a little bit different.?
3) Economic and political issues
Free trade encourages firms from U.S to move manufacturing facilities offshore to less developed countries that lack adequate regulations to protect labor and environment. As many other multinationals, Nike opened many plants in Asia. But, Nike ?s image was tarnished in the past when it received negative press coverage for conditions in its factories overseas (child labor). Its growth required intolerable abuse of the natural world and human being.
Since that time, the company has begun an aggressive campaign.
Nike wants to reduce its environmental impact on the planet and work towards becoming a sustainable business.
Nike launched a program called ?Setting the PACE? (Policy Assuring a Cleaner Environment); for instance, reduce the use of chemical in the shoe making process or worked in Asia with suppliers to develop a social program.
Why such an effort?
First of all, it is because of all the critics that threaten the sales (boycott).
Economic benefits from increased efficiency by reducing wastes.
Competitive advantage through innovation; efficient production can be enhanced through the use of cleaner technologies, process innovation.
To improve product quality.
To improve reputation, consumers, investors and employees often respond positively.
Nike also wants to improve the workplace for every worker manufacturing Nike products. It raised its minimum age limits from the International Labor Organization to 18 in all footwear manufacturing and 16 in all other types of manufacturing (apparel, accessories and equipment).
b) Quotas and anti-dumping duties
Nike is subject to the imposition of import quotas and anti-dumping duties. In 1994, the European Commission imposed quotas on certain types of footwear manufactured in China. But Nike?s shoes were excluded because of their prices (above 9 euros, the limit decided by the European Commission. So, the quotas have not had a material affect on the business.
Then, the Commission imposed in 1997 and 1998 anti-dumping duties for products imported from China, Indonesia and Thailand, but only to low cost footwear. As a consequence, the duties only concerned children?s shoes and low cost sandals and Nike?s products were excluded. If the exclusion were made more restrictive, Nike seems to be prepared (it will shift the productions to other countries). Anyway, the major competitors are in the same position regarding these trade measures.
The problem remains the status of China. Clinton extended to June 2000 the ?Normal Trade Relations? (NTR) trading status to China. A revocation of NTR status would result in a substantial increase in tariff rates on goods imported from China. Clinton has opposed using China?s NTR status as a means of pressure.
Anyway, Nike believes that the impact of such change would not have a long-term impact on the business.
The following points have been made in the description:
Nike is a young company and it grew up quickly thanks to the adulation of sports and the centrality of sports among teenagers? live.
Nike is an example of globalization: globalization of market, it sells products everywhere and the swoosh is famous all over the world, globalization of production because Nike took advantage of national differences in the cost of production by opening manufactures in Asia. Nike has kept on eye the recent development of the WTO agreement in order to obtain an advantage of these constraints.
But, Nike has forgotten several important values:
- intolerable abuse in Asia (child labor)
- the cultural and political situation in China; Nike is at the mercy of the revocation of the NTR status.
More important than the labor and anti-dumping issues, Nike has not anticipated the stagnation of its revenues (and Wall Street ?s reaction as a consequence) and M. Jordan ?s retirement.
As a consequence, Nike?s new major trade objectives are the soccer and the substitution of M. Jordan. Nike hesitates and tries to modify its strategy. It insists it is not abandoning its focus on performance for fashion and tries to strike a happy medium. It remains rooted to the company?s core philosophy.
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