The 800-Pound Gorilla

Phil Knight, while attending Stanford's Business School, was given the assignment to write a paper on small business. He chose to research and describe the industry that fascinated him the most athletic shoes.

Working under the assumption that there was a market for track shoes that were both of higher quality and lower price than industry bellwether adidas, Knight envisioned a small company priding itself on its ability as a distributor. After graduating, Knight met with the Japanese shoe manufacturer Onitsuka, which manufactured the Tigers brand. Knight convinced Onitsuka that he could market the shoes profitably in the United States and, consequently, had samples of the shoes sent to him in Oregon.

When the samples arrived a year later, Knight contacted Bill Bowerman, his mentor and former track coach, about the prospect of providing his team with the Japanese footwear. Bowerman was thoroughly impressed with the shoes and suggested Knight secure a contractual agreement from the firm to guarantee the relationship. Bowerman believed he could help Knight market the shoe and suggested they form a partnership in which Knight handled the finances and day-to-day operations.

They each contributed $500 and started the business under the name Blue Ribbon Sports (BRS) which was run out of a storefront shop in Portland, Oregon, where Knight worked part-time selling shoes at local track meets. After shortages in working capital and cash flow from 1964 to 1966, BRS signed an agreement with Onitsuka giving it an exclusive, three-year contract to distribute Tiger track shoes in the United States.

In 1972, following numerous legal battles, distribution problems, and political infighting, the group known as BRS became Nike. In 1977, Nike began developing products in Taiwan and Korea, and by the time it was ready to enter China in 1980, Nike had achieved a 50 percent market share in the United States.

Based in Beaverton, Oregon, Nike whose name was derived from the Greek goddess of victory now boasts nearly $10 billion in annual revenue. Knight, who is still running the company, works with his 22,700 employees to maintain Nike's reputation as one of the most powerful organizations in sports. Nike has transformed itself from a regional shoe company of the 1970s to a global marketing powerhouse that today sells its products in 140 countries.

Nike's history, corporate culture, and commitment to innovation keep the firm competitive in its core operations. In particular, its corporate philosophy, characterized by its mission to "enhance people's lives through sports and fitness" and to "keep the magic of sport alive" motivate the company to penetrate new, particularly foreign, markets. Knight hinted in 1996 that Nike would indeed seek these increasingly important new markets when he suggested that sports had become the world's dominant form of entertainment.

Foreign markets were especially critical to Nike because, before too long, a majority of its employees and revenue would be generated abroad; presently 99 percent of its athletic footwear is made in Asia. Its status as a transnational company also serves Nike well in certain respects.

Transcending geographic boundaries during the production process limits a particular government's ability to intervene should a crisis emerge, as it did when Nike was believed to be exploiting its Southeast Asian factory workers by forcing them to work in deplorable circumstances. For example, Nike sold a shoe that was designed in Oregon and Tennessee. This same shoe had been developed by technicians in Taiwan and South Korea, as well as in Oregon. After receiving the required 52 different components from five different countries, the shoe was finally manufactured in South Korea and Indonesia. Such a vast production network made it difficult for the U.S. government to intervene.

Just because Nike escaped the wrath of the U.S. government, it by no means dodged a public relations and media backlash stemming from this controversy. Similarly, when small businesses operate out of several branches, for instance, don't expect that a customer service problem at one location will not resonate at headquarters. When a bank teller that works for a local, two-branch bank is rude to a customer, it is not uncommon for that customer to let the bank's president know that he or she plans on closing his or her checking account and transferring his or her CD to another institution. Patrons such as this routinely go one step further: They make everyone in their bridge club aware of the bank's shabby service.

When the 1998 U.S Olympic hockey team was eliminated after losing to Czechoslovakia, the players trashed the hotel where they were staying, embarrassing everyone associated with the team, including its official apparel provider, Nike. In this case, not treating the host city, Nagano, and the Olympics with their due respect caused great harm to the brands that attached themselves to the American team.

Because sports has become the dominant entertainment in the world, organizations that rely on it to help market goods and services must exert tremendous care whenever it is directly or indirectly on the global stage.