Flexibility: Real Option Analysis under Risk and Uncertainty

Nike has gained manufacturing flexibility through outsourcing strategy which is also referred to ‘Real Option Analysis.’ The reasons for outsourcing its operations are to achieve larger out-put, incur less labour costs, and gain more control in the manufacturing process (Hill & Jones, 2010). Therefore, the strategy has enabled the company to be more flexible and willing to implement changes in design specifications on request from dealers. Nike implements real option analysis through subcontracting of merchandise manufacturing from cheaper sources, sourcing innovations from external design houses, and licensing of Nike’s clothing to other firms. A consequence of the strategy is that Nike has a low cost manufacturing base that is coupled with a wide distribution network hence control of risk and uncertainty. The cheap sources where the company obtains its supplies are in Asian countries such as Thailand, Japan, and China all having low labour costs.

Reference:

Hill, C. & Jones, G. (2010). Strategic Management Theory: An Integrated Approach. Ohio: Cengage Learning. Pp. 200-203