Saturday, March 12, 2011

Diversification Strategy of Nike

It is very interesting to discuss corporate level strategy of Nike. Diversification is major tool of corporate level strategies. Accordingly, there are different levels of diversification. Nike products are the typical example moderate-high, related constrained diversification. It means that around 70% of revenues come from major business fields, all businesses share product, technological, and distribution linkages. Indeed, nike has its major products that yield biggest share of income: Apparel and shoes. However there are numerous different products which constitute around 35 % of company income. For dominant and minor products company uses same distribution channels, technological and other resources. As Nike annual report describes “Our 40% of our sales come from athletic apparel, sports equipment, and subsidiary ventures. Nike maintains traditional and non-traditional distribution channels in more than 100 countries targeting its primary market regions: United States, Europe, Asia Pacific, and the Americas (not including the United States). We utilize over 20,000 retailers, Nike factory stores, Nike stores, NikeTowns, Cole Haan stores, and internet-based Web sites to sell our sports and leisure products.
As management describes in annual rapport “Our primary product focus is athletic footwear designed for specific-sport and/or leisure use(s). We also sell athletic apparel carrying the same trademarks and brand names as many of our footwear lines. Among our newer product offerings, we sell a line of performance equipment under the Nike brand name that includes sport balls, timepieces, eyewear, skates, bats, and other equipment designed for sports activities. In addition, we utilize the following wholly-owned subsidiaries to sell additional sports-related merchandise and raw materials: Cole Haan Holdings Inc., Nike Team Sports, Inc., Nike IHM, Inc., and Bauer Nike Hockey Inc.
Our most popular product categories include the following:
• Running
• Basketball
• Cross-Training
• Outdoor Activities
• Tennis
• Golf
• Soccer
• Baseball
• Football
• Bicycling
• Volleyball
• Wrestling
• Cheerleading
• Aquatic Activities
• Auto Racing
• Other athletic and recreational uses”

Besides product diversification Nike must pay close attention to manufacturing and supply chain diversification as well. Global economic crisis and uncertainties increased importance of such diversification. NIKE depends heavily on Strategic Outsourcing. Virtually all footwear products are produced outside the United States. There were seven contract suppliers outside the US that manufactured NIKE brand footwear in 2003. China, Indonesia, Vietnam, and Thailand manufactured 38%, 27%, 18% and 16% of total NIKE footwear respectively. In FY2003, only approximately 1% of total NIKE brand apparel was manufactured in the US. Independent contractors located in 35 countries manufactured the remainder. Such manufacturing strategy enables Nike to get the best deals and decrease risks.
Supplier diversity is a very important part of a successful business and since NIKE’s customers are on a worldwide scale, the company needs as broad a base of suppliers as possible to actively and significantly reflect the world in which it operates. NIKE relies heavily on its supplier relationships to help the company arrive at innovative and creative solutions, to understand its business, and to help it reach its goals. Furthermore, with such a large and diverse supplier base, NIKE is able to have a strong presence in the markets it operates, and it has a solid brand name that is recognizable worldwide, with strong credibility.

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