Nike is a multinational organization based in America that deals in the design, development, manufacturing, and marketing of the different apparel, footwear, and equipment. The company is known for its high-quality products and attractive designs which has enabled the company to gain international success. To continue the success and growth of the company, the analysis of the industry plays a crucial role. Therefore, Porter’s five forces analysis of Nike is conducted below to provide an understanding of the industry.
Competitive Rivalry
The competitive rival is intense because of the presence of multiple international level companies that are in direct competition with the Nike. Adidas, Reebok, Puma, Fila, and New balance are some of the major competitors of Nike which are making the competition intense. Nike is the leading company in sports apparel in the US with an 18.3 percent market share while the Adidas holds 6 percent of the market share (Statista, 2019). In the case of Sports footwear, Nike is again leading with 21.1 percent market share in the US while the Adidas is behind by holding 5 percent of the total market (Statista, 2018). The competitors are investing heavily to make a brand name and gain more of the market share to take the leading position which makes the competition high.
Bargaining Power of Suppliers
The bargaining power of suppliers for Nike is low because Nike is an international brand and the suppliers look for a company like Nike to attach with. By using the brand name, Nike put itself in a dominating position while dealing with the suppliers. To get the contract from Nike and become its supplier, the suppliers show a high level of bargaining and try to catch Nike as a client rather than staying on the dominant position (Siegmann, 2008). Secondly, the suppliers for the raw material of the product manufactured by the company are more than the companies producing the products. It makes a high reliance on the suppliers on single or each company which further lowers the bargaining power of the suppliers.
Bargaining Power of Buyers
The bargaining power of buyers is moderate because the high-end sportswear and accessories based companies are available in moderate numbers. It is possible to name them on fingers which means that the buyers do have the options to buy from different companies but the options are limited which keeps the bargaining power of the buyers moderate for the sportswear and accessories industry. The strong brand name of Nike is another factor that keeps the bargaining power of the buyer at a moderate level as brand affiliation and loyalty takes the Nike to the dominant position (Lee & Gereffi, 2015). This aspect for Nike is important for its continued success and growth at the national and international levels.
The Threat of New Entrants
The threat of new entrants is high because entry to this industry does not have many hurdles. Opening a business of Nike size is difficult but the local and small manufacturers have direct competition with Nike and it is not possible to ignore them. A a small level, the small capital is required with a low level of skills to open a business and become a competitor with Nike. There is no doubt that the target market for those entrants is completely different from the target market of Nike but they belong to the same industry with the potential to become a giant at the local level which can directly threaten the existence of Nike in a particular region or country. This easy entry of small businesses in the industry is the reason of high threat of new entrants.
Threat of Substitutes
Substitute is a product that provides equal or more functionality by meeting the same needs. Sports accessories, apparel, and footwear have no substitutes because these products are in demand for centuries and it will stay in demand for the coming centuries as well. Bringing the innovation in the product is not a substitute but it is the up-gradation of the product. the apparel and footwear would be having the innovation by replacing them with better material, design, and shape but the need for sports clothing and footwear will remain there (Chandra, 2012). This is the reason the threat of substitute is near to zero for Nike.
References
Chandra, A. (2012). Nike vs Under Armour: Strategy Comparison. JIGNASA International Journal of Commerce & Management.
Lee, J., & Gereffi, G. (2015). Global value chains, rising power firms, and economic and social upgrading. Critical perspectives on international business, 11(3/4), 319-339.
Siegmann, K. A. (2008). Soccer ball production for Nike in Pakistan. Economic and Political Weekly, 57-64.
Statista. (2018). Footwear market share of Nike and Adidas as of 2017. Available at: https://www.statista.com/statistics/895136/footwear-market-share-of-nike-and-adidas-by-region/
Statista. (2019). Leading athletic apparel, accessories and footwear companies worldwide in 2019, by sales (in million U.S. dollars)* Available at https://www.statista.com/statistics/900271/leading-sportswear-and-performance-wear-companies-by-sales-worldwide/