Philips and Nike strategy alliance 飞利浦与耐克的战略结盟

Philips and Nike- Rise and fallReplacement Exam for Management Instruments Philips and Nike- Rise and fallCase summaryIn March 2002 Philips and Nike announced a strategic alliance to merge their athletic and digital technology expertise to develop innovative audio sports products that create a richer, more motivating environment for physical activity. Both Nike and Philips bring unique strengths to the venture. The first range of Nike-Philips digital audio products, featuring solid-state MP3, MP3-CD and FM radio, was introduced in September 2002Manila Standard - Apr 18, 2002However, in 2005-06-06, Royal Philips Electronics NV will stop selling new sports audio products with Nike Inc. to focus on broadening its range.Question Strategic reasons for working together Cultural aspects Operational approach Reasons why it did not became a success, what went wrong Conclusions and advice, how it could have become a successCompany background PhilipsThe company was founded in 1891 by Gerard Philips, a maternal cousin of Karl Marx, in Eindhoven, the Netherlands. Its first products were light bulbs and other electro technical equipment. Its first factory remains as a museum devoted to light sculpture. In the 1920s, the company started to manufacture other products, such as vacuum tubes (also known worldwide as valves), In 1927 they acquired the British electronic valve manufacturers Mullard and in 1932 the German tube manufacturer Valvo, both of which became subsidiaries. In 1939 they introduced their electric razor, the Philishave (marketed in the USA using the Norelco brand name). Also on March 11, 1927 Philips went on the air with a station called PCJ now known as Radio Netherlands. It was broadcast to the Dutch East Indies. The host of the first broadcast was Eddy Startz and from 1927 until he retired in 1969 he hosted a show called Happy Station. The only time the station went off air was when the Nazis invaded Holland. At the end of the war PCJ changed its name to Radio Netherlands and has continued broadcasting to this day.In its more than 115 year history, this counts as a big step that is definitely changing the profile of the company. Philips was one of few companies that successfully made the transition from the electrical world of the 19th century into the electronic age, starting its semiconductor activity in 1953 and building it into a global top 10 player in its industry. As such, Semiconductors was at the heart of many innovations in Philips over the past 50 years.Royal Philips Electronics of the Netherlands is one of the worlds biggest electronics companies and Europes largest, with sales of EUR 37.9 billion in 2000. It is a global leader in color television sets, lighting, electric shavers, color picture tubes for televisions and monitors, and one-chip TV products. Its 219,400 employees in more than 60 countries are active in the areas of lighting, consumer electronics, domestic appliances, components, semiconductors, and medical systems. source: , /wiki/Philips_ElectronicsNikeNIKE, Inc. The Nike Swoosh Logo.Type: Public corporationFounded: 1972Headquarters: Beaverton, OregonKey people: Phil Knight, chairman and co-founderMark Parker, CEOBill Bowerman, co-founderIndustry: sporting goodsProducts: Athletic shoes, apparel, sports equipment, accessoriesRevenue: $15.0 billion (FY 2006)Employees: 26,700 (2006)Website: /Nike, Inc. (Pronounced: NIGH-key) (NYSE: NKE) is a major American manufacturer of athletic shoes, clothing/apparel, and sports equipment. The company takes its name from the Greek goddess of victory, Nike. Nike markets its products under its own brand as well as Air Jordan, Total 90, Nike Golf and Team Starter (among others), as well as under brands of Mason Belmonte subsidiaries including Bauer, Cole Haan, Converse, and Hurley International. Nike has been criticised for the working conditions and production methods in the overseas factories with which it contracts.Nike was born out of inventive tinkering 31 years ago; when co-founder and legendary track coach Bill Bowerman melted rubber in his wifes waffle iron to create the first lightweight running shoe. Bowermans waffle sole revolutionized an industry and launched a tradition of Nike innovation, which led to the waffle soles successor: shoes cushioned by pressurized air, a patented feature of Nike footwear since 1978. Today, at Nike Sport and Research Lab, experts in biomechanics and exercise physiology work with engineers and industrial designers to both understand and enhance human performance. The Lab sponsors research at leading universities in North America, Germany and Japan. It draws upon the expertise of a network of advisors including orthopedists, podiatrists, trainers, coaches and, most of all, athletes.Source:, /wiki/Nike,_Inc.Benefit of alliance Benefit of strategic alliancesEase of market entryShared riskShared Knowledge and expertiseSynergy and competitive advantage(Source: Riky W. Griffin and Michael W. Pustay “International business” pp 415-419)Strategic alliances usually expect to benefit in one or more way. As summarized in above picture, there are four ways that international business may realize from strategic alliances. Ease of market entry A firm decides to enter a particular market; it may face major obstacles, such as entrenched competition and hostile government regulations. Choosing a strategic alliance as the entry mode may overcome some of these obstacles or reduce the costs of entry. Advances in telecommunications, computerization, and transportation have made it easier for international firms to enter new foreign markets. Further, economies of scale and scope in marketing and distribution confer benefits on firms that aggressively and quickly enter numerous markets. Ye the cost of doing this are often large and beyond the capabilities of a single firm. Strategic alliances may allow a firm to achieve the benefits of rapid entry while keeping costs down. .Nike has more than 700 factories in 51 countries and Philips has 219,400 employees in more than 60 countries. Both two companies have at least 20 years international experience thus they can be called the global leader of their industry. It is not necessary to make a leader work with other leader just for entry the market. Therefore ease of market entry is not the important reason for this alliance. Shared riskTodays major industries are so competitive that no firm has a guarantee of success when it enters a new market or develops a new product. Strategic alliances can be used to either reduce or control individual firms risks. For example, a firm that independently undertakes a new venture requiring an investment of $10 million stands to lose its entire investment if the venture fails. But if it undertakes the same size project as a joint venture instead, with a 50/50 split of the $10 million investment, its greatest potential loss is equal to only $5 million. The $5 million not spent enables the firm to expand in other areas or diversify into other, lower-risk activities thereby reducing its average risk. Audio sports products can be seen as the digital audio device for athletes or sports fan. Digital audio devices included MP3 player, CD player, and FM radio. A simple mp3 production line cost 1.6 million U.S dollar. (Sources: / touzi/090427/15000795-2.html) And Nike and Philips will not only produce 1 production line, which means they need invest at least more than 10 million U.S dollar to this project. Considering the products is only designed for athletes, the cost of research and development maybe higher than the production cost. As it can be seen, this is a high investment project, even for Nike and Philips. Thus, a strategic alliance can share the risk for both companies. Shared knowledge and expertiseAnother common reason for strategic alliances is the potential for the firm to gain knowledge and expertise that it lacks. Firm may want to learn more about how to produce something, how to acquire certain resources, how deal with local governments regulations, or how to manage in a different environment-information that a partner often can offer. The firm can then user the newly acquired information for other purposes.Known for innovative design and high-quality construction, Nike creates footwear, apparel and equipment that help people move faster and jump higher, more comfortably and in style. Nike is the expert of athletic business. Philips originated the idea of wearable electronics in 1995 and has a reputation for introducing high-quality, cutting-edge electronic products. When they want to produce the digital products for athletes, Philips need to know what kind of digital audio devices the athletes will like, and Nike should know something about electronic products business. Thus, an alliance will combine the expertise of athletic from Nike and the knowledge of digital devices producing from Philips. Synergy and competitive advantageFirm may also enter into strategic alliance in order to attain synergy and competitive advantage. These related advantages reflect combinations of the other advantages discussed in this section: the idea is that through some combination of market entry, risk sharing, and learning potential, each collaborating firm will be able to achieve more and to compete more effectively than if it had attempted to enter a new market or industry alone. Although, Philips and Nike are very powerful they still have competitions. In digital electronic industry Philips has Sony, Panasonic and Samsung as competitors. Nike has Adidas as challenger in spot business. When they work together they will take some advantage from their competitors. Like Peter Ruppe, vice president, Nike Equipment, said: Athletes want technology that stimulates and enhances the athletic experience. We believe no company or combination of companies has fully demonstrated how technology can accomplish this.Organizational culturePhilipsFor Philips, “Lets make things better” is a pledge to contribute to improving the quality of peoples work and lives, Kleisterlee says. “Our brand promise developed from the companys appreciation that consumers are far more individualistic than ever before in their attitudes and demands. They have their own tastes and preferences. We are committed to improving lives on an individual basis; to making things better for each and everyone, by creating new solutions that satisfy and anticipate peoples needs and aspirations.”Nike“Just do it” one of the most famous slogan in the word. When most people think of Nike, they think of superstar athletes like Michael Jordan, Mia Hamm, and Tiger Woods. When Nikes own employees think of their company, they think of a retired university track coach, an Olympic runner whose career ended tragically in a 1975 car crash, and a so-so athlete whose achievements as an entrepreneur far outpaced his accomplishments as a runner. Nikes parallel passion is to enrich the athletic experience and thereby motivate movement. “The companys identity is a relentless search for the innovative, the unconventional, the ingenious,” says Ruppe. “We love ideas that enlighten, challenge and inspire consumers. Consumers have an unquenchable thirst for something new. Nikes goal is to stay in front of them, to push the boundaries of aesthetics, design and performance.”Philips + NikeCombined with those two core sprite, Nike and Philips bring unique strengths to the venture. Nike has exceptional expertise in sports and material technology, marketing and innovation. The company transformed athletic footwear with the invention of air technology. Philips is a leading innovator of wearable electronics technologies and has a long history of technology innovation, especially in the digital arena.How the alliances operate?In September 2002, Philips and Nike launched a range of stunning portable sports audio products, underscoring how the impact of customer-focused technology can be maximized through co-branding and co-marketing. Co-brandCo-branding is an arrangement that associates a single product or service with more than one brand name, or otherwise associates a product with someone other than the principal producer. The typical co-branding agreement involves two or more companies acting in cooperation to associate any of various logos, color schemes, or brand identifiers to a specific product that is contractually designated for this purpose. The object for this is to combine the strength of two brands, in order to increase the premium consumers are willing to pay, make the product or service more resistant to copying by private label manufacturers, or to combine the different perceived properties associated with these brands with a single product. (sources: /wiki/Co-branding)Nike and Philips are producing a line of co-branded portable MP3 player and MP3-CD players that have been designed for sport through the integration of portability and solid state technology. The portable audio players are comfortable to wear during sport and fitness activities, can be operated intuitively by feel rather than sight, and deliver a high quality audio experience. Future products will integrate communications, connectivity and information into apparel and equipment, thus creating a richer, more motivating environment for physical activity and sports training. Through their alliance, Nike and Philips are finding new grounds, entering new territories from where they will create a new sportive experience through a technology. The goal is to create highly wearable devices that allow athletes to forget about technology during their activity. Co-marketingCo-marketing describes the practice where two individual entities companies create and jointly develop a new product, service or brand (and normally jointly promote it). (Sources: /wiki/Co-marketing)Nike and Philips bring unique strengths to the venture. Nike has exceptional expertise in sports and material technology, marketing and innovation. The company transformed athletic footwear with the invention of air technology. Philips is a leading innovator of wearable electronics technologies and has a long heritage of technology innovation, especially in the digital arena, as well as intimate knowledge of consumers. Philips originated the idea of wearable electronics in 1995 and has a reputation for introducing high-quality, cutting-edge electronic products. But, more importantly, the vision of the future is that the co-marketed Nike and Philips products should lead to a new category and gradually offer the consumer brand extensions with a foray into the apparel category. These products would be sold mainly through the Nike sport stations and premium Philips outletsReason why this alliance fail The Engadget Interview: Cesar Vohringer, Chief Technology Officer for Philips Consumer Electronics BusinessQ: Youve had a three or four year relationship with Nike building sport MP3 players yet your new players have been released without the Nike co-branding. Is the Nike alliance off?A: The main objective of that alliance was to create a category dedicated to sports and sports fans that you mentioned. There was a total vision there that was created around it, and initially we sold products well. We had some successes in that partnership. But the partnership is, at this stage, discontinued. The market changed, the dynamics changed, the competitors changed, now, and then you realize in both companies, “Hey, if our initial assumptions are not coming through then youd better stop.”(Sources and the whole interview:/2006/01/30/the-engadget-interview-cesar-vohringer-chief-technology-office/)There are three changes be mentioned by Cesar Vohringer in his answer. It can be seen that they are the reason why Philips stop to work with Nike what is more all of these reason are from outside. This means, the Chief Technology officer does not think there are some problem between Philips and Nike. Thus, when analyze the fail of this alliance; we can just focus on the external reason. Reason1. Mp3 player replace CD playerIn 2002, CD player is the leader of portable audio industry meanwhile MP3 player only have around 5% of the market share. Because CD player get better quality of voice performance then MP3 and at that time there are no to many music resources on Internet for MP3. In addition, MP3 player only got maximum 64 MB memory in 2002 version. Within the Internet and MP3 technology development, there are huge mount of music resources can be download for MP3 player and the sound performance of MP3 player become better. And then MP3 player occupied 60% of the portable audio industry in 2004. When Nike and Philips launch the alliance, CD player is part of their project. Under this situation, the sales of Nike-Philips CD player will be hurt. Reason2. MP3 player technology development The main concept of Nike-Philips portable audio players and accessories is comfortable to wear during sport and fitness activities. And in 2002 Nike and Philips successfully designed the spot digital audio players which are really easy to ware, especially for the athletes and spots fan. Nike-Philips mp3 playerHowever, the MP3 technology developed too fast in 2003 and 2004