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Explore how Nike revolutionized the athletic footwear industry through global commodity chains, marketing strategies, and adaptation to consumer trends, all while dominating the US market.
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Commodity Chains and Marketing Strategies: Nike and the Global Athletic Footwear Industry Miguel Korzeniewicz, Ch. 18, pp. 163-172 (Excerpted from Korzeniewicz, “Commodity Chairs and Marketing Strategies…,” in Gereffi & Korzeniewicz, eds., Commodity Chains and Global Capitalism,1994)
Global Commodity Chains (GCC) • GCC: the complex global network of economic links which ties together groups, organizations, and regions involved in the production and distribution of goods • GCC analysis is a development of the world-system or global-system perspective (which, themselves grow out of dependency theory) (Gereffi & Korzeniewicz, eds., Commodity Chains and Global Capitalism, 1994)
GCC challenges idea that “development” in capitalism is contained within nation-states • Development in context of capitalism is a global process • GCC tracks the organizational, geographical, & cultural dimensions of world-wide chains for the manufacture & distribution of goods • e.g.,clothing, automobiles, food, & drugs (Gereffi & Korzeniewicz, eds., Commodity Chains and Global Capitalism, 1994)
Focusing on the distribution segment of GCC • Inadequate attention has been paid to the design, distribution and marketing nodes within a GCC • Yet these are often the sources of innovation that allows firms to capture greater shares of wealth in a commodity chain
Athletic footwear market shows how GCCs are embedded in cultural trends • Marketing & consumption patterns in “core” shape production patterns in peripheral and semi-peripheral countries • The social organization of advertising, fashion, and consumption shapes the networks & nodes of GCCs
Trends in the US Athletic Shoe Market • Continued phenomenal rates of growth • Highly segmented by consumer age groups • Teenagers the most important consumers • Athletic shoes constructed and promoted among teens as important & visible symbol of social status and identity
Sports footwear market highly segmented by: • Consumer age group • Model/target sport • Price • Price rather than appearance & functionality is the key factor differentiating athletic shoes as status symbols
Nike Corporation has become the largest and most important sneaker company in the US • In 2004, Nike’s share of market is 42% • # 2: Adidas (27%) • # 3: Reebok (12%)
The key to Nike’s rise? • ability to capture a succession of nodes along GCC, increasing its expertise and control over critical areas: • design • distribution • marketing • advertising
The most fundamental industry innovation is the creation of a market • constructing a convincing world of symbols, ideas, and values harnessing the desires of individuals to the consumption of athletic shoes (165)
Pd. 1: Gaining control over import & distribution nodes of GCC (1962-1975) • Nike sells tens of millions of sneakers in the US annually, yet all manufacturing operations are conducted overseas • Nike begins importing shoes from Japan • Nike concentrates its design, distribution, and marketing activities in the US
Nike is the archetype of a global sourcing strategy: subcontracting • Nike originated by importing shoes from Japan • It has subcontracted nearly all of its production overseas ever since • Nike’s VP for Asia-Pacific: “We don’t know the first thing about manufacturing.”
Pd. 2: Marketing as an upgrading strategy (1976-1984) • Nike enhances competitive position by extending control to marketing • Nike redesigns subcontracting strategy to seize new opportunities in Southeast Asia • First in South Korea & Taiwan • Later, China, Thailand, and Indonesia
Pd. 3: Design, advertising, and return to the semiperiphery (post-1985) • Another period of high growth based on innovations in product design and advertising • “Air Nike” comes out • Nike signs its most popular endorser, Michael Jordan • Continued targeting new niche markets • e.g., aerobics & athletic apparel • Subcontracting strategy changes again • returns to South Korea for more specialized, sophisticated, and experienced manufacturers
Conclusions • Case study confirms a division of labor between core & peripheral/semi-peripheral countries • Core specializing in services • Periphery/semi-periphery specializing in manufacturing • Korean and Chinese firms produce the actual shoe, as US-based Nike promotes the symbolic nature of the shoe – and appropriates the greater share of value from sales