Nike: Internal Analysis
The competitive advantage of Nike Inc. depends on its resources, capabilities, and competencies. The data to analyze Nike’s financial health and competitive advantage is retrieved from the 2016 half-year financial report and other annual reports. Nike’s resources involve the manufacturing facilities located in more than 12 countries and the recognizable brand name (“Nike: 2015 Annual Report” par. 1). Nike is the leading producer of sporting goods in the world, and the company’s value share was 3% in 2015 (“Nike Company Profile” par. 4). Nike’s market strategy is the company’s competency that is based on attracting the target audience with a focus on differentiation.
Nike is an entrepreneurial company because it implements risky strategies to gain more profits. While focusing on Nike’s profitability, it is important to state that the company’s net income increased by more than 20% in 2015, and this number is higher than the average type of the industry because of the crisis in the market observed in 2013-2014 (“Nike Company Profile” par. 6). Nike’s gross margin for the first half of 2016 is 45.9% that is almost equal to the company’s competitor, Under Armour (45.88%), but it is higher than the industry’s average (40%) (Nike Inc par. 2). It is possible to speak about comparably efficient operations. The inventory turnover ratio is relatively low (0.92), and it indicates the ability of Nike’s managers to plan and control the use of inventories effectively.
Still, it is possible to state that Nike’s strengths come from intangible resources rather than tangible ones. Much attention is paid to investing in research and development (R&D ratio is 14%) and making products more innovative. During the first half of 2016, 31 products were introduced by Nike (Nike par. 1). Thus, the strength of intangible assets is 2.67, and the focus is on the developed marketing strategy to attract customers. Annual advertising expenses are about $4 billion, and the marketing ratio is 1.9.
Nike can be regarded as financially strong because its Moody’s rating is A1, there is no debt, and the company demonstrates stable growth in its revenues (“Moody’s Rating: Nike” par. 2). Nike’s competitive advantage is associated with manufacturing high-quality and innovative men’s footwear and focusing on winning new markets while preserving the stable position in the US market (“Nike Company Profile” par. 8).
The reason is that the regular proposition of new attractive products and market expansion is critical for the success. To sustain the advantage, Nike has developed effective employee recruitment and retention strategy based on the talent development programs (Nike par. 5). The organizational culture can be characterized as cultivating talents and focused on creativity and growth; it corresponds with the business strategy, and these aspects also contribute to the firm’s advantage.
Adidas: Internal Analysis
The resources, capabilities, and competencies of Adidas determine the company’s competitive advantage. Much attention should be paid to analyzing the company’s profitability and efficiency of its operations to conclude about the competitive advantage with reference to the data from the 2016 half-year financial report. Focusing on profitability, it is important to note that the company’s sales in 2015 increased by 16% in comparison to the 10% average typical of the industry (“Adidas Company Profile” par. 4).
For the first half of 2016, the gross margin is 49.1%, and it is higher than the industry’s average (40%) and gross margin of Nike (45.9%). It is possible to speak about the efficiency of the firm’s operations. The inventory turnover ratio is 2.62, and it supports the idea that the company has high sales, as well as high liquidity. These data indicate that Adidas uses its resources and capabilities efficiently in order to increase sales and revenues.
The competitive advantage of Adidas is based on investing in research and development and new materials. The R&D ratio is 17%, and it is comparably high for the sporting goods industry. The number of products introduced in the first half of 2016 is the highest in the industry (119 products) (“Adidas: New Arrivals” par. 1). Therefore, it is possible to speak about the focus on innovation. Furthermore, the firm’s strengths also depend on intangible assets since the ratio is 3.07. Adidas pays much attention to supporting the company’s brand and implementing innovation strategies. The dependence on the marketing is also high because the marketing ratio for 2015 was 2.3, and it demonstrates the success in advertising and selling products (“Adidas Company Profile” par. 5).
Adidas is an entrepreneurial firm that implements many strategies to increase its profitability. These approaches result in the firm’s financial strengths. Adidas is not rated by Fitch and S&P, but its cash holdings are significant and rather secure ($641 million for the first half of 2016) (“Adidas: 2016 Half Year Report” par. 2).
The human resource management of Adidas also contributes to recruiting diverse, talented workers, and their development is supported by training programs. The organizational culture of Adidas is discussed as a balance between the market- and employee-oriented cultures. Factors that are important for succeeding in the industry are brand recognition, innovation, and resource leveraging. The strategy of Adidas addresses these factors, and the competitive advantage is based on advertising, investment in research and development, development of the multi-brand strategy, as well as expansion in developing countries.
Works Cited
Adidas: 2016 Half Year Report. 2016. Web.
Adidas Company Profile. 2016. Web.
Adidas: New Arrivals. 2016. Web.
Moody’s Rating: Nike. 2016. Web.
Nike: 2015 Annual Report. 2016. Web.
Nike Company Profile. 2016. Web.
Nike Inc. Consolidated Statements of Income. 2016. Web.
Nike. Launch Calendar. 2016. Web.