Footwear industry has emerged greatly with recognition due to branding of athletic or sportswear. In this report, the different analytical approaches for assessing the current industrial situation of the footwear market of UK will be presented. The five force analysis, VRIO framework and SWOT analysis will be applied for evaluating the performance of Nike. All these frameworks help in creating a perception about the current working structure of the organisation.
1. Force Analysis for Footwear Market of UK
Footwear industry of UK offers huge success and growth opportunities for organizations that are working in this sector. Many multinational organizations are working in this sector and it comprise of Nike, Reebok, Puma and other medium and small sized firms are also working in this sector. Intense competition is faced by the companies that are working in this industry and it makes it essential that strategic approaches should be taken by companies so that competitive advantage can be gained for the business. Quality and price of the goods are two major factors that gives impact on the overall performance of the business.
Likewise, needs and preferences of buyers changes continuously and due to that impact is being observed on the overall performance of the organization. Along with this fashion and lifestyle of people also play a pivot role in determining sales and profitability of the business. Competition that prevail in this sector is price sensitive and it provides added advantage for the business firms that are working in this sector.
Economic growth of nation is also supporting for making increment in purchasing power of people and it is also supporting for enhancing the purchasing power of people. Herein it can be stated that footwear industry of UK is growing at a faster rate and it offers huge success and growth opportunity for people that are working in this sector. Nike, Adidas and Reebok are major players that are leading the footwear market and large market share is gained by these firms. Other than this strategic approaches are used by business for gaining big market share in this sector. Porter's five force analysis supports for identifying diverse factors that gives impact on the performance and productivity of business.
Bargaining power of buyers
Footwear industry of UK is enjoying successful period from last past decades and it is offering huge success and growth opportunities for organizations that are working in this sector. However challenges and difficulties for the existing firms also have been increases and it has made it critical that innovative practices should be adopted so that growth and success of this sector can be ensured (O'shaughnessy, 2014). Different companies that works in this sector sale footwear through Brick and mortar stores and use of online platform is also taken.
It aids for selling large number of products to the consumers and due to that impact is being observed on the overall sales performance of the company. Footwear market is divided into three segments and athletic footwear are offered in four different segments and it comprise of Insert shoes, sport shoes, backpacking shoes and hiking shoes. Bargaining power of buyers are high as there are large number of options are available in market. Factors that contributes towards bargaining power of buyers includes small size of individual buyers. Low switching cost and moderate substitute availability (Pitta, 2012). Availability of substitutes is moderate and it expedites customers for buying shoe products. These are some external forces that gives impact on the overall performance of the business.
Bargaining power of suppliers
Bargaining power of buyers is weak and major factors behind it are high overall supply and large population of suppliers. One more factor that gives influence is moderate size of individual suppliers. Other than this high supply gives impact on the performance of individual suppliers and it gives impact on the demand of the firm. In addition to that it has been observed that bargaining power of buyers is a weak force for footwear industry of UK. Along with this strategies and action plans that are formed by the company gives influence on the overall performance of organizations that are working in this sector.
Similarly large population of suppliers indicate that there are large number of suppliers that are available in market. It provides opportunity for the organization to purchase their required products in lower price ranges. Other than this moderate size of individual suppliers also affect sales of goods and impact of this force is moderate. Bargaining power of suppliers is weaker force and its impact is weak on the footwear industry of UK.
Availability of substitutes
Athletic footwear industry of UK is growing at a faster pace and with this challenges are also increasing. Threat of substitute products in market is moderate. There are four categories of shoes that are sold in market and it includes Insert shoes, sport shoes, backpacking shoes and hiking shoes. There are some factors that gives impact on the threat of substitutes. Naming some factors includes Moderate availability of substitutes and low switching cost.
Along with this moderate performance for per price of substitutes is one common factor that creates threat for the substitutes products. Alternative options are available for consumers in market and due to that threat of substitute products is moderate. Factors such as low switching cost play a important role and if consumers wish to buy products at lower price than products are available market in that price range. Footwear industry of UK also have moderate performance per price of the substitutes and availability of the substitute products is also moderate.
Threat of new entrant
Footwear industry of UK is growing at a faster pace and it is offering huge success and growth opportunities for organizations that are working in this industry. New entrant firms need to have capital and funds so that their operations can be started with out facing much difficulty. Along with this there are many challenges that are faced by new entrant firms while executing functions in footwear industry.
Some factors that affect the performance of new entrant firm includes high cost of brand development and high economies of scale. Both the elements affect the performance of the organization and with this moderate size of doing business also gives impact on overall functioning of the company. It becomes challenging for new entrant firms to develop their products as it requires investments for conducting research for designing new products. With this cost of doing business in footwear industry of UK is moderate. It creates limitations for new entrant firms for doing business in this sector.
Footwear sector of UK facing intense competition and many leading players such as Nike, Reebok, Adidas and many renowned names are struggling for gaining market share. Competitor rivalry is high and it is a complex task for organizations to start operations in this sector. Major factors that lead towards creating rivalry in this sector includes low market growth rate and moderate number of firms. Along with this high aggressiveness and effective strategies used by companies also work towards creating the competitive rivalry higher. Other than this market growth rate in the footwear sector is slow due to which it gives impact on the overall performance of the business firms in this sector. It becomes vital that strategic approaches should be used by organizations so that competitive advantage can be gained for the business. Existing firms that are working in the footwear industry also faces challenges and difficulties and it is a complex task for them to gain competitive advantage for the business.
I have conducted five force analysis for footwear industry of UK and it has enhanced mu understanding about the factors that affects the performance of this sector. I have analyzed impact of porter's five forces and five major elements in this are bargaining power of buyers, bargaining power of suppliers, threat of substitutes, competitive rivalry and threat of new entrant. Analysis of five forces have supported me in identifying the impact of different factors that affects the performance of this sector.
2. Analysis and discussion of assets and competencies of Nike's internal environment
Nike is a leading footwear multinational firm that offers superior quality products for its consumers. VRIO framework is a tool that is used for analyzing the internal environment of business and it aid for identifying weak performing areas of the business. Internal environment of business can be analyzed by making use of this tool.
It can be observed from the above table that company has sufficient amount of financial resources that are required by them for executing the required operations. Financial resources are required for giving salary to employees, purchasing required material and inventory so that all the required operational practices can be performed successfully (Nwokah and Ahiauzu, 2009). With this cash flow and reasonable debt are available with the firm and it aid for attracting investors to invest money in the project. Other than this tangible and intangible resources are also available with the firm that could be used for enhancing the existing performance of the organization. Supply chain network of the company is vary strong and it offers products through online platform and through Brick and Mortar stores. State of art technology is mandatory if an organization aspires for gaining competitive advantage for the business. Financial resources of the firm comprise cash flow, debt and capability of taking capital from different investor. Company has currently announced stock repurchasing program.
From the above table we can see that Nike's 100% of its production is outsourced to Asia, has a strong competitive advantage because of it efficient and well developed supply chain (Yan, 2009). As they believe that its outsourced production well developed supply chain is valuable to the company. For outsourcing, it requires huge resources, initial investments as companies have to build their own production facilities and also adjust to local,legal cultural differences. For any company to imitate Nike's financial resources for a new upcoming company as not only it requires large initial investments and also extensive knowledge. Hence its not a day thing it takes years and years of experience to do so.
When it comes to innovation and marketing Nike is one of the recognized and also the famous brands in the world. Coming on to the Nike's marketing strategies it is highly innovative product development team which give it a huge edge from other competitors. Nike also sponsors various sports teams as well as individual athletes in a wide variety of sports and also supports various charity events such as “Live Strong”, an organization that is financially supported by Nike to cure cancer.
From the VRIO framework I have found that VRIO is used to analyze firm's internal resources and capabilities to find out whether they can be a source of sustained competitive advantage. I see that firm have sufficient financial resources for executing the required operations. Next I see that the human resources of the firm they are valuable but when it comes to rarity and imitation, it can be imitated. The supply chain network or the firm is excellent as the production is outsourced. The innovation and marketing of Nike is up to the mark as Nike has highly innovative product development team.
3. SWOT analysis for Nike (UK) and future strategy that can be used by the company for gaining competitive advantage
NIKE- SWOT Analysis
Nike Inc. Is an American multinational corporation that is engaged in design, development, manufacturing, and worldwide marketing and sales of footwear, apparel, accessories and services. The company is headquartered near Beaver ton, Oregon, in the Portland metropolitan area. The SWOT analysis of Nike discusses the strengths, weakness, opportunities and threats of the leading footwear brand- Nike
- Nike is the world's no. 1 shoemaker. It designs and sells shoes for a variety of sports including golf, baseball, volleyball, cheer leading, tennis and football.
- Nike has no factories (Nike. 2017). It does not employ its cash in buildings and manufacturing workers. This makes Nike a very lean organization.
- They manufacture high quality at the lowest potential price, if in any case
- prices rise due to price hike then the production process is made cheaper by changing the production site. Nike employs about more than 30.000 people worldwide.
- Nike has a huge name for high quality and innovative footwear. It is also known for its innovative marketing .Nike ads are the part of the pop culture an impressive achievement.
- The company does not have the business through retailers who stock other brand as well
- Nike is perceived by some consumers as being too premium and a luxury brand. But looking at the current market scenario is such that consumers are migrating to middle tier of the luxury scale as consumers are being price conscious and quality focused.
- Some things which tarnishes Nike's image for poor working conditions and have described as sweatshops, low wages and child workers in its manufacturing facilities.
- Nike should focus on emerging markets which include increasing sponsorship of local stars and celebrities.
- There is an opportunity to create custom footwear for the luxury segment so that they could own their own shoe design, which could enhance its brand image.
- Nike has begun to diversify into accessories and other premium products apart from its signature footwear segment.
- Because of the emphasis on design of higher end footwear is really paying off for Nike that is increasingly being seen as a must product for everyone who runs or walks as it was founded on the principle that its would serve anyone on legs.
- The market for sports shoes and garments are very competitive. Competitors are developing alternative brands to take away Nike's market share.
- Consumers are constantly shopping around for a better deal that conveys a good quality well as price. So whenever they find that a store charges higher price the consumer would then try to search for better deal
- As Nike is exposed to international trade, it buys and sells in different currencies hence are exposed to currency fluctuations.
- Nike must improve on its image where its being seen as resorting to exploitative businesses practices in its overseas outlets.
- New entrant firms are also creating challenges for the company and due to that impact is being observed on overall growth of the firm.
Marketing Strategy used
Nike uses the low cost leadership strategy which means low overall costs. This aims at achieving low costs as compared to competitors. This strategy appeals to a broad segments of price-sensitive buyers. The cost can be controlled in two ways:first by controlling cost drivers by reducing the cost as compared to competitors. And second by revamping the value chain by-passing some cost producing activities. Marketing strategies that are used by business aids for making significant improvements in the performance of the business.
It is critical that strategic approaches should be used by business so that positive improvements in weak performing areas of the business. It is critical that effective marketing plan should be formed so that required objectives of the firm could be accomplished. Along with this positive support of all the stakeholders of the business is also required that required goals and objectives of the company could be achieved.
Moreover differentiation strategy can also be adopted by company so that different products and services that are offered by the company can be made different from other footwear products that are available in market. Research and development department of the firm can take significant initiatives for launching new products and it will support for developing and designing new innovative products for the company. With this it will also aid for gaining competitive advantage for the business and it will prove beneficial in offering long term growth and survival approaches for company. It can be evaluated that cost leadership leadership and differentiation strategy. Other than this these approaches will also aid for making positive growth of the company and gaining long term growth for business. SMART objectives for the company can be formed so that on the basis of that overall targets for the firm can be accomplished. It will support for adopting step by step process for completing all the required targets for the firm.
From the above SWOT Analysis I found that Nike focuses on athletes. Sportsman are the majority consumers of Nike's products. A lot of Nike's success has to do with the unique usefulness that goes along with the items. I found that Nike targets mostly teenagers of all socioeconomic classes, and also for those who want to look more athletic and fashionable. Nike still is the market leader within the industry in spite of having many competitors within the industry. Also Nike has to keep up the innovation very unique only then it will continue to stand out.
Through this report, one can understand about the footwear industry of UK and the major challenges which are faced by enterprises in this field. From the 5 force analysis, it has been evaluated that there is a requirement of innovation so that customer share can be enhanced. The product quality and service improvements should be prime focus of companies in this sector. Nike doesn't have much catch over innovation and marketing which hinders overall progress. Henceforth, it is inferred that there is a requirement of strategic decision making and processing so that company can excel more in the footwear industry.
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