MKTM028 - Macro Analysis PESTLE for Nike Case Study

Macro Analysis (PESTLE) for Nike in SriLanka Case Study

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Macro Analysis (PESTLE)

Political:

The UK market includes England, Scotland, Wales, and Northern Ireland. It is deemed to be one of the powerhouses of the world and is a modern democracy along with being a constitutional monarchy. The prime minister in the UK is appointed for a term of five years. The country has traditionally been a proponent of heavy commercial activities and has good political stability illumination ease of business. The recent Brexit however has shaken the political stability of the country. It has permanent membership of the UN and has soothing relations with the US. The criticism is however on its relations with a couple of authoritarian regimes (Nye, 2019).

Economic:

The UK economy is the 6^th largest in the world currently and a lucrative market for any capable corporation. Dues to the pandemic the Bank of England had to infuse 100 billion pounds into the UK economy in 2021. The national living wage(23+) stands to be at 8.91 pounds currently. The corporation tax that the government levies is 19% on the company profits. There has been an influx of FDI in sports, technology, real estate sectors in the UK economy (Nye, 2018).

Social factors:

The current population stands to be at 68 million. The average age of the population is getting pushing away in the UK. The quality of life in the UK is on the higher side and people like to have the top-notch quality of products and services. The UK is in the top 10 list of countries worldwide having the most educated population. The cost of living in the UK is on a gradual rise (Zink and Geyer, 2017).

Technological factors:

The technological sector stands to be in excess of 184 billion pounds in the UK. Digital tech employment in the UK is also on the rise. Online sales and business activities are of prominence in the economy. The problem however is that technology as a whole is expanding and growing 2.6 times faster than what it is in the UK (Tranos, et al., 2020).

Legal:

The general product safety directive presents the safety guidelines that every footwear manufacturer in the UK has to comply with. If dyed leather is used in manufacturing then it has to be made sure that none of it includes the 22 prohibited aromatic mines. Metal accessories and parts of footwear shall not release nickel more than 0.5 microgram centimeter square (McInroy, 2018).

Environmental:

The prominent environmental factor that affects businesses the most is the weather in the UK. The weather conditions in the country can sometimes be very extreme and harsh. However, the environmental factors in the country are better than its contemporaries and there are appropriate steps taken by the government to keep waste management and other related activities in check (Oakley and Ward, 2018).

Micro Environment analysis for Nike in the UK

Porter’s 6 forces model

• Power of buyers: The footwear market of the UK is worth approximately 5 billion pounds. The growth rate is expected to be a slow one till 2024 to be around 1.2% yearly. These numbers are huge and there are a lot of sellers in the UK and the purchasing power of the customers is also on the higher side. This paves in the way for the power of buyers in the UK footwear market. (Chen and Cheng, 2019).
• Power of Suppliers: Nike has third-party contract manufacturers and the production is majorly done in China, Indonesia, and Vietnam. No contract supplier of Nike has more than 6% of the brand’s production. Nike continues its operation in the UK with little change suppliers and is not dominated by its suppliers. Also, the suppliers of Nike do have inflationary pressure from the brand (Nguyen, 2017).
• Risk of substitutes: The consumers that want high-performing sports goods can switch to brands like Adidas and converse and the casual consumer who buy these products just for leisure do have the option to switch to copycat products offering mediocre quality to that of Nike's. (Lapidus, 2018).
• Competitive rivalry: Nike dominates the UK market currently with 29% of the market share with Adidas right behind it with 24%. Next is Converse having 8% of the market share and then comes Reebok. This is an oligopoly market condition and there is high competitive rivalry for Nike in the UK market. (Lord, et al., 2020).
• Risk of new entrants: The quality of products that Nike provides is tough to match for a new entrant in the market. Also, significant capital investment has to be there for entering such a market. Furthermore, the economies of scale that Nike enjoys make it difficult for new entrants to jump into the footwear industry of the UK.
• Complementary products: Nike has a very unique complementary branding strategy with Apple. The brand has introduced Nike+ that has a tracking chip manufactured by Apple in Nike’s shoes. The performance of one brand is definitely going to have some effect on another’s. The UK being one of the most prosperous nations might be able to elevate such products of Nike (Anastasiu, et al., 2020).

Porter’s generic strategy

Nike’s Generic strategy –

To gain a competitive advantage Nike follows a cost leadership strategy wherein the brand aims to minimize its cost of production and increase profitability or reduce its selling prices in order to boost up the revenue (Rashidirad, 2019). This strategy is adopted in order to specifically compete with the brands like Adidas. The price segment and the target market Nike works with the brand surely has the cost leadership and caters to the upper-middle-class segment of the UK perfectly.

Nike also follows a differentiation strategy wherein it aims to provide unique and innovative products. For instance, the brand moves away from traditional shoe designs and integrates its shoes with cutting-edge and innovative designs like the recent Nike+ that integrates an Apple Inc. manufactured tracking chip in its shoes. (Osorio-London?o Andrés, et al., 2020).

Nike’s Intensive strategies –

Product development is one of the main focus points of Nike. Introducing new and innovative products keeps them ahead in the market. The inclusion of cutting-edge technologies is deliberately done to increase the market presence of brands in the name of differentiated products (Rashidirad, et al., 2017).

Market penetration through smart pricing policies and increasing the number of outlets to bolster sales is also one of the main objectives of Nike's growth model. Nike does this effectively in its target market segment with the adequate implementation of a cost leadership strategy (Park, et al., 2021).

Market development is one of the major supporting intensive growth strategies Nike employs. Spreading the scope of operations and gaining market leadership in the UK market showcases the market development strategy of Nike perfectly. Similarly, it recently moved to African and middle-eastern countries as well to employ its focus strategy (Cox, et al., 2018).

Internal Analysis

McKinsey’s 7’s framework

• Strategy: Nike sets up SMART goals that are viable and achievable. Looking at the economic state of the UK and Nike’s market leadership there, it aims to introduce new and innovative products frequently. There is an increasing trend of online shopping in the UK market and Nike's strategy now mainly relies on online presence rather than just multiple offline outlets. The flexible organization is the key element of Nike's strategy as it focuses on the daily use of sports shoes and apparel in the UK because of the social structure (Adamakis, 2018).
• Structure: Nike follows an organizational hierarchy that is flat in nature and the chain of command gives easy and frequent access to employees to interact with the senior management (Distelhorst, et al., 2017). A decentralized organizational structure is followed at Nike primarily because e of the varied branches at different demographic locations (Waymer and Logan, 2021).
• Systems: The systems and procedures that Nike follows are by nature highly departmental. The different departments at Nike have specialized evaluation systems to analyze and evaluate the performance of its members with high specialization (Kim, 2020). A high level of specialization with specific targets in consideration for all departments is followed at Nike (Lin, et al., 2020).
• Shared values: The core values of Nike are creativity, transparency, honesty, accountability, heritage, quality, and trust. Nike aims to have a diversified corporate culture wherein people from all ethnicities can come together and work for organizational objectives (Intravia, et al., 2020).
• Style: With the help of its flat structure Nike has a high engagement of its employees in the decision-making processes and managerial interactions and thus a participative leadership style is followed. Nike has departmentalization but the focus is on integrating all the specialized departments and their systems in such a way that a cohesive team is formed rather than some nominal groups (Brooke, et al., 2017).
• Staff: Nike focuses on acquiring skilled staff for specific operations and provides in-house as well as external training for the development of the employees working in the organization. Training sessions for the current workforce are done quite frequently at Nike because of its focus on differentiation and innovation.
• Skills: Nike is a highly specialized organization that focuses on hiring and training the skilled workforce for unique job roles. The skills of the employees are properly aligned with the organizational objectives.

TOWS Matrix

	Strengths	Weaknesses
Opportunities	SO- · Nike has financial stability and has the opportunity to explore going digitalization in the UK economy. · The European market is growing rapidly and Nike has an excellent marketing strategy to embrace this. · Nike because of its financial prowess can acquire certain small businesses of the UK and use their supply chain effectively (Baklizky, et al., 2017).	WO- · Nike is heavily dependent on the US market but its leading market position in the UK is a good opportunity to diversify. · The operational costs of Nike are quite high but with growing digitalization in the UK market, this can be checked (Huang, et al., 2020).
Threats	ST- · Quality domestic competition to be kept at bay with superior marketing strategies of Nike. · The UK market because of the variety of competition present is a tricky one but Nike can invest in R&D and HRM to combat it (Provis, 2017).	WT- · High dependence on the US and high threat of quality competition in the UK market. · Already high overhead and marketing costs might not be covered by hefty profits because of the recent slow growth rate of the UK market (Taymouri, et al., 2021).

Strategic challenges

The strategic challenges that are in front of Nike, UK are quite taunting but fairly generic to combat. Firstly, though Nike has market leadership in the UK it still is over-dependent on the US market. The revenue stream and the market share need to expand keeping the complacency aside. Marketing strategies are to be restructured in order to gain elite supremacy in the UK market. Secondly, Nike has been criticized for focusing on gender-specific products. It is not starkly prevalent but there have been discussions on how it caters to men more. Strategies have to be formed to break the shackles of gender biases.

References

• Adamakis, M. (2018) “Nike Training Club, an Ultimate Personal Trainer: Mobile App User Guide,” British Journal of Sports Medicine, 52(13), p. 2. doi: 10.1136/bjsports-2017-098414.
• Anastasiu, L., Gavri? Ovidiu and Maier, D. (2020) “Is Human Capital Ready for Change? A Strategic Approach Adapting Porter’s Five Forces to Human Resources,” Sustainability, 12(6), pp. 2300–2300. doi: 10.3390/su12062300.
• Baklizky, M. et al.(2017) “Business Process Point Analysis: Survey Experiments,” Business Process Management Journal, 23(2), pp. 399–424. doi: 10.1108/BPMJ-03-2016-0061.
• Brooke, S. M. et al.(2017) “Concurrent Validity of Wearable Activity Trackers Under Free-Living Conditions,” Journal of Strength and Conditioning Research, 31(4), pp. 1097–1097. doi: 10.1519/JSC.0000000000001571.
• Chen, Y.-G. and Cheng, J.-N. (2019) “A Study Investigating Teachers' Competitiveness-Michael Porter's Five Forces Model As Theoretical Basis.(report),” Academy of Educational Leadership Journal, 23(2), p. 1.
• Cluley, R. (2020) “Book Review: Advertising Revolution: The Story of a Song, from Beatles Hit to Nike Slogan,” Journal of Macromarketing, 40(2), pp. 266–269. doi: 10.1177/0276146719878250.
• Cox, A. M., Pinfield, S. and Rutter, S. (2018) “Extending Mckinsey's 7s Model to Understand Strategic Alignment in Academic Libraries,” Library management, 40(5), pp. 313–326.
• Distelhorst G, Hainmueller J and Locke R.M (2017) “Does Lean Improve Labor Standards? Management and Social Performance in the Nike Supply Chain,” Management Science, 63(3), pp. 707–728. doi: 10.1287/mnsc.2015.2369.
• Huang W.-L et al.(2020) “The Business Analysis on the Home-Bias of E-Commerce Consumer Behavior,” Electronic Commerce Research, (2020). doi: 10.1007/s10660-020-09431-2.
• Intravia, J., Piquero, A. R. and Byers, B. (2020) “‘just Do It? An Examination of Race on Attitudes Associated with Nike’s Advertisement Featuring Colin Kaepernick,’” Deviant Behavior, 41(10), pp. 1221–1231. doi: 10.1080/01639625.2019.1604299.
• Kim, M. (2020) “How Phil Knight Made Nike a Leader in the Sport Industry: Examining the Success Factors,” Sport in Society, 23(9), pp. 1512–1523. doi: 10.1080/17430437.2020.1734329.
• Lapidus, B. (2018) “Finance Strategy: Re-Thinking Porter’s Five Forces,” AFP Exchange, 38(4), pp. 27–27.
• Li, J.-Y., Kim, J. K. and Alharbi, K. (2021) “Exploring the Role of Issue Involvement and Brand Attachment in Shaping Consumer Response Toward Corporate Social Advocacy (csa) Initiatives: The Case of Nike’s Colin Kaepernick Campaign,” International Journal of Advertising, 1-25, pp. 1–25. doi: 10.1080/02650487.2020.1857111.
• Lin, C.-W. et al.(2020) “Exploring the Adoption of Nike Run Club App: An Application of the Theory of Reasoned Action,” Mathematical Problems in Engineering, 2020, pp. 1–7. doi: 10.1155/2020/8568629.
• Lord, J. et al.(2020) “Examination of Nursing Home Financial Distress Via Porter’s Five Competitive Forces Framework,” Health Care Management Review, Ahead Of Print. doi: 10.1097/HMR.0000000000000297.
• McInroy, N. (2018) “The Everyday Economy: Framing a New Political Economy for the Uk?,” The Political Quarterly, 89(4), pp. 614–617. doi: 10.1111/1467-923X.12607.
• Nguyen, T. T. T. (2017) “Management Education As an Industry and Mba As a Product: Revisiting Joint Mba Programs Using Porters Five Forces Model.(master of Business Administration)(report)(author Abstract),” Global Business & Economics Review, 19(3), pp. 356–356.
• Nye, J. (2018) “Uk Economy Pushing Ahead Despite Brexit Worries,” Econoscope, 42(10), pp. 11–11.
• Nye, J. (2019) “Uk Economy Stumbling Toward March 29,” Econoscope, 43(2), pp. 11–11.
• Oakley, K. and Ward, J. (2018) “Creative Economy, Critical Perspectives,” Cultural Trends, 27(5), pp. 311–312. doi: 10.1080/09548963.2018.1534573.
• Osorio-London?o Andre?s A, Naranjo-Valencia, J. C. and Caldero?n-Herna?ndez Gregorio (2020) “Training and Its Influence on Competitive Strategy Implementation,” Human Resource Development Quarterly, 31(2), pp. 149–172. doi: 10.1002/hrdq.21381.
• Park, H., Yoo, Y. and Lee, H. (2021) “7s Model for Technology Protection of Organizations,” Sustainability, 13(13), pp. 7020–7020. doi: 10.3390/su13137020.
• Provis, C. (2017) “Intuition, Analysis and Reflection in Business Ethics,” Journal of Business Ethics, 140(1), pp. 5–15. doi: 10.1007/s10551-015-2688-z.
• Rashidirad, M. (2019) “The Applicability of Porter's Generic Strategies in Pure Online Firms: A Case Study Approach,” Strategic Change, 28(3), pp. 167–176. doi: 10.1002/jsc.2258.
• Rashidirad, M. et al.(2017) “Competitive Strategy, Dynamic Capability, and Value Creation: Some Empirical Evidence from Uk Telecommunications Firms,” Strategic Change, 26(4), pp. 333–342. doi: 10.1002/jsc.2135.
• Sanne, R. (2019) “Swot Analysis Helps Put a Company on Strong Footing,” Industrial Management, 61(2), pp. 28–28.
• Taymouri, F. et al.(2021) “Business Process Variant Analysis: Survey and Classification,” Knowledge-based systems, 211.
• Tranos, E., Kitsos, T. and Ortega-Argile?s Raquel (2020) “Digital Economy in the Uk: Regional Productivity Effects of Early Adoption,” Regional Studies, 1-15, pp. 1–15. doi: 10.1080/00343404.2020.1826420.
• Waymer, D. and Logan, N. (2021) “Corporate Social Advocacy As Engagement: Nike's Social Justice Communication,” Public Relations Review, 47(1), pp. 102005–102005. doi: 10.1016/j.pubrev.2020.102005.
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Appendices

Appendix 1:

Company Overview:

Nike Inc. is a multinational corporation based out of Beaverton, Oregon, U.S. It deals in the development, design, manufacturing, and marketing & sales of sports footwear, apparel, related accessories, and varied services worldwide. Nike was founded in 1964 by Phil Knight and Bill Bowerman. It has primary businesses in the footwear, apparel, sports equipment sans accessories industry. Nike had a valuation of more than 23 billion dollars in 2020 and is one of the most valuable brands in its business niche.

The key competitors that Nike has worldwide are Adidas, Puma, Fila, Reebok, New Balance, Under armor, Converse, and K-Swiss. Nike is one of the top 3 among these sports footwear brands all over the world along with Adidas and Reebok.

Nike is in the sports goods business and targets both women and men athletes equally. The age group that Nike targets are between 15 – 40 years of age. The campaign of Nike is based around the young and upcoming generation that looks up to their sports idols and strives to be similar to what their idols are. One of the subtle factors that pull customers towards Nike is that it does not have any differentiation in customer groups on the basis of ethnicity, social class, religion, or race. The largest markets for Nike are North America subsequently followed by Western Europe and emerging markets in China. Nike is now focused on the South Asian markets to diversify its business operations. The analysis of Nike's business factors is for the UK market. The primary focus is on the footwear business line of Nike and how it operated in the UK market.

Appendix 2:

PESTLE analysis

Factor	Analysis	Impact
Political	Political factors are related to the political support and stability of a particular business environment. The UK is a stable country but recent political developments and Brexit have paved in the way for some instability	The recent jitters in the UK's political stability can hinder some operations of Nike since it is a foreign brand. There can be new regulations and the development of new import-export rules and procedures that can hinder operations.
Economic	Economic conditions are related to inflation, GDP, the purchasing power of the nation, the per capita income, etc. United Kingdom’s GDP is one of the largest in the world, corporate tax stands to be 19% currently. Inflation is on the rise but the purchasing power of the country is still relatively high	The high purchasing power that exists in the UK market drives Nike’s sales as the brand caters to the quality of products more than the quantity. The taxation is a bit on the higher side but Nike with its financial prowess can deal with it.
Social	The social factors are related to how the quality of life is in a particular country and how diverse or dense the population is. It also states the buying habits of the citizens. The people of the UK are more focused on the quality of life and demand more qualitative products. The average age of the population however is floating away.	The quality of Nike's products is a huge plus to its sales in the United Kingdom. However, the average age problem can bring down Nike’s sales as the brand’s target customers are from age 15 – 40.
Technological	The technological aspect of this analysis dives into the rate of growth of technology in a particular business environment. The rate of growth of technology in the UK is on the rise but it still has not reached its full potential. There is an increase in online shopping and related trends.	This is a positive sign for Nike as there can be marketing campaigns and strategies formulated for a cloud-based business. Huge infrastructural investments and overheads that come with it can be minimized.
Legal	The legal environment encompasses the rules and regulations that can hinder the operations of a particular business in the business environment. The labor laws in the UK are quite flexible and there is the relative ease of doing business in the country. However, the production regulations are very intricate.	The ease of doing business that the UK provides is a good sign for Nike as it can aggressively market its products and services with limited restrictions and hence generate worthwhile profits from even a smaller target market.
Environmental	Environmental aspects encompass the wellness of the natural being of a host country. Pollution and bad waste management are a problem. The weather conditions of the UK can pose a threat.	Due care has to be given to the environmental factors of the UK by Nike in order to expand operations smoothly. It is an underlying threat if not given due attention. The extremity of weather conditions can affect production.

Appendix 3:

Porter’s 6 forces:

Force	Effect
Power of buyers	High purchasing power and availability of quality substitutes give no power to the buyers in the UK market.
Power of suppliers	Limited suppliers with limited operations of Nike give the multinational the upper hand with the suppliers.
Complementary goods	Partnership with Apple can affect the sale of both brands in a direct manner.
Substitute products	There is a threat to big qualitative brands and also counterfeit products.
New entrants	Huge capital requirements to be catered to for new ventures. Low risk of new entrants.
Competitive rivalry	Healthy rivalry with Adidas. Converse, Reebok, New Balance, and Puma are some other big competitors.

Appendix 4:

McKinsey’s 7S model

7S	Analysis
Strategy	SMART achievable goals are set up. Specific product strategy for the UK market will reap profits along with digitalized sales.
Structure	The flat organizational structure of Nike helps in appropriate communication and policy formulation.
Systems	Departmental and specialized systems.
Shared values	Creativity, transparency, honesty, accountability, heritage, quality, and trust.
Style	Participative, decentralized, and democratic leadership style.
Staff	Skilled and specialized staff for specific job roles.
Skills	Continuous up-gradation of staff with internal and external training.