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STRATEGY AND CHANGE IN THE
GLOBAL ENVIRONMENT


NAME: ANSHUL WADHWA
NO: 09034266
PROGRAMME: MBA
MODULE CODE: SM0493




“…the best way to predict the future is to create it. Thank you.” Gary DeStefano , President
Global Operations, Nike Inc, Nike (2010c, pp. 43)


“To bring inspiration and innovation to every athlete in the world..if you have a body, you are
an athlete.” Nike (2010b)


“But as strong and creative as we are internally, I believe the next generation of growth will
be enabled by creating strategic partnerships. Innovation and collaboration is really the way
                     g
forward. We've always been good at innovation and I think we're getting better at
collaborating.” Mark Parker, CEO Nike, Inc Nike (2010c, pp.3)
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                               CONTENTS



Sr. No.   Content                                          Page No

1         Introduction                                     3
2         PESTEL                                           3
3         Part 2: COMPETITIVE ADVANTAGE                    7
4         Sources of Competitive Advantage                 8
5         Part 3: Strategic Change                         10
6         Facilitators and Blockages-Forcefield Analysis   12
7         Culture@ Nike, Inc                               14
8         Conclusion                                       15
9         References                                       17
3




Introduction:
NIKE, Inc is the number one athletic shoes company in the world. It was created by Phil
Knight and his coach at Oregon University Bill Bowerman. Since being known as Blue
Ribbon Sports in 1964, when they were importing and distributing Japanese running shoes.
Since then Nike has come a long way in being the leader in the athletic footwear industry,
Locke & Siteman (2002, pp.4). It was in 1972, when they launched the ‘swoosh’ symbol
representing the Greek winged Goddess of victory. In 1980, they decided to go public, Nike
(2010a), after which they managed to display Adidas and then Reebok from top spot in late
1990’s. Today they are headed by Mark Parker, CEO They have over 33000 employees
globally and have their headquarters at Beaverton, Oregon. In the last fiscal year, ending
May 31st, 2009 they ended with record revenues of $19.2, which is a 3% increase in
earnings from the previous year Nike (2010a). Their brands include Nike, Cole Haan,
Converse, Jordan, NIKE Golf and Umbro, Nike (2010c).


The PESTEL framework categorises environmental influences into 6 main types namely
Political, Economic, Social, Technological, Environmental and Legal (Exploring corporate
strategies, Johnson)
4


Fig 1: Pestel Analysis, Scholes (2008)


In the case of Nike, its


Political: Framework can be viewed as the role of the government Scholes (2008) in this
case the US government. Since Nike, Inc is an American brand, it is vital that the
government provides a range of political issues in regards to future taxation policy, trade
regulations, governmental stability, and unemployment policy Jeffs (2008). According to
Cuizon (2009) the US government has in ways with its policies have helped Nike enable and
advance its products. The US government has provided Nike with general macroeconomic
stability along with low interest rates and stable currency rates, along with the tax system
internationally being competitive, critically led to Nike’s growth. From a political perspective
outsourcing a product or service is highly beneficial since it saves the company a huge
cost, in the case of Nike, it simply designs and develops new products and then outsources
them for manufacturing to countries like Taiwan, China and Brazil Nike (2010).
In my opinion it is critically vital from Barrack Obama’s governments point of view to tactically
support Nike in its cause, which is the continue to be the best athletic footwear brand in the
world. However research tends to slightly disagree when Obama was caught criticising
Nike’s Oregon running project where he quotes “At a time when so many American runners
risk getting a stress fracture because they can’t afford to buy a new pair of shoes, or no
longer have enough time to run twice a day because they’re forced to work longer hours just
to make their monthly mortgage payment” , he further adds “ the Nike Oregon Project
continues to indiscriminately buy $75,000 anti-gravity treadmills and pay their runners huge
sums to do nothing but run. That is the height of irresponsibility. It is shameful. And part of
what we’re going to need is for the folks in Portland to show some restraint and show some
discipline and show some sense of responsibility” letsrun.com (2010).


Economic:
In an article while addressing investors Nike (2010, pp.3), Mark Parker, CEO at Nike
stresses on the fact that, going ahead there will always be macro-economic forces which
can't be influence. Swings in currency, tax rates, labour costs. In fact during the economic
crisis, they rethought their strategy. They used it as an opportunity to accelerate growth and
expand their future capacity. They reset their cost structures and still maintained profitability
while creatively separating their marketplace. However their main areas of concern going
ahead would be the rise in input costs, mainly oil, labour and derivatives of those such as
freight as rising over the next few years particularly since the market for these commodities
strengthens during the economic recovery. Changes in currency exchange rates can be
5


another significant driver of gross margin performance, and that's particularly topical today.
In order to negate these changing currency trends they are building hedging programs to
minimize short-term volatility in order to timely adjust their financial models in respect to
significant currency changes. Nike has begun implementing a trading company structure in
order to enable them with using the natural hedges they have in their product sales and
currencies sourced. Another area of economic concern is the slow and steady recovery
globally, with a special mention of Central, Eastern Europe and Japan. Unemployment
coupled with customer confidence is also an issue, irrespective of Nike outperforming the
marketplace, especially with Hurley and Converse being added to their portfolio. The case of
Anti-dumping by EU in 2005 against shoes imported from China and Vietnam Europe will
also affect their economic growth NKE (2009).
Cuizon (2009) further states that their local market in the US itself is experiencing an
economic downturn.



Social:

Nike represents a post modern organisation, a company which is defined itself both on
physical and emotional empowerment of health and fitness Carty (1997). It operates in a
society where people over the years have become more socially aware and are very health
conscious these days. Since diet and health is a key ingredient of fitness and with the
number of fitness clubs coming up, the demand for fitness products especially apparels,
shoes and equipment. Nike is the leader in this segment and is catering to this surge in
demand as people are looking for sports shoes, apparel and equipment Cuizon (2009).
However back in 1990’s they were accused of being ‘environmentally reckless’ IEHN (2005)
since they were running sweatshops using underage workers in Asia. This hurt their pubic
and social image as a brand resulting in declining sales.

Technological:

Taking a lead to create such a platform, Nike and Creative Commons are leading the
initiative to create a system for “open collaboration”. This project will develop strategies for
using patents and know-how, within a community network framework, to facilitate and
promote open innovation. Other contributors can also join the network by committing their
patents or unpatented knowledge to the network. Collaborations with Science Commons and
others will ensure that the network grows in ways that promote community-based innovation
and sustainable research policies Tomatso (2009, pp. 30). Nike’s teamed up with Apple to
6


create the Nike+ Sports Kit and web service transcending its traditional sports category
Wathieu (2010, pp. 30).




Environmental

Considering the environmental issues which are there, Nike realises the slow decrease in
natural resources and with carbon footprints being an issues, climate change being another
and renewable energy being the future they have strategized their business to a more
environmentally sustainable environment Nike (2010b, pp.4). Similarly they are facing a
challenging issue in their footprints as their largest energy impact is integrated in their
materials; approximately 59% of their materials contain this energy Nike (2010b, pp.82).
Newsweek, in an article has ranked Nike 7 amongst the top 500 green companies for its
environmental policies which use organic cotton, generating less waste in retail. They are
focusing on shoes made by recycled polyester packaged in recycled fibre boxes Newsweek
(2009)

Nike has also resigned its position on the board of the United States board of Commerce,
stating that “We fundamentally disagree with the U.S. Chamber of Commerce on the issue of
climate change, and their recent action challenging the E.P.A. is inconsistent with our view
that climate change is an issue in need of urgent action,” Galbraith (2009)

Legal:
Nike insists that any of its contractors caught employing child workers must remove the child
from the factory, continue to pay the child’s wages, and pay for the child’s school fees until
he/she reaches legal working age. Yet, notwithstanding the arrival of IPEC and Nike’s new
child labour policies, the ILO reports that many local employers continue to use children in
their stitching centres and that in response to increased monitoring of standards in Sialkut,
Pakistan, Azam (1999).


For Nike the key drivers for change would be their environmentally sustainable model which
will hold them in good stead as considering the way the global economic downturn is on.
Both domestic and international markets will play a key role considering Asian Markets are
eventually dependent on the mature market economies. They also have to keep in check the
rising input costs of oil going ahead and the focus will shift towards renewable energy. They
need to focus on their core competencies of design and innovation and keep in mind the
unemployment rate along with currency fluctuations and consumer demand.
7


Part 2

Competitive advantage

This arises from the differential among firms along its various dimensions in its
characteristics and attributes allowing the firm to create better customer value than others.
Competitive Advantage includes ownership of assets, access to its distribution and supply
chain, its knowledge, competency and capability in its business operations. In order to
sustain this, the firm needs to creatively and regularly exploit the three generic sources. This
includes the pre-emptive attempt of rivals, juxtaposing both creation and pre-emption as well
as ownership based access and its proficiency based resources (Hao, M, 1999)

Over the years many theoretical frameworks were created in order to understand
competitive advantage. The traditional industry analysis approach emphasized the
importance of market positioning and industry structure (Porter, 1980). According to
Schumpeter (1934, 1950) the theory of creative destruction compels us to rethink the
importance of innovation while competing with time and destroying the old equilibrium as
well as established convention. Nonaka (1991) argues that knowledge is the only source of
lasting Competitive Advantage in the 21st century.

Nike is widely recognised as the market leader in the sports apparel industry by virtue of its
market share, profitability and global reach (Stonehouse et al., 2003). Its exceptional
knowledge of its customers and their motivations, marketing, design and development of
new products and its supply chain management have blended together into a unique
strategic knowledge which constitutes its core competencies and it’s Competitive Advantage
(Stonehouse. G, 2008 pp.24)

Over here we shall look at two theoretical models. One being Porters Generic Strategy
(1985) according to which Competitive Advantage can be achieved by either ‘cost
leadership’; differentiation strategy and a combination of either of the two strategies
mentioned earlier with a focused or niche strategy. In the case of Nike it is evident that they
have differentiated their products and services in order to create additional value and provide
their customers with benefits for which they demand a premium price. They have achieved
their differentiation based on initially catering to a niche market, their customer knowledge
and relationships. Their innovations in design, technology they use and their brand image
through their marketing and advertising campaigns, Jeffs (2008).
8


For Nike their Sources of Competitive Advantage are:

Customer and Customer Knowledge - in 1972, Nike aimed at positioning its product to the
niche market of serious competitive athletes. Thus targeting and segmenting their markets
for people aged in their 20’s, which led Nike to focus on developing high performance
running shoes. They combined the customer’s requirement and knowledge with the existing
technology and translated that into a knowledge based core competency. This need for the
hour strategy increased Nike’s sales amongst the top athletes. This was followed up by more
organisational learning and strategic thinking. Simultaneously the Nike swoosh logo gained
popularity amongst athletes and Tele-adverts and so was fashion, which resulted in people
imitating their heroes and bought Nike more as a fashion statement. This helped Nike learn
a lot about the behaviours of the younger generation and realised that those resembled the
same of athletes who love to compete and display a rebellious streak. This trend made Nike
strategically take key decisions and thus began focussing on design, development,
marketing and supply chain. Thus interlocking them Nike today is the world leader in athletic
footwear. On today’s date not only does Nike segment its market based on global sports, but
on looking through its websites one understands the depth of its catering to all age groups
(Stonehouse et., al 2008).

Marketing and Advertising - Nike marketing and advertising campaigns are a big source of
competitive advantage! Nike is known best for its strategy of using celebrity ‘athletes’
endorsements. They simple want the best of the athletes in the world to be associated with
them. The tactics used by the associates at Nike would be influential on potential signees.
Not only do they intimidate the star but also create an overwhelming response. This helps
them to strengthen their bargaining power and lure its signee to aspire to being in such great
company (Fortune, 1995).

Nike signed up Tiger Woods for $8 million with one win as a pro back in 1997, thus getting
star loyalty. In fact after Nike rose high and fast as any company could in the ‘90’s after they
launched their indelible ‘Swoosh’ and their ‘Just do it’ slogan challenging sports figures and
thus resulting in sales of $9.2 billion in ’97, Newsweek, (1998), outweighing its two main
competitors Adidas in 1980’s and Reebok in 1990’s (Locke & Siteman, pp2). Their
campaigns are linked with customer needs. In fact stars such as Bo Jackson, Michael
Jordan and John McEnroe campaigned regularly. For Nike launching the ‘Just do it’
campaign was a matter of good timing as in the 80-90’s many Americans desired for a
healthy lifestyle and Nike grabbed that opportunity.
9


Design Development/Innovation - Mark Parker Nike (2010b, pp.4) in his CSR report
mentions that when they identified their 2 core competencies - design and innovation, it was
done in order to bring about social, labour and environmental change. Since Nike had
already started gaining popularity amongst the youngsters along with being there for
athletes, they took 2 key strategic decisions. One was widening their existent range of
products for athletes and move into different sporting categories, especially Soccer which
wasn’t all that big in USA .Secondly they increased their overall apparel range for both
competition and casual wear as well. Design and development now became their core
competencies. They realised they had a huge market in terms of fashion as well. This
became one of their core competencies and led to the growing competitive success. What
added to their core competencies was that Nike’s designers were able to match their abilities
with the present technology and the fashion taste of the young generation. There most
significant design was the ‘air’ principle which incorporated an air cushion based on a sole
and heel. In September’07, they rolled out NIKETOWN New York which taught over 2 million
customers a year teaching them how to track their runs. Nike has collaborations with NASA
and Apple to accelerate their innovation process. Innovation is at the heart of Nike, Inc’s
business strategy today, Nike (2010b, pp.4). Phil Knight believes that there are 7 brand
cycles in order to stay ahead, hence enormous expenditure on continuous strategic
knowledge development and innovation. ‘It is Nike’s designs that are the most sought after
by trainer connoisseurs’, Stonehouse & Minocha (2008, pp.3). Designs such as the Air Force
1, the Air Max, the Chuck Taylor, the Pegasus, they generated over $500 million last spring,
Nike (2010b, pp.2)


Considering their competitive advantages, the second theoretical model which can be
applied here is the Value Chain by Porter (1985) who states that it’s called value chain since
it adds value to raw materials during the transformational process of its final product. The
organisation does this in order to add enough value for the customer who will then pay that
extra premium for it ensuring profitability.

Supply Chain Management - Nike as a brand quickly realised through its value chain
process that its strength lays in design and development, marketing and building customer
relationships. They knew manufacturing is something they didn’t strive on, so once they
developed a new product in Portland, Oregon they outsourced the manufacturing to China,
Taiwan and Brazil while imposing strict quality standards, Nike over the years has assured
its partners over the years with its brand name and its services. Not only do they share
customer knowledge with them but also share a generous premium price. They reduced
their retail stores from 32 to 5 in Europe with its headquarters in Netherlands and
10


     warehousing in Belgium in order to make the overall supply more effective based on
     demand, Stonehouse & Minocha (2008, pp.2)

     PART 3

     Lewin (1952) stated that change is an essential part of any strategic evaluation and
     implementation. He developed a 3 stage model in order to explain the process which
     included

             Unfreezing of current attitudes: which is identifying the change
             Moving to a new level: implementing the change
             Refreezing attitudes at the new level: change is supported by behavioural changes


                                         Extent of change



                                         Realignment                        Transformation




Speed         Incremental                ADAPTATION                         EVOLUTION
Of
Change




              Big bang                   RECONSTRUCTION                     REVOLUTION




     Fig 2: Types of Change, Balogun & Hailey (1999)

     When exploring the process of strategic change, we generally come across the nature of the
     change and the extent of the change. Its generally mapped in a matrix where in the nature of
     the change is incremental or big bang and the extent of change would be realignment or
     transformation. In the cause of Nike, the process of strategic change is incrementally
     transformational and the type of strategic change is Evolutionary, Scholes & Whittington
     (2008). Nike states that either they can move fast now in order to prepare themselves for the
     future for a sustainable economy or wait face a risk of being forced to change. Since Nike
11


has been on the offensive realising the impacts of climate change, future increasing cost of
natural resources, peaking oil prices, growing population. Hence it is a learning organisation
which realises the impact of climatic changes and is prepared to examine ways not only to
survive, but do it with a competitive edge. Early in 1990 the firm started to focus on
environmental issues with a small group of employees in the Nike environmental Action
team. They initially started with recycling programs but post 1998, established their own
sustainability policy. They progressed from a standard compliance approach to an across
the board corporate sustainability strategy including sustainable design concepts which led
them to strong financial, brand and environmental benefits. Not only did they manage to
convert the environmental challenges as a competitive advantage but also envisioned a
sustainable business strategy, IEHN (2010). Their timing couldn’t have been better as they
were criticised in the 1990’s for being an environmentally reckless and irresponsible
company for operating sweatshops in Asia using underage workers and also being accused
of using chemicals in less industrialised countries thus polluting their waters. The guys at
Nike quickly responded to this by working with outside agencies like sustainability partners,
focusing on product designs since innovation is their biggest strength. They also ensured
their global suppliers adopted strict environmental standards in manufacturing processes, by
keeping costs low and improving product quality. They installed computer systems for their
Asian suppliers in order to calculate investments costs for environmental projects. They
moved away from undesirable toxic substances to a positive list of substances. Their
involvement with Natural Step led to 65 new pilot projects which focused on sustainable
product design. Since the top guys at Nike were so hell bent on turning the overall strategic
framework of the company, they successfully created a total savings of $4.5million by mid
2000, which ultimately benefited roughly 180,000 workers in more than 37 factories in Asia.
They in fact reduced PVC from the footwear and faced major criticism from the Vinyl industry
but then again they managed to reduce the PVC content to 2% in 2004 from 33% in 1999.
This made them more reliant on organic cotton and they ended up collaborating with roughly
50 companies to form an organic exchange, with the goal of increasing the global organic
share of cotton from 0.05%-10%. As of now Nike garments contain organic cotton to the
extent of 47% in 2004.

These strategic change programmes has led Nike to where it stands today.
12




Using the Forcefield analysis one can identify the blockages and facilitators for change.

The Forcefield analysis provides a view of change issues which to be addressed by
identifying he forces for and against the change.

Facilitating change

        The vision of Phil Knight the CEO himself, to make Nike a scalable and sustainable
         business model in order to thrive as leaders of the apparels industry
        The understanding of the BOD, executive leadership team to understand the
         potential implications of their business to emerge as a survivor with a competitive
         edge.
        Ensure that the sustainable business and innovation team focuses on key business
         priorities, which include, sustainable -products, manufacturing and marketplaces. A
         team of 130 committed employees working closely with sustainability specialists from
         other departments such as retail, logistics and IT.
        Encouraging a diverse employee base of 30,000 people, irrespective of their cultural
         backgrounds, thriving on creativity, innovation and development of strategic
         knowledge
        Having a talent strategy focusing on coaching, mentoring and online learning
        Heavy investment made by HR dept in areas of sustainable talent practices and
         infrastructure.
        Building and empowering a winning team
        Increased overall efficiencies and reduced waste and costs.
        Managing adverse publicity on the brand, with a quick response from the senior
         management
        Leaders encourage employees to think creatively-both strong and informal work ethic

Blockages

        Was profiled by the media in the late 1990’s for being an irresponsible and
         environmentally reckless corporation as they were accused of using under age
         workers in Asia.
        On reducing PVC from footwear, faced major criticism from the Vinyl industry
        Their marketing involves both stylish and controversial figures triggering a rebellious
         streak
13


        Had terribly been criticised over their strategy in Asia where in they were blamed for
         child labour, low wages and poor working conditions. It was 1998 then that Phil
         Knight said “ the Nike product has become synonymous with slave wages, forced
         overtime and arbitrary abuse”
        Nike’s South Korean managers were accused of being stingy with wages and used
         abusive languages.
        Initially had a blame culture where Nike managers refused to accept responsibility for
         any kind of labour issues creeping up at their supplier’s plants, for the sole reason
         that they weren’t Nike’s employees.

Now looking at the way Nike operates and the way it evolved strategically one realises the
strength at Nike being its work force. The culture which exists at Nike shows that the
company thrives on innovation of new products in a sustainable way Nike (2010b, pp.22) in
order to continue being the leading athletic brand in the world. For the guys at Nike it’s not all
about trading businesses with others, but it’s all about recognizing future sustainability
through profitability. They deepen their ’bench strength’ while their HR dept focuses on
effectively nourishing talent and change. Looking at a theoretical framework we have two
here, one would be the cultural web, which ‘shows the behavioural, physical and symbolic
manifestations of culture that inform and we are informed by the take for granted
assumptions, or paradigm’, Scholes (2008,pp.197)
14


Culture:




Fig 3: The Cultural Web

Phil Knight himself is an ex athlete of long distance running and this culture can have its
influence on strategy itself, since organisations since organisations can be influenced by
their culture which is made up of the people leading it. Managers faced by this change are
most certainly likely to deal with it with what they understand Scholes (2008, pp.197). Now
this in the case of Nike was when Phil Knight realised this while being criticized for his ways
in the late 1990’s regarding underage workers in Asia IEHN (2010). Nike immediately
developed a strategy of becoming more environmentally sustainable and friendly. Put in
stricter measures and implemented them strict environmental standards across its
manufacturing processes. Going back to the cultural web at the company

Their leaders regularly work every day in order to ensure that Nike as a company realises its
potential to encourage more than 30,000 of its employees to reach their potential Nike
(2010b, pp.149). This is their way of doing things on a daily basis to tap their employee
potential and has been working for them since they reviewed their strategy back in the 90’s.

They have a talent strategy where in they focus on assignment planning and manager
accountabilities in order to coach and mentor and also provide classroom learning and
online learning. Their talent reviews are directly linked to their business strategic priorities.
15


The HR dept of Nike has been heavily investing in talent programmes and infrastructure.
They had a pilot workshop which is to be launched in FY 10 which will focus on how diversity
drives creativity and innovation.

In FY’08 the D&I team created the ‘culture as offense’ in order to explore how Nike could use
their culture as their Competitive Advantage. They had a full day workshop where in
members of the strategy team spoke to the ‘new crew’ at Nike. This helped them share their
perspectives with the high level decision makers. The CAO model is being used effectively
as a model for intergenerational dialogue.

In the case of Nike’s symbol being the swoosh is considered as one of the top 3 most
recognised globally recognized logo’s in the world Stonehouse & Minocha (2008, pp.3)
which symbolizes its success as the leading performer in the industry (pp.1). It’s ‘just do it’
slogan and its selection of formidable athletes generated sales of up to $9.2 billion for them
in 1997 Solomon (1998). These 3 activities for Nike have symbolised their existence in ways
that has made them recognise globally as a brand without at times even having to use their
name.

Nike has a power structure wherein they use their middle management to communicate
ideas in a ‘bottom up’ approach which thus provides the executives with the ability to
formulate strategic plans. They have the knowledge on design, innovation and creativity and
know that outsourcing their manufacturing is also a Competitive Advantage to them.




Conclusion:

Going ahead Nike’s strategy would be to operate in a closed loop model Nike (2010b, pp.24)
which is to achieve zero waste by completely recycling all materials. They need to invest in
sustainability as a key innovation/R&D priority, alongside fast track innovation through
collaborative investments. They would need to launch the GreenXchange program in order
to share intellectual property in order to fast track the changes. An advocacy body is needed
to promote large scale policies investing in sustainable innovation as a key enabler for
economic competitiveness. Their strategy going ahead would involve Innovation, Integrating
sustainability and Mobilisation with key partners on a gigantic scale. In regard to the Macro
environment they need to lobby the environmental policies in their favour with the U.S.
government on issues of climatic change, since they believe that's crucial to their survival.
There working like a trading company in order to hedge currency fluctuations in order for
them to have time for a financial remodelling would be beneficial to them. Keeping their core
16


competencies of design and innovation in mind, they need to keep investing heavily in
consumer knowledge by regularly segmenting the market to understand the demand
customer’s requirements. Their competitive advantage is their customers, their marketing,
design and innovation along with their supply chain, which adds value at each level. There
future business objectives considering in mind these factors of competitive advantage and
there move of an evolutionary transformational change makes sense, since they quickly
foresighted their business model back in 1990’s after their image was hampered in the
sweatshops. No wonder they continue to lead the athletic shoe industry from the front!
17


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       ir.net/External.File?item=UGFyZW50SUQ9NTU4ODh8Q2hpbGRJRD0tMXxUeXBlPT
       M=&t=1.

NIKE, I. (2010d) Power of the Portfolio. [Online]. Available at: http://www-waa-
      akam.thomson-
      webcast.net/us/dispatching/?event_id=5286ec01825aa7c093caf4f34c5bf5f7&portal_i
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Nike: Innovation Through Partnerships And Redesign Throughout The Life Cycle. (2010)
        [Online]. Available at: http://www.iehn.org/publications.case.nike.php.

NKE (2009) Footwear Imports into the European Union. [Online]. Available at:
     http://www.wikinvest.com/stock/Nike_(NKE)/Footwear_Imports_European_Union.

Ofek, E. & Wathieu, L. (2010) Are you ignoring trends that could shake up your business?
       [Online]. Available at: http://hbr.org/2010/07/are-you-ignoring-trends-that-could-
       shake-up-your-business/ar/1.

Oppenheimer, L. (2009) Obama taps Nike VP for national service post. [Online]. Available
     at:
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     ona.html.

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       at: http://www.letsrun.com/2010/aprilfoolhansons0401.php.

Research, C. f. A. (2002). Mini Case Study: Nike's 'Just do it' Advertising Campaign.

Speer, J. K. (2010) 'NIKE, Inc', Apparel Magazine, 51 (10), pp. 15-16 [Online]. Available at:
       file:///E:/NBS/SM0493-Strategy/Nike/Nike%20enviromental.htm (Accessed.

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      Knowledge Management', Knowledge and Process Management, 15 (1), pp. 24-51
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19


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     Thomson.

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Nike

  • 1. 1 STRATEGY AND CHANGE IN THE GLOBAL ENVIRONMENT NAME: ANSHUL WADHWA NO: 09034266 PROGRAMME: MBA MODULE CODE: SM0493 “…the best way to predict the future is to create it. Thank you.” Gary DeStefano , President Global Operations, Nike Inc, Nike (2010c, pp. 43) “To bring inspiration and innovation to every athlete in the world..if you have a body, you are an athlete.” Nike (2010b) “But as strong and creative as we are internally, I believe the next generation of growth will be enabled by creating strategic partnerships. Innovation and collaboration is really the way g forward. We've always been good at innovation and I think we're getting better at collaborating.” Mark Parker, CEO Nike, Inc Nike (2010c, pp.3)
  • 2. 2 CONTENTS Sr. No. Content Page No 1 Introduction 3 2 PESTEL 3 3 Part 2: COMPETITIVE ADVANTAGE 7 4 Sources of Competitive Advantage 8 5 Part 3: Strategic Change 10 6 Facilitators and Blockages-Forcefield Analysis 12 7 Culture@ Nike, Inc 14 8 Conclusion 15 9 References 17
  • 3. 3 Introduction: NIKE, Inc is the number one athletic shoes company in the world. It was created by Phil Knight and his coach at Oregon University Bill Bowerman. Since being known as Blue Ribbon Sports in 1964, when they were importing and distributing Japanese running shoes. Since then Nike has come a long way in being the leader in the athletic footwear industry, Locke & Siteman (2002, pp.4). It was in 1972, when they launched the ‘swoosh’ symbol representing the Greek winged Goddess of victory. In 1980, they decided to go public, Nike (2010a), after which they managed to display Adidas and then Reebok from top spot in late 1990’s. Today they are headed by Mark Parker, CEO They have over 33000 employees globally and have their headquarters at Beaverton, Oregon. In the last fiscal year, ending May 31st, 2009 they ended with record revenues of $19.2, which is a 3% increase in earnings from the previous year Nike (2010a). Their brands include Nike, Cole Haan, Converse, Jordan, NIKE Golf and Umbro, Nike (2010c). The PESTEL framework categorises environmental influences into 6 main types namely Political, Economic, Social, Technological, Environmental and Legal (Exploring corporate strategies, Johnson)
  • 4. 4 Fig 1: Pestel Analysis, Scholes (2008) In the case of Nike, its Political: Framework can be viewed as the role of the government Scholes (2008) in this case the US government. Since Nike, Inc is an American brand, it is vital that the government provides a range of political issues in regards to future taxation policy, trade regulations, governmental stability, and unemployment policy Jeffs (2008). According to Cuizon (2009) the US government has in ways with its policies have helped Nike enable and advance its products. The US government has provided Nike with general macroeconomic stability along with low interest rates and stable currency rates, along with the tax system internationally being competitive, critically led to Nike’s growth. From a political perspective outsourcing a product or service is highly beneficial since it saves the company a huge cost, in the case of Nike, it simply designs and develops new products and then outsources them for manufacturing to countries like Taiwan, China and Brazil Nike (2010). In my opinion it is critically vital from Barrack Obama’s governments point of view to tactically support Nike in its cause, which is the continue to be the best athletic footwear brand in the world. However research tends to slightly disagree when Obama was caught criticising Nike’s Oregon running project where he quotes “At a time when so many American runners risk getting a stress fracture because they can’t afford to buy a new pair of shoes, or no longer have enough time to run twice a day because they’re forced to work longer hours just to make their monthly mortgage payment” , he further adds “ the Nike Oregon Project continues to indiscriminately buy $75,000 anti-gravity treadmills and pay their runners huge sums to do nothing but run. That is the height of irresponsibility. It is shameful. And part of what we’re going to need is for the folks in Portland to show some restraint and show some discipline and show some sense of responsibility” letsrun.com (2010). Economic: In an article while addressing investors Nike (2010, pp.3), Mark Parker, CEO at Nike stresses on the fact that, going ahead there will always be macro-economic forces which can't be influence. Swings in currency, tax rates, labour costs. In fact during the economic crisis, they rethought their strategy. They used it as an opportunity to accelerate growth and expand their future capacity. They reset their cost structures and still maintained profitability while creatively separating their marketplace. However their main areas of concern going ahead would be the rise in input costs, mainly oil, labour and derivatives of those such as freight as rising over the next few years particularly since the market for these commodities strengthens during the economic recovery. Changes in currency exchange rates can be
  • 5. 5 another significant driver of gross margin performance, and that's particularly topical today. In order to negate these changing currency trends they are building hedging programs to minimize short-term volatility in order to timely adjust their financial models in respect to significant currency changes. Nike has begun implementing a trading company structure in order to enable them with using the natural hedges they have in their product sales and currencies sourced. Another area of economic concern is the slow and steady recovery globally, with a special mention of Central, Eastern Europe and Japan. Unemployment coupled with customer confidence is also an issue, irrespective of Nike outperforming the marketplace, especially with Hurley and Converse being added to their portfolio. The case of Anti-dumping by EU in 2005 against shoes imported from China and Vietnam Europe will also affect their economic growth NKE (2009). Cuizon (2009) further states that their local market in the US itself is experiencing an economic downturn. Social: Nike represents a post modern organisation, a company which is defined itself both on physical and emotional empowerment of health and fitness Carty (1997). It operates in a society where people over the years have become more socially aware and are very health conscious these days. Since diet and health is a key ingredient of fitness and with the number of fitness clubs coming up, the demand for fitness products especially apparels, shoes and equipment. Nike is the leader in this segment and is catering to this surge in demand as people are looking for sports shoes, apparel and equipment Cuizon (2009). However back in 1990’s they were accused of being ‘environmentally reckless’ IEHN (2005) since they were running sweatshops using underage workers in Asia. This hurt their pubic and social image as a brand resulting in declining sales. Technological: Taking a lead to create such a platform, Nike and Creative Commons are leading the initiative to create a system for “open collaboration”. This project will develop strategies for using patents and know-how, within a community network framework, to facilitate and promote open innovation. Other contributors can also join the network by committing their patents or unpatented knowledge to the network. Collaborations with Science Commons and others will ensure that the network grows in ways that promote community-based innovation and sustainable research policies Tomatso (2009, pp. 30). Nike’s teamed up with Apple to
  • 6. 6 create the Nike+ Sports Kit and web service transcending its traditional sports category Wathieu (2010, pp. 30). Environmental Considering the environmental issues which are there, Nike realises the slow decrease in natural resources and with carbon footprints being an issues, climate change being another and renewable energy being the future they have strategized their business to a more environmentally sustainable environment Nike (2010b, pp.4). Similarly they are facing a challenging issue in their footprints as their largest energy impact is integrated in their materials; approximately 59% of their materials contain this energy Nike (2010b, pp.82). Newsweek, in an article has ranked Nike 7 amongst the top 500 green companies for its environmental policies which use organic cotton, generating less waste in retail. They are focusing on shoes made by recycled polyester packaged in recycled fibre boxes Newsweek (2009) Nike has also resigned its position on the board of the United States board of Commerce, stating that “We fundamentally disagree with the U.S. Chamber of Commerce on the issue of climate change, and their recent action challenging the E.P.A. is inconsistent with our view that climate change is an issue in need of urgent action,” Galbraith (2009) Legal: Nike insists that any of its contractors caught employing child workers must remove the child from the factory, continue to pay the child’s wages, and pay for the child’s school fees until he/she reaches legal working age. Yet, notwithstanding the arrival of IPEC and Nike’s new child labour policies, the ILO reports that many local employers continue to use children in their stitching centres and that in response to increased monitoring of standards in Sialkut, Pakistan, Azam (1999). For Nike the key drivers for change would be their environmentally sustainable model which will hold them in good stead as considering the way the global economic downturn is on. Both domestic and international markets will play a key role considering Asian Markets are eventually dependent on the mature market economies. They also have to keep in check the rising input costs of oil going ahead and the focus will shift towards renewable energy. They need to focus on their core competencies of design and innovation and keep in mind the unemployment rate along with currency fluctuations and consumer demand.
  • 7. 7 Part 2 Competitive advantage This arises from the differential among firms along its various dimensions in its characteristics and attributes allowing the firm to create better customer value than others. Competitive Advantage includes ownership of assets, access to its distribution and supply chain, its knowledge, competency and capability in its business operations. In order to sustain this, the firm needs to creatively and regularly exploit the three generic sources. This includes the pre-emptive attempt of rivals, juxtaposing both creation and pre-emption as well as ownership based access and its proficiency based resources (Hao, M, 1999) Over the years many theoretical frameworks were created in order to understand competitive advantage. The traditional industry analysis approach emphasized the importance of market positioning and industry structure (Porter, 1980). According to Schumpeter (1934, 1950) the theory of creative destruction compels us to rethink the importance of innovation while competing with time and destroying the old equilibrium as well as established convention. Nonaka (1991) argues that knowledge is the only source of lasting Competitive Advantage in the 21st century. Nike is widely recognised as the market leader in the sports apparel industry by virtue of its market share, profitability and global reach (Stonehouse et al., 2003). Its exceptional knowledge of its customers and their motivations, marketing, design and development of new products and its supply chain management have blended together into a unique strategic knowledge which constitutes its core competencies and it’s Competitive Advantage (Stonehouse. G, 2008 pp.24) Over here we shall look at two theoretical models. One being Porters Generic Strategy (1985) according to which Competitive Advantage can be achieved by either ‘cost leadership’; differentiation strategy and a combination of either of the two strategies mentioned earlier with a focused or niche strategy. In the case of Nike it is evident that they have differentiated their products and services in order to create additional value and provide their customers with benefits for which they demand a premium price. They have achieved their differentiation based on initially catering to a niche market, their customer knowledge and relationships. Their innovations in design, technology they use and their brand image through their marketing and advertising campaigns, Jeffs (2008).
  • 8. 8 For Nike their Sources of Competitive Advantage are: Customer and Customer Knowledge - in 1972, Nike aimed at positioning its product to the niche market of serious competitive athletes. Thus targeting and segmenting their markets for people aged in their 20’s, which led Nike to focus on developing high performance running shoes. They combined the customer’s requirement and knowledge with the existing technology and translated that into a knowledge based core competency. This need for the hour strategy increased Nike’s sales amongst the top athletes. This was followed up by more organisational learning and strategic thinking. Simultaneously the Nike swoosh logo gained popularity amongst athletes and Tele-adverts and so was fashion, which resulted in people imitating their heroes and bought Nike more as a fashion statement. This helped Nike learn a lot about the behaviours of the younger generation and realised that those resembled the same of athletes who love to compete and display a rebellious streak. This trend made Nike strategically take key decisions and thus began focussing on design, development, marketing and supply chain. Thus interlocking them Nike today is the world leader in athletic footwear. On today’s date not only does Nike segment its market based on global sports, but on looking through its websites one understands the depth of its catering to all age groups (Stonehouse et., al 2008). Marketing and Advertising - Nike marketing and advertising campaigns are a big source of competitive advantage! Nike is known best for its strategy of using celebrity ‘athletes’ endorsements. They simple want the best of the athletes in the world to be associated with them. The tactics used by the associates at Nike would be influential on potential signees. Not only do they intimidate the star but also create an overwhelming response. This helps them to strengthen their bargaining power and lure its signee to aspire to being in such great company (Fortune, 1995). Nike signed up Tiger Woods for $8 million with one win as a pro back in 1997, thus getting star loyalty. In fact after Nike rose high and fast as any company could in the ‘90’s after they launched their indelible ‘Swoosh’ and their ‘Just do it’ slogan challenging sports figures and thus resulting in sales of $9.2 billion in ’97, Newsweek, (1998), outweighing its two main competitors Adidas in 1980’s and Reebok in 1990’s (Locke & Siteman, pp2). Their campaigns are linked with customer needs. In fact stars such as Bo Jackson, Michael Jordan and John McEnroe campaigned regularly. For Nike launching the ‘Just do it’ campaign was a matter of good timing as in the 80-90’s many Americans desired for a healthy lifestyle and Nike grabbed that opportunity.
  • 9. 9 Design Development/Innovation - Mark Parker Nike (2010b, pp.4) in his CSR report mentions that when they identified their 2 core competencies - design and innovation, it was done in order to bring about social, labour and environmental change. Since Nike had already started gaining popularity amongst the youngsters along with being there for athletes, they took 2 key strategic decisions. One was widening their existent range of products for athletes and move into different sporting categories, especially Soccer which wasn’t all that big in USA .Secondly they increased their overall apparel range for both competition and casual wear as well. Design and development now became their core competencies. They realised they had a huge market in terms of fashion as well. This became one of their core competencies and led to the growing competitive success. What added to their core competencies was that Nike’s designers were able to match their abilities with the present technology and the fashion taste of the young generation. There most significant design was the ‘air’ principle which incorporated an air cushion based on a sole and heel. In September’07, they rolled out NIKETOWN New York which taught over 2 million customers a year teaching them how to track their runs. Nike has collaborations with NASA and Apple to accelerate their innovation process. Innovation is at the heart of Nike, Inc’s business strategy today, Nike (2010b, pp.4). Phil Knight believes that there are 7 brand cycles in order to stay ahead, hence enormous expenditure on continuous strategic knowledge development and innovation. ‘It is Nike’s designs that are the most sought after by trainer connoisseurs’, Stonehouse & Minocha (2008, pp.3). Designs such as the Air Force 1, the Air Max, the Chuck Taylor, the Pegasus, they generated over $500 million last spring, Nike (2010b, pp.2) Considering their competitive advantages, the second theoretical model which can be applied here is the Value Chain by Porter (1985) who states that it’s called value chain since it adds value to raw materials during the transformational process of its final product. The organisation does this in order to add enough value for the customer who will then pay that extra premium for it ensuring profitability. Supply Chain Management - Nike as a brand quickly realised through its value chain process that its strength lays in design and development, marketing and building customer relationships. They knew manufacturing is something they didn’t strive on, so once they developed a new product in Portland, Oregon they outsourced the manufacturing to China, Taiwan and Brazil while imposing strict quality standards, Nike over the years has assured its partners over the years with its brand name and its services. Not only do they share customer knowledge with them but also share a generous premium price. They reduced their retail stores from 32 to 5 in Europe with its headquarters in Netherlands and
  • 10. 10 warehousing in Belgium in order to make the overall supply more effective based on demand, Stonehouse & Minocha (2008, pp.2) PART 3 Lewin (1952) stated that change is an essential part of any strategic evaluation and implementation. He developed a 3 stage model in order to explain the process which included  Unfreezing of current attitudes: which is identifying the change  Moving to a new level: implementing the change  Refreezing attitudes at the new level: change is supported by behavioural changes Extent of change Realignment Transformation Speed Incremental ADAPTATION EVOLUTION Of Change Big bang RECONSTRUCTION REVOLUTION Fig 2: Types of Change, Balogun & Hailey (1999) When exploring the process of strategic change, we generally come across the nature of the change and the extent of the change. Its generally mapped in a matrix where in the nature of the change is incremental or big bang and the extent of change would be realignment or transformation. In the cause of Nike, the process of strategic change is incrementally transformational and the type of strategic change is Evolutionary, Scholes & Whittington (2008). Nike states that either they can move fast now in order to prepare themselves for the future for a sustainable economy or wait face a risk of being forced to change. Since Nike
  • 11. 11 has been on the offensive realising the impacts of climate change, future increasing cost of natural resources, peaking oil prices, growing population. Hence it is a learning organisation which realises the impact of climatic changes and is prepared to examine ways not only to survive, but do it with a competitive edge. Early in 1990 the firm started to focus on environmental issues with a small group of employees in the Nike environmental Action team. They initially started with recycling programs but post 1998, established their own sustainability policy. They progressed from a standard compliance approach to an across the board corporate sustainability strategy including sustainable design concepts which led them to strong financial, brand and environmental benefits. Not only did they manage to convert the environmental challenges as a competitive advantage but also envisioned a sustainable business strategy, IEHN (2010). Their timing couldn’t have been better as they were criticised in the 1990’s for being an environmentally reckless and irresponsible company for operating sweatshops in Asia using underage workers and also being accused of using chemicals in less industrialised countries thus polluting their waters. The guys at Nike quickly responded to this by working with outside agencies like sustainability partners, focusing on product designs since innovation is their biggest strength. They also ensured their global suppliers adopted strict environmental standards in manufacturing processes, by keeping costs low and improving product quality. They installed computer systems for their Asian suppliers in order to calculate investments costs for environmental projects. They moved away from undesirable toxic substances to a positive list of substances. Their involvement with Natural Step led to 65 new pilot projects which focused on sustainable product design. Since the top guys at Nike were so hell bent on turning the overall strategic framework of the company, they successfully created a total savings of $4.5million by mid 2000, which ultimately benefited roughly 180,000 workers in more than 37 factories in Asia. They in fact reduced PVC from the footwear and faced major criticism from the Vinyl industry but then again they managed to reduce the PVC content to 2% in 2004 from 33% in 1999. This made them more reliant on organic cotton and they ended up collaborating with roughly 50 companies to form an organic exchange, with the goal of increasing the global organic share of cotton from 0.05%-10%. As of now Nike garments contain organic cotton to the extent of 47% in 2004. These strategic change programmes has led Nike to where it stands today.
  • 12. 12 Using the Forcefield analysis one can identify the blockages and facilitators for change. The Forcefield analysis provides a view of change issues which to be addressed by identifying he forces for and against the change. Facilitating change  The vision of Phil Knight the CEO himself, to make Nike a scalable and sustainable business model in order to thrive as leaders of the apparels industry  The understanding of the BOD, executive leadership team to understand the potential implications of their business to emerge as a survivor with a competitive edge.  Ensure that the sustainable business and innovation team focuses on key business priorities, which include, sustainable -products, manufacturing and marketplaces. A team of 130 committed employees working closely with sustainability specialists from other departments such as retail, logistics and IT.  Encouraging a diverse employee base of 30,000 people, irrespective of their cultural backgrounds, thriving on creativity, innovation and development of strategic knowledge  Having a talent strategy focusing on coaching, mentoring and online learning  Heavy investment made by HR dept in areas of sustainable talent practices and infrastructure.  Building and empowering a winning team  Increased overall efficiencies and reduced waste and costs.  Managing adverse publicity on the brand, with a quick response from the senior management  Leaders encourage employees to think creatively-both strong and informal work ethic Blockages  Was profiled by the media in the late 1990’s for being an irresponsible and environmentally reckless corporation as they were accused of using under age workers in Asia.  On reducing PVC from footwear, faced major criticism from the Vinyl industry  Their marketing involves both stylish and controversial figures triggering a rebellious streak
  • 13. 13  Had terribly been criticised over their strategy in Asia where in they were blamed for child labour, low wages and poor working conditions. It was 1998 then that Phil Knight said “ the Nike product has become synonymous with slave wages, forced overtime and arbitrary abuse”  Nike’s South Korean managers were accused of being stingy with wages and used abusive languages.  Initially had a blame culture where Nike managers refused to accept responsibility for any kind of labour issues creeping up at their supplier’s plants, for the sole reason that they weren’t Nike’s employees. Now looking at the way Nike operates and the way it evolved strategically one realises the strength at Nike being its work force. The culture which exists at Nike shows that the company thrives on innovation of new products in a sustainable way Nike (2010b, pp.22) in order to continue being the leading athletic brand in the world. For the guys at Nike it’s not all about trading businesses with others, but it’s all about recognizing future sustainability through profitability. They deepen their ’bench strength’ while their HR dept focuses on effectively nourishing talent and change. Looking at a theoretical framework we have two here, one would be the cultural web, which ‘shows the behavioural, physical and symbolic manifestations of culture that inform and we are informed by the take for granted assumptions, or paradigm’, Scholes (2008,pp.197)
  • 14. 14 Culture: Fig 3: The Cultural Web Phil Knight himself is an ex athlete of long distance running and this culture can have its influence on strategy itself, since organisations since organisations can be influenced by their culture which is made up of the people leading it. Managers faced by this change are most certainly likely to deal with it with what they understand Scholes (2008, pp.197). Now this in the case of Nike was when Phil Knight realised this while being criticized for his ways in the late 1990’s regarding underage workers in Asia IEHN (2010). Nike immediately developed a strategy of becoming more environmentally sustainable and friendly. Put in stricter measures and implemented them strict environmental standards across its manufacturing processes. Going back to the cultural web at the company Their leaders regularly work every day in order to ensure that Nike as a company realises its potential to encourage more than 30,000 of its employees to reach their potential Nike (2010b, pp.149). This is their way of doing things on a daily basis to tap their employee potential and has been working for them since they reviewed their strategy back in the 90’s. They have a talent strategy where in they focus on assignment planning and manager accountabilities in order to coach and mentor and also provide classroom learning and online learning. Their talent reviews are directly linked to their business strategic priorities.
  • 15. 15 The HR dept of Nike has been heavily investing in talent programmes and infrastructure. They had a pilot workshop which is to be launched in FY 10 which will focus on how diversity drives creativity and innovation. In FY’08 the D&I team created the ‘culture as offense’ in order to explore how Nike could use their culture as their Competitive Advantage. They had a full day workshop where in members of the strategy team spoke to the ‘new crew’ at Nike. This helped them share their perspectives with the high level decision makers. The CAO model is being used effectively as a model for intergenerational dialogue. In the case of Nike’s symbol being the swoosh is considered as one of the top 3 most recognised globally recognized logo’s in the world Stonehouse & Minocha (2008, pp.3) which symbolizes its success as the leading performer in the industry (pp.1). It’s ‘just do it’ slogan and its selection of formidable athletes generated sales of up to $9.2 billion for them in 1997 Solomon (1998). These 3 activities for Nike have symbolised their existence in ways that has made them recognise globally as a brand without at times even having to use their name. Nike has a power structure wherein they use their middle management to communicate ideas in a ‘bottom up’ approach which thus provides the executives with the ability to formulate strategic plans. They have the knowledge on design, innovation and creativity and know that outsourcing their manufacturing is also a Competitive Advantage to them. Conclusion: Going ahead Nike’s strategy would be to operate in a closed loop model Nike (2010b, pp.24) which is to achieve zero waste by completely recycling all materials. They need to invest in sustainability as a key innovation/R&D priority, alongside fast track innovation through collaborative investments. They would need to launch the GreenXchange program in order to share intellectual property in order to fast track the changes. An advocacy body is needed to promote large scale policies investing in sustainable innovation as a key enabler for economic competitiveness. Their strategy going ahead would involve Innovation, Integrating sustainability and Mobilisation with key partners on a gigantic scale. In regard to the Macro environment they need to lobby the environmental policies in their favour with the U.S. government on issues of climatic change, since they believe that's crucial to their survival. There working like a trading company in order to hedge currency fluctuations in order for them to have time for a financial remodelling would be beneficial to them. Keeping their core
  • 16. 16 competencies of design and innovation in mind, they need to keep investing heavily in consumer knowledge by regularly segmenting the market to understand the demand customer’s requirements. Their competitive advantage is their customers, their marketing, design and innovation along with their supply chain, which adds value at each level. There future business objectives considering in mind these factors of competitive advantage and there move of an evolutionary transformational change makes sense, since they quickly foresighted their business model back in 1990’s after their image was hampered in the sweatshops. No wonder they continue to lead the athletic shoe industry from the front!
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