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Managing the Non-Market Environment

Case Brief Summary Nike is one of the world’s top shoemaker companies. It was established by Phil Knight and Bill Bowerman in 1964. At the beginning, the company was looking at Asia to find the cheapest sources of production for its shoes. Nike never owned a factory in Asia, instead the company found subcontractors with whom they contracted production. Nike got started selling low-priced but high quality shoes in the 1960s manufactured by the Onitsuka Tiger Company, a Japanese manufacturer.

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As economic conditions changed in 1973, Nike found the alternative areas for production their goods – South Korean and Taiwanese manufacturers. Nike also bought two plants of its own in the United States, but these were later closed when Nike realized that they could never reach the efficiencies of their Asian subcontractors. For a period, Nike also operated some plants in Europe, but these plants were also closed, as it turned out that production in Asia was more cost effective even when considering tariffs and transportation costs.

In the beginning of the 1980s, costs in South Korea and Taiwan rose. Nike started diversifying its sourcing from South Korea and Taiwan to other countries. After some time the company concentrated its manufacturing facilities mostly in Korea, Taiwan, China, Indonesia, and Thailand. By the mid 1980s, the company had already established relationships with a large number of factories. However, keeping wide supply network was quite costly and Nike decided to narrow its suppliers down to a small group of manufacturers.

The company was the first foreign athletic shoemaker, which opted for the long-term agreement China’s manufacturers as the lowest cost suppliers. In the beginning of its development in these regions Nike contributed to economic growth of the countries it operated in. However, at the end of the ‘90s Nikes manufacturing decisions had to face severe criticism of human rights activists.

The abuses towards its employees and customers were reported to be the following: •Poor working conditions – working conditions in Nike were by all means below the standards accepted in the developed world; •Low wages – Nike was paying salaries that hardly allowed for the employees to sustain their basic needs; •Child labour – irrespective of legislation prohibitions of child labour Nike employed children as young as 12 and 13 years who were made to work long hours in severe conditions; •Health hazards in factories – skin and breathing problems were observed in actories that made Nike products. The company took immediate steps to correct the situation, implementing a Code of Conduct throughout its supply chain that was setting much higher employment standards at factories. Nike hired the international accounting firm Ernst and Young to monitor the plants for workers pay, safety conditions, and attitudes toward the job.

Nike also was one of the founders and initiators of a few charity programs within US, it also diversified its employment policy hiring more people from ethnic minorities. However, the measures taken by Nike management were not considered by the public as satisfying, Nike’s perception by the customers was changed – company management failed to maintain its leading position in managing the non-market environment when setting up operational units in Asian countries.

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