Outsourcing with Nike

Nike, Inc. is an American multinational corporation that is engaged in the design, development and worldwide marketing and selling of footwear, apparel, equipment, accessories and services. The company is headquartered near Beaverton, Oregon, in the Portland metropolitan area. It is the world 's leading supplier of athletic shoes and apparel and a major manufacturer of sports equipment, with revenue in excess of US$24.1 billion in its fiscal year 2012 (ending May 31, 2012). As of 2012, it employed more than 44,000 people worldwide. The brand alone is valued at $10.7 Billion making it the most valuable brand among sports businesses. Nike and Precision Castparts are the only Fortune

Klein, in “The Discarded Factory,” provides many examples to show that corporations are much less concerned about production and much more about their brand name. The statement he uses to help explain the reason behind why they are doing this is, "The difference between products and brands is fundamental. A product is something that is made in a factory; a brand is something that is bought by a customer,” (Peter Schweitzer). Many companies believe that while their products and factories are temporary and require upkeep, respectively, their brand will live on for much longer. Because of this, they shift towards outsourcing their production to keep costs as low as possible. The companies then use this extra money to help build their brand using sponsorships and marketing campaigns. In addition to sponsorships and marketing campaigns, companies will also improve their packaging, distribution, and retail channels, and they will expand. A quote once said by Nike’s

* Labor outsourcing is a good strategy to decrease the labor cost. But it associates with many issues. Once outsourcing is done, the MNC cannot just stay behind. The MNC should carefully supervise on the working conditions, safety, wages, working hours, gender discrimination and human rights violations. If any of these factors going wrong and leads to sweatshop conditions, it directly affect on the reputation of the MNC. If once the name or the brand is blacklisted, it is very hard to repair the damage. Therefore, the risk of outsourcing is high.

Nike started to open up manufacturing factories in countries like Indonesia, Pakistan and Vietnam. Due to the wants of Nike to increase their revenue they tried to outsource the labor of their products since labor work in the US is very high and expensive. This was a bad idea due to that Indonesia pays their workers extremely low wages. Pakistan doesn’t have an age limit for them to be able to legally to work so many children in Pakistan were making

The current image of Nike is of a brand which provides goods of all ages for people who are athletic or sporty and have a casual lifestyle with fashionable taste. Their main items for selling are sporting goods of all types which include shoes, shirts etc. however, another image of Nike is that it fulfills the self esteem needs of the buyer as Nike products are not cheap and not all classes of people can afford them. Also Nike is often preferred over other brands as it

This is because they say, in the long run, it helps our economy. They also believe that by outsourcing to developing and non developed countries they are enabling them to build or fix their economies as well. When you export a product to be made in a foreign country we are actually lowering the amount the Americans pay for that specific product. At the same time we are allowing a non developed or developing country to be a mass producer of something, which in turn helps their economies.

A positive impact of Nike’s offshoring strategy was that it allowed Nike to meet the growing market demand of its customers that resulted from global economic growth. It created convenience so customers in other parts of the world could easily acquire Nike’s products and increased customer satisfaction as a result. Moreover, their strategy had a positive impact on the quality of the products offered in various markets. Since labor in Asian markets was able and very willing to meet the quality standards of Nike’s demands in order to retain production contracts, they could meet the expectations that Nike customers presented (Locke, 2002).

     The exporting of American jobs is an issue that is important and will become increasingly so as more and more white collar jobs are shipped overseas. American companies in the past few decades have been sending American jobs overseas paying residents of other countries pennies on the dollar what they had paid American workers to do. This saves the companies millions of dollars on labor costs but costs Americans precious jobs.

Nike’s sweatshops had many positive effects on the developing countries that they were located even though the workers in the sweatshops were mistreated. The company created jobs and this is one of the main reasons that developing countries welcome the formulation of sweatshops. By Nike opening sweatshops in these countries they pay taxes and provide revenue for the host country’s government. In order for Nike to produce more goods in less time the company has to supply the sweat shops with high-tech machinery which improved the production process and raised productivity levels. The countries that allowed Nike to have sweatshops had no restrictions on the sweatshops or any forms of foreign direct investments so they were able to achieve high rates of GDP growth, reduction of the inflation rate and swell up the country’s trade surplus. Although most sweatshops were thought of as whole sale manipulators, human rights violators, and the work conditions were noticeably poor. The workers suffered from the absence of safety procedures and quality equipment because the sweatshops were not

Today Nike Inc is the largest manufacturer of sports footwear, apparel and equipment with worldwide revenue in excess of $25 billion in 2012 under various labels including Nike, Nike Golf, Converse and Hurley. Seventy percent of the company’s value is derived from footwear and apparel sold under the main brand Nike with Nike footwear commanding a market share

Balagny Clothing Company should have kept their domestic operations within the country rather than outsourcing the work to China and Mexico. I understand that companies want to cut cost and find ways to lower their expenses and gain profits but when outsourcing to other countries, there will be several factors that are tied into play. Wages are not the only thing that weighs on the decisions which is what Balagny Clothing Company made a decision off of. Sure the wages of China and Mexico are much cheaper and cost effective but the inconvenience of shipping, having to deal with foreign contractors through managerial role, the lack of logistics, environmental forces that come into play, country’s regulations and laws, etc. Is it really worth outsourcing operations just to save on wages and provide more headaches when we need to deal with problems with a foreign country.

In the twenty-first century, it is not a secret that many American companies are actually setting up factories in foreign countries, with the majority located in Asia. Notable examples of this include athletic shoe companies such as Nike, Adidas, and Reebok Additionally, most people know the reason these companies make their products overseas: “cheap labor.” However, what exactly does the term “cheap labor” entail? Moreover, how are international politics and the global economy affected by this outsourcing? While it may seem like a simple question with a simple answer, the cause of such a relationship and its effects on international commerce are deeply complex and morally questionable.

Nike subcontracts the production process of its footwear to 900 contract factories located worldwide with Asian developing countries such as China, Indonesia and Vietnam accounting for the bulk of total world production. Production of the footwear is based on a vertically integrated model. In the primary stage, raw materials such as rubber, leather and plastic are extracted from places located in close proximity from the factories. In the secondary stage, the extracted resources are sent to the factories or “Sweatshops” for manufacturing. It should be noted that the whole production process of Nike footwear are being carried out by independent private contractors.

Although Nike may be technically removed from responsibility in some areas, it clearly has the obligation to be certain that exploitation by subcontractors do not occur. Certainly the pay and working conditions that the workers of subcontractors receive is due in large part to the contract that has been negotiated by Nike. If Nike had chosen to make improved working conditions a part of the arrangement, them those benefits may have been passed on to the workers. Still, Nike is a publicly owned firm whose goal is to improve the wealth of its shareholders. The workers in these Asian countries were happy, even eager, to accept the conditions that were provided as a manufacturer of Nike. The reason is that those wages were probably equal or superior to wages available from other sources. If Nike were to leave the country because of the pressures placed upon it, the workers would undoubtedly suffer greatly.

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.