Environmental Analysis on Nike in China

Name: Demi Tung

CT No.: 0290121

Title: Environmental Analysis on Nike in China

Date: 5th of September 2017

1. Introduction

Nike is an American-based multinational company that specializes in the designing and manufacturing of sporting apparel, footwear, accessories and equipment. Nike started to venture into China in the 1970s, due to the low cost of wages and talented manpower, as well as its large consumer base. As such, Nike has enjoyed positive sales growth in China over the years. The aim of this report is to provide an environmental analysis of Nike in China and understand the reasons behind its success. This report will start off with the background of both Nike and China, followed by a PESTEL and Porter’s 5 Forces analysis, and will end off with some strategic recommendations.

1. Company Background

Nike was founded in 1964 as Blue-Ribbon Sports and it first functioned as a distributor for Japanese shoe company Onitsuka Tiger before becoming official in 1971 as Nike Inc. The founders of Nike are Bill Bowerman and Phil Knight- the former was a track and field coach while the latter was a runner at the University of Oregon. Nike’s logo, the ‘Swoosh’ and its slogan ‘Just Do It’ are both widely recognized across the world. While Nike first started off with the aim of manufacturing affordable running shoes, it now produces a plethora of other sports related goods ranging from sports equipment to fashion apparel. Nike is a major sponsor of several sporting teams and high-profile athletes and it also markets its products under wholly-owned subsidiaries such as Hurley and Converse. (O’Reilly, 2014, Para 3, 6)

1. Country Background

China is located in East Asia and is the most populous country in the world. It has an approximate population size of 1.3 billion people and 91.51% of them are Chinese (China Population, 2017, Para 9). The vast lands in China have created a great variety and diversity in its cultural history. The three major religions in China are Taoism, Buddhism and Confucianism.The government of China governs with a democratic centralism system, which allows open discussion for the members. In 1949, the Chinese Communist Party (CCP) founded the People’s Republic of China and at that point of time, China's economy was struggling fromthe destructive effects of years of strife. After various rounds of reforming and policy readjustment by the government, China has become the world’s fastest-growing economy today.

1. PESTEL Analysis

The PESTEL Analysis is a tool that is used to determine and investigate the main forces of change in the strategic or business environment (PESTEL Analysis, 2015, Para 3). The acronym stands for Political, Economic, Social, Technological, Environmental and Legal factors. The tool allows the assessment of the current environment and potential changes. The gist of this analysis is, if the project is better placed than its competitors, it would be able to react to changes more effectively. The PESTEL analysis tool can be used for business planning, strategic planning, marketing planning, product development, and organizational planning. It also highlights factors that need to be well researched and brainstormed. Below is a PESTLE analysis of China:

Diagram 1 below, provides the PESTEL Analysis of China.

4.1 Political

Government and politics may not seem to be highly influential on the performance of businesses, but this actually depends on the type of government a country has. In general, open-minded governments and a steady political environment are most conducive for brands like Nike. America, where Nike is based in, has a capitalist structure with almost little to no government intervention. However, China has a command economy closely linked to government and the Chinese government may step in if they do not approve of a certain business practice. This may present some challenges to American managers who might not understand how government and business are linked in China. For example, the Chinese government once banned a Nike advertisement showing basketball star LeBron James battling with a cartoon kung fu master, saying that it violated Chinese dignity and was disrespectful to Chinese culture (Fox News, 2004, Para 2).

4.2 Economic

China has a population size of more than 1.3 billion people and this alone means a tremendous market potential for foreign manufactured goods including Nike. From 1995 to 2005, the population of China’s middle class grew from close to zero in 1995 to an estimated 87 million in 2005 (according to MasterCard Worldwide, Asia Pacific). Thus, with rising affluence and an exploding middle class, more and more Chinese people are turning to Western brands like Nike to display their social status and wealth. Rising income levels also means that more and more people are willing to spend on gyms, health clubs and sporting activities like badminton and golf. This translates to a derived demand for quality sporting paraphernalia and apparel, and this is where Nike has and will continue to benefit from (USCBC, 2009, Para 2).