Nike Vertical Integration Paper

- Used business strategy called vertical integration, which a company would control every stage of industrial process, from mining the raw material to transporting to product.

Vertical integration is when one firm joins with another at a different stage of the same production process. Forward Vertical is when the other firm is at a later stage and Backward Vertical is when the other firm is at an earlier stage. Vertical integration as a whole allows for a firm to control key stages of the production process; guarantees access to a market; and gains control of supplies. Companies such as Zara and American Apparel are vertically integrated, especially at key stages of

Andrew Carnegie, for one, built a giant steel empire using vertical integration, a business tactic that increased profits by eliminating middlemen from the production line. Conversely, John D. Rockefeller’s Standard Oil Company used horizontal

Vertical integration is a business growth strategy for economics of scale. It is typified by one firm engaged in different parts of production example; growing raw materials, manufacturing, transporting, marketing, and/or retailing to expand business in existing market for the firm. It can function in two directions both forward integration and backward integration.

In this project, I have chosen to provide a microeconomic-based analysis on NIKE Inc. The study will include the analytic overview of the general market of Nike brand, as well as the information about the goods, service, and areas of operation. Throughout the research of this paper, I will discuss the cost of production, as well as the supply and demand in relation to microeconomics. Moreover, we will look at how supply and demand of this market regulates the equilibrium of quantity and price, as well as the economical efficiencies where the surplus for consumer and producer is maximized. Information will be explored to understand why businesses and people make decisions and how those actions we can be used for strategy. To conclude this research paper, I will take a deeper look and make recommendations for the future profitability, future growth and sustainability of NIKE Inc. (Hubbard & Obrien, 2015).

1. Discussion: What factors drive Nike’s decision to stick with some form of network organizational structure rather than own its manufacturing operations?

From this sprang forth the popularization of CEOs and different departments to increase efficiency. Vertical integration because many of big businessmen of the time had a large capital to start out, so buying all the means of production was an easy and sound investment. Horizontal integration calls for buying out the competition. In these cases, the largest company would often times drive down their prices so low that the smaller company would attempt to compete, but end belly up and sell the business for a smaller

Business level strategies are plans that a firm forms to describe and project how it intends to build a sustainable competitive advantage, over its competitors in a discrete market (Furrer, 2010, p. 1). These strategies have changed the nature of competition in industries, and paved way for further developments in product quality and cost. Business level strategies employed by Nike work mainly in two forms, that is, competitive strategies and corporative strategies (Furner, 2010, p. 1). By looking at the different business level strategies Nike has employed, this essay will explain how it has had such a massive impact in the Sports and Apparel industry it now leads.

The forces of Nike’s customer-supplier relationship is based on joint efforts of improved quality, mutually beneficial partnerships, reduced costs, and increased market share for both parties. According to Nike building customer-supplier relationship is one of the most important goals because it is the analysis of the value chain which is defined as the collection of all activities involved in designing, marketing, manufacturing, delivering and supporting Nike’s products. Having strong relationship with both parties helps Nike to predict and notice any problem at might rise in the supply chain; as a result Nike will be able to develop better solutions to avoid it (Wankel, 2009). The first tier supplier of Nike is located mainly in Taiwan and South Korea, which work closely with R&D personnel in Oreon making the most expensive footwear. Strategies have shown that Nike implements include the vertical integration strategy. In general, the vertical integration strategy allows a firm to gain control over distributors, suppliers and competitors (Nike report, 2015). Nike has implemented forward integration by having its own retail locations throughout the United States, foreign countries & online stores. Every partner has a hugely significant

Since its creation, Nike has proven itself as a popular brand and it has created niches by selling products such as footwear, apparels and various types of sports equipment. This paper will attempt to trace the product development of Nike shoes from its origins in conception and design to the manufacturing and production process located in contract factories in developing countries to advertising and marketing of Nike as a cultural commodity and finally, the retailing of the footwear around the world.

Backward integration is a type of vertical integration in which a company takes control over its suppliers. It is a form of acquisition of the intermediary players involved in supplying the raw materials used in the production process of the firm. Raw materials, intermediate manufacturing and assembly are controlled by the firm whereas distribution to the end customer is done by a third party company. In this way, company increases production efficiency and gains a competitive advantage by lowering its production cost.

This form of marketing can be described as brand positioning or brand architecture. Brand positioning can be best described as a motivational reason to buy one's product over others, "is guided, directed and delivered by the brand's benefits/reasons to buy; and it focuses at all points of contact with the consumer" (Management study guide, 2011). Nike creates value and sustains competitive advantage over other competitors with this technique because image is a big factor in today's markets, a large number of consumers are likely to develop product intimacy; those who care more about the quality rather than the price. This takes us to Nike's price strategy, which they target consumers who focus more on product intimacy and care less about the price. Giving Nike the advantage over other competitors setting higher prices for its products; consumers who believe a product to be of high quality are prone to pay a higher price.

A company won’t integrate vertically its production if it against its business interest. There are some vertically

Nike places more importance on choosing the right local partners, not just the right ports. Nike doesn’t own any of its facilities, and local partners make important logistics decisions (Field, 2003a). To manage relationships, Nike has both a global and regional vendor management team – as output volume increases, Nike don’t expand the number of suppliers, but increase the volume of business they do with each supplier (Field, 2003a).

Enderle, K., Hirsch, D., Micka, L., Saving, B., Shah, S., Szerwinski, T. (2000, March 14). Strategic Analysis of Nike, Inc. Retrieved on December 14, 2005, from