Upload
kevin-hoyt
View
9
Download
0
Tags:
Embed Size (px)
DESCRIPTION
Globalization in Southeast Asia
Citation preview
Contents
Introduction .................................................................................................................... 1
Thesis ........................................................................................................................ 1
Key Topics ..................................................................................................................... 2
Capitalism .................................................................................................................. 2
Commoditization......................................................................................................... 4
Outsourcing ................................................................................................................ 5
Inequalities ................................................................................................................. 7
Conclusion ................................................................................................................. 9
Reference Page ........................................................................................................... 10
Figure 1: From NIKE’s FY1999 through FY2013 their Gross Profit has more than
tripled, from $3.51B to $11.55B. ..................................................................... 2
Figure 2: The original prototype Nike running shoe with the waffle tread pattern.
This was the first of many innovations for the company. ................................ 3
Figure 3: Excessive outsourcing .................................................................................... 5
Figure 4: Nike manufacturing facility in Vietnam. The employees work 10 hrs a
day 6 days a week. And average about $100.00 a month. That is
double the average daily wage in Vietnam. .................................................... 8
1
Introduction Nike is a multinational corporation engaged in the design, development,
marketing and sales of athletic footwear, apparel, and equipment. The company was
founded in 1964 by a former University of Oregon track runner, Philip Knight, and his
track coach Bill Bowerman. They named the company Blue Ribbon Sports. They were
importing running shoes from a Japanese company and selling them in the Pacific
Northwest. They continued to grow until in 1971 Blue Ribbon Sports started to
manufacture their own line of footwear overseas for import into the United States. At
the same time they introduced the now iconic swoosh logo and the NIKE brand named
after the Greek goddess of victory (Pederson, 2001). From the very beginning Phil
Knight and Bill Bowerman had sold shoes manufactured in Asia. It only made sense
that they would outsource the bulk of their manufacturing operations to Asia. The low
cost of labor in Asia translated directly to Nike’s bottom line. Nike came under extreme
pressure in the mid to late 1990’s regarding their labor practices. The manufacturing
facilities in Asia were deemed Nike Sweatshops because of the perceived conditions
that their employees had to endure.
Thesis
Due to extremely liberalized economies in many Southeast Asian countries, Nike
has been able to take advantage of effects of globalization and manufacture their
products using the available low cost labor and thus increase profits.
2
Nike is a consummate capitalistic company. They are the leader in not only the
commoditization of sports footwear and apparel but marketing and selling the Nike
brand as a way of life. Nike has based their business model on outsourced
manufacturing. Nike has set up manufacturing operations in countries with large class
based inequalities in order to keep production costs low and profits high.
Key Topics
Capitalism
Nike has a responsibility to its shareholders to generate a profit as it is a publicly
traded company, and they have done a very good job. According to Milton Friedman,
the only social responsibility that organizations have is to satisfy their owners, that is,
company shareholders, this view is called the shareholders model (Williams, 2013).
Nike is the poster child for capitalism in action. They produce low cost goods and sell
them for a premium price to the public and in doing so make a very nice profit. . Nike,
during the more than 30 years since it went public has grown into a fortune 500
company.
Figure 1: From NIKE’s FY1999 through FY2013 their Gross Profit has more than tripled, from $3.51B to $11.55B.
3
What got Nike started was innovation. Nike co-founder Bill Bowerman came up with an
idea to make a lighter weight shoe with better traction. He was inspired one morning as
his wife was serving him waffles for breakfast (Bachman, 2011). Later that day he used
the same waffle iron to mold the rubber soles for what would become Nike’s famous
waffle racer shoe.
Figure 2: The original prototype Nike running shoe with the waffle tread pattern. This was the first of many innovations for the company.
NIKE is more than a company selling shoes, and apparel, they are a brand.
There are few people today that have never seen the iconic swoosh logo. People
understand instantly that that logo is associated with Nike. And not just that the 2 are
associated with each other, but that the, swoosh, is Nike. Nike has signed the top
athletes in their respective sports, Michael Jordon in Basketball, Tiger Woods in Golf to
endorse Nike products exclusively. These athletes are idolized by their fans, who have
bought into the idea that if they use the same equipment as their sporting heroes, might
just be able to play the game a little better, which created a huge market for Nike
products. Nike is more concerned about selling their brand than anything else. What
they are really selling is a way of life, the Nike way of life. And the superstars that are
4
endorsing their products are part of that way of life. One of the most famous Nike
slogans, “I want to be like Mike” referring Mike Jordon, is basically saying if you by
these products you can be like Mike.
Commoditization
Nike is also a very commodity driven company. They use commodities in all of
their products; leather and rubber for shoes, cotton, wool, and a number of other fabrics
used in the apparel they produce. Indirectly chemicals for the adhesives and glue that
hold the shoes together and petroleum is the base for most of the synthetic fabrics they
use. The products themselves, shoes, shirts and pants, sporting equipment have also
become commoditized. Since Nike outsources all of its manufacturing to
subcontractors, and the majority of the manufacturing is done in the Southeast Asian
countries of China, Indonesia, and Vietnam, the manufactured products have become
commodities for these countries. Nike is the ultimate story of globalization. They import
commodities such as leather from maybe Argentina, to manufacturing facilities in China,
Indonesia, or Vietnam. The owners of these manufacturing facilities are from Japan,
South Korea, and Taiwan. These owners are often contracted by brokers out of Hong
Kong, all for Nike Inc. headquartered in unincorporated Washington County, Oregon
(Klein, 2003). Nike produces a high quality product at a low price. They need to make
sure they are producing a quality product. Customers will quickly leave Nike and find
another brand if the products they are buying is of low quality. They need to ensure the
raw materials used to produce their product are high quality so that the products they
sell are quality merchandise that the public will want to purchase. Where they can save
money is in Labor costs.
5
Outsourcing
Nike has never been a manufacturer of shoes. From the very beginning when
Phil Knight and Bill Bowerman started Blue Ribbon Sports they bought running shoes
from a Japanese firm, the Onitsuka Tiger Co. They resold the shoes initially out of the
back of their cars at local track meets. Bill was the innovator coming up with the ideas
for the shoes, and Phil knew how to market and sell the products, but neither of them
knew manufacturing. As the company grew into the Nike of today it, was only natural
that they continue to subcontract the manufacturing of their products. Nike knows the
subcontracting business.
Figure 3: Excessive outsourcing
They originally had contract manufacturing facilities in Japan, Korea and Taiwan. As
these countries developed Labor unions came in to set up unionized labor. The
6
economies of these countries grew to a level where the laborers demanded more
money. So Nike was forced to find lower cost labor. The owners of the manufacturing
factories moved the factories to locations were the labor costs were more favorable.
They went to China, Indonesia, Thailand, Vietnam, and other areas of Southeast Asia,
where they could get both favorable trade agreements from the countries governments
and low cost labor to produce their products. But more than low cost labor, Nike has
made sure that these people are being as productive as they possibly can by increasing
the efficiency of their work.
Nike has built upon the work of Frank and Lillian Gilbreth by using motion studies
to eliminate unnecessary and repetitive motions. In a recent job posting from the Nike
website there was a position available in Guangzhou, China for a Manufacturing
Industrial Engineer. Based on the job description Nike is proactively using motion study
to continually improve the efficiency of their facilities processes and procedures. Nike
charges the consumer a premium price for their products, but the fact that they are able
to produce the products at a relatively low cost means more profit for Nike. Although
controversial, economists and other business experts agree that outsourcing isn’t only
important to the expansion of trade and profit, it’s also beneficial for the world as a
whole. By harnessing outsourcing, companies are able to lower the price of the good
while increasing quality. Outsourcing benefits its respective economy as well as
providing higher waged jobs and increased prestige in developing countries, such as
India, China, and the Philippines. Standard of living is elevated in both countries as a
product of outsourcing (Roberts, 2006). Outsourcing has contributed to further levelling
7
of global inequalities as it has led to general trends of industrialization in the Global
South and deindustrialization in the Global North (Baldwin 2006).
Inequalities
As the nations that Nike once had contract manufacturing factories began to
develop, the inequality gap in started to narrow. The workers at these factories stated
to organize unions and demand higher wages. As this started to cut into Nike’s profit
margin they knew they had to do something about it. So Nike or the owners of contract
manufacturing factories operating in Japan, Korea, and Taiwan were forced to move to
countries where they could find cheaper labor. They found what they were looking for
predominantly in 3 countries, China, Indonesia, and Vietnam. Although Nike has
contract manufacturing factories in 42 different countries globally 74% of their contract
manufacturing workers are at factories in these 3 countries. Additionally the
governments of these countries agreed to very favorable trade agreements with Nike so
that they could import raw materials and export the finished goods with little or no tariffs
or restrictions. Once the manufacturing factories had settled into these countries Nike
came under great scrutiny in the mid to late 1990’s for the labor practices towards their
employees in these factories. These facilities became known as Nike Sweatshops. It is
alleged that the majority of the workers in Nike’s contract manufacturing facilities are the
poor inhabitants of the areas surrounding the factories. These people are forced to
work long hours for little pay. In some cases they were found to be employing children
as well. The toxic solvents and glues used in manufacturing caused dizziness,
nausea, and respiratory ailments among workers. In 1998, Nike announced a radical
8
six-point plan which introduced independent monitoring, raising the minimum working
age requirements and set formal targets for improving conditions for workers in contract
manufacturing facilities in Asia (Ritson, 2008).
Figure 4: Nike manufacturing facility in Vietnam. The employees work 10 hrs a day 6 days a week. And average about $100.00 a month. That is double the average
daily wage in Vietnam.
Since that time conditions have improved considerably. Although still not perfect Nike
continues to work with their contract manufactures to ensure they meet Nike standards.
When compared to the conditions of factories in Europe or the US, the conditions in
Southeast Asia are still harsh and one can see great inequalities. But the average Nike
worker is paid nearly 3 times the minimum wage for state-owned enterprise (Norberg,
2003). In Vietnam working inside of a factory for 10-12 hours is the alternative to
farming outside in the heat or rain in ankle deep water of the rice fields. At a facility in
Ho Chi Minh, Vietnam, a young woman tells of a steady wage, with free or subsidized
meals, free medical services and training and education. The most persistent demand
9
Nike hears from the workers is for an expansion of the factories so that their relatives
can be offered a job as well (Norberg, 2003).
Conclusion
From a capitalist point of view Nike has a business model that will allow them to
generate profits for a long time to come. They have commoditized the footwear and
apparel industry so that the countries they operate their manufacturing facilities are
developing. Their economies are growing and their people have jobs other then the
agricultural work which is the alternative to working in factories. The countries have
industrialized because of the presence of Nike. So the outsourcing model that Nike
uses allowing it to go into countries where there is a very large inequality gap has
worked for both Nike and the developing countries.
10
Reference Page Pederson, J. P., & Thomson Gale (Firm). (2001). International directory of company
histories: Volume 36. Detroit, Mich: St. James Press.
Williams, C. (2013). Mgmt. (5th ed., p. 79). Mason, OH: South-Western.
Bachman, R. (2011, Feb. 28). Nike's holy grail: Bowerman family unearths long-lost
waffle iron. Retrieved from
http://blog.oregonlive.com/behindducksbeat/2011/02/nikes_holy_grail_bowerman_fami.
html
Mark Ritson. Social Responsibility: The Nike Story. Marketing Magazine. July, 2008.
http://www.brandingstrategyinsider.com/2008/07/social-responsi.html#.UpviZOLX2UV
Norberg, J. (2003, June 07). The noble feat of Nike. Retrieved from
http://www.johannorberg.net/?page=articles&articleid=53
US Census Bureau. (2012, March 12). Trade in goods with Vietnam. Retrieved from
http://www.census.gov/foreign-trade/balance/c5520.html
Klein, N. (Writer/Performer) (2003). No logo [Web]. Retrieved from
https://archive.org/details/NaomiKlein-NoLogo
Roberts, R. (2006). The choice: A fable of free trade and protection . (3rd ed.). Upper
Saddle River, New Jersey: Prentice Hall.