Porter's Five Forces Model Of Nike

Analyse Nike balance cost and safety in Bangladesh from the perspective of management control systems and risk management.

Introduction

Poor working conditions have been present for centuries, especially in third world countries. Often times little or nothing is done unless a tragedy occurs to persuade the public to rally for worker rights. It wasn't that long ago that Nike was being shamed in public for its labor practices to the point where it badly tarnished the company's image and hurt sales. The recent factory collapse in Bangladesh was a reminder that even though Nike managed to turn around its image, large parts of the industry still haven't changed much at all.

Nike was an early target for the very reason it's been so successful.

Porter’s 5 forces model analysis to understand Nike’s industry

Fig 2. Porter’s five forces model

1. Threat of substitute - Low

Substitutes in the footwear category can include any other types of shoes that consumers can choose to serve similar purposes. Substitutes here therefore include the likes of sandals, which can act as substitutes, even though they may not fulfill exact same purpose. It is difficult to think of other substitutes that can fulfill the same purpose as athletic shoes from the footwear industry since this an industry that has something very specific to offer to a targeted market.

2. Threat of new entrants - High

The threat of entry is highest in the apparel market due to the relatively lower costs of manufacturing apparel compared to the footwear market where the biggest threat posed is basically from current rivals already established in the market e.g Adidas, Reebok and Puma.

3. Intense rivalry among existing players -

• 1991: Problems start in 1991 when activist Jeff Ballinger publishes a report documenting low wages and poor working conditions in Indonesia.

• Nike first formally responds to complaints with a factory code of conduct.

• 1992: Ballinger publishes an exposé of Nike. His Harper’s article highlights an Indonesian worker who worked for a Nike subcontractor for 14 cents an hour, less than Indonesia's minimum wage, and documented other abuses.

• 1992-1993: Protests at the Barcelona Olympics in 1992, CBS' 1993 interview of Nike factory workers, and Ballinger's NGO "Press For Change" provokes a wave of mainstream media attention.

• 1996: Kathy Lee Gifford's clothing line is shown to be made by children in poor labour conditions. Her teary apology and activism makes it a national issue.

• 1996: Nike establishes a department tasked with working to improve the lives of factory laborers.

• 1997: Efforts at promotion become occasions for public outrage. The company expands its "Niketown" retail stores, only to see increasing protests. Sports media begin challenging spokespeople like Michael