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>.