MSC INTERNATIONAL BUSINESS ACTIVE ACTIVE Group 9 // FOOTWEAR CLUSTER Jan. 5, 2017

Stockholm School of Economics 2

Index：

Page The title

3 MACRO ANALYSIS National/state analysis

7 CLUSTER ANALYSIS Diamond model, 7 gap

19 FIRM ANALYSIS Nike development

23 POLICY RECOMMEND Future recommendation National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation National Overview – United States

The 10 most competitive The 10 most competitive countries in the world 2 Performance Overview 3 countries in the world 1

1.Switzerland, 5.81 2.Singapore, 5,72 3.United States, 5.70 4.The netherlands, 5.57 5.Germany, 5.57 6.Sweden, 5.53 7.The United Kingdom, 5.49 8.Japan/Hong Kong, 5.48 9.Norway/ Finland, 5.44 10.Denmark, 5,35

GDP Over Time 5 Facts 4 • Population: 318,9 m • GDP/capita: 57 591 US$ Innovation, Business sophistication, market • Annual growth rate: 1,62% size, financial market development, • General gov. debt: 125% / GDP technological readiness and higher • Tax on personal income: 10,74% education and training is what drives United States position. • Unemployment rate: 4,7% • Exports as % of GDP: 12,0% National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation PESTEL ANALYSIS

o The law is derived from five sources: the constitutional law, statutory law, 8 treaties, administrative regulations, and the common law (includes case law o Federal republic o US taxes are low relative to those in other developed countries o Liberal ideology dominates political life o Taxes as a share of GDP is 26% compared to the OECD average on 34% o Two-party political system with both major parties, Democratic and Republican th o Ranks 18 in the world on the Corruption Perception Index, but still POLITICAL o America's system of government is characterized by the separation of powers 1 LEGAL indicating on a pretty low corruption level 9 o Scores 8.07 on The international Property Rights index, placing it 2nd in the NA region and 14th in the world 10 P P o U.S. is accounted for 10% of world exports L o Exports accounted for 12% of U.S. GDP o Located between Canada and Mexico E o Largest exporter in the world for commercial services and the o Strongest military and economy in the world second largest for goods 2 o Benefiting from abundant national resources o 57 591 US$ per capita o Controls the Pacific and Atlantic oceans, the most used ECONOMIC o Income inequality; 0.394. It´s one of the highest in the world trade routes in the world. E S (0=complete equality 1= complete inequality) 3 It connects Asia and Europe, historically the two largest ENVIRONMENTALo economic powers. T o They have an annual military budget of $700 billion

o No official language at the federal level but English is their national language. o 2,8% of GDP is spent on R&D which is higher than the OECD average o One in Five U.S. Residents Speaks Foreign Language at Home of total: 2,4% o One of the world's most ethnically mixed and multicultural nations 4 o 73,4% of all households have internet access o Yearly population growth rate 0,71 in 2017 5 TECHNOLOGICAL o Almost 1% of working population works in R&D SOCIAL o 47,5% of the population in age 25-34 has attained tertiary education 6 National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation

5 National Footwear Industry

APPAREL AND FOOTWEAR THE SPORTING RETAIL VALUE OF SPORTS PRODUCTS MARKET VALUE IN THE U.S. GOODS INDUSTRY THE SPORTS MARKET MANUFACTURERS SALES IN THE U.S. 2

80 33,78 370, India 33,16 358,88 32,78 32,87 31,85 70 29,64 31,38 360, § The sporting goods industry South Korea 29,58 28,17 350, 342,94 has seen many mergers and Brazil 60 Italy 340, 331,49 50 24,13 in Billionin France 23,5 323,75 acquisitions, over the years. 22,23 22,83 330, 40 21,8 20,89 21,48 316,92 United Kingdom 20,2 20,37 320, 309,98 § Key players: Reebok, , Germany 30

Value 20 13,63 14,48 14,99 15,41 310, 1 Japan 12,4 12,61 13,18 13,88 Puma and Nike. 12,3

U.S.Dollars China 10 300, 8,01 6,9 7,3 7,39 7,53 7,67 7,81 7,96 7,93 USA 5,06 5,12 290, 0 4, 4,2 4,34 4,49 4,7 4,84 5,19 2008 2009 2010 2011 2012 2013 2014 2015 2016

Market 280, 0 20 40 60 80 100 120 2011 2012 2013 2014 2015 2016** inWholesalesales billion U.S. dollars Exercise equipment Licensed merchandise Athletic footwear Sporting goods equipment Athletic apparel

Footwear is increasingly becoming a fashion accessory so the global footwear market is growing faster than ever before. There is also an increasing demand for comfortable and trendy footwear, and there is a massive demand for athletic shoes among both sports- and non- sportspersons. There are two segments within the global footwear market; non- Overview athletic footwear and athletic. Athletic footwear is further divided into running and cross training/tennis shoe, soccer/football shoe, basketball shoe, golf shoe etc. In 2016 the athletic footwear market was led by North America holding 35,6% of the overall market. In the same year, Asia Pacific accounted however for 40.5% in terms of volume.3 National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation State Overview - Oregon

250000 l 1 KEY NUMBERS KEY CLUSTERS 200000 o Activewear and Outdoor Gear Industries 150000 Population 4,16M o Natural Resource Industries

100000 o Advanced Manufacturing Industries OVERTIME Growth rate 1,68% 50000 o High Tech Industries OREGON 3 GDP o Clean/Green Technology Industries 0 High School grad. or higher 89,5% 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

BSc degree or higher 30,1% l FACTS Income/capita $27,173 o Industry clusters drive Oregon´s economy as they bring up 9th largest state in the U.S. (land area) o sales outside the state o Mountain ranges and vast forest areas are two examples of the Food prod. $3B o No focus on the clusters that are winners/losers, rather features that impact the population density looking to improve the competitive success of every industry o The state has no sales, liquor or restaurant taxes Exports, Forest prod. $500M o Oregon Industry Cluster Network were launched in 2005 to o 36 counties in the state of Oregon identify the state´s mature, emerging and potential clusters and o Port of Portland, railways, airports and ships makes international assist cluster participants 4 State Corporate Tax trade easy2 7,60% l CLUSTERS National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation CLUSTER DEVELOPMENT

o Boots’ price was $4/pair 1890s in Wisconsin while Establishment of $10/pair in Oregon3. Port of Portland: Adidas moved their HQ major transportation o The Portland Airport was Portland’s local government for two reasons: to gain for import/export2 used for military during identifies athletic shoe and the World War II. more talents in Oregon; More venture and to get a deeper Danner make contract sportswear industry’s capital focus on Jogging Culture Located In Portland understanding of 5 sports start-ups. with the military to 4 potential for growth has been provide outdoor boots3. American customers popular in the area1. 1936 1993 Cluster structures recognised (by municipality)5

1938 2002 2007

Moved to Portland from Adidas moves NA Wisconsin for higher sales HQ to Portland 1910s margins. Now both major Construction of 1918 3 1964 2005 Portland Airport – U.S. military contractors o Pre-existed outdoor lifestyle enabled Nike to increase the biggest in sales and provided Nike with more opportunities to Oregon2 collaborate with other firms. o Nike’s development also drove the growth of the area and attracted more talents. Nike predecessor o More companies were established and interactions Launch of Oregon West Coast Shoe Company was founded increased. Industry Cluster Network established：work boots by business leaders

Ecosystem starts to flourish with smaller firms, suppliers, spin-offs of Well-established Only scarce companies locates in the area. The cluster has not Government’s engagement in the cluster former Nike/Adidas employees. Competition between Nike and Adidas infrastructure. formed yet. The interactions between actors are low. starts to increasing from a low level. drives the innovation in the cluster. Pre Stage Phase I Phase II Phase III National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation

CLUSTER OVERVIEW

2017 First-ever Industry growth in the past 10 to 20 years has been propelled by the increasing popularity of outdoor recreational activities, Sneaker Week new fabrics and technologies, and the fusion of outdoor-inspired styles in to more general fashion circles. 2010 in Portland2 Pensole Footwear Design Academy was launched by D'Wayne

Edwards, the former Outdoor design director for 2013 1 Brand Jordan . Portland State University launched Athletic and Outdoor Product Management Athletic Footwear Cluster Casual Fashion

2015 launched Sports Product Management Program. Total Firms: > 8003 2010 Average Annual Wage: > $82,0003 Athletic and Outdoor Action 2017 Plan 2010-2012 identifies Employment Growth: 11.6%3 A&O as signature industry Focus groups start bringing Direct Employment: and starts several together state and private actors improvement initiatives >14,000 employee3 > 3,200 self-employed3 With more companies moving to Portland and more start-ups arising, the cluster expands and becomes more influential in the industry.

Phase III National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation CLUSTER DYNAMICS

FIRM STRATEGY, STRUCTURE AND RIVALRY Collaboration between small companies (+) High Level of Marketing (+) High Design and Testing Focus (+) F Main Rivalry: Adidas and Nike (-) Start-ups increases the level of competition (-) RELATED AND SUPPORTING INDUSTRIES Numerous related and supporting industries exist(+) DEMAND CONDITIONS R Collaboration is limited(-) Active Lifestyle (+) Titans of Fashion (+) D Sports and Jogging Culture (+) Low Population (-)

POLICY FACTOR CONDITIONS P Municipality- and industry-led initiatives (+) Infrastructure: port and airport (+) F but not down to shoe manufacturers’ level (-) Availability of Angel Fund/ VC (+) Skilled workforce (+) Well connection between education and industry (+) Research institute for innovation (+) CHANCE C Number of chance events set up local company Nike to become global player and ignite cluster formation (+)

DIAMOND MODEL National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation DEEP DIVE: FACTOR CONDITIONS In footwear companies’ value chain, there are 4 essential processes – infrastructure, research, education, and capital. Because of cost, most companies have manufacture units in Asia, but keep key elements – research – in the HQ in Oregon.

INFRASTRUCTURE RESEARCH § Well-established port and airport enable the exports/imports easier1. § Design: § Connects manufacturing in Asia and HQ in America thanks to the location – - A whole economy of freelance shoe designers6. on the west coast and easier to approach global customers. - Pensole Footwear Design Academy – launched by D'Wayne Edwards, the former design director for Brand Jordan, become known for placing graduates at top performance shoe brands from Nike to New Balance7. CAPITAL § Material: - Portland Apparel Lab(launched in 2014) connects designers to local The availability of plenty venture funds enables designers to leave big companies apparel-related businesses, resulting in a stronger, more vibrant fashion and to start their own start-ups. and sewn goods economy in the region. § Oregon Angel Fund (OAF)2 - Oregon State University provides material science programme for both One of the largest, most active venture funds in the region, cooperates undergraduates and graduates since 1980s. with Portland Athletic & Outdoor: § Function: - ‘In The Running’ Athletic and Outdoor Pitch Competition - Testing: Oregon is known for its diverse landscape of forests, mountains, (2017)3 farms and beaches, which is great for testing outdoor gears and - 5-6 A&O companies from Oregon or SW Washington win footwears8. private coaching and investment with OAS § Portland Seed Fund4 Early-stage venture fund focused on investments in Portland and the EDUCATION Pacifi Northwest § Sports Products Management programme offered by Both Portland State University - Investments in 6 apparel & outdoor companies so far and Oregon State University. § Oregon Sports Angel Fund ( 2017)5 § Close relationship with the companies in the industry7, i.e. Nike, Adidas, Columbia. A group of sports and fitness industry veterans, angel investors and § The school invites employees from these companies as guest speakers to teach entrepreneurs wants to help grow next generation sports product and student about real-world experience. service brands in the state of Oregon. National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation DEMAND CONDITIONS

02 TITANS OF FASHION ACTIVE LIFESTYLE 01 o The size and global influence of major Oregon based o 69% of Oregon residents participate in outdoor brands means that not only can they sense the market recreation each year changing and bring the knowledge to smaller local o $16.4bil in Consumer Spending in Oregon on companies, but they can also shape the market. Outdoor recreation o Nike 30 billion in revenue makes up half the us shoe o Oregon residents are more likely to participate in market camping and day hiking than the average o Major Firms with Offices in Oregon: American § Under armor o The local consumer is one of the many reasons for § Adidas success of companies based here due to Oregon § Nike being the ideal Outdoor recreation environment § Columbia Sportswear o The location forces the combination of both fashion § Hi-Tec (Holland) and function because consumers often use their § Anta (China) apparel in technical situations

JOGGING CULTURE 04 o 1963 Bill Bowerman published a pamphlet focused on SPORTS CULTURE 03 increasing physical activity with “Jogging”. For jogging o Portland Timbers you need good shoes. Portland Trailblazers o o This culture has spread throughout the United States. University of Oregon Ducks o o “The sport of running fit perfectly with the character o These sports teams act as a massive marketing Portland: in this most insular of territories arose the vehicle for all of the Portland based companies giving 05 most personal and isolating of activities.” national and international attention to the footwear cluster. LOW POPULATION o The high levels of competition for contracts with o 4 million for Oregon these teams also drives innovation and dynamism to o 640k for Portland meet and exceed the professional athletes needs. o These low populations require companies in the cluster to expand sales past state borders o Due to the ever increasing popularity of e-commerce this is no longer an issue. National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation FIRM STRATEGY, STRUCTURE AND RIVALRY

Due to the nature of the athletic footwear and fashion industry, marketing is a huge part of any firm’s strategy. HIGN LEVEL OF MARKETING

COLLARBORATION BETWEEN SMALL COMPANIES HIGH DESIGN AND TESTING FOCUS o Globalized supply chain necessitates collaboration between smaller All companies in the cluster are required to focus design companies and must work with smaller material and labor on design and materials testing as their products sourcing companies to ensure their product is made and successful on must be fashionable and create value for those the market. involved in active lifestyles. o Design collaborations are great for marketing drawing attention from customer bases of all parties involved and can often charge premium prices for such products.

ADIDAS VS NIKE IS MAIN RIVALRY - COMPETITION FOR EMPLOYEES

o Adidas bought Reebok in 2005 to compete with the American market leader Nike START-UPS INCREASE LEVEL OF COMPETITION IN LOCAL AREA/ INDUSTRY o Talent is often traded between the two firms or spills o Overflow of talent from main companies over into the cluster’s flourishing start-up scene o These highly creative smaller companies can quickly iterate design and o Nike and Adidas have mostly focused on Design, launch approved products due to their size. Imports, Distribution, Marketing, and Advertising and are now more of a focus on retail/web. National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation RELATED AND SUPPORTING INDUSTRIES The large pool of design and manufacturing talent has removed many The larger outdoor community based in Oregon requires equipment for every of the barriers to market entry for smaller firms as well. In these smaller Not all talent can be hired activity from skiing to open-ocean kayaking. Participants in each sport can benefit firms employees often have more creative freedom and quicker by the major firms in the from purpose built footwear and active wear. Equipment companies also rely advancement rates than in larger established companies.3 cluster so many students, heavily on the rest of the cluster to ensure their products are made with the highest and incoming professionals 1 quality and their brands are well managed and marketed. take their talents to smaller APPAREL companies that focus on everything from the strictly INDUSTRIAL creative side of the business CYCLING like logos and early designs, DESIGN to the more technical fields MATERIAL AND of material sourcing, PRODUCTION SOURCING production and industrial design. 3 SPORTS EQUIPMENT ACTIVE WEAR

FOOT- WEAR PRODUCT DESIGN AND CREATIVE TESTING Wherever there is a strong EDUCATION industry, one can usually find a strong center of education for that MARKETING industry. Oregon is home to many of the nations leading material and product design education Footwear is truly the center of this cluster. programs that provide companies Footwear falls within activewear, but active One of the keys to success in any industry heavily like Nike and Adidas a steady wear was often a follow-on product of based in brand is marketing. Small and large stream of highly educated talent. many of the footwear companies marketing firms support all parts of the cluster in 4 In return the cluster provides jobs themselves. order to make sure they are as locally and globally and funding to these programs.2 competitive as possible. 13 National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation

14 DEEP DIVE: POLICY LACK OF A UNIFYING GROUP OR ORGANIZATIONAL not focused enough on BODY FOR SPORTS SHOE INDUSTRY not focused enough, sports shoe industry no involvement of large players Key industry-led initiative: OREGON BUSINESS PLAN Key public actor: PORTLAND ATHLETIC & OUTDOOR § Economy-wide joint venture between Oregon Business Council, Oregon Business § Part of Prosper Portland (city of Portland’s economic development commission)5 and Industry, and Portland Business Alliance1 § Goal of creating jobs, innovation and economic opportunities in Portland with a focus on § Sponsored by companies (e.g. Nike), supported by leading political figures equality and minority involvement § Goal: to improve economic conditions within Oregon2 § Provides support to the outdoor wear cluster via ‘Portland Athletic and Outdoor’ (A&O) § 4Ps initiative: people, productivity, place, pioneering innovation § Has lead on organizing companies within the A&O cluster § Strives to improve factor conditions through various public policy § Portland A&O is more directed towards SME’s with less than 30 employees on average6 recommendations, e.g. for public spending, taxes, education § Various initiatives to support networking and knowledge exchange within the cluster § 2005: launched Oregon Industry Cluster Network3 § Peer-2-Peer: § Brings together representatives from industry clusters, economic § Forum for CEOs of growing A&O companies to come together and share development professionals, research professionals, community colleges, experiences venture capitalists § A&O Young Professionals Group: § Identifies ‘footwear, sports apparel & outdoor gear industries’ cluster4 § Industry-led group that seeks to provide opportunities for education and networking § Has given lead for cluster organization to Portland Athletic & Outdoor § Monthly meetups, 2-3 larger events per year § Oregon Outdoor Alliance (OOA) § To ‘connect and cultivate Oregon’s outdoor industry’ Private-state collaboration: FOCUS GROUPS § Regional focus on Bend § Small companies and individual membership, no connection to larger firms § 2017: series of focus groups across Oregon launched9 § 2010: ‘Athletic and Outdoor Action Plan for 2010-2012’ § Organizers: Portland A&O via Prosper Portland, Business Oregon, § Identifies A&O industry cluster as a ‘signature industry for the Portland region’ and as one of Portland State University, economic consultants; A&O industry leaders four major industries for job creation and increase economic activity in the region7 participate § Number of initiatives e.g. in leadership, entrepreneurship, sustainability § Goal: discuss industry’s competitive position and how to improve § First comprehensive effort to understand the origins and interplay of the firms that comprise Oregon’s factor conditions through 4P framework the industry8 National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation

15 DEEP DIVE: CHANCE Onitsuka Tiger (now Asics) doesn’t make shoes to Bowerman’s specs After their Japanese supplier failed to deliver shoes matching Bowerman’s and Knight’s specifications, they were forced to start developing their own. This led them Bowerman and Knight are born to experiment with various designs that resulted in and raised in Portland some of Nike’s most iconic shoes today and laid the Bill Bowerman and Phil Knight were both foundation for its technical superiority and later born and raised in Portland’s vivid outdoor success.1,2 and sports culture, with Bowerman being a sports coach to Knight. Bowerman went on to spark the jogging boom in the United States and, together with Knight, to found the predecessor of Nike. Being familiar with Oregon’s outdoor culture, they based their new venture in the state.1,2

Michael Jordan is rejected for sponsoring by Adidas After Michael Jordan was rejected for sponsorship at Adidas, he turned to Nike were he got accepted. With Michael Jordan becoming one of the most famous basketball players of his time, this sponsorship turned out to be one of the biggest boosts for Nike’s publicity and sales.3 National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation 7 GAP ANALYSIS

o No cluster organization specific to shoe industry Other firms

Education

Oregon not internationally Global Markets Research Instit. recognized as a footwear hub

FIRMS

Little cooperation with outside clusters (e.g. , Washington) Other Clusters Government No efforts tailored to active footwear cluster

Capital Provider National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation 7 GAP ANALYSIS

There is no unifying organization within the active footwear cluster.1 The most prominent private organization recognizing and supporting cluster activities is the Oregon Business Plan. (OBP). Yet, it defines a ‘footwear, sports apparel and outdoor industries’ cluster, which is too general to capture the specific active footwear cluster which is analyzed in this report. This means there are few activities that could deliver real value for the cluster firms. Symptom of this lack of focus is the fact that of the large cluster firms, only Nike is a sponsor of the OBP.2 While it is Other firms very well connected with local and state political bodies, and engages in a variety of activities bringing together different actors, it is not effective as a means to coordinate the active footwear firms among each other.

Portland and Oregon governments have recognized the significance of the active footwear cluster, yet only in the context of a wider industry scope. Portland’s development agency set up the ’Athletic & Outdoor’ cluster initiative, which comprises a much wider field that the more narrow notion of the active footwear segment. While this is a first step in recognizing the structure of the industry, it is mainly focused on SMEs. It is therefore effective in connecting a broad base of outdoor companies, but not in providing a private-public platform to involve all major Government players of the athletic footwear cluster such as Nike and Adidas.

FIRMS At this point in time Oregon is not thought of as the “Hollywood” of footwear. Paris, Milan, New York, and arguably Tokyo are the current fashion centered of the world34. Although Oregon is known as a destination for outdoor activities in the United States, it is never been associated with popular fashion5. In order to push Oregon into the world’s vision a new strategy must be developed must be done to either Global Markets rebrand the city in a way that makes it as interesting as the current centers of fashion, or to market and popularize its own brand as a hub of functional fitness wear. This will close the gap between Oregon and the global markets.

The cluster has well-established connections and cooperation with local marketing firms, and material science /design research institutes. Yet, these connections are only limited to few big firms. Besides, in terms of ICT and other high-technology(e.g. wearable tech), there is no distinct 6 Other Clusters connection discovered within the region. National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation CLUSTER ASSESSMENT

80% 75% Renaissance 60%

AGGLOMERATION DENSITY DYNAMICS LIFECYCLE POLICY With 822 companies in the wider athletic The cluster shows high levels of dynamism, Oregon’s active footwear cluster has left Local and state government have been & outdoor industry (as of 2015), and with a with continued attractiveness to new talent and the initial stages of early entrepreneurship late to recognize the existence and broad base of both large incumbents (such various incumbent firms expanding and and economics of scale, and today shows a significance of cluster structures within the as Nike, Adidas) and smaller, specialized investing in the region.2, 3, 4 With the continued varied and dynamic structure with a healthy athletic and outdoor industry. General firms and suppliers, the industry has growth of the global middle class (which is the pool of innovative and specialized firms and policy in the state is conducive to reached a dense structure.1 Although there target segment for most firms) and Oregon’s suppliers, around a few major players entrepreneurship and innovativeness. On is a lack of specific data, it can be inferred, rapidly diversifying population (which will make anchored in the region. The near-total a cluster-specific level, though, there is a that the same is true for the more specific it easier to connect to new markets), the future dominance of Nike has been challenged lack of effective government initiative to active footwear cluster. looks promising.5 Nevertheless, is remains with the arrival of Adidas, the diamond is bring together different diamond actors highly uncertain whether firms will be able to almost fully developed, and with continued involved in the active footwear cluster. effectively adapt to the challenge of technology, growth and innovative dynamics, the cluster The more general A&O organization is which will fundamentally disrupt product is entering a Renaissance phase. too focused on SMEs and fails to involve development and production, as well as the the biggest firms in the cluster. way firms interact with suppliers and customers.5 National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation COMPETING CLUSTER BOSTON FOOTWEAR CLUSTER

COMPANIES1 INNOVATION2 POPULATION5 EDUCATION4 Regional headquarters for many In 2010 the city created an High concentration of millennials in Prestigious Massachusetts Institute known athletic footwear Innovation District to facilitate Boston compared to other US of Technology located in the city of companies: Puma, New Balance, entrepreneurial activities. Many cities abeles companies to be Cambridge, metropolitan area of Saucony, Converse (owned by footwear startups have emerged closer to their target segment. Boston. University has an Nike), Reebok (owned by from the hub, such as Forsake, Compared to Portland, Boston Integrated Design and Management Adidas). 3 of them have moved Category Five, Boston Boot Co. attracts more young professionals, program (alumni become their (regional) headquarters to and To Po Athletic. Like in the which is beneficial for both, being designers). Program offers industry Boston between 2015-2016, Oregon cluster, the small close to the customer and related courses but they are not implying that the Boston cluster companies cooperate and benefit attracting talent. that specifically tailored as in the is still in its early life cycle. form the cluster. University of Oregon.

ACCESS TO TALENT3 INFRASTRUCTURE6 RESEARCH7 Boston has people with necessary training for the Logan International Airport in Boston is one of MIT Design Lab - interdisciplinary research lab. The footwear industry (design, marketing, sourcing). the busiest airports in the US (top 20, whereas lab has high focus on fabric and textile innovation. Likewise to the Oregon cluster there is a war for Portland airport is 30th). Similarly to Portland, Compared to Portland Apparel Lab, MIT Design Lab talent between different athletic footwear the city provides an access to a port. However, has more resources but is less footwear industry manufacturers and many spinoff startups formed by the sea connection with Asia is more specific and currently has only one collaboration the former employees of the large corporations. complicated due to its geographic location. with a footwear manufacturer, which is Puma.

North America is the biggest market for footwear manufacturers and the main competition for the Oregon cluster comes from the city of Boston, which is in the East Coast of the US. Although Boston footwear cluster doesn’t reach the size and the level of development of the one in Oregon, there are still many notable aspects where this cluster has a strong position. This slide includes the main benefits that the companies get by choosing the Boston cluster. National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation COMPANY DEVELOPMENT

Phil Knight and Bill Bowerman identified a market Difficulties with renewing contracts with III is worn by successful Michael Jordan gap. US didn’t have good running shoe Onitsuka Tiger and little flexibility when it came when he becomes famous. AJ III becomes one of the manufacturers. They founded Blue Ribbon and to design made Knight and Bowerman to end the most sought-after shoe lines. Although it’s a started distributing Onitsuka Tiger (now known as contract with the Japanese company. Nike was basketball shoe, it is designed to be fashionable and Asics) shoes in US West Coast.2 founded with the launch of Cortez shoe - iconic made to be worn off the court as well.3 shoe line.1

1964 1970 1971 1988 1990 NOW

First ever NikeTown opened in Portland - museum-like 4 Before Nike becomes established experimental retail store. international brand Bill Bowerman testing running shoes by taking the apart and trying them on the University of Oregon sports teams.1 Bowerman invents Waffle Sole which is tested on US Olympic team in Eugene. Breakthrough in shoe history because running shoes used to be flat, without extra cushion.1 National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation RAILWAY MODEL

Nike’s timeline includes many tracks which have been taken off their previous path. Every new decision requires a large investment and oftentimes has no returning point.The most notable changes are brought out on this running track

Distributor of the Japanese

brand Onitsuka TRACK TRACK Tiger shoes National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation NIKE’S STRATEGY IN THE OREGON CLUSTER Sweatshops 1 o Since 1972 Nike has had manufacturing units in Asia o Sweatshops require frequent visits to assure the quality and accuracy of the shoes produced o Oregon has easy access to Asia - direct flights from Portland International Airport o Imports come from Asia - Nike accounts for a large share of Port of Portland traffic

Nike’s core pillars which allow them to benefit from the cluster:

R&D 2 Innovative Design – core value 2 Marketing 3 o Nike Sports Research Lab o Core value, they differentiate by being brave o Partly in-house o Benefits from a larger talent pool and o Continuous search for design talent to maintain the o Largest external partner Wieden+Kennedy relocated to graduates from the material science production of cutting edge shoe trends Oregon in 2000 & many marketing firms in Oregon program o Benefits from a larger talent pool & Pensole Academy o In-house benefits from a larger talent pool & MSc in Sports graduates Management graduates

Education 2 Other companies in cluster 2 o Education tailored for jobs in cluster o More companies move to the cluster, it increases the o Master of Science in Sports Product Management - Course competitiveness director is former Nike employee o Attraction of more talent to the area which benefits everyone, o Pensole Footwear Design Academy - founder former Nike especially large firms like Nike who have higher headcount employee o Result - constant war for talent, but Nike has contracts which o Oregon State University - material science program don’t allow their employees to work for a competitor within 1 o The graduates of these education institutions will mostly compete year after leaving. for jobs in large firms. o The program content might be positively biased to benefit Nike as they are linked with the former employees National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation NIKE: RECENT CHALLENGES “ Slowing growth in North America – share price takes a hit 1 REASONS o Rising importance of e-commerce1 Nike has strong dependence on retail stores such as Foot Locker -> Brick-and-mortar retailers sizing down -> Negative impact on Nike sales o Missing out on the athleisure trend - retro styles and sports-inspired shoes for casual wear Adidas learned how to sell sneakers in the US2 (potential benefit of being in the cluster) -> Adidas launched an athleisure line in 2016 which became successful POTENTIAL BENEFITS FROM THE CLUSTER -> Adidas Superstar best selling shoe of 2016 o Portland boasts an artisanal environment - potential to benefit 5 -> Adidas market share increased at Nike’s expense from the creativity by hiring the right entrepreneurs to Nike o Becoming active in the cluster organizations might help Nike to overcome the challenges concerning digitalization RESPONSE o Taking advantage of the singularity of Portland - trendy culture o Nike’s response to make sure they won’t miss out essential trends in the future: narrower should help Nike designers to pick up/predict new design trends product line and faster development cycles.3 faster5 o Rethinking e-commerce. Amazon and Nike partnered up for the first time in 2017.4 o Nike could cooperate with local design houses to maintain their o Rethinking retail - the only way to compete in the saturated retail market is by design focus and not miss out on future trend waves differentiation. Nike announced in Oct 2017 that they are working together with their retail partners to reshape the future of sports apparel retail.1 National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation POLICY RECOMMENDATION

Currently Portland has 3 major sports teams. Collaboration with Through collaboration programs These three teams leave out fan-bases of the international educational with the major fashion, design, National Football League, and Major League Attract/Establish Pro institutions and tech universities of the Baseball. Adding teams from either one of these (e.g. Central St Martin’s, Parson’s, Bunka world, the image of Portland and sports will increase the access of its local Sports Teams Fashion College, Politechnico Milano, ETH Zurich) Oregon as a global hub for footwear cluster to their high-visibility customers fashion will be planted in the in the professional sports world. These teams international mind.56 also act as excellent marketing vehicles to both national and international consumers due to the global popularity of American sports.1

Other firms The establishment of an Global Markets Oregon Footwear Board will This increasing global trend is increase the capabilities of all currently untapped by many of the firms involved in the sports shoe companies. The local footwear cluster by ensuring Oregon Footwear consumer base is very interested Establish local, state, and national in sustainable and organic Board (OFB) governments are aware of materials. Policies incentivizing renewable/reusable the cluster and avoiding local shoe companies to expand in material initiatives policy changes that may this area would secure the long FIRMS damage its sustainability. The term prospects of the shoe board will also help firms in industry and the materials in the the cluster stay on top of company. The portland based national and global trends company looptworks is a pioneer that may affect business. in this field.2 Other Clusters Government

By increasing funding and manpower of the Export As the history centers for labor become Promotion Program, Oregon and Portland can more developed, the price of labor in strengthen its image as the world’s leading location Broaden activities of Establish a center of these countries will increase. By investing in 3 for shoe design. Export Promotion excellence for digital robotics and high tech manufacturing Program transformation techniques, Portland, and Oregon can The more exports and products from Portland the ensure the long term health of their world sees, the stronger the association with footwear cluster. Portland will become.4 National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation POLICY RECOMMENDATION

Recommendation Firm-to-Firm Firm-to-Government Firm-to-Cluster Firm-to-Global Markets

Increase government intervention Oregon Footwear Board (OFB) in the cluster formation

Helps SMEs enter and establish Broaden Activities Of Export Increases exchange between Helps SMEs build collaborations themselves in international Promotion Program SMEs and local government with other clusters markets

Drives collaboration with Establish a Center Of Excellence Help SMEs to increase their technology-oriented cluster (E.G. For Digital Transformation competitiveness Silicon valley) Competing for business with the Raises awareness for Oregon as a sports teams and collaborating Attracts other sports/textile Attract/Establish Pro Sports sports center with other firms to provide oriented clusters to Te a m s services and products for them Oregon/Portland closes the gap between firms.

Establish Renewable/Reusable Would create a new trend at the Encourages collaboration with Raises awareness of Oregon Materials market and among other firms other clusters E.G. In research cluster as center of sustainability

Collaboration With International Raises awareness for Oregon Educational Institutions (E.G. cluster among designers and Central St Martin’s, Parson’s, researchers (E.G. With regards to Bunka Fashion College, future startups) Politechnico Milano, ETH Zurich) National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation UPGRADED DIAMOND MODEL FIRM STRATEGY, STRUCTURE AND RIVALRY RELATED AND SUPPORTING INDUSTRIES Government efforts targeted directly to the footwear F The recommended policy changes increase the attractiveness of cluster(Oregon Footwear Board, export program, center of R Oregon for business in other industries such as research, sports, excellence) will increase the competitiveness of, and competition textiles and technology. The policy changes also improve within the cluster. This will lead to a stronger cluster overall and a competitiveness within the cluster adding value over time to greater global focus on Oregon as a hotspot for footwear and design. moving, or creating a business within the cluster. The more Start-up initiatives can also help early stage companies get networked competition and more business is attracted the greater the and improve their chances for success drawing further investment spillover effect will be leading more available talent for related and and attention to Oregon. supporting industries. DEMAND CONDITIONS POLICY Establishing more professional sports teams in Oregon improves the D Creation of Oregon Footwear Board brings policymakers closer sophistication and overall level of demand due to the high level P to the firms in the cluster which makes it easier for the firms to product required by professional athletes. This will also boost the get their preferences represented on a higher level. The creation image of Oregon as a center for athletics and footwear related to of a board will also make it easier to contact and support the these activities. Launching renewable materials initiatives expands cluster while also providing a voice to the smaller companies. potential demand pool for Oregon footwear products to include Not only will policy change demands be easier to make with a customers who are more environmentally conscious and consolidated voice, but the voice of smaller companies will also sustainability minded. Renewable materials initiatives will also ensure that policy changes do not increase hardship for early increase the amount of businesses involved in the sector, boosting stage businesses. chances for innovation, and improving cluster benefits. FACTOR CONDITIONS CHANCE Collaboration with international education institutions improves the F Improved dynamics of the cluster attract other industries into the skilled workforce flow into the cluster. This skilled workforce will C region which in turn diversify the Oregon industry mix. More also bring families who can improve on other parts of the cluster that diversification diminishes the possible negative impact of chance may have looser ties to footwear. The more international a city is, events (e.g. economic downturn) on Oregon’s economy. the easier it is for foreign investment and resources to be used. Improved dynamics also ensure a stronger more flexible position These resources will increase the viability of business at any stage and DIAMOND for Oregon’s businesses in the event a quick pivot or change in the international attention will further secure Oregon as a center for MODEL strategy is necessary (e.g. a resource shortage, or market design and footwear. Establishing more pro sports teams positively disruption). The improved stability impacts the sport culture in the region which will drive demand and investment into better equipment and improved training techniques. National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation References

Page 3 National Overview 3. Transparencymarketresearch.com. (2018). Footwear Market Size, Share, Growth | Emerging Trends, Forecast 2017 - 1. Lianna Brinded, B. (2018). The 31 most competitive countries in the world. [online] The Independent. Available at: 2025. [online] Available at: https://www.transparencymarketresearch.com/footwear-market.htm http://www.independent.co.uk/news/world/the-31-most-competitive-countries-in-the-world-a7335231.html 2. Branch, F. (2018) Foreign Trade – U.S. Trade with .. [online] Census. Gov. Avvailable at: Page 6 State Overview - Oregon https://www.census.gov/foreign-trade/statistics/highlights/toppartners.html 1. Fred.stlouisfed.org. (2018). Total Gross Domestic Product for Oregon. [online] Available at: 3. Anon, (2018). The global competitiveness report. [online] Available at: https://fred.stlouisfed.org/series/ORNGSP http://nmi.is/media/338436/the_global_competitiveness_report_2016-2017.pdf 2. Census.gov. (2018). U.S. Census Bureau QuickFacts: Oregon. 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Page 10 Deep Dive: Factor Conditions 4. Oregon Business Plan. (2015). Footwear, Sports Apparel & Outdoor Gear Industries. [online] Available at: 1. The Business of Fashion. (2018). Why You Need to Move to Footwear’s ‘Silicon Valley’. [online] Available at: http://www.oregonbusinessplan.org/industry-clusters/about-oregons-industry-clusters/footwear-sports-apparel- https://www.businessoffashion.com/articles/careers/why-you-need-to-move-to-footwears-silicon-valley. outdoor-gear-industries/. 2. Oregon Angel Fund. (2018). What We Do. [online] Available at: http://www.oregonangelfund.com/what-we-do/. 5. Athletic & Outdoor Portland. (2017). About. [online] Available at: http://aoportland.com/about/. 3. Aoportland. (2018). In the Running Pitch Competition Application | Prosper Portland - Athletic & Outdoor. 6. Athletic & Outdoor Industry Report 2017. (2017). [online] Portland: Athletic & Outdoor Portland. 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[online] regional-strengths/. Willamette Week. Available at: http://www.wweek.com/arts/2016/01/26/everything-you-need-to-know-about-the- 9. Athletic & Outdoor Industry Report 2017. (2017). [online] Portland: Athletic & Outdoor Portland. Available at: portland-shoe-industry/. http://aoportland.com/wp-content/uploads/2017/11/AthleticOutdoor_industry_Report_2017.pdf. 7. Pensole. (2018). Pensole Footwear Design Academy | Pensole Footwear Design Academy | Portland, Oregon. [online] Available at: http://www.pensole.com/. Page 15 Deep Dive: Chance 8. The Business of Fashion. (2018). Why You Need to Move to Footwear’s ‘Silicon Valley’. [online] Available at: 1. Kicks on Fire. (2016). History of Nike. [online] Available at: https://www.kicksonfire.com/history-of-nike/. https://www.businessoffashion.com/articles/careers/why-you-need-to-move-to-footwears-silicon-valley. 2. American Studies at the University of Virginia. (2012). Nike History and Timeline. 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Page 18 Cluster Assessment Page 20 Company Development 1. Athletic & Outdoor Industry Report 2017. (2017). [online] Portland: Athletic & Outdoor Portland. Available at: 1. Knight, P. (2016). Shoe Dog. http://aoportland.com/wp-content/uploads/2017/11/AthleticOutdoor_industry_Report_2017.pdf. 2. Brandt, G. (2014). Rebranding? Be Like Blue Ribbon Sports (Nike). [online] Forbes.com. Available at: 2. Kish, M.. (2017). Report: Nike headquarters expansion to top $1B. [online] Portland Business Journal. Available at: https://www.forbes.com/sites/georgebradt/2014/07/16/rebranding-be-like-blue-ribbon-sports-nike/#25c2fb805f6d. https://www.bizjournals.com/portland/news/2017/07/17/report-nike-headquarters-expansion-to-top-1.html. 3. Jackson, S. (2016). Impact of Jordan Brand reaches far beyond basketball. [online] ABC News. Available at: 3. Manning, J. (2017). Adidas exec Mark King discusses major expansion, brand growth, scandal. 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. National/State Analysis Cluster Analysis Firm Strategy Policy Recommendation References

Page 24 Policy Recommendations 1. Could Your City Give a Sports Team a Good Home? – The Wages of Wins Journal. 2018. Could Your City Give a Sports Team a Good Home? – The Wages of Wins Journal. [ONLINE] Available at: http://wagesofwins.com/2011/10/31/could-your-city-give-a-sports-team-a-good-home/. 2. Porter, M, 2007. Clusters and Economic Policy: Aligning Public Policy with the New Economics of Competition. ISC White Paper, [Online]. 1, 1-10. Available at: https://pdfs.semanticscholar.org/eb8c/36b4af03600c0177be24c345cd3a2713efcd.pdf. 3. Chatterji, A; Glaese, E; Kerr, W; 2013. Clusters of Entrepreneurship and Innovation. Innovation Policy and the Economy Forum, [Online]. 1, 37. Available at: http://www.hbs.edu/faculty/Publication%20Files/130424-CGK- IPE_45be2057-0f20-4dc2-98d4-e422198bd55c.pdf. 4. A&O Ecosystem. 2018. A&O Ecosystem. [ONLINE] Available at: http://ecosystem.aoportland.com/. 5. Design Week Portland. 2018. Design Week Portland. [ONLINE] Available at: https://www.designweekportland.com/. 6. Fawnia Soo Hoo. 2018. What Is Fashion Week, NYFW FAQ | Teen Vogue. [ONLINE] Available at: https://www.teenvogue.com/story/what-is-fashion-week GROUP NINE THANKS Jan. 5, 2017

STOCKHOLM SCHOOL OF ECONOMICS