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  • Assignment: RC TOM Challenge 2017

Globalization vs. Isolationism: Finding Nike’s New Competitive Advantage?

nike case study globalisation

How do global brands thrive in an era of isolationism and protectionism? For Nike, the answer is lobbying, automation and reshoring.

Nike is synonymous with globalization. Over the past two decades, Nike has been one of the pioneers in outsourcing production to the developing world. Today, Nike’s contracted factories employ 1.02 million workers in 42 countries to produce all its products, with 29% of product made in China and 44% in Vietnam [1] [2] . While this global supply chain has undoubtedly been a competitive advantage for this international brand, the Trump Administration’s “America First” approach of economic nationalism and the reemergence of protectionist policies globally represent a significant challenge to Nike’s worldwide manufacturing strategy [3] .

Today, Nike faces an average 11% tariff on shoes imported into the US, with the looming threat of an increase to 45% for goods coming from China [4] [5] . While such policies are designed to protect domestic industries, they can have perverse outcomes: import costs passed on to the consumer, drive up prices and leadto cost-push inflation. Lower consumption as wage growth trails price increases, would be a huge hit to Nike, where 48% of its revenue generated in 2016 was in North America [6] . As such, how should Nike respond in an era of protectionism and isolationism?

Strategy to Date

Lobbying: In the short term, the company has ramped up lobbying efforts in support of free trade and open boards. As an example, Nike has been a vocal proponent of the Trans Pacific Partnership. The US brand threw its weight behind the program, promising to create 10,000 jobs in advanced manufacturing domestically should TPP become law [7] . For Nike, TPP would have reduced tariffs on trainers made in countries like Vietnam [8] . However, with the US’ withdrawal from the deal, competitors in countries like Australia are reaping the rewards of trade deals negotiated, which the US might otherwise have won via TPP [9] .

Automation: Nike’s medium-term solution to protectionist pressures is to reduce reliance on cheap foreign labor in its production process through automation. In partnership with Flex, a high-tech manufacturing company, Nike has introduced greater efficiencies into the otherwise labor-intensive process of making shoes, with an estimated 20% of production set to be automated by 2023 [10] .

Pathways to Just Digital Future

nike case study globalisation

Exhibit A: Nike and Adidas are expected to be industry leaders in manufacturing automation and innovation  [10] .

Reshoring: Increase in automation have bolstered the case for reshoring the manufacturing process where high domestic labor costs were previously a barrier to reentry. The benefits of addressing the issue of protectionism through this approach is twofold:

  • Tariff Reduction: local manufacturing implies zero tariffs. Nike already has a precedence for employing this strategy. Independent factories in Argentina, India, Brazil and Mexico were established in response to high import tariffs in these geographies [11] [12] .
  • Supply chain reinvention : Historically, it can take up to 18 months to develop a new shoe – a sizable dilemma in the era of “fast fashion”. Footwear companies have had to predict trends ahead of time which often results in a mismatch between on-hand inventory and consumer demand. Faster delivery and shorter production cycles through onshore productions present an opportunity to cut costs and increase sales to meet consumer trends [13] .

Is it enough?

Lobbying 2.0: While Trump aims to minimize US involvement in multinational trade agreements, Nike should continue to push for trade agreements even on a bilateral basis, particularly with the Asia Pacific bloc. Although automation allows cost savings and efficiency gains, manufacturing remains largely entrenched in Asia. As Kasper Rorsted, CEO of Adidas notes, complete reshoring is an “illusion” and “[by moving to the US] you are moving into a market where you have no competence…that goes for the entire industry, I’m not speaking just for Adidas.” [14] Moreover, as North America is expected to drive only ~16% of total company growth through to 2022, expanding its global footprint is key to Nike’s growth trajectory [15] .

Vertical Supply Chain : For automation and reshoring to succeed, Nike also needs to consider and innovate on other parts of its supply chain. Today, China’s competitive advantage owes in part to its vertical supply chain, and specifically its extensive material base. For Nike’s onshore strategy to be competitive, R&D in materials manufacturing should also be a priority.

High skilled labor : Over the past two decades, the eclipse of domestic manufacturing brought on by offshoring, has starved the economy of high skilled labor in advance manufacturing. As Rose and Reeves write, “the US suffered a net loss of nearly 19,000 manufacturing firms between 2001 and 2015” [16] . To address this gap, Nike should invest in education, training programs and skill development to develop the talent pool needed to support reshoring and automation efforts, necessitated by protectionism.

Looking Ahead

As we look ahead, two key questions emerge:

  • Will protectionism achieve its intended outcome and bring back jobs at scale?
  • Is reshoring here to stay? Will renewable energies and lower transportation costs coupled with automation and innovation advances in the developing world, reinvigorate the case for offshoring?

(Word count: 798)

[1] Bissell-Linsk, J. (2017). Nike’s focus on robotics threatens Asia’s low-cost workforce. Financial Times. [online] Available at: https://www.ft.com/content/585866fc-a841-11e7-ab55-27219df83c97 [Accessed 8 Nov. 2017].

[2] Sole, J., Singlehurst, L., Greenberger, K. and Cheng, T. (2017). The Need for Speed Hits Athletic Wear. Brand Apparel & Footwear. Morgan Stanley, pp.11.

[3] Mann, T., Paletta, D. and Tangel, A. (2017). Donald Trump Warns of Penalties If U.S. Firms Take Jobs Abroad. The Wall Street Journal. [online] Available at: https://www.wsj.com/articles/trump-takes-credit-for-saving-indiana-jobs-1480628609 [Accessed 10 Nov. 2017].

[4] Sole, J., Singlehurst, L., Greenberger, K. and Cheng, T. (2017). The Need for Speed Hits Athletic Wear. Brand Apparel & Footwear. Morgan Stanley, pp.12.

[5] Haberman, M. (2016). Donald Trump Says He Favors Big Tariffs on Chinese Exports. New York Times. [online] Available at: https://www.nytimes.com/politics/first-draft/2016/01/07/donald-trump-says-he-favors-big-tariffs-on-chinese-exports/?_r=0 [Accessed 9 Nov. 2017].

[6] Statista. (2017). Nike’s revenue worldwide from 2009 to 2017, by region (in million U.S. dollars). [online] Available at: https://www-statista-com.ezp-prod1.hul.harvard.edu/statistics/241692/nikes-sales-by-region-since-2007/ [Accessed 9 Nov. 2017].

[7] Financial Times (2017). What business thinks of Donald Trump. [online] Available at: https://ig.ft.com/sites/trump-business-reaction/ [Accessed 9 Nov. 2017].

[8] Financial Times (2017). What business thinks of Donald Trump. [online] Available at: https://ig.ft.com/sites/trump-business-reaction/ [Accessed 9 Nov. 2017].

[9] Donnan, S. (2017). Globalisation marches on without Trump. Financial Times. [online] Available at: https://www.ft.com/content/d81ca8cc-bfdd-11e7-b8a3-38a6e068f464 [Accessed 11 Nov. 2017].

[10] Sole, J., Singlehurst, L., Greenberger, K. and Cheng, T. (2017). The Need for Speed Hits Athletic Wear. Brand Apparel & Footwear. Morgan Stanley, pp.7.

[11] Bain, M. (2016). Your sneakers are a case study in why Trump’s America-first trade policy is nonsense. [online] Quartz. Available at: https://qz.com/859628/your-nike-sneakers-are-a-case-study-in-why-trumps-protectionist-america-first-trade-policy-is-nonsense/ [Accessed 13 Nov. 2017].

[12] Sole, J., Singlehurst, L., Greenberger, K. and Cheng, T. (2017). The Need for Speed Hits Athletic Wear. Brand Apparel & Footwear. Morgan Stanley, pp.33.

[13] Sole, J., Singlehurst, L., Greenberger, K. and Cheng, T. (2017). The Need for Speed Hits Athletic Wear. Brand Apparel & Footwear. Morgan Stanley, pp.6.

[14] Hancock, T. (2017). Adidas boss says large-scale reshoring is ‘an illusion’. Financial Times. [online] Available at: https://www.ft.com/content/39b353a6-263c-11e7-8691-d5f7e0cd0a16 [Accessed 12 Nov. 2017].

[15] Sole, J., Ryan, E. and Kessler, M. (2017). Analyst day out in the spotlight, way out of the quagmire. Morgan Stanley, pp.12.

[16] Rose, J. and Reeves, M. (2017). Rethinking Your Supply Chain in an Era of Protectionism. [online] Harvard Business Review. Available at: https://hbr.org/2017/03/rethinking-your-supply-chain-in-an-era-of-protectionism [Accessed 11 Nov. 2017].

Student comments on Globalization vs. Isolationism: Finding Nike’s New Competitive Advantage?

In addition to pioneering production outsourcing, Nike has also increasingly become a pioneer in sustainability; I’m wondering if its sustainability efforts may help to support the kind of vertical supply chain described in the article. For example, recent breakthroughs in Nike’s product design have made the company less dependent upon geographically-specific materials (e.g., cotton); it is instead becoming more advanced at using recycled and synthetic materials, which may be produced just as easily/cheaply in the U.S. as in China. Nike’s R&D in sustainability, not just in manufacturing broadly, may help it competitively should the re-shoring trend continue.

I agreed NIKE’s strategy to go lobbying, integrate supply chain vertically, and the effort of hiring more skillful labors. What NIKE can do more is to extent its sustainable practice. Not only focus on product raw materials but also on how to make overall supply chain more efficient and sustainable, which lower the cost at the same time to cover the complexity post by regulations.

This is a very well thought out analysis of how Nike can mitigate the downsides of isolationism.

Before diving into the solutions more, it’s important to set the current climate Nike is facing. According to its earnings report which was released this past October, quarterly sales were flat company-wide when compared to last year, and sales in North America were “particularly weak.” North American revenues declined 3% because of “an unexpected decline in North America wholesale revenue.”

Given this competitive landscape, Nike cannot afford to lose more customers. I support option “Lobbying 2.0,” and it seems as though Nike is already making strides in this area. According to the Washington Post, “Nike is amping up lobbying efforts in Washington, this month hiring Alpine Group to lobby on the Trans-Pacific Partnership, a free trade agreement that could eliminate tariffs on shoes made abroad.”

Source: https://www.washingtonpost.com/business/capitalbusiness/nike-fights-to-lower-duties-on-foreign-made-shoes-freedom-to-marry-lobbies-to-repeal-doma/2013/02/15/d417750a-7496-11e2-95e4-6148e45d7adb_story.html?utm_term=.b62f5f7aa52b

Great questions, and a big dilemma. To answer your question- I think automation and innovation advances in the developing world will certainly reinvigorate the companies in the developing countries and Nike needs to take advantage of that. I think you touched a key point when you said that North America is expected to drive only ~16% of total company growth through to 2022, this has to be in the back of Nike’s mind when they analyze their financials going forward. The US government should also understand that the US market is not necessarily the biggest and most meaningful to all companies, and thus while they want to “bring businesses back home” when they make harsh demands and high tariffs on imported goods, they may be driving companies away from the US and into competing markets.

This is a really interesting piece and I think representative of what a lot of companies are dealing with now. It reminds me a bit of the Fuyao case discussion we had.

I worry about making any serious, capital-intensive decisions in response to Trump’s isolationist posture. There are two reasons for this: (1) it’s unclear how ideologically com mitted Trump truly is to isolationism (versus it being a policy he will support insofar as his base feels like he’s ‘protecting’ them) and therefore how persistent and comprehensive his opposition to free trade policies will be, (2) there is a significant chance that he will lose the 2020 election and be replaced by someone more open to free trade. Therefore, investments in upskilling domestic labor or high-tech machinery for domestic automated production may not be the best way to allocate resources, particularly since the payoffs in those things are not immediate. Perhaps an alternative or additional area to focus on is getting Trump to offer massive tax breaks for some symbolic amount of on-shoring… the tax breaks would offset uncompetitive production costs while the company waits for the next political administration. Trump actually did this early on in his tenure with United Technologies, brokering a deal that had Indiana offer ridiculous tax benefits to keep a modest number of jobs from being sent elsewhere ( http://fortune.com/2016/12/02/indiana-carrier-jobs-tax-breaks-mexico/ ).

All of the above said, I think a lot of the decision comes down to whether you think this isolationist position is going to be pretty sticky in American politics for the medium term. There’s a good argument to be said that it will be given that both the far left and far right wings of the country’s two parties actually agree on having isolationist trade policies, and both heavily influence federal policymaking.

Nike appears to have a well thought strategy against isolationism by automation and reshoring for the short term. If I were in Nike’s shoe, however, I would be cautious of the merit that automation can actually bring. For instance, would the massive capital investment and depreciation costs of automated factory be more economical compared to the cheap factory and labor in low cost countries ? Is there enough skilled labors to operate the machines and what if the automated factory needs maintenance and renovation every few years ? How would such kind of (unpredictable) operation still benefit Nike and other companies of the supply chain inside Nike’s eco-system ? My point of view is, the beautiful strategy may not be as attractive when actually implemented. That said, a deliberate estimation of the total return on investment and total cost of ownership may be worth a review before going forward. I also believe the same can be said whether advances in developing countries would reinvigorate the case for offshoring in the future.

This is a very interesting topic and well-written article. As a cynic, I am not convinced that Nike would like to bring more jobs to the U.S.

Protectionism is currently en vogue among the world’s politicians but many of the jobs that have been lost to technology are not coming back. We should not be afraid of other countries, in the long run, but robots. [1] Even if I am proven wrong and Nike opens up a few factories in the U.S., the efficiencies gained from automation will not go unnoticed. Nike’s supply chain will eventually have limited dependence on factory workers.

[1] http://fortune.com/2017/04/05/jobs-automation-artificial-intelligence-robotics/

Well detailed piece and an exciting dynamic in the apparel industry! The case for onshoring is driven by the “fast fashion” trend you mentioned and the need for firms to respond to customer demands or preferences at an unprecedented speed. When companies like Nike first brought manufacturing and supply operations overseas it was in an effort to lower labor costs to increase margins on final products. In a digital environment where automated robotics can replace many labor costs and customers are looking for new and improved goods at a faster pace the new efficiency company’s can integrate is flow of information and data [1].

These elements of the design and supply process today essentially necessitate onshoring [2]. If the North American Market is Nike’s largest and most strategic being closer to market is advantageous. Coupled with the savings from tariffs (at their current or elevated levels) and the decreased speed to market, onshoring allows Nike to more effectively serve its customers while decreasing the risks associated with global transportation of raw materials, technology, or finished products.

[1] Paul Page, “Today’s Top Supply Chain and Logistics News From WSJ”, Wall Street Journal, October 31, 2017. [2] Tara Donaldson, “Next Step for Sourcing? Go Where No Supply Chain Has Gone Before”, Sourcing Jounral, October 27, 2017.

I think what makes this issue so interesting, particularly given the company you have chosen to highlight, is the backlash that Nike has faced for decades in light of “sweatshop” allegations. For a company that has such a dubious reputation regarding labor practices to now be pressured to bring these same jobs back to the U.S. via reshoring is truly bewildering. From a lobbying perspective, it will be interesting to see how various political groups shake out in terms of supporting U.S. job creation versus a “not in my backyard” mentality regarding mass apparel manufacturing and the traditional labor conditions associated with the industry. Thanks for such a thoughtful and provocative piece.

Thanks for your engaging post on an important American company during interesting political times. Looking ahead, I think your question of whether or not protectionism will bring jobs back at scale is the right question, and I think that it will only be a sustainable movement if those driving the movement correctly incentivize companies to do so. The potential corporate tax reduction would be a huge step in the direction of protectionist sustainability.

This movement (if it lasts) also seems like an amazing opportunity for a major player like Nike to innovate around its automation and supply chain reinvention. A significant R&D project to reinvent the Nike factory could benefit Nike’s facilities around the world and enable them to decrease costs and decrease lead times for new products. Furthermore, this may also be an opportunity to take advantage of local incentives that may be offered for construction of new facilities (like Tesla was able to capture for building its Gigafactory in NV).

Thanks for sharing this story! I found it striking that only 16% of total company growth through 2022 is expected to come from the U.S. This fact on its own led me to question how significant an issue this actually is for Nike. While much of the strategy, marketing, and finance functions may be housed in the U.S., it seems that Nike could benefit by further diversifying its operations across the globe, not only to avoid the threat of isolationist policies, but also because it may allow the company to more efficiently serve the 84% of total growth coming from outside the U.S. From this perspective, I think Nike should be focused on policies that foster investments in education and support overall business, and it doesn’t seem that there should be as much of a focus on policies that are targeted towards trade and manufacturing in the U.S. I don’t believe reshoring will be entirely necessary, but I do think supporting policies that promote the development of highly skilled labor in the U.S. will ultimately be in Nike’s interest in the long run.

It is so interesting to see that the vicious cycle at work: protectionist trade policy creating import-tariffs, some fraction of which can be passed on to consumers, and then the company must respond in order to minimize the effect of this tariff on their costs (if they need to eat the portion that consumers won’t accept) or on their revenues (if increased costs affect demands). I am fascinated by the idea that companies are responding to isolationist political trends with increased automation, which drives their costs down and makes the tariff more bearable.

I question whether these political trends will stand the test of time, or whether a two-party system (at least in the top office of the US) will always have enough turnover that any forceful isolationist legislation will be overturned within 2-4 years (and vice versa). With this kind of turnover rate, are companies actually incentivized to invest capital in building manufacturing plants, in a geography in which (as you point out) they have no core competencies?

I agree with your proposed next steps for Nike – continue financing lobbyists, driving supply chain efficiencies. If Nike projected more growth from US sales, would they be more willing to consider ‘reshoring’? Would all of the upstream material partners also need to ‘reshore’ (assuming they’re not vertically integrated when they first reshore back to the US) in order to fully benefit from isolationist policies?

American companies outsourced labor work to other countries not only because labor costs are cheaper there but also because many American people do not want to work at a low wage. Protectionism is not a sustainable way to bring jobs back to America. Forcing Nike to move production to onshore will incur large increase in labor cost and production cost for Nike. There is no guarantee that the output and efficiency level in onshore facility can match that of facilities in other countries. Nike can increase automation work, which requires some capital investment, so that it will require less labor and thus lower labor costs. However, if automation work goes up and labor work goes down, this defeats the purpose of bringing jobs back to the U.S. Maybe the facilities in emerging countries and in the U.S. can serve different customers. I think there is no need to shut down the factories overseas as the consumer buying power in emerging markets is increasing.

Great paper, as you discuss and present a very relative and important topic which is broad reaching through the business and political arenas. Nike is one of the most well known global brands that is changing the way it operates due to changing isolationist views by parties both in and outside of the company. It will be interesting to see how global sales and revenues are impacted by the stance Nike is taking, and how it is re-positioning it’s supply chain management and structure as well as general feelings towards free trade. Additionally, I think the automation topic was initially separate and unique from the isolationist stance, but now that companies such as Nike are altering their business model in line with the isolationist view – they are concurrently taking advantage of this opportunity to implement improvements to the production process via automation.

I think this is an interesting subject that many companies are struggling with. I think one of the biggest questions is whether a company is willing to bet that the isolationist trend is a short-term or long-term one. Many of the strategies you’re discussing that Nike is either already doing or will do are based on assumptions that these trends will continue. In my personal opinion, globalization cannot be stopped and in the long-term will overcome isolationist actions we’re seeing now. So should Nike re-shore its production if in the long-term this isn’t the most cost-effective method of competing? I like the fact that they are trying to combat the labor cost issue through automation rather than moving its workforce as this is a strategy that can be successful regardless of regulation or new tariffs. I think Nike has to be careful to implement strategies that can be successful in both a global and isolationist environment since it is something that will constantly be evolving through time and different administrations.

Thank you for the article, Isabel! I’m shocked to learn that Nike may be exposed to a 45% tariff on shoes imported to the US from China. That would be devastating to Nike’s business. As we look ahead, I think Nike needs to prepare for both scenarios you outlined in your questions: (1) train workers in the US and invest R&D in materials manufacturing in the event policy becomes isolationist and (2) identify key countries offshore where it would be advantageous for Nike to have factories. A drastic policy change like increasing tariffs from ~10% to 45% is dichotomist outcome that Nike should be prepared for either way.

This is a very interesting topic and even more interesting as it relates to Nike, the forerunner of footwear importation before it was forced to build its own brand and only outsource production to Japanese manufacturers. I completely agree with the Adidas Chief Executive that it’s illogical and financially nonviable to reshore and I further think that any reshoring that is going to happen will be limited and designed to be just enough to appease the politicians.

More than 90% of Nike’s operations are located outside of the USA. It’s hard to imagine how a significant portion of that could be relocated back to the USA especially as global business serving the global market. It is quite clear that any onshoring that will happen will be due to political pressure and may be nothing more than a symbol. However, it may be enough to create enough jobs to make a difference in the for the few who would benefit, regardless of how low skilled those jobs are.

Really nice and well-supported piece. It is interesting to see how US protectionism does not only impact international companies but also US brands with global exposure. The current protectionism also puts Nike and other US companies in a complicated dilemma: should they define their long term strategy based on the current (and limited to 4-8 years) political environment? To address your questions, I can see Protectionism as a double edged sword for US jobs. In the short term, it may lead to reshoring and increasing local jobs. However, it will certainly accelerate automation which at some point will offset the previous job creation. That said, I also believe that Nike may have already started investing in automation, which can be supported with the information showed in Exhibit A of your article. Regardless of US protectionism, Nike knows that it will eventually face higher labor costs in the developing world and then automation will also play a key role there.

Nike is an interesting company in the context of isolationism. Nike has never had a factory in the United States and seems to never intend to have one. Often, we have seen Trump take on company’s that are moving factories from the US abroad. Phil Knight’s original strategy in the business was to use the arbitrage of offshore manufacturing in the US shoe market. Given that Nike is a brand that is part of the American way of life, I wonder if that position would insulate it from any large imposed tariffs and the fact that it has never had a US factory.

Protectionist policies are an interesting question with respect to Nike. The company has historically conducted manufacturing offshore due to cost advantages / labor arbitrage, but as we’ve seen vis-a-vis the recent iPhone 10 debacle at Foxconn and other suppliers, labor arbitrage is hardly a sustainable strategy going forward. Further, “speed to market” has been a hugely important area of focus for Nike over the past several years, and irrespective of protectionist trade policies, the company has made a very deliberate shift towards near shore manufacturing in response to consumer demands, not due to the political climate. In addition, as the company’s business shifts increasingly towards emerging markets such as China and Southeast Asia (around 40% of Nike’s business is from North America, and this will decline over time), production will naturally shift towards those high growth markets. Nike’s long term decisions will hardly be governed by a tenuous, ephemeral political administration that has demonstrated little capability to execute on its stated agenda.

Isolationism will clearly be a difficult trend for Nike to combat. It appears that Lobbying in the shorter term is one way the company is fighting back. However, 11% import tariffs in the Trumpian era is going to be a difficult trend to combat.

I highly doubt that this America first rhetoric and policy will result in economic benefits for the United States. What it has done is create incentives for more automation in these industries which will in the long term likely remove more manufacturing jobs here at home.

In response however, Nike’s approach has been robust. Setting up factories in high import countries was a smart immediate step for the company. Additionally, hiring and training high skilled workforces will fall in line with the President’s wishes and will hopefully result in positive outcomes.

I don’t think protectionism will achieve its intended goal. It is not aligned with the fundamental interest of a US-based multi-national corporation. An MNC will seek the global source of labor with the lowest cost to build its competitive edge. Meanwhile, the US consumers also benefit from the low price incurred accordingly. However, what politician thinks is to increase the local jobs. These two motives don’t align well. It is not advisable to force companies to create more jobs at the sacrifice of their economic interest or competitive advantage. This probably will result in the company’s operating inefficiently and cut off jobs in the end.

In this globalized world, what the US should think about is how to better educate its people so that they can assume the jobs with high value in the value chain. Low-end jobs are either face the challenge of being transferred to emerging market or being replaced by automation or artificial intelligence.

Very well written and interesting read Isabel! While I am skeptical of the government being able to impose a 45% tariff due to retaliation from China, I agree that such isolationist policies will hasten adoption of advanced automation and AI-based technologies in factories. I am curious to see if Nike can find ways to source raw materials and move onshore some of the up-stream activities.

It seems that offshore manufacturing is in the DNA of the Nike business model, as the labor costs have been so significantly differently. But what if automation changes that? What if a sneaker built by robots and a few skilled production line managers makes US truly competitive? Nike and primary competitor adidas seem to be investing heavily in developing products and automated manufacturing capacity [1]. In fact, Adidas is building a factory in Atlanta this year [2]. If were sitting in Beaverton watching the increasing trend toward Isolationism around the world I would be exploring blue prints for smaller more automated factories that could bring the production closer to the markets they serve and ofter protection from increasing tariffs. Just don’t tell Trump that it’s robots and not the american electorate that will be working the line.

[1] https://www.recode.net/2016/9/27/13065822/adidas-shoe-robots-manufacturing-factory-jobs [2] http://www.businessinsider.com/the-future-of-shoe-manufacturing-in-america-2017-3

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nike case study globalisation

Sweating the Swoosh: Nike, the Globalization of Sneakers, and the Question on Sweatshop Labor

  • By: Michael Clancy
  • Publisher: Georgetown Institute for the Study of Diplomacy
  • Publication year: 2001
  • Online pub date: March 06, 2016
  • Discipline: Political Economy , Employee, Industrial & Labor Relations , Globalization
  • DOI: https:// doi. org/10.4135/9781473968745
  • Keywords: factories , global exchange , labor , minimum wage , sweatshop labor , sweatshops , wages Show all Show less
  • Contains: Content Partners | Teaching Notes Length: 9,940 words Region: Northern America , South-Eastern Asia , Global Country: United States of America , Viet Nam Industry: Manufacture of wearing apparel Originally Published In: Clancy , M. ( 2000 ). Sweating the Swoosh: Nike, the Globalization of Sneakers, and the Question on Sweatshop Labor . Case 264. Washington, DC : Georgetown Institute for the Study of Diplomacy . Organization: Nike Type: Indirect case info Organization Size: Large info Online ISBN: 9781473968745 Copyright: © 2000 Institute for the Study of Diplomacy More information Less information

Teaching Notes

Globalization has become increasingly controversial, and remains a slippery topic. This case study grounds the discussion by focusing on the production and marketing strategies of one modern multinational corporation, Nike, Inc., while also examining allegations that the company supports global sweatshops. The case traces the origins and strategies of Nike, its multinational operations, and practice of outsourcing to primarily poor areas in the world. It also shows the local impact in countries like Vietnam. Finally, it follows growing criticism of the company within the larger context of development, the status of women within the global economy, and human rights, as well as the evolving response to these allegations made by company officials.

In early 1998, Phil Knight and “Le” were half a world apart geographically and a world apart financially. Both, however, were troubled, and their concern was over the same issue.

Knight, the multibillionaire founder and current chair and chief executive officer (CEO) of Nike, the $9 billion athletic shoe and apparel maker, was preoccupied with his company's performance. True, a year earlier in 1997 the company had recorded record-setting sales and profits, but in 1998 global profits were down sharply. Nike, in fact, was forced to lay off 1,400 workers in March of 1998 as a result of falling sales. Much more distressing, however, was the growing image among many consumers that Nike was a sweatshop employer, forcing young women especially to toil long hours in difficult conditions for substandard wages.

Le, a 19-year old woman living on the outskirts of Ho Chi Minh City in Vietnam, worked in a factory making Nike shoes. She worked six-day weeks for $1.84 per day or $48 per month in 1998, slightly better than Vietnam's minimum wage for the region. She, too, was worried. 1

“How can I be happy?” she asked. “My salary is very low. I can barely afford my living expenses.”

Yet Le's wages, according to Vietnam's Ministry of Planning and Investment, were no worse than other shoemakers operating in the country, and the industry paid higher wages than many others in the poverty-stricken nation. Le, who gave only her family name, said that roughly half of her salary was spent on food. Expenses such as a wooden bed in a boardinghouse and medical and welfare insurance left about one-third her salary. She saved that portion. Le would like higher wages, but in Vietnam, a poor country where most people work in agriculture or in other shoe and apparel factories, the alternatives are few. 2

Knight's position had always been that Nike paid fair wages given the market conditions in the countries in question, but now public pressure was mounting and he was facing increased calls to action. Streams of negative press reports stung the image of the company, as did sporadic protests against Nike products. As Nike's sales and profits fell, so did the company stock price, and shareholders were beginning to call for changes.

Background: From “Hey Buddy, Want to Buy Some Sneakers?” to the Global Shoe

In 1962 Phil Knight, a recent master's in business administration (MBA) graduate and running enthusiast, visited Japan. He came home with the idea of importing tennis shoes from the country. Within two years he and co-founder Bill Bowerman (a University of Oregon track and field coach) each contributed $500 to start Blue Ribbon Sports (BRS) and began importing shoes from the Onitsuka Company, the manufacturer of Tiger brand. They placed their first order for just over $1,000 and sold their first pairs of shoes at the Oregon state high school track and field meet in 1964. The company sold one thousand pairs of shoes the first year and cleared $364. 3 The shoes were prominently featured among track and field athletes in the 1964 Olympics in Tokyo, and quickly BRS drew a loyal following within a niche market of running enthusiasts due to their word-of-mouth reputation for quality, the publicity generated by the Olympics, and their low price. 4

Gradually BRS expanded its operations, but it also became engaged in a power struggle with Onitsuka over distribution and supply. BRS wanted to import shoes from other suppliers, while Onitsuka sought out other distributors in the United States. Ultimately the matter ended in court. Meanwhile, Knight went to Japan, aligned himself with Nissho Iwai, a large Japanese trading and finance house, and ordered footwear from another supplier, including in 1972 the first shoes sporting the legendary “swoosh.” 5

The Nike Corporation emerged from this dispute, and, as a company that designed its own shoes, marketed its own logo, and could freely determine its own suppliers, the Beaverton, Oregon-based firm became stronger and more independent. During the remainder of the 1970s, the company grew rapidly as it took advantage of its own innovations as well as changing market conditions. First, the company shifted its supplier base from Japan to lower-cost South Korea and Taiwan in 1973, which gave it a price advantage over leading competitors Adidas and Puma. 6 In addition, the company established a strategic alliance with a key U.S. retailer, Foot Locker, to market its athletic products. Nike also developed innovative supply practices with Foot Locker and other stores, where retailers could place advanced orders or “futures” that guaranteed delivery and cost discounts. 7 Nike also proved to be more flexible than competitors with design updates and supplies so that retailers could more effectively respond to changing market conditions. 8 Nike's other key innovation was its use of athletes as endorsers of shoes. Others had pioneered the practice earlier, but Nike made it a centerpiece of its advertising and marketing strategy. Beginning with track and field athletes and later expanding to basketball, football, tennis, soccer, and golf, Nike's aggressive signing of athletes as role models and cultural idols helped the company shift its customer base from “running geeks to yuppies.” 9

Finally, Nike was in some ways in the right place at the right time. The company benefited from a fitness craze, which saw running, jogging, and later, aerobics become a much greater part of Americans' lives during the 1970s and 1980s. To be sure, Nike helped contribute to this craze through advertising, but the firm's meteoric growth was aided by athletic footwear becoming a $5 billion business in the United States by 1985. 10

By 1980, half the running shoes sold in America were Nike's, and Nike sales reached $270 million. 11 The next decade would see growth in sales increase tenfold. 12 Nike's rapid growth was not without dips, however. In the early 1980s, recession in the United States combined with growing competition in the footwear industry, led to lagging sales. Top competitor Reebok quadrupled its sales in one year and passed Nike to become the foremost athletic shoe company. Meanwhile, Nike profits fell 80 percent in one year, contributing to Nike's first ever layoffs. 13 In 1985, however, Nike introduced “Air Nike” models, which incorporated a cushion of gas in the heel of its shoes, and also signed basketball star Michael Jordan to an endorsement contract. The first two shipments of “Air Jordan” shoes sold out in three days in Nike's Los Angeles store, and Nike sold a projected year's supply of the shoes in the first three months. 14 Overall Nike sales recovered by 1987 and doubled by 1989 to 1.7 billion. 15

Nike's success continued into the 1990s. At times it captured more than half the athletic shoe market in the United States. The company, which also started marketing apparel in the early 1980s, expanded into other athletic products such as soccer and golf balls. Total sales, which were $3 billion in 1991, grew to a staggering $9.2 billion in fiscal 1997. That same year, the company recorded record profits of $795 million. 16 Phil Knight himself, as chief shareholder of the company, became one of the wealthiest people in America.

Footwear, the New Global Organization of the Multinational Corporation (MNC), and Development

Nike is in some ways thought of as the archetypal American corporation, but one interesting feature of the company's success is that almost all of its production of shoes, apparel, and equipment is done “offshore” or in other countries. BRS and later Nike initially imported all their shoes from Japan. Soon the company moved almost all production into Taiwan and South Korea. As demand grew, Nike did open shoe factories in Maine and New Hampshire in 1978 but closed them in 1985 due to cost pressures. Gradually Nike moved operations to other Asian countries, including China and Thailand (1981), Indonesia (1988), the Philippines (1996), and Vietnam (1995). 17 By 1998 the company manufactured, distributed, and sold athletic shoes and apparel in thirty-five countries, although almost all shoe production took place in poor countries in Asia.

Nike, of course, is not alone. The athletic shoe and apparel business has gradually been moving offshore for decades, as have other industries including toys, consumer electronics, and auto parts. Today, according to Nike, 99 percent of all branded athletic shoe production is done in Asia.

“There is no value in making things any more,” said Knight. 18

Knight's comments reflect important changes taking place in the world of corporations. Multinationals are, by their nature, global in scope in that their operations go beyond national borders. Multinationals have been around for centuries, but they have proliferated over the past fifty years. Controversy has followed, as debate has centered on whether they are independent or somehow carry the flag of their country of origin, as well as whether they contribute to or retard local development. In addition, many MNCs have become so large that their annual sales outpace the size of many countries' entire economies—Shell, with corporate sales of $109 billion in 1994, for example, is larger than Malaysia (1994 Gross Domestic Product [GDP] of $68.5 billion), as is Nestlé ($47.8 billion) larger than Egypt ($43.9 billion) by this measure 19 —raising questions over the power they hold. The bulk of multinationals originate in wealthy countries such as the United States, Europe, and Japan, but increasingly firms from poorer countries have moved into global markets.

Multinational corporations have been controversial within poor countries for many of the reasons mentioned above, but by and large governments of these countries have allowed the firms to enter their markets. In the case of footwear, the interests of firms and home governments coincided: during the 1960s, 1970s, and 1980s, growing competition led firms to attempt to reduce costs. Meanwhile, many countries in Asia, including first South Korea and Taiwan and later Thailand, the Philippines, Indonesia, and China, were mired in poverty. Most had agriculturally based economies with average earnings per year sometimes less than $100 per person. Government officials, as well as development advisors from first world governments and multilateral lending institutions, viewed industrialization and export promotion as an answer to development problems. In short, multinationals saw more efficient production facilities while governments saw the firms as providing developmental benefits in the form of employment, export earnings, government revenue from taxes, and managerial and technical knowhow.

Taiwan and South Korea have had the greatest success in this sense, becoming NICs or Newly Industrialized Countries, or what some have called the “Asian Tigers.” By using a mixture of infant industry protection and market-based incentives, the two countries transformed their economies from agriculturally based to industrially oriented. Moreover, while early manufacturing focused on consumer nondurables such as footwear, apparel, and consumer electronics, today Taiwan and South Korea produce consumer durables such as automobiles and refrigerators, as well as heavy machinery and steel, all for the world market. In addition, per capita earnings, which were $110 in South Korea and $170 in Taiwan in 1962, grew to $2,690 and $5,550, respectively, by 1987. 20

While Taiwan and South Korea have come to serve as developmental benchmarks, other countries pursuing industrialization have had mixed success. Brazil and Mexico, for instance, two leading NICs in Latin America, have industrialized over the past forty years, but per capita income has not grown as fast. Moreover, income inequality has grown during the industrialization process, and high rates of poverty have remained. In Brazil, the wealthiest one-fifth of the population earns more than thirty-three times the poorest one-fifth. The ratio for Mexico is 20:1 (compared to 8:1 in South Korea and 5:1 in Taiwan). 21 In the Philippines, where export promotion began in the early 1970s, industrialization has taken place, but average annual growth rates actually shrank by 1.4 percent during the 1980s. 22 The average Filipino, who earned $495 in 1970, saw his or her wages grow only to $630 in 1995. The average real income for Filipinos actually fell between 1982 and 1995. 23

Despite these mixed records of success, more and more countries have embraced export strategies since the early 1980s, and many have come to welcome MNCs to play a part in this development strategy.

There are various explanations for why firms go abroad in the first place, but virtually all focus on either more efficient production possibilities or the pursuit of new markets. Increasingly, MNCs have taken their production offshore not in order to sell to local markets, but to seek the cheapest and most efficient production platform. This process began with athletic shoes, clothes and apparel, and toys and consumer electronics but increased to other economic activities such as car production. By 1999, apparel was a $70 billion business in retail sales in the United States and footwear accounted for an additional $36 billion, but 55 percent of the former and 93 percent of the latter products were produced outside of the country that year. 24

In addition to the move offshore, important organizational changes were taking place within MNCs. Within the traditional model of MNCs, most large, globally oriented firms strove for integration and centralization. Activities that had previously been purchased from support and service firms or suppliers, whether accounting or legal services, components to be assembled on an assembly line, or advertising and marketing, became part of the corporation itself. The advantage was believed to be one of control and efficiency. As a result, the world's biggest corporations not only had very high numbers of sales and profits, but they also had lots of employees and facilities.

The new model, in contrast, emphasizes “lean” or “flexible” production. Because market conditions frequently change, many firms have responded with organizational innovations that make them more adaptable to those changes. Again, footwear and apparel companies have been at the forefront of this revolution, and Nike has been at or near the lead. The most prominent feature of this new organization is a focus on low levels of inventory and outsourcing of many activities previously done within the firm. This outsourcing may include advertising, accounting, or perhaps most important, various aspects of production itself.

In Nike's case, one prominent feature of this flexibility is the outsourcing of all footwear production to subcontracting firms. In other words, no Nike employee actually makes shoes in a factory. Instead, the multibillion dollar company employs just sixteen thousand people, despite the fact that the goods bearing Nike logos—shoes and apparel—are products of what economists call labor-intensive industries. These company employees work primarily in design, marketing, supervisory, and other support activities. The 450,000–550,000 individuals who actually work in factories producing Nike products do not work for the company. Instead they are employees of suppliers or subcontracting firms that make shoes and apparel for Nike. Many of the factories are owned by Taiwanese or South Korean firms, and many of the supervisors on the shop floor are also from those countries. It is not uncommon for these supplier companies to simultaneously turn out products for Nike and its competitors such as Reebok or Adidas in the same factories.

Most factories are located in export-processing zones (EPZ)—areas of the host countries specified as a special economic region by the government. In EPZs, the factories, usually foreign owned, are exempt from many export and import taxes and frequently receive other tax breaks. The first EPZ was created in Ireland in the 1960s, but today there are literally dozens located mainly in poor countries in the world. Governments establish them as part of the larger strategy toward developing industry and promoting exports. EPZs tend to specialize in labor-intensive assembly and manufacturing, especially apparel, footwear, consumer electronics, toys, and auto parts. One result of the proliferation of EPZs is that the global share of manufactured exports coming from developing countries grew from 4.3 percent in 1963 to 12.4 percent in 1985. 25

One additional feature is worthy of mention. The overwhelming numbers of employees who work in such factories are young women, generally ages eighteen to twenty-five. One estimate is that women hold 80 percent of export-processing jobs in the world. 26 In one example, a factory in Indonesia that produced goods for Reebok employed 4,500 people in late 1997, and all but fifty were women. It is not exactly clear why this is commonly the case. Advertising literature sponsored by governments seeking to attract MNCs plays up features such as low pay. One such ad, which ran in the spinning and apparel industry magazine Bobbin in 1990, states of a young woman “Rosa Martinez” in El Salvador, “You can hire her for 57 cents per hour. Rosa is more than just colorful. She and her co-workers are known for their industriousness, reliability and quick learning.” 27

Local labor markets tend to be segmented, and another answer is that men will not seek work in these plants, preferring instead higher-paying jobs. Frequently, men avoid the factories because much of the work involves stitching and sewing, which the men traditionally view as women's work. In other cases, employers specifically seek out women, perhaps because of their belief that women may be paid less because they were only working temporarily until they would marry and raise a family. 28 Some employers also believe women are docile and a more easily controllable labor force, although researchers have produced contrary findings. 29

Many academic researchers, especially those writing from a feminist standpoint, have long been critical of the wages and working conditions found in light assembly plants dominated by women. They tend to see the work as doubly exploitative: Powerful multinationals not only take advantage of poor, unskilled labor possessing few other options in developing countries, they also further enforce a gendered division of labor that reinforces conceptions of women's work as being confined to cutting and sewing and worthy of minimal pay. 30 In a well-known critique of these findings, however, researcher Linda Lim contends that most critical reports are based on anecdotal evidence found in early experiences in export zones during the 1970s. She contends that with time, wages rise and working conditions become better. In addition, she raises the question of causation. Are MNCs the cause of gender discrimination, or is it already deeply rooted in these societies? Finally, she raises questions as to the motives of these critical scholars, arguing their findings are colored by “biases introduced by ideology, ethnocentrism, and vested political interests.” 31

Whatever the case, women dominate light assembly industries in EPZs. This is also true with the production of athletic footwear, despite the fact that almost none of the women in question work for the company whose name is on the shoes they produce.

The Sweatshop Dispute

The fact that Nike does not own the factories where Nike shoes are produced is especially important because Knight and the company he founded have been at the forefront of the debate over working conditions in these factories for some time. Labor activists, nongovernmental organizations (NGOs), women's groups, and human rights activists have long claimed that the footwear and apparel industries have relied upon “sweatshops.” Although several issues have been raised under this charge, the most common concerns have been wages, hours, working conditions, the ability to organize unions, and physical treatment of workers. Women such as Le, they charge, arrive at work and are frequently overseen by supervisors who do not speak the same language, who frequently use militaristic discipline and corporal punishment, require overtime, have reportedly sexually harassed the workers, and even limit bathroom breaks to as few as two in a twelve-hour shift.

Nike has long been a leading target of these charges and, although always denying them, the company has changed its response over time. Indicative of Nike's early approach was an incident in the early 1990s when labor disturbances were reported in six Indonesian factories due to working conditions. Nike officials distanced the company from the conflict by maintaining that as a purchaser rather than employer, it took no responsibility for working conditions in the factory.

“It's not within our scope to investigate,” said John Woodman, Nike general manager in Indonesia at the time. When asked if he knew what the disputes were about, he said he had not asked. “I don't know that I need to know.” 32

Nike maintained this hands-off position for several years, despite growing claims by critics that, as a buyer of shoes built on specification, the company does have the responsibility and crucial leverage when it comes to what goes on in the factories where Nike shoes are built.

“We don't pay anybody at the factories and we don't set policy within the factories,” said one company official. “[I]t is their business to run.” 33

Another company official defended living conditions and wages in the factories where Nikes were made, saying, “I don't think the girls in our factory are treated badly. The wages may be small, but it's better than having no job.” The alternative, according to the official, would be “harvesting coconut meat in the tropical sun.” 34

Aside from the charges noted above, critics have argued that 1) Nike and other footwear companies do not pay a living wage, and 2) a very small share of the final purchase price of the shoes actually goes to the workers who make them. Nike's own figures show that from a $70 pair of shoes, about $2.75 goes into workers' hands. (See Table 1 .) The company defends this practice as in line with industry standards.

As pressure against the company increased, Nike began to change its approach. One track has been to acknowledge many of the conditions prevalent in the factories but to defend them as appropriate given the development levels of the country. Nike has consistently pointed out that workers are generally paid at least the mandated minimum wage in the countries, even if those wages only amount to a dollar or two per day. “In most cases workers earn compensation and benefits far in excess of the minimum wage, and by all responsible measurements of need, earn sufficient income to provide food, shelter, clothing and a measure of discretionary items as well, according to Nike.” 35

In fact, these claims vary in practice. In Indonesia, Nike and other shoe factories pay minimum wage or slightly above, but in the mid-1990s the Indonesian government acknowledged that its own mandated minimum wage only covered 90 percent of what it would cost one adult to purchase a basic basket of goods. 36 In addition, common practice in Indonesia has been for firms to apply for waivers, which temporarily allow companies to pay less than the minimum wage. The Indonesian government has approved these waivers regularly. In contrast, in Vietnam, where labor laws are stronger, wages do appear to support a “living wage.” In Le's case, she not only subsists but also saves some portion of her earnings. Yet even here, evidence is contradictory. A study by Thuyen Nguyen found that workers making Nikes earned the equivalent of $1.60 per day, less than the $2.10 necessary to pay for three meals of rice, vegetables, and tofu. Thirty-two of thirty-five workers he interviewed reported losing weight since beginning work in the factories. 38 On the other hand, typical workers in Sam Yang, a South Korean-owned firm where Le works, earn an amount equal to half the average income in Ho Chi Minh City, twenty-five miles away, but four times that of workers in more remote parts of the country. 39 Nike, which in 1999 was the largest private employer in Vietnam, paid on average twice what a teacher earned and also more than the typical doctor's salary. 40

In fact, Nike has consistently claimed that its own presence (or that of its subcontractors) has by and large benefited not only workers but also development in general.

“We give people a chance to work themselves out of poverty,” said Knight. “When their bellies are full and they've got a roof over their heads, only then can they think about changing their economies.” 41

The governments of the countries where the factories are located appear to concur. They actively sought out export-oriented, labor-intensive industry in an effort to generate economic growth. In Vietnam in 1995, the year that Nike first arrived in the country, average wages were about $200 per year, and more than half of the seventy-five million people lived in poverty. 42 The communist government had instituted a series of economic reforms in 1989 to introduce more market mechanisms in the economy and integrate the country into the world economy as a development strategy. As a result, growth rates have averaged 8.6 percent per year between 1990 and 1998. During that same period, annual growth in industry increased by more than 13 percent, and exports were up a staggering 27 percent per year. 43

Indeed, Nike officials do not see their movement from one country to another as “searching elsewhere for the bottom” of labor costs but instead as a measure of success. The company points to what one consultant refers to as the “Nike Index”:

In simplest terms, the Nike Index tracks a developing economy's economic development by Nike's activity in each country. Economic development starts when Nike products are starting to be manufactured there (Indonesia, 1989; Vietnam, 1996). The economy hits the second stage—development at a level where per capita income indicates labor flowing from basic industries like footwear and textiles to advanced industries like electronics and cars (Hong Kong, 1985; Korea, 1990); and an economy that is fully developed when Nike has developed the country as a major market (Singapore, 1991; Japan, 1984; Korea, 1994). 44

As criticism of labor conditions in factories producing Nikes continued, Nike rather quietly adopted its own code of conduct for factory conditions among its subcontractors in 1992. The code mandated that firms meet local minimum wage laws as well as those dealing with child labor. Later, the code was revised to make those standards stricter. In addition, the revised code prohibits forced labor and excessive overtime. It also mandates that subcontractors conform to all laws regarding benefits and comply with local occupational and safety laws. 45 Today, Nike officials call the code of conduct visionary within the industry and note that only Reebok has followed with a code of its own. Adidas, the second largest athletic shoemaker in the world, along with Asics, Mizuno, and Fila, have no code. 46

Critics, including human rights activists, religious groups, and labor unions, however, have pointed to two major weaknesses of the code. First, although it mandates the above features, the code also calls for a “memorandum of understanding” or voluntary adoption of measures such as the ability of workers to independently form unions and bargain collectively with management. This is especially important, they charge, not only because the U.N. International Labor Organization recognizes these as core labor rights, but also because factories that make Nike shoes have frequently been located in nondemocracies, where few legal labor rights exist. 47 Second, the code raises the key issue of monitoring. The code of conduct may exist on paper, but without independent monitoring of conditions in factories, there is no guarantee that it is being met.

“Nike got targeted early,” said Brian Quin of Harvard University's Institute for International Development, who has studied Nike's operations in Vietnam, “and its first reaction was to close the doors to independent monitors, journalists, inspectors….It was a serious failure to communicate.” 48

During the mid-1990s, Nike and its supporters remained at odds with critics, but Nike became much more sensitive to the labor issue. Aside from updating and upgrading its labor code of conduct, it also took other measures to support its claim that it was guaranteeing fair treatment in factories that produce Nike products. Beginning in 1994, it started hiring prestigious auditors such as Price Waterhouse and Ernst and Young to monitor factory conditions. At a more local level, it also worked with the Thailand Business Investment in Rural Development as an independent auditor in Thailand and the University of Economics, Ho Chi Minh City. In addition, Nike has worked with the World Bank and the Center for Development Studies at Harvard in buttressing its claims that workers are treated fairly and according to the law. 49

Yet Nike officials were finding that for every action they took in this area criticism and negative publicity seemed actually to increase. “Boycott Nike” organizations were forming and NGOs and activists such as the No Sweat campaign, the Clean Clothes campaign, and Global Exchange reserved especially harsh treatment for Nike. Press reports also stung the company. In 1996, Life showed a photographic spread of children stitching Nike soccer balls while working at home in Pakistan. The company responded by organizing, with a partner, the construction of stitching factories so that workers' ages and hours could be more effectively monitored, but in some ways the damage was done. Human rights groups and other critics charged that without close press scrutiny, the practices probably would have continued.

Most of Nike's battles with its critics took place outside of the public spotlight during the early 1990s and were confined to charges and countercharges made by small activist groups and the company. This began to change in the mid-1990s as negative stories started to appear about the footwear and apparel industry, and the issue of globalization became something of a public debate. Among the first venues where this debate took place was the 1993 ratification of the North American Free Trade Agreement (NAFTA) between the United States, Canada, and Mexico. Despite the fact that prominent Republicans and Democrats backed the treaty, many Americans saw the agreement as pitting well-paid American workers against workers in developing countries who were paid just a few dollars a day. Although NAFTA was ultimately ratified and went into effect in 1994, unions, environmental groups, and human rights and consumer activists lobbied hard against the treaty, and public support was lukewarm at best.

A stream of reports on mainstream U.S. companies that were alleged to engage in sweatshop production soon followed. In 1996, the Walt Disney Company endured a period of bad press over apparel and toy assembly plants, including reports that contractors paid Haitian workers less than the legal $2.40 per day. 50 Disney's defense was similar to Nike's years earlier, as a spokesperson claimed, “The problem is, we don't own the factories. We are dealing with a licensee.” 51

Meanwhile, that same year popular talk show host Kathie Lee Gifford was humiliated by revelations that her clothing line was made in part by thirteen to fifteen year old Honduran children. Other shoe and apparel companies such as Reebok, Gap, Levi Strauss, Liz Claiborne, Wal-Mart, and many more endured damaging press reports and in many cases store protests.

As the issue of global sweatshops became much more public, President Clinton took up the issue by organizing a summit to eliminate sweatshops in mid1996. Driven by then-Labor Secretary Robert Reich, the summit was attended by officials from Nike, Liz Claiborne, Warnaco, L.L. Bean, and Patagonia, among others. Nike officials report that their company code of conduct was used as a working document for negotiations over an industry-wide code. 52 Among other things, the meeting eventually produced such a code in April 1997 and an organization among signatories called the Apparel Industry Partnership (AIP). The summit did not quiet the most vocal critics, but for the short term it appeared to disarm broader public concern.

Knight's Dilemma

Disputes over Nike labor practices continued throughout 1996 and 1997. In March 1996, fifteen women at the Sam Yang factory in Vietnam—the same factory where Le works—were reportedly beaten with the sole of a Nike shoe by a South Korean supervisor for poor workmanship. Two months later, the press reports of children as young as seven stitching soccer balls in Pakistan broke. 53 Nike responded by distancing itself from the incidents and attempting to remedy the abuses. The South Korean supervisor was dismissed, and Nike announced it would no longer allow home work in Pakistan. The company also established its own internal labor department in October of 1996 and joined Businesses for Social Responsibility two months later. 54

Shareholders also became more vocal. At the 1996 annual meetings in September, the United Methodist Church, holder of more than sixty thousand shares of Nike, called for close, independent monitoring of factories in order to clean up labor practices. The measure was voted down. 55

The signals Phil Knight and Nike were receiving at this point were mixed. Although the incidents and growing criticism stung the company, the bottom line of sales and profits remained rosy. Sales reached $6.4 billion in fiscal 1996 and grew to record levels of nearly $9.2 billion by fiscal 1997. Profits also rose accordingly. Consumers, if they were concerned, did not let that concern stop them from buying Nike products, and the company's stock price reflected its success. Yet gradually pressure on the company was growing and, most disturbing, it was moving from the confines of small NGOs that most people had never heard of to the front pages of newspapers.

One such case took place in November 1996, when the CBS news show “48 Hours” documented factory workers punished by being forced to kneel with their hands over their heads for twenty-five minutes by supervisors in a plant making Nikes. Just four months later, on International Women's Day, Thuyen Nguyen witnessed a Taiwanese supervisor force fifty-six women to run twice around a two-kilometer factory for wearing the wrong shoes to work at a factory that produced Nikes.

Nguyen, a businessman and Vietnamese refugee who worked hard to lift the U.S. economic embargo against Vietnam, had been invited to the plant by Nike company officials. As one who believed that more trade and investment would aid Vietnamese development, Nguyen expected to be a sympathetic observer of working conditions there.

“I realized then that Nike didn't have any control over their factories,” said Nguyen later. 56 He soon issued a twenty-seven-page document as part of a new group he helped found called Vietnam Labor Watch that meticulously criticized the company's labor record. The report was widely publicized by the press.

Nike's response during this period was two pronged: First, it denounced such incidents as isolated and in no way representing the norm for most workers, much as it had in the past. In addition, however, it continued to take a more proactive and public path, which had begun earlier in 1996 with Nike's very high-profile status at the Clinton administration's anti-sweatshop summit. In a press conference in January 1997, Nike named former U.N. Ambassador and Mayor of Atlanta Andrew Young and his newly founded consulting firm Goodworks International to act as an independent monitor of factory conditions in Indonesia and Vietnam. Young's report, issued six months later, turned up no signs of sweatshop conditions.

“We found Nike to be in the forefront of the global economy,” said Young. “Factories we visited that produce Nike goods were clean, organized, adequately ventilated and well lit.” 57

Nike took out full-page ads in several leading newspapers to publicize Young's findings, but critics of the company's labor practices argued that Young spent little time in factories and almost none in following up reports of abuses.

“I think it is an extremely shallow report,” said Medea Benjamin, codirector of Global Exchange, one of Nike's harshest critics. “I was just amazed that he even admitted that he spent three hours in factories using Nike interpreters and then could come out and say he did not find systematic abuse.” 58

Young had investigated the factories for a period of two weeks, and his itinerary was widely known ahead of time. For Knight, Nike's attempts to address labor problems head on appeared to be backfiring. In November 1997, Dara O'Rourke, a research associate at the Transnational Resource and Action Center, an environmental nongovernmental organization, and a consulting investigator for the United Nations' Industrial Development Organization (UNIDO), released a report criticizing working conditions in the Tae Kwang Vina plant that made Nike products outside Ho Chi Minh City in Vietnam. More damning was that O'Rourke's report was partially based on a leaked report from Ernst and Young, whom Nike hired to monitor conditions in the plant. The report, which received front page attention in the New York Times , found that employees were forced to work sixty-five hours per week, for $10 per week. In addition, the Ernst and Young audit found that the workers were exposed to carcinogens that exceeded local law by 177 times and that 77 percent of employees suffered from respiratory problems. 59 The report was especially disturbing along two lines: First, it demonstrated that Nike officials knew of the conditions at the Tae Kwang Vina plant because of Ernst and Young's confidential report, which had been turned over to O'Rourke by disgruntled Nike employees. O'Rourke, who visited the nine thousand-employee factory three times in 1997, also criticized the Ernst and Young document as understating the severity of conditions due to shoddy methodology. Second, the report documented these conditions within one of the newest and most modern facilities turning out Nike products, raising additional questions over the conditions at other factories.

“We believe that we look after the interests of our workers,” said Nike spokesperson Vada Manager in response to the report. He claimed that Nike was responding to the problems after Ernst and Young made the company aware of the conditions. “This shows our system of monitoring works.” 60

For Nike, however, the damage was done, as the company found itself on the defensive once again. Shortly after the O'Rourke report new charges surfaced that Nike and Reebok used child labor in China as young as thirteen years old who were paid 10 cents per hour.

“Where in the world can we find the cheapest labor—even if it's in the most repressed circumstances,” is the rationale of the companies, said Global Exchange's Benjamin in making the reports public. 61

Knight's worries were heightened in 1997 and 1998 as additional incidents surfaced and as criticism moved even more to the mainstream. In 1997, documentary film maker and labor activist Michael Moore released the book Downsize This . The book prominently included Knight in a collection of mock trading cards of what Moore called “corporate criminals.” On Moore's ensuing book tour, which he also used to make a new film, The Big One , Knight invited Moore to visit Nike's headquarters in Beaverton, Oregon. Moore surprised Knight with a gift of two open-ended airline tickets to Indonesia so that Knight could demonstrate to Moore that working conditions were fair. Knight refused to join Moore on the proposed trip, even though he admitted to never having visited the factories or the country. Later the film shows an interchange between Moore and Knight:

“So if 12-year olds are working in these factories, that's okay with you?” asked Moore.

“They're not 12. The minimum age is 14,” said Knight.

“How about 14 then. Doesn't that bother you?”

“No,” replied Knight. 62

Criticisms of Nike also found additional venues, and suddenly Nike seemed to face attacks from all sides. On college campuses students began protesting Nike's contracts with the schools' sports teams and coaches. At the University of North Carolina, students called on former legendary basketball coach Dean Smith to sever ties with Nike. In addition, the sports cable channel ESPN aired a special “Outside the Lines” with critical stories on labor practices by Nike and other shoe and apparel companies. In late 1997, women's organizations in the United States, including the National Organization for Women (NOW), publicly criticized Nike for its treatment of women in factories.

“While the women who wear Nike shoes in the United States are encouraged to perform their best, the Indonesian, Vietnamese and Chinese women making the shoes often suffer from inadequate wages, corporal punishment, forced overtime and/or sexual harassment,” NOW officials wrote in a letter to Knight. The letter was signed by, among others, the author Alice Walker and Democratic representative in Congress Maxine Waters (D-Calif.). 63

This was especially damning criticism given that Nike had begun to target women as its newest growth market. Along another front, a labor activist sued Nike in April 1998 for violating California's consumer laws by lying to the public about working conditions. 64 Finally, even the comics appeared to be against Nike. Gary Trudeau's “Doonesbury” strip ran a series that contained scathing criticism of the conditions in factories producing Nikes.

Meanwhile, as public criticism grew, profits were beginning to shrink in late 1997 and early 1998. So did Nike's stock price, and, consequently, Knight's own personal net worth. Although Nike officials attributed the drop in sales to the Asian financial crisis that struck in 1997, there was deep concern that Nike and its trademark swoosh were losing their luster. In part this was no accident.

“We figured out… that the only way to make our campaign against Nike's labor practices work was to try to make the swoosh uncool,” said Benjamin of Global Exchange. 65 The strategy appeared to be working.

“A lot of kids think they are now discovering Adidas for the first time, as it becomes the anti-Nike” said one industry watcher. 66

By April 1998, this was the dilemma confronting Knight: Press reports continued to be critical of Nike labor practices despite the company's actions. Worse, many saw those actions as public relations ploys. Criticism had moved from the fringes to the mainstream of American society. Protesters regularly picketed Niketown stores in various cities. Even stockholders criticized company policies as the value of the shares declined. Worst of all, despite the fact that every American spent an average of $20 per year on Nike products and that 97 percent of Americans could identify the swoosh brand, 67 Nike's swoosh increasingly became the symbol for sweatshops in the eyes of many. For a shoe and apparel company that depended on fashion-conscious youth, there could be no worse fate for the Nike brand than that of becoming “uncool.”

1. Jennifer Lin, “Nike Battles Labour Charges: U.S. firm makes changes after alleged worker abuses in Vietnam,” Toronto Star , 2 April 1998.

2. Ibid. Le could make minimum wage and still be paid better than others in the country for two reasons. First, minimum wages frequently vary within regions of the country. Second, foreign corporations are forced to pay higher minimum wages than domestic employers by the Vietnamese government.

3. Walter LaFeber, Michael Jordan and the New Global Capitalism (New York: W.W. Norton, 1999), p. 59.

4. Miguel Korzeniewicz, “Commodity Chains and Marketing Strategies: Nike and the Global Athletic Footwear Industry,” in Gary Gereffi and Miguel Korzeniewicz, eds., Commodity Chains and Global Capitalism (Westport, CT: Greenwood Press, 1990), p. 252.

5. The Swoosh was created by Caroline Davidson in 1971 and represents the wing of the Greek goddess Nike. Davidson was paid $35 for the logo. Nike homepage, http://info.nike.com/faq/main.html .

6. Nike Company homepage labor timeline, http://www.nikebiz.com/labor/time3.shtml .

7. Korzeniewicz, “Commodity Chains and Marketing Strategies,” p. 255.

9. J. B. Strasser and Laurie Becklund, SWOOSH: The Story of Nike and the Men Who Played There. (New York: Harcourt Brace Jovanovich, 1991), pp. 267–8, quoted in Korzeniewicz, “Commodity Chains and Marketing Strategies,” p. 255.

10. Cited in Korzeniewicz, “Commodity Chains and Marketing Strategies,” p. 248.

11. LaFeber, Michael Jordan , p. 61

12. Korzeniewicz, “Commodity Chains and Marketing Strategies,” p. 251.

13. LaFeber, Michael Jordan , p. 62.

14. Strasser and Becklund, Swoosh , p. 572.

15. LaFeber, Michael Jordan , p. 63.

16. Nike Company figures, http://info.nike.com/invest/ar_f_history.html .

17. Nike Company Home Page, http://www.nikebit.com/labor/time2.shtml .

18. Bethan Brookes and Peter Madden, “The Globe-Trotting Sports Shoe,” Christian Aid homepage, http://www.one-world.org/christian_aid/global_shoe.html .

19. “Globalization: The Facts,” The New Internationalist 296 (November 1997).

20. World Bank figures reported in Barbara Stallings, “Introduction: Global Change, Regional Response,” in Barbara Stallings, ed., Global Change, Regional Response: The New International Context of Development (Cambridge, England: Cambridge University Press, 1995), p. 15, and Gary Gereffi, “Paths of Industrialization: An Overview,” in Gary Gereffi and Donald L. Wyman, eds., Manufacturing Miracles: Paths of Industrialization in Latin America and East Asia (Princeton, NJ: Princeton University Press, 1990), p. 8.

21. World Bank data reported in Gereffi, “Paths of Industrialization,” p. 16.

22. World Bank figures reported in Linda Y.C. Lim, “Southeast Asia: Success Through International Openness,” in Stallings, Global Change, Regional Response, pp. 241, 244.

23. The figures are in constant 1987 dollars. United Nations Development Program, Human Development Report, 1998 (New York: Oxford University Press, 1998), pp. 141, 145.

24. Robert Collier, “U.S. Firms are Reducing Sweatshop Abuses,” San Francisco Chronicle , 17 April 1999, p. A1.

25. Leslie Sklair, Assembling for Development: The Maquila Industry in Mexico and the United States (La Jolla, Calif.: Center for U.S.-Mexican Studies, University of California-San Diego, 1993), p. 15.

26. Susan Tiano, Patriarchy on the Line: Labor, Gender and Ideology in the Mexico Maquila Industry (Philadelphia, PA: Temple University Press, 1994), p. 44.

27. Richard Barnet and John Cavanagh, Global Dreams: Imperial Corporations and the New World Order (New York: Simon and Schuster, 1994), p. 325.

28. Tiano, Patriarchy on the Line , p. 37.

29. Ibid., pp. 217–18; Sklair, Assembling for Development, pp. 171–2.

30. See, for instance, Maria Patricia Fernández Kelly, For We Are Sold: I and my People (Albany, NY: SUNY Press, 1983); Barbara Ehrenreich and Annette Fuentes, “Life on the Global Assembly Line,” Ms. , January 1981, pp. 53–71; Cynthia Enloe, “Women Textile Workers in the Militarization of Southeast Asia,” in June Nash and Maria Patricia Fernández Kelly, eds., Women, Men and the International Division of Labor (Albany, NY: SUNY Press, 1983), pp. 407–25.

31. Linda Y. C. Lim, “Women's Work in Export Factories: The Politics of a Cause,” in I. Tinker, ed., Persistent Inequalities (New York: Oxford University Press, 1990), p. 119.

32. Quoted in Barnet and Cavanagh, Global Dreams , p. 328.

33. Quoted in Brooks and Madden, “The Globe-Trotting Sports Shoe.”

35. Nike Company Home Page, FAQ, 2/2/98, http://info.nike.com/faq/main.html .

36. Reported in Asian Labour Update (April, 1997), p. 38.

37. Source: Nike: Why it Costs $70 for a pair of Athletic Shoes,” Washington Post , 3 May 1995, reprinted in Asian Labour Update (Oct. 1997-Jan. 1998): p. 16.

38. Bob Herbert, “Nike's Boot Camps,” New York Times , 31 March 1997.

39. Lin, “Nike Battles Labour Charges.”

40. David Lamb, “Job Opportunity or Exploitation?” Los Angeles Times , 18 April 1999, Part C, p. 1.

41. Quoted in Jenifer Porges, “Nike's Code: Is It Just a P.R. Tool?” Asian Labor Update 26 (Oct. 1997-Jan. 1998): p. 13.

42. Keith Griffin, “Restructuring and Economic Reforms,” in Keith Griffin, ed., Economic Reform in Vietnam (New York: St. Martin's Press, 1998), p. 1.

43. World Bank, World Development Report 1999–2000 (New York: World Bank, 2000), p. 251.

44. Nike Company Home Page, FAQ, 2/2/98, http://info.nike.com/faq/main.html .

45. Porges, “Nike's Code;” p 10.

46. Nike Company Home Page, FAQ, 2/28/98, http://info.nike.com/faq/main.html .

47. Porges, “Nike's Code,” p. 10.

48. Quoted in Lamb, “Job Opportunity or Exploitation?” p. C1.

49. Nike Company Home Page, FAQ, 2/2/98 http://info.nike.com/faq/main.html .

50. Debora Spar, “Human Rights Find Niche in Global Marketplace,” Minneapolis Star and Tribune , 26 March 1998, p. 18A.

52. Nike Company Home Page, FAQ, 2/2/98, http://info.nike.com/faq/main.html .

53. Global Exchange Home Page, 7/2/99, www.globalexchange.org/economy/corporations/nike/chronology.html .

55. Global Exchange Home Page, 7/2/99, www.globalex-change.org/economy/corporations/nike/chronology.html .

56. Lin, “Nike Battles Labour Charges.”

57. Dan Kanedy, “Nike's Asian Factories Pass Young's Muster,” New York Times , 25 June 1997, D2.

59. Dara O'Rourke, “Smoke from a Hired Gun: A Critique of Nike's Labor and Environmental Auditing in Vietnam as Performed by Ernst and Young,” TRAC Nike Report, 10 November 1997, available on Corporate Watch Home Page 2/2/98, www.corpwatch.org/trac/nike/trac.html ; Steven Greenhouse, “Nike Shoe Plant in Vietnam is Called Unsafe for Workers,” New York Times , 8 November 1997, p. A1.

60. Quoted in Greenhouse, “Nike Shoe Plant in Vietnam.”

61. Global Exchange Home Page, www.globalex-change.org/economy/corporations/nike/chonology.html “Nike, Reebok cited in child labor abuses,” Associated Press .

62. Michael Moore, director. The Big One, Miramax Films, 1998.

63. Quoted in Steven Greenhouse, “Nike Supports Women in Its Ads, but Not Its Factories, Groups Say,” New York Times , 26 October 1997, Sec. 1, p. 30.

64. Reuters , “Nike Accused of Lying about Asian Factories,” in the New York Times, 21 April 1998, p. A18.

65. Quoted in Timothy Egan, “The Swoon of the Swoosh,” New York Times Magazine, 13 September, 1998, p. 66.

67. Egan, “The Swoon of the Swoosh.”

On May 12, 1998, Phil Knight stood before the National Press Club in Washington, D.C., and made a startling announcement.

“It has been said that Nike has single-handedly lowered the human rights standards for the sole purpose of maximizing profits,” he told the audience. “The Nike product has become synonymous with slave wages, forced overtime and arbitrary abuse. I truly believe that the American consumer does not want to buy products made in abusive conditions.” 1

With that, Knight also announced a series of new policies for its subcontracting facilities. Henceforth, the minimum wage for new workers in all factories making Nike shoes would be eighteen, and sixteen in factories making other Nike products. In addition, Nike committed itself to allow independent monitors from labor and human rights groups to join its own auditors in the factories. In effect, this would allow Nike's harshest critics to keep a close watch on working conditions in the plants. Knight also announced that new air quality standards meeting U.S. regulations rather than local standards would be imposed in all factories to ensure better ventilation. 2

“We believe that these are practices which the conscientious, good companies will follow in the 21st Century,” said Knight. “These moves do more than just set the industry standards. They reflect who we are as a company.” 3

Nike's longtime critics offered measured support for the moves but criticized Nike for failing to raise wages, which had been effectively cut in Indonesia and Thailand due to falling local currencies associated with the Asian financial crisis.

“Sweatshops are known to the U.S. public as places where people work in miserable conditions for miserable wages,” said Global Exchange's Benjamin. “Nike is addressing the miserable conditions, but a sweatshop is a sweatshop is a sweatshop unless you address miserable wages.” 4

In 1998 and early 1999, Nike announced a series of additional measures to aid workers and monitor conditions. The company switched adhesives used on its shoes from solventbased to waterbased in order to improve air quality. Such a step was also part of a broader agreement reached in November 1998 with President Clinton's AIP. The negotiations had been deadlocked for two years over monitoring working conditions. The agreement called for a code of conduct regarding child labor, wages, health and safety standards, and a system of independent monitoring.

“The agreement's not very good,” said Mark Levinson, director of research at the Union of Needletrades, Industrial and Textile Employees (UNITE). “How can you talk about eliminating sweatshops without making a commitment to pay a living wage? And the agreement allows companies to produce in countries that systematically deny worker rights.” 5

In March 1999, Nike offered Indonesian workers pay raises of 6 percent and an improved benefits package. 6 By June 1999, two more raises followed, hiking average wages to more than 43 percent above the minimum wage. Yet because wages are paid in local currency and the Indonesian rupiah had lost much of its value, the wages, about 20 cents per hour, gave the average worker only three-quarters of the purchasing power she or he had before the economic crisis struck. 7 In addition to raises, the company helped found the Global Alliance for Workers and Communities in order to improve the “work environment, life skills and communities of global manufacturing employees around the world.” 8 In 1999, Nike also began a microloan program in Indonesia and announced plans to expand it elsewhere.

The response has been mixed. Some of Nike's harshest critics have toned down their criticism.

“We've been in a direct dialogue with Nike for the last six months. We really feel like they're getting it,” said Benjamin. “This is like the kinder, gentler Nike coming out.” 9

Yet if some activist NGOs took a more measured line while continuing to scrutinize Nike's actions, public reaction has been less favorable. By 1999 and 2000, a considerable amount of anti-sweatshop activity moved across college campuses and focused on collegiate licensing agreements for apparel with college and university logos and sponsorship of athletic programs by apparel and footwear companies. Despite Nike's calls for protest groups to join the Fair Labor Association (FLA), an organization founded by the AIP, many activists argue that the organization is dominated by business interests. Instead many have joined alternative organizations, including United Students Against Sweatshops (USAS) and the Workers Rights Consortium (WRC). USAS has led student protests, sit-ins and the takeover of buildings at several institutions, including Duke, Harvard, Stanford, Yale, Wisconsin, and Michigan as part of their call for higher labor standards and greater accountability. In response, some forty-eight colleges and universities have formed and joined an alternative organization to the FLA, the WRC, which has called for acknowledgment of factory locations (many licensing companies argue factory locations are a “trade secret”) and truly independent monitoring of conditions in the factories. 10

For workers like Le, however, some changes may be evident in working conditions, but wage rates remain steady. In addition, incidents of worker abuse continue to be reported. Nike claims it has zero tolerance for such incidents and has temporarily cut relations with factories that have failed to comply with its standards. Despite the continuing disputes, many in the NGO community argue that Nike's recent reforms have had a wider effect in the footwear, apparel, and toy industries and that therefore significant victories have been won. “The fact that industry leaders are taking these new steps, as insufficient as they are, is because so much public pressure has been put on them,” said Benjamin. “It's a sign of real progress.” 11

Deborah Spar, professor of business administration at Harvard, argues that such public pressure forces companies to “race to the top” of corporate responsibility rather than “race to the bottom” of wages. 12

Whether this turnaround has come quickly enough, or is extensive enough, for Nike to salvage its image is unclear. Colleges and universities have been the centers of the harshest criticism, and Nike, which is also a major provider of athletic uniforms and equipment for college teams, has begun to fight back. While some colleges have joined the FLA, many instead became members of the WRC. In March 2000, the company announced that it would stop sponsoring Brown University's hockey team after Brown joined the WRC. A month later, Knight announced he would stop giving money to his alma mater, the University of Oregon, after it, too, joined the WRC. The latter group has set up its own more extensive code of conduct and independent monitoring. The next day, Nike broke ties with the University of Michigan for the same reason. 13

Nike's strategy in 2000 appears to be a mixture of accommodation and firing back at its strongest critics. While cutting back financial sponsorship to some universities, Nike has also announced that it will make public where its factories are located and has sponsored student inspections of factory conditions. Yet concern in Beaverton is that these actions may have come too late. The company even put some of the letters it receives on the issue on the cover of its annual report.

“Your actions so disgust me that I will never buy one of your products again,” read one. “I hope my attitude proves universal.” 14 Nike's own focus group studies indicate huge image problems among its core buyers, youth.

“You can make a lot of mistakes around here, but the brand is sacred,” said Knight recently. “I messed that up.” 15

1. Quoted in E.J. Dionne, “Nike a long way from Finish Line,” Denver Post, 15 May 1998, p. B11.

2. John H. Cushman, Jr., “Nike Pledges to End Child Labor and Apply U.S. Rules Abroad,” New York Times, 13 May 1998, p. D1.

4. Quoted in Dionne, “Nike a long way from Finish Line.”

5. Steven Greenhouse, “Groups Reach Agreement for Curtailing Sweatshops,” New York Times, 8 November 1998, p. A20.

6. Wall Street Journal, 24 March 1999, p. B2.

7. Dave Morberg, “Bringing Down Niketown,” The Nation, 268: 21 ( June 7, 1999): p. 16.

8. Nike Company Home Page labor newsletter, Vol. 1, No. 1, 6/28/99, http://www.nikebiz.com/labor/letter.shtml .

9. Quoted in Stephanie Salter, “Global Exchange and a Kinder, Gentler Nike,” San Francisco Examiner, 21 March 1999.

10. Chris Stetkiewicz, “Nike Spikes ‘Sweatshop’ Critics,” Reuters , 7 May 2000.

11. Quoted in Robert Collier, “U.S. Firms Reducing Sweatshop Abuses,” San Francisco Chronicle , 17 April 1999.

12. Spar, “Human Rights Find Niche in Global Market-place.”

13. Stetkiewicz, “Nike Spikes ‘Sweatshop’ Critics.”

14. William McCall, “Nike's Image Under Attack,” Associated Press printed in Buffalo News , 23 October 1998, p. 5E.

15. Quoted in Egan, “The Swoon of the Swoosh.”

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Global Sourcing at Nike

By: Nien-he Hsieh, Michael W. Toffel, Olivia Hull

This case explores the evolution of Nike's global product sourcing strategy, in particular ongoing efforts to improve working conditions at its suppliers' factories. When the case opens in July 2018,…

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  • Publication Date: Mar 7, 2019
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This case explores the evolution of Nike's global product sourcing strategy, in particular ongoing efforts to improve working conditions at its suppliers' factories. When the case opens in July 2018, Vice President of Sourcing Amanda Tucker and her colleagues in Nike's Global Sourcing and Manufacturing division were focusing on three key supply chain challenges: sourcing from suppliers that meet compliance standards, challenging and encouraging suppliers to improve capabilities, and being responsive to consumer demand across the world.

Mar 7, 2019 (Revised: Jun 11, 2019)

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Asia, Central America and Caribbean, Oregon

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Case Study | Inside Nike’s Radical Direct-to-Consumer Strategy

Inside Nike's Radical Direct-to-Consumer Strategy Case Study

  • Chantal Fernandez

In October 2020, in the middle of a global pandemic that had infected 188 countries, causing record sales damage across the retail sector, Nike’s share price hit an all-time high.

Like other retailers, Nike had been forced to close most of its network of more than 900 stores across the world, as had its key wholesale partners like Nordstrom and Foot Locker.

But the American sportswear giant’s performance during the pandemic, when its online sales spiked, signalled to many that Nike had the competency to prosper long term, in a future that will be increasingly defined by e-commerce and digital brand connections.

It was a validation of a strategy that Nike prioritised three years ago, dubbing it “Consumer Direct Offense,” but the seeds of the approach go back almost a decade.

Above all, Nike is a marketing company. It doesn’t just sell sneakers; it sells the brand aspiration that imbues those sneakers with meaning. But to achieve the reach required to scale its business, Nike’s distribution strategy had long-relied on third-party retailers to sell its products, even if the consumer experience offered by those partners diluted its brand.

But in a future increasingly defined by e-commerce, fast-moving trends and, above all, the rising power of branding to drive consumer preference when competitors are just a click away, Nike realised that in order to thrive, it needed to take control of its distribution to better manage its brand and deepen its connection with consumers.

It was definitely architecting a new retail, and a bold, retail vision for Nike.

Such an evolution is easier said than done, especially for a business as large as Nike in a category as competitive as sportswear. But by radically cutting back on its wholesale distribution and raising the bar for brand experience with the third-party partners that remained; expanding its focus on content, community and customisation to keep customers close; investing in its data analytics and logistics capabilities; and rethinking the role of the store as a brand stage, Nike drove a veritable direct-to-consumer revolution.

When the pandemic hit, these shifts went into overdrive.

“It was definitely architecting a new retail, and a bold, retail vision for Nike,” said Heidi O’Neill, Nike’s president of consumer and marketplace, and one of the most prominent executives leading the brand’s new strategy in recent years. “But it started with our consumer, and we knew that consumers wanted a more direct relationship with us today.”

In this case study, BoF breaks down Nike’s pioneering direct-to consumer strategy and how it has worked to the brand’s advantage, propelling its share price to new heights during the global crisis of 2020.

Click below to read the case study now.

  • Mark Parker
  • John Donahoe
  • direct to consumer
  • athletic apparel

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Home » Management Case Studies » Case Study of Nike: Building a Global Brand Image

Case Study of Nike: Building a Global Brand Image

Brand history.

The idea of Nike began way back in the 1950s. A track coach by the name of Bill Bowerman was at the University of Oregon training his team. Bill was always looking for a competitive edge for his runners, like most of us today look for any advantage we can get. Bill said he tried using different shoes for his runners as well as trying other things to try and make his athletes better. Bill tried to contact the shoes manufactures in attempt to try out his ideas for running shoes. This however failed. In 1955 a track runner by the name of Phil Knight enrolled at Oregon. Phil was on the track team under Bill. Phil graduated from Oregon and acquired his MBA from Stanford University. Phil went on to write a paper that talked about how quality shoes could be made over in Japan and they would be cheaper. Phil called a company in Japan and became a distributor of Tiger shoes in the United States of America. Phil sent some pairs of shoes to his old track coach trying to get Bill to buy the shoes. Instead of buying these shoes Bill offered Phil a partnership to create better running shoes. In 1964 Bill and Phil shook hands and formed Blue Ribbon Sports. The companies’ first move was to order three hundred pairs of shoes from the company in Japan. While Bill examined these shoes and tried to make them better Phil was out selling the shoes. Bill had his track team at Oregon try out his new creations. This became the foundation of Nike. Due to the fact that Bill and Phil still had a full time job, they hired Jeff Johnson as their first full time employee. Jeff soon became a invaluable utility man for the company. In 1971 Jeff created brochures, marketing materials and even shot photos for a catalogue. The very first Blue Ribbon store was opened by Jeff. Meanwhile the relationship between Blue Ribbon and the company from Japan was starting to deteriorate. Bill and Phil made the jump to manufacturing and designing their own footwear. The trade marks swoosh which was introduced at this time. The Nike line of footwear was unveiled in 1972, during the U.S. Track and Field Trials. One pair of the shoes had a huge impression on a dozen multiple runners that wore the new shoes. These shoes incorporated a new style of soles that that had nubs on them that resembled the ridges of a waffle iron. These shoes were also a lot less heavier than most running shoes at the time. With the new image Nike started looking for athletes to wear, promote and elevate the new shoes. The first athlete they found was Steve Prefontaine. Prefontaine never lost a race that was over a mile in distance in his college career between 1969 and 1973. Prefontaine challenged Bill , Phil and their new company to stretch their talents. In turn Prefontaine became an ambassador for Blur Ribbon Sports and Nike. In 1975 Prefontaine died at the age of 24, but his spirit still lives on within Nike. Prefontaine became the “soul of Nike”. When 1980 hit Nike entered the stock market and became a publicly traded company. Once this happened many of the people that started the company moved on with their lives. This included Phil Knight who resigned from his president spot for over a year. In the mid-1980s Nike started to slip from top of its industry. This started to change when Michael Jordan released a new shoe through Nike. When this happened Nike’s bottom line got a boost. In 1988 the slogan that we all know today “Just do it” was introduced as a way for Nike to build on its momentum from their “Revolution” campaign. The Just do it campaign included three advertisements in which a young athlete by the name of Bo Jackson was involved in. By the end of the decade Nike was at the top of their industry once again. The 90’s brought a series of outreach for Nike. At this point in time Nike deepened their commitment into others sports such as soccer and golf. In 1995 Nike signed the whole World Cup wining Brazilian National Team. This also allowed Nike to create jerseys for the team. Nike also landed contracts with both the men’s and woman’s teams for the United States. The biggest thing that Nike was criticized for was when they signed a young golfer by the name of Eldick “Tiger” Woods for huge deal. All of the competition said this was a dumb idea till Tiger won the 1997 Masters by a record 12 strokes. In 2000 a new shoe was introduced. This shoe went by the name of the Nike Shox. This shoe combined more than 15 years of dedication and perseverance. Nike is still the industry leader in their markets and continues to grow more and more each year around the world. This company will have much more to offer in the future.

Nike Brand Analysis Case Study

Brand Equity

Having and holding customers is likely to be a competitive battle which each brand tries all efforts to win. They compete for functional attributes, distinctive services or innovative technologies. So what are emotional and functional benefits which Nike provides for their customers?

Since Nike was set up by someone who has a deep passion for athletics and running, it should come no surprise that product is important. Products that are comfortable, authentic, functionally innovative and uniquely designed. The innovative technology is considered as one of the defining dimensions of Nike’s brand identity and corporate culture.

The simple driving concept has led to some impressive innovations which is considered as one of the defining dimensions of Nike’s brand identity and corporate culture. The first highlight was Air cushioning, using pressurized gas to cushion impact and new materials such as Urethane, that was used first with the Air Max running shoes. More recently, to obtain maximum performance, Nike Sport Research laboratory has discovered the innovative technology such as Shox, which are made mostly of rubber and spring back adding more power to a runner’s stride and Total 90 Concept, a range of equipment to help players perform over 90 minutes of a soccer match. Such innovative technology which Nike has used has gained the strong hold in consumers’ perceptions.

Clearly, functional benefit is the fundamental and classical features to communicate with customers. However, if Nike just provided high quality running shoes to enhance athletic performance, Nike would not be strong brands. Big brands need to be beyond the purely functional relationships. They should create a more strong emotional attachment with core consumers because emotional benefits add richness and depth to the brand and the experience of owning and using the brand. Nike offers emotional benefits which are “the exhilaration of athletic performance excellence; feeling engaged, active, and healthy; exhilaration from admiring professional and college athletes as they perform wearing “your brand” – when they win, you win too”.

Associated brand with the top athletes, Nike tells story of brands which the main themes is sportsmanship and unrelenting effort. These are the story of Michael Jordan who won a record 10th scoring title and was selected as one of the 50 Greatest Players in American’s National basketball association championship. Lance Armstrong survived and won a second straight Tour de France while Tiger Woods completed the career Grand Slam, ensuring his place in golf history at the age where most of us are still wondering what we will do when we grow up. The most three prominent athletes has generated the inspiration for young and next generation of athletes. Nike has succeeded to transfer their inspirations to every single purchaser. Wearing every pair of Nike shoes is to engage a passion for excellence and encourage to do your own thing. “Just do it” – the tagline could sum up all the greatest values of brand which is.

“Just Do It” Campaign

Products are no longer just products, they move beyond the functional meanings. Nowadays, they are definitely social tools serving as a means of communication between the individual and his significant references. Products are considered as a symbol of individuality and uniqueness, and also symbol of affiliation and social identification. It is particularly trued with the fashion brands. Fashion brands such as clothes, bags, shoes and etc satisfy opposing functions, both social identification and distinction among individuals.

Nike must have understood the recipe well. The “Just do It” campaign in the early 1990s would be a perfect example. Losing ground to archival Reebok which was quick initiative on designing “style”, “fashion” aerobics shoes in 1980s, Nike responded dramatically and forcefully by launching the “Just do it” campaign which was mainly focused on person wearing on products instead of product itself.

Purchasing an athlete-endorsed product is one means of symbolically and publicly demonstrating aspirations to be a part of the group and such behaviors are directly influenced by the extent to which a fan identifies with an athlete endorser. Heroes and hero worship was being built as the main themes of advertising. Celebrity endorsements such as Bo Jackson, John McEnroe and Michael Jordon appealed to the consumers sense of belonging and “hipness”. In other words, Americans consumers were convinced that wearing for every part of your life was smart (the shoes are designed for comfort) and hip (everyone else is wearing them; you too can belong to this group). “Just Do It” campaign succeeded (Nike increased its share of the domestic sport shoe business after launching this campaign in America from 18 percent to 43 percent, regained the leader position) because it could fascinate customers in both separating ways. Wearing Nike as a self fulfilling image declaration – “if you are hip, you are probably wearing Nike”. But perhaps most importantly, it could create the desirable needs -“if you want to be hip, wear Nike” .

Brand Loyalty

Luring by good shoe with innovative functionality and athletic aspiration value, Nike has indeed come to mind and heart of its customers. By the mid of 1990s, 77 percent of male Americans from the age of 18 to 25 chose Nike as their favorite shoe. The figure still remains stably despite of that “up” and “down” year Nike has been experience, gaining the high score of customer satisfaction at 79 percent rated by The American Customer Satisfaction Index Organization .

It could be said that loyalty to the Nike brand is driven by many external and internal factors such as brands’ subjective and objective characteristics and loyalty building programs. One visible example of creating innovative method to capture the strong relationships with Nike users is that creating Joga.com, a social network site for foot ball fans. Launching quietly in the early 2006, the site became an instant hit, peaking at 7.5 million viewers when Nike showed Ronaldinho video clips. More than 1 million members from 140 countries signed up by mid July. In this site, fans can create their personal blogs, build communities around favorite teams or players, download video and organize pickup games. By enrolling consumers in building and shaping the content of the website, Nike pulled their loyal customers closer, nurtured deeper bonds of loyalty and advocacy.

Brand Awareness

Brand awareness is the first and crucial stage of consumer’s preference. It refers to the strength of a brand’s presence in the consumers’ mind. Nike has been successful in building awareness. The “Swoosh” symbol has been appeared everywhere, on shoes, hats, billboards and soccer balls across the globe too remarkably to such extent that one author used the title “The Swooshification of the World” on Sports Illustrated column that imaged a future in which the swoosh could surpass sports to become a letter of the alphabet and the new presidential seal, among other things. True be told, the recognition of the ‘swoosh’ is extremely high.

As of 2000, 97 percent of American citizens recognized the brand logo, as the strong brand penetration. Nike could be recognized consistently without identification of brand name, even by the youngest group (aged from 4 to 6 years old). This perhaps may reflect the general level of advertising and promotion that children are exposed to.

How has Nike done to build brand awareness? Sponsorships, advertising and experience focused retailing (Nike town) are three vivid channels that Nike has applied to enhance its brand image and awareness. Among these strategies, athlete endorsements could be considered as the most significant success of Nike brand.

Nike has been invested millions of dollars to associate their brand names with easily recognizable athletes with the aim of brand image building. Athletes at the top of their respective sport such as Micheal Jordan, Tiger Woods, and Lance Armstrong who are well – liked and respected by members of the brand’s target audience are chosen as endorsers to associate the Nike brand with the athlete’s celebrity image. This strategy has been paid off, for example, since Tiger Woods and Nike cooperated, annual sales for Nike Golf have exceeded to nearly $500 million dollars with an estimated 24 percent growth per year in the first five years of the agreement.

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Product Innovation in the Global Fashion Industry pp 79–111 Cite as

Nike: An Innovation Journey

  • Michelle Childs 5 &
  • Byoungho Jin 6  
  • First Online: 29 November 2017

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Part of the Palgrave Studies in Practice: Global Fashion Brand Management book series (PSP:GFBM)

Nike is an American multinational company that has evolved to become a global leader in athletic wear with annual sales exceeding $21 billion in 2016, more than half of which is attributed to international markets. Since its inception in 1964, Nike has been an innovation leader in product development, marketing and consumer experience. Due to a dedication to continuous innovation, Nike has been able to sustain a competitive advantage within the athletic apparel and footwear marketplace. This case highlights key points in Nike’s journey of innovation and examines how Nike has successfully emerged as a global champion within the athletic wear industry. Based on these analyzed strategies, this case provides implications that are relevant for practitioners and academics.

  • Athletic wear
  • Product development innovation
  • Marketing innovation
  • Consumer experience innovation

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Childs, M., Jin, B. (2018). Nike: An Innovation Journey. In: Jin, B., Cedrola, E. (eds) Product Innovation in the Global Fashion Industry. Palgrave Studies in Practice: Global Fashion Brand Management . Palgrave Pivot, New York. https://doi.org/10.1057/978-1-137-52349-5_4

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    Case Study of Nike: Building a Global Brand Image Brand History The idea of Nike began way back in the 1950s. A track coach by the name of Bill Bowerman was at the University of Oregon training his team. Bill was always looking for a competitive edge for his runners, like most of us today look for any advantage we can get.

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    Sports, Nike has become the global leader in athletic wear and athletics- related technology, with annual sales exceeding $21 billion in 2016, which ... Nike, 2016b), previous case studies (e.g., Wasserman & Anderson, 2012) as well as trade and M. CHILDS AND B. JIN. 81 news articles (e.g., Nazario & Roach, 2015; Salfino, 2017), we provide

  16. Global Sourcing at Nike

    Abstract. This case explores the evolution of Nike's global product sourcing strategy, in particular ongoing efforts to improve working conditions at its suppliers' factories. When the case opens in July 2018, Vice President of Sourcing Amanda Tucker and her colleagues in Nike's Global Sourcing and Manufacturing division were focusing on ...

  17. Marketing Case Study: Nike's Global Marketing Strategies

    Updated: 01/16/2024 Nike's Global Strategy The title of this lesson alone probably brings to mind images of advertisements and products by the owner of that slogan: Nike, one of the world's...

  18. Nike Case Study

    The video on the left of this is a documentary that is worth watching to help you gain further understanding of the issues involving MNC's and NIDL. Structure of lessons: Lesson 1. Starter: Introduce the lesson by showing the Nike Promo video above. Discuss the global image that Nike is portraying of their business.

  19. Nike Case Study

    The Promise and Perils of Globalization: The Case of Nike 1 Richard M. Locke Alvin J. Siteman Professor of Entrepreneurship ... Through a case study of Nike, Inc. - a company that has come to symbolize both the benefits and the risks inherent in globalization - this paper examines the various difficulties and complexities companies face as ...

  20. Product digitalization at Nike: The future is now

    Volume 12, Issue 1 https://doi.org/10.1177/2043886920963286 PDF / ePub More Abstract Nike is well known for the digitalization of its commerce processes, including direct-to-consumer mobile and social commerce, as well as for pushing the envelope in terms of using advanced materials in innovative sportswear.

  21. Nike CASE Study

    University of the People BUS 2207: MULTINATIONAL MANAGEMENT AY2021-T. The Promise and Perils of Globalization: The case of Nike. Introduction. Globalization is seen in the U. companies, such as Coca Cola and McDonalds that have grown into globally successful household names.

  22. Impacts of Globalization on Nike's International Operations

    Potential impact of Globalization New development. Nike develops the new innovation in footwear, apparel, and equipment. Nowadays, people are concern in personal safety. A design of shoe will affected the balancing of people, Nike focusing on this case to develop their new product especially for sport person.

  23. Nike Case Study Globalisation

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