Nikes Entry into China

Nikes Entry into mainland chinawargon chinaw atomic number 18 is wiz of the major fastest growing markets in the instauration and the al around popular markets for foreign entrants. One of todays major business ch each(prenominal)enges requiring logistics insight is the salient growth in global sourcing, mainly to impression bell countries much(prenominal)(prenominal) as chinaware and Malaysia (David J.Closs, 2005).IBM Global Business Services reported that low cost country helps raise receipts. Most of the companys CEOs are looking for revenue growth by reduce cost to maintain or protract profit margins. Obviously, cost is one of the situationors that all companies that desire to reduce. After a company study of future sourcing, Nike had chosen china as one of the long-term approximately low-cost suppliers. By quoting Nike Inc. Cain.com said that labour costs accounted for a huge dish out of the prices of the companys plaza and had to be kept to a note place 24 per cent of prices to stay rivalrous.Since, Nike is the leading sports tick in chinaware. In 1981, Nike started production in mainland chinaware. However, for a company like Nike that has a repute of making the best products for their customers, they pee-pee to take in different factors much(prenominal) as note. Its one reason why they did not choose countries such(prenominal) as Africa to be their supplier. In addition, one factor that China has to stick out is comminute capability to bugger off quality goods for Nike.Furthermore, China was as well as chosen be reach the domestic market size. Mark Parker, who is the President and CEO of Nike stated that Nike is a growth company and China is being one of their most signifi postt sourcing markets and in addition swiftly becoming their arcsecond biggest consumer market in the reality. nearly one of e real(prenominal) trio pairs of Nike shoes they sell in the world is made in China. Similarity, Nike was taken thes e proceedss to tap into the large market it offers. In others word, China was similarly taking the opportunities to capturing the market in China which leave behind help stiffen the companys foundation in its pains.The fact of lowering cost is to achieve profit maximization. Production in a foremost world country would incr quiet cost and lead to reduce profit. China as a second world country for the foresee fit future is in addition the reason why Nike chose to enter into China.2.0 Analysis2.1 Advantage gained by Nike for ingress ChinaWhen Nike first entered the intertheme market through China, they gained many benefits. This is because China is a low-cost country, so NIKE has no involvement in the manufacturing of its products and all of its production has been outsourced mainly to manufacturers. For example, Goodbaby Group, Chinas contribute manufacturer and retailer of baby oversee products, has announced an on bloodline retail partnership with the Nike Inc as part of i ts efforts so that they adequate-bodied to win more bulls eye course credit (China Daily, 2012).Nike has been working with manufacturers in China for virtually 20 years. The employees and factories produce a lot of Nikes most highest-performance athletic products. One of the most fundamental impacts Nike have is to create positive, systemic interchange in their global supply string, and for the industry as a whole. The productive brand and supply chain footprints in China create typical opportunities for Nike opus it continues to help influence and gain from Chinas success. The achievement in China is built regarding the deep connections with Chinas Nike-branded footwear and athletes. According to Barney Jopson (2012), the habiliments and equipment product are produced by nearly 700 contract manufacturers worldwide, and employing almost 800,000 employees.China represents the largest sourcing country for Nike, with rough 180 contract manufacturers employing more than 21 0,000 workers (Barney Jopson, 2012). China is the major sourcing market for Nike, which producing approximately 35 percent of footwear and also an important sourcing market for Nike apparel and equipment. Besides this, the company engages in public discourse and policy administration in China by sharing their develops. First is the legal defense of employees that went into effect in January 2008, for the aim of strengthening legal protection for Chinas employees. Nike supports the restrictive purlieu that strengthens legal protections for employees and promotes well-mannered working stipulates throughout the supply chain and this helps to prevent discrimination. Second is the international trade. Since Chinas area Trade Organization (WTO) origination in year 2001, Nike has worked to ensure that trade disputes between China and its work partners are straytled and negotiated in a manner consistent with international norms. For example, trade disputes over apparel and footw ear and equipment with Chinas main trading partners in United States.According to a survey by the Ameri apprize bedroom of Commerce, three United States companies sound out their China operations are fat while most say their margins are higher in China than other places in the world. Nike not and supported the development of Chinese football, it also filled nigh the development of youngsters by launching a series of activity called I have a dream in August 2002, a large scale of youth sports.Since Nike established in China in the early of 1980, it gained several early entry quantify of foreign direct investment, which includes new markets, dispersion channels, segmentations, and lack of strong competition. Nike first launched their products in China and this gave the company to monopoly in market through incompatible distribution channels. At that period, not much company are providing the uniform areas of business, therefore Nike did not faced much competitors. Other than this, the company also gained vantage related in products, such as new product, textile supply, new product fixing, and brand loyalty. China continues tobeaveryviableresource when dealing with overall trade and labour markets around the world. Nike now has more than 7,000 retail stores in China and the company plans to distend their distribution to second andthird-tiercities.2.2 Shortcomings of entering ChinaIt is very difficult for Nike to figure all the quality products around the world. Nike has involved in a serious- headinged of quality s weeddals in China. Many products had been pass due to low quality and some products have been caused reproach to consumers in China. According to Ni and Hu (2012) say that Shanghai quality authorities have been found out three sample pairs of Nike shoes do not meet the standards and in 2011, women sports shoes had thinner soles than required. According to Ni and Hu (2012), Bureau prohibited Nike continues produces the shoes and later( prenominal) asks for recall all the shoes which do not meet the quality standard, but the shoe still available at Zhabei outlet of RT-Mart on October 10. However, the shoes were then pulled off the shelves.In 2011 September, Beijing had fine Nike whizz along Hyperdunk due to deceptive advertising and low quality, (Ni and Hu, 2012). Nike has been fined US $779,416 for selling sneakers had only when one air cushion in each shoe at a higher price and low standard in China compared those selling in other countries which has two air cushions and has much lower prices, (Zheng, 2012). The Nike Zoom Hyperdunk does not meet the quality set by the government and thus they need recall all the sneakers and offered refund. Besides that, Consumer Products Safety committee (CPSC) warning consumers stop using Nike football helmet and returned to Nike. The Helmet Chin Straps plastic cups can breaks and caused exposing the player to facial or head injuries (Villanueva, 2007).It is a big concern t hat Nike shares is declined 1.1% in China and in future the company expect the orders forgeting down to 6%, (Chang, 2009). Furthermore, revenue earn by Nike in China is move due to overindulgence livestock, high discounting and slowing in demand. carriage in China does not keep sufficient inventory personality because they unable to relay the information to order materials from other country. They do not know what materials need to be imported and when in advanced and cause the production cannot run in schedule. As a result, there have excess inventory in Long March Factory in Guangzhou. The employees who are responsible for checking materials does not know what are the materials needed to be order in following month production schedule and they did not frequently coordinate the records with the planners, (Nike in China, n.d). The planners order the materials does not base on the consumer demand but instead base on guessing method, and they rarely check what the materials le ft are in storage. As a result, Nike postulate to discount the prices in order to reduce the excess inventory, (Marcial, 2013). Sale of excess inventory at discounted prices could significantly impair the Nike brand image. Fail to try on accuracy demand of products could affect the revenues and net income earn by Nike.thither is intense competition faced by Nike, either local anaesthetic brands such as Li Ning, Anta Sports, China Dongxiang and Peak Sports or international brand such as Adidas from U.S., Reebok, Asics, and freshly Balance. Even now, Nike is well positioned at the top in China however there have multi brands still get by fiercely with Nike. establish on the report, Nike is known in the first place, with a 2009 market share of 10.2% Li Ning at the following slot which is second place for the first time, with 10.0% thus Adidas, in third place, with a 9.6% share (as cited in Smith, 2010). The gross revenue lead that Nike and Adidas held over domestic competitors has vanished. From this report is showing that the results of these top three sportswear brand are close proximity with each other, therefore this showing that Nike still in dangerous condition although it is remain in the first position. Furthermore, in the end of 2011, Li Ning had 8,255 stores while Nike had 7,500 outlets in China (as cited in Ranasinghe, 2012). As a result, Nike not only needs to face this strong local competitor, Li Ning, but also need to do the preparation for facing other competitors in China.3.0 tributeNike is popular for its high-quality sport shoes and other apparels. It has gained the acceptance in consumers mind that Nike-made products are of high-quality. In order to maintain and gain its competitive advantage over its main competitors such as Adidas, Reebok and others, Nike has scoop outed the expansion outline by outsourcing the production line to low-cost countries. China, Indonesia and Vietnam have become the unproblematic manufacturing destinatio n for Nike. The determination for outsourcing the production line to China is to reduce the desolate in terms of cost of hiring the labor, cost of shipment and many more. Cheaper labor and facility cost in China compared to the United States enabled Nike Corporation to jazz the economies of scale. It eventually lowers the total production cost and Nike will be able to top more profit. It is recommended that Nike should continue to fully adopt the expansion dodge to other low-cost countries like China by outsourcing the manufacturing line. It could strengthen the leadership position of Nike Corporation in financial performance as Nike pee more revenue and profit with low production cost.First, it is recommended for Nike Corporation to adopt presentation strategy to strengthen companys competitive advantage over the competitors. New design and innovation are very significant for Nike Corporation. One of the visions for Nike is plan for the future by unleashing the innovation. President and CEO of Nike, Mark Parker, said that Nike has set the target at improving the products through design. In the past, Nike has spent multi-million dollars on Research Development to design the athletic shoes which differentiate itself from other shoemaker companies. Nike has gained the recognition from the consumers for its uniqueness and sophisticated design. Nike China has contributed much to the innovation strategy as many advanced shoes design are made in China from the talented Chinese designers. Out of all three pairs of shoes, there is one of them is made in China. One of the progressive products came out from Nike was the Nike-Ipod sport kit with the collaboration with Apple Inc. It raised the runners experience by combining the sport and the music. It was viewed as a breakthrough for two sport and music industries.Second, Nike has excess inventory, high discounting and slowing in demand. To outstrip this, China has several competitive advantages.There are few strategies which can enable exploiting competitive advantage through different goal-means combinations (Bartlett et al., 2008)Multinational strategy achieves most strategic goals by emphasizing national differences. The firms which have espouse this strategy tend to operate business ground on local environment. They are flexible and responsive to local environment, but there is a lack of capability to learn globally within these firms owing to the fact that almost all national units operate independently.By using multinational strategy, Nike can achieve most strategic goals by emphasizing national differences. This is because Nike can adopt their strategy to operate business based on local environment. They can morph their strategy according to the local market, which is China. planetary companies like Nike apply all the approaches to create and exploit innovations. This can be their competitive advantages for the China as Asians culture tends to be more faint-hearted and co nservative in innovative.The strategies discussed preceding(prenominal) respectively possess unique assumptions about how to build up global competitive advantage. Nike used the Price lead Strategy and Value based pricing. This is when a company sets its price based on the value the consumer places on the product. This is why customer willing to throw high prices regardless of the products actual value. Nike already had the strong brand recognition among the people in China. For example Liu Xiang, Liu is an Olympic Gold medalist and World Champion. His 2004 Olympic gold medal was the first in a mens principal and field event for China. His athletic gear is sponsored by Nike. No interrogation all China people will get to know about Nike.As the excess inventory of Nike in China, I would suggest that they can cooperate with other parties such as their suppliers, distributor and competitors. This can enhance the global competitive advantages in the increasingly complex global envir onment (Bartlett et al. 2008)This is called strategic alliances. This also can solves high discounting rate for Nike as their inventory level is stable, do not need to discount to reduce inventory.Based on appendix 1 (Regional Product Distribution of Suppliers), China has most worker which is 175,960. This can be their competitive advantage because the production rate of China is very high compare to other country.Third, facing huge competition and failing to rise above others is always going to be one of the greatest shortcomings that a company would face. Which in this case, Nike has to start standing(a) out from its biggest competitors Li Ning and Adidas. At the current state, Nike only has a borderline lead over the two companies. We recommend Nike to be a standout in its industry. They are already making great products, but their competitors are also making great products. In order to rise up and above them, Nike should change the way they answer their customers, create a u nique sales style, such as giving expert advice for customers in helping them to make their purchase decisions. They could also create an environment where they rule welcomed and at ease when they are in a Nike shop. A totally new feel towards selling sports ware and clothing. This can help differentiate Nike from its competitors and increase brand awareness.4.0 ConclusionNowadays, Nike has more than 7,000 retail stores in China and they plans to develop their distribution to second andthird-tiercities.When Nike first entered the low cost country such as China, they gained many benefits. As we know that, China represents the largest sourcing country for Nike and also the most important sourcing market for Nike apparel and equipment. But, Nike has facing the problem of quality controls in China. For example, many low quality products had been recall and some products have been caused injury to consumers in China.Furthermore, revenue earn by Nike in China is dropping due to excess in ventory, high discounting and slowing in demand. Thus, we recommend to this industry to adopt the multinational strategy which emphasizing national differences and being able to operate the business based on local environment.Besides that, Nike also faced with intense competition like Reebok and international brand such as Adidas. We recommend Nike to adopt the innovation strategy to strengthen companys competitive advantage over the competitors. New design and innovation are very significant for Nike Corporation to enhance their leadership position. For example, change the way they serve their customers, such as giving the potential customers expert advice and suggestion, so that customers will feel respect and make better purchase decision.In conclusion, we wise to(p) that the company should implement expansion strategy by outsourcing the production line to low-cost countries such as China, Indonesia and Vietnam which are the primary manufacturing targeted destination for others company. For Nike, the purpose for outsourcing the production line to China is to reduce the cost such as cost of hiring the labour, cost of shipment and so on. It helped strengthen the leadership position of Nike in term of financial performance as Nike can make more revenue and profit with low production cost and also built up a strong reputation.ReferencesBarney Jopson (2012), Nike profit up contempt falling China order, retrieved February 27, 2013 from http//www.ft.com/intl/cms/s/b48a6dae-4aee-11e2-9650-00144feab49a,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fb48a6dae-4aee-11e2-9650-00144feab49a.html_i_referer=axzz2MCUQZfC3China Daily (2011), Nike to invest in China very aggressively, retrieved February 27, 2013 from http//www.chinadaily.com.cn/china/2011-10/11/content_13872475.htmWant China propagation (2013), Mounting labor costs forces Nike to relocate in China, retrieved February 27, 2013 from http//www.wantchinatimes.com/news-subclass-cnt.asp x?MainCatID=0cid=1102id=20130227000098Ni,Y., Hu,M. (2012).ShanghaiDaily.com. Retrieved February 16, 2013, from http//www.shanghaidaily.com/article/print.asp?id=514991Zheng,X. (2012).Tougher penalties urged for reprize standard companies. Retrieved February 16, 2013, from http//www.chinadaily.com.cn/business/2012-10/27/content_15851155.htmVillanueva,L. (2007). Nike football helmet chin strap recall issued following reports of head and facial injuries. Retrieved February 16, 2013, from http//www.newsinferno.com/?p=2029Chang, G.G. (2012). The coming collapse of purpose in China. Retrieved February 16, 2013, from http//www.forbes.com/sites/gordonchang/2012/09/30/the-coming-collapse-of-consumption-in-china/Nike in China. Retrieved February 17, 2013, from http//www.yingyudaxue.com/book/nike-in-chinaMarcial, G. (2012). Inside Wall pass Nike slows but is still in race. Retrieved February 17, 2013, from http//money.msn.com/top-stocks/post.aspx?post=13a96856-28f2-4dc2-bc78-26b601bdf647Smi th, G. (2010). Sportswear in China how local brands challenged the might of Nike and Adidas. Retrieved February 17, 2013, http//www.warc.com/Samples/93120.pdfRanasinghe, D. (2012). No Medals for Chinas Sportswear Firms. Retrieved February 17, 2013, http//www.cnbc.com/id/48454835/No_Medals_for_Chinarsquos_Sportswear_FirmsBartlett, C.A., Ghoshal, S. and Beamish, P.W., (2008).Transnational management text, cases, and readings in cross-border management. New York McGraw-Hill Companies. Retrieved February 26, 2013Competitive Challenge Nike, Retrieved February 26, 2013, From http//www.ukdissertations.com/dissertations/business/competitive-challenge-nike.phpParesh Ashara, (2012). NikeMarketing Strategies. Retrieved February 26, 2013, From http//www.slideshare.net/PareshAshara/nike-12906460Porter, M.E., (1998).The competitive advantage of nations. The Free Press, New York NY. Retrieved February 26, 2013