Capstone Project

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Business Finance

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Focus of the Capstone Project Paper:
You work for a consulting company that has been hired by a wealthy investor who is interested in buying a new business. This investor has asked your company to provide an analysis on the industry of this new business venture, along with recommendations for companies operating within the industry.

Select one industry (and at least two companies operating within that industry) (Coke and Pepsi or Starbucks and Dunkin Donuts.....whichever industry is easier to research) for analysis. Address the following elements:

  • Identify external environmental forces in the remote environment that are likely to impact the industry within the next three years.
  • How will these changes likely impact the companies you have chosen for analysis?
  • Analyze the chosen industry using one of the models presented in the following articles: “A Comparative Analysis of Strategies and Business Models of Nike, Inc. and Adidas Group with Special Reference to Competitive Advantage in the Context of a Dynamic and Competitive Environment” and “Business Model Innovation in Corporate Competitive Strategy.” Files are attached.
  • Make at least two strategic choice recommendations for companies to successfully deal with the forces operating within the industry at the present time and in the near future.

Writing the Capstone Project Paper
The Paper

  • Must be eight to ten double-spaced pages in length and formatted according to APA style as outlined in the approved style guide. Papers less than eight pages in length and more than ten pages in length will have two (2) points deducted from the final score for each page under or each page over, exclusive of appendices, references, exhibits, etc.
  • Must include a cover page that includes:
    • Name of paper
    • Student's name
    • Course name and number
    • Instructor’s name
    • Date submitted
  • Must include an introductory paragraph with a succinct thesis statement.
  • Must address the topic of the paper with critical thought.
  • Must conclude with a restatement of the thesis and a conclusion paragraph.
  • Must use APA style as outlined in the approved style guide to document all sources.

Must include, on the final page, a reference list that is completed according to APA style as outlined in the approved style guide.

Unformatted Attachment Preview

Problems of Economic Transition, vol. 57, no. 8, December 2014, pp. 14–33. q 2014 Taylor & Francis Group, LLC ISSN: 1061-1991 (print)/ISSN 1557-931X (online) DOI: 10.1080/10611991.2014.1042313 ALEKSEI BEREZNOI Business Model Innovation in Corporate Competitive Strategy In this analysis of business model innovation, a key competitive instrument for major corporations, the author explores the concept of the business model, identifies the features of innovative business models being used as competitive tools in today’s volatile markets, and describes the challenges involved in various approaches to implementing innovation. Innovation’s role as a key driver of game-changing industry shifts is examined, and it is concluded that business model development and implementation are becoming a strategic imperative for most global players. Keywords: Business innovation, business model, competitive strategy, corporate organization, global competition, large corporations Jel Classification: D21, F23, L20 Since the beginning of the twenty-first century, change has become the norm in almost all spheres of economic life, and the pace and scale of this change have only grown. It can be stated with certainty that future economic development will see faster and more profound shifts. English translation q Taylor & Francis Group, LLC, from the Russian text q 2014 NP “Voprosy ekonomiki.” “Innovatsionnye biznes-modeli v konkurentnoi strategii krupnykh korporatsii,” Voprosy ekonomiki, no. 9, 2014, pp. 65– 81. Aleksei Bereznoi is a Doctor of Economic Sciences and director of the Center for Industrial Market Studies and Business Strategies at the Institute of Statistical Studies and Knowledge Economics, National Research University–Higher School of Economics in Moscow. Translated by Nora Favorov. 14 DECEMBER 2014 15 This unprecedented pace and scale of change has highlighted the importance of a particularly powerful tool: the innovative business model. Not so long ago a major corporation that had successfully established itself within a particular market could count on maintaining its position long term by steadily improving an essentially unchanged way of interacting with its customers. Today, however, this is rarely enough. In almost any industry, no matter how mature a company is, it is likely to be challenged by competitors introducing new business models that radically change the “rules of the game.” Furthermore, unlike in the case of innovative products and manufacturing methods, this is not necessarily a matter of high technology. In business innovation, the decisive role is played not by scientific discovery, but by an entrepreneurial idea, by the identification of a new market need and the skillful joining of ways to satisfy this need with effective demand based on nonstandard ways and means of creating and delivering consumer value to the target market. Under current conditions, where even the most successful business models are relatively short-lived, the introduction of business innovation is becoming an important tool in dominating markets and defending them against competitors for the vast majority of participants in global competition. Innovative business models were behind the past decades’ most remarkable corporate ascents: Apple, Walmart, Amazon, Cisco, FedEx, and Virgin, to name a few. Corporations that have become business innovation leaders become global leaders in their industries. From this standpoint, the experience of developing and introducing new business models is of clear interest for Russian companies as they increasingly enter the competitive fray of global markets. The features of business models as competitive tools Attempts to identify the features of business innovation that serves as a competitive weapon for large corporations inevitably leads to the task of defining the very concept of the business model. Although this concept is neither new nor rare within the literature of economics and business, it remains a subject of lively debate (Afuah, 2014; Johnson, Christensen, and Kagerman, 2008; Kaplan, 2012; Magretta, 2002; Osterwalder, 2004; Osterwalder and Pigneur, 2010; Shafer, Smith, and Linder, 2005; Teece, 2010). 16 PROBLEMS OF ECONOMIC TRANSITION One reason for the lack of a clear definition of business models and an insufficient understanding of the concept overall is its interdisciplinary nature. “The economics literature has failed to even flag the importance of the phenomenon, in part because of an implicit assumption that markets are perfect or very nearly so. The strategy and organizations literature has done little better. Like other interdisciplinary topics, business models are frequently mentioned but rarely analyzed: therefore, they are often poorly understood” (Teece, 2010, p. 192). Without getting into the details of the debate over defining business models (a topic in its own right), we should note that in our opinion this concept amounts to more than an arbitrarily constructed understanding of the basic mechanism through which a particular company operates (such a broad interpretation essentially deprives the concept of any meaning). The concept incorporates a number of specific business characteristics that are fundamental to any company: (1) a means of creating consumer value and delivering it to a target group of consumers; (2) a means of generating profits; and (3) a means of using existing resources and processes to promote the stable interaction of mechanisms for creating consumer value and generating profit as well as ensuring enduring competitive advantages. These fundamental characteristics, which as a system essentially define the entire “logic of a business,” comprise the business model out of which grow other, secondary elements of the architecture of the enterprise as a party to market relationships: competitive tools and possible models of market behavior, the organization of interactions with suppliers (the supply chain model), the specific organizational structure and organization of business processes (the operational model), and so on. What distinguishes innovative business models (which are essentially the systematic result of developing a set of business innovations) from traditional weapons in the competitive arsenal? Large corporations use three basic elements of the tried-and-true methods to increase sales in a competitive market: lower prices, the gradual improvement of existing products, or the release of new products. All of these levers can provide (and continue to provide) measurable results from the standpoint of increasing sales. However, when large corporations have been operating in their industries for many years, these approaches inevitably begin to yield diminishing returns. The point of diminishing return comes particularly quickly in the case of lowering prices (these days, most often through discounts and sales), which is considered the simplest way to boost sales. However, many DECEMBER 2014 17 companies that lower prices in the hope of a quick yield have learned that a straightforward price reduction (or the large-scale use of various sorts of discounts) without making the right changes to other elements of the business model can quickly lead to reduced profitability. This is a trap into which major department stores have often fallen after they turned to large-scale sales: at first they saw a sharp increase in sales followed by just as sharp a fall in their sales margin. A solution was found by the pioneers of discount retailing in the United States, which back in the 1950s began to apply the logic of the supermarket to the sale of clothing, appliances, and other mass consumption items. This new business model presumed a number of systemic departures from the traditional department store: a sharp reduction in the number of sales personnel; maximum freedom and self-service for shoppers; a redesign of the sales environment to accommodate large numbers of shoppers; a move toward purely functional design of sales floors (doing away with everything superfluous); and changes to the formula for selecting suppliers that compelled them to offer generous terms. As Joan Magretta has noted, only after all these elements of the discount business model had been put to effective use could discounters “offer low prices and still make money” (Magretta, 2002, p. 91). In the case of gradual improvements to existing products already familiar to the market, the ability to apply this competitive method as a means of increasing sales is exhausted all the more quickly in that consumer value is generated not by the product as such, but by the results associated with its use. Companies that continue to stubbornly focus on improving the product itself can limit their growth potential, make investments in innovation that are unlikely to be adequately appreciated by the customer, and, in the end, wind up squeezed out of the market by more farsighted competitors. A striking example of this is Kodak, which recently entered bankruptcy after a history dating back to the late nineteenth century, when it essentially founded and went on to dominate the photographic technology industry.1 Beginning with the dawn of the current century, the rapid spread of digital photography and social networks eliminated the need for the printing of photographs on a large scale, leading a vast business empire into financial ruin in 2013. An ironic twist in all this is that the digital photograph was invented by Kodak engineers (back in 1975). But this invention was obviously not integrated into the company’s business model, which was built around the sale of relatively inexpensive 18 PROBLEMS OF ECONOMIC TRANSITION cameras that generated massive sales of film and services to develop and print photographs using an extensive network of Kodak photography shops throughout the world. For many years, the company’s management was absolutely certain of the durability of this model and concentrated on improving their cameras and increasing the quality of their film. They made a classic mistake: focusing on improving the properties of already available goods and services and ignoring new business models that would enable radical industry shifts. Locked into their traditional business model, Kodak essentially lost its connection to the end user, for whom film and printed photographs per se were not as important as opportunities to capture memorable moments in their lives and share them with friends and family (which in our digital age the Internet and social networks offer on an unprecedented scale). “Kodak’s business model,” according to an article in Forbes, “was to make its money selling film, and it made a mint that way. Digital photography didn’t fit that model so Kodak buried its head in the sand and ignored the coming tsunami of new technology. When film went from ‘essential’ to ‘old fashioned’ the company never recovered.”2 When it comes to the release of fundamentally new products, this classical method of competitive struggle offers greater market advantages than the usual reduction of prices or improvements to products already being sold. However in the current era of rapid and unpredictable change, even this method, in its traditional application, offers no guarantee of stable long-term growth. The early victories of Apple—perhaps the most successful corporation of the early twentyfirst century—illustrates this point. In the late 1990s, Apple was a niche player in the personal computer market, and it was losing ground to dynamic competitors, old and new alike. But in 2001, with the release of a new product—the iPod digital MP3 player—the situation radically changed. In the course of just three years of sales, a huge, essentially global market worth $10 billion (approximately half of all Apple sales) was created that paved the way for other best sellers: the iPhone smartphone and iPad tablet. This story was covered in many business publications, but one aspect of Apple’s success went largely unremarked: it was not the first company to release a digital music player on the market. Diamond Multimedia had begun selling an analogous product, the Rio, in 1998, and in 2000 the Cabo 64 digital player was released by the Best Data company. Both competing devices were excellent and considered very stylish by their youthful DECEMBER 2014 19 target audience. Nevertheless, the iPod won, and the main reason for this was not the product’s unique features, but the innovative business model that Apple was able to design and introduce in record time. Apple’s main achievement was the creation of a unique combination of software, the device itself, and a service allowing consumers to inexpensively, easily, and legally download digital music from the Internet. The sale of the inexpensive (and essentially nonprofit generating) iTunes software was combined with the sale of the high-margin iPod device to yield excellent profitability for the business model overall.3 The Apple story strikingly illustrates the main advantages of the innovative business model over traditional competitive tools. Unlike classical methods that relied on innovation in one or two areas of a corporation’s economic mechanism (such as price or technology), the introduction of new business models inevitably brings essential changes to most of its elements, including the choice of the potential buyer’s target need, the mechanism for generating profits, and the means of reliably combining the two. These numerous innovations provide multiple “layers of protection” from attempts by competitors to copy a successful business model. Furthermore, since such innovations are part of an integrated business model, by definition they are coordinated with one another, which sets up a multilayered defensive system against competitors, substantially improves the competitive durability of innovative business models, and extends the time over which “the cream can be skimmed” in the form of elevated profits. It is hardly surprising that analysis of a database created by global management consulting firm BCG (in collaboration with Business Week) of the most innovative companies of the year showed that companies that had introduced innovative business models generated the greatest return for shareholders compared with competitors who limited their innovation to the introduction of new products or processes.4 Furthermore, the success of business model innovators proved to be more enduring: even ten years out they continued to lead their competitors by a number of important measures. The main types of innovation and problems in introducing IT Since every successful business model is unique, it is hard to identify a standard algorithm for “correctly” developing prospective business innovations. It is, however, possible to identify some of the main 20 PROBLEMS OF ECONOMIC TRANSITION pathways of change that have already brought success to today’s business model innovators in the marketplace. The first of these pathways involves rethinking ways to satisfy the target need underlying a given industry’s dominant traditional business model (including rethinking just what the target group of consumers actually needs). The result of this rethinking could be, for example, a reorientation of the company’s business model from making products to providing services or achieving certain results important to targeted consumers. For example, Hilti (based in Liechtenstein), facing intensifying competitive pressure from Asia (especially China), radically changed its business model, shifting from the sale of products to a tool management service for contractors. After years of working with construction firms in a variety of countries, Hilti had a good understanding of its clients’ power tool needs and the problems they faced. First among them was the need to purchase a wide array of tools in order to have the right tools for every construction job, a huge expense, especially for start-ups. Second, the entire fleet of power equipment had to be constantly inspected and managed to ensure that it is kept in good working condition and in the right place at the right time. Third, builders were often forced to buy exceptionally expensive tools that are needed only rarely. Under Hilti’s new business model, the company does a more effective job of satisfying its clients’ need for state-of-the art power tools. The company does this by leasing power tools rather than selling them. Furthermore, it guarantees clients that they will have as many tools as they need when they need them and commits to continually update the collection of tools they lease. This new business model obviously required that Hilti’s operations be completely restructured and that it develop the new competencies involved in managing a huge fleet of equipment and transportation logistics as well as in introducing systems to manage client power tool fleets, among other challenges. The cost of this restructuring has been fully recouped: the company’s client base has greatly expanded and revenues have increased. Sometimes firms are able to accumulate knowledge about their customers that reveals problems and needs of which the customers themselves are not fully aware. For example, the U.S. company ServiceSource, which specializes in developing cloud technologies for major software and computer equipment producers, discovered a potentially huge but often ignored source of revenue for their clients: the DECEMBER 2014 21 renewal of contracts to keep recurring revenue streams flowing. According to the company’s estimates, in the U.S. information technology (IT) sector alone, software producers lose up to $30 billion annually because approximately 50 percent of their clients are not approached by sales teams (who are focused on finding new clients) to renew their contracts. ServiceSource not only discovered this source of unrealized revenue but also developed an appealing way for clients to compensate them for their services that convinced them to share a portion of their revenues. The company proposed that its services be compensated not through standard fees for time spent (the norm for consulting firms), but based on results—on a percentage of income generated through the renewals. The innovation introduced into ServiceSource’s business model was not just an original compensation model. What they essentially offered was the outsourcing of a problem in a sensitive area and the sharing of risks in exchange for a share of revenues. As executive vice president Christine Eckert has stated, “We offer clients a set of managed services, where we can solve the problem for them. We can give them everything they need to outsource this problem to us. We take it on and deliver them back a result” (Lindgardt and Hendren, 2014, p. 8). ServiceSource’s innovative business model achieved rapid market success. During 2007– 12, the company’s compound annual growth rate was almost 30 percent, and by late 2013 overall client revenue being managed exceeded $14.5 billion.5 Other types of business innovation that have proved themselves by creating successful models in many markets involve changing the way consumer value is delivered to target customers and the overall restructuring of interactions with them. An interesting example is the business model of Nespresso, a fast-growing international company that is part of the Swiss food giant, Nestlé. Ever since it first began operation, this company, which was founded in 1986 to retail high-quality single-serving coffee, was built around an innovative idea that combined seemingly incompatible aspects: an individualized approach to each customer marketed on a large scale. A major role in this “personalization” was played by the way the company packaged and sold the product: the single-serving coffee, prepackaged in special capsules, can be brewed using Nespresso automatic coffee brewing machines (an easy, convenient way to brew an excellent beverage), and the huge variety of coffees sold in the capsules allows coffee drinkers to find the blend that best suits their taste. 22 PROBLEMS OF ECONOMIC TRANSITION Most important, Nespresso rejected traditional ways of selling its products through an impersonal network of outside distributors and created its own two-level sales system featuring, first, a worldwide network of Nespresso “boutiques” (327 as of May 2014), and second, Internet sales through the Nespresso Club. An important role in all this has been played by a global network of call centers offering around-theclock advice on the secrets of espresso making. This entire system was initially aimed at providing an individualized approach based on direct contact with all customers (approximately 70 percent of company personnel—more than 5,800 people—work directly with clients) and involving all customers in the Nespresso Club, through which they maintain regular contact via e-mail. By late 2012, the club had more than 7 million members worldwide, and since 2000 the company has maintained an average annual growth rate of approximately 30 percent. Such a high rate of growth and the company’s steady dominance of the coffee capsule market (in 2013, it had a 31 percent share of the global market, valued at $10.8 billion) attest to a successful choice of business model.6 A striking example of a radical transformation of a business model based on a restructuring of interactions with customers is the recent reform undertaken by the management of Home Depot, a leader in the U.S. retail building materials market. In the early 1980s, when Home Depot first put its business model into practice, it represented a sort of revolution, essentially creating a new do-it-yourself-renovation market segment. This model, which involved the creation of huge building-material supermarkets and achieved great popularity, primarily among young consumers with relatively modest incomes, bet on consumers’ desire to renovate their homes themselves, without employing the services of expensive designers and craftsmen. However, the crisis of 2008 –9 saw plummeting demand for the materials needed to fix up apartments and homes and forced Home Depot to seriously rethink its business model. The main focus of the resulting changes involved interactions with customers. Putting the new program into practice meant: (1) bringing the proportion of time sales consultants are in direct contact with shoppers to approximately 60 percent of their workday; (2) mobilizing advanced communication technologies to provide greater convenience and a positive shopping experience (the use of special iPhone apps allowing DECEMBER 2014 23 shoppers to virtually see how a renovation would look in their own home, to instantaneously and precisely calculate the supplies they would need and compare the prices with those of competitors, and to pay for and arrange delivery of their purchases through their mobile apps, etc.); (3) extending “emotional” contact with customers beyond the sales floor (including by collecting comments from dissatisfied customers from social networks and applying lessons learned from them and holding special seminars led by well-known interior designers and renovation professionals, etc.). This new model, which brought relations with the target consumer audience to a new level, permitted Home Depot not only to significantly improve its customer satisfaction index but also, in 2009– 12, to confidently surpass its closest competitor, Lowe’s, in terms of the rate of annual income growth and EBITDA [earnings before interest, taxes, depreciation, and amortization]. One important type of innovation that has shaped quite a few successful business models is the restructuring of income generation through the introduction of new cost models and new means of monetizing use value, and the like. For example, for Qantas, the top Australian airline, the urgent restructuring of profit generation based on a new cost model proved to be the only solution after the 2001 arrival of low-cost carriers, led by Virgin Blue (part of Britain’s Virgin Group), which quickly captured more than 30 percent of that market. The lowcost business model, which applies the same basic idea behind retail discounters to air travel, stakes its success on a significant increase in passenger volume achieved through a sharp reduction in ticket prices made possible by comprehensive cost cutting across a wide spectrum of the carrier’s operations. The experience of many of the world’s airlines has shown that attempts to apply individual elements of this model to a traditional operating scheme usually ends in failure. Qantas followed a different path. In 2004 it founded a new company, Jetstar Airways, which from the start was based on the same principles as low-cost airlines and in many regards was more severe and uncompromising in its cost cutting than its international competitors. The new company did not stop at half measures, such as cramming more seats into the cabin or reducing free in-flight services. It opted for the ultra-low-cost model, taking advantage of every possible savings: economizing on airport services (using second-tier airports and nighttime flights); minimizing ground time (precise planning and adherence to schedules and optimizing the time spent on boarding and 24 PROBLEMS OF ECONOMIC TRANSITION refueling); maintaining a new and uniform fleet of planes (which enables savings on fuel and spare parts and the interchangeability of personnel and crews); the introduction of a flexible pricing policy (a base price plus paid options for all sorts of in-flight services, including baggage, food and beverages, access to audio and video entertainment, etc.); dispensing with connecting flights (to avoid having to compensate passengers who miss a connection due to delays); mandatory electronic reservations and check-in (saving on preflight services); and eliminating seat assignments for faster boarding. Consistent application of the new model proved highly successful for Jetstar. Foreign low-cost airlines lost out and became niche players in the Australian air travel market.7 Jetstar’s annual income has passed the US$3 billion mark, and it has become more profitable than its parent company, which targets higher paying segments. Furthermore, Jetstar became the first airline in the world to successfully apply the low-cost business model to transcontinental flights. In recent years, the importance of the innovative business model in achieving competitive success has become increasingly clear to the leaders of major corporations. According to American economists, more than half of the most successful companies, those included on lists such as those of Fortune and Forbes ranking the largest corporations traded on U.S. stock exchanges during the ten-year period beginning in 1997, achieved this specifically because of their innovative business models.8 Not surprisingly, a 2005 survey by the authoritative Economist Intelligence Unit of more than four thousand top executives of leading corporations from twenty-three countries showed that a majority of them (55 percent) believe that a new business model is a more important competitive asset than new products or services (EIU, 2005, p. 9). Nevertheless, when corporations set their priorities in the area of innovation, the development of business models winds up far from the top of the list. According to a study by the American Management Association, global corporations spend no more than 10 percent of their overall investment in innovation on developing new business models (Johnson, Christensen, and Kagerman, 2008, p. 52). The paradox of the parallel existence of two contradictory trends—a growing awareness of the competitive importance of innovative business models and the persistence of underinvestment in this area—usually has to do with how major corporations are currently organized. DECEMBER 2014 25 First of all, unlike other sorts of innovation (those associated with new products and processes), innovative business models by definition require coordinated, simultaneous changes in several key areas of a company’s operations. The risks such large-scale changes entail are many times greater than for other sorts of changes, and the cost of getting it wrong can be devastating for the entire business. This means that launching the development of a new business model, to say nothing of introducing it, demands not just routine decision making by a particular central management department (as would be the case for innovations of products or technologies), but decisive and coordinated action by the company’s top management. Today, it can be difficult for a large corporation with a complex management structure, sprawling bureaucracy, and problematic relationships among various divisions and services, to overcome inertia and turn its “corporate ship” in another direction. Numerous studies have shown that the internal organization of today’s major corporations, even those adapted to develop and introduce innovative products and technologies, often does not lend itself to recognizing and realizing new business models. When deciding which innovative projects to invest in, they tend to choose those that fit into the current business model, even if that means ignoring the ideas that offer the most promise. This tendency is one of the main reasons for Kodak’s bankruptcy, and it deprived the Xerox Corporation of an opportunity to make use of a number of interesting technological innovations (including the first personal computer) that were developed by its engineers, but later realized with great success by others.9 Furthermore, a lack of flexibility in decision making at major corporations often creates insurmountable barriers to experimenting with and testing new business models—both of which are essential. In the opinions of Karan Girotra and Serguei Netessine, “Large companies have the resources and capabilities to create and exploit business model innovation ideas on an extraordinary scale. But their failure rate is nonetheless unacceptably high because so far too many have not shown enough commitment and flexibility in the way they develop and roll them out.”10 This is why companies that manage to overcome “built-in” internal corporate barriers and unleash their innovative potential to create and—just as important—introduce innovative business models quickly become industry leaders. 26 PROBLEMS OF ECONOMIC TRANSITION The driving force behind industry revolutions The importance of innovative business models as a competitive tool for major corporations is most obvious when they prove to be the main drivers of radical industry shifts. The unique role of the transformer, a company that changes the “rules of the game” in a particular industry, is not a new phenomenon belonging exclusively to business models of recent years. In fact this role has been an important feature of the bestknown business models throughout the history of capitalism. In the 1870s, a business model conceived and realized by Swift and Co. in the United States was built around a new system for storing and transporting frozen meat and led to a complete restructuring of the meat processing industry in the United States.11 The razor/razor blade model (also known as the Gillette model) has long since been included in business school textbooks. This model—designed around the sale of one product (the razor) at a low price on the assumption that the sale of an accompanying, more highly priced product (replaceable razor blades), would assure a steady revenue stream—launched a revolution in the razor industry in the early twentieth century. First realized by the renowned American entrepreneur King Gillette in 1903, it not only forever changed “the face of the shaving world,”12 but also became a classic mechanism for generating profit that has been widely emulated in many business models today, such as by producers of jet engines (the engine/spare parts model), and in the area of photocopy technology (the copier/cartridge model), among others. In the 1930s, the new supermarket business model completely changed the retail landscape in the United States, and beginning in the 1950s it continued its triumphant advance across Western Europe. In the 1970s the low-cost airline model paved the way toward fundamental changes in international air travel, and in the 1980s, Sweden’s IKEA, with its innovative “self-assembly” model became a dominant force in essentially all the main markets for inexpensive furniture. In recent decades, the world economic environment has changed and is now even more favorable to innovative business models, which have a greatly increased potential influence on the fate of any given industry. Among several causes are this environment’s dynamism and volatility. This concerns above all the massive spread of an assortment of new and revolutionary technologies, including information and telecommunication technologies, which create unprecedented opportunities for the DECEMBER 2014 27 development and introduction of innovative business models and magnify their impact on an industry (or even across multiple industries). Second, a huge role is played by globalization processes, which have permeated virtually all sectors of the modern economy, simultaneously intensifying the effects of the interdependence and instability of world and national markets and forcing the development of new business models that take the economy’s global scale into account. Third, the heavy involvement of emerging markets in the global economy is of increasing importance, and the specific nature of these markets forces major corporations to transform business models that have been developed over years, adjusting them to adapt to widely varying circumstances. When it comes to information and telecommunications technologies, since the dawn of the new century it has been hard to find a new business model that does not take advantage of the opportunities they offer. Attempts to ignore them generally do not end well. Take the case of Blockbuster. This former U.S. video-rental leader seemed, as late as in the mid-2000s, not to notice the appearance of the Internet and was quickly squeezed out of the market by its competitor, Netflix, which put in place a more efficient and convenient model for ordering DVDs through the mail via online subscriptions. As a result, a company with billions in revenues and a huge network of outlets across the country (more than nine thousand) was forced to file for bankruptcy protection in 2010, while Netflix rapidly expanded its subscriber base to more than twenty-six million in the United States and abroad. “Netflix didn’t invent any new technology,” writes Saul Kaplan, “What Netflix invented was a new business model—the ability for the customer to avoid the trip to the video store by delivering the DVD by mail” (Kaplan, 2012, p. 6). Naturally, the information and telecommunications technologies that have taken economic life by storm have led to more than just redesigned business models that have become industry standards. They have also led to the creation of fundamentally new industries for which the process of devising even the first generation of business models is not yet complete and in and of itself serves as a field for heightened competition among new industry leaders. A good example is the Internet commerce sector, which after the dot-com boom of the 1990s and subsequent crash of most of its participants gradually acquired a rather stable industry structure with clear business models for the remaining top players. Most 28 PROBLEMS OF ECONOMIC TRANSITION major Internet companies have striven to create a large user base by engaging with them through social networks (Facebook, Twitter) or search engines (Google), games, and so on, and then “monetize” this base through online advertisements. Others have immediately attempted to activate e-commerce mechanisms, although as Amazon’s experience shows, this has not brought big profits. Recently analysts have taken note of the phenomenal growth of China’s Tencent, which has succeeded in surpassing Western global ecommerce leaders by introducing an entirely new model for monetizing its user base. This company started out—like many others in the Chinese market—by copying Western experience in the area of social networks and the spread of electronic games, but unlike some global giants (such as Google and Twitter), for a long time it remained in the shadows, acquiring weight in the domestic network space, protected against outside competition. However in September 2013, when Tencent’s market value exceeded $100 billion, surpassing Facebook (and not only by this standard but also in terms of revenues and profits), the company found itself the focus of attention by investment experts. It turned out the Tencent’s monetization model was fundamentally different from the models used by its Western competitors. Tencent energetically developed its social network, WeChat, and its instant messaging service, QQ, which has hundreds of millions of Chinese users, while at the same time introducing a fundamentally different means of generating revenue based on electronic games: as soon as users get hooked on a new game, the company offers them the opportunity to pay for additional services that “add value,” such as flashier clothing or weaponry for their avatars or a chance to visit a virtual VIP lounge, and so on. Whereas Western leaders of the global Internet industry earn approximately 80 percent of their revenue through advertisements, Tencent earns 80 percent by providing services to users for an extra charge. It is this new business model that prompted the Economist to say that Tencent has a “better business model than its Western peers” and that this model has given the company the highest shareholder total return for 2008 – 12, surpassing even such champions as Apple.13 As globalization processes become more pervasive, they shape the design of new business models in a variety of ways. On one hand, the qualitatively higher level of interpenetration and interdependence among national economies creates new opportunities for combining the DECEMBER 2014 29 best resources from various countries to shape business models that more easily withstand outside competition by relying on global networks of corporate partners. On the other, under globalization, business model life cycles have shortened due to heightened competition among a rapidly growing number of global competitors (including networks of competitors), and has accelerated the rate at which destructive effects can spread during economic downturns, which can quickly become global. A striking example of a business model resting on the principles of a global network and aspiring to become an industry standard is the one behind Boeing’s creation of the Dreamliner (a wide-bodied 787 passenger jet). The design of this innovative airplane and the process that brought it into commercial operation took international cooperation (not unusual for civil aircraft construction) to a whole new level, with first-wave suppliers alone totaling forty-four worldwide. This network model, according to experts, shifted the industry paradigm. As scholars at Aalborg University rightly point out in commenting on the consequences of globalization, “The new environment demands new competitive parameters, where the focus on internal optimization is no longer sufficient . . . . The focus has thus changed from businesses competing against businesses on BMs [business models], to networks competing against networks on BMs” (Pedersen et al., 2013, pp. 103–4). The demand for new business models has markedly increased since the beginning of the current century, when major Western corporations began accelerating their expansion into developing markets. Simply transplanting models that work in developed economies rarely works in these markets (see Bereznoi, 2014, pp. 7 – 9). The reasons for this usually boil down to a failure to fully appreciate two essential features of these markets that lead to the rejection of imported business models. First, the key characteristics of the group of consumers being targeted by Western corporations is different. Adapting products and sales methods in these new markets requires more than cosmetic adjustments tailored to local tastes and practices. Unless the tiny sliver of the population whose incomes and consumption standards differ little from those in the West is being targeted, fundamentally different approaches are needed to reach the typical consumer in emerging markets (the segment that the current expansion of Western corporations is targeting). In the words of experts from Innosight, an 30 PROBLEMS OF ECONOMIC TRANSITION international consulting firm: “Many multinationals simply import their domestic models into emerging markets. They may tinker at the edges, lowering prices . . . . But their fundamental profit formulas and operating models remain unchanged, consigning these companies to selling largely in the highest income tiers, which in most emerging markets aren’t big enough to generate sufficient returns” (Eyring, Johnson, and Nair, 2014, p. 90). At the same time, Western firms often need new business models to solve problems such as the absence in developing markets of reliable suppliers of high-quality materials and services, adequate transportation, and commercial and financial infrastructure, among other needs. For example, the American fast-food giant McDonald’s encountered a completely unfamiliar situation when it entered the Russian market in 1990. Unlike in Western countries, where the company focused on running its restaurants, outsourcing the entire supply chain, in Russia at the time no suppliers could be found that were capable of providing the necessary level of quality and the required delivery schedule. Attempts to attract traditional suppliers from Europe to invest with them in the Russian market met with failure. But McDonald’s persisted and—not giving up on the strategic decision it had made—decided to make serious changes to its tried-and-true business model and undertook to create a fundamentally new vertically integrated structure.14 These efforts and investments totaling approximately $250 million led to great success in the huge Russian market, where in an essentially new fastfood industry, McDonald’s became the undisputed leader for many years (fifteen years after opening its first restaurant, McDonald’s accounted for approximately 80 percent of fast-food sales). When it entered the Pakistani market, Telenor, the largest Norwegian mobile communications company, encountered the situation that most of the population did not use banks. This meant that the company could not receive payments using its traditional model. After several years of preparation, however, Telenor managed to transform this problem into a competitive advantage and gain a dominant market position. In 2009 the Norwegian firm launched a service called Easypasia that gave Pakistanis an easily accessible system of mobile banking that allowed customers to make payments, get cash, and even open a savings account—all with their mobile phones. The company even acquired a small local bank in order to obtain a banking license. By 2010, Easypasia was available at more than 20,000 retail outlets, offering financial services throughout DECEMBER 2014 31 Pakistan (the country’s entire banking network consisted of 8,500 branches). Although 89 percent of the country’s adult population did not use banking services, 62 percent used mobile phones. As a result of this undertaking, the number of Telenor subscribers in Pakistan grew to more than 22 million. In essence, the Norwegian mobile operator used a new technology to compensate for a largely absent banking sector and in so doing achieved unprecedented growth among the local population through the use of an unconventional business model. * * * Given the increasing instability and volatility of the economic environment, the importance of innovative business models has grown significantly as one of the most powerful tools in competition among major corporations. Competitive reality unambiguously shows that even a recognized engine of market success like technological innovation can achieve much greater power if it is integrated into an innovative business model. As European Commission experts stress, “Technologies as such do not have a specific value. Their value is determined by the business models used to bring them to a market.”15 Given this circumstance, only corporations that have armed themselves with a business innovation strategy and mastered the practice of renewing business models that take into account dynamically changing market demands and ever faster developing technologies will emerge triumphant in global competition. The development and implementation of new business models has become a strategic imperative for most of today’s large corporations. Notes 1. Until recently this company was still counted among the most respected pillars of big businesses in the United States. Founded in 1888, for the better part of a century Kodak was considered one of the most innovative corporations in the world, known for its commitment to exceptionally advanced technologies and cutting-edge marketing solutions. By 1976 the company controlled 85 percent of the American photographic camera market and 90 percent of the photographic film market. Until the 1990s, it was regularly among the five most expensive international brands. 2. Forbes, August 20, 2013; available at www.forbes.com/sites/avidan/2013/ 08/20/the-death-of-scale-is-kodaks-failure-an-omen-of-things-to-come-forcorporate-america/. 3. As American economists Raphael Amit and Christoh Zott have noted, “Rather than growing by simply bringing innovative new hardware to the market, 32 PROBLEMS OF ECONOMIC TRANSITION Apple transformed its business model to encompass an ongoing relationship with its customers . . . . In this way, Apple expanded the locus of its innovation from the product space into the business model” (Amit and Zott, 2012, p. 43). 4. The BCG analysis showed that although both groups of innovative companies had an average total shareholder return above their industry’s average, business model innovators on average earned returns four times greater than product and process innovators (Lindgardt et al., 2009, pp. 2–3). 5. ServiceSource 2014 investor relations; available at http://ir.servicesource.com. 6. As noted in a special study of the Nespresso business model, “The idea of selling coffee in capsules has now been copied many times but what is hard to copy is the entire system—the business model. This non-duplicable business model provides the foundation for sustained success” (Matzler et al., 2013, p. 36). 7. An expert comparing the day-to-day effectiveness of Virgin Blue’s and Jetstar’s business models concludes that: “As a low cost carrier, Jetstar is the reality of flying’s present and a vision of travel’s future” (“Decoding the New Economy,” April 23, 2013; available at http://paulwallbank.com/2013/04/23/jetstar-vs-virginairline-flying-in-australia/). 8. Forbes, April 10, 2012; available at www.forbes.com/sites/rahimkanani/ 2012/10/04/business-model-innovation-is-the-fastest-path-to-greatness/. 9. “Like Xerox, however,” Henry Chesbrough lamented in this regard, “companies have many more processes, and a much stronger shared sense of how to innovate technology, than they do about how to innovate business models” (Chesbrough, 2010, p. 356). 10. HBR Blog Network, September 27, 2013; available at http://blogs.hbr.org/ 2013/09/why-large-companies-struggle-with-business-model-innovation/. 11. Until 1870, livestock in the United States destined for processing plants was sent to East Coast slaughterhouses from the main livestock centers of the Midwest before being turned into fresh, packaged meats that were then sold to consumers in major cities. Swift and Co. applied a fundamentally different approach: it set up slaughterhouses in the main livestock-producing regions, supplying them with powerful cold storage facilities, and then created a system for transporting frozen meats in specially equipped train cars to the main centers of consumption. Having thus sharply reduced costs, the company was able to radically reduce prices and quickly gained the dominant position in the industry. Its competitors were forced to follow the same model, which became the industry standard. 12. See http://wiki.badgerandblade.com/History_of_Shaving. 13. Economist, September 21, 2003; available at http://lb-stage.economist.com/ news/business/21586557-chinese-internet-firm-finds-better-way-make-moneytencents-worth. 14. With the help of Moscow’s local government, several farms were found and given the means to buy modern equipment. A herd of cattle was brought in from the Netherlands and a special variety of potato from the United States. The company then built a huge production facility outside Moscow to produce prepackaged beef, frozen french fries, dairy products, and the company’s hallmark sauces and ketchups. It also had to put together its own fleet of trucks to ensure on-time deliveries to restaurants in accordance with a strict timetable. DECEMBER 2014 33 15. European Commission, New Forms of Innovation, Research and Innovation portal, December 11, 2013; available at http://ec.europa.eu/research/participants/ portal/desktop/en/opportunities/h2020/topics/2470-inso-2-2014.html. References Afuah, A. 2014. Business Model Innovation: Concepts, Analysis, and Cases. New York. Amit, R., and C. Zott. 2012. “Creating Value Through Business Model Innovation.” MIT Sloan Management Review, vol. 53, no. 3, pp. 41– 49. Bereznoi, A. 2014. “TNK na razvivaiushchikhsia rynkakh: v poiskakh uspeshnoi biznes-modeli.” Mirovaia ekonomika i mezhdunarodnye otnosheniia, no. 10: 5–17. Chesbrough, H. 2010. “Business Model Innovation: Opportunities and Barriers.” Long Range Planning, vol. 43, nos. 2/3, pp. 354–363. Economist Intelligence Unit (EIU). 2005. Business 2010: Embracing the Challenge of Change. London:. Eyring, M. J., M. W. Johnson, and H. Nair. 2011. “New Business Models in Emerging Markets.” Harvard Business Review, vol. 89, nos. 1/2, pp. 88 –95. Johnson, M., C. Christensen, and H. Kagerman. 2008. “Reinventing Your Business Model.” Harvard Business Review, vol. 86, no. 12, pp. 51–59. Kaplan, S. 2012. The Business Model Innovation Factory: How to Stay Relevant When the World Is Changing. New York. Lindgardt, Z., and C. Hendren. 2014. Doing Something New with Something Old: Using Business Model Innovation to Reinvent the Core. New York. Lindgardt, Z., et al. 2009. Business Model Innovation: When the Game Gets Tough, Change the Game. New York. Magretta, J. 2002. “Why Business Models Matter.” Harvard Business Review, vol. 80, no. 5, pp. 86 –92. Matzler, K., et al. 2013. “Business Model Innovation: Coffee Triumphs for Nespresso.” Journal of Business Strategy, vol. 34, no. 2, pp. 30– 37. Osterwalder, A. 2004. The Business Model Ontology: A Proposition in the Design Science Approach. Lausanne. Osterwalder, A., and Y. Pigneur. 2010. Business Model Generation: A Handbook for Visionaries, Game Changers, and Challengers. New York. Pedersen, K., et al. 2013. “Global Business Model: A Step into a Liquid Business Model.” Journal of Multi Business Model Innovation and Technology, vol. 1, no. 1, pp. 101–114. Shafer, S., H. Smith, and J. Linder. 2005. “The Power of Business Models.” Business Horizons, vol. 48, no. 3, pp. 199 –207. Teece, D. 2010. “Business Models, Business Strategy and Innovation.” Long Range Planning, vol. 43, no. 1, pp. 172 –194. Copyright of Problems of Economic Transition is the property of Taylor & Francis Ltd and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. Hussain A. Ali Mahdi et al | International Journal of Business Management and Economic Research(IJBMER), Vol 6(3),2015,167-177 A Comparative Analysis of Strategies and Business Models of Nike, Inc. and Adidas Group with special reference to Competitive Advantage in the context of a Dynamic and Competitive Environment Hussain A. Ali Mahdi1, Mohammed Abbas2, Taher Ilyas Mazar3 1,2,3 MBA Student, University of Bahrain, Kingdom of Bahrain Dr. Shaju George4 4 Assistant Professor, Department of Management & Marketing College of Business Administration University of Bahrain Kingdom of Bahrain Abstract: Strategy is about the most crucial and key issues for the future of organizations. Strategy is also important to explore several strategic options, investigating each one carefully before making strategic choices. The study incorporates a rigorous and systematic effort to uncover the strategies and its impact on the company’s performance by analysing case studies, articles and the annual report of Nike Inc. and Adidas Inc. The study attempts to find out the relevance of the strategies adopted by these companies, which are globally successful athletic apparel companies in the context of Bahrain. The findings of the study highlight Nike’s strategies which focus on innovation and emphasis on its research and development department, provision of premium pricing for its customers, broad differentiation strategy, market Segmentation Strategy and Closed-Loop strategy. The Adidas strategies focus on the broad differentiation, innovation, trying to produce new products, services and processes in order to cope up with the competition. It embraces a multi-brand strategy, emphasis on expanding activities in the emerging markets, continuously improving infrastructure, processes and systems, foster a culture of challenging convention and embracing change, foster a corporate culture of performance, passion, integrity and diversity. These strategies coupled with its resources and unique capabilities form the basis of sustainable competitive advantage for both the companies. Key words: Strategy, Sustainable Competitive Advantage, Product Portfolio. INTRODUCTION: The strategy is a path towards achieving the optimum goals of individuals, groups and organizations. In addition, it leads to a best use of companies' available resources and it also guides the company to stay in a business successfully and continuous improvements for its processes. The definition of strategy could be differ from one author to another, but the most common definition is that the strategy is long term plans and approaches towards the intended visions and objectives. It is a general framework that specified the organizations' plans, policies and approaches to meets its objectives, goals and end results. The way an organization used to shape its strategies could be differentiate from other organizations in order to make its products unique and remarkable. Globally, companies formulate their strategies based on their visions and reaching the satisfaction of customer's needs, requirements and expectations. Subsequently, they use those strategies as a baseline to compare their actual performance with planned ones, to evaluate the end results and ensuring the continuing organizational excellence. There are many kinds of strategies that are pursued by the companies; Such as cost leadership, differentiation and the focus strategies (Porter, 1985), services strategies, growth strategies. Based on the goals, the companies form those strategies and they rank them upon the priorities. It is more than important for any organization to put strategies and not any strategies; the correct strategies which are formulated after a long time of studying and after numerous number of brainstorming among the top management members. Therefore, those strategies then to be implemented by converting the organization's plans and policies into real actions through the best use of available resources such as: human resources, budgets and technological advance; in order to enhance the organization's performance, productivity and sustainability. www.ijbmer.com 167 Hussain A. Ali Mahdi et al | International Journal of Business Management and Economic Research(IJBMER), Vol 6(3),2015,167-177 The organization's continuous evaluation and controlling of its strategies is an aid to make ensure that the goals and objectives have been met and the appropriate strategies have been selected. Therefore, those successful strategies should be documented and retained to use them in the future's goals. But, since the goals haven't been met so the current strategies should be revised and corrected by the top management. LITERATURE REVIEW Definition of Strategy: Strategy has been studied for years by business leaders and by business theorists. Yet, there is no definitive answer about what strategy really is. One reason for this is that people think about strategy in different ways. The strategy is a configuration and formation of available resources for an organization towards meeting the needs, requirements and expectations of markets and stakeholders. It is also a long run direction and scope of an organization that determines the visions and goals (Gerry Johnson & Kevan Scholes, 2008). In addition, it is a plan leads an organization towards competitive advantage. Further, it is a pattern in actions over time and it is a position that reflects decisions to offer the organization's products or services in particular markets (Henry Mintzberg, 1994). In some cases, the strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes and goals. Also, strategy produces the principal policies and plans for achieving those goals. It defines the range of business the company is to pursue, the kind of economic and human organization intend to be (Kenneth Andrews, 1980). Strategy is about decisions taken by top management to reach a company's stability and sustainability. Moreover, it refers to basic directional decisions, that is, to purposes and missions. Strategy consists of the important actions necessary to realize these directions, and it is also the end that the company wants to reach after selecting the proper directions (George Steiner, 1979). In reality, not all business decisions are belong the strategic circle; the strategic decisions are those which doing something ‘differently’ from competitors and that difference make a sustainable advantage. Even, the activities that are used to increase productivity are not strategic since they can be easily imitated by others (M. E. Porter, 1996) Generally, Strategy is a framework that provides guidance for actions to be taken and, at the same time, is shaped by the actions taken, and it has nine possible driving forces: Products offered, Market needs, Technology, Production capability, Method of sale, Method of distribution, Natural resources, Size/growth, Return/profit (Benjamin Tregoe & John Zimmerman, 1980). Business Model: The business model is a new concept in management literature and practice. It describes the logic by which an organization can makes, keeps up and conveys esteem for its partners (Alexandru & Loan, 2013). This term is getting to be progressively utilized among scholastics and professionals. It is a rising concept in management and strategy literature, with fast development after the year 1995 (Ghaziani & Ventresca, 2005; Zott et al. 2011). In addition, it is a structural layout that depicts the organization of a central company's transactions with all of its external constituents in factor and product markets. It has been brought to the cutting edge of strategic management considering, and has turned into an especially essential new possibility figure through recent fast advances information and communication technologies specifically, Internet and broadband advancements that have encouraged new sorts of innovation intervened between financial specialists (Geoffrion & Krishnan, 2003). The study of business model is an important topic for strategic management research because it influences firms' conceivable outcomes for value creation and value capture (Amit & Zott, 2001). A newly focused business model together with ahead of schedule section into a business sector has a constructive outcome on execution (Zott & Amit, 2007). The contrast between business models and strategy is that business models are a coordination framework, coordinating the parts of a business, while the strategy organizes the competitive struggle (Magretta, 2002). Baden-Fuller and Morgan (2010) considered that this concept can furnish managers and researchers with significant approaches to grow their comprehension of business phenomena by building generic categories and the advancement of perfect sorts. Subsequently, it helps directors to catch, envision, comprehend, convey and share the business logic. Each organized effort in planning and executing a certain business model incorporates the hierarchical, as well as the departmental level, particularly to those organizational units that are most discriminating to a proper determination and blend of business components whose relationship and interdependence structures the scope and depth of the focused capability of any enterprise. In this connection, business modelling is a procedure as opposed to a state, transcendently because of the required changes, transformational or value-based, that shape the methodology of overseeing it (Drakulevski & Nakov, 2014). www.ijbmer.com 168 Hussain A. Ali Mahdi et al | International Journal of Business Management and Economic Research(IJBMER), Vol 6(3),2015,167-177 Business Strategic Perspective: Strategy has different perspectives and points of views most of them lies in the concepts of (cost leadership, differentiation and focus strategies) or a combination of them. Porter (1980) suggested the cost leadership strategy for the first time. The aim of this strategy is to reduce costs throughout the value chain and reaching the lowest cost structure possible. A cost minimizing enterprise tends to make products with an acceptable quality and very few standard features available in order to gain competitive advantage and to maximize its market share. This kinds of strategy tries to attract a wide group of customers. Cost leadership focus on the minimization and elimination of costs in fields such as Research and Development and additionally advertising. Furthermore it emphasis certain concepts such as economies of scale, cost reduction efforts through the experience curve, strict control over costs and overhead costs (Sumer, 2012). Differentiation strategy aims to develop and market unique products for different customersegments. Usually employed where a firm has clear competitive advantages, and can sustain an expensive advertising campaign (http://www.businessdictionary.com, n.d.). Because differentiation is a broad concept, this strategy should be discussed with various dimensions. We can consider the strategies related to differentiation under two groups. The first group is market differentiation. In this strategy, innovations are carried out in marketing activities instead of the product. In order to have a positive product image, intense advertising and promotional activities are so important. The objective is to make a difference in issues such as post-production service and customer service. Furthermore, it aims to maximize the sales by analyzing, planning, implementing and controlling Salesforce activities (Sumer, 2012). Some of the market differentiation strategies mentioned in earlier studies are market penetration and market development (Ansoff, 1965) market differentiators (Kim & Lim, 1988), differentiation/follower (Chang et al., 2002), customer service differentiation (Powers & Hahn, 2004). The second group is innovation differentiation. In this category of differentiation strategy the focus is to enhance product quality, performance and design. Furthermore, enterprises attempt to operate above the industry average by manufacturing a product regarded as unprecedented in the sector, charging a premium price that the customer will agree to pay because the feeling they have that the product worth paying this premium (Sumer, 2012). Some of innovation differentiation strategies mentioned in earlier literatures are product development and diversification (Ansoff, 1965), quality differentiation and design differentiation (Mintzberg, 1988). The focus strategy differs from the other strategies that in the differentiation and cost strategies the strategy is applied in a wide range of customers, whereas the firms that follow a focus strategy will apply it to a certain geographical area or a certain fraction of customers which we call market niche. Focus strategy identifies the market segments where the company can compete effectively. The strategy matches market characteristics with the company's competitive advantages to select markets where a focus of the company's resources is likely to lead to desired sales volumes, revenues and profits. (Chronicle, 2015). Business Model Perspective: The term ‘business model’ has become part of everyday language and increasingly used in these days. In spite of the fact that there is an increasing interest in the term business model by academics and business leaders, there is no common definition has been accepted by the business community (Shafer et al., 2005). The business model is “a conceptual tool that contains a set of elements and their relationships and allows expressing the business logic of a specific firm. It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams”. Because a business model is not restricted to a single firm, it might be also subject to imitation. Competitive advantage is the exclusive position a firm is able to develop in a market as a consequence of resource utilization. To have a competitive advantage the development of a successful business model is not sufficient, as barriers for imitation are often low. (Steininger) However, most researchers investigate business model in a set of questions such as: How do firms create value? How are customers made to pay for that value? How are payments transferred into profit through firminternal processes and operations? (Teece, 2010; Morris et al., 2005). It is clear that the topic of business models led to a lot of publications and literatures. It is discussed from various dimensions, such as e-business, information systems, strategy, and management. (Osterwalder & Pigneur, 2005) Mansfield & Fourie (2004) present the business model as the link between a firm’s resources, functions, and environment. www.ijbmer.com 169 Hussain A. Ali Mahdi et al | International Journal of Business Management and Economic Research(IJBMER), Vol 6(3),2015,167-177 1. 2. 3. 4. OBJECTIVES OF THE STUDY: To examine the product portfolio of Nike Inc. and Adidas Group. To identify the strategies adopted by Nike Inc. and Adidas Group. To identify the business models of Nike Inc. and Adidas Group. To compare the strategies of Nike Inc. and Adidas Group. METHODOLOGY: The information and secondary data of Nike and Adidas were collected from published books, case studies, annual reports and academic journals. Further, this exploratory study is based on case studies of Nike Inc. and Adidas Group. Archival data from company annual reports was also researched to gather information of the companies. BACKGROUND OF NIKE & ADIDAS Nike, Inc. is an American multinational corporation that is engaged in the design, development, manufacturing and worldwide marketing and selling of footwear, apparel, equipment, accessories and services. The company is headquartered near Beaverton, Oregon, in the Portland metropolitan area (USA). It is one of the world's largest suppliers of athletic shoes and apparel and a major manufacturer of sports equipment, with revenue in excess of US$24.1 billion in its fiscal year 2012 (ending May 31, 2012). As of 2012, it employed more than 44,000 people worldwide. In 2014 the brand alone was valued at $19 billion, making it the most valuable brand among sports businesses. Nike produces a wide range of sports equipment. Their first products were track running shoes. They currently also make shoes, jerseys, shorts, cleats, baselayers, etc. for a wide range of sports, including track and field, baseball, ice hockey, tennis, association football (soccer), lacrosse, basketball, and cricket. Nike Air Max is a line of shoes first released by Nike, Inc. in 1987. Additional product lines were introduced later, such as Air Huarache, which debuted in 1992. The most recent additions to their line are the Nike 6.0, Nike NYX, and Nike SB shoes, designed for skateboarding. Nike has recently introduced cricket shoes called Air Zoom Yorker, designed to be 30% lighter than their competitors'. In 2008, Nike introduced the Air Jordan XX3, a highperformance basketball shoe designed with the environment in mind. Adidas Group, was founded in a small town in Bavaria, Germany after first steps in his mother’s wash kitchen, Adi Dassler registered the “Gebrüder Dassler Schuhfabrik” in 1924 and embarked on his mission to provide athletes with the best possible equipment. Gold medals in Amsterdam (1928, Lina Radke) and Berlin (1936, Jesse Owens) were first rewards and milestones. On August 18, 1949, Adi Dassler started over again at the age of 49, registered the “Adi Dassler Adidas Sports chuhfabrik” and set to work with 47 employees in the small town of Herzogenaurach. Today, Adidas is a global public company and is one of the largest sports brands in the world. It is a household brand name with its three stripes logo recognized in markets across the world. The company’s product portfolio is vast, ranging from state-of-the-art sports footwear and clothing to accessories such as bags, watches, eyewear and other sports-related goods and equipment. Employing over 46,000 people worldwide, the Adidas Group consists of around 170 subsidiaries including Reebok, TaylorMadeAdidas Golf, Rockport and CCM-Hockey. The Group's headquarters are in Herzogenaurach, Germany. In the third quarter of 2014 the Group’s revenue was €4.118 billion. Competitive environment of the Nike & Adidas In order to scan the competitive environment of Nike and Adidas we will go through Porter’s forces. The main competitors include Nike, Adidas-Reebok, Puma, and Fila where all of them operate in the athletic footwear industry. They also need to be aware of newer competitors such as Under Armour which founded in 1996 and that might give an indicator of the difficulty to enter the footwear industry where no major entrants during the last two decades. However, some companies might be considered as threat of substitutes such as Crocs company when they are formed an alliance to sell Crocs shoes in professional teams colours (http://www.studymode.com, 2014). Adidas and Nike uses private contractors as suppliers in low wages countries such as Indonesia and Thailand and China, and therefore, they have a great deal of power over these factories and can easily switch between them. For example, Nike does not produce its own sneakers but they use private contractors in Vietnam to produce the sneakers. On the other hand, customers in the footwear industry have power because they can switch between brands easily for several reasons such as (better price, higher quality, new style etc.). However, the consumer may loss this power when they are loyal to a certain company and want only to buy their products (KINETICS, 2015). www.ijbmer.com 170 Hussain A. Ali Mahdi et al | International Journal of Business Management and Economic Research(IJBMER), Vol 6(3),2015,167-177 STRATEGIES OF NIKE & ADIDAS Strategies of Nike: Nike follows many strategies in order to become the world’s leading designer, marketer and distributor of athletic footwear, apparel and accessories. One of its strategies is continuous focus on innovation and emphasis on its research and development department and they do their best to produce footwear, apparel and athletic equipment that reduce or eliminate injury, help in athletic performance and maximize comfort and enjoyment. (Dermesropia et al., 2004). According to Nike, Innovation is at the heart of Nike’s business growth strategy and it uses this innovation in order to become more sustainable company and to keep up with the competition and customer demands (nikeandunderarmour.com, 2015). The second strategy is Nike’s premium pricing strategy (Best cost provider strategy) which targets the customers who develop a special kind of intimacy with the product that ultimately leads to the development of loyalty. Since the loyalty has been established between the company and consumers; Nike takes the advantage to associate their consumers with their price. Therefore, Nike knows that consumers will be ready to pay for the product that bears the Nike Logo (sales-management-slides.com, 2007). At the same time, Nike pays a noticeable concern towards a broad differentiation strategy. Based on that strategy, Nike produces its products for athletics in three ways. Firstly, it manufactures for three different segments of people: men, women and children. Secondly, differentiates its products by offering a variety of accessories and apparels like shoes, gym bags, gloves and skates. Thirdly, Nike has the licensees to manufacture and sell Nike brand products aside from athletic products like school supplies, electronic media devices and timepieces (Dermesropia et al., 2004). Similarly, Nike follows Market Segmentation Strategy, which assists Nike in advertisement of its products by entering into the sponsorship agreements with celebrity athletes, professional teams, and apart from the college athletic teams. It was in the year 1982 that Nike for the first time came live for national television ads during broadcast of the New York Marathon. As a result, Nike attracts many consumers to pay their attention towards buying Nike's products (nikeandunderarmour.com, 2015). In addition, Nike hires the famous basketball players, some of popular football scorers and golf superstars in order to make an emphasizing campaign for its products around the world (bizjournals.com, 2015) A worthily strategy pursued by Nike called Closed-Loop Business Model which aims to move closer to achieving zero waste by completely reusing, recycling and composting all materials. In such strategies, the products can be manufactured using materials reclaimed throughout the manufacturing process and at the end of a product's life. Thus, Innovators will create new ways to recycle and reuse waste and turn that into new products in order to become environmentally friendly. (Nikebiz.com, 2009). Strategies of Adidas: Adidas focuses more on the broad differentiation strategy. The corporate level strategy of Adidas focuses on innovation, trying to produce new products, services and processes in order to cope up with the competition. In 2014 centralised Sales Strategy & Excellency team was created to support all market across the globe and managed by the Global Sales function. The group's multi-brand portfolio gives them an important competitive advantage. This created a global sales function which were responsible for commercial activities and a global brands function which were responsible for the marketing of both brands. The global sales function was also split into two departments, wholesale and retail, which catered to the various needs of both these business models. This was done in order to sustain their corporate level strategy for the long run so that these divisions could emphasize and work hard in their respective departments in order to make the most of their efforts. (AG Strategy-overview, n.d.) They implemented a multi-brand strategy by having a diverse brand portfolio which allowed them to cater all segments of the market from players to almost everyone. This helped them to keep a unique identity and concentrate on their core competencies. Adidas focused their investments in the best marketing and distribution channels in different countries by critically evaluating the consumer buying behaviours and their constant struggle to secure prime shelf space. They have also embraced e-commerce in order to become more efficient and appeal to more customers and make purchasing much more easily accessible for them. Their supply chain is closely communicated and hence it helps them to customize their products which appeal to a wide range of customers. The organizational culture of Adidas group obligates employees to be innovative. This culture forces them to produce goods which are highly innovative and with the use of the latest technology their products have a very good quality. To become a sustainable company they find the right balance between shareholder interests and the needs and concerns of their employees, the workers in their suppliers’ factories as well as the environment. Based on information in Adidas-Salomon (2004a) with the use of latest technologies they produce products which enhances performances of players and they focus on sports such as football, tennis, basketball and even training shoes which are used by anyone with the ability to run. They updated the running shoes with www.ijbmer.com 171 Hussain A. Ali Mahdi et al | International Journal of Business Management and Economic Research(IJBMER), Vol 6(3),2015,167-177 ClimaCool, a system designed to ventilate, and a3, an energy management technology for footwear that guides and drives an athlete’s foot through each stride. [IMAGE SOURCE : http://www.adidas-group.com/media/filer_public/2b/2f/2b2fd619-5444-4ee8-9c07baa878d658c4/2014_gb_en.pdf ] (Adidas Group FINANCIAL REPORTS, 2015) BUSINESS MODEL OF NIKE & ADIDAS Nike Business Model: Nike has been the dominant leader in sports apparel industry for several decades. They achieved this position by taking an aggressive approach towards building relationships with celebrity athletes. Most notably, the company secured an exclusive contract with Michael Jordan, which generated a rapid growth in sales for their core product line of sneakers and apparel. The success of this campaign has resulted in increased demand for common stock ownership. (Nike's New Business Model, 2010) Nike shifted from traditional media and spending more money into social media. For athletes, Nike is heading off to focus in on athletes who can show a high ROI as measured by the quantity of Facebook fans and Twitter followers they have. For teams, Nike is concentrating on those that show the most activation and engagement with the most number of core fans via social media. The FuelBand, a $150 electronic bracelet that measures your movements throughout the day, whether you play tennis, jog, or just walk to work. The device won raves for its elegant design and a clean interface that lets users track activity with simple colour cues (red for inactive; green if you have achieved your daily goal). The FuelBand is the clearest sign that Nike has transformed itself into a digital force. The other innovation is the Flyknit Racer, feather light shoes vibe more like a sock on a sole. Made from knit threading rather than multiple layers of fabric, it required a complete rethink of Nike's manufacturing process. The result is a shoe that is more environmentally friendly and could reduce long-term production costs (CARR, 2013). Adidas Business Model: Adidas business model is highly focused on creating innovative products designed to meet consumer needs. Rather than investing in product endorsements, the company attempts to demonstrate its value by creating a high performance product line based on the specific needs of athletes and consumers. Further it focuses on faster product creation and production by continuously improving the infrastructure, processes and systems. Additionally they also emphasize on significantly reduced complexity on a group level by streamlining the global product range, consolidating the warehouse base as well as harmonising above market-service. The ambition to deliver the best branded shopping experiences at all consumer touch points. Innovative speed models in supply chain to respond quickly to consumer needs. This strategy has motivated investors from around the world to purchase Adidas common stock and the company has shown consistent growth for many years. The public ownership structure of each company has been an integral part of sustaining growth over the long run. www.ijbmer.com 172 Hussain A. Ali Mahdi et al | International Journal of Business Management and Economic Research(IJBMER), Vol 6(3),2015,167-177 COMPARISON AND ANALYSIS OF STRATEGIES AND BUSINESS MODELS OF NIKE & ADIDAS Nike and Adidas are the two most popular companies that deal with sporting equipment in the world. Nike and Adidas are the largest sellers of sports and athletic footwear in the world. Adidas is the second largest sporting goods manufacturer after Nike all over the world (Joachimsthaler, 2000). Nike is more popular than Adidas because of its various celebrity sponsorships, with main target being basketball players. Thus, their main market is in the States, but it has recently expanded globally. Adidas targets people involved in football and tennis. They have a major market in European countries, while being represented internationally (Joachimsthaler, 2000) Over a period of several years, Nike has shifted its focus to football with the aim of gaining the international recognition, just as Adidas dominates the world football market. The football market is usually considered to be the “World Sport” (Marketing Strategy for Adidas vs. Nike, 2015). The products of Adidas and Nike are divided into categories. Adidas sports products are divided into three main categories, with the first involving Adidas performance shoes, eye wear and perfume. The next category includes Adidas original superstar sneakers, and Vintage clothing. The third category has bags, belts, hand gloves and style caps (Hollister, 2008). On the other hand, Nike products have the first category that includes sport shoes and sunglasses by Nike. The second category includes products for body care, clothes, caps, bags, perfumes (wikivs.com, 2015). Prices of products of both Nike and Adidas are high, and Nike products’ price are overall higher than Adidas. Pricing strategy used by Adidas is that of market skimming strategy. Adidas products’ prices are dependent on looks and color. An example is where a pair of Adidas white color shoes is usually more expensive comparing with another pair of shoes of the same quality, but in a different color (Hollister, 2008). Nike use it uses the value based pricing and price leadership strategies, where the price of the product is based on the value that is placed on that particular product by the consumer. In order to remain relevant in the market, Nike uses the competitive and different pricing strategy from those of Adidas. Pricing strategies of Nike are based on premium segments as their target customers (Aaker & Joachimsthaler, 2000). The placing distribution strategy that is used by Adidas is that of concentrating most of its products and resources in places, where there are clusters of customers. This explains why it has opened many of its shops in various parts of the world. A trend developed by Adidas is where its products sold online. The company is concerned with offering the customer a satisfying service at a place, where the customer cans buy the product (Joachimsthaler, 2000). Nike, on the other hand, employs distribution strategies similar to Adidas. It explores new and developing markets around the world and sets up its shops in different countries all around the world. Distributors of the company are independent, as well as subsidiaries and licenses. It also offers online shopping for its products. However, although there is intense competition, both Adidas and Nike have continued to experience a substantial growth over the last two decades. Furthermore, the growth of these two companies is being attributed to the e-commerce and Internet. Online selling have boosted the performance of these firms, resulting in the increased sales and at the same time reducing the operational cost. Promotional strategies used by both companies are aimed at promoting their products as there is adoption of endorsement, use of magazines. Both Adidas and Nike have a unique brand promotion. Customers have in their minds that if they want to wear light weight sporting shoes, they need to go for Adidas. This explains why most basketball shoes are manufactured by Adidas. Generally, basketball players wear shoes that are of unique design and also light (Hollister, 2008). Customers view Nike as being innovator and creative, since the company comes up with new innovations and designs of new shoes styles. Therefore, the major target audience is the football players and athletes, who are instilled with the competitive idea to improve their performance. For the companies to place barriers for entry of new competitors in the market they are able to control the cost of their products; therefore, they can have a competitive advantage over the potential rivals tending to enter to the industry. They use enticing promotional programs such as making their online websites attractive for online shoppers. Both companies offer a wide range of products, including footwear, sporting equipment and apparel. They also have strong distributions channels that they control. Furthermore, both companies are creative in the design of their products. (theguardian.com, 2015) Sometimes, the two companies charge high prices associated with the provision of technological services. Strong competition is another challenge that the companies are forced to bear (Fisk, 2010). Nike and Adidas use celebrity advertisement, which can sometimes lead to the creation of negative images, especially when the celebrity engaged in unethical behaviors. It may also lead to distress, when the company grows beyond expectations and capabilities. In conclusion, Nike and Adidas brand images are outstanding, but Nike has a slightly higher competitive advantage when compared to Adidas. The competitive advantage enjoyed by Nike is related to its innovation and reputation for quality. When it comes to footwear, both companies promise their customers products that www.ijbmer.com 173 Hussain A. Ali Mahdi et al | International Journal of Business Management and Economic Research(IJBMER), Vol 6(3),2015,167-177 will provide them with the durability and comfort. Nonetheless, the difference is that the products created by Nike have higher cost, while those of Adidas cost less (Marketing Strategy for Adidas vs. Nike, 2015). Financial Comparison The profitability indicators show that Nike is performing better than Adidas. The net profit margin and return on equity of Nike is higher than Adidas. Earnings per share for both companies reach $3 by 2014. Although for the previous periods in 2013 and 2012 Nike has higher Earnings per share than Adidas. www.ijbmer.com 174 Hussain A. Ali Mahdi et al | International Journal of Business Management and Economic Research(IJBMER), Vol 6(3),2015,167-177 Additionally, Nike shows better liquidity than Adidas. The current ratios of Nike over the last 3 years are about the double of Adidas. Adidas has higher financial leverage than Adidas, which indicates that Adidas depends in debts more than Nike. Nike depends on Internal funding more than external funding. The chart below summarize the comparison of three years ( FactSet Fundamentals, 2014). www.ijbmer.com 175 Hussain A. Ali Mahdi et al | International Journal of Business Management and Economic Research(IJBMER), Vol 6(3),2015,167-177 The graph above shows a comparison of the movement of stock prices for Adidas and Nike from the period from 2010 onward. As shown in the graph both stock were moving in same direction from 2010 to 2014 where Nike moves upward drastically and there was a negative movement in Adidas during this period which means the stockholders of Nike was rewarded positively in comparison to Adidas which has a negative movement of 25% (Yahoo Finance, 2015). RESEARCH FINDINGS, COMMENTS & RECOMMENDATIONS Strategy is fundamental to the success and sustainability of any organisation it helps the organizations to understand their core capabilities, identify and address weaknesses, mitigate risks and understand the trends going to impact on their business and their industry, and how they are going to respond to them. It streamlines their business and ensures every dollar and minute they spend on the business is in the direction of their sustained success. Therefore the success or failure of the organization depends on the strategies its follows. To survive in today’s competitive business environment it is must to plan innovative and differentiation strategies. Nike and Adidas strategies helped them to survive and sustain their positions in the market. Both of companies have quite similar strategies. Adidas always challenges the world market leader Nike in sports championships. Nike strategies focus on design innovation and marketing, whereas Adidas strategies focus on reducing the production cost and time, expand its market, enhance attractiveness in terms of sports shoes and equipment. Nike is the market leader in sport footwear and apparel. REFERENCES (n.d.). Retrieved from Adidas Group: http://www.adidas-group.com/media/filer_public/2014/03/05/adidasgroup_gb_2013_en.pdf FactSet Fundamentals. (2014, April 22). University of Bahrain Library. (2014, September 9). Retrieved March 15, 2015, from http://www.studymode.com: http://www.studymode.com/subjects/competitive-analysis-of-nike-versus-adidas-page1.html Adidas Group. (n.d.). Retrieved from Adidas Group: http://www.adidas-group.com/en/group/strategy-overview/ Adidas Group. (n.d.). Retrieved from Adidas Group: http://www.adidas-group.com/en/media/news-archive/pressreleases/2010/adidas-group-presents-2015-strategic-business-plan/ Adidas Group FINANCIAL REPORTS. (2015, 3 5). Retrieved from Adidas Group: http://www.adidasgroup.com/media/filer_public/2b/2f/2b2fd619-5444-4ee8-9c07-baa878d658c4/2014_gb_en.pdf Alexandru, B., & Loan, P. (2013). Amit, R., & Zott, C. (2001). Value creation in e-business. Strategic Management Journal, 22, 493-520. Ansoff, H.A. (1965). Corporate strategy: An analytic approach to business policy for growth and expansion. New York: McGraw Hill. Baden-Fuller, C., & Morgan, M. (2010). Business models as models’. Long Range Planning, 43((2–3)), 156–171. Bizjournals. (2015). Retrieved March 20, 2105, from http://www.bizjournals.com Business.transworld. (2015). Nike Reports 2013 Revenues. Retrieved Feb 29, 2015, from http://business.transworld.net Chang, S.C., Lin, N.P., Wea, C.L., & Sheu, C. (2002). Aligning manufacturing strategy with business strategy—an empirical study in high-tech industry. International Journal of Technology Management, 24(1), 70–87. http://dx.doi.org/10.1504/IJTM.2002.003045 CARR, A. (2013). NIKE: THE NO. 1 MOST INNOVATIVE COMPANY OF 2013. Retrieved from Fast Company: http://www.fastcompany.com/most-innovative-companies/2013/nike Chronicle, H. (2015, 3 4). smallbusiness.com. Retrieved from http://smallbusiness.chron.com Drakulevski, L., & Nakov, L. (2014). Managing Business Model as Function of Organizational Dynamism. International Symposium, (pp. 37-44). Zlatibor, Serbia. www.ijbmer.com 176 Hussain A. Ali Mahdi et al | International Journal of Business Management and Economic Research(IJBMER), Vol 6(3),2015,167-177 Geoffrion, A., & Krishnan, R. (2003). E-business and management science: mutual impacts (Part 1 of 2). Management Science, 49, 1275–1286. Ghaziani, A., & Ventresca, M. J. (2005). Keywords and Cultural Change: Frame Analysis of Business Model Public Talk 1975-2000. Sociological Forum, 20(4), 523-559. Hearst Newspapers, L. (2015). Houston Chronicle . Retrieved from http://smallbusiness.chron.com http://www.businessdictionary.com. (n.d.). Retrieved from http://www.businessdictionary.com: http://www.businessdictionary.com Joachimsthaler, A. &. (2000). The Brand relationship spectrum. California Management Review. KINETICS, H. (2015, March). Five competitive forces in sport business environments . Retrieved from http://www.humankinetics.com Magretta, J. (2002). Why Business Models Matter. Harvard Business Review, 5, pp. 86-92. Marketing Strategy for Adidas vs. Nike. (2015, March). Retrieved March 28, 2015, from quality-essay.com: http://qualityessay.com/essay-samples/Business/marketing-strategy-for-adidas-vs-nike.html Media.corporate. (2015). N I K E, a growth company. Retrieved March 20, 2015, from http://media.corporateir.net/media_files Mindtools. (2015). Porter's Generic Strategies. Retrieved March 15, 2015, from http://www.mindtools.com Mintzberg, H. (1988). Generic strategy: Toward a comprehensive framework. Advances in Strategic Management, 5, 1–67. Morris, M. , Schindehutte, M., and Allen, J. (2005), “ The entrepreneurs business model: Toward a unified perspective” , Journal of Business Research, 58 , PP 726, 735 Nickols, F. (2012). Distance Consulting. Retrieved from nickols: http://www.nickols.us/strategy_definition.htm Nickols, F. (2012). Strategy: Definitions and Meaning. Retrieved March 15, 2015, from http://www.nickols.us/strategy_definition.htm Nike Case Study. (n.d.). Retrieved from Sales & Marketing slides: http://sales-management-slides.com Nikeandunderarmour. (2015). Business Strategy. Retrieved March 19, 2015, from https://sites.google.com/site/nikeandunderarmour Nikebiz. (2009). Corporate responsibilty report. Retrieved March 20, 2015, from http://www.nikebiz.com Nikeresponsibility. (2014). NIKE SUSTAINABLE BUSINESS PERFORMANCE SUMMARY. Retrieved March 19, 2015, from http://www.nikeresponsibility.com/report Nike's New Business Model. (2010, 5 8). Retrieved from Forbes: http://www.forbes.com/sites/mikeozanian/2010/08/05/nikes-new-business-model/ Powers, T.L., & Hahn, W. (2004). Critical competitive methods, generic strategies, and firm performance. The International Journal of Bank Marketing, 22(1), 43–64. http://dx.doi.org/10.1108/02652320410514924 Sagepub. (2015). Different views of strategy. Retrieved March 14, 2015, from http://www.uk.sagepub.com/upmdata/9497_019389ch1.pdf Sales-management. (2007). Nike comprehensive marketing strategy. Retrieved March 20, 2015, from http://salesmanagement-slides.com/comprehensive-marketing-strategy Shafer, S. M., Smith, H. J. and Linder, J. (2005), “ The Power of business model” Business Horizons, 48, pp 199-207 Slideshare. (2015). Nike strategic analysis. Retrieved March 19, 2015, from http://www.slideshare.net Steininger, D. M. (n.d.). EXPLORING COMPETITIVE ADVANTAGE OF SOCIAL NETWORKING SITES: A BUSINESS MODEL PERSPECTIVE. Proceedings of the 21st European Conference on Information Systems, (pp. 2,3). Strategy. (n.d.). Retrieved from Nike.INC: http://www.nikeresponsibility.com Strategy. (n.d.). Retrieved from Mind Tools: http://www.mindtools.com Sumer, K. (2012). Business Strategies and Gaps in Porter’S Typology. Journal of Management Research, 110-112. theguardian.com. (2015, April). Retrieved from http://www.theguardian.com/fashion/fashion-blog/2014/aug/22/nike-v-adidasare-you-a-swoosh-addict-or-a-stripe-aficionado Teece, D, J. (2010) “Business models, business strategy and innovation,” Long range planning. 43 pp. 172-194 Trevor slack, M. M. (n.d.). Understanding Sport Organizations: The Application of Organization Theory. wikipedia. (2015). Nike. Retrieved Feb 29, 2015, from http://en.wikipedia.org/wiki/Nike,_Inc. wikivs.com. (2015, April). Retrieved from https://www.wikivs.com/wiki/Adidas_vs_Nike Yahoo Finance. (2015, April 23). Retrieved from http://finance.yahoo.com/echarts?s=ads.DE+Interactive#%7B%22range%22%3A%225y%22%2C%22lineType%22 %3A%22combo%22%2C%22scale%22%3A%22linear%22%2C%22comparisons%22%3A%7B%22NKE%22%3A %7B%22color%22%3A%22%23cc0000%22%2C%22weight%22%3A1%7D%7D%7D Zott, C., & Amit, R. (2007). Business model design and the performance of entrepreneurial firms. Organization Science, 18(2), 181–199. Zott, C., Amit, R., & Massa, L. (2011). The business model: theoretical roots, recent developments, and future research. 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Running head: STRATEGIC RECOMMENDATIONS

Strategic Recommendations
Name
Institution

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STRATEGIC RECOMMENDATIONS

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Strategic Recommendations
The soft drink industry is quite competitive, and this is due to the increased competition
that continues to grow in the industry. It means that the competition has made the companies
continue to improve its competitive forces through the engineering of their products to make it
easy for them to compete in the market. Different factors continue to affect the operations of the
market, and this includes the trends in the market that lead to the increase in the competitive
forces. The identification of the strategies that the companies employ ensures that there is
increased competition in the market and this helps in increasing their survival in the market.
There is the need to ensure that the competitive forces are identified and the environmental
factors that guide the company in increasing the competitiveness of the business.
Environmental Forces
Various environmental forces affect the soft drinks industry, and they ensure that there is
the analysis of the issues that help in strengthening the competition that takes place in the
market. The analysis of the role that the environment plays is important in making sure that
there is guidance to the decisions on the strategies used in the company.
Political Factors
There are regulations that Coca-Cola and Pepsi have to meet, and this includes the Food
and Drug Administration that assess the products before they are sold. It means that the
companies need to adhere to the set rules and regulations as it assists in the control of the various
ways that the companies distribute the products in the environment. It also guides the various
ways in which the companies are taxed and the challenges that they meet face in the marketing
environment (Licciardello et al., 2015). The observation of the laws ensures that there is the
guidance on the operations of the business.

STRATEGIC RECOMMENDATIONS

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Economic Factors
The economic factors that affect the company include the cultures and the customs of the
different groups. It is where there are different desires and tastes in different environments, and
this means that the companies have to consider these factors before they can implement their
strategies. The creation of different flavors is an important concept in the business as it assists in
meeting the needs of the customers. There is a change in the distribution patterns of the products
as it helps in achieving the needs of the consumers in the various markets.
Social Factors
The distribution of the products in other countries needs to consider the culture of the
people, and this is where there is the identification of the alternatives that meet the tastes and the
preferences of the consumers. The determination of the changing preferences is important
especially now that the consumers are moving towards the consumption of healthy products. It
means that there is the focus on making the products that fit the different lifestyles that people
choose. The public in many cases seem to respond better in the cases where the industry is giving
them products that are healthy, and this increases their consumption patterns.
Technological Factors
The improvement in technology has helped in the development of the sector where there
is the use of the new technology in the production of the goods. It means that there is connecting
to the consumers more and ensuring that there is the ide...


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