Kairos: Strategies just in time in the Asian athletic footwear industry
Nancy E. Landrum and David M. Boje
Pre-publication Draft of Chapter 6, To appear in Book titled: Asian Post-crisis Management Edited by Usha Haley, expected publication date 2001.
This chapter explores the ways in which strategic narratives have changed in the footwear industry from before the Asian economic crisis to the present. We examine the narrative contained in the Letters to Shareholders of the top two footwear producers in the world, Nike and Reebok, over the period 1990 to 1999.
An examination of archival documents of firms can reveal patterns of behavior of corporations. Letters to stockholders included in annual reports serve as the archival documents for this study to trace storytelling narratives. The stories told from 1990 through 1999 in letters to stockholders are a rich source of data for storytelling. "Narrators indicate the terms on which they request to be interpreted by the styles of telling they choose" (Riessman, 1993, p. 19). Thus, each style follows its own unique path of telling and evokes a series of emotions; the selection is at the discretion of the narrator.
This chapter first examines the footwear industry in the United States and China. We look at the industry in China both before the financial crisis and since the crisis; a discussion of strategic management and narrative follows. In the discussion of narrative, the genres of Frye (1957) and White (1973) are introduced and used as a model for evaluating the narrative styles found in Nike and Reebok's Letters to Shareholders. We then share our analysis of the letters and offer our conclusions.
FOOTWEAR INDUSTRY IN THE UNITED STATES
Footwear is a mature industry in the United States (Choe, 1999). Mature industries are typically
characterized by slow or no growth, intense competition for market share, for profits, and for product innovation to rejuvenate sales, increased international competition, declining profitability, and consolidation of the industry (Thompson & Strickland, 1999). Companies rely more and more on new styles and new technology to increase sales (Choe, 1999) as well as manufacturing process improvements (Thompson & Strickland, 1999). Research and design takes place in the U.S. while manufacturing takes place in low-wage countries (Shetty, 1996). Footwear is a highly labor-intensive process, resulting in the shift to offshore production and the continuing movement to countries with lower wages (International Child Labor Program, 1998; Shetty, 1996). Thus, footwear is primarily an imported product.
The United States is the largest importer of footwear in the world (Shetty, 1996). Estimates of the amount of all types of footwear imported to the U.S. range from 86 percent (Shetty, 1996) to 98 percent (Institutional Investor Americas, 2000).
Athletic Footwear Segment in the United States
Athletic footwear (Standard Industrial Classification 3149 and North American Industrial Classification System 316211) makes up the largest segment of the U.S. footwear industry. Women's athletic shoes account for more retail sales (46 percent of retail sales) than men's athletic shoes (41 percent) in the U.S. market (Choe, 1999). Sales of athletic footwear declined in 1998 in the U.S. for the first time in five years (Choe, 1999). For this reason, companies are looking for growth in international markets.
In the U.S., Nike and Reebok are the two top athletic shoe companies in terms of market share and retail sales (Figure 6.1). Nike's market share ranged from 28.24 percent in 1990 to 51.1 percent in 1998 (Sporting Goods Intelligence, 1999). Reebok's market share ranged from 21.03 percent in 1990 to 16.5 percent in 1998 and is challenging Reebok's slim lead (Sporting Goods Intelligence, 1999).
Because the industry in the U.S. is mature, recent trends have seen mergers in manufacturing and restructuring of corporate operations in an attempt to become more efficient (Choe, 1999; Sporting Goods Manufacturers Association, 2000). The industry also has an overabundance of inventory and excess retail
U.S. Market Share, 1990-1998
space (Choe, 1999; Sporting Goods Manufacturers Association, 2000), causing several retailers to close stores or go out of business. Sales of athletic footwear are expected to remain flat in the U.S. (Sporting Goods Manufacturers Association, 2000). Both Nike and Reebok appear to be trying to create an online presence through sales of footwear and apparel on their websites.
Footwear as an industry worldwide is "driven by economic conditions, demographic trends, and pricing" (Choe, 1999). In the U.S., the economy has been strong and sales have remained stable. Economic conditions in international markets also drive sales.
The baby boomer fitness craze of the 1980s saw athletic shoe sales jump from 185 million pairs in 1982 to 381 million pairs in 1991, which translates to U.S.$3.5 billion in 1982 and to $12 billion in 1991 (Fried, 1992). Athletic shoe sales in the U.S. averaged around 15 percent growth per year in the 1980s but sales of athletic footwear declined in 1998 in the U.S. for the first time in five years and the industry is considered a mature market (Choe, 1999). Sales within the industry were at $11.7 billion in 1997, virtually unchanged from 1991 (Baglole, 1999).
"Consumer and industry analysts agree the flat sales are the result of changing demographics" (Baglole, 1999). Changing consumer preferences for outdoor shoes in early 1990s and to brown shoes (brown leather casual shoes) in the mid-to-late 1990s have contributed to the decline in athletic shoe sales (Choe, 1999). Sales were once targeted to baby boomers, then to Generation X, and now to Generation Y (Choe, 1999). Generation Y individuals do not want to be considered "mainstream" (Choe, 1999). Nike believes they have oversaturated the market with their products and they are now producing products noticeably absent the swoosh logo and Nike name. In the mid-to-late 1980s, prices climbed to $100 or more for a pair of athletic shoes for the first time. Throughout the 1990s, prices consistently exceeded $100 per pair.
Nike not only dominates the U.S. market, but also dominates the worldwide athletic footwear industry with 22.51 percent market share in 1991 increasing to 33 percent by 1999 (Figure 6.2). Reebok maintains its second place position with 18.82 percent worldwide market share in 1991 falling to 16 percent by 1999. Adidas-Salomon is third with 13.63 percent world market share in 1991 and falling to 12 percent in 1999 (Sporting Goods Intelligence, 1999). Future growth in the athletic footwear industry is expected to come from international sales, particularly Europe and Asia (Choe, 1999). The greatest growth is expected in the Asian markets as the economy grows and consumer spending increases (Choe, 1999; Shetty, 1996). For this reason, events in Asia, particularly the Asian economic crisis, are critical to the future of the athletic shoe industry.
Worldwide Market Share, 1990-1999
ATHLETIC FOOTWEAR INDUSTRY IN ASIA AND CHINA
Asia produced between 60-70 percent of all sports footwear (International Standard Industrial Classification 3240) for the world in the 1990s (Darnay, 1998). Of the Asian countries, China consistently produced the most sports footwear, as shown in Table 6.1 (Darnay, 1998). Due to the importance of Asia, specifically China, to the footwear industry, information will be provided relevant to these markets.
Country of Manufacture of Athletic Footwear, 1999
People's Republic of China 40% 44%
Indonesia 30 29
Thailand 11 16
The Philippines 2
South Korea 1
PRE-ASIAN ECONOMIC CRISIS
The Overseas Chinese are a diverse group of individuals of Chinese origin who have migrated to Southeast Asia. They are most populous in Taiwan, Singapore, Malaysia, Thailand, Myanmar, and Indonesia. According to Haley, Tan, and Haley (1998), Overseas Chinese executives 'craft' strategy, consistent with the theories of Mintzberg (1987, 1994) and Mintzberg and Waters (1985). Mintzberg and his colleagues suggest that strategy can be emergent and crafted as employees respond to the environment and, over time, those responses form patterns of responses. Haley et al. (1998) argue that this accurately describes the strategic planning processes of the Overseas Chinese companies. Overseas Chinese executives frequently act on intuition and in response to their environment, based upon their intimate knowledge of their company and industry (Haley et al., 1998). This emergent strategy contradicts the rational planning process emphasized in U.S. companies. That is, in the U.S., companies are encouraged to engage in exhaustive detailed planning and to create a priori plans, rather than to allow strategy to emerge and be defined post hoc.
Hamlin (2000) states "Like Collins and Porras, Moore invokes the environmental metaphor to explain that strategy evolves as a result of many factors, and cannot be clinically devised. But is can be scientifically explained--in hindsight" (p. 157).
Haley et al. (1998) argue that as a group, the Overseas Chinese typically share a common pattern of core competencies. These competencies include their speed of decision-making, their dominant control over information, and their influential networks of familial, ethnic, and governmental contacts. We argue, however, that a core competency is unique to a company and is the source of one company's edge over competitors. If all companies engage in a pattern of behaviors, as suggested by Haley et al. (1998), this actually creates a situation of competitive parity, or behaviors necessary by all companies to effectively compete. We would, then, state that Haley et al. (1998) have identified key success factors or behaviors needed for competitive parity, rather than core competencies.
Pre-crisis corporations relied heavily on guanxi, or connections, for business success. Sixty-six percent of business executives surveyed agreed with the statement "connections are more important than strategy for a company to succeed in Asia" (Hamlin, 2000, p. 105). Explaining why he was not concerned with strategy during the booming Asian miracle years, the businessman said in effect that he could do anything and make money--even by mistake--in that heady development environment. All it took was a few friends (Hamlin, 2000, p. 156). Specifically, 79 percent of Malaysian executives, 78 percent of Indonesian, 74 percent of Taiwanese, 73 percent of Singapore, and 73 percent of South Korean executives agreed with this statement (Hamlin, 2000). Michael Porter visited pre-crisis Asia and in a conversation with a business executive it became apparent how important guanxi was to Asian business.
Prior to the economic and financial crisis, Asia had seen rapid economic development over the last several decades; dubbed "the Asian miracle." However, accompanying this economic boom had been a parallel boom in the exploitation and abuse of workers in factories throughout Asian countries. Reports of abuses and harsh discipline first began to surface in the late 1980s (Chan & Xiaoyang, 1999). Most of the footwear factories are owned and managed by Taiwanese and Hong Kong firms but they are subcontracting and manufacturing for the footwear designers, like Nike and Reebok (Chan & Xiaoyang, 1999).
In a 1996 survey of 54 footwear factories across China, it was found that management practices were authoritarian and punitive, incorporated rigid hierarchies, encouraged domination of workers, and relied on institutional discipline, including excessive working hours, discipline for going to the bathroom or taking water breaks, monetary penalties, and corporal punishment (Chan & Xiaoyang, 1999).
Many of the workers in China's factories, and all Asian factories, migrate from rural areas in search of employment in the factories. One study offers a unique glimpse into the personal lives of migrant factory workers in China. In 1993, Chan (1999) examined 65 personal letters written to Chinese factory workers from friends and family. She found that issues most discussed in the letters were references to trying to find other jobs, discussions of work hours and overtime, and discussions of physical conditions. Twenty-three letters made specific mention of wages paid at the factory, and it was discovered that 19 of those letters, or 83 percent, were paid below the government-mandated minimum wage. Furthermore, the minimum wage was paid as a day's wage and she found that the average workday for that daily minimum wage was 11.8 hours, which exceeds the 8-hour workday upon which the minimum wage is based. Workdays typically started early in the morning, allowed a break for lunch, worked several hours in the afternoon, allowed another break for dinner, and then worked several more hours into the night. These long hours lead to exhaustion and also prevent workers from seeking other employment, although virtually all letters spoke of the desire for better employment.
Eleven, or 48 percent, of the 23 letters discussing wages mentioned difficulty in obtaining these wages due to factory withholdings, irregular payments by the factory, and sporadic availability of work. While other letters did not state specific pay rates, they did mention these same difficulties in obtaining wages. In fact, it seemed that the norm was to be owed wages rather than to be paid wages. The problem was so prevalent that workers didn't know how much they were supposed to be earning and lost track of how much they were owed. If employees quit the factory they would forfeit the owed wages. This management tactic effectively prevented workers from leaving for other jobs.
In all, 46 of the 65 letters, or 71 percent, complained about some aspect of wages. These letters suggest low wages and long hours for the workers.
Wages were merely management's arbitrary manipulation of figures. Irregular small sums of money known as 'wages' were being doled out now and then to the workers. The function was not to provide a predetermined, calculable award for the worker's labor. Its purpose was to ensure that at least the workers could physically stay alive, and that they did not become so desperate as to stage protests or run away (Chan, 1999, p. 6).
Many factories provide housing and meals for workers and deduct the costs from the workers' wages. Housing varies from eight persons in bunk beds sharing one room to up to one hundred persons in bunk beds sharing a single hall in a warehouse. Factories usually provide 2-3 meals per day for workers. They generally have a lunch break and a dinner break.
Workers are also exposed to dangerous and unsafe working conditions. "The toy-making and footwear industries are particularly hazardous because of toxic solvents in the spray paints and glues that are commonly used" (Chan, 1999, p. 9). In 1994, it was found that over half of the factories in Shenzhen City were classified as hazardous according to occupational health and safety standards. Benzene is considered such a dangerous substance, causing anemia and leukemia, that it has been banned in the United States and European countries (Asia Monitor Resource Centre, 1997).
Identification cards are required for employment at factories. It was not uncommon for factories to take an employee's ID card upon hire and to refuse to return to workers their ID cards. The Chinese household registration system requires individuals to show their ID card to authorities when approached. If an individual does not have their ID card, they risk being sent back home. Thus, withholding an employee's ID card effectively prevents them from leaving the factory or seeking work elsewhere. Once inside the factory, the employee is trapped and unable to leave the factory. In some instances it was even reported that security guards bar workers from leaving the factory.
Factory conditions appear to be similar across Asia. The problems which exist in the Chinese footwear factories have also been documented in Indonesian (Ballinger & Olsson, 1997) and Vietnamese (Manning, 1997a-g) footwear factories. On a positive note, although child labor is of concern in the worldwide footwear manufacturing industry, this has not been a concern raised in Chinese factories (International Child Labor Program, 1998).
In June 1997, Andrew Young released his report of 12 manufacturers of Nike shoes (Young, 1997). Young concluded that Nike was doing a good job with its Code of Conduct, he found factories to be favorable, and he could not document reports of abuse. He did, however, state that Nike could do better. This report has been criticized for its methodology (Asia Monitor Resource Centre, 1997) and contradicts the findings of many other reports on working conditions in Asian footwear factories, such as those findings by Chan discussed above and the findings of the Asia Monitor Resource Centre and the Hong Kong Christian Industrial Committee.
In 1995 and again in June and July of 1997, the Asia Monitor Resource Centre and the Hong Kong Christian Industrial Committee conducted research on workers' rights and working conditions within athletic shoe factories operated by five major subcontractors in southern China. The factories manufacture shoes for both Nike and Reebok. Their research concludes that in the two-year period between their research visits, factory conditions deteriorated. "All categories of the companies' Code of Conduct, health and safety, freedom of association, wages and benefits, hours of working, overtime compensation, nondiscrimination, harassment and child labor, are being violated" (Asia Monitor Resource Centre, 1997, p. 2).
ASIAN ECONOMIC CRISIS
On July 2, 1997, the floating of the Thai baht triggered a currency turmoil first in Southeast Asia and then in South Korea. The whole Asian region and even the rest of the world have felt the severe impact of the crisis since then (China Daily, 1998). The crisis was caused by poor banking practices and weak financial regulations and supervision throughout Asia during periods of rapid economic growth (China Daily, 1999, June 21).
The result of the crisis was a drop in the stock market, a decrease in GDP growth, a high number of layoffs and unemployment, currency depreciation, and reduced exports. The severity of the crisis varied for each Asian country. For example, in Thailand, as many as 300,000 men and women lost their factory jobs since the economic crisis began in July 1997 (Star, 1999). Yet in Singapore, it is estimated that only 28,300 people lost their jobs and unemployment increased from 1.8 percent to only 3.2 percent (Freeman, 1999). Star (1999) states that "women are more vulnerable in times of recession." This is particularly germane since more than 80 percent of the Nike factory workers in Asia are female (Shaw, 1999).
The crisis also affected the U.S. in that exports to Asian countries decreased, tourism from Asian visitors decreased, and the U.S. economy slowed its growth (Li, 1998). In China, the government did not devalue currency and continued their efforts to grow the economy, thus resulting in a milder impact of the crisis in China (Li, 1998). Economists finally announced the end of the Asian financial crisis in November 1999 (China Daily, 1999, November 29).
POST-ASIAN ECONOMIC CRISIS
How are Nike and Reebok changing their strategies in response to the economic crisis? Three forces are defining the new face of business in post-crisis Asia: the financial crisis, globalization, and liberalization (Hamlin, 2000). The financial crisis brought a restructuring of the economy, globalization brought new standards for business, and liberalization brought more competition (Hamlin, 2000). The results of these forces are that organizations must restructure to seek out new profit zones; create new business models focused on profitable customers and based on profitability, efficiency, productivity, and quality; and begin strategic planning to increase competitiveness (Hamlin, 2000). Following traditional U.S. strategy, Asian businesses must build upon core competencies.
Nike's core competencies seem to be research and development (innovation), marketing, and globalization. Reebok doesn't seem to have well-developed core competencies. Reebok speaks of innovation and globalization, but their efforts do not seem to be effective. In 1997, Nike spent 13 percent of net revenues on R&D compared to Reebok's 6 percent. In both 1998 and 1999, Nike spent 9 percent compared to Reebok's 5 percent. Reebok consistently spent 2 percent of net revenues on advertising from 1999-1998 and they spent 3 percent in 1999. No figures are available on Nike's advertising budget.
Increasing competition between the exporters in Asian countries will lead to improved efficiency and quality, thus allowing Asian companies to charge a premium for their products (Hamlin, 2000). Will this force Nike and Reebok to move to other low-wage countries? "Transnational companies (TNC's) move production to countries where the cheapest labour and least worker protection is promised. As standards raise, over time, the companies move their production to a more 'attractive country'' (Ballinger & Olsson, 1997, p. 4). For example, a majority of Nike shoes had been manufactured in South Korea and Taiwan since the early 1970's (Ballinger & Olsson, 1997). In 1988, production began in Indonesia and by 1995, exports from Indonesia totaled nearly $3 billion (Ballinger & Olsson, 1997).
In response to criticisms that Nike flees higher wage countries (Ballinger & Olsson, 1997; Klein, 1999), Nike argues that they remain in Taiwan, South Korea, the Philippines, and Italy, despite higher wages and unionized labor rights (Nike, 2000a). They point to this as evidence that they do not flee higher wage countries in constant search of lower wage countries. However, if you look at the country of origin of their shoes (Table 6.1), it becomes evident that in 1999 the manufacturing operations in Taiwan, South Korea, the Philippines, and Italy are negligible in the overall volume of shoes manufactured for Nike and has, in fact, diminished over time. Furthermore, we see that Reebok has no manufacturing in these countries. When we track the manufacturing operations of Nike and Reebok from 1990-1999, it becomes evident that production in higher wage unionized countries has decreased while production in lower wage nonunionized countries has increased (Figures 6.3 and 6.4). Both companies show a decline in manufacturing in South Korea and an increase in manufacturing in China and Indonesia during the 1990s.
Currencies from Thailand and Korea have strengthened in value since the economic crisis, causing products imported from those countries to be more expensive (Choe, 1999). This may add further understanding to the declining manufacturing operations of Nike and Reebok in Thailand and Korea. Currency value from China has remained fixed and, therefore, China remains an inexpensive source for importing products into the U.S. (Choe, 1999). Thus, manufacturing in China still remains cost efficient for both Nike and Reebok.
There appears to be no change in labor practices, however, since the economic crisis. On October 18, 1999, Reebok released a report of independent monitoring of abuses in their factories in Indonesia (Fireman, 1999; Insan Hitawasana Sejahtera, 1999; Kirchofer, 1999; Reebok, 1999). Although the problems are serious, Reebok was applauded for not trying to hide the problem (Krupa, 1999). Reebok issued a statement of the improvements made in their Indonesian factories but there was no mention of improvements in Chinese factories (Students for Informed Career Decisions, 1999).
Nike manufacturing, 1990-1999
Reebok manufacturing, 1990-1999
We can see that the stock prices of both companies fell following the start of the Asian economic crisis in 1997 (Figure 6.5). Since 1995, there has been a noticeable change in both Nike and Reebok. Nike has increased and Reebok has decreased in market share, stock value, and annual revenues. Nike is listed as number 490 in the Fortune Global 500 (Hoover's Handbook of World Business, 1999).
Average U.S. stock prices for Nike & Reebok, 1990-1999
INTERPLAY OF NARRATIVE AND STRATEGY
Numerous individuals have discussed the use of storytelling as a management tool and the integration of storytelling with strategy (Breuer, 1998; Holden, 1999; Shaw, Brown, & Bromiley, 1998; Solovy, 1999; Lieber, 1997; Neuhauser, 1999; Turner, 1998). Strategy can be viewed as a narrative form of fiction; something created to persuade others (Barry & Elmes, 1997). Since executives serve as figureheads or spokespersons for the whole organization (Mintzberg, 1973), they are responsible for crafting and communicating the strategy.
If strategy is a story, Barry and Elmes (1997) suggest that "strategy must rank as one of the most prominent, influential, and costly stories told in organizations" (p. 429). Since stories are likely to be remembered, "cognitive science argues strongly for strategic planning through storytelling" (Anonymous, 1998, 42).
The historical tracing of Nike and Reebok text is important in discerning their strategy, or strategic posturing. Strategy is usually viewed as a meticulous process of planning, design, and implementation. However, strategy can also be viewed retrospectively and defined as a pattern of actions that combined to create a path; strategy can be emergent (Mintzberg, 1985; Mintzberg & McHugh, 1985; Mintzberg & Waters, 1987). It is in this vein that we will view the historical storytelling of Nike, Inc. and Reebok International Ltd. to discern their strategy. Through tracing Nike and Reebok stories in their letters to stockholders, we can view the patterns as indicative of their emergent strategy.
PREVIOUS RESEARCH USING ANNUAL REPORTS
Previous research has used annual reports for data. Preston, Wright, and Young (1996) note that annual reports are a "visual medium through which corporations may seek to create and manage their images" (p. 114). "Indeed, in the design and advertising literature, annual reports are frequently referred to as marketing tools and as a means of communicating a particular image or message" (Preston et al., 1996, p. 114). The images and texts within annual statements will suggest an image or message that they seek to convey to stakeholders. Their website is another text that seeks to project an image for organizations. As Riessman (1993) points out, authors of text choose the way in which they wish to be perceived by the way in which they decide to convey their image. This is why the study of text and visual images is a revealing approach to understanding and interpreting organizations. Rumelt (1974) used information found in company annual reports as one data source for his dissertation and subsequent book on diversification strategy and organizational structure.
This study used letters to shareholders from 1990 to 1999 found in the Nike and Reebok annual reports. In viewing the Nike and Reebok letters to shareholders, we were able to trace both companies' narratives on Asia and China. Table 6.2 shows the frequency with which each company mentions Asia or China in their letters from 1990 to 1999.
Frequency of Asia or China in Letters, 1990-1999
1990 1 0
1991 2 0
1992 1 0
1993 0 0
1994 1 0
1995 2 0
1996 3 1
1997 0 0
1998 8 0
1999 2 0
During the decade of the 1990s, Nike mentions Asia or China 20 times in their letters to shareholders (Table 6.2). In 1991, lines 80-83, Nike states that they are finally becoming a major player in the Asian market (Table 6.3). In 1995, lines 124-125, Nike recognized that Asia offers great growth potential for the industry and for the company and they are positioning themselves to be ready for this opportunity, lines 118-122. In 1996, lines 105-107, Nike noted the increased sales in China and reflected on their skill in capturing opportunities, lines 108-113. In 1998, lines 24-26, lines 79-103, Nike recognized the impact that the Asian financial crisis has had on the company's profitability. In 1999, lines 46-47, Nike foresees the comeback of the Asian market and continues to rely on Asia for growth in sales.
Excerpts of Nike Letters
1991 80: The payoff from overcoming all these challenges can be seen in our 81: international growth of 80% to $862 million in revenues. We are at 82: last, after many sometimes comical fits and starts, after 10 years of 83: hard work, a serious threat not only in Europe, but in Asia as well.
1995 118: Four years ago, when I talked about two Americans, a Swede and a 119: Frenchman who had gone to climb the Matterhorn before opening our new 120: European Headquarters, we had nary a national as a country manager in 121: Europe. Today, every major country is headed by a citizen of that 122: country. In the process sales have turned back up in Europe, a 123: contribution far more significant than anyone has noted in writing to 124: date. Asia is on the threshold of the greatest regional growth in 125: industry history. And Latin America has positioned itself where Asia 126: was two years ago.
1996 105: Also in that part of the world is a unique country called the People's 106: Republic of China. Sales there were $13 million, up from $7.9 million 107: the year before. It doesn't mean much in the harsh voice of 108: arithmetic, but it screams with the kind of potential NIKE is 109: especially good at developing. China is perhaps the most complicated 110: of all the markets. But we are making progress, one step at a time, 111: just like we used to say about Japan And Germany. There are a lot of 112: unusual forces that exist in China that do not exist in other markets. 113: But at the end of that enormous maze are two billion feet.
1998 24: So, what knocked us down in 1998? 25: 26: Asia ... brown shoes ... labor practices ... resignations ... layoffs... 27: boring ads. Also, we have been criticized for our headquarters 28: expansion. But understand this: We need a much bigger place to house 29: all our troubles.
72: One drag earnings that even an improved management group cannot affect 73: is Asia. This is the area we were looking to for our strongest growth, 74: over the next couple years. We will not get over $2.68 per share, our 75: 1997 number until Asia comes back for us. To come back does not mean 76: Asia has to be booming again, but it does mean we need to see the 77: bottom of the slide, so that retailers are again confident enough to 78: order several months in advance. Asia is a big part of this company's 79: heritage, and it remains a big part of our future. 80: 81: 82: 83: This is one of the things that is keeping operating expenses at an 84: abnormally high percentage of sales in the region. Still it is a great 85: long run play. But, how long is long? Well, I'm confident I will 86: personally predict the exact date of the Asia turnaround. Its just a 87: matter of how many predictions that will take. For now, I believe 88: we'll see the changes we need in two years, not five. We're a company 89: founded by distance runners - some of them pretty slow - so we have a 90: certain amount of patience. Nonetheless, we prefer to be timed by a 91: stop watch, not a calendar. 92: 93: On our labor practices: Our friends in the media are slowly becoming 94: more knowledgeable. This is good. It means that consumers are 95: actually getting informed rather than just alarmed. This, too, will 96: take time. Meanwhile, the contrasts between us and our competitors and 97: other companies in the needle trade will show more each year. 98: 99: There is an interesting relationship going on between the Asia economic 100: crisis and the labor practices issue, which would take many chairman's 101: letters to cover. Instead, let me cut straight to the moral of the 102: story: It is simply not acceptable for America to continue to be 103: "moated"
1998 129: Above all else stands the global passion for sports. Just as NIKE 130: cannot affect the resurgence of Asian economies, nations and exchange 131: rates cannot derail the competitive spirit. Athletes and the world of 132: sports they create continue to enhance the quality of life, and 133: business, for all of us.
1999 46: Asia is coming back. Despite the recent volatility, we continue to believe 47: that the Asia Pacific region offers us our best opportunities for growth.
In 1996, lines 113-121, Reebok makes their only mention of Asia in the ten-year period covered by this research (Table 6.4). Reebok expects that Asian and international growth will be key to their growth in sales. The company never again makes mention of Asia or the Asian economic crisis.
Excerpt of Reebok Letters
1996 113: Internationally, the growth potential for the Reebok brand is 114: significant. In 1996, Reebok's international revenues rose nearly 6 115: percent, with strong double-digit growth in the key regions of northern 116: Europe, Asia Pacific and new market territories. Compared to the 117: U.S., the international per capita consumption of athletic footwear 118: remains substantially lower. Continued growth of the international 119: athletic footwear industry, along with anticipated progress in Reebok's 120: business over the long run, should bode well for our Company's global 121: prospects.
In a similar analysis of strategic narratives (Landrum, 2000), Nike showed an increased usage of Epic/Design genres (Barry & Elmes, 1997; Mintzberg, 1990) in 1998 and 1999 following the start of the Asian financial crisis. This type of strategic narrative speaks of coming out of a time of change and entering into a new period of stability, as discussed above in the passages from the Nike 1998 and 1999 letters.
In 1998, Reebok peaked in usage of the Purist/Positioning genre of strategic narrative (Barry & Elmes, 1997; Mintzberg, 1990). This narrative style speaks of the personas or characterizations the company uses to describe itself and assuming the ready-made identity. Specifically, in 1998, Reebok makes frequent mention that the company stands for diversity and human values.
Nike appears to be much more tuned in to what is happening outside the U.S. and particularly in the Asian market. This is evidenced in a review of letters from 1990 to 1999. Nike is fairly consistent in mentioning Asia or China throughout the years, particularly in 1998 following the start of the economic crisis. In 1991, Nike mentions their sales growth in the Asian market, in 1995 they acknowledge that Asia is on the verge of great growth for the industry, and in 1996 they again mention the sales growth in the Asian market. In 1998, Nike recognizes that the Asian economic crisis impacted their bottom line and that the recovery of this market is key to their own financial improvements. In 1999, Nike is optimistic that the Asian market is recovering. In another analysis of the strategic narrative of the letters (Landrum, 2000), Nike notes that they are coming out of a time of change following the beginning of the Asian economic crisis and that they are entering a new period of stability.
Reebok, conversely, is fairly consistent in failing to mention Asia or China even though this is where the majority of their shoes are manufactured (Reebok International Ltd. Annual Reports) and this is the market where the greatest growth is expected (Choe, 1999; Shetty, 1996). Following the start of the Asian financial crisis, Reebok never mentions the crisis or its impact on the company. Reebok's only mention of the Asian market or China was in 1996. In this year, they mention that Asia was a strong growth market for them. Asia and China are not mentioned again, despite the importance of this market to the company. In fact, their letters following the crisis primarily focus on the humanitarian values of the company.
Nike has consistently outspent Reebok in research and development and in advertising. Both appear to be key success factors for this industry and both appear to be core competencies of Nike. Reebok's lack of strength in these areas is taking its toll on the company's market share and sales.
Nike also continues to move production to lower wage countries in an effort to become more cost efficient in this mature industry. Reebok has also followed this industry trend. However, we must conclude that Reebok's lack of focus on economic events in international arenas critical to their future has had a negative impact.
This chapter has discussed the mature footwear industry in the United States and the growth potential of the industry in international markets, particularly in Asia and China where athletic footwear is primarily manufactured. This market is viewed as the future of the athletic footwear industry (Choe, 1999; Shetty, 1996).
The Asian financial crisis began in 1997 and in late 1999 was finally declared to be over. In a review of letters to shareholders from annual reports of Nike, Inc. and Reebok International Ltd. from 1990 to 1999 we have looked for indications of changes in the strategic narrative of the two companies in the Asian market as indicative of their emergent strategy. Our review suggests that Nike is astute in monitoring the Asian market and its relationship to their growth and that Reebok is unperceptive in monitoring global issues.
Nike's primary response to the Asian financial crisis was to view this as a time of change and to seek subsequent stability. Reebok had no response to the crisis in their letters and instead focused on the humanitarian values of the company. It is reasonable to expect that Nike will continue to monitor the Asian market and strategically respond to changes in this market. Nike views the Asian market as critical to their future growth as a global company. Reebok is less attuned to international events although they recognize that international growth is key to their future success.
We would also predict that both Nike and Reebok will continue moving production to low-wage countries. If Asia becomes more competitive and wages rise, as Hamlin (2000) predicts, this could become a trigger for Nike and Reebok to search for lower wage areas of production.
We conclude that historical documents of a company, such as letters to shareholders found in annual reports, can give us a glimpse into the emergent strategy of a company. We have used the letters to shareholders from Nike, Inc. and Reebok International Ltd. annual reports from 1990 to 1999 to trace their strategic narratives related to the Asian economic crisis and to discern their emergent strategy within the Asian market.
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