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Nike Firm’s PESTEL and Porter’s Forces Analysis

PESTEL Analysis: Nike

Political Factors

  • Despite being an international company, Nike’s headquarters is located in the United States. It means that the company can enjoy the policies that are ‘business-friendly’, such as low interest and tax rates. For instance, Nike has access to one of the world’s lowest interest rates which on average equals 0.25% (Trading Economics, no date).
  • Low import tax rates allow the company to relocate physical production to other countries with cheaper labor and enjoy bigger revenues. However, not all Nike product categories can enjoy this. For example, the import taxes for sports shoes are approximately 20%, whereas the average rate is 1.7% (Green, 2017).
  • Potential political conflicts can complicate the customs procedures or lead to the forbidding of imports and exports.

Economic Factors

  • The company is vulnerable to economic recessions as they lead to a lesser consumer purchasing power and, thus, reduced sales.
  • Nike product prices are heavily reliant on cheap labor in other countries. For that reason, the changes in local legislature concerning the minimum wages can negatively impact the company. For instance, the company already had to experience this problem with China. As a result, Nike, together with some other big international brands, had to remove the manufacturer from this country (Wolf, 2018).
  • Interest rates can also significantly impact the company’s operations and revenues. As such, the depreciation of the U.S. dollar to other currencies can adversely affect the prices in the United States, which will result in lesser sales volume.

Social Factors

  • Nike faces the necessity to accurately manage the cultural diversity of its customers around the world. It means that certain companies’ actions can be regarded as good in one location but be condemned in another. For instance, Nike’s criticism of the Chinese government regarding the alleged use of Uyghurs’ forced labor led to a massive customer boycott in this country (Balu, 2021). Therefore, Nike managers should carefully measure each step the firm takes.

Technological Factors

The development of technology opened a number of opportunities for the company:

  • It constantly cheapens the manufacturing process;
  • It helps to redefine the relationship with customers thanks to such online platforms as Facebook and Instagram, to name a few. Before, the firm had one-way communication, whereas now the brand image is constructed in the process of interaction of the seller and buyers;
  • It allows the creation of new products as a result of collaboration with tech companies.

Legal Factors

  • Being a multinational company, Nike faces and files numerous legal charges which require significant monetary expenditure.

Environmental Factors

  • As customers around the world become more conscious about environmental issues, the company’s production practices threaten loyalty to the brand. For instance, Nike is famous for using harmful chemicals that negatively influence nature.

Porter Strategy

Even though modern ages are characterized by the ability to instantly access and exchange information and highly developed transport system, the spatial location of the company, its customers, and suppliers is still important. In this regard, Porter claims that business clusters or agglomerations are critical for achieving a competitive advantage nowadays (Porter, 2020). The close proximity of different interrelated and interdependent market players has various benefits, including but not limited to higher accessibility of employees, information and knowledge share, and better motivation.

As for the former, clusters are found to attract and create a highly skilled labor force. On the one hand, that is explained by higher competition that exists between workers within agglomeration areas (Lavrinenko et al., 2019). On the other hand, employers in the clusters are driven to create or motivate the creation of special programs in the local educational institutions that would address specific skills and competencies. As a result, the availability of good professionals significantly affects the overall productivity of each company and the cluster as a whole.

Additionally, business clusters are associated with easier and faster information movement between various parties involved in the production of goods and services. Such a condition is advantageous due to two major reasons. First, it helps reduce communication mistakes and unethical behavior between counteragents. Indeed, closer distance allows better interaction between suppliers and producers as most of the time, it happens face-to-face. Moreover, the close proximity of interrelated businesses minimizes the chance of fraud as information about such behavior spreads very fast. Secondly, the so-called knowledge spillover effect appears in the agglomeration, which induces higher levels of innovation (McCann and Van Oort, 2019). Therefore, better communications and innovative behavior further increase the productivity of business clusters.

Finally, the close proximity of interdependent producers not only enhances collaboration but also intensifies competition. As a consequence, companies become even more motivated to improve their products and services as they experience higher pressure from other agents (Porter, 2020). Furthermore, Porter (2020) argues that not only comparisons with direct competitors but also with indirect ones can significantly increase the desire for change. Thus, companies constantly seek to increase their productivity and overall output.

Overall, it is seen that business clusters have an inherent potential to improve performance and induce innovative behavior. However, in order to benefit from such a unity of interrelated agents to a possibly greater extent, the government’s support is crucial. For instance, (Donahue, Parilla and McDearman, 2018) found that governmental funding is a central factor determining agglomeration success. Yet, to further increase productivity, authorities also should introduce certain policies such as tax cuts.

Reference List

Balu, N. (2021) ‘Nike’s China sales in the spotlight after Xinjiang backlash’, Reuters.

Donahue, R., Parilla, J. and McDearman, B. (2018) ‘Rethinking cluster initiatives’, The Brookings Institution. 

Green, D. (2017) ‘Trump’s policies have Nike facing one of its biggest threats in history’, Insider.

Lavrinenko, P. A. et al. (2019) ‘Agglomeration effect as a tool of regional development’. Studies on Russian Economic Development, 30(3), pp. 268-274.

McCann, P. and Van Oort, F. (2019) ‘Theories of agglomeration and regional economic growth: a historical review’, in Capello, R. and Nijkamp, P. (eds.) Handbook of regional growth and development theories. Cheltenham: Edward Elgar Publishing, pp. 6-23.

Porter, M.E. (2020) ‘Clusters and the new economics of competition’, Harvard Business Review.

Trading Economics (no date) Interest rate.

Wolf, C. (2018) ‘Nike and Adidas are moving away from manufacturing in China’, GQ.

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