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Commodity Chains and Marketing Strategies: Nike and the Global Athletic Footwear Industry

Miguel Korzeniewicz, Ch. 18, pp. 163-172 (Excerpted from Korzeniewicz, “Commodity Chairs and Marketing Strategies…,” in Gereffi & Korzeniewicz, eds., Commodity Chains and Global Capitalism,1994)

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Global Commodity Chains (GCC)

GCC: the complex global network of economic links which ties together groups, organizations, and regions involved in the production and distribution of goods

GCC analysis is a development of the world-system or global-system perspective (which, themselves grow out of dependency theory)

(Gereffi & Korzeniewicz, eds., Commodity Chains and Global Capitalism, 1994)

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GCC challenges idea that “development” in capitalism is contained within nation-states

Development in context of capitalism is a global process

GCC tracks the organizational, geographical, & cultural dimensions of world-wide chains for the manufacture & distribution of goods e.g.,clothing, automobiles, food, & drugs

(Gereffi & Korzeniewicz, eds., Commodity Chains and Global Capitalism, 1994)

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Focusing on the distribution segment of GCC

Inadequate attention has been paid to the design, distribution and marketing nodes within a GCC

Yet these are often the sources of innovation that allows firms to capture greater shares of wealth in a commodity chain

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Athletic footwear market shows how GCCs are embedded in cultural trends

Marketing & consumption patterns in “core” shape production patterns in peripheral and semi-peripheral countries

The social organization of advertising, fashion, and consumption shapes the networks & nodes of GCCs

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Trends in the US Athletic Shoe Market

Continued phenomenal rates of growth Highly segmented by consumer age groups Teenagers the most important consumers

Athletic shoes constructed and promoted among teens as important & visible symbol of social status and identity

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Sports footwear market highly segmented by:

Consumer age group Model/target sport Price

Price rather than appearance & functionality is the key factor differentiating athletic shoes as status symbols

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Nike Corporation has become the largest and most important sneaker company in the US

In 2004, Nike’s share of market is 42% # 2: Adidas (27%) # 3: Reebok (12%)

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The key to Nike’s rise?

ability to capture a succession of nodes along GCC, increasing its expertise and control over critical areas:

design distributionmarketing advertising

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US Athletic Footwear Industry % Market Share by Sales Volume (2004)

42

27

12

6

53 2 111

Nike

Adidas

Reebok

Puma

New Balance

Sketchers

K-Swiss

Vans

Asics

Saucony

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The most fundamental industry innovation is the creation of a market

constructing a convincing world of symbols, ideas, and values harnessing the desires of individuals to the consumption of athletic shoes (165)

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Capitalism and Commodity Fetishism – Marx (1867) Fetishism, in ancient religions, meant the belief that inanimate

objects such as icons, trees, clouds, etc., possess human properties

Fetishism is the belief that natural objects have supernatural powers, or that something created by people has power over people

In Marx's critique, commodity fetishism denotes the mystification of human relations said to arise out of the growth of capitalism, when social relationships between people are expressed as, mediated by and transformed into, objectified relationships between things (commodities and money) links the subjective aspects of economic value (exchange

value) to its objective aspects (use value) subjective=brand (image) vs. objective=product (uses)

In this formulation, Marx attempted to capture the essential nature of all ideological illusions of bourgeois society

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Pd. 1: Gaining control over import & distribution nodes of GCC (1962-1975)

Nike sells tens of millions of sneakers in the US annually, yet all manufacturing operations are conducted overseas

From the start Nike imports shoes from Japan

Nike concentrates its design, distribution, and marketing activities in the US

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Nike is the archetype of a global sourcing strategy: subcontracting

Nike originated by importing shoes from Japan It has subcontracted nearly all of its production

overseas ever since

Nike’s VP for Asia-Pacific: “We don’t know the first thing about manufacturing.”

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Pd. 2: Marketing as an upgrading strategy (1976-1984)

Nike enhances competitive position by extending control to marketing

Nike redesigns subcontracting strategy to seize new opportunities in Southeast Asia First in South Korea & Taiwan Later, China, Thailand, and Indonesia

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Pd. 3: Design, advertising, and return to the semiperiphery (post-1985) Another period of high growth based on

innovations in product design and advertising “Air Nike” comes out Nike signs its most popular endorser, Michael Jordan

Continued targeting new niche markets e.g., aerobics & athletic apparel

Subcontracting strategy changes again returns to South Korea for more specialized,

sophisticated, and experienced manufacturers

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Conclusions

Case study confirms a division of labor between core & peripheral/semi-peripheral countries Core specializing in services Periphery/semi-periphery specializing in manufacturing

Korean and Chinese firms produce the actual shoe, as US-based Nike promotes the symbolic nature of the shoe–and appropriates the greater share of value from sales