NIKE’S ENTRY STRATEGY IN CHINA AND INDIA

NIKE’S ENTRY STRATEGY IN CHINA AND INDIA

            Any organization that desires to realize its goals or become successful in the market place should come up with an effective strategy. Nike Inc is an exemplary illustration of a firm that has an effective strategy. The Nike brand is renowned all over the world and the company continues dominate the sportswear and apparel industry despite fierce competition from other firms. Nike employs a multifaceted strategy that takes into account every aspect of its business. On that account, the purpose of this paper is to conduct a comprehensive analysis of Nike’s entry  strategy in China and India.

History and Overview

            Nike, Inc. is a transnational company that is involved in the design, development, production, and international sales of apparel, footwear, accessories, and services. Nike’s main base of operation is located close to Portland and it is the biggest distributor of sportswear across the globe. Further it is a key producer of sports equipment and has a revenue base of more than $24 billion dollars as of 2012 (Brettman 2013). The name Nike is derived from the Greek goddess of victory.

Nike markets most of its product under its own brand and has a broad product line. The company’s range of products range from sneakers, athletic wear, sport equipment, golf wear, skate boards, and has collaborated with numerous athletes to create product lines based on their names (Peters 2009). In addition, the firm has subsidiaries, which includes Converse, Hurley International, and Brand Jordan, and it previously owned Umbro and Cole Haan, which it sold off. On top of producing sports equipment and wear, Nike runs brick and mortar stores under the Niketown brand. Nike is the main sponsor of many highly recognizable sport franchises and athletes, and also national teams through its sportswear and kits (Peters, 2009). Based on these description, it is easy to see why Nike is one of the most recognizable brands in the world.

Nike’s Strategy In China

Philip always believed that China was a market which held great potential for Nike. The company began its Chinese operations in 1970s with a manufacturing plant. Philip went to China in the 1970s when the nation was coming out the Cultural Revolution. During that period, Nike’s revenues were $ 150 million and the firm was ready for an IPO (Lund‐Thomsen 2012). At the same time, China had yet to become a global manufacturing hub and was nowhere near the fastest growing economy in the world. On that account, the combination of these factors made Philip realize that the China offered numerous opportunities, with its talented workforce and low wages. He held the perception that with some progression, the manufacturing plants would be able to make exactly what Nike needed. At this period, the government was gradually moving toward economic liberalization. After Mao Zedong’s regime, the next regime made plans to double the country’s GDP by the start of the 1990s (Lund‐Thomsen 2012). Therefore, the favorable economic policies and a steady workforce set up stage for Nike’s entry into China.

Nike began to venture into the Chinese market by being a key sponsor of numerous sports-related events, which includes professional leagues. The company initiated sporting leagues and was key in developing the American streetball culture in the country. By doing so, Nike was able to develop a strong brand presence leading to a high rate of familiarization among Chinese consumers.

The Advantages and Disadvantages of Nike’s Strategy in China

Advantages

The greatest advantage of venturing into the Chinese market is based on the fact that China is a low-cost country. Nike does not involve itself in the manufacture of products and its entire production has been outsourced to contractors. The company has been collaborating with Chinese manufacturers for decades. The factories produce most of Nike’s athletic apparel. The deep supply chain and brand roots in China develop unique opportunities for the company. The equipment and apparel are produced by around 700 contractors who employ almost 800, 000 workers (Lund‐Thomsen 2012). Due to this strategy, the company is able to maintain low over head cost and can tap into the expertise of locals.

Another advantage stems from its early and fast reaction to set up into the Chinese market. Since Nike set up base in China at the start of the 1980s, it gained numerous early-entry advantages of foreign direct investment (FDI), which includes distribution channels, lack of strong competition, and segments (Peters 2009). Nike introduced their products to the Chinese market and this enabled the firm to gain monopoly in this region through different channels of distribution. Aside from this, the company gained an advantage in related sectors like the positioning of a new product and brand loyalty. Currently, the company has more than seven thousand retail stores in China and still has plans to expand.

Disadvantages

The greatest shortcoming is the difficulty Nike faces in controlling the quality of products across the many contractors spread all over the country. Nike has been associated with significant quality scandals in China. Many products have been recalled over the years and some products have caused injuries among its consumers. For instance, in 2011, the quality authorities in Shanghai discovered that 3 pairs of Nike shoes did not meet quality standards (Lund‐Thomsen 2012). Consequently, the agency stopped the production of the shows and asked for a recall of shoes that did not the stipulated standards. Such an action not hurt Nike’s bottom line, it also damages its reputation in China and across the world.

Nike’s Entry Strategy in India

            Nike leveraged its strong brand reputation to venture into the Indian market. Nike has gained is global reputation through its robust brand endorsements all over the world.  The company’s belief in shoes geared towards performance, along with high-value promotions has enabled it to preserve its leadership position in the sportswear industry. Indeed, the Nike brand has become synonymous with sport celebrities like Tiger Woods and Michael Jordan. On that account, Nike’s penetration strategy into India had to be followed with a high expenditure on advertising.

The marketing strategy’s focus was on capturing the Indian space by illuminating Nike’s portfolio of star athlete endorsements. By doing so, the firm was able to launch customized promotions to target India’s huge cricket following. The company opened a Cricketing arm and launched cricket shoes (Luo Sun, and Wang, 2011). By centering its promotions around cricket, Nike was able to connect emotionally with Indian consumers. Nike also fought to gain the rights to be the official kit sponsor for the Indian cricket team for a period of 5 years, beating its rivals Reebok and Adidas (Luo Sun, and Wang, 2011). Nike’s cricket wing was a new business line and the sponsorship demonstrated to consumers the company’s loyalty to India’s cricket team and the market in general. The deal enabled the company to gain momentum in India. Further, the sponsorship enabled the firm to launch the official merchandise for the Indian cricket team, which includes replica team jerseys, backpacks, t-shirts, and bags. It is estimated that the deal earned the company around $20 million in 2005 (Luo Sun, and Wang, 2011). Sales in the country continue to increase in the next few years, especially after Nike presented its for cricket advertisement during the World Championship Trophy, a renowned cricket competition. The revenue earned is an illustration of the effectiveness of Nike’s cricket-based advertisements in the effort to gain entry into the Indian market.

Advantages and Disadvantages of Nike’s Entry Strategy into India

Advantages

The biggest benefit of Nike’s stagey was its appeal to the Indian cricket fanatics. The company geared its promotions to tap into the country’s huge cricket following. Indeed, the company even gave the Indian cricket team a lucrative sponsorship. By doing so, it tapped into the emotional appeal of cricket enabling it to gain a large market base.

Disadvantages

The marketing strategy used by Nike can be easily replicated by its rivals. Company’s like Reebok and Adidas also have significant war chests in regards to finances which they can use in marketing activities. For instance, Adidas can simply offer the Indian cricket team a bigger sponsorship in the efforts to take up Nike’s market share. Therefore, the lack of a generic strategy may harm Nike in the long run.

Suitability of Nike’s Entry Strategy in India and China

Nike’s entry strategy into China has been largely successful. To gain and maintain market share, Nike embarked on a strategy geared towards outsourcing its manufacturing. The objective was to decrease waste in regards to cost of hiring labor and shipping, among others (Luo Sun, and Wang, 2011). Cheaper facility cost and labor in China enabled Nike to enjoy the economies of scale. It fundamentally decreases the overall production expenses and enables it to get higher profits.

The strategy used in India enabled the company to get a large market share within a short time. By targeting the country’s loyal cricket followers by sponsoring the national team and introducing cricket shoes, Nike gained a considerable share. However, the company needs to formulate a generic strategy as this one is highly replicable.

Conclusion

            This paper has conducted a comprehensive analysis of Nike’s entry strategy in China and India. In China, Nike does not involve itself in the manufacture of products and its entire production has been outsourced to contractors. The company has been collaborating with Chinese manufacturers for decades to enable it to lower overhead costs. On the other hand, in Indi, Nike launched customized promotions to target India’s huge cricket following. The company opened a Cricketing arm and launched cricket shoes. On that account, the entry strategy used in China enables a more sustainable competitive advantage since it enables the company enjoy the economies of scale leading to higher profits. The company should consider adopting such a strategy in India as the country’s population is growing at a rapid rate, which might translate to future Nike customers.

References

Brettman, A.  February 2, 2013. “As Nike looks to expand, it already has a 22-building empire”. The Oregonian.

Lund‐Thomsen, P., Nadvi, K., Chan, A., Khara, N. and Xue, H., 2012. Labour in global value chains: Work conditions in football manufacturing in China, India and Pakistan. Development and Change, 43(6), pp.1211-1237.

Luo, Y., Sun, J. and Wang, S.L., 2011. Emerging economy copycats: Capability, environment, and strategy. Academy of Management Perspectives, 25(2), pp.37-56.

Peters, J.W. August 19, 2009. “The Birth of ‘Just Do It’ and Other Magic Words”. The New York Times.