Jwi 531 - Financial Management 2

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- Supplier switching costs relative to firm switching costs

- Degree of differentiation of inputs

- Impact of inputs on cost and differentiation

- Presence of substitute inputs

- Strength of distribution channel

- Supplier concentration to firm concentration ratio

- Employee solidarity

- Supplier competition: the ability to forward vertically integrate and cut out the buyer.

Industry rivalry

For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry.

Some potential Industry rivalry factors include:

- Sustainable competitive advantage through innovation

- Competition between online and offline companies

- Level of advertising expense

- Powerful competitive strategy

- Degree of transparency

Industry Analysis

Today Nike is considered the world’s leading supplier of athletic shoes and apparel and one of the world’s most famous and strongest brands. Through various branding efforts and cutting edge technology within their products, Nike can say they firmly sit atop the athletic apparel and shoe industry.

SWOT Analysis

Strengths:

Nike is a very professional and competitive company with strong management;

It possesses no physical factories and can move its production to any location that is more cost effective;

Very strong brand and generally good publicity;

It is a global brand that sells its products worldwide;

Nike uses special materials like Lunar Light foam to make shoes of high quality and with good characteristics for sportsmen.

Weaknesses:

Most of the income comes from the footwear market and the company is highly dependent on this segment. Other branded products are not so strong;

Spoiled publicity because of accusations of poor working conditions and workforce exploiting in the developing and newly industrialized countries.

Opportunities:

Usage of waste from regular production to manufacture other goods;

Diversification into adjacent markets like jewelry or sunglasses production;

Further geographical expansion;

Threats:

Currency value fluctuations can seriously influence real company’s profits;

Growing competition becomes more aggressive and alternative brands steal

Nike’s market share;

Nike’s products are very expensive and its consumers often prefer cheaper brands.

Growing price sensitivity can negatively influence company’s profits in future.

Value Creation checklist

First of all, Nike was one of the first to sell the trade mark only, having no physical production facilities and concentrating on marketing and promotion only. This allowed Nike to minimize risks and maximize profits. This alone creates a value that is hard to match.

Nike’s core competencies are innovation, research and development, marketing and effective exploitation of the globalization processes. Nike’s target audience are males and females between 18 and 35 years old who prefer active lifestyle and goods of high quality.

Nike’s main competitors in the footwear industry are Reebok and Adidas. These companies also use international approach to management and business; they are very profitable and have similar problems with publicity. At the same time, Nike remains the market leader due to its cost-efficient marketing, effective advertising and research and development. Nike’s competitors are less successful in these key factors.

Nike uses strategic planning and various planning techniques in its activity.

The main peculiarity of company’s strategy is to start their marketing and promotion with selling innovative items to professional athletes and teams and by this means deliver the news and fashion of new products to particular customers. Nike’s strategy also focuses on diversity in the workplace. This strategy corresponds to the company’s vision and mission statement. Some of the planning techniques that Nike uses are: contingency planning, benchmarking, and scenario planning.

Price / Earnings Ratio

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As the price to earnings ratio declines this may allow Nike to move more units which will bring in more earnings.

Forecast P/E Growth Rates

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As the Price to Earnings rate goes up Nike’s Price to earnings ratio will drop which could make some of their customers say that their prices have dropped a bit.

Forecast Earnings Growth

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As you can see above Nike will be looking for a substantial increase based on their projections in their earnings by the year 2022.

I would say that Nike corporation is in the Innovative phase of their business life cycle. I say this because most their marketing and business strategy is catered around constant innovation of their products. Currently I would say Nike’s price for their stock is at a very good price. Per a consensus recommendation the stock is a very good buy.

Read more: http://www.nasdaq.com/symbol/nke/analyst-research#ixzz4bomnzaCp

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