Analysis of Nike by Porter Five Forces Model

Topics: Strategic management, Porter five forces analysis, Harvard University Pages: 5 (1430 words) Published: August 29, 2010
Family name Bao First name Cheng ( Steven ) Title:
The analysis of Nike in athletic footwear market based on porter’s Five forces model

1. Introduction
One and a half months ago, the biggest athletic event in the world ultimately drew its curtains after a pitched one-month-long battle, which saw thirty-two teams vying for the roll of honor of being crowned the final kings of football – the World Champions – and earn bragging rights for four years at least. It was not only a world war among 32 national teams, but also a white war among several major sponsors. Concentrating on those big-name stars, spectators would easily find that Adidas and Nike became the largest winners among various brands, obtaining the sponsorship of 12 and 9 among the 32 teams respectively. Coincidentally, in the current athletic footwear market, Nike control the largest market share though facing enormous challenges from both existing and potential competitors. This essay will base on the Michael Porter’s Five Forces Model, analyze both the internal and external competitive factors of NIKE, unearth the deep secret for NIKE as the market leader, and look forward to the future athletic footwear market.

2.1 The theory of Michael Porter’s Five forces Model

The strategic management model and focal pointfocal point
See focus.
..... Click the link for more information. of this article is known as the Five Forces Model (Barney, 1996, p. 6). Its originator, Dr. Michael PorterThis article or section needs sources or references that appear in reliable, third-party publications. Alone, primary sources and sources affiliated with the subject of this article are not sufficient for an accurate encyclopedia article. ..... Click the link for more information., University Professor at Harvard Business SchoolHarvard Business School, officially named the Harvard Business School: George F. Baker Foundation, and also known as HBS, is one of the graduate schools of Harvard University. ..... Click the link for more information., developed the tool for competitive advantage analysis within specific industries. As shown in the figure, the model's core thought is proceeding from internal competition among the industry and comprehensively taking account of the external competitive factors, to have an insight into both the advantages and disadvantages of enterprise so as to make niche-targeting strategic plans.

To recognize and clarify the main strength and weakness in the competition, I will use the Michael Porter’s Five forces Model as a master tool to launch the following analysis.

2.2 The pressure from external

It is a piece of fatty meat for many merchants due to the high yield of the athletic footwear market. Take Nike as an example, its Rate of Return on Sales = net income/revenue = 1486.7 divided by 19176.1 = 0.07752. This ratio shows that Nike earns 7 cents for every dollar in sales(Annual Report of Nike, Fiscal 2009, p21). Yet is it really that easy for other investors to make profits ? To recognize the prospect of the athletic footwear market, the headmost four forces should be considered.

At the first place, the threat of substitute products or services seldom exists so that it can hardly threaten the existing footwear market. The footwear is part of the daily necessities, and athletic ones are also obligatory and inevitable for sports. Even more important, diverse sports are in various need of sneakers, which results in the unshakable large amount of demand in athletic footwear market.

Then, the bargaining power of the suppliers and customers should be thought over. For Nike, the bargaining power of suppliers is limited as it has vast raw material sources around the world. In fiscal 2009, the contract suppliers of Nike in China, Vietnam, Indonesia and Thailand manufactured 36%, 36%, 22% and 6% of total NIKE brand footwear, respectively(Annual Report of Nike, Fiscal 2009, p4). Each one takes on a small...

References: Barney, J. (1996). Gaining and sustaining competitive advantage. New YorkNew York, state, United States
New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of
..... Click the link for more information.: Addison-Wesley. Bertalanffy, L. (1956). General systems yearbook, Vol. 1. Washington, DC: Society for General Systems Research.
Porter, M. E., & Millar, V. E. (]985, July-August). How information gives you competitive advantage. Harvard Business ReviewHarvard Business Review is a general management magazine published since 1922 by Harvard Business School Publishing, owned by the Harvard Business School. A monthly research-based magazine written for business practitioners, it claims a high ranking business readership and
..... Click the link for more information.. G3(4), 151
Annual Report of NIKE, fiscal 2009.
Boston Consulting Group analysis, 1968 , The Star, the Dog, the Cow and the Question Mark
Commerzbank , Christoph Dolleschal, "adidas," Equity Research, , 28 February 2008
Sanford C.Bernstein & Co.LLC, 2001, Black Book-Nike & Reebok: Changes Afoot. Bernstein Global Wealth Management, 1345 Avenue of the Americas, New York New York 10105-0096,United States of America
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