NIKE

Globalization in Southeast

Asia

Contents

Introduction .................................................................................................................... 1

Thesis ........................................................................................................................ 1

Key Topics ..................................................................................................................... 2

Capitalism .................................................................................................................. 2

Commoditization......................................................................................................... 4

Outsourcing ................................................................................................................ 5

Inequalities ................................................................................................................. 7

Conclusion ................................................................................................................. 9

Reference Page ........................................................................................................... 10

Figure 1: From NIKE’s FY1999 through FY2013 their Gross Profit has more than

tripled, from $3.51B to $11.55B. ..................................................................... 2

Figure 2: The original prototype Nike running shoe with the waffle tread pattern.

This was the first of many innovations for the company. ................................ 3

Figure 3: Excessive outsourcing .................................................................................... 5

Figure 4: Nike manufacturing facility in Vietnam. The employees work 10 hrs a

day 6 days a week. And average about $100.00 a month. That is

double the average daily wage in Vietnam. .................................................... 8

1

Introduction Nike is a multinational corporation engaged in the design, development,

marketing and sales of athletic footwear, apparel, and equipment. The company was

founded in 1964 by a former University of Oregon track runner, Philip Knight, and his

track coach Bill Bowerman. They named the company Blue Ribbon Sports. They were

importing running shoes from a Japanese company and selling them in the Pacific

Northwest. They continued to grow until in 1971 Blue Ribbon Sports started to

manufacture their own line of footwear overseas for import into the United States. At

the same time they introduced the now iconic swoosh logo and the NIKE brand named

after the Greek goddess of victory (Pederson, 2001). From the very beginning Phil

Knight and Bill Bowerman had sold shoes manufactured in Asia. It only made sense

that they would outsource the bulk of their manufacturing operations to Asia. The low

cost of labor in Asia translated directly to Nike’s bottom line. Nike came under extreme

pressure in the mid to late 1990’s regarding their labor practices. The manufacturing

facilities in Asia were deemed Nike Sweatshops because of the perceived conditions

that their employees had to endure.

Thesis

Due to extremely liberalized economies in many Southeast Asian countries, Nike

has been able to take advantage of effects of globalization and manufacture their

products using the available low cost labor and thus increase profits.

2

Nike is a consummate capitalistic company. They are the leader in not only the

commoditization of sports footwear and apparel but marketing and selling the Nike

brand as a way of life. Nike has based their business model on outsourced

manufacturing. Nike has set up manufacturing operations in countries with large class

based inequalities in order to keep production costs low and profits high.

Key Topics

Capitalism

Nike has a responsibility to its shareholders to generate a profit as it is a publicly

traded company, and they have done a very good job. According to Milton Friedman,

the only social responsibility that organizations have is to satisfy their owners, that is,

company shareholders, this view is called the shareholders model (Williams, 2013).

Nike is the poster child for capitalism in action. They produce low cost goods and sell

them for a premium price to the public and in doing so make a very nice profit. . Nike,

during the more than 30 years since it went public has grown into a fortune 500

company.

Figure 1: From NIKE’s FY1999 through FY2013 their Gross Profit has more than tripled, from $3.51B to $11.55B.

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What got Nike started was innovation. Nike co-founder Bill Bowerman came up with an

idea to make a lighter weight shoe with better traction. He was inspired one morning as

his wife was serving him waffles for breakfast (Bachman, 2011). Later that day he used

the same waffle iron to mold the rubber soles for what would become Nike’s famous

waffle racer shoe.

Figure 2: The original prototype Nike running shoe with the waffle tread pattern. This was the first of many innovations for the company.

NIKE is more than a company selling shoes, and apparel, they are a brand.

There are few people today that have never seen the iconic swoosh logo. People

understand instantly that that logo is associated with Nike. And not just that the 2 are

associated with each other, but that the, swoosh, is Nike. Nike has signed the top

athletes in their respective sports, Michael Jordon in Basketball, Tiger Woods in Golf to

endorse Nike products exclusively. These athletes are idolized by their fans, who have

bought into the idea that if they use the same equipment as their sporting heroes, might

just be able to play the game a little better, which created a huge market for Nike

products. Nike is more concerned about selling their brand than anything else. What

they are really selling is a way of life, the Nike way of life. And the superstars that are

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endorsing their products are part of that way of life. One of the most famous Nike

slogans, “I want to be like Mike” referring Mike Jordon, is basically saying if you by

these products you can be like Mike.

Commoditization

Nike is also a very commodity driven company. They use commodities in all of

their products; leather and rubber for shoes, cotton, wool, and a number of other fabrics

used in the apparel they produce. Indirectly chemicals for the adhesives and glue that

hold the shoes together and petroleum is the base for most of the synthetic fabrics they

use. The products themselves, shoes, shirts and pants, sporting equipment have also

become commoditized. Since Nike outsources all of its manufacturing to

subcontractors, and the majority of the manufacturing is done in the Southeast Asian

countries of China, Indonesia, and Vietnam, the manufactured products have become

commodities for these countries. Nike is the ultimate story of globalization. They import

commodities such as leather from maybe Argentina, to manufacturing facilities in China,

Indonesia, or Vietnam. The owners of these manufacturing facilities are from Japan,

South Korea, and Taiwan. These owners are often contracted by brokers out of Hong

Kong, all for Nike Inc. headquartered in unincorporated Washington County, Oregon

(Klein, 2003). Nike produces a high quality product at a low price. They need to make

sure they are producing a quality product. Customers will quickly leave Nike and find

another brand if the products they are buying is of low quality. They need to ensure the

raw materials used to produce their product are high quality so that the products they

sell are quality merchandise that the public will want to purchase. Where they can save

money is in Labor costs.

5

Outsourcing

Nike has never been a manufacturer of shoes. From the very beginning when

Phil Knight and Bill Bowerman started Blue Ribbon Sports they bought running shoes

from a Japanese firm, the Onitsuka Tiger Co. They resold the shoes initially out of the

back of their cars at local track meets. Bill was the innovator coming up with the ideas

for the shoes, and Phil knew how to market and sell the products, but neither of them

knew manufacturing. As the company grew into the Nike of today it, was only natural

that they continue to subcontract the manufacturing of their products. Nike knows the

subcontracting business.

Figure 3: Excessive outsourcing

They originally had contract manufacturing facilities in Japan, Korea and Taiwan. As

these countries developed Labor unions came in to set up unionized labor. The

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economies of these countries grew to a level where the laborers demanded more

money. So Nike was forced to find lower cost labor. The owners of the manufacturing

factories moved the factories to locations were the labor costs were more favorable.

They went to China, Indonesia, Thailand, Vietnam, and other areas of Southeast Asia,

where they could get both favorable trade agreements from the countries governments

and low cost labor to produce their products. But more than low cost labor, Nike has

made sure that these people are being as productive as they possibly can by increasing

the efficiency of their work.

Nike has built upon the work of Frank and Lillian Gilbreth by using motion studies

to eliminate unnecessary and repetitive motions. In a recent job posting from the Nike

website there was a position available in Guangzhou, China for a Manufacturing

Industrial Engineer. Based on the job description Nike is proactively using motion study

to continually improve the efficiency of their facilities processes and procedures. Nike

charges the consumer a premium price for their products, but the fact that they are able

to produce the products at a relatively low cost means more profit for Nike. Although

controversial, economists and other business experts agree that outsourcing isn’t only

important to the expansion of trade and profit, it’s also beneficial for the world as a

whole. By harnessing outsourcing, companies are able to lower the price of the good

while increasing quality. Outsourcing benefits its respective economy as well as

providing higher waged jobs and increased prestige in developing countries, such as

India, China, and the Philippines. Standard of living is elevated in both countries as a

product of outsourcing (Roberts, 2006). Outsourcing has contributed to further levelling

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of global inequalities as it has led to general trends of industrialization in the Global

South and deindustrialization in the Global North (Baldwin 2006).

Inequalities

As the nations that Nike once had contract manufacturing factories began to

develop, the inequality gap in started to narrow. The workers at these factories stated

to organize unions and demand higher wages. As this started to cut into Nike’s profit

margin they knew they had to do something about it. So Nike or the owners of contract

manufacturing factories operating in Japan, Korea, and Taiwan were forced to move to

countries where they could find cheaper labor. They found what they were looking for

predominantly in 3 countries, China, Indonesia, and Vietnam. Although Nike has

contract manufacturing factories in 42 different countries globally 74% of their contract

manufacturing workers are at factories in these 3 countries. Additionally the

governments of these countries agreed to very favorable trade agreements with Nike so

that they could import raw materials and export the finished goods with little or no tariffs

or restrictions. Once the manufacturing factories had settled into these countries Nike

came under great scrutiny in the mid to late 1990’s for the labor practices towards their

employees in these factories. These facilities became known as Nike Sweatshops. It is

alleged that the majority of the workers in Nike’s contract manufacturing facilities are the

poor inhabitants of the areas surrounding the factories. These people are forced to

work long hours for little pay. In some cases they were found to be employing children

as well. The toxic solvents and glues used in manufacturing caused dizziness,

nausea, and respiratory ailments among workers. In 1998, Nike announced a radical

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six-point plan which introduced independent monitoring, raising the minimum working

age requirements and set formal targets for improving conditions for workers in contract

manufacturing facilities in Asia (Ritson, 2008).

Figure 4: Nike manufacturing facility in Vietnam. The employees work 10 hrs a day 6 days a week. And average about $100.00 a month. That is double the average

daily wage in Vietnam.

Since that time conditions have improved considerably. Although still not perfect Nike

continues to work with their contract manufactures to ensure they meet Nike standards.

When compared to the conditions of factories in Europe or the US, the conditions in

Southeast Asia are still harsh and one can see great inequalities. But the average Nike

worker is paid nearly 3 times the minimum wage for state-owned enterprise (Norberg,

2003). In Vietnam working inside of a factory for 10-12 hours is the alternative to

farming outside in the heat or rain in ankle deep water of the rice fields. At a facility in

Ho Chi Minh, Vietnam, a young woman tells of a steady wage, with free or subsidized

meals, free medical services and training and education. The most persistent demand

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Nike hears from the workers is for an expansion of the factories so that their relatives

can be offered a job as well (Norberg, 2003).

Conclusion

From a capitalist point of view Nike has a business model that will allow them to

generate profits for a long time to come. They have commoditized the footwear and

apparel industry so that the countries they operate their manufacturing facilities are

developing. Their economies are growing and their people have jobs other then the

agricultural work which is the alternative to working in factories. The countries have

industrialized because of the presence of Nike. So the outsourcing model that Nike

uses allowing it to go into countries where there is a very large inequality gap has

worked for both Nike and the developing countries.

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Reference Page Pederson, J. P., & Thomson Gale (Firm). (2001). International directory of company

histories: Volume 36. Detroit, Mich: St. James Press.

Williams, C. (2013). Mgmt. (5th ed., p. 79). Mason, OH: South-Western.

Bachman, R. (2011, Feb. 28). Nike's holy grail: Bowerman family unearths long-lost

waffle iron. Retrieved from

http://blog.oregonlive.com/behindducksbeat/2011/02/nikes_holy_grail_bowerman_fami.

html

Mark Ritson. Social Responsibility: The Nike Story. Marketing Magazine. July, 2008.

http://www.brandingstrategyinsider.com/2008/07/social-responsi.html#.UpviZOLX2UV

Norberg, J. (2003, June 07). The noble feat of Nike. Retrieved from

http://www.johannorberg.net/?page=articles&articleid=53

US Census Bureau. (2012, March 12). Trade in goods with Vietnam. Retrieved from

http://www.census.gov/foreign-trade/balance/c5520.html

Klein, N. (Writer/Performer) (2003). No logo [Web]. Retrieved from

https://archive.org/details/NaomiKlein-NoLogo

Roberts, R. (2006). The choice: A fable of free trade and protection . (3rd ed.). Upper

Saddle River, New Jersey: Prentice Hall.

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Baldwin,Richard. (2006). “Globalisation: the great unbundling(s),” Chapter 1, in

Globalization Challenges for Europe, Secretariat of the Economic Council, Finnish

Prime Minister’s Office, Helsinki, 2006