Str 581 - Environmental Analysis - External and Internal

Environmental Analysis - External and Internal

STR/581

Environmental Analysis - External and Internal

Nike, the largest and most popular sports footwear and apparel corporation in the world (Lambert, 2013), experiences many internal and external environmental situations affecting senior leader decisions. To remain the top corporation in the industry, Nike must evaluate internal strengths, weaknesses, and resources. Furthermore, the external environment consisting of remote, industry, and external environmental factors provide opportunities and threats to the company.

Internal Organizational Assessment

It is important for the Nike strategy team to assess internal environmental factors by identifying strengths and weaknesses when developing the short- and long-term strategies. Although the business world has put a great deal of effort into tools for analyzing external opportunities and threats, they have done less for internal analysis. "The development of tools for analyzing environmental opportunities and threats has proceeded much more rapidly than the development of tools for analyzing a firm's internal strengths and weaknesses" (Duncan, Ginter, & Swayne, 1998, p. 1). The strategy team evaluated the strengths and weaknesses to determine which are the most significant and how each will add or subtract value.

* Strengths: Brand recognition, High product quality, effective marketing strategy, capacity of innovation, strong distribution chain, strong R&D, Strong customer relationship/satisfaction (Nike, Inc., 2012)

* Weaknesses: Overseas manufacturing dependency, decreasing US market share, high product price compared to competitors, currency exposure, medium retail presence (Nike, Inc., 2012)

* Resources: Nike's strategy is to concentrate and strengthen their core competencies and outsource manufacturing and other functions (Espino-Rodriguez & Padron-Robaina, 2006). Nike's distinctive competencies include their brand image, marketing, and consumer devotion. In addition, other advantages are their experience as a global leader in the athletic footwear industry and extensive research and development for over three decades (Nike, Inc., 2012).

External Operating Environmental Factors

The three interrelated factors of the external environment include the remote operating environment, the industry operating environment, and the operating environment. These operating environment factors have a great deal of influence and control from the company itself, such as the organization's ability to employ talented workers. The external environmental factors identified below shape the opportunities and threats of Nike's competitive situation.

Remote Operating Environments

* Economic: Threats include economic Recession; slowdown of consumer purchases; variability of foreign currency, exchange rates, and labor costs; higher cost of goods; and numerous competitors. Opportunities include international expansion through brand recognition, and increasing economic conditions in other countries (Nike, Inc., 2012),

* Technological: Opportunities include the increase in technology for research and development, scientific advancement in kinetics, increase in quality, and marketing information systems (Nike, Inc., 2012).

* Political: Threats include an increase in government regulations in China and political instability overseas. Opportunities include deregulation in the United States and low interest rates (Nike, Inc., 2012).

* Ecological: Large threat of natural disasters in China, Philippines, and other countries manufacturing and consuming Nike products (Nike, Inc., 2012).

* Social: Threats include a lower discretionary income and change of demographic demands. Opportunities include a growing female athlete population and an increase in population wearing sports footwear and apparel for fashion (Nike, Inc., 2012).

* International: Threats include a dependency on Chinese manufacturing and human rights concerns in developing countries. Opportunities include an expansion into emerging markets and an increase in global sporting competitions (Nike, Inc., 2012).

Industry Operating Environments

* Entry barriers: Today's athletic shoes are innovative and have a high degree of technological advances. Because of this, the industry requires large capital for research, development, and manufacturing creating a large barrier to entry (Hua, Wang, & Cheng, 2010). In addition, large shoe manufacturers, such as Nike spend millions on marketing and advertising using aggressive campaigns with celebrity endorsements (Nike, Inc., 2012). Second, economies of scale contribute to entry barriers because a new competitor in the market must compete with large production capabilities, well-established distribution chain, and extensive research and development (Hua et al., 2010). Government barriers to entry are low because manufacturers must apply to the same regulations.

* Powerful suppliers: Raw materials, including leather, rubber, cotton, and other textiles are

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