Also, Nike has license agreements that permit unaffiliated parties to manufacture and sell Nike-owned trademarks, apparel, digital devices and applications, and other equipment for sports activities. The production of goods in locations other than those in which they are sold has been … Although sales to wholesalers accounted for about 68% of Nike’s global revenues in fiscal … Nike’s supply chain sources most of its raw materials in the manufacturing host country by independent contractors. It currently owns a 47% market share of the domestic footwear industry, with sales of $3.77 billion. Nike seriously pay attention on the technology producing, design and selling such as e-commerce, high-tech running shoes, Nike+ with Apple, etc. The top five apparel contract manufacturers together made about 49% of NIKE’s apparel production. Consumer Direct Strategy – Nike has accelerated the consumer-direct strategy, which means shifting its focus to digital business and subsequently closing physical stores. Robin McDaniel is a writer, educator and musician. Additionally, one apparel contractor made over 10% of the production. The reason for this outsourcing is lower wages and lower costs of production than would be incurred in the U.S. (Nike, Inc., 2005, Datamonitor). It optimizes the manufacturing and production processes. Knowing it could not be the best at making chips, boxes, monitors, cables, keyboards, and so on for its explosively successful Apple II, Apple Computer outsourced 70 percent of its manufacturing costs and components. The purpose for outsourcing the … It contracted hundreds of contractors outside the U.S for getting an advantage of low cost of production since companies have to pay high wages in the US as compared to developing countries of the world. It’s a huge cost advantage. Also, any changes in the trade policies could hit its production. The company’s footwear and apparel make up about 96% of Nike’s branded revenues. However, Nike has diversified its sources of supply, which lowers the impact of higher tariffs. "By 2023, together with Flex, we plan to produce tens of millions of pairs nearshore with more than 25% of those volumes delivered through NIKE Direct on a short lead time responsive model," Sprunk said. NIKE’s long-term financial goals through fiscal 2023 include: NIKE enjoys large pricing power in the marketplace. Adidas, Converse, Nike and Reebok have been outsourcing production of their shoes for in some cases nearly three decades. Yet Nike owns no factories for manufacturing its footwear and apparel. NIKE became one of the world’s most valuable companies, one that regularly trades north of 20 times earnings. China, Indonesia and Vietnam have become the primary manufacturing destination for Nike. Nike uses outsourcing strategy, using only subcontractors throughout the globe. Although Nike will spend significantly more on labor, costs related to outsourcing such as shipping, will be virtually eliminated. Nike uses outsourcing strategy, using only subcontractors throughout the globe. Outsourcing allows Nike to skirt some of the financial obligations it might face with the confines of tax laws in the United States. *Nike outsources ONE HUNDRED PERCENT of their shoe production. The company’s lean manufacturing improves efficiency, optimizes production, and lowers waste. Nike even outsources their advertising component! Instead, Nike outsources its manufacturing to third parties. Delivery precision is important for a multi-product and multi-jurisdictional company like Nike, Inc. (NKE). The company’s gross profit margin grew by 150 basis points to 45.7% in Q1 2020. Moreover, investments to support our innovation, digital platform, and wages drove costs. Nike has hundreds of factories and various subcontractors it uses to design and manufacture its products. Nike is currently outsourcing to multiple countries including: China, Indonesia, Vietnam, Taiwan, South Korea, and the Philippines. The company had 67 distribution centers outside the US at the end of the fiscal year 2019. The other two are located in Indianapolis, Indiana, and Dayton, Tennessee. What can other organizations take from Nike’s experience to avert their own supply chain crisis? Because Nike is able to more efficiently produce its product and reduce costs due to outsourcing, it can more competitively price its products. It’s now exploring innovative ways of manufacturing so … Nike’s manufacturing operations are concentrated in lower-cost countries such as China, Vietnam, and Indonesia. This is up 40 basis points YoY. Lululemon’s direct-to-consumer net revenues made up 24.6% of total net revenue in Q2 2019. Also, digital infrastructure, overhead growth, and event-driven promotional expenditures are likely to grow Nike’s selling and administrative expenses. It has gained the acceptance in consumer’s mind that Nike-made products are of high-quality. It currently owns a 47% market share of the domestic footwear industry, with sales of $3.77 billion. Organic Growth Strategy 4. Plus, the channel mix shift (direct-to-consumer) will support the margins of athletic footwear and apparel companies. SWOT Analysis of Nike 5. Keeping a tight grip on costs is important for any company’s profitability and for shareholder returns. NIKE is one of the pioneers of the industry-defining manufacturing outsourcing strategy. Nike has been manufacturing throughout the Asian region for over twenty-five years, and there are over 500,000 people working for Nike. Like footwear, NIKE’s apparel is also made outside the US by independent contractors. All Business: The Benefits of Outsourcing for Small Businesses. Basic Strategy of Nike 3. Also, contract factories in Vietnam, China, and Indonesia made up about 49%, 23%, and 21% of Nike’s footwear, respectively. Nike, Inc. is a marketer of sports apparel and athletic shoes. This is compared to 44.2% in Q1 2019. 2. The corresponding intensive strategies grow Nike’s global sports shoes, apparel For fiscal 2020, Nike expects gross margins to grow by 50 points to 75 basis points. This includes Nike-owned retail stores and digital platforms. Nike’s manufacturing network has over 525 factories in 40 countries. In addition, when it outsources to subcontractors, Nike assumes less risk associated with producing its product such as insurance liability. Nike’s also been investing a lot in expanding its Nike Direct operations. Meanwhile, direct-to-consumer sales formed 35% of Under Armour’s total revenue. Plus, continued innovation and product quality are keys to success. Despite the improvement in Nike’s gross profit margins, selling and administrative costs have been on the rise. Moreover, this mechanism is foundational prior to adopting greater transparency. An effective distribution strategy would be key for Nike. By using an outsourcing strategy Nike has lower investment risk then by using an insourcing strategy, because they do not have to invest in a production facility, so less investment is needed up front. Investments in demand creation, including advertising and marketing, impacted costs. Nike outsourcing their products most of the factories are located in Asia such as Their brand is the #1 brand in the sporting goods industry and is the 14th most valuable brand in the world. The Nike brand is one of the most recognizable in the billion-dollar footwear industry, and the company is commonly known for its outsourcing practices. In addition, decreased operational costs are more likely to attract and retain company investors because more money can go into increasing business profitability. It optimizes the manufacturing and production processes. Decreasing overhead through outsourcing is a valuable resource for Nike. Cutting costs by employing workers at a reduced rate or paying less for plant operation allows Nike to invest the additional profits into other areas of the business such as advertising, thereby … Nike has evolved from an organization that manufactures for professional athletes to a company that is manufacturing for all ages, demographics and fashion inclined too through technological innovations. Nike, strategy, product differentiation, innovative and outsourcing. Cutting costs by employing workers at a reduced rate or paying less for plant operation allows Nike to invest the additional profits into other areas of the business such as advertising, thereby … Drew Angerer/Getty Images News/GettyImages. 1. Nike has no manufacturing plants of its own but chooses to outsource the work to contractors in the Philippines, Vietnam, China, Indonesia, and Taiwan. Since Nike’s manufacturing strategy is based on outsourcing and contract manufacturing, growing protectionist actions could hit its supply-chain process. This is due to its ability to innovate and provide a different product. Nike Direct sales have high margins. A Review of Nike Offshore Outsourcing Strategy Offshore global outsourcing has been a peculiar strategy adopted by some giant organization basically to cut cost. Cutting costs by employing workers at a reduced rate or paying less for plant operation allows Nike to invest the additional profits into other areas of the business such as advertising, thereby increasing the potential for company growth. Nike was one of the leaders in this strategy, seeing to create a more efficient supply chain and also drop the labor and union costs of manufacturing in the U.S. (Boje, Khan, 2009). Nike is known for their shoes, but they have also branched out into the sports and clothing industries. She holds a master's degree in higher educational leadership from Florida Atlantic University in Boca Raton as well as a bachelor's degree in elementary education. As a result of the shift in the sales mix to higher-margin geographies and Nike Direct business, Nike saw great margins. 8 For more on the evolution of Nike’s strategy, see Nike (A), HBS Case # 9-385-025; International Sourcing in Athletic Footwear: Nike Nike decided to outsource all of its manufacturing operations and located them outside the U.S due to numerous reasons. Case study, 5 pages, business strategy : Nike's outsourcing strategy. When the case opens in July 2018, Vice President of Sourcing Amanda Tucker and her colleagues in Nike’s Global Sourcing and Manufacturing division were focusing on three key supply chain challenges: sourcing from suppliers that meet compliance standards, challenging and encouraging suppliers to improve capabilities, and being responsive to consumer demand across the world. Nike cites its relationship with Flex as an example of a successful strategic relationship. Half a million people throughout the world have been hired to help produce their products. Outsourcing has many possible advantages for the Nike Corp. Decreasing overhead through outsourcing is a valuable resource for Nike. For instance, the ongoing US-China trade war, including higher tariffs on imported goods, could hit Nike and its peers who have production outside the US. In the fiscal year 2019, 334 apparel factories operating in 36 countries supplied Nike. Among those four, two are owned and two are leased. 8). Products move from several distribution centers across a network of thousands of retail accounts. As a percentage of revenues, Nike’s selling and administrative expenses were 31.2% in Q1 2020. Evaluate the impact of Nike's outsourcing strategy and factory location on the host nation Introduction Nike is a multinational corporation, which has outsourced many parts of its supply chain such as production of sportswear, to developing countries. 7 International Sourcing in Athletic Footwear: Nike and Reebok, HBS Case # 9-394-189: pp 2-5. Nike’s gross profit margin is lower than some of its competitors, including VF Corporation and Lululemon. Plus, continued innovation and … This process of outsourcing led to the appearance of the first true network firm without factories. The largest single footwear factory accounted for about 9% of branded footwear. Also, the company plans to expand its top line. However, Nike, through its Consumer Direct Offense strategy, is growing its digital business. In the fiscal year 2019, 112 footwear factories in 12 countries supplied Nike. Currently, revenues through Nike Direct operations make up about 32% of the sales mix. This enables Nike to price its brand at a competitive rate with other companies that sell a similar product. NIKE BUSINESS STRATEGY Contents (Jump to) 1. Notably, four are located in Memphis, Tennessee. This report is all about to show a Marketing plan for Nike’s products; with reference to older offerings the report shows the plan that how can Nike offer new products in … Companies have difficulty hiding from the media and should replace defensiveness with a proactive strategy that uses code monitoring and enfor… Decreasing competition can help Nike corner the market for its particular products. Decreasing overhead through outsourcing is a valuable resource for Nike. PESTLE Analysis of Nike … This gives them also more Introduction 2. Nike’s footwear is manufactured outside the US by independent contract manufacturers that often operate multiple factories. Results of Nike's new Customer Experience distribution strategy in place for over a year in a study by Euromonitor. This strategy also resulted in cash savings from not owning manufacturing buildings and equipment in factories in Argentina, Brazil, India and South Africa. The strategies of Under Armour Inc. (UAA), VF Corporation (VFC), Lululemon Athletica Inc. (LULU), and Adidas also include overseas manufacturers. A defensive strategy is not a realistic long-term approach. Nike's success is based on an important strategic innovation, to subcontract the complete manufacturing from the start. The digital business will speed up revenue growth and supports margin expansion. China, Vietnam, and Thailand made about 27%, 22%, and 10% of total NIKE’s apparel, respectively. Nike is one of the pioneers of the manufacturing outsourcing strategy. Nike + outsourcing = competitive advantage Part of the answer to its success lies in the efficiencies of its manufacturing model. Third-party logistics providers run these two distribution centers. It improves margins, lowers inventories, minimizes price markdowns, and makes sure that the customer receives the right product on time. Copyright 2020 Leaf Group Ltd. / Leaf Group Media, All Rights Reserved. Also, it drives quality and productivity. * Also, Nike-branded apparel and equipment products ship from a distribution center in Foothill Ranch, California. Additionally, growth in the ratio of Nike Direct sales could positively impact Nike’s gross margin. Nike is popular for its high-quality sport shoes and other apparels. Nike is one of the pioneers of the manufacturing outsourcing strategy. Also, Nike expects its gross margins to grow the remainder of the year but at a slower rate than the first quarter. AlixPartners (2013), a global consulting firm, predicts that by the end of 2015 producing in China will be just as expensive as it is in the United States (para. Nike Inc.’s generic strategy (based on Michael Porter’s model) is appropriate for its diverse product lines, ensuring competitive advantage. In FY15, Nike co-led the development of the Zero Discharge of Hazardous Chemicals (ZDHC) Wastewater Guidelines, a collective effort of all member brands in the ZDHC Coalition to continuously work to improve wastewater discharges. 61 The Nike business strategy is clear, invest in building your brand through emotional marketing and sports celebrity endorsements, develop products that have high-quality, market-leading technology and buy out competing sports brands. If you don’t know about it, you can’t fix it. Roots, DoorDash's Profit Model Relies on Shaving Off Restaurants' Razor-Thin Margins, Rolls-Royce's Struggles Continue, Survival in Question, high single-digit revenue growth per year, gross margin expansion of 50 basis points per year through mix shift to higher-margin NIKE Direct business. McDaniel enjoys writing, blogging, web design, singing and playing bass guitar. Material consolidation, manufacturing innovation, and modernization support the manufacturing process. A systematic supply chain monitoring mechanism can help address the worst practices. Nike has been manufacturing throughout the Nike is an Ideology based on Outsourced Manufacturing Units: Nike receives footwear from more than 140 factories located in 13 countries across the globe. Also, Lululemon, Under Armour, and VF Corporation are shifting sales mix to high margin direct-to-consumer business. In fiscal year 2020, 35% of its Nike brand revenue comes from online sales. ----- To follow its mission, NIKE’s managers are concerned with elaborating on the within the company. 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