Nike PESTLE Analysis - External Environment Analysis

This study analyzes the external environment of Nike using PESTLE analysis. It covers political, economic, social, technological, legal, and environmental factors that affect Nike's business. The study also discusses the impact of shifting profit margin, competition, recession, production cost, labor problems, and slowing down in Chinese markets on Nike's business.

Running head: NIKE PESTLE ANALYSIS
Nike PESTLE Analysis
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1NIKE PESTLE ANALYSIS
Table of Contents
External Environment Analysis (PESTLE) of Nike........................................................................3
1. Political factors............................................................................................................................3
1.1 US Government Policies........................................................................................................3
1.2 Unrest in Some Asian Countries............................................................................................4
1.3 International Law...................................................................................................................4
1.4 Stable Political Climate.........................................................................................................5
1.5 Free Trade Policies................................................................................................................5
2. Economic factors.........................................................................................................................6
2.1 Shifting Profit Margin............................................................................................................6
2.2 Risk of Recession and Competition.......................................................................................7
2.3 Increased Productions Cost....................................................................................................8
2.4 Labor Problems......................................................................................................................8
2.5 Slowing down In Chinese Markets........................................................................................9
3. Social factors...............................................................................................................................9
3.1 Brand Conscious Consumers.................................................................................................9
3.2 Increase Female Consumers................................................................................................10
3.3 Health Conscious Consumers..............................................................................................10
3.4 Fashion Conscious Consumers............................................................................................11
3.5 Importance on Product Safety.............................................................................................12

2NIKE PESTLE ANALYSIS
4. Technological factors.................................................................................................................12
4.1 Origination...........................................................................................................................12
4.2 Marketing Methods..............................................................................................................13
4.3 Mobile Technologies...........................................................................................................14
4.4 Increased R&D investment amongst competitors...............................................................14
5. Legal factors..............................................................................................................................14
5.1 International strategies.........................................................................................................14
5.2 Labor challenges..................................................................................................................14
5.3 Unfair Competition and False Advertising laws.................................................................15
5.4 Improving employment law in developing countries..........................................................15
6. Environmental factors................................................................................................................15
6.1 Reduced wastages................................................................................................................15
6.2 Business sustainability.........................................................................................................15
6.3 Renewable energy................................................................................................................16
6.4 Environmental legislation....................................................................................................16
References......................................................................................................................................17

3NIKE PESTLE ANALYSIS
External Environment Analysis (PESTLE) of Nike
This section of the study will investigate and analyze the external environment in which
Nike operates. The external environment is also commonly known as a PESTLE analysis.
However, there are other variations as well such as PESTEL, STEEPLE, SLEPT and PEST.
However, this particular study will only use a PESTLE model to investigate and analyze the
external business environment for Nike.
1. Political factors
Political factors do have an evident and huge impact on any business. Nike like any other
companies representing the irrespective types of industries is also affected by an unstable
behavior of world politics. The political factors impacting the Nike business will cover US
Government policies, unrest in some Asian countries, international law, stable political climate
and free trade policies.
1.1 US Government Policies
The recent indication of Trump to avoid joining the TPP (Trans-Pacific Partnership) may
certainly create a Lot of challenges for Nike. TPP include those countries with which Nike is
largely associated with an import trade. Notably, a huge percentage of footwear for Nike is made
in countries included under the TPP. According to Bloomberg, Vietnam alone is responsible for
a 40% import of sneakers for Nike (Businessinsider.in, 2018). In such circumstances, the
announcement to separate from TPP will certainly leave no clues for Nike to head for. The tariff
charges on Nike are already higher than any other footwear and sports apparel brands in the
United States. In addition to such high tariffs, an announcement to discontinue TPP will further
raise the tariff charges. TPP was brought for the purpose that tariff and non-tariff barriers are

4NIKE PESTLE ANALYSIS
reduced between the countries included in the pact. Notably, Nike has only close to 8% of its
total factories in the United States (Businessinsider.in, 2018).
1.2 Unrest in Some Asian Countries
Unrest in some Asian countries like Vietnam is a threat signal and a wake-up call for
Nike. The unrest is due to the anti-china protest in Vietnam. The unrest might endanger the
supply chain operation between China and Vietnam. Notably, some of the footwear apparels in
Vietnam are manufactured in China (Kien, 2015). A political unrest in such circumstances just
suggests that the supply chain operation between China and Vietnam will get affected from.
Exports from Vietnam to the United States have increased by 14% in recent times. Some of the
exporting goods are also being manufactured in or imported from China to Vietnam. According
to the Footwear Distributors and Retailers of America (FDRA), the local tensions around the
South China Sea is a matter of concern and could actually affect the import of footwear and
apparel to the United States (Yee, 2017).
1.3 International Law
International laws are set and designed by GATT, NAFTA treaties, European Union and
the others. International laws govern mainly the setting of ethical standards for business, ethical
guidelines for global marketing & market entry, rights & responsibilities of investors & buyers,
the setting of trade policies and a lot more (Kolk, 2016). It just indicates that any variation being
brought to the international institution will certainly impact the international business. For
example, Nike had the advantage of TPP in its trade relationship with Vietnam. TPP allowed a
reduction to the no-tariffs’ and the tariff barriers between the United States and Vietnam. It was
an advantage for Nike considering a fact that the company is required to pay a minimal tariff on

5NIKE PESTLE ANALYSIS
imports. However, the Trump’s decision to quit the association with TPP may certainly
challenge the leveraged benefits and could be asked to bear the elevated trade tariffs
(Businessinsider.in, 2018).
1.4 Stable Political Climate
Nike’s footwear apparel manufacturing is largely being taken care in the Asian and
emerging countries. As stated earlier, only a few portions of the entire manufacturing of Nike's
apparel is done in the United States (Subotnick, 2017). In such circumstances, it is important that
emerging nations and Asian countries with which Nike is in the trade relationship with bear a
stable political climate. An unstable political climate affects the consumption, investment and
economic growth in emerging nations. The maintenance of political stability is expected to put
challenges due to income inequality, high unemployment rates in few countries and rampant
corruption (Lee & Sehoole, 2015). For example, income inequality affects the buying capability
of consumers which would not be a good thing for Nike as the company has its shops largely in
the Asian and emerging nations.
1.5 Free Trade Policies
Free trade policies is another very critical factor which affects the trades practices. The
United States, in particular, entered into 14 different free trade agreements (FTAs) with 20
different countries. Notably, a close to 70% of the entire exporting of goods and services from
the United States are done with the FTA partner countries. On the other hand, a close to 80% of
the goods and services are being imported from FTA partners. The numbers are even bigger for
footwear apparel which is close to 98.4% as reported by AAFA (American Apparel & Footwear
Association) (Anderson & Yotov, 2016). It is truly understandable that free trade agreements are

6NIKE PESTLE ANALYSIS
holding a larger import and export shares for the United States. The change in the agreements
such as the exclusion of FTA agreement with a country or few countries will certainly impact the
exporting and import tariffs. Therefore, Nike’s products will be costlier for the American
customers.
2. Economic factors
This section covers the impact of various variables of economic factors which affect the
business. The section covers shifting of profit margin, a risk of competition & recession,
increased production cost, labor problems and slowing down in the Chinese market.
2.1 Shifting Profit Margin
Profit shifting is a good act to avoid the tax payments by apparently showing the
payments being made to foreign countries (Cristea & Nguyen, 2016). Nike is good at delivering
and maintaining the profit shifting to other nations. Nike does two things very smartly such as
shifting of profits to offshore tax payments where it had made huge money and concealing the
strategies to attain such tax avoidance (ITEP.org, 2018). The company now holds a close to
$12.2 billion of its offshore profits as the permanently reinvested earnings (ITEP.org, 2018).
Profits designating this way allows Nike to avoid paying even a minimal amount to the US
government until and unless the reinvested money is repatriated to the United States. The ability
to smartly play with profit shifting and to postpone paying taxes to the government is known as
deferral which is not a big issue to an established business as such of Nike (Cristea & Nguyen,
2016). Additionally, Nike claims that it would pay approximately 35 percent of its offshore
profits to the US government once these are repatriated to the country. In this way, the company

7NIKE PESTLE ANALYSIS
is actually paying an almost zero in taxes in the foreign countries where these earnings are made
(ITEP.org, 2018).
2.2 Risk of Recession and Competition
A recession occurs when there are two or more consecutive quarters of fiscal years with
negative growth in the gross domestic product (GDP). A recession may produce the notable
impacts such as growth in unemployment rates, fall in consumer spending and lay off in factories
& companies and more others. A recession can affect Nike's workforce and the company may
undergo the job cuts. For example, Nike had to cutbacks 1,750 jobs at its worldwide offices in
response to the recession in 2006 (OregonLive.com, 2018). Job cuts are never a good thing for a
company like Nike. It affects the workforce and so the work output. A recession may also affect
the marketing capabilities of Nike as evidenced in one of the incidents of market inefficiency has
had happened in 2009. Nike which has its reputation as one of the biggest sports marketers had
planned to cut on its marketing budgets as part of its strategy to trim down the expenses
(Nytimes.com, 2018).
Nike remained the leader of the athletic footwear market for years; however, the
supremacy was challenged with a heightened competition from rival Adidas. Adidas has affected
the company's growth which is also why Nike’s stock lagged the market in 2017. Retail
weakness in Nike has supported the bloated inventories which will take years to clear even at
discounted offers and rates (Money.usnews.com, 2018). It is expected that the rising competition
from heightened rivals Adidas and other top manufacturers of footwear apparel VF Corp,
Skechers USA, PVH Corp and others will create further difficulties for Nike. There are very

8NIKE PESTLE ANALYSIS
fewer chances of the fulfillment of Nike’s superior growth targets at least in coming few years
(Money.usnews.com, 2018).
2.3 Increased Productions Cost
Increased production cost like to any other business will also impact Nike’s profitability
margin. Such things have had happened in past as well. In 2010, Nike’s stock suffered a
significant drop due to the elevated production costs. China is one of the largest contributing
countries to the fact (Autor, Dorn & Hanson, 2016). The costs of cotton, labor and transportation
were at the highs in 2010. Considering a fact that Nike has several of its manufacturing facilities
in the Asian countries, this will simply affect Nike’s profitability margin. Increased production
costs in future will also affect Nike's profitability margin as the company is largely dependent on
Asian countries for the imports. Nike has indeed a very limited number of manufacturing
facilities in the United States (Kien, 2015).
2.4 Labor Problems
Nike is expected to be affected form the labor problems. The company is not involved in
assembling of shoes in the United States of America since 1984. A very large number of
productions is moving to abroad locations. Most of the products of Nike are made by labors in
low-wage Asian countries. The recent hike in the labor costs in China has compelled Nike
switching to Vietnam for a larger part of its production. It is understandable that the company
tries to manufacture cheaper products; however, those cheaper products are not sold at cheaper
prices to the American customers. Nike is actually a global company with no connection or
loyalty to the US (Distelhorst, Hainmueller & Locke, 2016). Now, the recent announcement
being made by the American president Mr. Trump of a disconnection from TPP may certainly

9NIKE PESTLE ANALYSIS
create issues for Nike. The strategy to switch to countries with low labor wages might not work
now as Vietnam also falls within the TPP countries. Notably, Vietnam is responsible for a larger
production of Nike’s products (Businessinsider.in, 2018).
2.5 Slowing down In Chinese Markets
A slowing down of the Chinese markets will produce mixed outcomes for Nike. In 2013,
China's GDP stood at 12.55 for the world economy (Bloch, Rafiq & Salim, 2015). However, it is
falling in recent times. The fall will certainly affect Nike's business. The fall in GDP growth or
the slowing down of the economy will reduce the export demand (Frankel, 2016). On the other
hand, Nike is highly dependent on the Asian countries for the imports of goods. The reduction or
the slowing down of Chinese economy may also mean the reduced imports from the country.
Hence, the stock will get affected form. On the other hand, the commodity prices will certainly
fall. This is good for those that receive raw materials from the Chinese market. However, Nike
will certainly not be able to enjoy the benefits as the exporting demands due to economic
slowdown will decrease.
3. Social factors
This is one of the most important segments for a business. In the social factors,
consumers are the one which can affect the business with its unstable and growing buying
behaviors. This section will cover brand conscious consumers, increase female consumers, health
conscious consumers, fashion conscious consumers and importance of product safety.
3.1 Brand Conscious Consumers

10NIKE PESTLE ANALYSIS
Modern day customers are quite different to old day's customers. Most of the customers
nowadays do a lot of research on several things before they actually purchase a product. They
use their mental shortcuts to streamline the process involved in purchasing and prevent being
paralyzed from the number of available options. Brand awareness is one of such things which
customers hugely rely upon at the time of making the purchase decisions (Huang & Sarigöllü,
2014). Brand conscious customers like any other company are a challenge for Nike as well. The
company has so far managed this effectively. Nike has effectively identified the different
channels to reach to wider customers of all age groups and the genders. The company advertises
and promotes the brand on channels such as commercials, billboards, sponsorships, newsletters
and the quality of service (Lee & Kim, 2016). The combination of effective marketing strategies
and the assurance of quality service have actually worked for the company.
3.2 Increase Female Consumers
Athletic apparel is the biggest contributor to Nike's sales. Nike is way ahead to its
competitors in this regard. The company now has plans to move even further by focusing on key
demographics. Women or female consumers are one of the three customer demographics on
which Nike largely focuses upon. To respond to the identified segment, Nike has come up with
women’s apparel especially the sports related such as tights and bras. Sales of training apparel
for women grew rapidly outpacing even the men’s business (Businessinsider.in, 2018). The
reasons why Nike has had a huge success with both genders is the athletic look which
increasingly became a fashion in terms of both footwear and apparel.
3.3 Health Conscious Consumers

11NIKE PESTLE ANALYSIS
Health conscious customers are a new challenge to the modern day business. Nike like
other businesses faces the similar level of challenge. A business with high ethical values for the
environment is now highly regarded by customers. Nike has realized the change and has planned
to respond to it with effective strategies. Business sustainability is now a big concern for Nike.
This is why the company now uses a new rating system in its factories. It also deployed a
modified Manufacturing Index. The index measures the labor and the environmental
performance. It also measures the quality of supply chain (Roscoe & Baker, 2014). One of the
biggest attractions in Nike's report is its innovative strategy to deal with sustainability issues. The
company is successfully fulfilling its sustainability targets. However, there are still few areas
such as the number of excessive duty hours in factories where the company still faces the
challenge.
3.4 Fashion Conscious Consumers
Women are fashion conscious and try to experiment with different apparels. However,
they are not very keen with and equally interested for athletes. This is why footwear and sports
apparel companies have been quite resistant to their strategies to attract the women. However,
Nike like Adidas has identified the potentiality of business with women customers.
Consequently, there have been quite a few changes in the product line and also the marketing
strategies of Nike. In course of the stated fact, Nike has produced the television and print ads
showing the transition of an ordinary woman into the Yogini who possess the excellent athletic
qualities. The campaign has tried to prove the reason why women are not the active athletes as
the men because they do not think this way. The advertisement made by Nike had thus tried to
affect the think tank in women and thereby giving space to popularize the fashionable women
apparel (Mahdi et al., 2015).

12NIKE PESTLE ANALYSIS
3.5 Importance on Product Safety
Product safety is an important concern and one of the facts which customers look for at
the time of purchase. For example, shoes which are integral to Nike must be durable and highly
resistive to ground surfaces. Apart from comfort, fashion and the trendy look, customers have no
other concerns than product safety from their chosen shoes. Customers want they showed to last
longer even under excessive physical pressures. They also want their shoes resisting the slippery
ground surfaces. Consequently, Nike like other footwear apparels brands in the United States are
needed to follow a certain set of legal policies such as the Consumer Product Safety Act 1972
(Nvlpubs.nist.gov, 2018). The policy governs the safety parameters which the apparel brands like
Nike is needed to abide by. In addition, Nike is also needed to follow the Consumer Product
Safety Improvement Act of 2008. Federal Hazardous Substances Act (FHSA) is another policy
which the footwear companies like Nike is needed to follow (Nvlpubs.nist.gov, 2018).
4. Technological factors
This section will cover the various technological aspects which affect the business of
footwear and apparel companies as such as Nike. The points covered will include origination,
marketing methods, mobile technologies and increased R&D investment among competitors.
4.1 Origination
Origination of new technologies in regards to the variety of working aspects does really
affect the business. New technologies can put pressure on footwear brands such as Nike because
competitors will not wait and may want to take the advantages from it. Hence, it is important to
identify the potential technologies and use it before Nike's competitors or rivals do. Nike is one
of the eight companies in the world which adopted 3D printer technology to support a large-scale

13NIKE PESTLE ANALYSIS
manufacturing (Forbes.com, 2018). The use of Flyknit technology in manufacturing the
innovative and comfortable bras is another example of adopting the origination of a technology.
The technology was so far limited just to the footwear; however, Nike has plans to use this
technology for its entire list of apparels for women (Sanad, 2016).
4.2 Marketing Methods
Nike uses the unique marketing methods which are perhaps unmatched by other footwear
apparel brands. They do it a different way and creates a lot of interest in the audience. A
meaningful story is one of the marketing methods which Nike is good at doing. The company
creates the meaningful stories such as showing the transition of an ordinary woman into an
athlete. In this way, Nike does not just try to reach to a wider audience but creates the much
needed hype also. A Watercooler moment is another marketing method which Nike is very good
at doing (Mahdi et al., 2015). In the 2014 FIFA World Cup, Nike in collaboration with Google
had introduced ‘Nike Phenomenal Shot’. It showcased ads of Nike athlete scoring a goal in real
time. The phenomenal shot had also options to share it on social sites. Margot vs. Lily, the
original YouTube series garnered over 80,000,000 views. The series was based upon the two
sisters and a compelling story which was loved by a mass audience. The use of self-lacing shoes
was a newsworthy technology and a marketing strategy as well. The shoe has an inbuilt
technology to mould and adjust to the shape of the foot when someone steps into it. There are
customers who want their product having a positive impact on the society and on the
environment. Such customers never hesitate to rewards brands that actually do it. Nike has
identified the needs and is therefore engaged in various community outreach initiatives in the
United States and the other parts of the world. Nike is destroying other brands on social media by

14NIKE PESTLE ANALYSIS
not just advertising the contents but also engaging in a two-way conversation (Do, Ko &
Woodside, 2015).
4.3 Mobile Technologies
Nike is using a series of mobile innovation with the latest Nike+ app. The app will not
just showcase the clothing and footwear but also the training tips from coaches. Athletes and the
target audience will be able to access to upcoming events and the new products. Nike+ will also
take its members connected to the Nike+ Run Club, Nike+ Training Club and Nike+ SNKRS
apps (Do, Ko & Woodside, 2015).
4.4 Increased R&D investment amongst competitors
R&D investments have been an integral part of Nike. It was revealed when the company
had introduced the self-lacing shoes. It also had come alive when Nike+ App was introduced.
The development of a shoe with entire heel appeared as a visible air bag was needed a gutsy
effort. Nike did not only manufacture that but had also called 186 athletes to test the shoes for 90
days over all kinds of terrain surfaces. They had wanted to ensure the quality and had actually
produced it with slight of changes based on the feedbacks of chosen athletes (O’Sullivan et al.,
2017).
5. Legal factors
5.1 International strategies
Nike has faced legal challenges such as when it followed allegations of sweated labor.
Consequently, the company had to close some of its factories in Pakistan and relocate the
operations to China and Thailand (Merk, 2015).

15NIKE PESTLE ANALYSIS
5.2 Labor challenges
Nike had also faced the labor challenges. Nike was claimed to have paid below than the
minimum wage to labors in Indonesia. However, the company had claimed to double the
minimum wage to double the production rate (Merk, 2015).
5.3 Unfair Competition and False Advertising laws
Nike was prosecuted under the Unfair Competition and False Advertising laws of
California. It was claimed that Nike had made false statements. Nike had faced the initial defeats
and had appealed to the California Supreme Court to privately settle the matter (Liou, 2016).
5.4 Improving employment law in developing countries
Nike has targeted the Asian countries and the emerging nations for its manufacturing
facilities. In fact, a very high number of Nike’s manufacturing is done in developing countries.
Such locations have been targeted because of low labor costs. The shifting of few manufacturing
works from China to Vietnam was a result of increased labor costs in China (Mahdi et al., 2015).
This just indicates that Nike has the areas of improvement in regards to employment law. There
are places left to raise its reputation as an ideal employer.
6. Environmental factors
6.1 Reduced wastages
The use of Flyknit technology to not only produce the light weight shoes but also reduce
its environmental impact is a notable fact. Nike is also engaged in utilizing the garbage to
manufacture shoes. In this way, the company supports the recycling of unused Nike’s shoes
(Diddi & Niehm, 2017).

16NIKE PESTLE ANALYSIS
6.2 Business sustainability
Nike believes that technology can improve the design of shoes and the materials being
used for manufacturing of shoes. The designs and the materials can really make an impact on the
environment. In course of the action, Nike partnered with MIT Climate CoLab to innovate with
materials and reduce the hazardous impact on the environment (Rctom.hbs.org, 2018).
6.3 Renewable energy
There will be the needs for more innovation, so that, Nike is able to reach its mission to
use only the 100% renewable energy resources in its facilities. However, Nike must remain
cautious with the audience reaction on it as customers might perceive the quality to be inferior.
The innovation to attain 100% renewable energy resources in facilities must be well
communicated to avoid any communication gap and the consequences. Nike must also reduce
the usage of sustainable materials based on customer reaction on the quality of shoes
(Rctom.hbs.org, 2018).
6.4 Environmental legislation
Nike needs to be mindful of legislation like the Paris Agreement. The Paris Agreement
was hugely supported by Nike. However, Nike should have the action plans to counter any
negative future impact of the Paris Agreement. The selection of regulation must be carefully
made to avoid any negative impact on its supply chain (Rctom.hbs.org, 2018).

17NIKE PESTLE ANALYSIS
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