Sample Business Studies Report Paper on The Athletic Footwear Industry

1.      Introduction

Footwear industry is a mature market that consists of a number of major players such as Nike, Reebok and Puma. The industry is unique in its own way with increased specialized segments, driven by performance such as the running shoes, basketball shoes or the soccer shoes.  However, to some, “fashion” is of major importance. This means that the industry is in a creative stage in which performance as well as fashion have been merged to develop a “segment” on lifestyle. According to Charles (2010), footwear industry globally is characterized by diversification in various geographic regions for instance North America, Europe, Asia and other parts globally. Growth in population, the urge of people to spend more as a result of increase in the middle class as well as emerging retail outlets have contributed to the increased demand in the footwear in the world. Despite that, particular restraints are resulting to slow growth in global footwear market. These include concerns on environment and increased prices for the raw materials. Of all the firms, Nike is major player than the others and hence this report examines the internal and external environment of the firm by use of Porter’s five forces and SWOT analysis.

2.      Analysis on the Athletic Footwear Market in UK

            Athletic footwear markets in the UK like other markets are very competitive and equally dynamic due to changing customer demand and demand for customized products to meet specific customer needs. UK market is a huge market due to the size of population and the diverse sporting activities within the region. This has attracted athletic footwear manufactures and industry player into this market. In order to understand the athletic footwear market in the UK in depth, Porter 5 forces analysis is very important.

2.1 Porter 5 forces analysis

            Porter five-force analysis model developed by Michael Porter is a framework that analyses the external factors that influence business. Further, the model analyses the competition within a specific industry and the business strategies in an attempt to determine the level of competition and attractiveness in the industry (Grant 2016). Porter 5 forces is categorized into horizontal and vertical forces. Vertical forces are the possible threat of emergence of substitute products and the threat of new entrant into the market. On the other hand, horizontal forces are due to bargaining power of customers of the products and suppliers (Porter 2008). Porter’s five forces model has been used to analyze the magnitude of competition and the level attractiveness of Athletic footwear industry in UK. Analysis by porter five force model can help to understand how much competition a company venturing into the industry is likely to face from other competitors, customer base, and the overall profitability of the industry (Grant 2016). Figure 1 below shows Porter’s five forces model.

Fig 1: porter five force model (Source: Porter 2008)

            The result of the analysis ispresented in the table below that indicates the level of influence of the forces on the operations of the firm.

Threat of substitute products

Athletic footwear products have gained popularity in recent years; this is because of diverting its use from just a sporting commodity to a fashion and casual wear. Therefore, consumers purchasing the commodity for use as fashion trend outfit and casual wear can easily substitute the product with other footwear, for example sandals and other casual footwear because the cost of switching cost is low. Nonetheless, for athletic and sporting purpose, substituting the products is difficult since there is no replacement. Therefore, the threat for substitute products in the industry is low-to-moderate.

Threat of new entrants

            Entering the UK athletic footwear market is relatively simple. Government has little restriction; there are few laws which restrict entry into the market. However, the market requires huge amounts of capital investment; this is likely to prevent entry of small companies from venturing the market. Similarly, this industry is labor intensive therefore venturing the market is quite difficult. Moreover, customers have preference to particular brands and trend from specific manufactures and suppliers; this limits new companies who find it difficult to command customer loyalty. To this end, the threats expected due to entry of new players is generally low.

Bargaining power of buyer

            Price trends in this company is set by high-end brands and large companies, which command large percentages of market, share. Furthermore, customers have preference for specific brands. Additionally, customers are loyal to these companies and they purchase their products at market price (Nijihof et al 2008). However, since other commodities that perform the same function can substitute a particular brand, many customers have the liberty to choose products from any manufacture without worrying about the brand. Buyers are also very sensitive to price changes, likewise the buyers of athletic footwear are not concentrated, and individual consumers buy the commodities in small volumes (Wild et al 2004).

Bargaining power of suppliers

            Manufactures can shift suppliers easily without the risk of compromising on the quality of the output. However, increased environmental concern over the use of rubber since it is not biodegradable, and the ever-increasing cost of raw materials used in the manufacture of athletic footwear increases the bargaining power of suppliers (Grant 2016). Specific global companies are responsible for the manufacture of complex chemicals used in the conversion of raw materials, these companies dictate the prices, and availability of the chemicals, and this further, increases the bargaining power of the suppliers. To this end, the risk associated with the bargaining power of suppliers of the the athletic footwear industry is low to moderate.

Intensity of competition

            Competition in the athletic footwear industry is high due to the need to command customers loyalty, for high-end companies who have been in existence for long period, the level of competition is favorable since they already have loyal client and their products are known to consumers. However, for small companies, competition is too stiff and they risk being kicked out of business. Companies are investing huge amount of money in marketing and building of brands in order to attract the increasing volume of customers, likewise, the companies are designing product to meet customized customers requirement (Wild et al 2004). Competition has further increased due to development of online promotion and sale. Online platform is capable of reaching many people and therefore companies are capitalizing on this form of promotion and sale. To remain relevant and maintain customer loyalty, companies in the industry are developing fashionable products that come in different colors and design (Grant 2016). The intensity of completion in the Athletic footwear industry is therefore moderate to high.

Table 1: Summary of Porter’s five forces analysis of Athletic Footwear in the UK

 Porter’s five forcesUK athletic footwear industry
1Threats of substitute productsLow to moderate
2Threats of new entrantsLow
3Bargaining power of buyersModerate to high
4Bargaining power of suppliersLow to moderate
5Intensity of competitionModerate to high

3.      Assets and Competencies of Nike’s Internal Environment using value chain analysis

Based on the resource-based view, Nike has both tangible and intangible resources. Tangible resources include the physical assets such as land, buildings (860 stores globally, research and development centers, headquarters and the distribution facilities); the machinery and equipment (Grant 2016). On the other hand, the technological resources used by Nike include patents for example, Nike Air, Nike Zoom, Nike Shox; the trademarks (Swoosh), the contracts with the sport legends that are meant to promote this brand. On the other hand, the company enjoys a large and loyal customer base, an effective system of distribution and control in the supply chain (Porter 2008).

In terms of human resources, the organization has more than 56, 800 employees across the globe and an effective research and development team. There are specialists for instance the biomechanics and the industrial designers. The organization is customer centered and this made possible by the innovation resources at the firm’s disposal such as knowledge transfer, the research laboratories that have been integrated, a dynamic technological innovation design, an increased number of patents, or an online website that is essential for customization (Ozanian 2016). This is facilitated by the services of the firm that make use of technology in order to improve the level of satisfaction of the customers.

The company enjoys a strong financial position with its return on investment being higher than the industry average. Nike has assets with total worth summing up to millions of dollars both in cash and in terms of fixed assets. According to Nike Inc annual financial report, Nike had total assets valued at 21’396 million US dollars at 31st May 2016. The noncurrent assets that include plant, equipment, and tangible assets having increased from 5624 million US dollar to 6371 us dollar between 31st May 2015 and 31st May 2016.

Table 2: financial review of Nike Inc as at 31st May 2016

May 31, 2016May 31, 2015May 31, 2014May 31, 2013May 31, 2012May 31, 2011
Cash and equivalents3,138 3,852 2,220 3,337 2,317 1,955 
Short-term investments2,319 2,072 2,922 2,628 1,440 2,583 
Accounts receivable, net3,241 3,358 3,434 3,117 3,280 3,138 
Inventories4,838 4,337 3,947 3,434 3,350 2,715 
Deferred income taxes389 355 308 274 312 
Prepaid expenses and other current assets1,489 1,968 818 802 870 594 
Current assets15,025 15,976 13,696 13,626 11,531 11,297 
Property, plant and equipment, net3,520 3,011 2,834 2,452 2,279 2,115 
Identifiable intangible assets, net281 281 282 382 535 487 
Goodwill131 131 131 131 201 205 
Deferred income taxes and other assets2,439 2,201 1,651 993 919 894 
Noncurrent assets6,371 5,624 4,898 3,958 3,934 3,701 
Total assets21,396 21,600 18,594 17,584 15,465 

Source: Grant (2016)

As per the value chain analysis, its outbound logistics  create a stronger control in the global distribution channel and makes use of stronger servers in order to support as well as manage the supply chain projects (Grant 2016).           Nike also owns companies that promote its activities; Hurley International LLC is a company owned by Nike and is Responsible for designing, marketing, and distributing of accessories and apparel for action sport and casual lifestyle footwear (Nijihof et al 2008). On the other hand, Converse Inc, which is also a company owned by Nike is responsible for the designing, distributing and marketing of apparel, footwear, equipment and accessories for athletics.

The company creates its brand from the previous experience. The strong strategy in the market include its unique competence more so on awareness of consumer brand or the brand power (Porter 2008). Focus on the image of the brand based on its unique logo (Swosh) as well as the slogan on advertising has succeeded through the differentiation strategy of the firm image. The increased capabilities on research and development are seen from the firm’s technology and innovation focus ; the new product development in improving their shoe models after every six months so as ensure high speed into the market (Ozanian 2016). This is meant to offer value to its customer. However, the competitors in most of their product and the markets can easily imitate this. There is a strong connection of the supply chain capabilities and this is related to the past core competencies. Majority of the Nike competitors outsource from Asia. Despite that, Nike is able to outdo its competitors through its unique business model where the brand name has dominated. This suggests a high quality or the stylish footwear.

4.      SWOT analysis for Nike Inc

            SWOT is a financial analysis method that seeks to identify and categorize factors that are of importance in achieving organizational goals and objectives (Grant 2016). The acronyms stand for Strengths, Weaknesses, opportunities, and Threats respectively, each of which has direct impact on the company’s success. SWOT analysis categorizes the factor as either internal or external, whereby, internal factor are the factors the can be controlled by the company while external factors are those that are beyond the control of the company (Grant 2016). This analysis is important to the managers of policy makers of each organization since it helps in determining and designing of strategies that ensures the company achieves its objectives and aims.

Strengths

            Firstly, Nike is a global brand that has become a household name in the sporting industry; therefore, it is not new to current consumers. With its name known across the globe, Nike can penetrate new markets with ease. Iconic brands that have earned global recognition for example Air Jordan makes it easy to win loyalty of new clients (Wild et al 2004). For Nike, its greatest strength is in the way in which it maintains the current loyal clients who are the main ambassadors of Nikes products around the globe. Secondly, Nike has a strong research and innovative team coupled with adequate facilities; therefore, this enables the company to develop high quality products at a lower cost. This enables the company to have a competitive edge over it competitors since it is capable of maintaining profitability even when the retail price of its commodities is low. Innovation has also helped Nike in designing unique products that meet the customers need, development of Nike + was a great boost for the company since it offer a milestone advantage over its competitors. Finally, Nike easily interacts with its clients through the retail stores and therefore the company is able to know the exact needs of its clients (Wild et al 2004). The Nike Town platform is of very great advantage to Nike profitability.

Weaknesses

            Despite the numerous strengths exhibited by the company, the management needs to rectify various weaknesses that face the company in order to increase its profit margin and sustain these profits for long periods. Nike has concentrated in the manufacture and marketing of sportswear, apparel, and sporting equipment neglecting other sport requirement example are jewelry and sunglasses. Diversification is required in order to maintain high profit margins. Furthermore, the poor labor conditions and child labour allegations against Nike is a weakness that require very urgent attention failure to which the good name of the company will be soiled. Poor working condition in Nike premises located in Vietnam is a concern that the management requires to urgently address. Finally, prices of Nike commodities need to be reviewed in order to be at range with those of its competitors, especially for commodities intended to satisfy the need of middle-income earner who form the greater part of the population (Wild et al 2004).

Opportunities

            The future is very bright for Nike taking into consideration the various opportunities that can be exploited by the company. Firstly, the global recognition that the company has attained is a great opportunity for growth since is can easily venture into any market with little resistance. Further, it enables the company to form merges easily whenever the need arises. Secondly, the need to diversify into other sports products is an opportunity that Nike should exploit for its benefit. Production of the commodity will not require much advertisement since it will be alongside the mainstream advertisement of the major products (Ozanian 2016). Finally, the innovation of Nike + product is an opportunity that Nike must capitalize in order to have a competitive edge over its competitors. This product is composed of a sensor that is placed on the footwear and it measures the distance covered and calories burned down during exercise or sporting activity, this is a unique product that Nike needs to use to its advantage.

Threats

            The greatest threat facing the company is the stiff competition that exists in the industry. Nikes competitor including Adidas and Puma are persistently manufacturing commodities that are a substitute to Nikes products (Ozanian 2016). The competitors are embracing new technologies and therefore producing products that are equally of good quality. Another threat facing the company is the nature of business; Nike operates an international business hence it uses different currencies in doing trade, this makes the profit margins, and cost of production to vary. If not well monitored the company is likely to incur losses due to this scenario.

4.1 Future sustainable competitive advantage

Sustainable competitive advantage is a combination of procedures and activities that give a company advantage over its competitor both existing competitors and anticipated competitors (Grant 2016). For Nike to have a competitive advantage it has to correct its weaknesses and develop strategies that will ensure that the scenarios do not reoccur in future. However, the major sustainable strategy that the company needs to adapt is to capitalize on its innovative capabilities and integrate technology similar to that of Nike+ in its entire product (Porter 2008). This will make its product unique and stand out among other similar commodities. Further, the company needs to increase its online marketing and distribution channel since many clients can easily access online information. Online marketing strategies are cheap and do not require huge capital and labour. Finally, the company should consider diversifying it nature of business to cover all sport requirements.

5.      Conclusion

            Athletic footwear industry is a complex and very competitive business that changes from time to time due to consumer preference and competitors. The industry has also witnessed it product changing from being purely used for sporting activities, actually, it has been adapted as fashion wear that is generally regarded as a casual wear by people of all generations. The UK market of Athletic footwear is equally very competitive, due to the competitive nature of the business, investors and market players are investing huge amount of money in marketing and building of brands in order to attract the increasing volume of customers. Emergence of online sales has sparked the need for innovative products and adaptation of very attractive promotional and marketing strategies to ensure competitiveness. The major players in the industry are Nike, Adidas, Puma, and Asics Corporation. From the results of  Porters five forces model analysis, it indicates that the level of competition and profitability of the industry of moderate to high, however, it favors big companies that are already commanding customer loyalty. Nike is one of the major players in the industry; the company has been in the sportswear business for long period and therefore is commending customers’ loyalty. However, it is facing stiff competition from other companies therefore leading to greater research and innovation in order to maintain customers’ loyalty.

6.      References

Grant, R.M., 2016. Contemporary strategy analysis: Text and cases edition.John Wiley & Sons.

Nijhof, A., Forterre, D. and Jeurissen, R., 2008. Managing legitimacy issues in global supply chains: The case of the athletic footwear industry. Corporate Governance: The international journal of business in society8(4), pp.506-517.

Porter, M.E., 2008. Competitive strategy: Techniques for analyzing industries and competitors.Simon and Schuster.

Wild, J.J., Bernstein, L.A., Subramanyam, K.R. and Halsey, R.F., 2004. Financial statement analysis. McGraw-Hill.

 Ozanian, M., 2016. “The Forbes Fab 40: The World’s Most Valuable Sports Brands 2016”. Forbes. Retrieved December 27, 2016.from https://www.stock-analysis-on.net/NYSE/Company/Nike-Inc/Financial-Statement/Assets