Nike Outsourcing Essay

* Decreasing overhead through outsourcing is a valuable resource for Nike. Cutting costs by employing workers at a reduced rate or paying less for plant operation allows Nike to invest the additional profits into other areas of the business such as advertising, thereby increasing the potential for company growth. In addition, decreased operational costs are more likely to attract and retain company investors because more money can go into increasing business profitability.

Increases Competitiveness

* Because Nike is able to more efficiently produce its product and reduce costs due to outsourcing, it can more competitively price its products.

This enables Nike to price its brand at a competitive rate with other companies that sell a similar product. Decreasing competition can help Nike corner the market for its particular products.?? *

Finances and Risk Reduction

* Outsourcing allows Nike to skirt some of the financial obligations it might face with the confines of tax laws in the United States. In addition, when it outsources to subcontractors, Nike assumes less risk associated with producing its product such as insurance liability.

Sport goods producer companies have two options for manufacturing their products. They can own and operate the factories, or look for the ways of outsourcing. Facilities that are enough efficient for outsourcing, could be located either domestically or internationally. Outsourcing to domestic firms (US) gives advantage of easy monitoring, skilled workforce, well understood labor rules, but on the other hand it is relatively expensive if compared with outsource in developing countries. By manufacturing products overseas, in the third world economies, tremendous efficiencies are gained because of low salary expense, but in this case company has to face increased difficulty of monitoring the quality of their products and the uncontrolled working conditions in the factories.

Nike uses outsourcing strategy, using only subcontractors throughout the globe. It currently owns a 47% market share of the domestic footwear industry, with sales of $3.77 billion. Nike has been manufacturing throughout the Asian region for over twenty-five years, and there are over 500,000 people working for Nike. Vast majority of production comes from China, Indonesia, Vietnam, Philippines, Taiwan, and South Korea. Factories in these countries are owned by subcontractors, with the majority of their output consisting solely of Nike products.

To avoid pressure from customers and legal cases against the company, Nike employ teams of four expatriates per each of the big three countries (China, Indonesia, Vietnam), that focus on both quality of product and quality of working conditions, visiting the factories weekly. They also developed their code of conduct in 1992 and have implemented it across the globe. Its goal is to set the standard for subcontractors to follow. However, company still faces problems with executing code of conduct because most of the factories are owned not by the company, but by subcontractors. Factory conditions and human rights issues have been widely criticized by different pressure groups. Even though company responded these issues with Andrew Young report, the Dartmouth Study, and Ernst & Young’s continual monitoring, Nike still needs couple years to eradicate mentioned problems.

  • Nike, Inc. is the largest supplier of athletic shoes in the world. Yet it outsources 100 percent of its shoe production and manufactures only key technical components of its Nike Air system. Athletic footwear is technology- and fashion-intensive, requiring high flexibility at both the production and marketing levels. Nike creates maximum value by concentrating on preproduction (research and development) and post- production activities (marketing, distribution, and sales), linked together by perhaps the best marketing information system in the industry.
  • Using a carefully developed, on-site “expatriate” program to coordinate its foreign-based suppliers, Nike even outsourced the advertising component of its marketing program to Wieden & Kennedy, whose creative efforts drove Nike to the top of the product recognition scale. Nike grew at a compounded 20 percent growth rate and earned a 31 percent ROE for its shareholders through most of the past decade.
  • Knowing it could not be the best at making chips, boxes, monitors, cables, keyboards, and the like for its explosively successful Apple II, Apple Computer outsourced 70 percent of its manufacturing costs and components. Instead of building internal bureaucracies where it had no unique skills, Apple outsourced critical items like design (to Frogdesign), printers (to Tokyo Electric), and even key elements of marketing (to Regis McKenna, which achieved a “$100 million image” for Apple when it had only a few employees and about $1 million to spend).

Many of us know Nike for the clever maketing campaigns, celebrity athelets, “swoosh” logo, and “Just Do It!” slogan. In 1963 the world’s largest athletic shoe company was founded by Philip Kight and Bill Bowerman for $500 apiece and a handshake, and today has over $9 billion in revenues.

After several years of record breaking performance Nike’s global labor practices were brought to the attention of the public as early as the 1990s. Which included publishings in Harper’s magazine that a Nike subcontractor paid workers just under 14 cents an hour. Other reports include a CBS 48 Hours report on the physical abuse of Vietnamese workers, which supervisors beating employess with shoe parts when production problems arose.

On April 24, 2000 Philip Knight a former University of Oregon track and field star, announced that he would no longer donate money to the University. Which was a result of the University’s intention to join the Worker’s Rights Consortium, which was formed by student activist in the anti-sweatshop movement, who were concerned with the ethnical responosibilitie of purchasing goodds manufactured overseas.

In the mid-1990s, Nike, one of the world’s most successful footwear companies was hit by a spate of alarmingly bad publicity. After years of high-profile, media attention shift to NIKE as the company that can “just do it.” Nike is suddenly being portrayed as a firm that relies on low-cost, exploited labor in its overseas plants. Managing public perception and labor relations in the globally outsourced sports footwear and apparel manufacturing operations, allegations of coerced overtime in China, dangerous working condition in Vietnam and public relation nightmare, series of labor problems and abuse such as cheap labor wages, poor working conditions, health and safety issues and underage workers exploitation were the main issues Nike had to deal with, while the problem has to do with the rising demand for NIKE products.

Nike was established in 1972 by Bill Bowerman and Phil Knight. These two men were visionaries. The goal for Nike was to carry on Bowerman’s legacy of innovative thinking by helping every athlete reach their goal or by creating lucrative business opportunities that would set the company apart from any competition. This included providing quality work environments for all who were employed by Nike.

However, Nike has long been eluding allegations of employing people in the developing and under-developed economies, at low wages and poor working conditions for a long time. Nike tried many different measures of correcting its image as well many public relations measures to help salvage the image the public had of them after images of Nike employees working in sweatshops were released.

In this essay, we will look at Nike’s international business operations and analyze the ethical issues and dilemmas they are faced with as a result of manufacturing their goods on foreign soil.

Areas of Concern

Some areas of concern for Nike include poor working conditions, low wages, child labor, as well as health concerns in the factories. These are all areas of concern where ethics is involved. Ethics is the generic term for the science of our morals. The executives at Nike have been accused of many ethical dilemmas.

For example, poor working conditions in factories that produce Nike products has been one big issue plaguing the company for years. Nike outsources their labor to countries that are in need of economic growth. They are able to obtain the labor at a cheap, and some may say, unfair rate. This causes workers to be exposed to working conditions that would be far below what we would accept here in the US or any developed country in the world.

Nike is the largest seller of athletic footwear and apparel in the world. The company is primarily engaged in the design, development, and worldwide marketing of footwear, apparel, equipment and accessories. The company operates in the US, Europe, Asia Pacific, the Middle East and Africa. It is headquartered in Beaverton, Oregon. (Datamonitor, 2006, p 4) By shifting manufacturing to developing countries, Nike is able to achieve significant cost savings owing to the lower cost structures in these countries. (Datamonitor pg. 5) No successful company can exist and succeed without utilizing its human capital.

While Nike has had various policies in place, weaknesses still exist in regards to labor policies in overseas locations. Nike has received quite a bit of bad publicity as well as experiencing a decrease in sales as a result of poor labor policies and lack of policies established abroad. Because of this and Nike’s goal to be a responsible citizen of the corporate world, Nike has committed to goals to better the problems as part of the aforementioned labor initiative:

Increasing the minimum age of footwear factory workers to 18, and minimum age for all other light manufacturing workers to 16;Expanding education programs, including junior and high school equivalency courses, for workers in all Nike footwear factories;Increasing support of its current micro-enterprise loan program to 1,000 families each in Vietnam, Indonesia, Pakistan and Thailand.

Despite these initiatives, Nike remains one of the central targets of the anti-sweatshop movement. Non-governmental organizations, many college students and many average citizens still associate Nike with sweatshop conditions in its factories. (Strategic Analysis of Nike, 2000, p. 17) The article is titled, “Globalization ala Nike ”, By Holger Jensen, July 02, 2009. This article is part of an international reporting project through the Paul Nitze School of Advanced International studies at Johns Hopkins University. The article discusses information regarding the social responsibility of Nike Corporation and its outsourcing to Indonesia, in order to make a bigger profit. In the beginning of the article Jensen discussed the fact that Tiger Woods earns 20 million dollars a year simply by playing golf while wearing Nike clothing, and using Nike golf clubs.

In my opinion $20 million dollars is a lot of money to endorse clothing, shoes, and sports equipment. Why in world Americans thrive on being entertained so much by sports that athletes are paid more than brain surgeons or teachers is probably a question I will never get answered or at least a problem (in my eyes) that will never be corrected. Mr. Jensen goes on to mention …. “but that is what globalization is all about.” Mr. Jensen goes on to report that, “Nike is one of the many American companies that have taken advantage of the worlds economic inequities, to make a profit.”

This is where I begin to wonder what the author, Holger Jensen, is thinking. Does he believe that this is ok, because it is the norm to go to underdeveloped nations and give them barely enough to survive so the corporation can make more profit. Is this the “norm” in the corporate world? Do these people even have a soul? I don’t think they do. Is this really all that globalization is about? Globalization has caused a lot of repercussions, such as, American workers losing their jobs because the corporation moves to an underdeveloped nation and pays significantly lower wages than they would have to in America.

In the article it states that it is a marketing design firm that buys its goods from independent contractors in underdeveloped nations.

Everyone loves his or her new set of Nike apparel. In fact, Nike can be found on the bodies of many athletic team members. Why would such a prosperous and well-known company rely on the exploitation of child slave labor? It all started when CEO Philip Knight came up with a “brilliant idea”: put shoe factories in Asia, paying the workers pennies on the dollar, and raking in immense profits. Nike can easily afford to pay workers a fair amount. One can see that this is the antithesis of Nike’s philosophy: doing what’s fair. Workers in Nike sweatshops are denied human rights, pressured into working long and hard hours, and worst of all can’t provide for themselves or their families. It’s ironic how an American company, which enjoys the rights given to it by the American government, takes away human rights in other countries.

Nike should open its factories to inspection by the local labor rights offices. Until it wants to, Nike will probably continue the denial of human rights. Workers in one factory in Formosa, El Salvador are abused frequently and take it because they need the money. They take physical and verbal abuse such as yelling, cursing, and even hitting and shoving. Bathroom visits are monitored and limited. The workers have never even heard of the Nike Code of Conduct. Workers could be fired on the spot if they were suspected to be involved with joining a union or a strike. Pregnancy tests are even given to new workers. If they are found to be positive, they are fired immediately. Nike should educate its workers so they know their legal rights. Nike should not just move its sweatshops out of complaining countries, as this could hurt the country’s economy.

Long and hard hours are notorious of the Nike sweatshops. Nike workers are forced to work overtime without pay. Sick days and visits to the clinic are denied or deducted from the worker’s wages.

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