Nike’s International Strategy

Nike World Headquarters in Beaverton, Oregon

Nike is the world’s leading athletic textile company and its international strategies are a big reason why.  For the most part, Nike’s product offerings are the same around the globe in what they are, their price and quality, and in reputation within their markets.  Even the primary Nike marketing slogan “Just Do It” and the logo “Swoosh” are synonymous and ingrained into the public’s collective mindset with everything Nike produces worldwide.  Essentially the end-product in America is the same in India, China, Brazil, wherever Nike are sold. 

Where Nike exploits their real international economies of scope is in gaining access to low-cost factors of production and in gaining access to new customers for their existing products.  Utilizing a centralized hub approach where almost all pertinent strategic decisions are made at the world headquarters in Beaverton, Oregon and only a select few manufacturing/operational decisions are made locally is how Nike pursues these efforts internationally. 

As noted previously, Nike does not make a single shoe itself, but rather outsources all of these processes around the globe implementing a strategy of cost reduction due to the lowest possible costs in the creation of its products.  Once made in these strategically placed international partner firms, the company then ships out the product to the closest market that Nike resides, hence implementing an international integration of this economy of scale and an even greater reduction along the value chain.

Also Nike employs thorough market analysis of emerging areas for its products as well.  Researching the world over has allowed Nike’s global sales to outpace its domestic levels every year since 2003, largely in part to its accessing the emerging markets of China, Russia, and Turkey.  Since its product line is virtually unchanged, Nike only rarely exploits internationalization within product life cycles.  However it can keep this potential competitive advantage in its back pocket to manage uncertain times or market reactions.

Nike's Merger and Acquisition Strategies

Being a company that is continually seeking out sources of competitive advantages, Nike has historically implored merger and acquisition strategies when the proper alliances present themselves.  The main reason Nike implements these plans is to ultimately create economic value in its exploitation of the competitive opportunities that a target firm creates for the company, which in turn increase the economic profits for its shareholders.  Nike also implements this strategy to gain market power in product markets and to take advantage of the potential above-normal profits a merger and acquisition can create.

In its existence, Nike has acquired only targets that are strategically related to its existing markets further diversifying their economies across a wider breadth of product offerings.  Predominantly venturing into product extension and horizontal mergers to do so.  Nike's first acquisition was in 1988 when it acquired Cole Haan that gave the company access into the upscale footwear market.  In 1994, Nike acquired hockey product giant Bauer, but subsequently sold this subsidiary in 2008.  Nike then waited almost a decade before its next acquisition which was surf apparel firm Hurley International in February 2002.  However in the 2000s, Nike (like many U.S. companies during this time) was very active in its acquisition projects.  In July 2003, Nike horizontally acquired former basketball shoe competitor Converse and its established Chuck Taylor All Stars sneakers.  In August 2004, Nike leapt into horizontal acquisitions again with the purchase of Starter, but turned around and sold it in 2008, the same year as Bauer.  2008 was not all about downsizing for Nike though, as in the March of that year Nike acquired soccer apparel titan Umbro.  

Currently, Nike owns four key subsidiaries (Cole Haan, Hurley, Converse, and Umbro) but I would not be surprised if Nike continues expanding on their merger and acquisition/diversification strategy.  With reported free cash flows increasing substantially over the past decade (from $575.5 million in 2001 to $4.5 billion in 2011: an appreciation of about 680%), Nike has an awful lot of reserves at its disposal for future merger and acquisition plans.

Nike's Strategic Alliances

A big part of Nike's corporate strategy is their alignment with outside agencies in cooperating to develop, manufacture, and sale their products.  This practice is known as strategic alliances.  There are three categories of strategic alliances - nonequity alliances, equity alliances, and joint ventures - and Nike implements them all.

Most notably, Nike has entered into a nonequity alliance with Apple to meld sports with music and thus created the "Nike+ iPod" line of products.  Both companies utilize their areas of expertise and popularity to capture new markets and industries.  They share their unique resources and capabilities to create a cooperative competitive advantage that capitalizes on their differences in an innovative and profitable way.  Examples of this partnership can be seen with the Nike+iPod Sport Kit that wirelessly connects a removable "chip" in a person's Nike shoes with their iPod to allow a them to track their pace and workout audibly through the music player while working out.  Another example of Nike reaching into the technological realm is their partnership with Dutch-satellite navigation company TomTom and their creation of a line of GPS-enabled sports watches, Nike+ SportWatch GPS.

Nike also has many equity alliances with overseas partners, in particularly within their product design, distribution, manufacturing, and marketing processes.  Nike is a large global supplier of athletic textiles and outsources much of their supply chain as a result.  To that extent, Nike uses partners abroad to afford lower-cost entry into new, emerging markets, to manage new marketplaces and their uncertainties, and afford them the flexibility to exit declining markets as they see fit.  Nike coordinates efforts with these firms to appease local tastes (for example in Hong Kong, Malaysia, and Yugoslavia), use advanced production technologies (in Japan, Taiwan, and South Korea), and take advantage of lower cost suppliers (China, Philippines, and Thailand).  Most of these areas have strict governmental regulations toward foreign companies, so these partnerships are vital to Nike's global successes.

Aligning with another firm to create a totally new entity, a joint venture, is an area Nike has been a part of before too.  An example is Nike's joint venture with Royal Philips Electronics (the largest European maker of consumer electronics) to create the aptly named entity "Nike-Philips".  Combining both of their skills and abilities in a single firm, Nike-Philips creates "compact, lightweight, stylish MP3, FM, and CD players that leave you free to jump and run while listening to great tunes".  Both firms benefit from the agreement as Nike entered into new markets whereas Philips established a American connection for its products.

Implementing Nike's Corporate Diversification

Magazine Cover of Nike President and CEO Mark Parker

Being a global conglomerate that's highly diversified in the athletic textile markets, Nike must be agile within their corporate governance to best exploit their separate divisions with their shared economies of scope.  Plus being a Fortune 500 company whose stock is traded in great volume, they must be leery of not only focusing on internal success but to appease outside equity holders who want to benefit from their capital investment by maximizing the current and future present value of Nike's cash flows. 

Nike does this like many other diversified firms with a multidivisional organizational structure, or M-form.  Nike has a diverse and esteemed Board of Directors, Nike's "creator" as its Senior Executive, a knowledgeable and experienced Corporate Staff, and is broken down divisionally across its many brands and further specialized by function and geographic specialties.

At the top, Nike's Board of Directors consists of twelve individuals but only two of which are internal managers: Chairman of the Board and Founder of Nike, Philip Knight, and President and Chief Executive Officer of Nike, Mark Parker.  The other ten individuals reflect Nike's goal of placating their outside equity holders' initiatives with highly regarded members from outside of the firm.  These Nike "ten" are comprised of senior executives (from companies such as GE, Microsoft, Apple, FedEx, Lilly, TV One, and Starbucks), intellectuals (a senior counselor and partner of a acclaimed Oregon law firm and the VP/Chancellor of the University of Illinois), and even a Hall of Fame college basketball coach (from Georgetown University).  From there the Board is organized into subcontinental: audit, compensation, corporate responsibility, executive, finance, and nominating and corporate governance.

The success of Nike's diversification is through the monitoring and prescribed bonding activities of this group.  By looking at Nike's growing global market shares and the continual increases in economic value added every year (Dzombak, 2011), Nike's organizational structure from the top down is doing just that.


Reference:

Dzombak, Dan. "Nike's Management Is Creating Value." Fool.com. The Motley Fool, 11 Feb. 2011. Web. 05 Apr. 2012. <http://www.fool.com/investing/small-cap/2011/02/11/nikes-management-is-creating-value.aspx>.

Nike's Diversification Strategy

Nike is definitely a diversified company.  Their product offerings encompass virtually any sports' needs in apparel, equipment, and shoes.  Be it baseball or badminton, Nike has all the bases covered.  


Not only is Nike's product mix diversified, their actual total product offerings come from many other clothing-related linked firms that provide valuable economies of scope to exploit in the market.  Companies such as Cole Haan (a luxury brand that provides high-quality men's and women's clothing and accessories) and Hurley (a youth lifestyle brand that provides clothing and accessories geared to the surfing and skateboarding demographic) are examples of Nike's related diversification.  All of these companies under Nike's guidance can be termed relatedly constrained as corporate management only pursues industries that share numerous resource and capability requirements (such as technological and distribution linkages) within Nike's original corporate edict and can be linked easily linked by such.  Nike uses their diversification to spread out risk and to capitalize on potential profitable opportunities.

Cole Haan's Wingtip Oxfords with Nike's Lunalron  Cushion 

Being a huge global outsourcer, Nike also implements supplier diversification across the globe.  Nike uses manufacturers in as many as 35 different companies (the far east region primarily: China, Indonesia, Thailand, and Vietnam) to produce its product lines.  This gives Nike the flexibility to move into emerging markets as they see fit.  The financial economies of scope are realized through this flexibility by reducing risk and providing tax benefits that afford Nike even greater potential economic margins.  


By diversifying itself along these lines, Nike has created a sustainable corporate strategy that will lead to profits for all of its stakeholders now and into the future.






  

Vertical Integration Strategies at Nike

In the early days of Nike, the company was very much vertically integrated as basically their entire value chain was housed under their "roof".  However by the mid-1970s Nike's product mix had grown to be diversified beyond their manufacturing capabilities and the potential value added in expanding and continuing these vertically integrated strategies could not be justified any longer.  Nike shut down manufacturing processes, but maintained and even ramped up hierarchical governance within the remaining domain of the firm.

Nike, Inc.President & CEO Mark Parker

Modern day Nike is a much more vertically disintegrated or specialized firm that focuses its efforts into an innovative focus in designing and marketing their athletic textiles and brand. Manufacturing in a sense takes away from this focus so it is nothing more than an afterthought in Nike's total corporate strategy plan.  In regards to the decisions leading up to this strategy of vertical integration then and now, Nike's positions can be explained by three logic-based choices: transaction costs economics, capability theory, and real options theory.

The athletic textile market is ever changing in technologies and customer preferences so following transaction-costs logic Nike decided that the uncertainty of the market would demand extensive changing and reinvention of supply chain processes.  The value from doing this in-house would not add enough value to justify these costs.  Nike instead uses outsourcing from capable manufacturers to provide their products at the lowest costs to the company and hence create the greatest economic profits for them.


In a resource-based approach to Nike, their products are unique offerings within consumer preferences but on the whole shoes, apparel, and sporting goods are not valuable, rare, or costly-to-imitate type offerings.  Suppliers need not be heterogeneous toward manufacturing these, in fact many of the same suppliers produce competitors products simultaneously.  As alluded to above, Nike does vertically integrate within certain areas of the company that do in fact produce valuable, rare, or costly-to-imitate characteristics for the firm.  Their vast history and dominance within the market have created a know-how that's virtually unsurpassed and their research and development teams are at the bleeding edge of the market.  Keeping these processes within the firm's walls separates Nike from the competition.


Finally in discussing Nike's vertical integration with a real options approach it's easy to see that they must maintain flexibility due to the dynamics of customer tastes.  Nike has to satisfy many different consumer demographics so to do this they stay away from investing too much into any one area.  Maximizing strategic flexibility insists that they outsource the manufacturing processes and harbor an innovative corporate culture under its "umbrella".  By keeping their real options open, Nike can also be ready in the event that new potential competitive advantages appear such as technologies.


Couple all these thoughts and theories together, Nike's stance of intermediate governance is exactly what is needed to maintain a sustained competitive advantage with a flexibility to adapt to the market and its costs.  Remaining less hierarchical is what affords them this opportunity and allows them to remain the market leader in athletic textiles.

Tacit Collusion: Nike's Collusion Strategy?

Tacit Collusion in regards to Nike

I preface this but saying that I'm not accusing Nike of collusion, but more so the allusion of the potential collusionary practices that could be put in place for the benefit of all in the marketplace.  With that said, Nike's market is a prime suspect for such business strategies.

The sport/athletic textiles market is one that is dominated by few competitors with the market power being concentrated amongst a select few making it an oligopolistic market.  Luckily for Nike they are in this select group and are actually the "price leader" within the industry.  With that power comes great responsibility to themselves and their common rivals in implementing their competitive/cooperative strategy of producing superior economic performance for itself within collaborative constraints with rivals firms.  This practice of such is called Tacit Collusion.

Nike along with its traditional competitors, Adidas and Reebok, have established a pseudo-industry social structure over the years that each knows its proper placements and strongholds in the market (i.e. Nike being a basketball product leader, Adidas in soccer and Reebok in fitness/exercise).  The mix of hard and soft signals between these market leaders established protocols for the pricing and outputs so that each could, in theory, obtain superior economic profits rather than through pure competition.  

However with an influx of new entrants over the past couple of decades (i.e. Under Armour), these companies have reevaluated their stances in meeting the product differentiation and cost leadership strategies of their new rivals with individual strategic choices in mind.  Only recently has the market seemed to re-balance itself with these new "partners" as products are differentiated, albeit minutely in general, and prices are somewhat stable across the board.  Granted new hard and soft signals have been implemented to obtain this stability (Nike investing in new technologies and merging/procuring other companies such Umbro, Cole Haan and Converse), but on the surface it seems that although the companies are different in products and advertising, they are essentially balanced with their marginal cost-marginal revenue structures according to scale.

Nike's Flexibility: Real Options Analysis

Nike's Real Options Under Risk and Uncertainty

The "flexible" Nike Free

Nike has an ingrained protocol to undermine the threat of risk and uncertainty while remaining flexible with its strategic choices.  In particularly, they remain flexible in their manufacturing processes by outsourcing the operations entirely across the globe as to remain agile in adapting to changing economic climates and customer preferences.  Not being burdened by the large capital overhead costs that come from vertical manufacturing integration affords the company flexibility to diversify their product portfolio into riskier endeavors where technical or market uncertainty is apparent but the "rewards" of such can be great.  

Keeping this business option of contracting is much less costly than running their own manufacturing plants as it takes labor costs out of the discussion when determining the real options of pushing product lines. With regards to these costs, Nike also uses its massive market power to negotiate lower charges out of their suppliers further granting more leeway into calculating the Net Present Values of their product decisions.  Considering the ever changing preferences of their customers, this competitive advantage creates real economic value in the midst of their demographic's fickle uncertainties.  Furthermore the absolute path dependency of such would pigeonhole Nike into particular lines that could grow out of favor over time and leave them holding on to declining offerings.  The trade off of lower costs due to focused, in-house manufacturing nor do the switching costs of such create enough value amid these uncertain conditions for Nike to warrant this cost leadership strategy over the flexibility in its product diversification strategy and I do not believe their stance to shift any time soon.

Product Differentiation at Nike

Ways Nike Differentiates Its Products

The athletic apparel market is one that is competitive and highly dynamic.  Products must be distinct, bleeding edge and top-of-line for any firm to have a chance at grabbing a hold of any competitive advantage more less sustaining one.  Nike, being the world leader in this market, takes these customer perceptions to heart and continually produces products that separate itself from the pack.

The product differentiation attributes that Nike pays great attention to are the uncanny product features and the timing of introducing their products to market.  Creating new technologies in material and designs that are continually updated to reflect consumer preferences create a niche that others try to copy but never can sustain Nike's pace.  Plus Nike always seems to be ahead of the curve in introducing their newest products just as the market begins to crave them.  New products like the recently released Flyknit shoes that blend a new knitted pattern of yarn and fabric into a lightweight, breathable running shoe just as soon as summer starts creeping into the public's psyche is a good example.

Another big part of Nike's product differentiation strategy is its relationships with its customers.  Being the worldwide leader of athletic textiles for the better part of half century has given Nike a sort of "high ground" in the market.  Customers feel that Nike's reputation in athletics is somewhat superior over all others and by default pick their products more often than not just because of this.  Also Nike is well known for their great marketing techniques with many of the world's most well known athletes serving as spokes models, witty ads and commercials, and the "Just Do It" slogan that is synonymous with the brand.  Additionally, Nike reaches out to the consumers with product customization offerings to further offer a different product experience as well; i.e. the NikeID brands of clothing, equipment and footwear that allow customers to modify the colors, materials and even monogram their products however they see fit. 

Not to be overlooked, Nike engages in many linkages with other firms and has a diverse product mix.  The Nike brand is seen around the world through the linkages they have with most every sport on the planet.  The Nike Swoosh is on everything from NCAA college footballs to Olympic sports uniforms pushing the brand out there into every sport's athletes' or wannabe athletes' brains.  Nike even cross links with non-athletic companies to implement new avenues for their consumer, for instance with the Nike+ run tracking software made in conjunction with Apple's iPod and iPhone.  As one can imagine, more often than not Nike will not only be on one "part" of those performing athletes, but more likely that person will be outfitted in a complete Nike product mix from head to toe.  Consumers will find that they like one product from Nike, say shoes, and then see another offering, like sunglasses, and automatically correlate the former's high performance to the latter rather than pursue an unknown brand.

     

                                            Nike ID                                                                                    Nike+

Nike most definitely has a sustained competitive advantage with these strategies in place and will continue to be an innovative market leader as long as they continue to utilize them.

Cost Leadership at Nike

Nike's Cost Leadership Strategy

Nike has a moderate cost leadership strategy within its industry.  There are a few different choices in the marketplace for buyers to obtain athletic shoes, apparel and the like, however Nike's products are distinct for a variety of reasons that enable them to derive economic profit from other means than simply controlling costs.  With that said, the hypercompetitiveness of the few rivals Nike has means that they do have to do their best at minimizing said costs as to maximize their market share and margins.

Nike has significant economies of scale.  As the world's largest producer of athletic textiles and equipment, Nike dwarfs the competition.  A caveat to their manufacturing processes, Nike outsources all of these processes to many Asian countries that does three things, (1) keeps Nike as a company very lean, (2) provides a cheap labor source, and (3) if a manufacturer/supplier increases costs, Nike can simply relocate to a cheaper option further driving down their marginal costs.  Other companies without Nike's clout can't match this ability.  Also considering the worldwide demand that Nike has, the distance to market from suppliers is negligible and not a source of a diseconomy of scale.

Nike has a long history within the sports world that dates back to 1972, which enabled them to assemble a large knowledge base throughout the years.  This knowledge continues to be dynamic within the industry through an innovative Research and Development department that continually creates new advantages in athletic performance (for instance, Nike's recently released Nike Free Gym+ women's shoes that mimic being barefoot for exercise classes such as yoga and the Nike Hypercool 2.0 line of sweat wicking performance clothing to cool athletes as they perform).  These advantages set Nike's products apart and drive customers to them.

                    Nike Free Gym+ women's shoe                                 Nike Hypercool 2.0 Pro Combat Top

Nike definitely has low cost access to factors of production.  The enormity of Nike in respect to their suppliers gives them a huge advantage in production negotiations.  Due to their high volumes for products, the cut-throat low cost nature of selecting a manufacturer, and coupled with the fact that Nike's suppliers depend so heavily on them for their own success that they have little to no bargaining room toward raising prices, allows Nike to continuously enjoy low costs of production.

Nike's hardware and software technology implementations of using the not only using the best materials but creating them in a vertical fashion and housing an innovation culture from the top down, allow Nike a first move advantage into cost savings. However most of these advances only bring definite savings for a short time due to competitive parity within the industry, their creative nature definitely does benefit over the long run.

Evaluating Nike's Strengths and Weaknesses: The Resource-Based View

VRIO Framework of Nike

In determining the true resource-based, internal sources of Nike’s competitive advantages, a VRIO Framework is necessary. By singling out those internal resources that are heterogeneous (difference between Nike’s resources and the competitions) and immobile (the competition’s ability to mimic Nike’s resources), we can see where Nike’s true strengths and weaknesses lie.

Value – Does Nike’s resources and capabilities enable the firm to respond to environmental threats or opportunities? Yes, Nike has been the global leader of the athletic textile industry for some time, garnering much experience and know-how along the way. The massive vertically integrated nature of Nike, from research and development to the manufactured finished product, has allowed them to pursue totally new markets in a first mover fashion (casual clothing fashion lines like the Cole Haan) or enter established markets and ward off competition threats with their market leader superiority (Nike Dri-Fit sweat wicking material versus Under Armour Charged Cotton sweat wicking material). By utilizing their knowledge base, Nike can use their resources and capabilities to exploit numerous market opportunities.

 

Ad for Cole Haan/Nike

Rarity – Are Nike’s resources currently controlled by only a small number of competing firms? Yes, Nike’s ability to invent and reinvent their entire product list for the better is unmatched in the industry. Granted others might be able to gain temporary competitive advantages due to a micro-focused view on one particular market segment (for example CCM hockey equipment), but Nike’s resources and capabilities allow it to move swiftly to either copy or make better that original company’s attempt at competitive parity (Nike-Bauer hockey equipment merger).

Imitability – Do firms without a resource face a cost disadvantage in obtaining or developing Nike’s resources? Yes, the ingenuity of Nike’s products involves tried and true knowledge developed through the extensive research and development labs housed within the company that is expensive to duplicate. Even if a competitor does successfully imitate Nike, they then have to fight the market perceptual dominance that Nike has over its customers within its market. The Swoosh is all powerful within the market and therefore unique in its industry. 

Organization – Are Nike’s other policies and procedures organized to support the exploitation of its valuable, rare, and costly-to-imitate resources? Most definitely. Nike’s leadership has organized the company in such a way that its innovative nature consistently produces sustaining profitable results within the market. Being ahead of the curve of the athletic footwear market some 50 years ago gave it a foothold into not only shoes, but all things athletic. Sustained competitive advantages will continue as long as Nike continues on this path.

In conclusion, it is apparent that Nike has a sustained competitive advantage. The distinctive competence within Nike’s resources and capabilities allow it to be risky and innovative but at the same time remain profitable with current and traditional offerings. Unless extreme unanticipated changes within its market occur, Nike will be a market leader from now and into the future.

Evaluating Nike's Environmental Opportunities

Industry Structure

    

Nike’s industry structure can be diverged into many categories, but its main designations are that of mature and multinational industries.  The athletic textile (apparel, footwear, and accessories) industry is by and large a mature industry considering its slowing market growth coupled with a steady demand of repeat buyers, increasing competition internationally amongst a few large competitors, and a definite slowdown of the introduction of different, specific products.  Nike has a sustainable presence as the market leader basically due to its continuous refinements of all of its products through its innovative research and development processes of testing and putting into practice sustainable products with now a creative, “green” genesis, i.e. in the 2010 World Cup, making the jerseys out of recycled plastic bottles while not compromising performance.

Brazil Soccer Jersey made out of Recycled Plastic Bottles

Also Nike is a large, multinational conglomerate that is spread out companywide across six major geographic areas – North America, Western Europe, Eastern/Central Europe, Greater China, Japan, and Emerging Markets.  Even their affiliated brands operate in a similarly collaborative way as multinationals.  Mainly the operations of each focus on local tastes and operations can be maintained more effectively within each market at each center headquarters.  This allows each geography the flexibility to rapidly change without much bureaucracy.  For instance, Nike outsources all manufacturing processes so that all “branches” have even further flexibility in a labor crisis, shortage, or negotiations.

Environmental Threats as Opportunities

Nike didn’t get to be the market leader by not exploiting certain industry opportunities along the way.  Its leadership has effectively neutralized certain threats continuously over the company’s lifespan mainly using entry, rivalry and substitute threats to their advantage.

Nike has sufficiently erected barriers to new entrants by exploiting their global economies of scale and reducing production costs through outsourcing, but mainly their focal point is their novel product differentiation techniques.  By continually revamping current products through lighter materials (the Nike Free shoes that mimic barefoot walking) and specialty lines (2012 Black History Month shoe collection) as well as reinventing new products that change the way we’ve always used their predecessors (pedometers in relations to Nike+ FuelBand), Nike’s innovations allows them stability at the top of the market for now and into the future.

Nike+ FuelBand Introduction Video

Furthermore, Nike establishes their dominance through neutralizing rivals and substitutes through this same innovative verve that shortchanges new entrants.  Rivals attempt to copy Nike’s technology leader status with substitute products but through Nike’s large capital investment in research and development, they move rapidly as second movers to eliminate any discrepancy there is or ever was created.  Not only copying an idea that wasn’t originally theirs, but changing the public’s mindset into believing that they were the creators of it (much like they did with their Dri-Fit fabric in response to Under Armour’s sweat-wicking fabric) is commonplace.  Also they use their mighty bankroll to drive out rivals from lucrative partnerships, such as Nike becoming the official uniform provider to the NFL this upcoming season (a 5-year, $1.1 billion sponsorship) effectively taking away a key branding opportunity from Reebok (who is owned by Nike’s main competitor, Adidas).  

Nike/NFL Uniform Change Promo Video

Evaluating Nike's Environmental Threats

As the world's foremost leader in athletic footwear, apparel and equipment, Nike is a globally dominate company within it's marketplace.  However it is not impervious to the environmental threats that surround it both domestically and abroad.

Porter's Five Forces Model

1. Threat of Entry - There are definitely economies of scale within the retail manufacturing business that produces a range of products but a great number of homogeneous ones such as the athletic retail business that Nike is in, and that their manufacturing processes have a stronghold on.  New entrants would need a large amount of capital investment in this area to even consider entry.  Nike's distribution network is widespread all over the globe with some 20,000 retailers, most of which in the United States, Europe, and Asia, selling their products to the masses as well. The Nike brand is known around the world (not to mention the other major brands that it controls in their own right: Cole Haan, Converse, Hurley, the Jordan brand, and Umbro) and the customer loyalty to it is very strong, another difficulty for a start-up to overcome.  It's basketball shoe division, with the Jordan brand being the main driver, controls about 95% of the market by itself!  Barriers to entry are extremely high and are of little threat to Nike. 
2. Threat of Rivalry - With Nike being an international conglomerate, its market is massive and thus there are many unique competitors in the industries it pursues.  With that said, very few have the ability to compete on Nike's level.  Only Adidas and Reebok are current threats internationally and in combination with those two, New Balance and Under Armour being the main domestic ones.  The lack of competing firms plus the competitors lack of size and current influence in regards to Nike indicates a low to moderate level of threatening rivalry.
3. Threat of Substitutes - There are many hypothetical substitutions for Nike's products, i.e. wearing cowboy boots instead of basketball shoes during a pickup game, but none of which are rather feasible.  The athletic products Nike makes are for a particular niche of the market and if an athlete prefers to play at their highest ability level, they will purchase athletic gear from Nike or another competitor.  To combat a competitor's substitute product, Nike has years of know-how and continues to innovate with its Research and Development department to produce high quality, high performance products.  By staying innovative, Nike can continue to build upon its dominance.  Total substitution threats are low to moderate.
4. Threat of Suppliers - The suppliers' industry is so vast that bargaining power is held almost entirely by Nike and a small number of other athletic firms.  For instance the raw materials to make an athletic shoe can be purchased from a number of factories so substitutions can be made rather easily between them because unique or highly differentiated shoe materials are basically non-existent or to easy to come by.  Nike employees a low-cost methodology to suppliers in that it can switch for a cheaper provider rather easily.  Supplier threat is low.
5. Threat of Buyers - Customers are crucial for Nike, but have little to no power or threat toward them. There will always be customers in need of their products so if one person doesn't want it, chances are another will.  Even the retail buyers, such as Dick's Sporting Goods, Foot Action, and Hibbits Sports, hold relatively little power as customers who want Nike's differentiated and branded products will seek whatever avenue necessary to obtain them.  The main threat that buyers have over Nike is their own buying power.  During rough economic times, monies are stretched thin between certain buyers so Nike may lose out on some sales in certain climates but should bounce back when recovery is apparent.  Buyers threat is low.

In conclusion, Nike is in great shape within its industry.  There are high natural barriers to entry, competition is fierce but proportionally low in regards, substitutions are possible but innovative techniques and brand awareness keep this at bay, and suppliers nor buyers have much bargaining power to influence Nike's products.  By staying on this current path of industrial superiority, Nike is well equipped as a oligopolistic (perhaps in some areas monopolistic) company that it can worry little of these threats and will continue to grow in power and performance over time. 

Nike's Firm Performance and Competitive Advantage

On Dec. 20, 2011, Nike released their financial results for the second fiscal quarter of 2012 and let's just say that their performance continues to "Just Do It".  Reported highlights from their second quarter financials are that revenues are up 18 percent to $5.7 billion (up 16 percent if you exclude their currency changes), diluted earnings per share are up 6 percent to $1.00, worldwide futures orders are up 13 percent, and inventories are up 35 percent.  Obviously the rising inventory levels are a slight cause for concern, but besides that Nike continues to set the bar in the sports apparel industry.  “Our strong second quarter results demonstrate that the NIKE, Inc. portfolio is a powerful engine for growth,” said Mark Parker, President and CEO, NIKE, Inc. “We’re able to accomplish this by staying focused on what we do best – deliver innovative products and experiences that serve athletes, inspire consumers and reward our shareholders. Going forward we’ll continue to use the unique power of our portfolio to drive growth, manage risk and connect with consumers.”

Nike is accomplishing this growth due to both their temporary competitive advantages, such as their current distribution channels and satisfaction level with consumers, but in most part its due to their sustained competitive advantages.  Nike's brand is one of the most recognized around the globe (BuisnessWeek named it the 31st ranked brand in the world), it's research and development department continues to innovate (most recently continuing to expand on their Apple platformed Nike+ line of athletic electronics by introducing the physical activity-monitoring wristband, the Nike+ FuelBand), and their incredibly effective marketing (the "Just Do It" campaign to their sponsorships with some of the top athletes in the world: Tiger Woods, LeBron James, Lance Armstrong, and Cristiano Ronaldo to name a few).  The gap between Nike's $2.23 billion in net income and their closest, publicly traded competitor Adidas's $854.56 million is so staggering that it's hard to imagine Nike being unseated by anyone in the near future.

Below are some simple accounting measures of Nike's competitive advantages.

http://www.investorpoint.com/stock/NKE-Nike+Inc.+Cl+B/key-ratios/