Case Study: of Nike Company Ltd: Question 1
a) In the late 1990s Nike found itself in a serious situation with its manufacturing approach in Asia.-Select and apply one of Porter’s models of strategy to explain why Nike were manufacturing in Asia?
Michael Porter, leading author on company strategy and competitive advantage, has developed several generic strategies which, according to Porter, are the driving force behind any given company’s success. These strategies comprise of Cost Leadership, Differentiation and Focus. It is Porter’s view that any company that positions itself in at least one of these categories or striving to achieve one of these strategies should be able to attain and maintain competitive advantage, ceteris paribus.
Nike Inc. has enjoyed a great deal of success in the Global Sports and Clothing Industry. One may even go as far to say it is the “cream of the crop” or “a cut above the rest”. One may also wonder if any of Porter’s strategies can be applied to explain or justify Nike’s competitive advantage. The Strategy of Cost Leadership is most applicable to Nike. It is also safe to say that this strategy was the deciding factor behind its’ manufacturing operations in Asia. Nike has no factories. It does not tie up cash in buildings and machinery. The evolving design and style of its products does not warrant this type of investment. Instead, it outsources labour. Nike has manufactured wherever it can produce high quality products at the lowest possible price. This makes a very lean organization and paves the way for the achievement of ultimate cost effectiveness. If prices rise, and products can be made elsewhere at a cheaper rate, to the same or better specification, Nike will move production.
Porter’s cost leadership strategy concentrates on aiming to become the lowest cost producer in the industry through economies of scale. The cost leader aims to drive costs down while it targets a broad market, so sufficient sales can cover costs. Figure 1.2 is a representation