Research Paper on Nike: Dominant Player in Global Sports Equipment Market

Introduction

Nike is an American multinational company based in Beaverton, Oregon, specializing in sportswear. It is widely known for being among the largest suppliers of apparel and athletes' shoes in the world, and indeed, it is the major manufacturer and producer of sport's equipment. The company was founded in 1964 by Phil Knight and Bill Bowerman, and incorporated in 1964; initially, its name was Blue Ribbon Sports (BRS) (Brohi et al., 2016). The firm has, for a long time, dominated the market, predominantly because of its feasible strategic approach. The organization's management is passionate about maintaining its competitive advantage through prior planning and execution of strategic measures. The writing will analyze Nike in terms of risk, uncertainty, and incentives management.

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Latest Actions Dealing with Risks and Uncertainty

One of the major threats the organization currently faces is the continued change in the consumers' tastes and preferences. Considering that this industry is highly competitive, it comes as a setback to the future sales of the company. Nike has acted upon the threat by devising some measures to alienate from the possible repercussions of the risk. One of the crucial actions by the entity in reaction to this is the enhanced R&D (Research and Development) to bring forth ideal products. Nike is vigorous in allocating funds for R&D to differentiate its products from those of competitors. The rise of counterfeits has taken a toll on the company's products, and the only way to win over it is by creating superior products in terms of performance and value. In 2019 INEOS One hour 59 seconds marathon challenge, the company debuted Nike Vaporfly Next%, which was central to Kipchoge Keino's win. The exposure of product superiority shields Nike Inc. from losing customers through reduced taste and preference.

Recently, Nike has carried out activities intending to minimize losses that come along from business legislation, for instance, exchange rates, interests, taxes, and tariffs. Considering that Nike operates worldwide, it is profoundly affected by floating currencies as a result of different interest and tax rates laws in various nations. However, the organization is leveraging valid tax-reduction strategies to avoid heavy taxation; hence, minimize such risks (Eckert, 2020). Also, Nike Inc. has reduced risk factors like exchange and tax rates through a new approach of bringing production closer to the customers.

Advice on Improving the Management of Risk

Although the organization is vast hence has a lot of resources and the ability to design and implement strategies to evade future risks; this dominance is not absolute. Therefore, it has to proactively look for ways to neutralize these threats through innovative products (Aven, 2016). The company's rate of innovativeness is currently impressive but not as good as it can; consequently, it should venture into other opportunities; for example, introducing wearable technology for monitoring physical activities. The menace of counterfeits is rampant and risky for the company; to counter this, Nike should add products with competitive prices where they will target the price-sensitive consumer (Brohi et al., 2016). That way, the entity will eliminate the market for fake products and, at the same time, increase their sales.

Adverse Selection Problem

Accountability is highly important to enhance trust among the public, and it is necessary to have an independent oversight body for monitoring business activities. The lack of such a body ignites criticism over Compacts. The public only knows the information that the company decides to report, and Global Compacts are for boosting corporate learning by best practices. However, critics still demand some verification procedures and performance standards (Benner & Zenger, 2016). The compacts are used by opportunistic companies to get away with a bad reputation without being accountable. Nike has joined a treaty with companies that have a tainted image; therefore, there arises an adverse selection issue. While Nike could have a clean record consistently, entering into a pact with organizations marred with scandals puts it in the spotlight of public scrutiny. There is a general view that entities that join global agreements are usually after positive media coverage.

The adverse selection could be problematic for Nike in future transactions since other members of the pact do not have much to lose; in fact, they stand to gain (Benner & Zenger, 2016). Nike should instead focus on building its reputation through accountability and transparency and avoid falling victim to adverse selection. By doing that, the watchdogs, including the press and the NGOs, will notice, and they will help boost its image.

Moral Hazard Issue

Nike, like many other companies of its stature, has experienced problems with moral hazards, including health and safety, raw materials, and internal conflicts. The company, however, is dealing with the menace through various mechanisms. One of the significant sources of bad blood between the public and corporations is labor. Nike has vowed to adhere to the world labor standards and has cut ties with suppliers who are involved in malpractices such as child labor and slavery. The company respects the rights of workers and observes working hours rule with provisions for overtime. Unlike other companies that shut down facilities and retrench workers without considering their plight, Nike compensates the workers upon retrenchment. Nike is keen on protecting the rights of women and does not tolerate sexual harassment (Brohi et al., 2016). Earlier, the company had a controversy for doing less in fighting for the rights of female workers. However, recently there have been reports that such acts no longer exist in the company, which is attributable to their stun sexual harassment policy.

Some of the best practices that the company should engage in to minimize moral hazards include incentives that promote employees' zeal to serve the customer better as well as capping internal conflicts. The incentives include increased wages and annual paid vacations. Hence, they do not feel left out, which could entertain immoral behaviors like disclosing the company's confidential information. Although the company has an excellent reputation for labor policies, it is not the same case in its foreign branches. There have been lots of complaints from workers, especially from Asian countries who cite poor labor conditions. Such allegations do not augur well for such a company, and therefore, the issue requires investigation and proper measures put in place that protect the rights of workers.

Principle-Agent Issue

There exist principle-agent problems in the company bearing in mind both its organizational structure and worldwide span. The problems arise if an agent trusted to act on behalf of the principle performs contrary to the expectation. The agents instead pursue their self-interests while disregarding the principle's affairs. Nike has regional managers who most often make decisions that do not match with the corporate standards. For instance, they engage in unethical behaviors like disregard of labor laws, working in liaison with the company's competitor for financial gains. The bitter pill is that agents have an informational advantage over the principle, making it hard to eliminate such setbacks.

Nevertheless, the major principal-agent problem in the corporation involves the management body's failure to cater for the best interests of the shareholder. The company is headed by the board of directors who oversee the performance of the CEO (chief executive officer). The CEO, on the other hand, is in charge of the regional managers. They all are agents to the shareholder who is the investor in the company. When individuals are committing their capital to companies where other people manage on their behalf, they expect to gain as much profit as possible from their investment. However, this is not always the case as most of the time; the agents use their information advantage to exploit the investor. The corporation fails the shareholders by concealing much information in their annual reports, making poor decisions that go unpunished, and using the company resources for selfish gains.

However, Nike uses some tools to solve the principle-agent problems and boost profitability. One is the use of contract design; through it, the parties create a contract framework to address the drawbacks of information asymmetry, determining monitoring procedures and stimulating the incentives of an agent to comply with the principal interests. Another way they do it is through compensation and performance evaluation. The compensation of an agent is fundamental in the alignment of principal-agent interests. Nike Inc. utilizes compensation methods such as profit-sharing, stock options, and deferred compensation to promote agency loyalty, especially among the regional managers. When managers receive payments in stock options, they are motivated to raise the stock prices, which they always do either by making the company efficient or through accounting crafts.

Organization Structure

A company's corporate or organization structure is the system design and composition pertinent to the interconnections between divisions, groups, and employees of the concern. Nike Inc.'s organizational structure embodies the limits and abilities of the enterprise in its operations. It emphasizes on the need to work on differences surrounding regional markets. These altercations revolve around region-specific customer demands, such as varying apparel preferences depending on climate and sport popularity. Nike Inc., as among the most significant players in the athletic apparel footwear and equipment sector, serves as a guide on including regional disparities in business strategies. Strategic and structural alignment that reckon on these variations fortifies the company's competitive advantage, chiefly in infiltrating local markets (Voorn et al., 2019). The concern has a structure that enables regional based business strategies. Consequently, regionalization boosts value chains that mainly fulfill the expectations of the consumers, primarily on the realm of marketing and service.

Nike's corporate structure is a geographical divisional one that is necessitated by the need in its regional markets and global organization. The geographic framework divides tasks in an enterprise by location. The need for such a structure is dependent on product or service and the difficulties involved in transportation over vast destinations. However, distance is not solely the only consideration in this form; also, changes in the cultural norms, legal environment, and topology could factor in when deciding to organize geographically. Global corporate leadership facilitates the control of the whole firm while semi-autonomous geographic regions offer flexibility towards fulfilling the customer's needs for athletic apparel, shoe, and equipment. Then there is the Converse and the global branding divisions that manage Nike's subsidiary Converse and also responsible for brand licensing.

For Nike to attain profitability, the management ought to make the regional branches non-autonomous, this minimizes the possible unethical practices from the division managers as they get a close check. At the same time, it makes it less complicated to prepare financial statements at the end of every fiscal year. Furthermore, autonomy limits innovation since the distribution of power is uneven. Although the organization's structure is well formulated and serves Nike right, some gaps require bridging in this form. The reason being, geographic...