PESTEL/PESTLE analysis of Nike

Nike PESTEL/PESTLE analysis

Big brands that sell internationally can be subject to some unique forces which impact their sales and profits. All of these forces may not be related to business directly but can have a deep influence on it.  It has not been long since the recession passed. Everyone knows how deeply it had affected businesses. Several of the brands were on the verge of bankruptcy and several were forced to remove a large part of their workforce to remain profitable. Even the US government had to intervene to save some of the big automotive brands. The automotive industry had felt the pinch deeply during the period from 2008 to 10. Had not it been for the financial bailout provided by the government, two of the three big car-makers – GM and Chrysler might have been forced to shut down.

The condition has started improving but it seems everything will take time before things are back on track. So, you can see that government and economy are major forces that impact businesses internationally and domestically.  Had not the government’s policies been friendly in the times of recession, GM and Chrysler would have become history. However, there are other forces too including these two which we know as PESTEL forces. They have a direct effect on businesses. PESTEL is an acronym for Political, Economic, Social, Technological, Environmental and Legal. Nike is a well-known brand of sports gear and apparel.  It is also a major brand selling internationally. Apart from having customers in the international market, it also has its suppliers located internationally. Following is an analysis of how the PESTEL forces affect Nike’s business.

Political:

Government and politics may seem like forces outside the realms of business but you very well know that all depends on the type of government a nation has. An open minded government and stable political environment offers better opportunities of business and growth for the brands like Nike. However, the business environment differs from nation to nation and from market to market. It is why brands do not enjoy equal success in all the markets. Some markets are still not so open to foreign brands.  Particularly, entry into the Asian markets becomes difficult without having a local partner. Apart from it, government policies and taxes are also important factors influencing the profitability of any brand.

Political strife can also be detrimental to business performance. The last decade has seen a lot of political strife around the various corners of world.  All around the world, the political environment is not as favorable for the US brands as their home country. It is not without a reason that these big brands spend so much on lobbying. As per a report by ‘Opensecrets’, Nike’s lobbying expenditure in 2016 was $750,000.  That’s quite a big sum spent on influencing policies and policy makers. Still, brands have to do this just to make the political environment more favorable. So, the political environment in any particular nation can have a significant impact on a brand’s bottom line. After all one cannot expect to do business profitably when the tax rates are high or if there is political strife or civil unrest going on inside the nation.

Economic:

Globalization has brought the focus on the world market. It is not just the nations’ individual economies but the performance of the world economy that decides how well brands are going to perform. With declining economic performance, the customers’ purchasing power also falls. Brands cannot expect high profits when customers are cutting costs. Reduced economic activity automatically leads to a fall in business. The world economy has faced a very hard pinch during the recent years. The recession had troubled most brands. However, Nike’s performance has improved since 2011 onwards.

Year	Nike’s Revenue
2011	$20.9 billion
2012	23.33B
2013	25.33B
2014	27.79B
2015	$30.6 billion

From 2008 to 2009, Nike’s annual revenue had climbed 3 percent to $19.2 B. However, it again fell in 2010 by 1 percent to $19 B. Once the world economy grew more stable, Nike’s yearly revenue has also kept improving. From 2011 to 15, the difference is that of close to 10 billions which means  a remarkable improvement. It shows how important economic forces are in the context of international business. Apart from it, economic fluctuations also cause losses. A fluctuating currency is also not a very healthy sign for international brands. Most of them are not realizing sufficient profits because of a stronger dollar since the recession.

The impact of Covid-19 on economic activity and employment level worldwide in several important markets also caused several major brands to experience losses or reduced revenues. The pandemic had a direct impact on economic activity and spending.

Social:

The social forces are equally important for businesses trying to make it big in the international markets.  From market to market, the cultural and social structure can be vastly different. For example the Western markets differ a lot from the Eastern markets mainly for their different cultures and societies. Still, there are several trends that have a global influence. The growth in athleisure is a similar trend. People are looking for products that despite being athletic are stylish and fashionable. The athleisure market might be growing crowded but still Nike holds its own valuable position in this market. Olympics season remains highly important and profitable for Nike and competing brands. The sports frenzy is at a height in this season and sports fans buy more of athletic products. Similarly, culture is an important factor and brands may be required to alter their product styles to gain popularity in the overseas markets. Brands also do several other things to gain popularity. Now, if Nike uses a different ad in US and another one in China then it is because of the cultural differences. Culture also affects marketing and marketing expenses.

Technological:

Social media is one great example how technology can affect businesses. However, it is not just marketing, production and distribution of products are also affected by technology. Apart from it, inventory management and sourcing are all affected by the type of technology a brand uses.  Nike has mostly outsourced its production to external suppliers. Still, in other areas like inventory and distribution, its performance is affected by the use of technology. In marketing too, technology is playing a bigger and important role. Social media has opened an all new channel to access and engage customers. On Facebook, Nike has more than 27 million followers which is just a reflection of its global popularity.

Environmental/Ecological:

As environmental consciousness around the world has grown, the impact of environmental factors on business performance and profitability has also risen. Sustainability has become a major and one of the central trends in the business world.  More and more brands are focusing on reducing their environmental impact and doing business sustainably. However, it is not just a business’ operations but that of its suppliers also which affects its reputation and performance.  In past, Nike faced several protests over its environmental impact which was mainly due to the bad environmental practices by its suppliers. However, overtime Nike has managed a lot of this pressure and has framed policies making it mandatory for its suppliers to be environment friendly. Now, sustainability is linked to innovation and overall strategy at Nike. According to Nike, “Sustainable innovation is a catalyst for revolutionizing the way we do business and an opportunity that’s been integrated across our business in policies, processes and products. We are innovating solutions that benefit athletes, the company and the world”. Governments around the world have grown more and more conscious regarding environment change. They are framing policies that favor the environment friendly brands and businesses. More environment friendly business can translate to tax subsidies and other major benefits including customer loyalty. So, you see how major a force the environment and sustainability have become in the context of business. It is for this reason that brands are focused on going green.

Legal:

Law is another major force affecting the businesses around the world. Businesses are expected to comply with all the important laws in their sector and be ethical. However, not all markets have very business friendly laws. In the western markets businesses might find more friendly laws. However, in Asian countries the Red Tape and local laws are still a major hindrance to profitable operation. It may take time before countries like India and China have amended their laws to invite more of foreign business brands. Apart from it there are labor laws and product quality related laws which also differ from market to market and have an impact on the bottom line. In the past Nike has faced several lawsuits related to labor abuse and wages. Worker safety is also an important issue that has troubled Nike in the past. Legal issues can be highly damaging to a brand’s reputation and therefore must be avoided.

This was a PESTEL analysis of Nike. While a brand cannot generally control the economic, social or political factors directly, it must try to adapt to these forces to do business profitably. Apart from it the technological, environmental and legal factors have grown increasingly important and must be attended to, if a company wishes to maintain a healthy bottom line.