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.