Harvard Case - Nike versus New Balance: Trade Policy in a World of Global Value Chains
"Nike versus New Balance: Trade Policy in a World of Global Value Chains" Harvard business case study is written by Simon Brodeur, Ari Van Assche. It deals with the challenges in the field of Economics. The case study is 16 page(s) long and it was first published on : Sep 19, 2014
At Fern Fort University, we recommend that Nike and New Balance engage in a collaborative strategy to advocate for a more balanced and sustainable global trade policy. This strategy should focus on promoting fair competition, protecting intellectual property, and ensuring ethical manufacturing practices across the global value chain.
2. Background
This case study explores the complex interplay between global trade policy and the competitive dynamics of the athletic footwear industry. It centers on Nike and New Balance, two prominent players with distinct approaches to manufacturing and sourcing. Nike, a multinational giant, leverages its global supply chain to optimize costs and production, while New Balance, a family-owned business, emphasizes domestic manufacturing and a 'Made in the USA' brand identity. The case highlights the challenges posed by trade protectionism, particularly in the form of tariffs and quotas, which can disrupt supply chains, inflate prices, and impact consumer choices.
The main protagonists are Nike, New Balance, and the US government, each with their own interests and objectives. Nike seeks to maintain its competitive advantage through efficient global sourcing, while New Balance advocates for policies that support domestic manufacturing and protect its brand image. The US government faces the challenge of balancing economic growth, national security, and the interests of various stakeholders.
3. Analysis of the Case Study
This case can be analyzed through the lens of several frameworks:
a) Porter's Five Forces:
- Threat of New Entrants: The athletic footwear market is characterized by high barriers to entry, with established brands like Nike and New Balance holding significant market share. However, the emergence of new technologies and the rise of emerging markets could present new opportunities for competitors.
- Bargaining Power of Buyers: Consumers have a wide range of choices in the athletic footwear market, giving them significant bargaining power. Price sensitivity and brand loyalty are key factors influencing consumer decisions.
- Bargaining Power of Suppliers: The bargaining power of suppliers is influenced by factors like the availability of raw materials, labor costs, and transportation infrastructure. The global nature of the athletic footwear industry provides opportunities for companies to source materials and labor from various countries, potentially reducing their dependence on any single supplier.
- Threat of Substitutes: Athletic footwear faces competition from other types of footwear, including casual shoes, sandals, and boots. The increasing popularity of athletic-inspired fashion has blurred the lines between different footwear categories, creating a more competitive landscape.
- Competitive Rivalry: The athletic footwear market is highly competitive, with major players like Nike, Adidas, and Puma vying for market share. Competition is fierce, characterized by aggressive marketing campaigns, product innovation, and price wars.
b) Value Chain Analysis:
- Inbound Logistics: Nike and New Balance both rely on complex global supply chains to source raw materials and components. Nike's strategy emphasizes efficiency and cost optimization, while New Balance prioritizes domestic sourcing and quality control.
- Operations: Nike's manufacturing processes are highly automated and efficient, leveraging economies of scale and outsourcing to lower-cost regions. New Balance emphasizes craftsmanship and a focus on quality, with a significant portion of its manufacturing taking place in the US.
- Outbound Logistics: Both companies rely on extensive distribution networks to deliver products to retailers and consumers worldwide. Nike's global reach allows it to leverage economies of scale in distribution, while New Balance's focus on domestic manufacturing limits its ability to compete on price in international markets.
- Marketing and Sales: Both Nike and New Balance invest heavily in marketing and branding, leveraging celebrity endorsements, sponsorships, and digital marketing campaigns to reach consumers. Nike's global brand recognition and marketing expertise give it a significant advantage in international markets.
- Customer Service: Both companies strive to provide excellent customer service, responding to customer inquiries and addressing product issues. Nike's global reach allows it to offer a wider range of customer service channels, while New Balance's focus on domestic manufacturing allows for more personalized service.
c) PESTLE Analysis:
- Political: Trade policies, tariffs, and quotas significantly impact the athletic footwear industry. The US government's stance on trade protectionism directly affects the competitive landscape and the profitability of companies like Nike and New Balance.
- Economic: Global economic conditions, exchange rates, and consumer spending patterns influence demand for athletic footwear. Recessions and financial crises can negatively impact consumer spending, while economic growth can drive demand for discretionary items like athletic footwear.
- Social: Consumer preferences, lifestyle trends, and health consciousness influence the demand for athletic footwear. The growing popularity of fitness and active lifestyles has fueled the growth of the athletic footwear market.
- Technological: Advancements in materials science, manufacturing processes, and digital marketing technologies are constantly shaping the athletic footwear industry. Innovations in materials, design, and performance are key drivers of product differentiation and competitive advantage.
- Legal: Antitrust laws, intellectual property rights, and labor regulations impact the operations of companies in the athletic footwear industry. Companies need to comply with these regulations to avoid legal penalties and maintain a positive brand image.
- Environmental: Sustainability concerns and environmental regulations are increasingly important for companies in the athletic footwear industry. Consumers are becoming more aware of the environmental impact of production and are demanding sustainable and ethical practices.
4. Recommendations
Nike and New Balance should collaborate to advocate for a more balanced and sustainable global trade policy. This collaboration should focus on the following:
- Promote Fair Competition: Both companies should advocate for a level playing field, ensuring that all competitors operate under the same rules and regulations. This includes addressing unfair trade practices, such as currency manipulation and intellectual property theft.
- Protect Intellectual Property: Nike and New Balance should work together to protect their intellectual property rights, including trademarks, patents, and design rights. This is crucial for maintaining brand integrity and preventing counterfeiting.
- Ensure Ethical Manufacturing Practices: Both companies should advocate for ethical manufacturing practices across the global value chain, including fair wages, safe working conditions, and environmental sustainability. This includes promoting transparency in supply chains and holding suppliers accountable for their actions.
- Invest in Domestic Manufacturing: New Balance should continue to invest in domestic manufacturing, while Nike could explore opportunities to increase its domestic production. This would create jobs, support local economies, and reduce reliance on foreign suppliers.
- Embrace Technological Innovation: Both companies should invest in technological innovation to improve manufacturing processes, enhance product design, and develop new materials. This would help them stay ahead of the competition and meet evolving consumer demands.
- Engage in Public Policy Advocacy: Both companies should actively engage in public policy advocacy, working with governments and industry organizations to shape trade policy and promote fair competition. This includes lobbying for policies that support innovation, protect intellectual property, and promote ethical manufacturing practices.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: Both Nike and New Balance have a strong track record of innovation and product development. By collaborating on trade policy, they can leverage their combined expertise to advocate for policies that support their core competencies and align with their respective missions.
- External Customers and Internal Clients: Both companies have a responsibility to their customers, employees, and stakeholders to ensure that their products are manufactured ethically and sustainably. By advocating for fair trade practices, they can ensure that their supply chains are responsible and transparent.
- Competitors: The athletic footwear market is highly competitive, with major players like Adidas, Puma, and Under Armour vying for market share. By collaborating on trade policy, Nike and New Balance can create a more level playing field and reduce the risk of unfair competition.
- Attractiveness ' Quantitative Measures: While it is difficult to quantify the benefits of a collaborative trade policy, it is likely to have a positive impact on both companies' profitability and brand image. By promoting fair competition and ethical manufacturing practices, they can reduce costs, increase efficiency, and enhance their reputation among consumers.
- Assumptions: These recommendations are based on the assumption that both Nike and New Balance are willing to engage in a collaborative strategy and that they can overcome any potential differences in their business models and priorities.
6. Conclusion
In a world of global value chains, trade policy plays a crucial role in shaping the competitive landscape of industries like athletic footwear. Nike and New Balance, with their distinct approaches to manufacturing and sourcing, face a range of challenges posed by trade protectionism. By collaborating on a shared strategy, they can effectively advocate for a more balanced and sustainable global trade policy, promoting fair competition, protecting intellectual property, and ensuring ethical manufacturing practices across the global value chain. This collaborative approach will not only strengthen their individual positions but also contribute to a more equitable and sustainable global economy.
7. Discussion
- Alternatives Not Selected: An alternative approach would be for Nike and New Balance to pursue their own individual strategies, lobbying for policies that align with their specific interests. However, this approach could be less effective than a collaborative strategy, as it may lead to conflicting interests and undermine their collective bargaining power.
- Risks and Key Assumptions: The main risk of this collaborative strategy is that it may be difficult to overcome differences in business models and priorities between the two companies. Additionally, the success of this strategy depends on the willingness of both companies to engage in a long-term partnership and to commit the necessary resources to advocacy efforts.
8. Next Steps
- Form a Joint Task Force: Nike and New Balance should form a joint task force to develop a shared strategy for trade policy advocacy. This task force should include representatives from both companies, as well as experts in trade policy, international business, and corporate social responsibility.
- Engage with Governments and Industry Organizations: The task force should engage with governments and industry organizations to advocate for policies that promote fair competition, protect intellectual property, and ensure ethical manufacturing practices. This includes lobbying for changes to trade agreements, supporting the enforcement of existing regulations, and promoting best practices in global supply chains.
- Develop a Communication Strategy: The task force should develop a communication strategy to raise awareness of their advocacy efforts and to build support for their recommendations. This includes engaging with the media, reaching out to consumers, and building relationships with key stakeholders.
- Monitor Progress and Adapt Strategies: The task force should regularly monitor the progress of their advocacy efforts and adapt their strategies as needed. This includes tracking trade policy developments, assessing the impact of their advocacy efforts, and identifying new opportunities for collaboration.
By taking these steps, Nike and New Balance can effectively advocate for a more balanced and sustainable global trade policy, creating a more equitable and competitive landscape for the athletic footwear industry.
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Case Description
In 2013, Michael Froman, the newly appointed United States Trade Representative, was responsible for leading the U.S. negotiating team in the formulation of the terms of the Trans-Pacific Partnership (TPP). During the negotiations, Froman had to adopt a position on the sensitive issue of tariffs on imported footwear. On the one hand, Vietnam, a TPP member country, was America's second largest foreign footwear supplier and was pushing for the elimination of tariffs. On the other hand, U.S. labour unions argued that Vietnam's strength in the footwear industry was based on unfair subsidies and labour practices. Even among U.S. footwear companies, there was disagreement. New Balance, the only U.S. athletic footwear company that produced parts of its shoes in the U.S., was openly opposed to the elimination of tariffs, as their removal could lead to factory closures in the U.S. Nike Inc., however, manufactured all its shoes overseas and was an overt proponent of the abolition of tariffs. Froman had to carefully weigh the arguments of all the stakeholders to determine whether or not to accept the lowering of tariffs on footwear imported from Vietnam and, if he accepted, whether or not to impose conditions on Vietnam.
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