Strategic Analysis of Two Companies Term Paper

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Competitive Strategies (Nike and New Balance)


In the past few years, competition among organizations that manufacture and sell athletic apparel and athletic shoes has dramatically increased. As a result, competitive strategies have emerged as key factors in determining the long- term success or ultimate failure of such organizations. Two large rival companies that have demonstrated extreme success as well as periods of instability and weak sales are Nike and New Balance. An analysis and comparison of their cost leadership strategy and differentiation strategies provides a clearer picture of what types of competitive strategies are essential for an organization to survive in today's cut-throat economy. This paper will critically examine the current competitive strategies of Nike and New Balance, and will analyze whether an organization can simultaneously follow a cost leadership strategy and a differentiation strategy. It will compare the various approaches used at both organizations as implemented by their successive CEOs in light of the five generic competitive strategies as laid out by Michael Porter, and offer conclusions based on the comparisons.

Brief Overview of NikeBuy full Download Microsoft Word File paper
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Term Paper on Strategic Analysis of Two Companies Assignment

Nike currently is currently the leader in the footwear industry, owning 47% of the market share; the next competitor is Reebok, at 16% (Dusen, 1998). Nike's domestic annual sales average at $3.77 billion, and has been manufacturing throughout the Asian region for over twenty-five years. The leadership style of Phil Knight, the former CEO that began the company, has been attributed to Nike's repeated success and the ability of the company to turn around in times of economic slowdowns. Knight's leadership style has been described as quiet, low-key, and in the background. Knight values great salespeople and does not directly tell them what to do. Instead, he provides them with the means to achieve the goals of the company, and favors hiring people that have actively participated in sports. Knight hires his top executives as those that as athletes, strive for quality shoes to enhance whatever sport they are playing. Knight's leadership style can be described as a goal settling style. Goal setting theories argue that employees set goals and that organizations can influence work behavior by influencing these goals. The major concepts in the theory are intentions, performance standards, goal acceptance, and the effort expended; participation in goal setting should increase commitment and acceptance. This appears to be very effective at Nike, because Knight's employees were very loyal and committed to him, and have reported that Knight was so inspirational, that they wanted to work harder.

Nike currently has over 500,000 employees directly engaged in the production of their products. Nike utilizes an outsourcing strategy, using only subcontractors throughout the globe in factories in China, Indonesia, Vietnam, Italy, the Philippines and Taiwan. Nike employs teams of four expatriates per each of the big countries that focus on both quality of product and quality of working conditions, visiting the factories weekly (Dusen, 1998). However, since its manufacturing network is so wide, Nike has faced a number of violations involving factory conditions and human rights issues, that have been widely publicized (Dusen, 1998). Nike has continued to respond to these issues and have almost completely addressed in issues on an international level. Nike has demonstrated repeatedly its ability to bounce back from major setbacks such as this one.

For example, when Nike was not doing well in terms of sales and revenue, Knight was able to come back into the company, twice after retiring, to positively turn the company around again. At Nike, employees are given room to breathe, they are free to make their own decisions, and do not seem to receive very much direction from executives such as Knight. It was rumored that Knight did not attend meetings, and appeared to be unfamiliar with some of the merchandise. In addition, when selecting his successor, the deciding factor between two candidates was that one of them was active in sports, whereas the other candidate did store checks in his free time. Knight chose as his successor a former athlete who still participated in sports during his time off of work, because someone with an internal love of sports was important to achieving the final goals at Nike. In other words, Nike can be described as a company built on the values of a true athlete with a genuine love of sports.

Brief Overview of New Balance

New Balance is a footwear company that has been around almost as long as Nike. However, New Balance differs from Nike in a few significant ways. New Balance is known for their design and marketing of the premier running shoe in the industry, a niche they have controlled for several years. New Balance has kept a substantial amount of manufacturing the U.S., and currently owns a 3% market share with sales of $260 million. New Balance currently operates five plants in New England, employing over 1400 workers that produce 50% of their products (Dusen, 1998). This management at this company uses a mixed strategy of vertical integration and outsourcing, based on the advantages they have gained through higher levels of domestic quality, and their widely publicized "Made in the U.S.A." label (Dusen, 1998). Furthermore, New Balance operates a highly specialized, niche business consisting of running shoes, so the closeness of their factories is important because of the numerous special orders that they fill. However, for the majority of their technical products they outsource, as do their competitors.

The leadership style at New Balance follows the more traditional approach of management, a variation of transformational leadership that has been strongly emphasized in the United States for over twenty years. The benefits of transformational leadership are thought to include broadening and elevating the interests of followers, generating awareness and acceptance among the followers of the purposes and mission of the group, and motivating followers to go beyond their self-interests for the good of the group and the organization (Bass, 1985). By defining the need for change, creating new visions, and mobilizing commitment to these visions, leaders can ultimately transform organizations (Hartog, 1999).

In the late 1980s, the CEO of New Balance, Jim Davis observed that his company's younger markets were shrinking as a result of over two decades of births below levels needed to replace the population (Wolfe, 2006). He also saw that older populations were just entering a period of explosive growth, and set his sights on people 40 and older, following the principles of ageless marketing.

New balance was able to successfully implement this concept of ageless marketing into their business segment as a result of their strong customer loyalty. As a result of the unexpected mass appeal of its 800 line of trail running shoes, New Balance catapulted from No.8 in the industry in 1995 to No. 4 today, behind Nike, Adidas, and Reebok (Wolfe, 2006). In the last three years New Balance has been able to increase its market share from 3% to 10%, while Nike dropped from 48% to 43%, and Reebok fell from 15% to 12% (Wolfe, 2006). Aside from the obvious competitive advantage of more shoe widths than customary in the industry, New Balance took off by striking a deep chord with aging boomers by appealing to the more introspective, individuated and autonomous bent that is typical of people in middle age (Wolfe, 2006). In the past five years New Balance has averaged a 25% annual growth, an achievement is due to the older population that may have worn New Balance shoes in their youth. Thus, New Balance can be described as a footwear company with a focus not on a love for sports, but in search of deeper meaning in life.

Competitive Forces Model (Porter)

Michael Porter's Competitive Forces Model is a strategy tool used to analyze the value of an industry structure. The Competitive Forces analysis examines five fundamental competitive forces, including 1) the entry of competitors, 2) the threat of substitutes, 3) the bargaining power of buyers, 4) the bargaining power of suppliers, and 5) the rivalry among the existing players (Value-based, 2006). In the athletic apparel and athletic shoe industry, there are a lot of existing competitors. However, the "threat of competitors" aspect refers to how difficult or easy it is for new entrants to compete upon an examination of what barriers exist. The threat of new entrants is greatest when there are low barriers to entry. New entrants may already be active in one geographic region, but the threat exists when that new entrant strong in one region attempts to take over other geographic regions. New entrants may also come from another industry that has expanded. The "threat of substitutes" refers to how easy the product can be substituted or manufactured cheaper. A threat of substitutes exists when a product's demand is affected by the price change of a substitute product, as more substitutes become available, customers have more alternatives. When this occurs, a close substitute product constrains the ability of a company in an industry to raise prices.… [END OF PREVIEW] . . . READ MORE

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