Analysis of Nike by Porter Five Forces Model
The analysis of Nike in athletic footwear market based on porter’s Five forces model 1.
Introduction One and a half months ago, the biggest athletic event in the world ultimately drew its curtains after a pitched one-month-long battle, which saw thirty-two teams vying for the roll of honor of being crowned the final kings of football – the World Champions – and earn bragging rights for four years at least.
It was not only a world war among 32 national teams, but also a white war among several major sponsors. Concentrating on those big-name stars, spectators would easily find that Adidas and Nike became the largest winners among various brands, obtaining the sponsorship of 12 and 9 among the 32 teams respectively. Coincidentally, in the current athletic footwear market, Nike control the largest market share though facing enormous challenges from both existing and potential competitors.
This essay will base on the Michael Porter’s Five Forces Model, analyze both the internal and external competitive factors of NIKE, unearth the deep secret for NIKE as the market leader, and look forward to the future athletic footwear market.
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As shown in the figure, the model’s core thought is proceeding from internal competition among the industry and comprehensively taking account of the external competitive factors, to have an insight into both the advantages and disadvantages of enterprise so as to make niche-targeting strategic plans.
To recognize and clarify the main strength and weakness in the competition, I will use the Michael Porter’s Five forces Model as a master tool to launch the following analysis. 2. 2 The pressure from external It is a piece of fatty meat for many merchants due to the high yield of the athletic footwear market.
Take Nike as an example, its Rate of Return on Sales = net income/revenue = 1486. 7 divided by 19176.
1 = 0. 07752. This ratio shows that Nike earns 7 cents for every dollar in sales. Yet is it really that easy for other investors to make profits ? To recognize the prospect of the athletic footwear market, the headmost four forces should be considered. At the first place, the threat of substitute products or services seldom exists so that it can hardly threaten the existing footwear market. The footwear is part of the daily necessities, and athletic ones are also obligatory and inevitable for sports.
Even more important, diverse sports are in various need of sneakers, which results in the unshakable large amount of demand in athletic footwear market. Then, the bargaining power of the suppliers and customers should be thought over. For Nike, the bargaining power of suppliers is limited as it has vast raw material sources around the world. In fiscal 2009, the contract suppliers of Nike in China, Vietnam, Indonesia and Thailand manufactured 36%, 36%, 22% and 6% of total NIKE brand footwear, respectively..
Each one takes on a small proportion of the whole manufacturing, so that suppliers has limited bargaining powers. Similarly, due to the astronomical figure of customers, the customers of Nike also only has limited bargaining powers. Though Nike cannot wantonly raise the price of their products under stress of other competitors, the earning yield and its market position can hardly be influenced by the minority group of suppliers and customers. Another threat is coming from the potential new entrants.
However, the high barrier to entry, as well as the limited remaining market share and market growth, gives rise to the flinch of other manufactors. With the lowest market share and lowest market growth, new entrants are just to keep the dogs as the BCG matrix shows.
A brief utimateness can be drawn up that the destructive power outside the footwear industry hardly exists and can seldom influence the market share and profitability of Nike. 2. 3 The rivalry among existing competitors
According to the Commerzbank Equity Research, NIKE was the clear market leader, with 31% of the global athletic footwear market in 2007, followed by ADIDAS and PUMA, occupying 16% and 7% of the market respectively. It is true that NIKE is still the leader in the athletic footwear market though the challenges are enormous. According to the Black Book-Nike ; Reebok, “one of the company’s biggest competitive advantages is the focus, dedication and relative homogeneity of the manager team, though it is occasionally a weakness as well.
Yet the truly crucial factors of NIKE’s competitive may be its edge. NIKE initiates and consistently executes the outsourced manufacturing strategy, which helps it to decline its factory cost and expand the scale of production. This is the main advantage of NIKE comparing with some local production facilities. In terms of sales, the ordering and distribution strategy induces the fluent goods flow and few warehouse stocks of NIKE. And it will also lead to higher service levels, satisfied customers and efficient workforce.
Meanwhile, the large amounts of adverting and promotion expense were as much as $2351. 3 million, $2308. 3 million, and $1912. 4 million in 2009, 2008, and 2007 respectively, which helped NIKE to build a fantastic brand image and earn the support among the public. As contenders, other brands also have some incomparable advantages.
For example, Adidas has implanted the brand image of local culture in the USA, and controlled the largest soccer sportswear market, which is far ahead of Nike.
To maintain the role of market leader, Nike should not only hold its existing advantages, but also seed for breaks in advanced science and technology and formulate immediate and flexible strategies according to the changeable market, and 3. Conclusion To sum up, Nike has control the highest market share while the market growth is low, which means Nike is now at a position as a cash cow. Comparing with the internal rivalry among the existing competitors, Nike faces less stress from external.
The threat of new entrants can hardly hurt the fundamental interests of Nike, as well as the suppliers and customers with limited bargaining power.
However, it is also not easy for Nike to maintain the lead position in the athletic footwear market, as there exits lots of envious and powerful competitors.