Reebok Over The Past Five Years example essay topic

Company Overviews Nike In 1964 in Oregon, Phil Knight and Bill Bowerman join together to make a new enterprise; each contributed about $500 to the partnership. The company started bringing low priced and high tech athletic shoes from Japan to replace the German domination of athletic shoes in the industry. In 1971, a graphic design student created the Swoosh trademark for a $35 fee. In the same year Jeff Johnson, Blue Ribbon Sports' first employee, made his most durable contribution to the company in coming up with a new name, Nike, after the Greek goddess of victory. NIKE is the world's #1 shoemaker and controls over 20% of the US athletic shoe market.

Reebok Reebok's ancestor-based company came from the United Kingdom and it was founded for one of the best reasons, to give athletes the best running shoes. Around 1890, Joseph William Foster made some of the first known running shoes with spikes in them. By 1895, he was in the process of making shoes by hand for top runners. Before long he started the fledgling company J.W. Foster and Sons and were exposed to international clientele with distinguished athletes. The company became known as Reebok, named for an African gazelle in 1958, when the founder's grandsons started a companion company. Reebok's products are available in more than 170 countries and they are #2 in the U.S. shoe making market.

External Analysis The footwear industry is a complete package so the different stages of shoe design and manufacturing interact seamlessly. This means that design departments and supply chains can operate on different components within the same product family; it reduces the opportunity for error resulting in efficient and highly profitable production. For the first six months of Nike's current fiscal year, they brought in $816.9 million in revenue, with a 35 percent increase over the same period a year ago. Meanwhile, the core Nike business grew from $5.26 billion to $5.89 billion, a 12 percent increase. As for Reebok Brand, worldwide sales in the 2004 fourth quarter increased 18 percent to $817 million. From the numbers we can see that the athletic shoemaker industry is profitable and both companies are very competitive.

With that said, we will now go on with discussing some of the basic factors that helps the industry to grow in profitable way. Existing Rivalry Jockeying among existing rivalry is extremely high. Rivals are numerous and are roughly equal in size and in power (Reebok versus Nike). Many of the product lines lack differentiation, most of the shoes look different, but they are basically the same.

The products are highly 'perishable', and the product life cycles are extremely short. Lastly, the rivals are diverse in strategies, origins and personalities. Each one of the major rivals is identified with a certain marketing approach, and also symbolized by the paid support of famous sport stars. Suppliers The bargaining power of suppliers is medium to high since it is dominated by relatively few companies. The product is unique, and the switching costs are high. With the materials being used to manufacture shoes are typically considered raw materials.

Because the materials are not very expensive and they are not hard to come by, so the cost of making shoes is not very high. It is also possible for the suppliers, especially in foreign manufacturing to integrate forwards into the industry's business especially in overseas markets and become a rival to the industry. Substitutes The threat of substitute products is low. The industry is upgrading the products frequently to cope with flashy fads and the 'hottest' fashion. There are not too many close substitute products to athletic shoes. What else would you wear when you run?

Of course, multipurpose shoes such as 'cross trainers' may impose a possible substitute threat to the current highly diversified range of athletic shoes on the market. In the end, however, consumers have very big alternative options available and will patronize the shoes industry at any point and price. We see that the threat of substitutes is quite low given the nature of the industry and brings the results into a greater profitability. Consumers The bargaining power of consumers is medium to high.

The power of purchases made by the individual buyers group is not concentrated in large volumes and the products that the consumer purchases are not standardized. With low switching costs in process and with so many buyers, the shoes industry has to be updated very often. Furthermore, the industry sets and creates the fads and determines what is 'hot'. On the other hand, the buyers, like corporate retailers and sports teams, have very high bargaining powers. Because, the shoes they wear have to be changed often and also sports teams can become great advertisers for any given company. Potential Entrants The threat of new entrants into the industry is low.

The start-up costs are somewhat high, consumer loyalty within the market is moderate and the learning curve is pretty short. The entrance barriers are high in that the capital requirements are high due to up-front advertising and research and development. Also, economies of scale in production will be difficult to reach due to the difficulties of penetrating the market that is dominated by the large five: Nike, Reebok, Converse, LA Gear, and Stride-Rite. Furthermore, it will be almost impossible to achieve product differentiation in terms of brand identification and product difference, since the 'big five's et the trends. Also, distribution channels, and dealers are in many cases tied-up by existing competitors. With that it is also very difficult to maintain a share of the market.

Other Factors Political factors can significantly determine how the organization takes different actions. Each political factor depends on the industry that a given company is in. As for shoe making industry they can require them to set prices and have them follow strict operating regulations. Economic factors can have a big influence on an organization based on their behavior, performance, interest rates, foreign exchange rates, economic growth and also foreign trade balances.

In social factors, the industry has to see what the consumers want and need. How much confidence the consumers have and how far are they willing to expend for non-necessities. In the shoe industry the companies have to fluctuate with the tastes and trends of the consumers; they always have come up with new designs to make the product sell. As for the technology factors, this is probably one of the most important parts of the shoe making industry.

Both companies use Internet web sides as a part of who they are and what they sell. They also use the technology to come up with new designs; they use special software systems that help with speeding materials through its factories and into the marketplace. Technology can either make or break any company in different industries. Internal Analysis Nike Nike is the undisputed world leader of sneakers in the world. With heavy advertising, major celebrity marketing, and worldwide sales, the company dominates others such as Reebok and Adidas. The firm has several strengths including brand recognition, strong research and development, and a commitment to the athletic lifestyle with a wide range of goods for many sport types.

Nike does have some weaknesses that it must overcome. The company has undergone periods of lost profits and this might be a result of increases in operating expenses. Moreover, the firm has found itself in trouble with the use of child labor in Asian nations, costing the firm some customers and damage to its reputation. Moreover, as with others in the industry, competition remains fierce. There is also concern that the founder of the company, Phil Knight has stepped down as CEO to retire. This loss of leadership can lead to new strategies, a loss of employee morale, and inferior leadership.

Nike does have several sources of competitive advantage. Again, the firm has a strong presence in its domestic and international markets. Competitive advantage also comes from the ability to produce sneakers in mass quantities, allowing for economies of scale to be achieved. Additional sources of competitive advantage include research and development used to make its products and strong relationships with professional sports and sport teams.

Reebok Reebok is a company with several strengths. The company has a positive position in its finances and has been able to gain a strong financial base as a result of its limited manufacturing facilities allowing for a high level of liquidity. Moreover, the company has little long-term debt and thus the resources needed for new market ventures. Moreover, Reebok is more diversified than competitors and is known as a brand that creates shoes and other goods of high technology. There are some weaknesses that Reebok must overcome.

For example, the company has had turnover in management. This can result in internal tensions, lack of morale, and thus a lack of productivity. Moreover, Reebok has the weakness of its apparel division that has not performed in line with its shoes. Reebok does have sources of competitive advantage. The best advantage that the company has is its research and development team that has been able to develop superior quality shoes of different types. The company can use this competitive advantage, in conjunction with marketing, to enter new markets on the international level.

Reebok also has strong marketing and relationships with various professional sports and teams. Moreover, Reebok is known as a socially responsible company, such as with its Human Rights awards and other social responsibility efforts. Strategic AnalysisNikeNike's corporate level strategy is focused on a single business. The company deals in the production of high quality footwear that appeals to serious athletes as well as the general public. Their competitive strategy has constantly focused on product differentiation, creating products that rise above the rest has shown to be a successful strategy for the company. Related diversification has also helped the company to gain its share of the market.

In the footwear sector alone, Nike has been able to claim the number one spot consistently. With diversification into other related areas such as apparel and equipment, Nike has shown that they are an all around quality producer. One of their strongest advantages is their technologically advanced products. Through a strong research and development department, Nike has been able to rise above their competitors to create what customers want but also products with the technology that these athletes need. Their business level strategy has always been focused on best cost. Nike is the leader in the market and is able to produce a top product with high economies of scale, so their cost is low.

By keeping their costs low and their quality high, Nike has been able to stay at the top of their industry. Nike's functional level strategies include focuses on research and development as well as intense marketing. Through product innovation and marketing, Nike can continue to be successful. By making sure that they stay ahead of competitors and in touch with what consumers want and need, Nike maintains the industry leader position. Overall, Nike has a clear strategic direction. They have stayed on course with the quality and performance that they provide to customers and in turn have created a kind of brand loyalty that is seen rarely in a high priced industry.

Reebok Reebok's corporate level strategy was focused on a single business, making high performance running shoes for athletes. Their growth strategy focused on horizontal integration with the acquisition of similar firms to eliminate competition and grow their economies of scale. Reebok's acquisition strategy began in 1986. The Rockport Company, a producer of high performance walking shoes was acquired first. Then in 1987, Reebok purchased Avia Group International, an athletic shoe company in Oregon. The combination of these two producers with Reebok created a fast growing giant in the footwear market.

Through related diversification, Reebok was able to offer a larger product line and attract new customers as well as maintain satisfaction with existing customers. Reebok's business level strategy focused on best cost. By offering a top quality product, Reebok was able to charge a premium price. Functional strategies at Reebok are mostly standards based. Each department at Reebok adheres to strict standards that are in place and when standards do not exist for something that Reebok is dealing in, then standards are created and put in place.

This is the way of life at Reebok, which makes the life of the company longer and culture stronger. Overall, Reebok appears to have a clear strategic direction in that they want to remain at the top of their market and continue to grow and acquire other companies. As long as they stay focused on their current goal, which is to create exceptional shoes for athletes, they will remain in top of the market. Structure and Control Systems Nike Nike, Inc. has many qualities of that of a Hybrid structure as well as a multi divisional structure. William Perez stands at the top of the Nike ladder as president and CEO of Nike, Inc. While Phillip Knight is the chairman of the board of directors, and founder of the company, Perez is the man that runs the show from the top.

Numerous VP's follow Perez, and he also has four CEO's working for him as well. The four CEO's that work for Nike are Jack Boys of Converse Inc., Bob Hurley of Hurley, Chris Zimmerman of Bauer Nike Hockey, and Mathew Rubel of Cole Haan. These four companies were bought out by Nike along the way, with Converse being the most recent and publicized in 2003. There are numerous VP's that Nike has working for them fall into the Hybrid structure such as Roland Wolfram who is the VP of Asia Pacific and John Not ar who is the VP and GM of European Team Sports. With the buyout of other companies, Nike has also managed to fit themselves into the description of a multi divisional strategy with employees like Chris Zimmerman and Jack Boys, the CEO's of Bauer Nike Hockey and Converse respectively, spoken about earlier. Going down one more level in the Nike ladder, there is Jim All aker, the VP of finance, planning & operations, and also Oscar Cardona, the VP of human resources.

These positions show more of an inclination of a hybrid structure. Understanding the fact that Nike distributes its products in over 200 countries, and has a diversity in products from sneakers and clothing, to dress shoes (Cole Haan), to retro sports wear (Converse), to hiking shoes, and even the availability of skateboard shoes and clothing, leads us to believe that Nike does not follow one organizational structure. Nike has evolved from outsourcing many different aspects of the company such as labor monitoring, to developing trained staffs of Nike employees to move these divisions in-house, creating a tightly integrated multi divisional strategy. Nike has great regard for it's public appearance, and have numerous quality and conduct standards that are held to each of the 23,000 employee's of Nike, as well as to all of their products and services that they provide.

In 1991, Nike drafted their Code of Conduct to improve working conditions in all areas of the company, focusing on their warehouses, which were highly scrutinized at one point. "At the core of the NIKE corporate ethic is the belief that we are a company comprised of many different kinds of people, appreciating individual diversity, and dedicated to equal opportunity for each individual". This quote seems to sum up the goal and aspirations of Nike, Inc. The Cod of Conduct goes on to speak about forced labor, Child labor, compensation, benefits and environment safety and health. Nike values greatly its appearance in the eye of the consumer and also in the eyes of all of its employees as well. Reebok Reebok is very much like Nike in the fact that they are both straddling the line between a hybrid and a multi divisional organizational structure.

This would only make sense due to the fact that they are direct competitors and have been for almost two decades now. Reebok, however, has gone through many growth fazes in the last twenty years using a few different strategies before becoming the market force that it is today. Paul Fireman, the CEO of Reebok, chose to apply a concentrated growth strategy when he introduced just three styles of running shoes for men in just the American market. Fireman used his incredible marketing and promotional techniques to grow this single product line and create more capital for the company.

Fireman then started to lean towards a product development strategy as he created the first women's aerobic shoe. This was the absolute first of its kind and it is what singled out Reebok from its competitors at the time and distinguished the company amongst the market and throughout the world. Fireman understood that by using a product development strategy, it would involve acquiring new consumers to the market and creating a loyal customer for them and creating brand loyalty amongst a new group of consumers. Reebok became a huge company in 1985 as their sales exceeded that of $300 million. This prompted Fireman to begin a horizontal integration strategy acquiring the Rockport Company, which is a manufacturer of walking shoes and a leader in its industry, in 1986.

Fireman also decided to purchase Avia Group International, an Oregon based shoe company. Fireman made this acquisition because Avia was one of the worlds fastest growing shoe companies, along with Reebok, making them a very strong and progressive leader in the footwear industry. Soon after Fireman purchases Avia, he then went after Ellesse International's apparel division, an Italian sportswear manufacturer. Most recently Reebok acquired Koho, which is a hockey equipment and apparel company, which will put them back in direct competition with Nike Bauer Hockey. Reebok, with its horizontal integration, is able to compete in many different segments of the market, as is Nike, with is acquisitions of Cole-Haan and Nike Bauer Hockey. Reebok also has their international markets to be able to compete throughout the world, as well as their numerous products lines throughout the US.

Reebok has thrived on its product diversification, while Nike has moved towards product development. Both compete in the same areas, at or near the high end of the athletic shoe and apparel market. As long as the companies continue to expand and acquire, they will always compete with each other and relate in structure and controls. Performance Analysis Nike Nike appears to be doing well and not only are they financially stable, but appear to be growing steadily as well. Nike is the number one shoemaker in the world, currently controlling over 20% of the U.S. athletic shoe market.

Revenues have increased consistently over the past five years, as well as net income, with the exception of net income taking a dip in 2003. Furthermore, Nike's return on assets and return on equity has basically continued to increase over the past five years to the current levels, which are above the industry averages. The five-year averages for Nike's return on assets and return on equity are also above the five-year average for the industry. This goes to prove that Nike is creating value and growing the company. Moreover, Nike's gross profit margin percentage is above the industry average. As for efficiency, Nike has a good inventory turnover ratio.

It has increased slightly every year for the past five years, but is still well below the industry average. Nike is slightly below the industry average when it comes to its current ratio, a measurement of liquidity. However, this ratio has increased every year for the past five and is probably directly attributable to Nike's consistently growing "cash and equivalents" figures. Their cash has tripled in the past five years, showing improving signs in regards to the liquidity of the company. Nike seems headed in the right direction with their debt management. Their debt ratio has varied slightly over the past five years, but stayed right around 40% the whole time.

Additionally, their total debt has decreased notably over the past five years. On the other hand, however, their long-term debt has increased. This can be a sign that they are paying off their short-term debts, possibly issuing more equity, or refinancing with long-term debts which would be a good move at the current time, with interest rates still low. Finally, in the past five years, Nike stock has grown by 79.19%, but recently (the past six months) the stock has declined by 4.97%. This is probably not a concern yet, as the stock market in general has been shaky. Reebok Reebok is in decent shape, but not quite up to Nike's levels of financial growth.

They are currently the number two athletic shoemaker, right behind Nike. Their net sales and net income levels have consistently increased over the last five years. Reebok's current return on assets and return on equity are decently below the average for the industry for 2004. Furthermore, their five-year averages are also notably below the industry five-year averages. Another measure of profitability is the gross profit margin percentage, which for Reebok is 3.73% below the industry average. Reebok is fairly efficient with their inventory as their inventory turnover ratio is about 2 x below the industry average.

Reebok's liquidity has been very inconsistent over the past five years, as its current ratio has changed between 2.30 x and 3.05 x. The average over the past five years has been 2.7 x, but the lowest (2.3 x) occurred in 2004. Their cash and equivalents numbers had increased consistently until a sudden drop in 2004, which probably relates to the decrease in current ratio. Reebok's debt ratio has also fluctuated quite a bit over the past five years, but recently has hovered around 50%.

Furthermore, the long-term debt and total debt have continued to increase for Reebok over the past five years. One could hope this is just them taking advantage of the low interest rates and financing through debt. Otherwise it could be the sign of a future financial problem for the company. Finally, the stock performance of Reebok has been very good. Their five-year growth is 209.31% and their recent (six month) growth is 17.64%, much better than Nike in both regards.

Performance PredictionsNikeWe believe that Nike will continue to excel in the industry. Financially, they appear to be on the right track, with almost all important figures heading in the right direction. The biggest two of those important figures being the negative correlation between revenues and debt; revenues are rising while debt is declining. Furthermore, despite the good possibility that the economy will begin to slow due to the slowly rising interest rates, athletic shoes and apparel, which Nike provides seem to continue to be of high demand. Moreover, the fact that Nike has very strong brand loyalty and a worldwide customer-base will help them to continue to prosper over the next three to five years and far beyond. Reebok Reebok, while not currently as stable as Nike will probably grow over the next three to five years also.

We don't believe that they will have quite the success of Nike. However, they are pretty well anchored in at the number two spot with Adidas being the only real close competition. Reebok also will feel the affects of any possible economic slowing, but only if that actually happens, and it will not break the company anyway. Reebok too provides for a highly demanding industry, driven by the next big offering from a company. Furthermore, Reebok has fairly strong brand loyalty and a worldwide customer-base as well, just not quite as strong of brand loyalty or as large of a customer-base.

As previously stated, Reebok will probably not reach the levels of sales that Nike currently does, but will still do well for themselves in the future.