Nike is a brand of sportswear that originated in the United States and is now a globally recognized brand, probably the best known. The brand owes its success to Philip Knight and Bill Bowerman, co-founders of Nike; today, the brand is a multinational company with a turnover exceeding 10 billion dollars in 2003. Indeed, the brand has combined two strategies: trade and production. Now, what are the strategies that have made Nike a leader in its market?
Nike's business strategy revolves mainly around its marketing, this has enabled the brand to become a household name and remain active in the "field" thanks to its sponsorship of major athletes. The R&D sector of the brand is constantly on the lookout for new technologies to innovate their products in order to be more competitive and meet customer demand. The company also resorts to acquisitions and mergers with companies in the same sector, which enables Nike to gradually eliminate its competitors and increase its production.
Nike's production strategy is based on the brand's subcontracting. Nike pays independent companies to produce their products, which enables Nike to maintain profit margins and save costs. In addition, the brand promotes competition between these various companies to be as productive as possible and at lower cost.
However, the brand has been criticized regarding its treatment of workers. Although the actual manufacturing process has been contracted to independent companies, Nike is well aware of the conditions prevailing in these companies including long working hours, low wages and labor unrest; however, Nike chose to turn a blind eye to these issues. To counter this, various activities have been held to boycott the brand.
Offshoring is a key regional strategy implemented by Nike to increase savings. Before the 1980s, Nike was produced mainly in Britain and Ireland and subsequently with Asian subcontractors.
Although Nike does not own factories or outlets where it manufactures its products, it still registered 22,700 employees and annual sales of $9.9 billion in 2002. However, this number is very insubstantial and distorted as these 22,700 employees are the ones who have direct contracts with Nike, whereas in reality, there are much more people working on behalf of Nike.
The reason for these two features is the continued use of subcontracting. All workers working for those subcontractors are not counted as part of Nike's workforce.
Nike manufactures nothing on its own. In fact, Nike has a head office that organizes its subcontractors, its marketing strategies and advertising campaigns. The actual production process takes place in countries where labor is cheap, such as Asian countries: 99% of production occurs in Asia.
But in addition to outsourcing to Asia, the brand often subcontracts within Asia, i.e., from one Asian country to another, for example, a Chinese worker now costs eight times less than a Korean worker. In 1987-1988, 68% of Nike shoes were manufactured in South Korea, against 42% in 1991-1992. At the same time, China, Indonesia and Thailand accounted for 44% of Nike shoes, against just 10% four years ago.
Tags: Nike's production strategy, new market entrants, subcontracting Nike
[...] Solutions and their limitations: To bring about a difference in business practices and in the field of production and more specifically, the problems faced by the laborers in Nike sweatshops, it is important to increase Western consumers' awareness on these practices. Consumption should be considered as a means of social and political action: "consomm'action. In order for any solution to be truly effective, it should include actions that will improve wages, working conditions and other issues related to labor. The pressure to change practices in the production strategy should not come solely from individual groups, but from the entire Western clientele ("Unity is strength!") Although one can expose the unethical image of the company, expose it as the merciless capitalist it really is, this still will not act as a barrier to Western consumers. [...]
[...] Despite the reputation of Asian labor as a gentle and disciplined one, the workforce resents being manipulated by the American society. In employees were laid off in South Korea in the manufacture of shoes and million in wages remained unpaid. Saung Hwa Industry (subcontractor of Nike) reduced its employees from 6,000 to 3,500. These dismissals are among reasons workers protested vehemently for their rights. Nike's Report in 1992 exposed some glaring disparities between the fiscal benefits enjoyed by the laborers and the company honchos: the 13 members of Nike's Board of Directors earn approximately $ 5.2 million in salary per year (excluding the shares at preferential prices), which is almost twice the cumulative wages of 6,500 workers in Tangerang (subcontractor of Nike) throughout the year.This comparison shows the gulf that exists between the leaders and laborers who toil for the brand. [...]
[...] Risks implied by this strategy A.Potential Risks Weakening of specialist image: Distribution in stores which are not necessarily sports- based Too much fashionable street wear Risk of cannibalization among its own products The market is constantly evolving, changing niches B.Actual risks NGOs and Trade Unions Working conditions Child Labor Wages Working Hours Outsourcing May reduce the company's image Negative image of the business ethically C.Risk embedded in corporate strategy Advertising campaign to improve image (Phil Knight visiting factories in Indonesia) Constant adaptation to market = limited risk of loss of a range of products Hyper segmentation Avoid confusion in the minds of consumers and the risk of cannibalization of products Concrete study of clients and their needs (scientific analysis) V-Nike's success Accounts for approximately market share succes: disputed (due to issues surrounding wages, working hours, labor conditions, freedom for unions and child labor) Actions and solutions Actions When Nike set up base in Toronto's Kensington Market in July 2002, the company ran into trouble with the neighborhood which did not support Nike's unethical practices in its sweatshops. [...]
[...] Converse, which accounts for a meager of the global market and has been highly indebted since 2001, could not afford to incur such expenses. Like its competitors, it relocated its production to Asia to reduce production costs. But Nike did not stop there. A few weeks ago, the Frankfurt stock exchange ran a crazy rumor that indicated a possible takeover by Nike of its German rival Puma. However, market specialists opined that such a takeover of Puma by Nike, the world leader in athletic shoes, was not sound thinking due to the competition issues which could arise from such an acquisition. [...]
[...] Furthermore, Nike has developed a whole "management of outsourcing" to ensure that its suppliers are always on its feet: the American company Nike only issues licenses to those companies which have good productivity, meet the required quality and do not conduct strikes. As this license is reviewed every month, there is no room for error. This explains the low share of labor in manufacturing costs (less than of the selling price of a shoe in 1998). This is also why the subcontractors continue to be more productive at lower costs while the quality of its work continues to excel; because these companies want a partnership with Nike as long as possible. [...]
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