Nike CASE Study PDF

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a case study on Nike.inc...

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University of the People BUS 2207: MULTINATIONAL MANAGEMENT AY2021-T1

The Promise and Perils of Globalization: The case of Nike.

Introduction.

Globalization is seen in the U.S. companies, such as Coca Cola and McDonalds that have grown into globally successful household names. However, so much power and popularity usually come at a price if a local or global business fails to adhere to the new international world order, especially when stakeholders are diverse and dispersed around the globe and where no clear and consensual rules and standards exist. The price could be so unbearable that even the best public relations (PR) can fail to extinguish. Most Multinational Corporations (MNCs) sometimes underestimate the power of the internet, newsrooms and publishers of articles, whose effects can bring down an entire corporation’s reputation through unleashing criticism waves in the media. With technological advancement moving at such a record pace - in the last decade such companies are feeling the increased pressure of being under the watchful eye of a media ready to pounce at any moment, as well as being under the scrutiny of millions of Internet users (customers) around the world. Nike is one of such footwear and apparel manufacturing and distributor giant that has experienced the many social perils that can come with globalization. These perils range from legal cases of employing under-aged children, non-adherence to safety and health standards, underpayment of wages, closing business and manufacturing plants in higher-cost countries to re-locating operations to lower-cost countries, which they particularly felt after their expansion strategy in the 1990s. In this essay, I will explain how Nike came to this situation through its expansion strategy. Founded by Phil Knight and Bill Bowerman in 1964, Nike (originally named Blue Ribbon Sports), grew from their small beginnings to the sports footwear, apparel and equipment giant we have all come to know within only the past half a decade. After many successful years of producing their products in U.S. factories, as well as

subcontracting with Japanese manufacturers, by the beginning of the 1980s Nike looked to other parts of Asia to reduce manufacturing costs.

Explain how Nike came to that situation through its expansion strategy. Like every other company, globalization was a key factor for the success of Nike. It was created based on the principle of outsourcing. Originally its factories were in Japan, but when the oil crises of 1970 and the new labor hit it moved to cheaper labor in South Korea, China, and Taiwan. When these countries’ economies developed, Nike urged its suppliers to re-locate operations to other lower-cost countries and focused on China, Indonesia, and Vietnam. However, in 1991 Jeff Ballinger published a report documenting the poor working conditions of Nike’s operations across Indonesia. Harper’s Magazine detailed the life of an Indonesian Nike employee working for just 14 cents an hour. The incidents of Nike being under big scrutiny and published in newsrooms were becoming apparently numerous.

B- Explain the positive and negative impacts of this strategy The strategy caused an uproar in the community with some even protesting the footwear giant at the 1992 Olympics. With protests around college campuses, calls for boycotting the company, and pressure put on its stars like Michael Jordan to denounce the brand, Nike made a concerted effort in 1998 to improve the labor conditions of its factories. The other negative impact of this strategy was that Nike became so big such that it lost control over the activities of the suppliers. It also lost the quality of product and services as well. Outsourcing stages of production in a production process ensures goods and manufactured within the prescribed time limit. That allowed customers to buy Nike products in bulk and often get discounts. The relocation of Nike

also started the production of soccer sports and shoe wear as well. The multiple locations also provided a good defense against inflation, decreasing the risk of business decline. Explain how Nike responded to this situation Nike, at first, denied the allegations and did not accept any responsibility for the various labor and environmental/health problems found at their suppliers’ plants. Nike insisted that the workers at their suppliers’ factories were not their workers, which made it very unclear whether there was any need to draw the line between Nike and its suppliers or treat them as one. (Locke, 2002). But as the criticism gathered momentum and got covered by the New York Times, the Economist and other media publishing articles that condemned the company for not acting, it finally responded positively. Nike finally decided to raise the legal working age to 16 and 18 years. Nike formulated a Code of conduct that compelled potential suppliers with the obligation to sign the Code and post it within their offices. As this was again deemed not enough, Nike further increased the minimum wages of employees in their suppliers’ plants, as they insisted that all footwear suppliers adopt the US Occupational Safety and Health Administration (OSHA) standards for indoor air quality. Nike embarked on recruiting new staff as well as training and created several new departments such as Labor practices (1996), Nike environmental Action Team (NEAT) (1993). etc. To foster compliance in all countries where Nike products are manufactured, the company has 85 employees dedicated to over-see labor and environmental compliance. In addition to that, Nike’s personnel responsible for either production or compliance receive training in Nike’s Code of conduct , Labor Practices, Cross Cultural, Awareness, and in the company’s Safety, Health, Attitudes of Management, People Investment and Environment (SHAPE) program. The company is also developing a new incentive system to evaluate and

reward its managers for improvements in labor and environmental standards among its supplier base.

How could the company have responded differently? Suggest at least two alternative responses.

In my opinion, the strategy of outsourcing is aggressive and risky, but it seemed to be costeffective to Nike and as we know, at the end of the day all companies are looking for profitability. However, as demonstrated by the incidents related, looking for profitable at any cost can become a huge problem in the long-term. First, I believe Nike should have a Code of Ethics to all the outsourcing companies, establishing minimum requirements of work conditions, in terms of safety and regulations. In this way, when selecting a new supplier, audits should be performed to certificate that the minimum requirements are followed. In addition, periodic reviews should be done to assure the conformity of those suppliers. Probably costs of products would be higher and it leads to my second proposed response. Every day customers are more involved with social and environmental causes. In my opinion, Nike should find other ways to reduce costs, by optimizing materials, products, freight, etc., instead of the exploration of labor in poor countries.

What would the consequences have been then?

I believe by reacting like those two alternative solutions, Nike would demonstrate their commitment to ethics and human values, and the brand credibility would recover faster. At the first occurrence of labor exploration, Nike should have reacted to solve the problem instead of to

blame the outsourcing companies. In my opinion, the problem would be solved, and new occurrences avoided, saving the Nike brand from new scandals.

References

Locke, R. M. (2002). The Promise and Perils of Globalization: The Case of Nike. Retrieved from https://my.uopeople.edu/mod/workshop/view.php?id=218315...