Essay Example on Phil Knight & Bill Bowerman: Founding & Growing Nike, Inc

Introduction

Phil Knight and Bill Bowerman founded Nike as Blue Ribbon Sports. It was renamed Nike in 1964. As a result of Phil's paper at Stanford University MBA class, the business idea imported athletic shoes from Japan into the U.S. market (Jian, 2003). The firm started as a distributor and importer for Onitsuka Tiger, an athletic shoe company from Japan. Onitsuka and Nike parted ways in 1971, and in 1972 Nike brand was created. In 1978 the company was renamed Nike, Inc. Since 1978, Nike has grown to be the most significant global seller of sports things.

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Expansion Strategy

Nike adopted a strategy for keeping the production cost low for them to remain competitive (Ahmed, 2016). The company established production in countries where manufacturing cost was low, mostly the developing countries. Having experience of Japanese output, Nike was a pioneer in overseas manufacturing as a means to reduce costs in sports wears production. When prices increased in Japan in the 1970s due to several reasons, Nike sourced low-cost producers in Korea, Thailand, Taiwan, and China. With costs increase in both the United States and Japan in the early 1980s, the company shut the factories and based most of its production in Asia. 86 percent of Nike footwear production in 1986 was from Taiwan and Korea. As production cost began to increase in Taiwan and Korea due to development, the company advised its top producers to migrate to lower production cost countries like China, Indonesia, and Vietnam (Spar & Burns, 2000). Nike created a widespread network of factories across South East Asia. Nike diversified its product and mostly relied on subcontracts across its vast network. Currently, Nike products are produced in 51 countries with over 500,000 employees (Ahmed, 2016).

Asian factories have subcontracted the chain more. With the massive number of workers, it became harder for Nike to monitor basic operations and working conditions (Spar & Burns, 2000). The company developed in several countries with several products and sectors. It's this situation that led to accusations of sweatshops in the 1990s. The controversies emanated from poor conditions in factories in China and Vietnam, child labor in Cambodia and Pakistan, and underpayment of workers (Spar & Burns, 2000).Though global sourcing enabled the company to grow, it became the company's leadership top nightmare. Keeping track of workers and their operating conditions in Nike suppliers was hard since some served short contracts.

Impacts of the Strategy

Positive Impacts

The production cost of Nike products was low; the company was able to use the saved production cost in marketing and design, hence ensuring the company's growth (DeTienne & Lewis, 2005). The company spread supplies in different countries, thus spreading the risks. Nike favorably competed with its rivals in the market like Adidas, Rebook, and Puma, among others. Local managers headed factories; thus, it was easier for them to maneuver in their respective domestic economies.

Negative Impacts

Maintaining low-cost production costs and globalization of Nike led the company into challenging times. To support the strategy, the company had to keep closing down factories from one country to another with lower-cost, which is tiresome and entailed thorough research. Globalization denied the company top executive close contact with workers and daily operations, exposing the company to dangers of Anti-globalization (Jian, 2003) Violation of human rights and health issues, underpayment, and poor working conditions were a result of low pricing strategy. Photos of under Age employees in Nike’s factories in Pakistan in the New York Times paper led to demonstrations and protests in the U.S., which led to the boycott of the company products and affecting the profits.

The Nike Responses

After the public relations standoff that faced Nike, the company response was not robust but took stages. First, the leadership denied any allegations of misconduct in handling labor and the environment in their factories. The managers denied any responsibilities on the workers in their factories, arguing they were not employees of Nike (Spar & Burns, 2000). Secondly, the company developed a code of conduct that was to be followed and posted in all factories by the suppliers. Afterward, Nike initiated public relations campaigns to offset the damaging allegations and redeem its' reputation. The company increased suppliers monitoring to oblige them to observe their standards. Prospective suppliers get inspected before they are absorbed. Labor practices audited by internal and external specialists and consultants like Price Waterhouse Coopers (PWC), which checks wages and the workers' wellbeing (Jian, 2003). Nike also ensured that the factories' health conditions are standard by air conditioning and the use of harmless raw materials. Nike sponsored the university students for visits to the company plants in Vietnam and Indonesia to boost their public relations. Cooperate Social responsibility became of concern to the company.

Personal Opinion on Alternative Responses

The company should have centralized its operations. The company works with suppliers from foreign countries across the globe on all continents. Due to a lack of proximity to the management of Nike, it is hard to monitor all their operations and ensure the labor and environmental standard of the company. Through centralization, the suppliers should be employees of Nike hence subjects to accountability to the company leadership. Establish a well-structured leadership hierarchy in each country of operation, which works closely with the main headquarters.

Secondly, Nike should work closely with the government in the respective countries of their operations. The governments should ensure the working environment is conducive and offer incentives to boost the growth of the industries and job creation to the citizen and, in return, benefit from Corporate Social Responsibility (CSR).

Projected Consequences

By centralizing the operations of the company, Nike would have close monitoring of the suppliers and their plants. Suppliers being employees of Nike will be working to achieve a similar goal with the company's leadership as opposed to the current set up where suppliers work to maximize profits. The profit orientation of the suppliers subjects the workers to harsh conditions. Centralization of activities will ensure the right working conditions, tackle environmental issues, and proximity to the company's leadership. Employees will be able to quickly relay their discontent with any eventuality in day to day running of the business. Also, the goods chain would be smaller on eliminating subcontracts hence maximizing profit.

Working closely with respective governments in their countries of operations may cut manufacturing costs due to incentives offered. The government would have protected them from unfair targeting in Anti-Globalization campaigns. Governments would also have assisted in holding the suppliers accountable for stopping the sweatshops as well as keeping the media accountable. Through corporate citizenship, the government would appreciate the role of a leading Multi-National Corporation like Nike.

Conclusion

In conclusion, the same strategy that helped Nike overgrow the 1980s was also responsible for the controversies surrounding the company's ethical issues. The ethical issues that faced Nike in the 1990s were the manifestation of challenges of globalization in general. Balancing between corporate citizenship and the prosperity of a company is a challenge faced by many companies.

References

Ahmed, R. R. (2016). "Strategic Marketing Plan of Nike ". ResearchGate, Indus Institute of Higher Education.

DeTienne, K. B., & Lewis, L. W. (2005). The pragmatic and ethical barriers to corporate social responsibility disclosure: The Nike case. Journal of Business Ethics, 60(4), 359-376.

Jian, Z. H. A. O. (2003). The Brand Expansion of NIKE and the Development of Sports Products Brand in Our Country [J]. Journal of Shandong Physical Education Institute, 3.

Spar, D. L., & Burns, J. (2000). Hitting the wall: Nike and international labor practices. Cambridge, MA: Harvard Business School Publishing.