Posted: May 25th, 2022

The American economic growth decelerating

Nike’s tremendous success up until the mid-90s?

Nike was founded by Phil Knight in 1964 when he put his MBA project into practice along with his former track coach Bill Bowerman. At that time, the companies which were already established were manufacturing the sports shoes in economy that was high waged; while the project showed that decreasing the costs of transport would mean that the company could gain high sourcing from the countries that had low costs of labor. Keeping this in mind, Nike started importing shoes from Japan; however with the birth of waffle trainer by Bowerman one night, the company became a designer logo rather than an importer. The strong personalities and the love for sports of Knight and Bowerman played a lot of role in defining the purpose of Nike and it attracted a lot of confident and young employees to the company. The logo of Nike also became very popular and spoke of a ‘no nonsense emphasis on speed and performance’ could be recognized by ninety seven percent of the people. The company’s tag line ‘Just Do It’ is also the most recognizable slogan in America.

The early recognition that Nike received enable the company to establish its products with a superiority which continued to grow and strengthen the company. During 1980 to 1997, the share price of the company grew up to 3686% and it took the lead from Reebok in 1988 to become the leader in sports shoes. The market share of the company increased from 32% in 1994 to 45% in 1996. In 1997, the group size of the company tripled and it earned nine billion dollar sales with eight hundred million dollar profits. With a lot of success in their hands, the company decided to become a leader in sports and fitness and not just shoes. Knight in an interview to Harvard Business Review stated that the company considered itself to be a production oriented company and emphasized on designing the product, but they have also realized that the company also markets the product in the best possible ways which is also the reason their sales have spread across the world. After that claim, the company also considered itself to be a market oriented company. Furthermore, Nike moved on to retailing and opened a lot of Nike stores around the world. The company received a good initial response from the journalists and several athletes.

With increasing success, Nike went forward in redefining and expanding through a joint venture with a talent agency of Hollywood. The main aim of the company in doing so was to package events where the company’s endorsers like Michael Jordan and Charles Barkley would be involved and sell it to the media companies and the sponsors. The director of advertising of Nike claimed that this would boom the image of the company and increase their sales as well. In 1996, the company was manufacturing everything from footballs to sunglasses, hockey sticks to batting gloves and the Vice President of the company pro-claiming that Nike was not just a shoe company but covered everything related to sports.

2. Using ESTEMPLE, explain why Nike suffered a severe decline in 1997.

Nike was a leading sports company before the mid-1990s, and had a lot of financial liquidity that was favoring the company and opened up many opportunities for it. The company, however, had to face a downfall in their profits in 1997 that made the owners go through their strategies again. A lot of small events played their part in effecting the success of Nike which resulted in a huge drop in their market share which dropped from forty seven percent to forty percent and their profits too had dropped to 96%.

Economic

EU instating one currency

The financial breakdown of 1997 in Asia had cause macro effects

The American economic growth decelerating

Instability in currency rates, gold rates and crude oil rates

Increasing price of crude oil increased the price of raw materials, transportations, energy and took another chunk of customer’s earnings (The Nike Company’s position in Athletics, 2011).

Social

Change in consumer’s taste in athlete shoes: more fashion-oriented. The users of Nike did not consider them cool anymore and Peter York who was the marketing guru of Nike also accepted the fact that there was an air of desperation in the company and it was not where it should be at the moment. The company is introducing a lot of limited editions and special runs and it was trying very hard to keep their image of being cool which was not working for them.

Protesters opposed the treatments of workers in the contract factories. Furthermore, the media investigators and protestor groups had started focusing on the alleged abuses of the workers in the Nike factories. The different allegations included children being sold to the factory by brokers, poor quality of air that was being caused by petroleum-based solvents that led to difficulty in breathing in the factories, workers not receiving their full wages and lack of compensation and sick pay. Furthermore, a lot of internet websites like www.nike-sucks and www.boycottnike started emerging which further aroused the anti-Nike emotions of a lot of people (Harrison & Scorse, 2004).

Consumers in many countries boycotted the products. The response of Nike further increased the anti-Nike emotions. At first, the company distanced itself from the factories and stated that whatever the contractors did was none of their business; and secondly, they stated that with the increase in population every year, it was better to work in a shoe company rather than not working at all. This response of the company worsened the response of the public (Harrison & Scorse, 2004).

The image of Nike further worsened when the U.S. ambassador visited the Nike plants in China, Vietnam and Indonesia and stated that they were as modern and clean as the ones in USA. Further news came out that the trip was being paid by Nike itself and the plants were introduced to a limited staff. Britain’s magazine ‘The Big Issue’ appealed its readers to boycott Nike because allegedly Nike had forced the Brazilian player to make Ronaldo, who was a Nike endorse, play the game despite his injury.

Technological

The air became too suffocating because petroleum-based solvent was used rather than water-based solvent (The Nike Company’s position in Athletics, 2011).

Nike develops products by an integrated system (The Nike Company’s position in Athletics, 2011).

Ecological

The petroleum-based solvents along with glues caused an unhealthy work environment as it was the root cause of:

Dizziness

Nausea

Breathing issues (The Nike Company’s position in Athletics, 2011).

Media

The media was solely focused with Nike’s abuse in foreign factories along with rifts with their endorsements with Mike Tyson and Ronaldo (The Nike Company’s position in Athletics, 2011).

Separating themselves from their contractors and public relation spokesperson in order to avoid defamation added fuel to the fire (The Nike Company’s position in Athletics, 2011).

Britain’s magazine ‘The Big Issue’ appealed its readers to boycott Nike because allegedly Nike had forced the Brazilian player to make Ronaldo, who was a Nike endorse, play the game despite his injury.

A lot of internet websites like www.nike-sucks and www.boycottnike started emerging which further aroused the anti-Nike emotions of a lot of people (Harrison & Scorse, 2004).

Political

The formation of autonomous labor unions has been barred in China and Vietnam

The case of buying off American Ambassador Andrew Young by Nike was made public knowledge (Harrison & Scorse, 2004).

Nike absolutely paid no heed to environmental laws set in place

They violated the labor codes as well such as employing children below 18 in their factories violating the government’s law of working age. Apart from that, they also didn’t pay any heed to working conditions and safety of their workers (Harrison & Scorse, 2004).

Ethical

The labor ethics weren’t taken in consideration, extended hours of working, harassing sexually, abuse of workers, least wage paid, verbal taunts and physical abuses etc. (The Nike Company’s position in Athletics, 2011).

Looking at the ESTEMPLE analysis, it can be seen that Nike had a tough time in 1997 as the company as being targeted by a lot of external problems. The financial crisis in Asia which had originated in 1997 from Thailand had played an important role in the downfall of Economy not just in Asia but in the entire world. The economic downfall had contributed to instability in oil prices, currencies as a result of which the costs of raw materials, energy and transportation had increased. There was reduction in revenues which led to a 69 per cent drop in Nike’s profits. Another factor contributing to the decline of Nike in 1997 was the violation of certain Codes of Conducts in Indonesia and Vietnam (The Nike Company’s position in Athletics, 2011).

3. Do you think the decision not to dump Tiger Woods shows that Nike did not learn from their environmental shocks of the late 1990s or that it shows they did learn from their later overreaction to those shocks?

Tiger Woods had become the face of Nike in 2000 and had been provided by his own sub-brand by Nike by the name of ‘Tiger Woods Golf — TWG’. A driving accident in 2009 opened up the case of adultery that Woods had been having which destroyed his image and he had to take a break from golf. A lot of companies that had been sponsoring Woods to develop their image, which included Accenture, AT&T dropped their sponsorship after the adultery allegations against Woods started surfacing; however Nike did not take back their sponsorship and stood by the player. Charlie Denson, who was the brand president of Nike in an interview, stated that Woods was a good golfer and whatever his image ends up being; he is the main contributor in their business and will continue to be in the future (The Nike Company’s position in Athletics, 2011).

This statement of Nike showed that it was more ethical and smarter for the company to not abandon the player at that time. Their actions showed that they did learn from their past mistakes in the mid-1990s crisis. The over-reacted statement of Nike regarding the unethical conduct of contractors in their factories worsened the image of Nike and it seemed that they had realized their mistake, and did not make it during the scandal of Tiger Woods. Unlike the other brands, Nike stood by the player to help him overcome the scandal (The Nike Company’s position in Athletics, 2011).

Bibliography

Business Week Archives. (2000, February 20). Retrieved from Business Week: https://www.google.com.pk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CBwQFjAA&url=http%3A%2F%2Fwww.businessweek.com%2Fstories%2F1000-02-20%2Fcan-nike-still-do-it&ei=8mX3U7WmIonXaLHPgpAK&usg=AFQjCNHaFlibxxtLRgh2lOPcB7TNZHnSDQ&sig2=iRR51590NNXi8BaAZRoang

Harrison, A., & Scorse, J. (2004). The Nike Effect. U.S.: UC Berkeley. Retrieved from: http://economics.yale.edu/sites/default/files/files/Workshops-Seminars/Development/harrison-040322.pdf

The Nike Company’s position in Athletics. (2011). Retrieved from *****: http://www.*****/essays/biology/effectiveness-of-activated-carbon-biology-essay.php

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