International Business Case Study

QCF

NIKE
Tuesday 6 December 2016, Afternoon

This is an open-book examination, and you may consult any previously prepared written
material or texts during the examination.
Only answers that are written during the examination in the answer book supplied by the
examination centre will be marked.

Notes

As in real life, anomalies may be found in this Case Study. Please simply state your
assumptions where necessary when answering questions. ABE is not in a position to
answer queries on Case data. Candidates are tested on their overall understanding of
the Case and its key issues, not on minor details. There are no catch questions or hidden
agendas.

After the publication of the Case Study, subsequent developments may occur. The
examination is based on the published Case Study, and students who do not mention
such developments will not be penalised. However, students may consider such
developments in their answers if they wish.

6IBCS1216

The Association of Business Executives 2016

J/601/2793

December 2016 International Business Case Study

NIKE
Introduction
The sports and apparel industry has over the years grown into a powerful part of the clothing industry
and has changed the way we think about clothing. With the increase in health awareness, dieting and
exercise, the industry has seen an increase in demand for sports clothing. Despite changes in
manufacturing and the channels of delivery to consumers, the industry still remains a key segment for
investments, employment and trade worldwide.
The major players in the industry are comprised of NIKE, Adidas and Puma. The recent rise of Under
Armour has changed the outlook of the industry, with Adidas trading its second place for third in just
over two years.
In a market dominated by American and European brands, it is worth noting that the largest
manufacturers and exporters are domiciled in the Asia-Pacific region (China, Hong Kong, Philippines,
Malaysia etc.). These countries exhibit a competitive advantage, which flows from the abundance of
cheap labour in the region. Developed countries have attracted criticism and have been labelled as
exploiters due to their preference to use low priced labour from these countries.
The industry is also largely influenced by events in the sporting world, such as the Rio 2016 Olympics.
The quadrennial global sports event exposes apparel brands worn by top athletes to hundreds of
millions of viewers, but the growing competition and higher costs may be reducing the benefits of major
endorsement deals. The major players in the industry tend to release special editions of their apparel
and a medals table has now been established which shows which brand sponsors athletes who have
won the most medals.
The availability of improved mobile internet technology enables customers to place orders
instantaneously from any location at any time of the day. The technology development has resulted in
increased level of transactions. This trend is expected to continue into the foreseeable future.
NIKEs Background
In September 2009, Michael Jordan was inducted into the NBA Hall of Fame and he was the first
athlete to be worth over $1 billion. In the same year, his NIKE brand Jordan topped $1 billion in annual
revenue. This development came 23 years after the company NIKE reached $1 billion in revenue for
the first time. NIKE is all about marketing. NIKEs other men, Tiger Woods and LeBron James, became
the next athletes to be worth $1 billion. The rise of Jordan as a marketing icon is an amazing story. The
kid from the University of North Carolina, who had never worn NIKEs before he signed his contract,
made buying Air Jordans an annual ritual.
In January 2013, NIKE signed Rory McIlroy, the then-number one golfer in the world to a ten-year
sponsorship deal worth $250 million. NIKE also sponsors a number of football players, such as
Cristiano Ronaldo, Neymar, Zlatan Ibrahimovi and Wayne Rooney among others.
In 2016, the company worked with roughly 1,500 athletes during the Olympic games, supplying
performance products for 126 individual Olympic and Paralympics teams over 24 sports. The athletes
did well; they won 79 medals (44 gold, 11 silver and 24 bronze) at the Olympics, putting NIKE at
number one on the medals table for sponsors.

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History
Based in Beaverton, Oregon, NIKE is the worlds largest designer, marketer and distributor of athletic
footwear and athletic apparel. The company also designs, markets and distributes sports-related
apparel, equipment and accessories. Led by the companys flagship NIKE brand footwear, as well as
NIKE Golf, the company also owns a number of subsidiaries, such as Cole Haan, Converse, Hurley
International, and Umbro Ltd. NIKE was founded in 1964 as Blue Ribbon Sports by Bill Bowerman, a
University of Oregon track and field coach, and Phil Knight, a talented middle-distance runner. Knight,
who had recently completed an MBA at Stanford University, had written a paper where he proposed
that quality running shoes that could be manufactured in Japan would compete with the more
established German brands. Knight originally sold their shoes out of the trunk of his green Plymouth
Valiant at track meets, and the company opened its first store in Santa Monica, California, in 1966. The
company introduced its NIKE brand of shoes in 1972, just in time for the US Track and Field trials,
which were held in Eugene, Oregon, that year. The NIKE name, which took its name from the Greek
goddess of victory, had its famous swoosh logo designed by Carolyn Davidson, a graphic design
student at Portland State University. The company officially renamed itself NIKE in 1978. By 1980, the
company had reached a 50% market share in the US athletic shoe market and had become a publicly
traded company.
Missteps in the 1980s, particularly miscalculating the aerobics boom of that time period, found NIKE
trailing the rest of the athletic footwear industry. Changes at the company by Phil Knight, particularly
the introduction of a Michael Jordan-endorsed basketball shoe in 1985, propelled NIKE back to the top
of the industry by 1988. The company also began to diversify at that time, with the purchase of Cole
Haan shoes, a casual and dress shoe company. From this point, NIKE would go on to acquire other
brands, such as Bauer (acquired 1995), Hurley (acquired 2002), Converse (acquired 2003), Starter
(acquired 2004, divested 2007), and eventually Umbro Ltd. in 2008. As of May 2016, NIKEs market
capitalisation was $98.4 billion with sales of $32,376 million, a net profit of $3,760 million and
approximately 70,700 employees.
Products
NIKE Brand offers products in nine key categories: Running, NIKE Basketball, the Jordan Brand,
Football (Soccer), Mens Training, Womens Training, Action Sports, Sportswear (sports-inspired
lifestyle products) and Golf. Mens Training includes baseball and American football product offerings.
They also market products designed for kids, as well as for other athletic and recreational uses, such
as cricket, lacrosse, tennis, volleyball, wrestling, walking and outdoor activities. Sales and operating
results for the Jordan Brands are reported as a separate category and within the NIKE Brand
geographic operating segments, respectively.
Hurley, a wholly owned subsidiary headquartered in Costa Mesa, California, designs and distributes a
line of action sports and youth lifestyle apparel and accessories under the Hurley trademark. Sales and
operating results for Hurley are included within the NIKE Brand Action Sports category and within the
NIKE Brands North America geographic operating segment, respectively. Another wholly owned
subsidiary brand, Converse, headquartered in Boston, Massachusetts, designs, distributes and
licenses casual sneakers, apparel and accessories under the Converse, Chuck Taylor, All Star, One
Star, Star Chevron and Jack Purcell trademarks. Operating results of the Converse brand are reported
on a standalone basis.

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Sales and Marketing

NIKE reports its operations based on internal geographic organisation. Each NIKE Brand geography
operates predominantly in one industry: the design, development, marketing and selling of athletic
footwear, apparel, equipment, accessories and services.
Reportable operating segments for the NIKE Brand are: North America, Western Europe, Central &
Eastern Europe, Greater China, Japan, and Emerging Markets. NIKE Brand Direct to Consumer
operations are managed within each geographic operating segment.
Converse is also a reportable segment and operates in one industry: the design, marketing, licensing
and selling of casual sneakers, apparel and accessories. Converse Direct to Consumer operations,
including e-commerce, are reported within the Converse operating segment results.
NIKE predominantly targets four main groups of customers: men, women, youth athletes and runners
(or others).
For a detailed analysis of how NIKE reports their operating segments see Appendix 1.
United States Market
For 2016, NIKE Brand and Converse sales in the United States accounted for approximately 47% of
total revenues, compared to 46% for both 2015 and 2014.
During 2016, the three largest customers accounted for approximately 25% of sales in the United
States. NIKE substantially uses their futures ordering program, which allows retailers to order five to six
months in advance of delivery with the commitment that their orders will be delivered within a set time
period at a fixed price.
Futures program sales as a percentage of Total Sales
2016
2015
Footwear Shipments
Wholesale apparel shipments

84%
66%

87%
67%

2014
86%
71%

(Source: NIKEs Financial Reports)

Direct to Consumer operations sell NIKE Brand, Jordan Brand, Hurley and Converse products to
consumers through the e-commerce website, www.NIKE.com. In addition, Direct to Consumer
operations sell through the following number of retail stores in the United States:
US Retail Stores

Number

NIKE Brand factory stores

NIKE Brand in-line stores, including employee-only stores
Converse stores (including factory stores)
Hurley stores (including factory and employee stores)
TOTAL

196
34
103
29
362

(Source: NIKEs Financial Reports)

These are distributed using five significant distribution centres located in Memphis, Tennessee, two of
which are owned and three are leased.

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International Markets
Outside the United States, NIKE Brand and Converse sales accounted for 53% of 2016 total revenues,
compared to 54% for both 2015 and 2014. These are sold through their own Direct to Consumer
operations and through a mix of independent distributors, licensees and sales representatives around
the world.
These are shipped from 42 distribution centres outside of the United States. In many countries and
regions, including Canada, Asia, some Latin American countries and Europe, the futures ordering
program for retailers, similar to the United States futures ordering program described above, is used.
During 2016, NIKEs three largest customers outside of the United States accounted for approximately
13% of total non-US sales.
Futures Program as a percentage of Regional Sales
Reported Futures Orders
North America
Western Europe
Central Eastern Europe
Greater China
Japan
Emerging Markets
TOTAL BRAND FUTURES ORDERS

Futures Orders Excluding

Currency Changes

6%
8%
3%
19%
24%
3%
8%

6%
11%
7%
24%
15%
13%
11%

(Source: NIKEs Financial Reports)

In addition to NIKE and Converse owned e-commerce websites in over 40 countries, Direct to
Consumer business operates the following number of retail stores outside the United States:
Non-US Retail Stores

Number

NIKE Brand factory stores

NIKE Brand in-line stores, including employee-only stores
Converse stores (including factory stores)
TOTAL

588
72
23
683

International branch offices and subsidiaries of NIKE are located in Argentina, Australia, Austria,
Belgium, Bermuda, Brazil, Canada, Chile, China, Croatia, the Czech Republic, Denmark, Finland,
France, Germany, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Jordan,
Korea, Malaysia, Mexico, New Zealand, the Netherlands, Norway, Panama, the Philippines, Poland,
Portugal, Russia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland,
Taiwan, Thailand, Turkey, the United Arab Emirates, the United Kingdom, Uruguay and Vietnam.
International operations and sources of supply are subject to the usual risks of doing business abroad,
such as possible increases in import duties, anti-dumping measures, quotas, safeguard measures,
trade restrictions, restrictions on the transfer of funds and, in certain parts of the world, political
instability and terrorism. In recent years, uncertain global and regional economic conditions have
affected international trade and caused a rise in protectionist actions around the world. These trends
are affecting many global manufacturing and service sectors, and the footwear and apparel industries,
as a whole, are not immune.
Protectionist measures have resulted in increases in the cost of products, and additional measures, if
implemented, could adversely affect sales and/or profitability for NIKE as well as the imported footwear
and apparel industry as a whole.

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Financial Performance
As the following Income Statement shows, there has been sales growth in recent years. With a gross
profit margin of 46.2% in 2016 (46% in 2015), the net income has seen an increase from 10.7% to
11.6%. Diluted EPS (earnings per share) has increased from 1.85 to 2.16.
A consolidated revenue statement, showing the revenues by Brand, is shown in Appendix 1.
Dollars in millions
Revenues
Cost of Sales
Gross Profit
Gross Margin %
Demand creation expense
Operating overhead expense
Total selling and admin expense
% of Revenue
Interest expense (income), net
Other (income) expense, net
Income before income taxes
Income tax expense
Net income
Diluted EPS

2016

2015

% Change

2014

% Change

32,376
17,405
14,971
46.2%
3,278
7,191
10,469
32.3%
19
-140
4,623
863
3,760
2.16

30,601
16,534
14,067
46.0%
3,213
6,679
9,892
32.3%
28
-58
4,205
932
3,273
1.85

6%
5%
6%

27,799
15,353
12,446
44.8%
3,031
5,735
8,766
31.5%
33
103
3,544
851
2,693
1.49

10%
8%
13%

2%
8%
6%

10%
-7%
15%
17%

6%
16%
13%
-15%
-156%
19%
10%
22%
24%

(Source: NIKEs Financial Reports)

Revenues by Region
Breakdown of the revenues by region shows that Global Brand Divisions, Japan, and Central & Eastern
Europe, are three of the poorest-performing divisions.
Dollars in millions
North America
Western Europe
Central Eastern and Europe
Greater China
Japan
Emerging Markets
Global Brand Divisions
Total NIKE
Converse
Corporate Brand Revenues
TOTAL NIKE, Inc. Revenues

2016

2105

2014

14,764
5,884
1,431
3,785
869
3,701
73
30,507
1,955
-86
32,376

$ 13,740
5,705
1,421
3,067
755
3,898
115
28,701
1,982
-82
30,601

12,299
4,979
1,387
2,602
771
3,949
125
26,112
1,684
3
27,799

(Source: NIKEs Financial Reports)

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The tables below show a breakdown of the revenues for the three of the poorest performing divisions
(Global Brand Divisions, Japan, and Central & Eastern Europe):
GLOBAL BRAND DIVISIONS
Dollars in millions
Revenues
(Loss) Before Interest and Taxes

2016

2015

2014

$73
-2,596

$115
-2,267

$125
-1,993

2016

2015

2014

570
228
71
869

452
230
73
755

409
276
86
771

587
282
869
174

536
219
755
100

597
174
771
131

2016

2015

2014

$882
463
86
1,431

$827
499
95
1,421

$763
532
92
1,387

1,215
216
1,431
289

1,241
180
1,421
249

1,245
142
1,387
-0.11

JAPAN
Dollars in millions
Revenues by:
Footwear
Apparel
Equipment
TOTAL REVENUES
Revenues by:
Sales to Wholesale Customers
Sales Direct to Consumer
TOTAL REVENUES
EARNINGS BEFORE INTEREST AND TAXES

CENTRAL & EASTERN EUROPE

Dollars in millions
Revenues by:
Footwear
Apparel
Equipment
TOTAL REVENUES
Revenues by:
Sales to Wholesale Customers
Sales Direct to Consumer
TOTAL REVENUES
EARNINGS BEFORE INTEREST AND TAXES
(Source: NIKEs Financial Reports)

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The table below shows assets that are owned by NIKE by region:
PROPERTY PLANT & EQUIPMENT
Dollars in millions
North America
Western Europe
Central Eastern Europe
Greater China
Japan
Emerging Markets
Global Brand Divisions
Total
Converse
Corporate Brand Revenues
TOTAL

2016

2015

742
589
50
234
223
109
511
2,458
125
937
3,520

632
451
47
254
205
103
484
2,176
122
713
3,011

(Source: NIKEs Financial Reports)

Research and Development

NIKE believes that its research, design and development efforts are key factors in its success.
Technical innovation in the design and manufacturing process of footwear, apparel and athletic
equipment receive continued emphasis as it strives to produce products that help to enhance athletic
performance, reduce injury and maximise comfort while reducing waste.
It also has specialists in a number of areas that include all the sporting activities that it supplies, and
also areas of biomechanics, chemistry, exercise physiology, engineering, industrial design,
sustainability and related fields. This is useful in manufacturing process improvements and compliance
with product safety regulations around the world. The proliferation of NIKE Air, Lunar, Zoom, Free,
Flywire, Dri-Fit, Flyknit, Flyweave and NIKE+ technologies through Running, NIKE Basketball, the
Jordan Brand, Football (Soccer), Mens Training, Womens Training and Sportswear, among others,
typifies its dedication to designing innovative products.
Manufacturing
NIKE is supplied by approximately 142 footwear factories located in 15 countries. The largest single
footwear factory accounted for approximately 7% of 2016 NIKE Brand footwear production. Virtually all
of the footwear is manufactured outside of the United States by independent contract manufacturers
who often operate multiple factories.
Top Footwear factories by Country

Top Apparel factories by Country

Vietnam
China
Indonesia

China
Vietnam
Indonesia

44%
29%
21%

26%
23%
9%

In 2016, five footwear contract manufacturers each accounted for more than 10% of footwear
production and in aggregate accounted for approximately 69% of NIKE Brand footwear production.
NIKE is supplied by approximately 394 apparel factories located in 39 countries. The largest single
apparel factory accounted for approximately 12% of 2016 NIKE Brand apparel production. In 2016, one
apparel contract manufacturer accounted for more than 10% of apparel production, and the top five
contract manufacturers in aggregate accounted for approximately 39% of NIKE Brand apparel
production.

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Since 1972, Sojitz Corporation of America (Sojitz America), a large, Japanese trading company and
the sole owner of NIKEs redeemable preferred stock, has performed significant import-export financing
services for NIKE. During 2016, Sojitz America provided financing and purchasing services for NIKE
Brand products sold in certain NIKE markets including Argentina, Uruguay, Brazil, Canada, India,
South Africa and Thailand, excluding products produced and sold in the same country. Approximately
6% of NIKE Brand sales occurred in these countries.

Competition
The athletic footwear, apparel and equipment industry is highly competitive on a worldwide basis. NIKE
compete internationally with a significant number of athletic and leisure footwear companies, athletic
and leisure apparel companies, sports equipment companies and large companies having diversified
lines of athletic and leisure footwear, apparel and equipment, including Adidas, ASICS, Li-Ning,
Lululemon Athletica, Puma, V.F. Corporation and Under Armour, among others.
In the Unites States market, NIKE owns 48% of the footwear market, while its fiercest rival Adidas has
9%, which has been on the decline since 2011. NIKE has about 60% share in US running, 90% share
in basketball (including Jordan), and about 20% in skate. US sportswear sales account for 40% of
NIKEs global sales. Appendix 2 shows how the rivalry of NIKE and Adidas has developed over the
years.
Adidas
Adidas is popularly known as NIKEs number two competitor in athletic footwear. This has changed
slightly with the growth of a new player in the market, Under Armour. Adidas group is a world-class
provider of athletic footwear, apparel, and sporting equipment. Its mission is to be the leading sports
brand in the world. Recently it has dropped further and further from this mark and finds itself far behind
NIKE with a market capitalisation of $17.1 billion, compared to NIKEs $86.2 billion. Between 2001 and
2005, Adidas market capitalisation was very close to NIKEs. At $3.59 billion, Adidas was close to
NIKEs $3.97 billion but changes over the years saw Adidas falling far behind.
Market Capitalisation between 2001-2016
Dollars in billions
NIKE
Adidas

2001

2005

2010

2011

2016

$3.97
$3.59

$15.90
$10.96

$63.45
$14.61

$71.15
$13.97

$86.20
$17.10

(Source: Adidass Financial Reports)

2015 Financial Summary

Revenue
Net Profit
Employees

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16.915 billion
668 million
55,555

Under Armour
Under Armour, Inc. is an American sporting goods manufacturer, which supplies athletic and casual
apparel, as well as footwear. Although it was founded in 1996 and is therefore much younger than
established athletic market leaders NIKE and Adidas, Under Armour was ranked 3rd in a recent top 50
sporting goods brands by share of lifestyle consumer purchases in 2014. It was also ranked among the
top five most valuable sports business brands worldwide in 2014, after Adidas, NIKE, ESPN and Sky
Sports, but ahead of Reebok, and Yankees Entertainment and Sports Network (YES). As of 2016, it is
now ranked number two ahead of Adidas and the company numbers over 10,000 employees. Aside
from its global headquarters in Baltimore, Maryland, the company has additional offices in The
Netherlands, China, Indonesia and Canada.
2015 Financial Summary
Revenue
Net Profit
Employees

$3.96 billion
$232 million
13,400

Other Competitors
Puma has now dropped to fourth in the rankings following the rise of Under Armour. The athletic
footwear industry contains numerous smaller competitors worldwide, such as K-Swiss, Inc. in the
United States and Li-Ning Shoes in China. Athletic footwear companies also compete with other
footwear companies for sales because consumers often wear athletic footwear for leisure and fashion.
Companies that competed in leisure and fashion footwear included Crocs, Inc., Deckers Outdoor
Group, Skechers USA Inc., and Timberland Company.

Organisational Structure and Culture

As of May 31, 2016, NIKE had approximately 70,700 employees at 53 countries worldwide (56,597 in
2015), including retail and part-time employees. Management considers its relationship with employees
to be excellent. None of the employees are represented by a union, except for certain employees in the
Emerging Markets geography, where local law requires those employees to be represented by a trade
union. In certain European countries, they are required by local law to enter into and/or comply with
industry-wide or national collective bargaining agreements.
From 2014, NIKE has embedded its Diversity and Inclusion team within the Human Resources
function. These efforts are to increase diversity and inclusion into all aspects of the team. For the first
time, the percentage of NIKE employees who identify as non-white in the US rose above 50%, while
the overall ratio of female-to-male people managers has remained steady (41% female to 59% male),
with an additional 800 female managers hired and promoted during this time period.
The tables below show the composition of employees as of 2015. The total number of employees has
since increased to approximately 70,700.
NIKE, INC. GLOBAL EMPLOYEE DISTRIBUTION
GEOGRAPHY
Central/Eastern Europe
Emerging Markets
Greater China
Japan
North America
Western Europe
GRAND TOTAL

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NUMBER

% OF TOTAL

1,451
5,468
6,495
479
33,281
9,426
56,597

3%
10%
11%
1%
59%
17%
100%

10

NIKE, INC. GLOBAL EMPLOYEE TOTALS BY GENDER

Female
Male
TOTAL

FY11

FY12

FY13

FY14

FY15

49%
51%
100%

50%
50%
100%

48%
52%
100%

49%
51%
100%

48%
51%
100%

(Source: NIKEs Financial Reports)

NIKE is committed to continuing this legacy and continuously elevating opportunities for employees.
With this in mind, they have set forth a comprehensive team and talent strategy, sharpening their focus
in three key areas:
Aligning resource investments against areas of critical growth
Building an increasingly diverse global team with the capacity to grow business
Embracing and promoting an inclusive culture that spurs innovation
This has been developed by designing enhanced onboarding resources to ensure that new NIKE
employees are engaged, productive team members more quickly and effectively; an extension of online
training platform to include content in five new languages: Mandarin, Japanese, Korean, Spanish and
Portuguese; and introduction of new manager expectations and enhanced feedback and
developmental tools to help managers create high-performing, innovative teams.
What makes NIKEs corporate culture distinctive is the magnetic force that the brand has in the world of
sports. Quite simply, athletes of all kinds choose NIKE, over and over again. Take professional
athletes, like prominent NBA players Kobe Bryant, Kevin Durant and LeBron James, who all passed on
more lucrative shoe contracts for the opportunity to be a part of the NIKE family. Look at the millions of
young athletes that choose every day to wear NIKE over any other brand just because of the Swoosh.
At NIKEs corporate headquarters, they have state-of-the-art workout facilities. They encourage healthy
living with a competitive spirit. They embrace the success of their most famous endorsees by naming
each of their campus buildings after one of their legendary athletes. They do the little things for their
employees from providing significant product discounts to embracing a thorough corporate wellness
program. They embrace quality, talented people and, maybe more importantly, they stress a certain
amount of autonomy to allow active, intelligent minds to develop ideas freely. They equip their creative
team with the freedom to design but with the parameters to be successful. The company is learning to
embrace sustainability and has made improvements in providing healthy work conditions for their
overseas workforce. The company provides workers with the option to participate in a share option
scheme and provides a strong benefits package to all employees. Recently, the company has
developed an innovative corporate responsibility program to continue making strides forward.
Part of NIKEs allure to athletes of all levels and prospective employees is a result of the companys
ingenious branding and marketing. Though, the strength of the companys corporate culture cannot be
overlooked, as they maintain their status as the industry leader and continue to attract the highest
quality people possible.
See Appendix 4 for more on employee engagement.

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11

Executives
Mark G. Parker, Chairman, President and Chief Executive Officer
Mr. Parker, 60, was appointed President and Chief Executive Officer in January 2006 and named
Chairman of the Board in June 2016 taking over from Phil H. Knight who had been with the company
since the 1960s. NIKE has employed Mark since 1979 with primary responsibilities in product research,
design and development, marketing and brand management.
Trevor A. Edwards, President, NIKE Brand
Mr. Edwards, 53, joined NIKE in 1992. He was appointed Marketing Manager, Strategic Accounts for
Foot Locker in 1993, Director of Marketing for the Americas in 1995, Director of Marketing for Europe in
1997, Vice President, Marketing for Europe, Middle East and Africa in 1999 and Vice President, US
Brand Marketing in 2000.
Andrew Campion, Executive Vice President and Chief Financial Officer
Mr. Campion, 44, joined NIKE in 2007 as Vice President of Global Planning and Development, leading
strategic and financial planning. He was appointed Chief Financial Officer of the NIKE Brand in 2010,
responsible for leading all aspects of financial management for the companys flagship brand. In 2014,
he was appointed Senior Vice President, Strategy, Finance and Investor Relations in addition to his
role as Chief Financial Officer of NIKE Brand.
Features of NIKEs Organisational Structure
NIKE characterises its organisation as a collaborative matrix organisation. Executives often report in
several areas, such as by region of the world, by product or by global function. The organisational
structure highlights the need to address differences among regional markets. As such, the company
has developed its organisational structure to enable adjustments in dealing with market differences.
The following characteristics are notable in NIKEs organisational structure:
i. Global Corporate Leadership
The managers have offices in the companys headquarters in Oregon, USA. They decide the global
organisational structure of NIKE. For example, the Global Sports Marketing group releases new athletic
shoe marketing campaigns for worldwide marketing. Through this feature of NIKEs organisational
structure, decisions are easily implemented throughout the company.
ii. Semi-Autonomous Geographic Divisions
Geographic divisions are a major organisational structure characteristic of NIKE, Inc. The companys
operations are divided into segments based on regional markets. Each regional divisions managers
optimise operations in the regional sports shoes, apparel and equipment market.
iii. Global Divisions for Converse and Brand Licensing
NIKEs organisational structure also has two global divisions: one for the Converse brand and another
for brand licensing. One global division is responsible for managing the worldwide operations of
Converse, which is another footwear brand and subsidiary of NIKE, Inc. Another global division is
responsible for licensing the NIKE brand. This characteristic of the organisational structure offers
control for brand licensing and the operations of Converse.

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12

Corporate Social Responsibility

Over the years NIKE has faced quite a number of social responsibility issues, which they have
managed to overcome. Over 25 years ago, consumers were protesting outside NIKEtown stores, and
news stories were casting NIKE in the role of the villain, amid child labour and sweatshop allegations.
Its hard to believe, given the steady stream of corporate social responsibility (CSR) accolades the
company has racked up in the last ten years, that NIKE was facing boycotts throughout the 1990s.
(See Appendix 5)
In 2005, NIKE was the first company in its industry to demonstrate transparency, when it published a
complete list of its contract factories. In the same year, it also published its first version of a CSR report
detailing pay scales and working conditions in its factories and admitting continued problems. NIKE
also worked with its contract facilities to improve its human resources and implement lean practices.
The intentional moves toward change proved successful: in 2013, auditors found violations in 16% of
factories (down from 29% in 2012); incidences of excessive overtime went down to 55 (from 116 in
2012), and 93% of factories reported no incidences (up from 87% in 2012).
The tide turned once the company acknowledged its issues, demonstrated transparency and worked
toward change. And today the company is counted among CSR leaders. In addition to continuing to
work on improving conditions for workers, NIKE is innovating its materials development and
management to address the impact of climate change on the supply chain and reduce its
environmental impact. One area of concentration is water conservation. Another is the use of recycled
materials in their factories (see Appendix 3). In addition, NIKE has pledged that it will eliminate
hazardous chemicals from its global supply chain by 2020.
After all this progress, NIKEs star has been soaring. However, recent allegations of shady business
dealings announced in the beginning stages of an extensive FIFA investigation are threatening to stain
the sportswear giants brand once again. Such allegations were also made during the 1990s.
The tide turned in 1998 when the company faced its problems head on. It has built up a lot of goodwill
with its actions since. As this investigation continues and the topic resurfaces in the news, it will be
interesting to see if the companys solid reputation gives it the benefit of the doubt in consumers minds,
and if the company, once again, will rely on honesty and transparency to regain consumer trust.

The Future
NIKE has some ambitious plans for the future and has set a number of aims and targets together with a
roadmap of how to get there. It aims to become a $50 billion business by the end of FY20, while further
reducing its environmental footprint and enhancing its positive impact on employees, workers in supply
chains and communities around the world.
They have set three main aims:
1. Minimise environmental footprint
2. Transform manufacturing
3. Unleash human potential
These will be driven by what they term Drivers of success which are:
2020 targets owned by business functions and implemented across NIKE
Innovation to create closed-loop solutions across materials, products, business models and systems
And they will be enabled by:
Diverse teams unlocking change and innovation at scale
Smart and consistent public policies that incentivise innovation, promote sustainability, protect
supply chains and provide market certainty
Flows of capital to innovators unlocking low-carbon growth economies

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To monitor performance of these aims, some targets have been set for each aim:
1. Minimise Environmental Footprint: 2020 targets
Product:

Deliver products for maximum performance with minimum impact,

with a 10% reduction in the average environmental footprint

Materials:

Increase use of more sustainable materials in footwear and apparel

Carbon and
energy:

Reach 100% renewable energy in owned or operated facilities by the end of FY25
and encourage broader adoption, as part of the effort to control absolute emissions

Waste:

Eliminate footwear manufacturing waste to landfill or incineration

while continuing to reduce overall waste

2. Transform Manufacturing: 2020 targets

Manufacturing:

Source 100% from factories that meet NIKEs definition of sustainable

Labour:

Ensure contract factory workers share in productivity gains

Labour:

Establish partnerships that support the needs of workers both inside and outside
the factories

3. Unleash Human Potential: 2020 targets

Employees:

Attract and develop an increasingly diverse, engaged and healthy workforce

Community
impact:

Invest a minimum of 1.5% of pre-tax income to drive positive impacts in our

communities

(Source: NIKEs Sustainability Report)

The Future and Beyond

NIKE is committed to being sustainable yet innovative and inclusive in its dealings with stakeholders.
Its vision for 2020 is to achieve its three aims and thereafter focus on vision 2050. Vision 2050s
objective is to reduce carbon emissions to a level that supports the global carbon budget (the total
global carbon emissions possible to limit the average global temperature to a rise of no more than 2C)
agreed by 195 countries in December 2015 at COP21.

Adapted from:

NIKE Investor Relations

NIKE Sustainability Report
Strategic Management Concepts
Nikebiz.com
Adidas-group.com
Under Armour Investors Relations
Statista.com
Highsnobiety.com
Huffington Post
Business Insider

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Appendix 1
Consolidated Revenues NIKE
Revenues

$m
2016

$m
2015

%
Change

$m
2,014

%
Change

19,871
9,067
1,496
73
30,507
1,955
-86
32,376

18,318
8,637
1,631
115
28,701
1,982
-82
30,601

8%
5%
-8%
-37%
6%
-1%

13%
7%
-2%
-8%
10%
18%

6%

16,208
8,109
1,670
125
26,112
1,684
3
27,799

$m
2016

$m
2015

%
Change

$m
2014

%
Change

NIKE Brand Revenues by

Sales to Wholesale Customers
Sales Direct to Consumer
Global Brand Divisions

22,577
7,857
73

21,952
6,634
115

3%
18%
-37%

20,683
5,304
125

6%
25%
-8%

TOTAL NIKE BRAND REVENUES

30,507

28,701

6%

26,112

10%

3%

20,683

6%

20%

3,107

25%

5%

23,790

9%

5%
10%
6%
-12%

13,996
4,976
3,737
1,081

5%
15%
15%
3%

5%

23,790

9%

3%
-1%
18%
-5%
3%
5%
-4%
14%
-8%
0%

4,626
1,178
1,941
2,414
2,485
1,145
738
5,744
788
2,731

5%
18%
20%
-7%
2%
12%
0%
15%
-2%
12%

5%

23,790

9%

NIKE Brand Revenues by

Footwear
Apparel
Equipment
Global Brand Divisions
Total NIKE, Inc. Revenues
Converse
Corporate
Total NIKE, Inc. Revenues
Supplemental NIKE Brand Revenues

NIKE Brand Revenues on a Wholesale Equivalent Basis

Sales to Wholesale Customers
22,577
21,952
Sales from Wholesale Operations
4,672
3,881
to Direct Consumer Operations
TOTAL NIKE BRAND WHOLESALE
27,249
25,833
EQUIVALENT REVENUES
NIKE Brand Wholesale Equivalent Revenues by
Mens
15,410
14,689
Womens
6,296
5,732
Young Athletes
4,560
4,301
Others
983
1,111
TOTAL NIKE BRAND WHOLESALE
27,249
25,833
EQUIVALENT REVENUES
NIKE Brand Wholesale Equivalent Revenues by
Running
5,017
4,863
NIKE Basketball
1,378
1,385
Jordan Brand
2,753
2,329
Football (Soccer)
2,143
2,250
Mens Training
2,611
2,545
Womens Training
1,344
1,281
Action Sports
711
737
Sportswear
7,513
6,604
Golf
706
769
Others
3,073
3,070
TOTAL NIKE BRAND WHOLESALE
27,249
25,833
EQUIVALENT REVENUES
(Source: NIKEs Financial Reports)

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10%

Appendix 2
NIKE vs Adidas: Who Owns the Market?
Adidas has enjoyed a healthy resurgence thanks to its designer collaborations, faithful re-issues of
timeless classics, and the headline-grabbing YEEZY Season project. In reality the brand is dwarfed by
NIKE which owns a whopping 48% of the USAs footwear market, while Adidass 9% share has
declined every year since 2011.
Market capitalisation is a brands share price multiplied by the number of shares it has sold, and is used
as a proxy for the public opinion of a companys net worth and by the investment community as a way
of determining a companys size.
2001 2005: Even Stevens
Things were pretty equal between the two sportswear giants in the early 00s. Adidas started its hugely
popular Y-3 label with Yohji Yamamoto (who originally wanted to work with NIKE) and signed David
Beckham up for a lifetime $160 million deal, while NIKE made some serious purchases snapping up
Hurley, Converse and Starter for an estimated total of $450 million. Behind the scenes, current Adidas
CEO Herbert Hainer, took over in 2001, Michael Jordan finally hung up his sneakers in 2003 and NIKE
co-founder Phil Knight stepped down from his position as CEO a year later.
2006 2010: The Plot Thickens
2010 was, by all accounts, a spectacular year for NIKE financially, as revenues reached $19 billion
that means NIKE made as much money as the entire nation of Honduras and its market capitalisation
rocketed to $63.45 billion. We finished strong with a great quarter and accelerating momentum across
the business, Mark Parker commented at the time. NIKE is at its best when we focus on our two core
values: innovation and inspiration.
The NIKE president and CEO elaborated, touching on what would become an insane five years for the
Swoosh: Going forward, you can expect to see more game-changing products, more compelling
experiences wherever consumers touch our brands, and a laser focus on operational and financial
excellence. These are the things that allow us to accelerate first and faster than everybody else.
Adidas, meanwhile, finished the decade far, far behind its rival financially.
2011 2015: World Domination
NIKEs revenues and prestige have rocketed in the past five years. A stock split (a tactic designed to
make shares more readily available) saw a brief dip in the Swooshs market capitalisation in 2012,
which has not stopped it reaching its present-day peak of over four times the size of Adidas. The Three
Stripes recent star signings James Harden, Kanye West, NIGO and Pharrell Williams have not
made much difference to its bottom line, although no doubt the German brand is making serious
attempts to change that in the future.
NIKEs growth has come from great products, careful, thoughtful distribution and excellent marketing,
footwear expert Matt Powell of industry analysis group NPD told us. In the sneaker business, the
product always comes first. Great marketing can never lift a bad product. While NIKEs marketing
prowess is renowned the brand spends $8 million per day on so-called demand creation the fact of
the matter is their products are instant hits all over the world.
In the USA, which accounts for 40% of all sportswear sales globally, NIKE gear is lapped up on a huge
scale, whether its next-level running gear (where it owns roughly 60% share of the market) or musthave basketball sneakers (a staggering 90%) or high-performance skate shoes (roughly 20%).
Adidas has made a lot of right moves and, if patient, can gain back some of its lost share, Powell
summed up for us, adding but no one is a threat to NIKE right now. Both Skechers and Under Armour
have made huge gains in recent years Adidas is now the third biggest footwear brand in the States
after UA but none of them can, it seems, realistically topple NIKE at the top of the sportswear game.
(Source: Adapted from article by Alec Leach, www.highsnobiety.com, 9 November 2015)

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Appendix 3
NIKE Is Now Making Most Of Its Shoes From Its Own Garbage
NIKE is turning its own trash into treasure.
The apparel giant said that 71% of its footwear now contains materials made from waste products from
its own manufacturing process.
I never knew how excited I could get about waste, Hannah Jones, NIKEs chief sustainability officer,
told The Huffington Post by phone. If the world were to reframe how it thinks about waste, it is the delta
between the ambition we have collectively to get to a low-carbon world and where we are now.
The material, branded NIKE Grind, is made from recycled sneakers, plastic bottles and manufacturing
scraps from NIKEs factories. Old shoes, collected through the companys Reuse-A-Shoe program, are
sliced into three parts and then ground into rubber bits, foam or a fluffy fibre. Besides using the
materials in the companys own products, NIKE sells them to buyers who use them to line running
tracks, playgrounds, gym and weight room floors and carpet underlay.
The Oregon-based company has long pursued aggressive environmental goals. In 2010, NIKE vowed
to stop purchasing carbon offsets in favour of slashing its own emissions instead, even amid heavy
losses spurred by the worst recession in decades. The firm saw an uptick in carbon emissions two
years later, as the global economy regain steam.
But between 2011 and last year, NIKEs carbon emissions per item shipped decreased by 18%, a mark
of significant progress, according to the companys latest sustainability report.
On the heels of the Paris climate accord, signed by more than 180 countries last month at the United
Nations in New York, NIKE said it hopes to completely reshape its manufacturing process to be a
closed loop, eliminating all waste products.
Post Paris, for us, we see that the long-term approach needs to be that we transform business models
to work within a 2-degree, low-carbon, closed-loop future, Jones said, referring to the global warming
benchmark of 2 degrees Celsius (3.6 degrees Fahrenheit), above which scientists say climate change
would become irreversibly catastrophic. That is going to be a critical enabler of our growth.
This year marks a shift in the companys sustainability strategy, as it goes from simply trying to cut
down on waste to finding new ways to create products from waste materials, Jones said.
Can we double our growth and halve our impact? she said. That just sets the stage for us, in terms of,
yes, we have short to mid-term very aggressive targets, but we also have a really significant push
around how we innovate to completely new business models.
NIKE has come a long way since it was the target of boycotts over the use of child labour in the 1990s.
NIKE was targeted by campaigners because it was the worlds best-selling brand and because initially
it denied responsibility for any malpractice that may be taking place in its sub-contractor factories, Rob
Harrison, editor of Ethical Consumer, told The Guardian in 2012. It was clear that the lessons of the
90s had been painfully learned. If theres a case to answer its better to concede early rather than
hoping it will go away.
The company has since pursued a holistic approach to reforming its supply chain. NIKE cut down on
the number of factories it works with, in hopes of gaining more control over the manufacturing process
so it could raise its standards for both working conditions and environmental impact. Last year, 86% of
contract factories met the minimum requirements for sustainability and investment in workers, NIKE
said. It hopes to raise that to 100% by 2020.

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To demonstrate that its commitment to a waste-free system is more than a publicity play, the company
recently announced a partnership with the Ellen MacArthur Foundation, the British non-profit dedicated
to building a so-called circular economy. That concept, which essentially emulates nature, means
reforming the entire industrial system to recycle waste and eliminate pollution.
We are delighted to welcome NIKE to our existing group of global partners who share our vision to
drive system-wide change to bring about the transition to a circular economy and inspire a generation
to bring about this change, Ellen MacArthur, the British socialite and environmentalist who runs the
eponymous foundation, said in a statement. NIKE is one of the biggest sporting brands in the world, an
industry leader who has long understood that resources are finite and staying ahead of the game
means innovating through the lens of circularity.
(Source: Adapted from article by Alexander C. Kaufman, The Huffington Post
www.huffingtonpost.com, 5 May 2016)

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Appendix 4
At NIKE, Workers Quote The Companys Maxims Like The Ten Commandments
NIKE has an enviable brand; the iconic swoosh is known worldwide, its deeply associated with
athletes and sports, and is increasingly admired as a digital and design innovator. One of the most
important parts of maintaining that reputation is building an extremely committed workforce.
Fast Companys Austin Carr got an extended look inside NIKE Headquarters as part of a story naming
it the most innovative company of 2013, and reveals what the company does to make believers out of
its employees.
Though they may have been showing off for a journalist a bit, employees do appear to preach the
companys values. Workers quote the companys maxims like the Ten Commandments. More than a
dozen tell me, independently and unprompted, Be a sponge and If you have a body, youre an
athlete, Austin writes.
The company is intensely aware of its own history and story, and works to keep employees conscious
of it. The company keeps a Winnebago to use as a conference room in the middle of its Innovation
Kitchen, because co-founder Phil Knight, according to legend, first sold shoes out of a similar vehicle.
The waffle iron that co-founder Bill Bowerman destroyed while attempting to make rubber soles is kept
on campus like a museum piece.
That helps embed a sense of value, history, and shared culture in what employees are doing. So, oddly
enough, does an emphasis on secrecy and mystery.
LinkedIns Jeff Weiner argues that secrecy has a profoundly negative effect on corporate culture,
leading to resentment and leaks. NIKE has found a way to turn it to their advantage. The attitude of
secrecy and exclusivity around projects becomes part of an internal story, that their work has value
thats worthy of being kept under wraps.
At Fortune, Nelson Farris, NIKEs head of corporate education, describes what the company expects
from its employees. Figure out where you want your career to go, and when you see something that
would help you get there, ask us for it, he said. That attitude helps create intensely loyal employees.
According to that piece, its not unusual for employees to tattoo a swoosh onto their legs.
The attitude of mystery and innovation features prominently in NIKEs marketing and public image as
well. Culture is strongest when theres little disconnect between what the public expects and what
happens within a company. That way, employees are inclined to deliver what people have come to
want.
(Source: Adapted from article by Max Nisen, Business Insider Website
www.businessinsider.com, 15 February 2013)

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Appendix 5
How NIKE Solved Its Sweatshop Problem
It wasnt that long ago that NIKE was being shamed in public for its labour practices to the point where
it badly tarnished the companys image and hurt sales. The recent factory collapse in Bangladesh was
a reminder that, even though NIKE managed to turn around its image, large parts of the industry still
havent changed much at all.
NIKE was an early target for the very reason its been so successful. Its business model was based on
outsourcing its manufacturing, using the money it saved on aggressive marketing campaigns. NIKE has
managed to turn its image around. NIKE hasnt been completely successful in bringing factories into
line, but theres no denying that the company has executed one of the greatest image turnarounds in
recent decades.
Heres the timeline of how NIKE became a global symbol of abusive labour practices, then managed to
turn things around:
After prices rose and labour organised in Korea and Taiwan, NIKE begins to urge contractors to

move to Indonesia, China, and Vietnam.

1991: Problems start in 1991 when activist Jeff Ballinger publishes a report documenting low wages

and poor working conditions in Indonesia. NIKE first formally responds to complaints with a factory
code of conduct.

1992: Ballinger publishes an expos of NIKE. His Harpers article highlights an Indonesian worker

who worked for a NIKE subcontractor for 14 cents an hour, less than Indonesias minimum wage,
and documented other abuses.

1992-1993: Protests at the Barcelona Olympics in 1992, CBS 1993 interview of NIKE factory

workers, and Ballingers NGO Press For Change provokes a wave of mainstream media attention.

1996: Kathy Lee Giffords clothing line is shown to be made by children in poor labour conditions.

Her teary apology and activism makes it a national issue.

1996: NIKE establishes a department tasked with working to improve the lives of factory labourers.
1997: Efforts at promotion become occasions for public outrage. The company expands its

NIKEtown retail stores, only to see increasing protests. Sports media begin challenging
spokespeople like Michael Jordan.

Abuses continue to emerge, like a report alleging that a Vietnamese sub-contractor made women
run outside until they collapsed for failing to wear regulation shoes.
NIKE tasks diplomat and activist Andrew Young with examining its labour practices abroad. His
report is criticised for being soft on NIKE. Critics object to the fact that he didnt address low wages,
used NIKE interpreters to translate, and was accompanied by NIKE officials on factory visits. Since
Youngs report was largely favourable, NIKE is quick to publicise it, which increases backlash.
1997: College students around the country began protesting the company.

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 1998: NIKE faces weak demand and unrelenting criticism. It has to lay off workers, and begins to

realise it needs to change.

The real shift begins with a May 1998 speech by then-CEO Phil Knight. The NIKE product has
become synonymous with slave wages, forced overtime, and arbitrary abuse, Knight said. I truly
believe the American consumer doesnt want to buy products made under abusive conditions.
At that speech, he announces NIKE will raise the minimum age of workers, significantly increase
monitoring, and will adapt US OSHA clean air standards in all factories.
1999: NIKE begins creating the Fair Labour Association, a non-profit group that combines

companies, and human rights and labour representatives to establish independent monitoring and a
code of conduct, including a minimum age and a 60-hour work week, and pushes other brands to
join.

2002-2004: The company performs some 600 factory audits between 2002 and 2004, including

repeat visits to problematic factories.

2004: Human rights activists acknowledge that increased monitoring efforts at least deal with some

of the worst problems, like locked factory doors and unsafe chemicals, but issues still remain.

2005: NIKE becomes the first in its industry to publish a complete list of the factories it contracts

with. NIKE publishes a detailed 108-page report revealing conditions and pay in its factories and
acknowledging widespread issues, particularly in its south Asian factories.

2005-Present: The company continues to post its commitments, standards, and audit data as part

of its corporate social responsibility reports.

NIKE wasnt the only or worst company to use sweatshops. But it was the one everybody knew.
Transparency doesnt change ongoing reports of abuses, still-low wages, or tragedies like the one in
Bangladesh.
But, by becoming a leader instead of denying every allegation, NIKE has mostly managed to put the
most difficult chapter in its history behind it, and other companies who outsource could stand to learn a
few things from NIKEs turnaround.
(Source: Adapted from article by Max Nisen, Business Insider Website
www.businessinsider.com, 9 May 2013)

End of case study

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