Unisa Graduate School of Business Leadership
MBL 1- 2010

MODULE STRATEGIC MANAGEMENT

MODULE CODE MBL 915 P

ASSIGNMENT NUMBER TWO

STUDENT NUMBER 43095984

STUDENT NAME MELAKU KEBEDE NADIE

JULY, 2010 NAZARETH

Table of Content

Executive Summary …………………………
1. Introduction …………………………………………………………………
2. Situation Analysis 2.1. Macro Environment Analysis 2.2. South African Sports footwear /casual Industry Competitive Analysis ………… 2.2.1. Industry Analysis 2.2.1.1 Market Size 2.2.1.2. Market Growth 2.2.2. Industry Competitive Analysis 2.2.2.1. Competitive Forces Analysis …………………………… 2.2.2.2. Driving forces Analysis ……………………………… 2.2.3. Market Position 2.2.4. Industry Key Success Factors 2.3. New Balance South Africa company analysis 2.3.1. Performance Evaluation… 2.3.2. Resource Strength and Weakness. 2.4. Market Opportunities and Threats
3. SWOT analysis ………………………………… 3.1. Discussion and Conclusion-…………………………………………… 3.2. Strategic Actions……………………………………………
4. Price and Cost Competitiveness of New Balance South Africa
5. Strategic Issues
6. Conclusion and Recommendation ……………………………………………
7. Implementation Plan References Annex

Executive Summary Introduction 2. Situation Analysis 2.1. Macro Environment Analysis
Political issues
Since the advent of democracy in the country in 1994 bold macroeconomic reforms have boosted competitiveness, growing the economy, creating jobs and opening South Africa up to world markets. This resulted in the emergence of not only new markets, but with a dramatic increase in market size of many categories. These political changes have, over the recent years, left the South African consumers with many more choices and many more ways in which to spend their money. The implication is that previously disadvantaged populations are now in a position to shop at wider locations with greater product ranges. Hence, this creates a more challenging competitor environment. South Africa’s transformation into the global market place has also added to a greater competitor environment. Local companies are therefore exposed to foreign competition in terms of products, prices and in some instances quality. In spite of the above, the new democracy has continued to evidence political stability that is most gratifying and beneficial for doing business.

The opportunity for brands like New Balance is that the market grew drastically as the sheer size of the black population makes this group very profitable. However, it should be noted that since the downfall of apartheid, many a multi-national has launched products in the Footwear category, and the competition is fierce. Brands like ASICS, Nike, and Adidas have been around for a while are entrenched, and many more can be expected to hit New Balance share in the near future.

Economic issues
South Africa's economy has been in an upward phase of the business cycle since September 1999 - the longest period of economic expansion in the country's recorded history. The real gross domestic product (GDP) rose by 5.4% in 2006 .The GDP outlook for the future remains positive, which is supported by strong business and consumer confidence. There has been, and continues to be, a continual upward shift in the income demographics of consumers due to the strong emergence of a black middle class market. Employment growth, improving confidence across racial groups and government infrastructure spend of billions over the next few years all bode well for the economy as a whole. These factors, combined with relatively low inflation, tax cuts, real wage increases of the consumer and the continued economic stability, have all resulted in the continual increase in the disposable income of consumers. This has helped to boost the sales of Sportswear and the entry of top retailers with better brands, which results in decline of middle brands , consolidation of retailers and decrease of the routes to market .

In addition, interest rates are expected to only marginally increase during the next few years. Consumer confidence and spending are expected to remain strong for some time, as the favourable economic cycle continues, and the aspirations of many of retails customers, particularly in the emerging middle class continue to grow at a rate faster than the growth of the economy as a whole. This is a great opportunity for future growth of the market. Increase in disposable income resulted in more people having access to new trends, fashion and better choice. New Balance can capitalize on this trend as consumers are opting to purchase brands that are associated with image. However, the high unemployment rate and the union unrest in the country is a threat to the future businesses. Social
As sports had become a universal form of entertainment over the years with the growing level of health awareness among the public substantially helped the
Sportswear industry to become more and more competitive. This changing behaviour patterns in public appear to have fuelled growth in the market.
The growth of the emerging black middle class and increased level of education has also resulted in consumers being more discerning in the choice of products they use. This created an opportunity for product differentiation and premium branding within the sportswear market.

Opportunity exists for New Balance to increase market share, volumes and value in a market growing at double-digits. However, the impact long-standing unemployment along with poverty, large wealth disparities and a high incidence of HIV/Aids are of big concern. HIV/Aids will not only impact on the staff but also on the consumer base. Companies also have to channel large amount of charitable donations to fight against this disease, this reduces the amount of money that can be made available to address other social issues such as education, job creation, training and poverty. Poverty still remains a significant social issue in South Africa. A possibility for the future could be that social aspects such as the need for higher education and future financial security could adversely affect the profitability of New Balance, as people will spend more on education and save more for the future, thus decreasing the disposable income.

Technological: The rapid growth of technology has broadened consumer’s media choice. We’ve seen how companies extensively utilized technology to ensure success. Increasing global connectivity could have both a positive and negative impact on New Balance. The positive impact could be a decrease in costs associated with value activates, for example, products could be purchased in countries where the manufacturing costs are low. The negative impact of global connectivity could be the opening up of the South African market to future international competition. As manufacturing processes become more automated, the cost of products will decrease and quality will increase. This will not only immediately improve New Balance but will also lead to increased customer satisfaction due to higher quality levels. The popularity of Internet purchases may force New Balance to actively pursue this distribution route than site based retail. An opportunity exists here for New Balance to create more touch points to engage with their consumers. The brand should utilize existing technologies such as the Internet and cell phones as more people now have access to these communication tools

Legal/Environmental

South Africa has a world-class and progressive legal framework. Legislation governing commerce , and maritime issues is particularly well developed, and laws on competition policy, copyright, patents, trademarks and disputes conform to international norms and conventions. However, the impact of the tariff barriers laid on clothing and textile products ,the duty payment on imported goods compared to the duty free regulation on inputs of local products and lack of flexibility in the labour(BE and BEE) laws were a concern .
The country's financial systems are sophisticated and robust. The banking regulations rank with the best in the world, and the sector has long been rated among the top 10 globally.

The deterioration of the natural environment is a major concern. As environmental emission limits and restrictions become more stringent into the future, the cost of manufacturing and production of sportswear will increase. New regulations with regards to emissions, CFCs (Chloro Fluoro Carbons), products, packaging and ethical manufacturing are in place and affect sportswear companies

2.2. Footwear Industry and Competitive Analysis
2.2.1. Industry Analysis 2.2.1.1. Market Size
As it is stated in the case the estimate for South Africa’s sports shoes market was 2.5million and 10.6million pairs of shoes respectively in the years 2004 and 2006.
In addition , the change in the consumers usage ,to use athletic footwear for leisure purpose , could continue and further resulted in high market growth in ‘athleisure’ as well as multi-sports footwear and a decline in technical running market.

Table 1: Estimate of Athletics Market of South Africa, 2004 CATEGORY | TOTAL MARKET VALUE/RANDS | MARKET SHARE IN % | | | | | | | MENS RUNNING | 123586000 | 12.3 | WMS RUNNNING | 60860000 | 6.1 | MENS TRAIL | 14730000 | 1.5 | WMNS TRAIL | 3240000 | 0.3 | MENS COURT | 12684000 | 1.3 | WMENS COURT | 9261000 | 0.9 | MENS X-TRAIN | 64435000 | 6.4 | WMNS X-TRAIL | 34374000 | 3.4 | KIDS | 29736000 | 3.0 | MENS WALKING | 1770000 | 0.2 | WMNS WALKING | 2288000 | 0.2 | B/BALL | 57470000 | 5.7 | CLASSICS/RETRO | 206700000 | 20.6 | SOCCER | 91000000 | 9.1 | TOTALS | 712134000 | 71.0 | APPAREL | 290500000 | 29.0 | TOTAL | 1002634000 | 100.0 |

According to the above table apparel, classic/retro and technical running shoes categories had the major market share in the industry.

* 2.2.1.2. Market Growth

The 2006 mid-year population of South Africa is estimated at approximately 47.4 million. Out of this the black African accounts 79.5 %.Though there is an increase in the incidence of HIV/Aids and unemployment ,the continual upward shift in the income demographics of consumers due to the strong emergence of a black middle class is very high.

In addition to the above as it is stated in the case ,exhibit 8 ,the bulk of the runners in SA is between the age of 26 to 60 .At the same time this age group forms the bulk of the population and as well as the income earners .The was witnessed by growth of the sports shoe market between 2004 and 2006 ,in which it was estimated to reach from 2.5 million to 10.6 million pairs of shoes.
Therefore, there is a huge potential for the growth of the footwear sports /casual industry.

2.2.2.3. Supply Conditions

Today the main international suppliers of low cost footwear from Asia are China, Indonesia and India; Vietnam and Thailand follow. It is difficult for a non Far East country to compete head to head with China. They must find market niches China does not do particularly well. In terms of world export share, low cost countries are a slightly more important as source countries for casual shoes than for sports shoes.

With the industry experiencing severe competition, and the product requiring intensive labour, firms are facing extreme pressure to increase their profit margins through their sourcing practices.

Therefore, with entry of more manufacturers and top retailers, whose strategy is based on sourcing practice, there is a possibility for vast supply of alternative brands with competitive price.

2.2.2. Industry Competitive Analysis 2.2.2.1. Competitive Forces Analysis

1. Threat of new entrants
Economies of scale are required to enter the sports shoe industry, to obtain the reach to be competitive. Economies of scale in production will be difficult to reach due to the difficulties of penetrating the market which is dominated by the large four; ASICS, Nike, Adidas and New Balance .Hard to achieve product differentiation in terms of brand identification and product difference, since the "big four" set the trends.
Extensive capital requirements are necessary, in terms of physical production facilities, and marketing to establish a firm in the industry, thus the entrance barriers are high. It is difficult to establish a brand, as strong brands are already well established, and expensive marketing would be required to compete against them. However, South Africa with its duty free incentive for importing raw materials and protection of local clothing and textile with high custom tariffs could be attractive for an entry .

There are very low switching costs, as it is easy for buyers to change suppliers, thus it is relatively easy for a customers to buy from a new firm. Access to distribution channels is not difficult to obtain, as a new firm would easily have access to existing channels in department stores and specialist sports shops. But the distribution channels and dealers are in many cases tied-up by existing competitors.
Strong retaliation would be expected by existing firms, as the sports industry is lucrative thus they would wish to defend their market share.
Considering these factors the threat of new entrants is regarded as moderately low, as the barriers to entry are high, but not to the extent that the market is impossible to gain access to.

2.Bargaining Power of Suppliers
Switching costs are low, thus it is easy for a firm to obtain suppliers .There are few substitute inputs to produce shoes with the essential elements of rubber, and fabric being the main ones which are hard to substitute.
There are many suppliers of raw materials, thus making it easy to obtain supplies there is a strong threat of backward integration whereby the shoe firm produces its own raw materials to ensure quality. However, there is a very small threat of forward integration as the suppliers do not possess a highly differentiated product.
Bargaining power of suppliers is considered to be moderately low as it is easy to obtain supplies from a number of sources. But it is also possible for the suppliers to integrate forwards into the industry's business and become a rival to the industry.

3.Bargaining Power of Buyers
There is a low buyer concentration as there are many of them, thus the individual consumers have little power. However, there are a few large retailers which buy a substantial volume, thus they have a high bargaining power as they have the ability to leverage. There is a low switching costs as it is easy for consumers to change to another sports shoe brand without incurring any costs. It is difficult to integrate backwards as consumers lack the resources to manufacture sports equipment.
There are very few product differences which could be regarded as significant to attract a customer, as essentially the shoes have different technologies which produce the same effects, thus price and design are factors which may attract buyers, but with two similarly designed shoes, they will be price sensitive. Possessing a strong brand is a differentiating factor, thus being an influential aspect when buyers choose a product.
Bargaining powers of buyers is believed to be moderately high, as they do not have a significant ability to influence the industry as individuals, but collectively they have considerable influence.

4. Threat of product substitutes there are low switching costs for the consumer, as it is easy to change between brands and sports equipment suppliers. New Balance competes with similar products to others but branding makes the products different. There is a low propensity to substitute away from the industry as the products provided are highly specialized. Counterfeits are a significant threat in the branded shoe sector, being sold at a lower price, but at a perceived similar quality and performance.
The threat of substitutes has been evaluated as moderately high, as there are many substitutes available, and with extremely low switching costs it is easy for customers to change but there are also very few substitutes for shoes.

5. Intensity of rivalry among competitors
There are many competitors but with only a few major players who have approximately equal resources which intensify the competition. There is rapid industry growth which would reduce the competition to take market share away from competitors as there are sufficient growth opportunities without engaging the competitors.
There are few fixed costs thus rivalry between firms is reduced, as they are not constrained by the capacity of their equipment, and forced to produce large volumes to cover costs.
There are few product differences thus customers are unlikely to be loyal as many firms have products to satisfy their needs. As a result there are low switching costs, thus increasing competition between firms to capture the market.
There is little diversity of competitors thus competition is increased due to their inability to differentiate on the basis of product.
There are low exit barriers as there are few specialized assets, few labour agreements, as production occurs predominately in third world countries. There are no strategic alliances, or emotional barriers which could prevent a firm from exiting the industry or a geographic segment.
Products are highly "perishable", and the product life cycles are extremely short.
The Rivalry among competitors is considered to be high, as there are few differences between them, thus forcing competition to increase due to their inability to differentiate on the product basis.
Conclusion
This is a moderately attractive industry even though the competition within the industry is strong .It is difficult to establish brand name loyalty. However, selling to corporate vendors in addition to selling within one’s own means the line could be very profitable. Also the materials used in this industry are not hard to come by, so it would not be too expensive to manufacture footwear. It would be a learning experience and may take a while to turn over a considerable profit, but if done right it could turn out to be a profitable venture.

2.2.2.2. Driving forces Analysis
The key factors that heavily contribute to the change in the industry include: * Change in industry’s long-term growth rate – both domestic and global market shows a relatively positive trend. This shows the effect of South Africa’s economic performance. * Emerging new Internet capabilities and application – it facilitate cost saving and service differentiation specially through introduction and improvement of supply chain management. * Change in manufacturing cost and efficiency among competitors –widening cost differences between companies with Sourcing practice and others .As a consequence the demand for low-cost sportswear and the competitive pressure in the industry increased. * Consolidation of retailers – selling to top retailers and selling within one’s own means line could helps to go for volume sales and decrease overhead costs .This helps to decrease the manufacturing cost and lead to increase the competitive pressure in the industry. * Marketing innovation - endorsements in major sporting events on a global scale generate strong brand recognition. In addition to price this helps to win the preference of customers.
As a consequence, the combined impacts of the driving forces lead to intensify the competitive pressures and decrease the profitability of the industry .This made the strategic adjustment for low cost quality sportswear more appropriate. 2.2.3. Market Position
Since it is hard to get exact figures, exhibit 5 is used to estimate the share of each brand in each category of the Athletics market of South Africa. This is shown in the table below as a percentage of the market value.
Table 2: Estimate of percentage share of Athletics market categories’’ and brands CATEGORY | NIKE | ADIDAS | ASICS | PUMA | NEW BALANCE | TOTAL | | % | | % | % | % | % | RUNNING | 31 | 36 | 19 | 1 | 13 | 19.8 | TRAIL | 13 | 9 | 8 | 1.1 | 69 | 1.9 | COURT | 25 | 31 | 3 | 1 | 42 | 2.1 | X-TRAIL | 14 | 28 | 0 | 26 | 3 | 9.7 | KIDS | 54 | 33 | 1 | 6 | 6 | 2.9 | WALKING | 34 | 20 | 7 | 11 | 28 | 0.4 | B/BALL | 85 | 10 | 0 | 4 | 1 | 5.6 | CLASSICS/RETRO | 36 | 42 | 1 | 21 | 0 | 20.2 | SOCCER | 27 | 52 | 1 | 19 | 0 | 8.9 | TOTALS | 38 | 36 | 6 | 13 | 7.7 | 71.6 | APPAREL | 34 | 53 | 0 | 10 | 1.7 | 28.4 | TOTAL | 37 | 41 | 4 | 12 | 6.0 | 100.0 |

The variables identified to construct the strategic group map are * Price - as it is stated in the case the price of Nike and ASICS is higher than the other competitors .Therefore, the range low, medium and high are used .Low priced footwear ,are those footwear that are low quality and imported mainly from China . Range | % market value | Category | Narrow | Above 8 | In 2 | Wide | Above 8 | In above 2 to 5 | Very wide | Above 8 | In all | * Product Category – the presence of a share and its size in the nine footwear categories and the apparel taken as a measure, and the score is considered as shown below.

Unit Price
Low Medium High

Figure 1: Comparative Market Positions ASICS | | Nike | PUMA | NB | Adidas & Reebok | | | | NARROW WIDE VERY WIDE CATEGORY
According to the above mapping Puma and Adidas are the closest competitors with better price and relatively wide categories of footwear products and apparel .The price and the relative brand performance attained by the three companies could prove a good potential to attract those customers that need the quality performance associated with the brand.
Therefore, the prevailing competitive pressures and the industry driving forces favour these companies.

2.2.4. Strategic Moves of Industry Rivals.

Adidas with its relatively better pricing, balanced diversification, worldwide sponsoring major sport events and better sourcing has the best opportunity to meet the preference of major customers.
Furthermore, the acquisition of Reebok by Adidas could give more strength to improve its coverage and attain the leading role in the industry both in South Africa and globally.
Therefore, having the best strategy and strength Adidas is expected to open its own brand stores and improve its IT application so that it could access its customers easily and gives all aspects of its brand.

2.2.4. Industry Key Success Factors
In analyzing the Sports footwear /casual Industry of South Africa , the core skills that set companies apart from the competition, are their * Marketing effort , * distribution, and * technological expertise Therefore , New Balance South Africa should try to be distinctively better than its rivals in one or more of the above factors so that it can enjoy a stronger market positions.
2.2.5. Conclusion
In general considering the existing economic performance of South Africa and the huge potential for the growth in the industry and the present competitive position of New Balance South Africa the industry environment can be rated as moderately attractive. 2.3. New Balance South Africa company analysis 2.3.1. Performance Evaluation

New Balance South Africa focus on market niche ,where its main target is running sportswear and supply of apparels for the army ,air force and police force .In order to distribute its products New Balance has established a strong relationship with independent small store ,which comprises 36 percent of its business .For the rest of its business New Balance deal with key retailers and a small portion of direct sales in special events and through branded shops, mainly where there was no New Balance representation.
Furthermore, for the promotion of its products New Balance supports grassroots initiatives and uses sport magazines and affordable television exposure. The overall, strategy of New Balance was to deliver highest quality product with affordable price and excellent back-up service.
These approaches and strategy became an edge to expand New Balance South Africa turnover fromR5million to more than R90million,improve its geographical coverage and became one of the powerful brands .Off course this was achieved through building strong team bonded with trust ,shared vision and led by committed management staff ,who has got the expertise ,experience and conducting every activity through supporting and empowering the employees and transforming the team to a family .
2.3.2. Resource Strength and Weakness.
Strengths
Today there is a market trend to be more individual, requiring more often smaller orders of different styles. In line with this New Balance South Africa focused on market niches, where the remaining powerful brands are not focused .This gave the opportunity to improve its price competitiveness in the running, trail, and court and walking shoe categories, where it had secured more than 80 percent of its business. This was achieved through flexible and fast response to the vast number of small independent stores to replenish their stock.
The strong back up service to customers was enabled through its utilization of database for managing its inventory and on line communication to all of its customers..

Furthermore, the strong management team with their supportive leadership, highly aligned recruitment and coaching practice, create a strong sales team to give an excellent back up service and build the company’s image at a grassroots level.

Weakness
As it is stated in the case New Balance South Africa supports a number of grassroots sport initiatives .However, New Balance International, the parent company, did not indorse top athletes like its competitors. This let New Balance South Africa to fall behind its other major competitors, Nike, Adidas and Puma, in the area of marketing, which gave them the needed momentum to carry their brand name further into the global market as well as at local market. New Balance South Africa prides itself on providing quality athletic shoes for the serious athlete ,which accounts 43.5 percent of its business in the year 2004.However, this market has shown a major decline and shifting to not only include serious athletes, but it now also caters to the more fashion-oriented crowd. This crowd tends to be from the younger generation, which comprises the bulk of the emerging middle class, and where New Balance has so far not been focusing on.

Another weakness of New Balance is its sourcing practice .With its competitors outsourcing most of their manufacturing from other countries such China, Indonesia India ,Vietnam and Thailand , have been able to cut their manufacturing costs significantly. But New Balance International used to limit sourcing and on the other hand New Balance SA was importing its entire product from USA. This left a major disadvantage to New Balance South Africa.

Furthermore, with the consolidation of retailers and the opening of branded stores by competitors the small independent stores would not be in a position to with stand the price competition .Therefore, using the small independent stores as major out let means could leave a major disadvantage to New Balance South Africa.

2.4. Market Opportunities and Threats
Market Opportunities
With the emerging black middle class accounting the bulk of the young population South Africa proved to be an attractive market with high rate of growth. The increase in the level of education and the availability of powerful brands resulted in the change of consumer’s attitudes in choosing products they use and also their preferences. This created an opportunity for product differentiation and premium branding and a decline in middle brands and could open more market opportunity for New Balance with its pricing strategy. In addition to this the incentive on raw materials import and the relatively high import duty on apparel could be taken as an opportunity to invest in South Africa .

Another opportunity is to improve the supply chain management and addressee the vast number of sport societies and even individuals through using internet as a means of distribution means.
Furthermore, with the products requiring intensive labour to improve the price competitiveness of New Balance South Africa, it’s mother company should focus in outsourcing its products ,which give an opportunity to decreases costs through improving the efficiencies in the form of shifting of risk, reduced capital requirements, lower wages, and ability to focus on their core competencies.

Threats
The impact of long-standing unemployment, a high incidence of HIV/AIDS, union unrest and inflexible labour law are of big concern, which could erode the performance of South Africa’s economy as well as the market growth in the industry.
The increase in duties on finished products and the protection laid on apparel through high custom tariff on imported goods could also increase the costs of New Balance South Africa.
Another threat is the entry of top retailers and their consolidation and opening of branded warehouses from competitors. This could raise the price competition and remove the small independent stores and also raise the bargaining power of the retailers, which could damage the price competitiveness of New Balance South Africa.

In addition to fierce price competition Counterfeits are a significant threat in the branded shoe sector, being sold at a lower price, but at a perceived similar quality and performance.
5. SWOT analysis
5.1. SWOT Listings
The following table summarizes major strength and weaknesses as well as opportunities and threats of New Balance South Africa.
Table 2: SWOT Listings Strength | Weakness | 1. Focusing on market niches 2. Backed with a company known for its innovation capabilities 3. Committed and highly experienced management staff 4. Competent recruitment practice 5. Excellent back up service 6. Strong effort in addressing grassroots sport initiatives 7. Utilization of IT for inventory management and communication | 1. Lack of endorsing top athletes and events 2. Limited product line 3. Relatively low profit margin 4. Increased dependence on small independent stores | Opportunities | Threats | 1. High rate of market growth 2. Decline in middle brands 3. Increase in internet purchase 4. Duty free import of raw materials 5. Possibility of products outsourcing 6. 2010 World football | 1. Long- standing unemployment 2. High incidence of HIV/AIDS 3. Union unrest 4. Inflexible labour law 5. High duty laid on imported apparel 6. Major decline in technical running market 7. Acquisition of Reebok by Adidas 8. Consolidation of retailers 9. High probability of opening of branded shops by competitors 10. Counterfeit products |

5.1. Discussion and Conclusion

The above SWOT analysis indicates that the New Balance South Africa has such attractive sets of complementary strategies, focusing on market niches which helps to react quickly to market demands , committed and highly experienced management staff which recruit and develop strong sales team , backed with a company known for its innovative capabilities which can contribute for offering the highest quality products, excellent back up service enabled with utilization of database which gives valuable support in processing customers order and working with grassroots sport initiatives helps to establish contacts to the sport societies and individuals.

However, the company had major weakness which includes inability to endorse top sport events and athletes which give extra momentum in building a global brand and helping to with stand the impact of counterfeit products , to focus on technical sport shoes which undergo a major decline, to import all products from USA where relatively the products are expensive and selling the products at a lower price and to depend on small independent stores which could be removed with the fierce price completion coming from top retailers and branded shops.
Although, the situation was very alarming considering the achievements obtained in the years back the weaknesses mentioned above could be corrected if New Balance South Africa crafts a strategy that can assists for the company development.

5.3. Strategic Actions
In order to improve the company’s strategy and business prospects the following strategic actions should be taken; * Focusing on market niches and diversifying product lines * Reducing supply costs * Strengthening the building of the brand * Introduction of internet accesses to existing outlets and to areas not covered by New Balance South Africa * Strengthening branded shop opening

6. Price and Cost Competitiveness of New Balance South Africa
New Balance South Africa’s cost competitiveness depends on how efficiently it managed its value chain activities relative to its rivals. As it was stated in the case the company’s primary activities deals with sourcing and purchasing ,shipping and warehousing from suppliers , sales and marketing, where as the support activities deals with Human resource management ,accounting and finance ,database management, maintenance of facilities and other administrative activities. These with supplier and distributors related activities form the value chain system for New Balance South Africa.

In order to evaluate the price and cost competitiveness it requires to consider the internal costs of the company, which reflects the related costs of both the primary and support activities, as well as the costs related to the activities of suppliers and distributors’.

For this purpose a qualitative comparison is done with the immediate competitors, Adidas and Puma, and that of New Balance as shown below.

Table: Weighted Strength assessment based on sales turnover, 2004 Key Success Factor/Strength Measure | Importance Weight | Adidas | Puma | NB SA | | Average score | | | Strength Rating | Score | Strength Rating | Score | Strength Rating | Score | | Quality/Product Performance | 0.09 | 8 | 0.7 | 7 | 0.6 | 9 | 0.8 | 0.7 | Reputation /image | 0.09 | 10 | 0.9 | 7 | 0.6 | 8 | 0.7 | 0.8 | Dealer network/distribution capability | 0.12 | 10 | 1.2 | 10 | 1.2 | 7 | 0.8 | 1.1 | Product assortment | 0.13 | 10 | 1.3 | 6 | 0.8 | 4 | 0.5 | 0.9 | Relative Cost position | 0.31 | 10 | 3.1 | 8 | 2.5 | 5 | 1.6 | 2.4 | Financial resources | 0.10 | 10 | 1.0 | 3 | 0.3 | 1.5 | 0.2 | 0.5 | Customer service capabilities | 0.16 | 7 | 1.1 | 7 | 1.1 | 10 | 1.6 | 1.3 | Sum of importance weight | 1.00 | | | | | | | | Weight overall strength rating | | | 9.3 | | 7.1 | | 6.2 | 7.6 | Ranking | | | 1 | | 2 | | 3 | |

5. Strategic Issues
6. Conclusion and Recommendation ……………………………………………
7. Implementation Plan

* Fluctuating rand /dollar exchange rate * Change in customers usage athletic footwear for leisure * Technical running market decline * Entry of new competitors * Entry of top retailers * Competitors operating own branded store

* expansion * market share * level improvement * strong team * strategy and management style

Buyers looking for shoe supplies, tend to look at these countries. However there are some problems associated with dealing with the Asian region. In today’s market, retailers are looking for production flexibility, i.e. the ability to react quickly to market demands. They also look at the total procuration cost to get shoes into their warehouses. This includes a calculation of transportation costs, delivery times (cost of finance) fast turn round of repeats (keeps stocks down), travel to foreign factories, rather than, in the past, just the price. This can put the large volume producers in the Far East at a disadvantage. China and Indonesia are not so flexible, India is more flexible. Far East producers traditionally have demanded large orders (50,000 to 100,000) pairs per style; they are far away from the main markets, USA and Europe.

Large orders are fine for large global distributors. However, there is a market trend today to be more individual, requiring more often smaller orders of different styles.
Large Far East factories are presently not geared up to this new trend.

New Balance South Africa is known for its approaches ; * focusing on function over fashion * producing many shoes in US * nurture strong retail partnerships through fast replenishing stock * supporting grassroots initiatives rather than endorsing top events * speed in market preferred than company size * excellent back up service

strategy * focusing on running shoe offer a wide range of categories and sizes * technical running gear to athletic workout wear – well fitting functional product * manufactured entirely overseas * margin 38 to 40% * team building ; active in sport or to have an interest , world class service with empowered employees ,trust, sharing vision and passion,mixing specialist with experienced staffs * advertising – in running magazines and affordable television exposure

*

Results
2000- 2006 * team 8 to 45 and 10 representatives across SA * branched to town 1 to 3 and tree provinces outside of Western Cape * sales turn over from 5million to more than 95 million * ranking from 15 th to 4th * 36% independent stores * Opened a couple of branded shop where there is no representation * 20% apparel businee s to army

Earned more income outside US in 2003
CEO sees positive in public controversy (endorsement contracts = validation by greatest athletes.)
Brand recognition in the Endorsements
Quality
18,000 US retail accounts independent distributors in 200 countries
30,000 international retail outlets
24 distribution centers
161 retail stores in US (75 outlets, 4 Nike Stores, 65 Cole Hanan, 4 employee only stores, and 13 NikeTown Stores).
Very clear mission and vision
CEO is the entrepreneur that started Nike
39% market share
Domestic growth of 2.5%
Little long term debt due to overseas manufacturing
No manufacturing means can spend more time on marketing products and developing products
Superior R&D (NSRL, shoes are developed 5 years in the future, and Nike visits with athletes to learn what they want)
Marketing/Distribution expertise (very specific advertising campaign, advertising agencies are local, endorsements, and sponsorships. They also own most overseas distributors.)
Social Responsibility (member of FLA, GAWC, created VP of Social Responsibiilty)
Management style/Culture (“Play by the rules, but be ferocious…It’s all right to be Goliath, but always act like David.”)
Profitable financials with 4.15 cash flow and 28% ROE
Solvent financials with 1.36% quick ratio
Is not leveraged with only a .68 debt to equity (D/E ratio only .46 w/o short term accrued liabilities that company has cash to pay off).
Has $1,166 of EBITDA which equates to a potential leverage position make a $105 billion acquisition
Gives 3% of pretax profits to charity
Code of Conduct (Reuse a Shoe, Air to Earth, etc).
Incentives tied to financial performance of the company
Broad product assortment over many different sports with very focused advertising campaign
Weaknesses
Controversies in manufacturing ethics, lawsuits, and criticism of high endorsements
CEO resigned that his view of Nike differs public (controversy = impact)
Public view of endorsements
Reliance on Retail outlets (10.9% of 2002 revenues came from Foot Locker)
High cost of Nike shoes
Very easily copied marketing strategy (Reebok and Adidas did it)
Reliance on import/export docks (dock lockout in 2002)
Impact of foreign currency fluctuation
Public view of overseas labor
Overseas manufacturing trains other countries on new technologies and allows them to copy it and create contacts
Market shift from Baby boomers to Generation Y
Depends on international trade agreements in manufacturing (NAFTA, GATT, and MFN)
Nike only averages 20% sales to women while the industry is 50%
Third world country diseases impact the distribution chain (such as SARS)
Commercial speech lawsuit
Management structure (co-presidents,

w Balance Swot
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New Balance Swot
New Balance Athletic Shoes Case Study
Problems
In reviewing the case of New Balance Athletic Shoe, Inc. it is clear that there are a few major problems that the company is facing. First of all, New Balance falls behind its other major competitors, Nike, Adidas and Reebok, in the area of marketing. Unlike its competitors, New Balance does not undertake celebrity endorsements. This puts them at a disadvantage when it comes to brand building. This also causes the company to lose out somewhat on gaining awareness on a global scale as it lacks endorsements in major sporting events. Most global brand names generate strong brand recognition through celebrity endorsements in sporting events that would give them the needed momentum to carry their brand name further into the global market.
A second problem that New Balance faces is its limited product line. New Balance prides itself on providing quality athletic shoes for the serious athlete. However, the market has been shifting to not only include serious athletes, but it now also caters to the more fashion-oriented crowd. This crowd tends to be from the younger generation, the part of the population that New Balance has so far not been focusing on. New Balance has geared itself toward the older crowd, which has severely limited the company as far as its ability to expand into new product areas and remain competitive in the changing market.
Another problem that New Balance has been facing is manufacturing costs. With its competitors outsourcing most of their manufacturing to other countries such as China, Nike, Adidas and Reebok have been able to cut their manufacturing costs significantly. New Balance on the other hand only outsources 75% of its U.S. volume while retaining the remaining 25% for final assembly in one of its five factories.

Strategies
In dealing with New Balance’s weakness in the area of marketing it would be beneficial for the company to find a celebrity to endorse their product line. New...

Based on the competitive and industry analysis to be successful, an airline must be effective in the following areas: * Attracting customers through lower relative price with better service, * Better load factor – how well companies’ major assets are utilized , * Better people management - available seat miles per employee with lower customers complaint , * Better financial management – to achieve better revenue and cost per available seat miles,

eleven of the world's leading running shoe manufacturers,
Mizuno Wave Elixir, Best Debut of 2006 manufacturers Brooks and Asics, which each captured Best Innovation Awards for their development and use of new shoe technologies.
. The Asics GT-2100 won the inaugural RW International Shoe of the Year award in 2005.
. The Asics GT-2100 won the inaugural RW International Shoe of the Year award in 2005.
Representatives from manufacturers including adidas, Asics, Brooks, Fila, Mizuno, New Balance, Nike, Puma, Reebok and Saucony were among those presenting at this year's Shoe Summit before editors from the nine international editions of Runner's World--Australia/New Zealand, Germany, Italy, the Netherlands/Belgium, South Africa, Spain, Sweden, the UK and the flagship U.S. title.

Company Background
OUR PHILOSOPHY
At New Balance we adhere to a unique set of philosophies. We focus on function over fashion; make shoes in multiple widths; continue to make many shoes in the US; nurture strong retail partnerships; and support grassroots initiatives. Although we have grown substantially over the past five years, we have not lost sight of who we are or from where we came.
A UNIQUE APPROACH TO ATHLETIC FOOTWEAR
Because feet don't come in one or two widths, and because shoes that fit better perform better, New Balance shoes come in a wide range of widths and sizes. In addition, the New Balance Suspension System - a collection of technologies developed to meet the diverse needs of athletes - is integrated throughout the product line to ensure you find the right shoe for your foot type and performance requirements.
MAKING OUR MARK IN APPAREL
New Balance has made significant strides in apparel, taking a more progressive approach with innovative fabrics and features, an attractive colour palette, and timeless designs. Like our footwear, the apparel line features the New Balance hallmark of fit, performance, and comfort. An increasing segment of the New Balance business, NB apparel includes a large collection of garments - from technical running gear to athletic workout wear. Engineered to be versatile and durable, our apparel collection incorporates advanced moisture management liners, breathable micro fibers, and water-resistant coatings to provide consumers the ultimate in comfort and weather protection

A FORMULA FOR SUCCESS
Over the past decade, New Balance has grown substantially. Worldwide sales have increased from $210 million in 1991 to $1.3 billion in 2003. We attribute this success to our ongoing commitment to integrity, teamwork, and total customer satisfaction; performance and fit over fashion; investment in domestic manufacturing; and technological innovation. We have remained true to who we are by remaining focused on manufacturing as opposed to marketing, and by being concerned first and foremost with producing high-quality performance products.
NEW BALANCE CORPORATE
Providing the brand with an added marketing & promotional function, New Balance Corporate services businesses & organizations as well as numerous school sports teams & touring sides from many differing sporting codes.

In an age where work wear has become increasingly casual & looking the part is just as important as playing the game, many consumers are actively seeking solutions to their need for quality custom clothing at affordable prices.

Throughout its four years of operation, New Balance Corporate has placed an important emphasis on developing strong & lasting relationships with local suppliers & manufacturers, thereby supporting the South African clothing industry & ensuring that customers are provided with only the best quality custom made & designed garments that are affordable, fashionable & performance focused, whether that's in the office or on the sports field.
CO-BRANDING
New Balance Corporate offers clients the opportunity of purchasing in-line apparel direct from its head office for the purpose of co-branding. This option allows for a turn-around time of approximately two weeks from approval, is for bulk orders only & co-branding between New Balance & the client must occur.
CUSTOMIZED APPAREL
New Balance Corporate also offers clients the option of designing & manufacturing customized styles to suit the needs of individual events or sports teams. A wide range of apparel styles are offered with a manufacturing time of 4 to 6 weeks from approval. All apparel must carry the New Balance logo & orders must be for 50 units or more although special exception can be made for sports teams.

Nike Strategic Analysis
Introduction

Every box of Nike shoes states, engineered and built to the exact specifications for championship athletes around the world. Nike has become the measuring stick in the world of merchandising and endorsing. Top athletes around the world are often seen with a famous Nike swoosh on their shoes. It is not uncommon to see some form of Nike product everywhere you look.
It all begins with Phil Knight, a competitive runner, who incorporated Blue Ribbon Sports in Oregon in 1968. Blue Ribbon Sports was the first to receive the "swoosh" logo, but changed its name to Nike in 1978. Nike means "the goddess of victory," which is exactly what the company has had since its creation. The "swoosh" logo is automatically associated with the company name by just about anyone in the world. The meaning for Nike has lived up to the company's expectations.
Now, NIKE is the world's number one shoe company and controls more than 40% of the athletic shoe market.
The company designs and sells shoes for just about every sport, including baseball, volleyball, cheerleading, and wrestling. Nike doesn't only sell athletic shoes, but a wide variety of sporting goods and clothing; they design, develop, and market high quality active sports apparel, equipment, and accessory products. Their huge lines of products are designed for just about every sport in existence. Their products are made for men, women, and children of all ages. In addition, it operates NIKETOWN shoe and sportswear stores and is opening JORDAN in-store outlets in urban markets. NIKE sells its products to about 19,000 US accounts, in about 140 other countries, and online. Chairman, CEO, and co-founder Phil Knight owns about 36% of the firm.
Nike currently contracts with 25 factories in 8 countries in Central & South America - 22 apparel and 3 footwear factories. The contract factories employ more than 23,000 workers, approximately 70% are women and 30% are men. Honduras was the first country where Nike products were made, with Ecuador and Guatemala being the newest production countries. Nike has production-related employees who regularly visit the factories in Central & South America and conduct SHAPE inspections, as well as full-time Corporate Responsibility Compliance staff who oversee factory compliance.

Nike currently employs 20,700 employees, with total sales of $8.78 billion. Nike and the athletic shoe industry have evolved into one of the most competitive market in recent years.

Environmental Analysis

External Environment

Economic

- Growth/ Slow down in the economy
- Transition toward a common currency in Europe
- Interest Rate changes
- Increase outsourcing manufacturing
- Low value of the Dollar compared with the Euro
- Increase of inflation and unemployment in Asia and Latin America, and Russia
- Unemployment rates

Social Cultural Demographic

- Consumers are brand conscious
- Changing youth markets who are mostly interested in boots, and sandals.
- Generation Y very different from baby-boom generation (advertising/styles)
- New fashion style for athletic shoes (retro)
- Women’s sport players and leisure fitness participants
- Decline in interest in health and fitness awareness and practices
- Revenue Increase for the minorities
- Population getting older

Political/Governmental/Legal

- NAFTA and GATT reduced import/export
- Access to international markets and tariff cutbacks as provided by GATT
- Formation of the European Union and the introduction of the Euro
- EU enforcement on imported athletic footwear from China and Indonesia anti-dumping duties
- U.S.’s diplomatic relations with countries such as China and Vietnam
- Local laws on labour and mainly on child labour

Technological

- Generation Y members prefer to use the Internet as a source for product information
- Mass Customization
- Production more efficient
- Intranet enable better communication inside the company

Competitive Forces

- It is a monopolistic type of industry
- The Competitors are Reebok, Adidas, Fila, Puma, K-Swiss, Asics, and New Balance in the athletic shoe industry.
- New Competitors: Nautica, Tommy Hilfiger
- Fashions shoe brands: Vans and Skerchers
Opportunities

1) New Technology for products development and production.
2) Emerging markets such as China and India, Mexico, and South Africa
3) New trends for products such as boots and sandals.
4) Global marketing events that can be utilized to support the brand such as the Soccer World Cup and The Olympics Games
5) Increase of the female consumer market.

Threats

1) Buys and sells in different currencies and so costs and margins are not stable over long periods of time.
2) Fierce competition both domestically and internationally
3) Increased European competition and US competition.
4) The retail sector is becoming price competitive namely with Internet
5) Change in the young consumer to sandals and boots
6) High inflation and unemployment in Asia and Pacific Rim, Latin America, and Russia
7) Competition from ex-manufacturing which are becoming more developed (Taiwan, South Korea)
8) Import and export regulations.
9) Fluctuation of foreign currency and interest rate
10) Products have short-life cycles, and success depends on the fact that what is flashy and "hot" will sell

External Factor Evaluation Matrix (EFE)

Opportunities Weight Ratings Weighted Score

New Technology for products development and production. | 0.05 | 20.1 | Emerging markets such as China and India, Mexico, and South Africa | 0.1 | 30.3 | New trends for products such as boots and sandals. | 0.05 | 20.1 | Global marketing events that can be utilized to support the brand such as the Soccer World Cup and The Olympics Games | 0.05 | 20.1 | Increase of the female consumer market | 0.05 | 30.15 | Total | 0.3 | 120.75 |

Threats Weight Ratings Weighted Score Trading in different currencies, costs and margins not stable | 0.05 | 20.1 | Fierce competition | 0.05 | 30.15 | Increased European competition and US competition | 0.05 | 20.1 | Retail sector becoming price competitive with Internet | 0.15 | 30.45 | Change in the young consumer to sandals and boots | 0.05 | 20.1 | High inflation and unemployment in others countries | 0.05 | 20.1 | Competition from ex-manufacturing | 0.1 | 20.2 | Import and export regulations. | 0.05 | 20.1 | Fluctuation of foreign currency and interest rate | 0.05 | 20.2 | Products have short-life cycles, and success depends on the fact that what is flashy and "hot" will sell | 0.1 | 30.3 | Total | 0.7 | 231.8 |

New Technology for products development and production.
New trends for products such as boots and sandals.
Retail sector becoming price competitive with Internet
Change in the young consumer to sandals and boots
High inflation and unemployment in others countries
The Michael Porter Five Forces

Porter original work has been used as the basis of a number of subsequent business studies but none have taken the pattern form to this author knowledge.
Porter defines five forces that affect any business: buyer power, supplier power, threat of new entrants, availability of substitutes and competition within the industry. These forces equally affect all the firms within an industry; firms are differentiated by their ability to deal with these forces.

Threat of new entrants
Economies of scale are required to enter the sports shoe industry, to obtain the reach to be competitive. Economies of scale in production will be difficult to reach due to the difficulties of penetrating the market which is dominated by the large five; Nike, Reebok, Coverse, LA Gear, and Stride-Rite.
Hard to achieve product differentiation in terms of brand identification and product difference, since the "big five" set the trends.
Extensive capital requirements are necessary, in terms of physical production facilities, and marketing to establish a firm in the industry, thus the entrance barriers are high.
It is difficult to establish a brand, as strong brands are already well established, and extensive, expensive marketing would be required to compete against them.
There are very low switching costs, as it is easy for buyers to change suppliers, thus it is relatively easy for a customers to buy from a new firm.
Access to distribution channels is not difficult to obtain, as a new firm would easily have access to existing channels in department stores and specialist sports shops. But the distribution channels, and dealers are in many cases tied-up by existing competitors.
Strong retaliation would be expected by existing firms, as the sports industry is lucrative thus they would wish to defend their market share.
Considering these factors the threat of new entrants is regarded as moderately low, as the barriers to entry are high, but not to the extent that the market is impossible to gain access to.

Bargaining Power of Suppliers
Switching costs are low, thus it is easy for a firm to obtain suppliers
There are few substitute inputs to produce shoes with the essential elements of rubber, and fabric being the main ones which are hard to substitute.
There are many suppliers of raw materials, thus making it easy to obtain supplies
There is a strong threat of backward integration whereby the shoe firm produces its own raw materials to ensure quality. However, there is a very small threat of forward integration as the suppliers do not posses a highly differentiated product.
Bargaining power of suppliers is considered to be moderately low as it is easy to obtain supplies from a number of sources. But it is also possible for the suppliers (especially in foreign manufacturing) to integrate forwards into the industry's business (in overseas markets) and become a rival to the industry.

Bargaining Power of Buyers
Bargaining Leverage There is a low buyer concentration as there are many of them, thus the individual consumers have little power. However, there are a few large retailers which buy a substantial volume, thus they have a high bargaining power as they have the ability to leverage. There is a low switching costs as it is easy for consumers to change to another sports shoe brand without incurring any costs. It is difficult to integrate backwards as consumers lack the resources to manufacture sports equipment.
Price sensitivity There are very few product differences which could be regarded as significant to sway a customer, as essentially the shoes have different technologies which produce the same effects, thus price and design are factors which may sway buyers, but with 2 similarly designed shoes, they will be price sensitive. Possessing a strong brand is a differentiating factor, thus being an influential aspect when buyers choose a product.
Bargaining powers of buyers is believed to be moderately high, as they do not have a significant ability to influence the industry as individuals, but collectively they have considerable influence.

Threat of product substitutes
There are low switching costs for the consumer, as it is easy to change between brands and sports equipment suppliers
Nike competes with similar products to Reebok but branding makes the products different, or firms will need to adopt a different strategy altogether
There is a low propensity to substitute away from the industry as the products provided are highly specialized.
Counterfeits are a significant threat in the branded shoe sector, being sold at a lower price, but at a perceived similar quality and performance.
The threat of substitutes has been evaluated as moderately high, as there are many substitutes available, and with extremely low switching costs it is easy for customers to change but there are also very few substitutes for shoes.

Intensity of rivalry among competitors
There are many competitors but with only a few major players who have approximately equal resources which intensify the competition.
There is rapid industry growth which would reduce the competition to take market share away from competitors as there are sufficient growth opportunities without engaging the competitors.
There are few fixed costs thus rivalry between firms is reduced, as they are not constrained by the capacity of their equipment, and forced to produce large volumes to cover costs.
There are few product differences thus customers are unlikely to be loyal as many firms have products to satisfy their needs. As a result there are low switching costs, thus increasing competition between firms to capture the market.
There is little diversity of competitors thus competition is increased due to their inability to differentiate on the basis of product.
There are low exit barriers as there are few specialized assets, few labor agreements, as production occurs predominately in third world countries. There are no strategic alliances, or emotional barriers which could prevent a firm from exiting the industry or a geographic segment.
Products are highly "perishable", and the product life cycles are extremely short.
The Rivalry among competitors is considered to be high, as there are few differences between them, thus forcing competition to increase due to their inability to differentiate on the product basis.

This is a moderately attractive industry even though the competition within the industry is strong it is difficult to establish brand name loyalty. However, selling to corporate vendors in addition to selling within ones own means the line could be very profitable; the line could be quite successful. Also the materials used in this industry are not hard to come by, so it would not be too expensive to manufacture footwear. It would be a learning experience and may take a while to turn over a considerable profit, but if done right it could turn out to be a profitable venture.

Internal Environment
Vision statement is short and simple, to bring inspiration and innovation to every athlete in the world. The CEO defines athlete as, If you have a body, you are an athlete. Mission statement is much more specific but basically declares Nike to be the largest seller of athletic footwear and apparel in the world and to be competitive through product development, price, performance, and reliability. Nike outsources all manufacturing overseas which allows it to focus on marketing and developing its products. Nike advertising as well as structure is very specific. If Nike is making a soccer shoe, it not only has a dedicated team to the soccer shoe, but it has a separate advertising campaign for that shoe. Their advertising is very specific and it utilizes its high level endorsements and sponsorships. Their R&D develops shoes five years into the future.

Financials
The industry as a whole is a low leveraged industry. Nike is an industry leader in profitability with 28% return on equity and 41% Gross profit margin. Nike is also solvent with a 2.32 current ratio. Finally Nike has a strong cash flow position with $1,166 million in EBITDA. This means Nike could cash flow a leveraged $250 billion acquisition.
Nike Reebok Consumer Goods Textile- Apparel Footwear
Wall Street 2003 2003 Sector Industry
MARKET CAP 21.67B 3.42B 2194.9B 46.1B
EBITDA 1,166 349
P/E 16.90 16.90 20.68 22.10
EPS 1.79 3.40
Stock Price 83.20 57.24

STABILITY
Current 2.32 2.63
Quick 1.36 1.73
Debt/Equity 0.68 0.39 0.01 0.00

PROFITABILITY
Gross Margin 40.97 32.70
Net Margin 4.43 4.23 6.33 7.90
Cash Flow 4.15 43.63

EFFICIENCY
Sales to Assets 1.59 1.75
ROA 0.17 7.93
ROE 0.28 0.15 19.66 19.20

ASSET MGMT
A/R turnover 5.09 5.51
Avg Collection Per 70.71 65.29
A/P Turnover 11.02 3.85
Avg Pmt Period 32.67 93.56

Strengths
Earned more income outside US in 2003
CEO sees positive in public controversy (endorsement contracts = validation by greatest athletes.)
Brand recognition in the Endorsements
Quality
18,000 US retail accounts independent distributors in 200 countries
30,000 international retail outlets
24 distribution centers
161 retail stores in US (75 outlets, 4 Nike Stores, 65 Cole Hanan, 4 employee only stores, and 13 NikeTown Stores).
Very clear mission and vision
CEO is the entrepreneur that started Nike
39% market share
Domestic growth of 2.5%
Little long term debt due to overseas manufacturing
No manufacturing means can spend more time on marketing products and developing products
Superior R&D (NSRL, shoes are developed 5 years in the future, and Nike visits with athletes to learn what they want)
Marketing/Distribution expertise (very specific advertising campaign, advertising agencies are local, endorsements, and sponsorships. They also own most overseas distributors.)
Social Responsibility (member of FLA, GAWC, created VP of Social Responsibiilty)
Management style/Culture (“Play by the rules, but be ferocious…It’s all right to be Goliath, but always act like David.”)
Profitable financials with 4.15 cash flow and 28% ROE
Solvent financials with 1.36% quick ratio
Is not leveraged with only a .68 debt to equity (D/E ratio only .46 w/o short term accrued liabilities that company has cash to pay off).
Has $1,166 of EBITDA which equates to a potential leverage position make a $105 billion acquisition
Gives 3% of pretax profits to charity
Code of Conduct (Reuse a Shoe, Air to Earth, etc).
Incentives tied to financial performance of the company
Broad product assortment over many different sports with very focused advertising campaign
Weaknesses
Controversies in manufacturing ethics, lawsuits, and criticism of high endorsements
CEO resigned that his view of Nike differs public (controversy = impact)
Public view of endorsements
Reliance on Retail outlets (10.9% of 2002 revenues came from Foot Locker)
High cost of Nike shoes
Very easily copied marketing strategy (Reebok and Adidas did it)
Reliance on import/export docks (dock lockout in 2002)
Impact of foreign currency fluctuation
Public view of overseas labor
Overseas manufacturing trains other countries on new technologies and allows them to copy it and create contacts
Market shift from Baby boomers to Generation Y
Depends on international trade agreements in manufacturing (NAFTA, GATT, and MFN)
Nike only averages 20% sales to women while the industry is 50%
Third world country diseases impact the distribution chain (such as SARS)
Commercial speech lawsuit
Management structure (co-presidents,

IFE
Below is the IFE Matrix. A total weighted score of 2.92 indicates that Nike is above average in it overall internal strength.
KEY INTERNAL FACTORS Weight Rating Weighted Score Strengths | | | 1 Earned more income outside US in 2003 | 0.03 | 40.10 | 2 Brand recognition in the swoosh | 0.08 | 40.30 | 3 Endorsements | 0.03 | 40.10 | 4 Quality | 0.03 | 40.10 | 5 independent distributors in 200 countries | 0.02 | 30.05 | 6 CEO is the entrepreneur that started Nike | 0.13 | 40.52 | 7 No manufacturing means can spend more time on marketing products | 0.13 | 40.52 | 8 Superior R&D (NSRL, shoes are developed 5 years in the future) | 0.05 | 40.20 | 9 Management style/Culture (“Play by the rules, but be ferocious…It’s all right to be Goliath, but always act like David | 0.03 | 40.10 | 10 Incentives tied to financial performance of the company | 0.02 | 30.05 | 11 Strong Financials | 0.10 | 40.40 | Total | 0.62 | 422.44 | | | | Weaknesses | | | 1 Controversies in manufacturing ethics, lawsuits, and criticism of high endorsements | 0.1 | 10.10 | 2 Reliance on Retail outlets (10.9% of 2002 revenues came from Foot Locker) | 0.025 | 20.05 | 3 High cost of Nike shoes | 0.01 | 20.02 | 4 Very easily copied marketing strategy (Reebok and Adidas did it) | 0.1 | 10.1 | 5 Reliance on import/export docks (dock lockout in 2002) | 0.01 | 20.02 | 6 Overseas manufacturing trains other countries on new technologies and allows | 0.05 | 10.05 | 7 Nike only averages 20% sales to women while the industry is 50% | 0.025 | 10.03 | 8 Commercial speech lawsuit | 0.005 | 10.01 | 9 Management structure (co-presidents, | 0.06 | 20.12 | Total | 0.385 | 130.50 |

Chad recommended strategies
Start producing its own shoes to help hedge international trade issues, public labor views, and R&D theft. Have only one president
Focus on Generation X (athletic) as well as Y (sandals, boots, and internet)
Acquire women footwear/apparel to help close the gap in the women market. Nike only gets 20% revenue from women's shoes, industry avg is 50%.
Nike has proven to be a marketing genious, keep that focus on being a marketing company versus a shoe manufacturer.
Create a low cost shoe But, analysts believe that athletic shoe sales will slow down over the next few years. The slowdown will come with the change in consumer trends. For instance, the younger market is beginning to buy more casual shoes and work boots. Another reason for the slowdown is that people are buying more medium priced athletic shoes and not going for the high price brand name shoes. As a result, this is bringing Nike a lot more competition to surpass. In order for Nike to remain on top of the athletic shoe industry they must establish an exceptional global strategy. If Nike penetrates the global market successfully than this will give the company an overall competitive advantage