Nike.edited

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Arizona State University *

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Business

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Nov 24, 2024

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Uploaded by CoachExplorationWaterBuffalo56

The following is the discussion of 2 of Porter's Five Forces: 1. Rivalry Among Existing Competitors This force focuses on the level of competition depending on the number of competitor firms and their ability to undercut the profits of a firm. It includes: (a) Number and names of significant competitors: The sneaker shoe industry is very competitive, and Nike faces competition from major players such as Adidas, Puma, Converse, and New Balance. (b) Industry and Company Growth Rate: The sneaker shoe industry has seen steady growth over the years as the popularity of sneakers as a fashion and lifestyle product keeps increasing, the rising demand for sports and fitness activities, and the proliferation of online platforms. Nike has a higher growth rate due to its competitive advantage in the market. (c) Entry barriers: The sneaker industry has moderately high entry barriers. While it does not require an excessive capital investment, building a solid brand and distribution network is challenging. Nike is an established brand with a strong presence and consumer loyalty, making it challenging for new entrants to gain a foothold. (d) Access to distribution: Nike has an extensive global distribution network, including its retail stores and partnerships with various retailers, some exclusive, giving it an upper hand in the market competition. (e) Differentiation: Nike differentiates itself through innovative designs, technology, and marketing, creating a loyal customer base. This differentiation helps to reduce rivalry.

(f) Fixed costs vs. variable costs: Sneaker manufacturing involves high fixed costs and low variable costs. This means the firms incur many costs regardless of the output level or sales. Hence, they must achieve a high sales volume to cover their fixed costs and generate profits. This also creates pressure on the brands in the sneaker shoe industry to lower their prices and increase their market share, intensifying the rivalry. Nike benefits from economies of scale, which can hinder being caught up to smaller competitors. (g) Rivalry = Moderate: The rivalry among competitors in the sneaker industry is typically moderate. While there is intense competition and innovation, the high entry barriers and brand loyalty of major players like Nike make it challenging for competitors to disrupt the market. 2. Threat of New Entrants This force refers to the possibility of new competitors entering an industry and trying to gain their market shares, which puts pressure on costs and prices—challenging the existing firms. A high threat of new entrants means that the industry is easy to enter and has low barriers to entry, which attracts new entrants who can capture market share and erode the profitability of the incumbents. A low threat of new entrants means that the industry is challenging to enter and has high barriers to entry, discouraging new entrants who face significant challenges and risks in entering the industry. Some of the factors that affect the threat of new entrants are: (a) Entry barriers - government policies/regulations: The sneaker industry is subject to various regulations related to product safety, intellectual property, and trade policies. These regulations can create barriers for new entrants, as compliance can be complex and costly.

(b) Access to suppliers: Established players like Nike have well-established relationships with suppliers, allowing them to negotiate favorable terms and ensure a steady supply of materials. New entrants may face challenges in securing reliable suppliers. (c) Distribution channels: Access to distribution channels, such as retail partnerships and e- commerce platforms, can be challenging for new entrants to establish, as established brands like Nike already have a strong presence in these channels. (d) Obstacles that deter new competitors from entering the industry: The combination of high capital requirements, strong brand loyalty, and well-established distribution networks is a significant deterrent for new competitors. (e) Threat of New Entrants = Low: The threat of new entrants in the sneaker industry is generally low. The combination of regulatory hurdles, supplier relationships, and the dominance of established brands like Nike creates significant barriers for new players, making it difficult for them to enter the market.

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