University of Khartoum

School of Management Studies

D/MBA Graduate Program (Semester Four)
2014

Strategic Management
Strategic Analysis of:

Prepared By: Bakri Ismail Elsayed

Index: 106091
Group (A)

CONTENTS

1. INTRODUCTION
2. STRATEGIC ANALYSIS
2.1.
2.2.
2.3.
2.4.
2.5.

Internal Strengths and Weaknesses

External Opportunities and Threats
SWOT Analysis
Companys Strategy
Companys Structure and Control System

3. RECOMMENDATIONS

1.

INTRODUCTION
1

Nike, a US based company, is now considered one of the biggest companies in the
business of sports merchandising. Though it is barely above 30 years old, established
1972, it has $10 billion in annual revenues and its products are sold in around 140
countries. The company started as an entrepreneurship by Phil Knight, a former US
athlete, and his coach who combined to design a shoe to help athletes improve their
performance and then turned the idea into a successful business. The companys initial
product was the sports shoes, but then it started dealing in sports apparel and equipments.
Nikes business includes designing and marketing these products, they do not actually
manufacture them, but rather they use subcontractors to do the manufacturing for them.
They have a global network of 600 factories employing more than 500,000 people around
the world.
For all this success, Nike has been persistently accused of using what is called
Sweetshops to make its products where underage workers are labored in hazardous,
inhumane conditions and yet being underpaid. The company found itself in the defensive
side for the last decade and been caught in a series of confrontations with human rights
organizations and major US universities even those who have had an alliance or some
sort of sponsorship with the company. And although it continuously denies these
accusations, later it admitted to the problem but critics still believe it did not do enough to
remedy these problems and clear its name.

2. STRATEGIC ANALYSIS
2.1. Internal Strengths and Weaknesses:
Strengths
The company is well known for its competence in the market considering the quality of
products it provides coupled with good marketing skills; the company is known to use
celebrity sponsors to promote its products. Also, the companys R&D skills have been a
strength in providing new and innovative products to sustain its distinctive competence
over rivals.
Through the years Nike has developed its brand name reputation to be one of its biggest
strengths.
Weaknesses
To try and reduce its costs, Nike involved in subcontract agreements with partners who
negatively affect the companys image by violating the laws of labor and abusing human
rights ethics.
Handling the situation with critics has proved to be a difficult task and for a company of
Nikes size the response was below what is expected and even audit reports were
questioned as being unprofessional and biased.
Nike has concentrated more in improving its public image but did little to correct the root
cause and although it severed its ties with some violating subcontractors, it failed to fully
recover the lost trust with the public, it even reacted negatively when old allies like

University of Oregon joined the Workers Rights Consortium (WRC) by withdrawing a

planned $30 million donation to the university.

2.2. External Opportunities and Threats:

Opportunities
Examining the macroenvironment factors we can see Nike is actually in a business that is
considered growing and expanding as interest in sports is spreading around the world
especially among the younger generations (demographics), also the technological
advances opens opportunities for this business.
Examining Porters five forces model in Nikes case we can observe that the companys
economies of scale poses a barrier to entry of new competitors of the same scale, also, so
far there is no threat of substitutes to the line of products provided by Nike.
Threats
The possible threats to the company may come from the deteriorating image if the
conflict with critics is sustained as hi-profile as it is; even if it is resolved, this most
probably will raise the cost of suppliers if they want to comply with the necessary
standards of working conditions and pay systems. This continuity of the conflict will
intensify the rivalry with other established competitors who will find it a chance to
improve their image and market position.

2.3. SWOT Analysis

Given the above findings on internal strengths and weaknesses and external opportunities
and threats, Nikes overall competitive position may still not be regarded as weak. The
company is still considered as a market leader and it continues to sustain its competitive
advantage. The business strategy can be pursued profitably and it does not need a shift or
change from its current business, however, it needs a shift in its dealing with
subcontractors to actually address the conflict of workers conditions. This has to be
coupled with a strong public relations effort to re-gain the trust of influential bodies and
re-instate the image of the company as a respectful and considerate firm.

2.4. Companys Strategy

Nikes core business is sports products merchandising and it has not been involved in
diversifying away from this business, this focusing on a specific line took the company to
the maturity stage of its business. The companys mission is to stay the leader in its
market and sustain its competitive advantage over rivals such as Reebok and Adidas. The
companys generic competitive strategy is to focus on its product line and provide
differentiated products to the different sports needs as each sport requires a different kind
of apparel. This was achieved by a dedicated research and development strategy
In its pursuit of reducing the cost of its products, Nikes strategy of subcontracting
created the problems which are the focus of this analysis. So, the company apparently

developed the competencies to differentiate its products but failed to develop those
necessary to reduce the costs without affecting the companys image.

2.5. Companys Structure and Control System

As stated above the company does not produce its products under its internal organization
but rather subcontracts this activity to others, so the organization is focused on research &
development, design and then marketing efforts to achieve the corporate objectives. The
strategy formulated by Nike to achieve its objectives is about just the right one so as to
focus in sustaining its competitive advantage and satisfy its mission, however, the
implementation of its strategy and the type of subcontractors it is dealing with are the
sources of the conflict with the public and the human rights organizations.

3. RECOMMENDATIONS
The companys performance in terms of business aspects and profitability is satisfactory
but the wide spread criticism of its subcontractors approach to labor rights is issue that it
needs to address and resolve. The following recommendations might be a possible
remedy to this situation:
a- The company has to seriously and genuinely be concerned with the work force
employed by its subcontractors; this may be achieved by applying strict standards
as to the working environment in the factories where its products are being
manufactured, and to the health and safety measures adopted by the factories in
addition to the way these workers are being compensated. This is the minimum
there is to expect from a company of Nikes size as part of its social responsibility
towards the societies that provide the workforce necessary to achieve its
objectives.
b- The company has to implement rigorous auditing activities to continuously
monitor the compliance of subcontractors with its standards. This should not only
rely on third party auditors but also on companys own staff.
c- If these measures tend to increase the cost of its products or strengthen the
bargaining power of subcontractors, the company may still be able to overcome
that. Nike already has a strong marketing setup and it can increase its volume of
sales to lure the subcontractors to retain the cost as low as possible.
d- Research and development has a role to play in improving the companys
position, not only by innovating new marketable products but also by innovating
products that uses low cost materials without affecting the superior quality.

e- The company has to focus also on its public relation efforts to clear the companys
reputation. It has to continue building alliances with public institutions and
universities.
f- An alternative, but a long run measure, is to try and increase the level of vertical
integration by acquiring suppliers factories or building its own manufacturing
facilities. Although this will need restructuring of the organization and adding the
extra burden of managing the production activities in terms of assets and human
resources, it will give the company better control over the conditions of its
manpower. Not only that but it will provide more flexibility in differentiation of
products as there will be more facilitated communication between designers and
production facilities.