“Nike Global Mangers View”

Final Project

International Business Management

Course No. MGT 306

Under the supervision of Dr. Galanou

Aikaterini

Done by :

Maha Ali

Aisha AL-Rashdi

Ru’a Al-Saadi

ABSTRACT

Nike, Inc. is a major publicly traded sportswear and equipment supplier based in

the United States. The company is headquartered near Beaverton Oregon, which is part of

the Portland metropolitan area. Nike Inc. was founded in 1962 by Bill Bower man and

Phil Knight as a partnership under the name, Blue Ribbon Sports. In this project we are

examining Nike global mangers views from different part of the world such as United

State of America , the Middle East and China. After introducing a brief history for the

company transformers from a local company to a global company. Our modest goal was

to reflect the effect of globalization of market on such company. In addition to the

challenges that Nike faced as global company. Like the cultural risk in the Middle East to

the political risk in China. Using different kind of sources. Plus showing Nike’s ability in

overcoming such obstacles and dominating the field.

HISTORY OF NIKE

Founded as an importer of Japanese shoes, NIKE, Inc. (Nike) has grown to be the

world's largest marketer of athletic footwear and apparel. In the United States, Nike

products are sold through about 20,000 retail accounts; worldwide, the company's

products are sold in about 110 countries. At the end of 1963, Knight's arrangements in

Japan came to fruition when he took delivery of 200 pairs of Tiger athletic shoes, which

he stored in his father's basement and peddled at various track meets in the area. The

company's profits grew quickly, making most sales at track meets out of Knight's

automobile, in 1967; BRS opened its first retail store, located on Pico Boulevard in Santa

Monica, California. Knight's one-man venture became a partnership in the following

year, when his former track coach, William Bowerman, chipped in $500 to equal

Knight's investment. Bowerman had long been experimenting with modified running

shoes for his team, and he worked with runners to improve the designs of prototype Blue

Ribbon Sports (BRS) shoes. Innovation in running shoe design eventually would become

a cornerstone of the company's continued expansion and success.

The first shoe sold to the public to carry this design was a soccer shoe named

Nike, which was released in the summer of 1971. By the end of the decade, Knight's

venture had expanded to include several stores and 20 employees and sales were nearing

$300,000. The company was poised for greater growth, but Knight was frustrated by a

lack of capital to pay for expansion. In 1971 using financing from the Japanese trading

company Nissho Iwai Corporation, BRS was able to manufacture its own line of products

overseas, through independent contractors, for import to the United States. At this time,

the company introduced its Swoosh trademark and the brand name Nike, the Greek

goddess of victory. By 1979 Nike sold almost half the running shoes bought in the United

States, and the company moved into a new world headquarters building in Beaverton,

Oregon. In addition to its shoe business, the company began to make and market a line of

sports clothing, and the Nike Air shoe cushioning device was introduced. Nike's first

national television commercials ran in October 1982, during the broadcast of the New

York Marthon. Throughout the 1980s, Nike expanded its product line to encompass many

sports and regions throughout the world.

PRODUCTS

Nike produces a wide range of sports equipment. Their first products were track

running shoes. They currently also make shoes, jerseys, shorts, baselayers etc. for a wide

range of sports, including track and field, baseball, ice hockey tennis, association football

(soccer), lacrosse, basketball, and cricket. NIKE Air Max is a line of shoes first released

by Nike, Inc. in 1987. The most recent additions to their line are the Nike 6.0, Nike NYX,

and Nike and SB shoes, designed for Skateboarding Nike has recently introduced cricket

shoes called Air Zoom Yorker, designed to be 30% lighter than their competitors'. In

2008, Nike introduced the Air Jordan XX3, a high- performance basketball shoe designed

with the environment in mind. North America was Nike’s strongest region during the past

three months of 2011, with revenues up 21 per cent year-on-year to $2.1bn.

NIKE & US MARKETS

Most American footwear companies would like to shift their focus away from the

U.S. and talk about developing markets, where business is good. China, where Nike has

established a firm base, has more than $1 billion in sales and is counting on the Olympics

to cement that position. Because as Howe Burch, executive vice president of TBC, said

“It is a much uninspired footwear market in the U.S.,” However, the U.S. is still the

biggest footwear market in the world and it has stagnated. Nike has patched up strained

relations with retailers and is relentlessly foisting technological innovations on its

audience, such as the Nike + iPod shoe, made with Apple, and the 13-ounce hyper dunk

basketball shoe. “Nike still captures the high ground as far as authenticity and brand

integrity,” said Claude Johnson, a former NBA and Nike executive “They still have the

best group of athletes, and do a great job of updating the old reliable, like [Air] Jordan.

And that price/fashion combination is exactly where a lot of the market is right now.” By

Nike’s own count, it gained three percentage points in the most recently completed

quarter to push its domestic share of athletic shoe sales to more than 40 percent.

GLOBAL ECONOMY It is the goal of Nike to be able to survive in a sustainable

economy. A sustainable economy involves doing more with less and making better use of

resources. Nike believes that sustainability is the key to growth and innovation; it benefits

the customers and allows for a low environmental impact. Being able to recognize the

impacts of declining natural resources and actually having a plan and a vision to achieve

zero waste is probably one of the best things a business can do.

Human rights concerns Once a company, like Nike, decides to become a global

entity, it will often experience an increase in profitability. Unfortunately, companies like

Nike must overcome some difficult obstacles before establishing a successful business in

a foreign country. Some of the issues of concern are child labor laws, wages, and

outsourcing’s effect on sales. Because of this, most widely known companies have

presented various cases to defend their positions on conducting business in the foreign

country. One such example is a Nike sweatshop labor case that stirred up a large amount

of controversy over ethical business practices. Even though Nike has attempted to

recover from the bad press it received about the sweatshops, it still struggles to defeat the

negative feelings from people across the United States. Majority of challenges Nike had

to overcome involved ethical issues and debates. Even though Nike was providing jobs to

those who may not otherwise have one, it was paying “a mere $1.60 a day to Vietnam

factory workers when the living wage is at least $3 a day” Nike has been criticized for

contracting with factories in countries such as China, Indonesia and Mexico. The

company has been subject to much critical coverage of the often poor working conditions

and exploitation of cheap overseas labor employed in the free trade zone where their

goods are typically manufactured. N 2001, a BBC documentary uncovered occurrences

of child labor and poor working conditions in a Cambodian factory used by Nike. The

documentary focused on six girls, who all worked seven days a week, often 16 hours a

day. A July 2008 investigation by Australian Channel 7 News found a large number of

cases involving forced labor in one of the largest Nike apparel factories. Nike has since

stated that they will take corrective action to ensure the abuse does not continue. As of

July 2011, Nike stated that two-thirds of its factories producing Converse products still

do not meet the company's standards for worker treatment. A July 2011 Associated Press

article stated that employees at the company's plants in Indonesia reported constant abuse

from supervisors.

Environmental record

Nike tries to counteract the detrimental effect with different projects. According

to the New England-based environmental organization Clean Air- Cool Planet, Nike

ranks among the top three companies (out of 56) in a survey of climate-friendly

companies. Nike has also been praised for its Nike Grind program. One campaign that

Nike began for Earth Day 2008 was a commercial that featured basketball stars Stave

Nash wearing Nike's Trash Talk Shoe, which had been constructed in February 2008

from pieces of leather and synthetic leather waste from factory floors. Another project

Nike has begun is called Nike's Reuse-A-Shoe program. This program, started in 1993, is

Nike's longest-running program that benefits both the environment and the community by

collecting old athletic shoes of any type in order to process and recycle them.

Nike in the Middle East:

The Middle East region is a very sensitive area. The area includes within it the

countries from the east Egypt till Iran in the West, as from the north it’s from Turkey till

the Arabian Gulf. The global profit of this area from the international sport equipment is

unknown, but it’s estimated to be very high, since Middle East sales represent a very thin

slice of the global pie.

According to Business news paper, ‘Worldwide, Nike is far and away the leader.

In 2002, the last year for which figures are available, Nike held a 34.1 percent share of

the international market, more than double second-place Adidas, at 16.5

percent’1comparing to other industry like Puma and there on the international level Nike

is the boss.

Shoes are the most important product category within the sport field where its

consider to be a global product. Shoes are wearable in every country. Anyone who play

basketball, football or tennis or any other sport they would wear shoes. But there is

different kind of shoes for each sport, where football shoes are not the same as basketball

shoes. Unfortunately, the beginning of Nike in the Middle East was not as great as its

performance in the International Level. Where it was obvious that it had an issue of

‘cultural illiteracy’ about the region culture. And in the hull Middle East its only operate

in Dubai unlike Adidas that has more than 50 exclusive brand stores in the area including

one in Qatar and three in the United Arab Emirates’. Where in the Middle East Adidas is

1 http://www.ameinfo.com/42006.html

the leader, but Nike still a big competitor and a big threat because of the company ability

to adopt.

The reason for Nike incapability of match Adidas is because Nike is primarily

associated with basketball and the NBA, while Adidas's focus is football and stars like

France's Zinedine Zidane and Mohammed Ali. Where Football is consider to be the most

favored sport in the region , while the basketball and the NBA is hardly followed by the

people of the Middle East, the customer are not big fan of the NBA. Moreover, there has

been a study done by one of the UAE University to address the young teenager’s point of

view over both Nike and Adidas. And the study showed that most if not all were loyal

customer to Adidas, and here are some of the comments; ‘"I like Adidas because they are

comfortable and because I see them everywhere. Nike is more American, and Idon’t like New

Balance because they’re not sporty enough, but Adidas look very good, they're very young. I

bought my last pair in the Adidas shop in the City Center mall’, ‘I also like that Adidas has these

huge billboards here in Dubai with Muhammad Ali," Fahad says. "He's a good symbol here -

because he's a Muslim, and he represents a Muslim who succeeded in life, rather than just being

somebody who's good at sports."2

In addition to that, the prime challenge to business that Nike faced was the

‘Reputation Risk’ that deals with the bigger image of the company on the international

level. And it’s a very important point because if the company image was destroyed it

would be very hard to keep the company in business. Nike reputation was in risk on 1996

when they established the new line of ‘Air’ shoes. Their new line logo design was as

same the word of Arabic scripture ‘Allh’ which means ‘God’ and for this holy word to be

2 http://dagmar.lunarpages.com/~parasc2/articles/slips/fs_152.htm

placed on a shoes that was consider as sign of disrespect for the all Muslims around the

world specially in the Middle East.

The company was threatening of by a boycott, from all Muslims for their insult.

At that moment the company reputation was on the edge. However, the company quickly

worked on the matter and created an investigation committee, who discovered the big

mistake and measured the consequences of such action. Nike reaction to the situation was

very cleaver and smart it saved the company reputation. First, Nike published a sincere

apology to the Muslim community. Second, Nike restored all of the shoes back from the

stores. More than 30,000 pairs were returned from the M.E area and other Islamic

countries. Third, Nike worked closely with the Council for American Islamic Relations

(CAIR) to resolve the issue peacefully, and use the CAIR as a reference for future

concerns. Fourth, Nike implemented organizational changes to their design department to

tighten scrutiny of logo design. Fifth, Nike has taken measures to raise their internal

understanding of Islamic issues and proved a sensitivity training for its employees on

Islam in partnership with the (CAIR).

From the previous example on Nike’s administration, it was obvious that the company is

seeking more ‘Cultural literacy’ that will enable Nike to function effectively in the region. Nike

had worked on the first steps for establishing an geocentric management in the region. And their

Management system had improved a lot from the 1996. Where the Middle East Administration

they have an online services that receive all kind of suggestion and complain on a website and a

hotline. As well as, the company is active in supporting and sponsorship the local talents for

example, Fatma al Nabhani the Omani International Tennis player, where she was chosen to be a

representative for Nike Women in the region3. Finally On 2010 Nike signed with Qatari Football

3 http://www.nike.com/nikewomen/home

Association (QFA) in Aspire the sport institution in Doha to become the official national team kit

supplier for both male and female.

So probably, with time if Nike kept this type of activities it might became the leader on

Middle East region and overcome Adidas hegemony. To be the boss over both the national and

international level.

Nike in China

The leading footwear company in the United States Nike submitted a business

proposal in April 1980 to the People’s Republic of China. In the transmittal letter, Nike

president and founder Phil Knight presented the company’s objectives:

Primary among our objectives is to establish the means by which we would buy a

finished shoe product from the People's Republic of China. We presently target a goal of

100,000 pair per month in the first phase, with growth to 1,000,000 pair per month, or US

$ 30 million per year, by the mid-1980s. We feel that the People's Republic of China,

with its long tradition of excellence in this field of manufacture, would be an ideal

additional source for our product. We see immediate benefits to be derived by each party in

Quantity of shoes

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2002 profit from sport industryMiddle East shoes market

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AdidasNike

shoes deman

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Quantity of shoes

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this business relationship with even more important long-term benefits in the future. Five months

later the first production supply contract was signed; by October 1981 shoe production had

begun. The rapidity with which Nike had maneuvered through the Chinese bureaucracy was

hailed in the business press as "dazzling."4

However by 1984, production had reached only 150,000 pair per month. Many dilemmas

led Knight Comment “China has got to be about the toughest place in the world to do business”5.

Also the rapid growth of athletic shoe market was declining and competition was increasing. The

Nike Vice president David Chang commented “unfortunately, China has not come on-stream as

we expected. Although there have recently been encouraging changes in the government’s

policies, with our earnings going down there is pressure to get out of China.” 6 Given Nike’s

important global sourcing strategy to its future and past success, Chang believed that it was time

to review China experience and make plans for future actions.

Nike's Entry Strategy and Negotiations

Nike saw China as the logical next step in global production strategy. As it shifted its

company from Taiwan, South Korea, and Japan when wages increased and the yen value raise

pushing the costs up. The company’s deep study on the future sourcing it proved that India and

China could be long term partners, but looking as the lowest-cost suppliers, China had more

potential to offer.

Same as many companies, Nike realized that the Chinese bureaucracy impenetrable. To

be able to access the market, the management hired David Pind-Ching Chang as a consultant. He

4 Austin, James E., and Tomás O. Kohn. Strategic Management in Developing Countries: Case Studies. New York: Free, 1990, 29-31.5 Kriz, Anton, and Byron Keating. "Business Relationships in China: Lessons about Deep Trust." Asia Pacific Business Review 16.3 (2010): 299-318. 6Tang, Christopher S., Chung-Piaw Teo, and Kwok Kee. Wei. Supply Chain Analysis: a Handbook on the Interaction of Information, System and Optimization. New York: Springer, 2008. 81-83

is a Princeton educated, but left China at the age 10, but still he is a favored guest of the People’s

Republic of China, and he held multiple entry visas. His contacts, local experience, language

ability, and personality assisted in Nike’s entry to the Chinese markets.

When Nike first started operating in China, it had to deal with multitude problems such as:

1. Technology Transfer

In the beginning, Nike had to arrange technology transfer. The Chinese officials are looking for

something in return. The footwear industry uses out of dated machinery; as a result the

government expected the company to import machines and provide the country with technical

designs to help them emerge from the cottage industry.

Also one of the key point for Nike was communication as it is a chief liability in entering the

Chinese market. It took the company great lengths to develop a communication system that

would assist in locating on site problems and provide solutions to problems that arose in the

factories. However only two of Nike’s residents spoke Chinese and no one spoke English;

therefore Nike had to hire interpreters.

Nike considered bringing native mangers from Taiwan and South Korea to train the Chinese the

advanced technology. However, the mangers were unable to come to China for political and

diplomatic reasons. Mangers in South Korea on the other hand were willing and able to

cooperate. The Chinese leaders agreed, but only if the South Koreans attain American passports.

Unable to obtain the entry, Nike resorted to using videotapes of how the South Koreans operate

equipments.

2. Inventory Control

Some of the raw materials were not available locally, and had to be imported. Usually ordering

takes six weeks to be delivered, to guarantee production schedules, Nike needed to know in

advance what is to be imported. However, Chinese mangers were unable to convey this

information because they didn’t keep proper inventory records; also they didn’t recognize the

importance of the timing issue. The people that were supposed to do the record- keeping were

functioning as doorkeepers. As a result they didn’t know what materials were needed for next

month’s production schedule, and didn’t coordinate the records. The planning staff kept their

records based on guessing method.

To resolve this Nike staff tried to keep track of materials needed for forthcoming contracts

and to coordinate these needs with the supply room records to ensure that supplies were available.

Also began teaching Chinese workers how to store the materials correctly to prevent damage.

3. Workers and Mangers Motivation

Nike wanted to enhance the Chinese factories so they could compete in the development, quality,

and pricing. But, Nike was surprised to find out that the Chinese economy is a “planned

economy” as there are quotas in all sorts of different areas; pricing stipulations are established in

Beijing. But most of all, there is the "iron rice bowl" concept that has long been a thorn in the side

of the economy. The factories were badly run because workers had no experience. Nike thought

by managing a big numbers it will entice the workers, but it didn’t. They approached the factories

in midday and keep their production at a total stand still; still China had a quota that had to be

met for particular months. There was no motive to increase the production.

A big problem is adhering to schedules. Nike brought in program outlining schedules,

and workers didn't grasp this. Partially the problem is related to the lack of incentives. There is no

difference in pay if workers produced more shoes sooner. There is also a lack of talent in

production. The talented business people are in the trading companies, and don’t work in

factories.

To solve the problem Nike instituted their own incentive program. They lined up

criteria based on productivity, delivery, and quality. Virtually they put money on the

table. If they could satisfy their demands, they would reward workers with cash bonuses.

4. Government Relations

From the beginning, Nike tried to establish a positive relationship with the Chinese

government through contributions to the country's sports activities (e. g, holding sports

clinics and equipping the national 1984 Olympic team). Nike also hosted various Chinese

officials visiting the United States. China received Nike with great hospitality. During

banquets, the Nike staff met many high-level Chinese leaders, who listened carefully to

its problems. However, this interchange resolved nothing. The Chinese leaders seemed

more intent on persuading Nike to sign joint-venture agreements.

Nike often did not know with whom it should talk to solve its problems. The

combination of decision makers for different problems was always changing, and it was

not always apparent who was in charge of what. Sometimes officials failed to show up

for appointments. The local Nike staff often felt it was necessary for high-level managers

from Nike headquarters to come to China to get the attention of and gain access to

China's higher-level officials.

Nike sent a report to First vice Premier Wan Li, reviewing the company's progress

and problems in the 1980 - 1983. An excerpt from Knight's letter of transmittal indicates

Nike's approach to dealing with the government: In my country there is an old belief that

in order for any relationship to grow and to develop there must be a mutually candid and

beneficial relationship. In our co-equal partnership effort in China, I feel that I should,

representing Nike, mention in candor, some of the problems we must face and resolve

together if our long-term goals are to be met.7 The problems, according to Knight, were:8

1. Non-availability of local materials (a detriment to both Nike's and China's economic

goals); 2. Inadequate shipping and transportation provisions (causing Nike's inability to

meet delivery dates); 3. Inconsistent high quality in China's manufactured goods; and 4.

Non-motivation and non-commitment attitudes of Chinese workers (Nike's incentive

programs had brought mixed results).

China project brought Chang into Nike, and he had made a personal and

professional investment in it. Now well-established in the firm and in charge of the

company's apparel division, he believed it was important to analyze the China situation

objectively and make recommendations that would best further Nike's success. He

remembered Knight's words: "Winning is ultimately defined by the scorecard—which is

financial results, but in the long run. We've had success, but we have to keep looking

forward."9

References:

"China Intellectual Property Law Guide." Kluwer Law International 1: 20-25.

7 Kriz, Anton, and Byron Keating. "Business Relationships in China: Lessons about Deep Trust." Asia Pacific Business Review 16.3 (2010): 180-181. 8 Tang, Christopher S., Chung-Piaw Teo, and Kwok Kee. Wei. Supply Chain Analysis: a Handbook on the Interaction of Information, System and Optimization. New York: Springer, 2008. 67-69.

9 "Nike Reports Senior Management Changes." Entertainment Close-up 11 Feb. 2011. Print.

"Nike Reports Senior Management Changes." Entertainment Close-up 11 Feb. 2011.

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Almaney, A. J. "Strategic Analysis of Nike, Inc." Condor.depaul.edu. DePaul University, 14 Mar. 2000. Web. 1 Dec. 2011. <http://condor.depaul.edu/aalmaney/StrategicAnalysisofNike.htm>.

Austin, James E., and Tomás O. Kohn. Strategic Management in Developing Countries: Case Studies. New York: Free, 1990.

Khan, Masud A. "“Allah” on Nike Shoes | MasudBlog." Mas'ud Ahmed Khan's Blog, Webmaster of Masud.co.uk. 20 Oct. 2008. Web. 4 Nov. 2011. <http://masudblog.com/?p=335>.

Kriz, Anton, and Byron Keating. "Business Relationships in China: Lessons about Deep Trust." Asia Pacific Business Review 16.3 (2010): 299-318.

Nike Management. "Support Forums: Challenges." Support Forums: Forum Home. Nike, 3 Apr. 2009. Web. 02 Dec. 2011. <http://forums.nike.com/forum.jspa?forumID=5>.

Nike. "Nike Women." Nike - Please Choose Your Nike Region. Nike, 5 Mar. 2009. Web. 22 Nov. 2011. <http://www.nike.com/nikewomen/home>.

Tang, Christopher S., Chung-Piaw Teo, and Kwok Kee. Wei. Supply Chain Analysis: a Handbook on the Interaction of Information, System and Optimization. New York: Springer, 2008.

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