Describe regions of Nike are the United

Describe two examples where
the process of globalisation has affected your chosen company.  One
of these examples must relate to events prior to 2008 and one must relate to events since (or during) 2008. For each example, using a PEST (or PESTLE
analysis) explain which elements of the globalisation process are associated
with the example. Describe how and why they are significant and demonstrate how
these influenced the company’s response and actions at the time. Then, with
reference to comparisons between both
examples, analyse how the nature of the global business environment has changed
in the period since the earliest
example.

 

My chosen company for this analysis is Nike. Nike, Inc. is an
incorporated company that designs, develops and markets worldwide athletic
footwear, apparel, equipment and accessories. Nike was founded in 1964 as
Blue-Ribbon Sports and initially operated as a distributor for the Japanese
shoemaker Onitsuka Tiger, currently known as Asics. It officially became Nike
Inc. in 1971 (O’Reilly, 2014). The primary market regions of Nike are the
United States, Europe, Asia Pacific, and the Americas, with its world
headquarters in unincorporated Washington County, Oregon. Nike is the most
valuable sports brand and has 33% of the global market share in the athletic
footwear industry, with the value of the brand being $10.7 billion.

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Event 1

The first event is Nike
deciding to the base of their production factories to Asian countries, focusing
on not just the initial move but the subsequent relocations within Asia.
In the early 1980s, Nike outsourced their shoe production to lower-cost
Japanese producers. Knight believed that Blue Ribbon Sports could undersell its
competitors and break into this market. As a result, Blue Ribbon Sports began
to import high-tech sports shoes from Onitsuka Tiger of Japan (Locke, 2013).

When Nike was started, they had two Japanese manufacturers
producing their shoes. They were located in Hiroshima and Kurume, Japan. For
both of these companies, the manufacturing of Nike’s products was less than 10%
of their volume. Whilst they were grateful for these manufacturers producing
their shoes, it did not occur to them that they could have control of their own
factory in Asia (Wilsey & Lichtig, 2017).

Political
Nike has been accused of using child labour to manufacture their
products in Pakistan. Although Pakistan has laws against child labour and
slavery, the government has taken very little action through this problem. This
gave Nike the incentive to base their production facilities there and allowed
them to benefit from the lower labour costs.

By the early 1980s, as costs continued to increase in both
Japan and the United States, and as the Korean government created a number of
incentives to develop Korea’s footwear its US factories and sourced almost all
of its production from Asia. In 1982, 86% of Nike’s athletic footwear came from
Korea and Taiwan (Locke, 2002).

Various
government incentives were offered by each of the countries Nike decided to
move their production facilities to in order to get Nike to choose them over
other economies. In Indonesia, Nike found a
country with a supply of cheap labour. Even with its
minimum wage policy, that minimum wage was low enough to become an attractive
incentive rather than a turn-off for Nike in their cost calculations (Sicat,
2013).

 

Additionally, it helped that
during the late 1980s, Indonesia undertook a major opening of its economy
toward greater competition. They removed major trade and industrial barriers.
They dismantled monopolies and stimulated competition within the whole economy.
This happened despite the maintenance of remnants of protection in some sectors
(Sicat, 2013).

Economic
Nike experimented with making shoes in the United States in
1977. They made up to 15% of their shoe products at their two owned facilities
in Maine and New Hampshire. However, the early success Nike had manufacturing
shoes in the US came during a severe recession and Nike began to lose workers
to other industries until 1984, where the factories became so uneconomical in a
write-off of about $10 million, two-thirds of the profit that year (Wilsey
& Lichtig, 2017).

There are many economic benefits brought by
a TNC such as Nike in these regions. The company subcontracts to over 800
factories in 50 countries, employing over 600,000 workers. Manufacturing helps
the social and economic development of countries through the transfer of
skills, technology and the rise in wages. All this ultimately improves living
standards (Soapboxie, 2016).

The multiplier effect is strong meaning that
new businesses can exist because of Nike. For example, a local catering company
may be employed to feed workers, farms supply raw materials and local companies
may supply component parts such as zips and laces (Soapboxie, 2016).

Those
who became employed received steady incomes that helped to contribute to their
pension funds from the company. In addition, having sustained incomes enabled
workers to save for their own investment needs as households to improve their
own housing, have better health care and nutritional maintenance for the family
and, most of all, to raise their capacity to send their children to school and
broaden their family goals.
In short, employed workers became productive citizens, essentially able to
function on their own and not become dependent on the state for handouts,
subsidies, and charities (Sicat, 2013).

 

Sociocultural
There was also the aspect that expanding into
China, the world’s most heavily-populated country, presented an incredible
opportunity to use this as stepping stone into all of Asia. Nike wanted to get
an entry point into clothing the approx. 1 billion people in China alone
(Wilsey and Lichtig, 2017). This figure for China’s population was taken in
1980, so the population growth from then to now alone shows the potential for
growth in that market, as the current population sits closer to 1.3 billion
people with 4.4 billion people in Asia.

For
Indonesia, many workers found steady jobs and the country managed to expand its
share of world class industrial manufacturing to the international economy.

In Indonesia, the Nike factories are a
component of lenient national policies involving employment. They were located
in the rural towns and in far off poorer regions and have helped to rescue
thousands of families from poverty and the consequent malnutrition and
illiteracy of their children. They helped to replace seasonal work with year-round
jobs, thereby banishing risky and uncertain employment patterns (Sicat, 2013).

Moreover, a lot of women were employed in the factories, sometimes from the
same family. The wage provided steady supplemental income to poor households as
when additional members of the same family are employed, family incomes are
multiplied.

Technology
Nike moving their production facilities to Asia allowed them a
closer insight to the market that was Asia, which gave them a better idea of
how best to deliver their product to the consumers in that market.

Nike’s savings on labour by moving their production
facilities to Asia, where the cost of employing workers is much lower, allowed
them to seek a low cost position in manufacturing and distribution through
investment in Research & Development, cost-minimising facilities and
equipment. This investment gave Nike the technology to reduce their operational
costs and thus grow profit. This decision also gave Nike the opportunity to
build through achieving economies of scale. Through outsourcing, Nike did not
need to include benefits such as health insurance and vacation pay. This method
also reduces the workload for human resources processes such as hiring
documentation and payroll taxes (Hanks, n.d).

As well as this, because the Asian market is so large, it is one of their
largest markets and sources of sales. This means that by having their
production facilities there already, that the can save on the transport of their
products to customers in that part of the world.

Additionally, the countries in Asia that Nike manufactures and produces
their goods in are close together and in a trade bloc, meaning that products
can be transported between them without incurring import and export costs and
at a reduced transport cost. Moreover, the raw materials required for Nike’s
products are grown in these countries or nearby, which reduces the cost of
importing and transporting them to the factories (Soapboxie, 2016).

 

 

 

 

 

 

 

 

 

 

 

 

 

Event 2

Nike in 2011, announced the grand opening of
its largest distribution centre in Asia, the China Logistics Centre in Taicang,
Jiangsu China. The new 200,000 square meter facility was on target
to be the first LEED (Leadership in Energy and Environmental Design Green Building
Rating System™) accredited warehouse complex in China (Nike News, 2011).

 

Political
In 2010, China’s State Council released new guidelines for foreign investment
in China which included tax incentives and easier procedures. Deputy Director
of the National Development and Reform Commission, Zhang Xiaoqiang and Vice
Minister of Commerce, Ma Xiuhong launched new rules to encourage foreign
investment towards high-end manufacturing, hi-tech and eco-friendly sectors
(Swire, 2010).

Multi-national companies were encouraged to establish regional headquarters,
R&D centres, purchase centres, financial management centres and other
functional departments in China (Swire, 2010).

 

Additionally,
in the years preceding Nike’s opening of their distribution centre, Chinese
laws concerning foreign investments had been significantly eased. Total FDI in
China for 2010 totalled $105.7 billion. Benefits that China granted to foreign
investors came in the form of tax benefits, including V.A.T, customs and income
tax benefits.

 

Nike’s factories are showing progress, 86% of Nike’s contract factory base have reached a
performance rating that demonstrates their commitment to valuing workers and
improving environmental standards. By 2020, Nike’s aim is for 100% of contract
factories to reach this level. Nike is also investing in pilot research
programs aimed at uncovering how services, technology and changes to
compensation and benefits systems can positively impact workers inside and
outside their workplaces (Nike
News, 2011).

 

Economic

The new China
Logistics Center represents Nike China’s commitment to doing business in the
Greater China geography with environmentally-conscious practices as China is
Nike’s second largest, single market (Nike News, 2011).

Construction
of the facility generated 1,800 jobs and is expected to provide up to 1,500
permanent jobs by 2015 (Nike News, 2011). This will increase both temporary and
permanent employment rates whilst increasing the wages, having a positive
effect on the GDP and helping the development in China.

 

In
addition to this, the corporate tax rate in China as of 2011 was 25% compared
to that of the United States, which was 40% (KPMG, 2018) providing another
incentive for Nike’s decision. Given Nike’s fiscal 2010 revenue in Greater
China was $1.7 billion, the difference between the two nations’ tax rates makes
a significant difference (Nike News, 2010).

Sociocultural
Nike makes a tremendous profit, especially
in China. It was expected to grow at a compounded annual growth rate of 17%
through the four years following 2011. That projected Nike’s reach to be $32
billion by 2017 and with this money Nike planned to invest more money into its
going green program.

Nike targeted and are still working towards a
10% reduction in the average environmental footprint of its shoes by 2020,
paired with a goal to increase use of more sustainable materials overall (Nike News, 2011).

Nike is strengthening its recruitment, promotion and retention of diverse
talent throughout the world with the goal of reflecting the diversity of the
consumers it serves and the communities where its employees live and work.
Nike will accelerate its efforts by expanding representation of women and
people of colour to start, while continuing to increase diversity of all
dimensions across its business long term (Nike News, 2011).

Nike seeks to create impact by partnering with over 60 organisations
worldwide that are passionate about helping people unleash their greatest
potential (Nike Global Community Impact, 2018). These partners include the
China Foundation for Poverty Alleviation and PeacePlayers International: CFPA is committed to
disbursing donor funds in the most effective way possible to combat rural
poverty and stimulate development in remote regions. Their programs target Rural
Healthcare, Rural Education, Rural Livelihood and Disaster Relief in poverty
reduction to increase the quality of life for rural populations (CFPA, 2018). PeacePlayers Middle East unites Arab and Jewish youth
in the Jerusalem Area, Center Region, and North of Israel. Recognizing the
tremendous benefit sport can have for females, PeacePlayers Middle East also
focuses on empowering girls and young women who make up 75% of program
participants (PeacePlayers International, 2018).

Technological

The use of social media has given Nike the
ability to create an all new channel to
access and engage customers. On Facebook, Nike has over 29 million followers,
reflecting the global popularity of the brand. Nike have created an awareness of diet, fitness and health in Asia
through being such a large sportswear company. They have also been able to do
so by sponsoring both sports teams and athletes in Asia such as the Chinese
Super League and Liu Xiang to be able to benefit from the advertising and the
spread of the brand name.

 

The
China Logistic Centre has many automated features with high-tech equipment that
allows for more efficient operations providing higher accuracy and timeliness
to market. These include: Nike’s
internally developed Warehouse Management System (WMS), that directs all
activities either through terminals or through light-weight radio frequency
units carried by operators, some of which are voice activated allowing the
operator to talk directly to the system (Nike News, 2011); nine kilometres of conveyor belts connect
every functional area of the facility so products can easily flow through the
different processes (Nike News, 2011); and high-tech sorting equipment designed to make it easy to fulfil customer
orders, especially large orders requiring multiple products in the same
shipping carton, efficiently and accurately (Nike News, 2011).

Nike aims to use 100% renewable energy in its owned and operated facilities,
and has already implemented on-site renewable energy generation at some of its
largest facilities (Nike News,
2011).

The China Logistics Centre aims to reduce overall energy consumption and
includes industry-leading features such as a highly reflective roof, energy
management system, vacuum sewerage, maximized use of natural light, and many
other elements that focus on reducing water and power usage wherever possible.
These water and power-related features include: The solar heating system, lighting controls and other energy saving
features, that should help NIKE to reduce 4,200 tons of CO2 emissions annually,
while saving up to 4,400,000 Kilowatts of power (Nike News, 2011); and the
vacuum sewage system and rainwater collection system is expected to reduce
water usage by 80 percent annually (Nike News, 2011).

 

 

 

 

 

 

 

 

 

 

 

How the
international business environment has changed between the two events
Nike’s manufacturing takes place in approx. 40 countries. The clothing is
mainly made in the Asia Pacific area and footwear in China, Indonesia, Vietnam
and Thailand. In a completely contrasting fashion to previously, no footwear
Nike makes occurs in the United States (Case Study 4.3).

When Nike initially outsourced their production to Asia from their previous
location of the U.S in the early 1980s, the concept of companies outsourcing
their production to locations such as Asia in order take advantage of the much
lower cost of labour was new. This is why, as a result, there was such a
backlash when Nike adopted this approach to production, as it was perceived
that they were taking advantage of and abusing the fact they could pay workers
in those parts of the world much less to produce their goods whilst not having
to adhere to such regulations as those in the U.S. regarding working condition,
treatment of workers, etc. Present day, it is a method that is used by many
companies and with laws in place to ensure the quality of working conditions in
these parts of the world, it is much less of an issue. As well as this, because
Nike, such a large company, were the company involved when negative allegations
of labour exploitation were brought into the media spotlight, it meant that the
issue could not be brushed away or dismissed. As a result, there has been an
onus on Nike, as well as all other companies to ensure the human rights
standards and working conditions of factories and production bases in
less-developed places such as Asia are up to regulation, benefitting the
workers and their families.

With sports companies over the years expanding their product ranges to
include not only footwear but also clothing, there has been a shift in
production bases to Asia. When Nike was founded in 1964, just 4% of U.S.
footwear was imported. Currently, that figure has skyrocketed to 98%, and
Nike has played a role in that increase (Peterson, 2014).

Reebok, the second leading manufacturer of footwear, has domestic revenues of
$1.28 billion and a market share of 16%. They too utilize a 100% outsourcing
strategy and manufacture their products throughout Asia. They are facing
scrutiny regarding wage, overtime, and air quality issues, and like Nike, are
working to address these issues. However, their strength, the creation and
distribution of a global brand, is allowed to foster under this manufacturing
strategy, as they focus on their core competencies, and outsource their
production (Dusen, 1998).

Adidas is currently enjoying the fastest growth of any brand domestically, with
a market share of 6% and revenues of $500 million. They have adjusted their
manufacturing strategy, from a vertical operation in Germany in the 60’s and
70’s, to an outsourcing focus today throughout Asia (Dusen, 1998).

Manufacturing in the footwear industry has evolved dramatically over the course
of the last century. As economies grow and skills are enhanced, production has
been forced to spread to less developed regions around the world. While Nike,
Reebok, Adidas, Converse, and New Balance each have their own manufacturing
structure, the reason behind their rise to dominance in this industry is their
ability to focus on the core skills that they perform better than anybody else.
The outsourcing trend that dominates the industry today will only increase in
the future (Dusen, 1998).

Nowadays, whilst Asia still maintains the benefit of lower labour costs to
companies, it is seen as much more than just that. Asia is now looked at as a
technology start-up hub of the world, with 4 cities in Asia (Beijing, Tel-Aviv,
Shanghai and Bangalore) being named in the top-10 Tech Cities in the World 2018
(Patsikas, 2017). South-East Asian countries such
as Thailand, Malaysia and Indonesia have more smartphone users than PCs,
compared to most developed countries. Smartphones are currently the most
important channel for tech startups to reach customers. Apps available on
iPhones and Androids enable customers to shop, look for transport and connect
with employers in just a few steps. Higher smartphone utilisation is thus an
essential ingredient for the rise of tech startups in SEA (Sidhu, 2016).

Consumer demand for
technological services offered by startups in SEA has been growing at a record
pace. This is mainly due to high GDP growth in the region, which the OECD has
forecasted to be around 6% in 2016. Higher economic output leads to greater
purchasing power which, in turn, fuels demand across various products and
services (Sidhu, 2016).

 

References

O’Reilly. L. (2014). 11 Things Hardly Anyone Knows About Nike. Business Insider UK.
http://uk.businessinsider.com/history-of-nike-facts-about-its-50th-anniversary-2014-11?r=US=T

Peterson. H. (2014). One Stunning Stat
That Shows How Nike Changed The Shoe Industry Forever. Business Insider.
http://www.businessinsider.com/how-nike-changed-the-shoe-industry-2014-4?IR=T

Wilsey. M., Lichtig. S. (2017). The Nike Controversy. Stanford
University.

https://web.stanford.edu/class/e297c/trade_environment/wheeling/hnike.html

Nike News. (2011). China Logistics Centre Grand Opening Ceremony. Nike.
https://news.nike.com/news/china-logistics-center-grand-opening-ceremony

 

Case
Study 4.3. (n.d). The global fashion
industry: Nike.

https://www.galorepark.co.uk/media/Documents/Downloads/Geography%20Revision%20Guide/Case-Study-4-3-Nike.pdf

 

Unknown.
(2016). Nike: A Global Presence.

https://soapboxie.com/economy/The-Globalisation-of-Nike

Locke. R. M. (2002). The Promise and Perils of Globalisation: The
Case of Nike. MIT Working Paper IPC-02-007.
https://ipc.mit.edu/sites/default/files/documents/02-007.pdf

Sicat. G. P. (2013). Nike in Indonesia – employing more than a hundred thousand workers. The
Philippine Star.
http://www.philstar.com/business/2013/04/17/931434/nike-indonesia-employing-more-hundred-thousand-workers

Dusen. S. V. (1998). The Manufacturing Practices of the Footwear
Industry: Nike vs. the Competition. University
of North Carolina at Chapel Hill.
https://www.unc.edu/~andrewsr/ints092/vandu.html

Locke.
R. M. (2013). The Promise and Limits of
Private Power: Promoting Labour Standards in a Global Economy. Cambridge
University Press.

 

Swire.
M. (2010). China Announces Foreign
Investment Incentives. Tax-News Hong Kong.

https://www.tax-news.com/news/China_Announces_Foreign_Investment_Incentives____42786.html

 

KPMG. (2018). tax rates tool test page.

https://home.kpmg.com/xx/en/home/services/tax/tax-tools-and-resources/tax-rates-online/corporate-tax-rates-table.html

 

PeacePlayers International. (2018). Middle East – PeacePlayers International.

Middle East

 

Nike News. (2018). Top
Things To Know About Sustainable Innovation at Nike.

https://news.nike.com/news/sustainable-innovation

 

Hanks.
G. (n.d) Labour Cost in U.S. vs
Outsourcing. Chron.
http://smallbusiness.chron.com/labor-cost-us-vs-outsourcing-72140.html

 

Nike Global Community Impact. (2018). Nike Global Community Impact. https://communityimpact.nike.com/

Nike News (2010).  Fiscal 2010 Fourth Quarter and
Full Year Results.
https://news.nike.com/news/fiscal-2010-fourth-quarter-and-full-year-results

 

Sidhu, N. K. (2018). Why Southeast Asia Is The
New Tech Start-ups Hub. The Market Mogul.

https://themarketmogul.com/why-southeast-asia-is-the-new-tech-startups-hub/

 

Patsikas. S. (2017). Top Tech Cities in the World 2018. Focus by Expert Market. MVF.
https://www.expertmarket.com/focus/research/top-tech-cities