Nike case : hitting the wall

Résumé du document

A firm's success depends on its social legitimacy. Usually, in the consumer's mind, the importance of a firm relies on what it can bring to the society. Therefore, for Nike, relocations basically mean that the company takes away jobs from US citizens. Moreover, Nike's labor scandals have highlighted some ethical issues: low wages, child labor, dangerous working conditions, environmental awareness and so on. At first, Nike didn't pay attention to the criticism as the charges were leveled upon them by a little group of activists, but later on the societal pressure became so high that Nike was compelled to take some measures to calm down public opinion; hence the significance of keeping an eye on the societal reaction to the brand management.
In this type of industry, brand image is essential. Nike has been associated with "coolness", with "success" and "fashion". However, labor scandals have sullied Nike's reputation. Even though currently Nike's revenues have been little affected by the bad image, the firm needs to improve its reputation quickly: step by step, Nike has lost numerous partnerships (especially with US college campuses) and its labor practices have become the center of attention of the average consumer. Although Nike was not the only one with bad labor practices, the firm ended up being the scapegoat, and therefore the target of media criticism.

Extraits

[...] Focusing on human rights rather than on fashion Nike's current strategy is to focus on fashion trends, and all its marketing is based on this. Nevertheless, the increasing unpopularity of Nike among students and US consumers in general may force Nike to reconsider its positioning. A solution would be to shift towards a more socially responsible image, like Reebok, so that the Swoosh could be associated with a company willing to defend human rights. In order to do that, Nike could implement the following measures. Nike's first action would be to raise minimum wages, which is a major bone of contention. [...]

[...] An advantage of this strategy would be that they can blame the contractors for the bad labor conditions, arguing that they have no power or right to dictate the labor conditions. However, the drawback of this strategy is that Nike lacks control of the whole production process and it can lead to dangerous issues (worker exploitation, counterfeiting etc). II. Strategic choices A. Integrating factories instead of keeping on outsourcing The strategy which consists in outsourcing all manufacturing and reinvesting the money saved in marketing might not be the ideal one. [...]

[...] Nike case: Hitting the wall I. Key issues Societal pressures A firm's success depends on its social legitimacy. Usually, in the consumer's mind, the importance of a firm relies on what it can bring to the society. Therefore, for Nike, relocations basically mean that the company takes away jobs from US citizens. Moreover, Nike's labor scandals have highlighted some ethical issues: low wages, child labor, dangerous working conditions, environmental awareness and so on. At first, Nike didn't pay attention to the criticism as the charges were leveled upon them by a little group of activists, but later on the societal pressure became so high that Nike was compelled to take some measures to calm down public opinion; hence the significance of keeping an eye on the societal reaction to the brand management. [...]

[...] Our recommendation We have chosen the “balanced choice” described previously for the following reasons. First, the outsourcing process enables the firm to save money. As the supplier bargaining power is low (cf Porter's five forces), Nike can compel its contractors to respect some code of conduct concerning the working conditions and minimum wages. For example, Nike can send inspectors to these factories to check if they respect the FLA code of conduct and threat to stop dealing with the contractors who do not abide by the code. [...]

[...] Grade: 2/6 Rivalry among competitors Big players (Adidas, Nike, New Balance, etc.) People mainly buy items produced by big players, but are not loyal to any of them in particular. Grade: 5/6 Threats of new entrants Not very high, because big players have become very recognizable brands. Need high capital to invest in marketing (celebrity endorsement) Grade: 2/6 Threats of substitutes Substitutes in terms of fashion (consumers may turn to other brands) but not for the product itself. Grade: 2/6 Final grade: 3/6 Oligopolistic industry. Comfortable for main players, hard for new entrants. [...]