International Business

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One of the rules of international production strategy is: manufacture the highest quality product and the world is likely to beat a path to your door. A number of firms help to illustrate this rule. One is Nike, the sports shoe producer. The company makes a wide variety of high quality shoes. The company catalogue lists more than 800 models for use in approximately 25 sports. In 1999 Nike had 35 per cent of the world’s market for training shoes (and 45 per cent in the US). In 2000, its sales were over $9 billion. In an effort to keep ahead of the completion, Nike updates each shoe at least every six months.

Most of these ideas are generated by Nike’s R&D centre in Beaverton, near Portland, Oregon, where physiologists and mechanical engineers study the stresses on an athlete’s feet and collaborate with stylists on new shoe ideas. Although Nike sells it products in over 140 countries and produces in more than 50, it is really a ‘triad’ MNE. Over 92 per cent of its sales are in the triad markets of the US, EU, and “Asia”. In 2000 there was a 15 per cent growth of sales in the EU, due mainly to a new distribution facility in Belgium and a new design house in Holland.

Nike is still strong in its home market, with 40 per cent of all sales in the US athletic footwear market and over 65 percent of the basketball footwear market. About 60 percent of its sales are still in its US home base. Nike’s high quality product is matched by superb marketing skills. The world might be making a path to Nike’s door, but the company makes sure the world knows where they are. Nike spends 11 per cent of its revenue on marketing and its “swoosh” brand is recognised the world over.

The company continues to use sports stars to endorse its products. Besides US stars like Tiger Woods and Andre Agassi, it has used European soccer players like Eric Catona, cricket players in India, and is now in China preparing for the 2008 Olympic games in Beijing. The idea is: if you can make the “cool” guys wear your products, then the rest will follow. Perhaps the only thing that Nike doesn’t like to be remembered for is the bad publicity around its labour practices in Asia. Nike has outsourced all of its production to the low wage areas.

In 2000, China produced 43 per cent of its footwear; Indonesia 29 per cent; Vietnam 13 per cent; Thailand 12 per cent. NGOs have criticized the poor working conditions in some of its Asian factories. In 1996, such criticism led to Life Magazine publishing a story on Pakistani children stitching Nike’s soccer balls. Another famous case occurred in 1997 when a Vietnam factory, owned by a Korean subcontractor, was found to have unsafe working conditions. NGOs in the Western world started campaigns to boycott Nike and demonstrators protested in front of Nike’s stores.

Allegations of long working hours, bad ventilation, and physical abuse on a mostly young female workforce has tarnished Nike’s reputation. Nike’s industry dominance was a main reason for its being severely targeted. Many of its competitors were found to have the same labour practices, but were not subjected to the same level of criticism. Nike has a corporate responsibility initiative to improve working conditions in its own factories and to help influence its suppliers. Despite this, the University of Michigan ended use of Nike products in 2001.

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