“To bring inspiration and innovation to every athlete in the world”
………..Company Mission Statement
“We want to be able to shoe and clothe young athletes of the world regardless of where they live. To do it for really difficult socioeconomic situations is both challenging and rewarding” …………...Tom Hartge, Footwear Director for Emerging Markets
The words “Just make me the shoe!” echoed down the boardroom table to Tom Hartge a 17- year veteran of the running shoe company, Nike, Inc. Tom Clarke, president of the company in 1998, had attended the meetings, seen the presentations and reviewed the numbers related to the market potential of China: a rough gem with a booming population of 1.2 billion. He also knew that in many parts of the world, including China, people couldn’t afford Nike’s current footwear products. Clarke didn’t want to listen to any more speeches. He wanted to hold in his hand a tangible prototype – a specialized shoe that could sell in an emerging economy.
Nike’s challenge was to “expand the playing field” with a range of affordable, durable, and easy-to-produce sport shoes. So with this command, Hartge, Director of Emergine Market Footwear, teamed up with long-time shoe designer Alex Gajowskyj, and in early 1998 began the development of the World Shoe Project, a footwear line exclusively intended for emerging markets in Asia, Africa, and Latin America.
In early 1999, initial indicators were positive as the World Shoe line hit retail stores in China, as well as in Thailand, Indonesia, Malaysia, the Philippines, and other Asian and Latin American markets. In China, marketing studies suggested a growing population of sports enthusiasts and over 80 million Chinese with an annual income between U.S. $10,000 and $40,000. Further, Nike faced little competition from other major international shoe companies. The World Shoe line was manufactured in China using local materials and Nike's existing manufacturing network, which helped to decrease import duties and other costs of production. These cost reductions, combined with a design-for-manufacture process that had a relatively small environmental impact, allowed for a relatively low-cost product for the intended Chinese segment. As another benefit, the local manufacturing and sourcing plan created jobs-and thus income generation-for local residents, who typically had little purchasing power. The $15 retail price point held the potential to capture a huge new customer base and expand the range of Nike products offered in retail stores.
However, by January 2001, Hartge was faced with a dilemma: World Shoe sales were not meeting expectations. First, Nike struggled with the concept of selling low-margin products. There was no corporate flexibility with regard to profit expectations for the World Shoes. Even at $15 a pair, the shoe couldn't compete with lower-priced, local brands. Another major problem was the company's limited distribution
infrastructure in China. As a result, the shoes weren't widely available to consumers outside the major metropolitan areas where Nike sold its high-end footwear. Finally, no specialized marketing or advertising plan was created for the new product line. The shoes had been placed into the company's current retail channels with little explanation or promotion. In two days, Hartge would meet with CEO Phil Knight and his senior management team to decide the fate of the fledgling product line. Hartge wondered how to get Knight to fully support the promising concept of the World Shoe Project.
China: Manufacturing Partner or Marketplace?
During a tour of soccer fields and badminton courts at a university in Chengdu, China, Hartge and Gajowskyj came to the disturbing realization that among hundreds of athletes, not one was wearing any Nike product. Athletes played sports wearing mostly worn out, inexpensive canvas shoes. The two discovered that...