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) 1

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) 2

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) 3

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 wealth in a commodity chain

innovation

that allows firms to capture greater shares of 4

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 5

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

6

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

7

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%) 8

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

9

US Athletic Footwear Industry % Market Share by Sales Volume (2004) 12 6 5 3 2 111 27 42 Nike Adidas Reebok Puma New Balance Sketchers K-Swiss Vans Asics Saucony 10

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) 11

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 12

Nike is the archetype of a global sourcing strategy:

subcontracting

 Nike

originated

Japan by importing shoes from  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.” 13

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 14

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 15

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 16