Paper Example on Nike: A Global Powerhouse in Sportswear Since 1964

Introduction

Nike Company is one of the best performing American sportswear firms that was developed in 1964 as a Blue Ribbon Sports (1). The company is located at Beaverton, Oregon, with branches across the globe, and it has a universal logo known as Swoosh. The company initially produced boots, but it is now producing clothes, jackets, and other accessories. The dominance of the company has been consistent because it applies proper strategic approaches, and the firm's management has formulated an effective plan of the company that has been dominant in the market due to its practical strategic approach. Risk and uncertainty profoundly affect the operations of Nike Company, and there are different mechanisms that it can adapt to mitigate the challenge. The paper's main objective is to analyze risks, uncertainty, and management of incentives in Nike Company within the last six months.

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Recent Actions Dealing with Risks and Uncertainty

Nike is currently faced with the risk of ever-changing consumer demand and preferences, which has dramatically exposed the company. The market influence of the company is profoundly affected by the current pattern change of footwear. The firm purchased different startups with 3D printing technology and artificial intelligence that automates its activities (5). The firm abolished its former unreliable production protocol and is now using contract production. To control rivalry, the company has adopted influencer marketing, which entails the use of key leaders to drive the brand of the company to extensive consumers. The company has also partnered with Amazon Brand Registry that sells original products of the company hence minimizing counterfeiting (1). The company raised a complaint to the International Trade Commission in 2018 to formulate policies that could be integral in regulating the sale of counterfeits.

Nike also carried out actions that minimize losses emanating from the legislation of business, such as taxes, exchange rates, interests, and tariffs. Given that the company operates in various nations across the globe, the varying tax laws of each country may incur a lot of losses. One of the strategies that the company adopted to mitigate the challenge is to leverage legal tax-reducing mechanisms to protect the company from further tax imposition. The effectiveness of the approach manifested in 2018, when the company's tax reduced from 13.7% in 2017 to 6.4% (5). The firm has mitigated risk factors such as exchange rates and interest rates by opening its branches in different nations across the globe, making its products close to its consumers.

Recommendation for Improving Risk Management

Nike faced numerous risks in the past, but it formulated different strategies to resolve the challenge. Before2005, the company had denied the inhumane conditions under which it was operating across the globe, which caused some of its branches to close. However, in April 2005, the company released its global database with no law requiring it to take such actions (2). The move was a strategic shift that portrayed how it can apply transparency in mitigating risk and add value to its business. To achieve this, the company conducted a case study by interviewing its executives, professionals of the firm, union representatives, and the NGOs that propelled it to disclose its working conditions. Before the move, the company denied reports that it did not effectively supply its products across the globe, as indicated by the statement filed in the 1990s of abusive labor conditions and images of children sewing Nike soccer balls and running shoes. The company responded to the report by first disclosing details of its operations across the globe, then created a new labor practice department and created new changes that enabled it to evaluate risk sources connected to labor supply practices carefully.

The company's adopted changes include conducting a necessary unit audit, which was achieved by introducing the SHAPE internal monitoring system that enabled it to adequately assess whether its new branches were meeting the code of conduct. The flagged factories would create a corporate responsibility and compliance division, assign field managers, establish a database, and create an external expert review. The company generally resolved the problem by developing a systematic supply chain monitoring mechanism that enabled it to address the worst practices. It is also got rid of the defensive strategy, which was not a realistic long-term approach.

The dominance of the company is still uncertain despite its vast resources and stringent measures of curbing its future risks. Some of the coveted benefits of the company can only be realized if it takes some threat. It can also implement different measures, such as the creation of new brands that meet the demands of customers that exceed its fashionable main appearance. This can be achieved by creating a less costly substitute or working with other luxury brands. Besides the current inventions, Nike can still make proper acquisitions or collaboration with other brands such as Olympus and Anta. The concept of creating equally competitive brands would be critical in attracting and retaining customers who are sensitive to prices and who love buying counterfeits.

Adverse Selection Problem

Global Compact is an organ of Nike that is mandated to maintain its moral standards by advocating for and ensuring transparency and a positive reputation within the firm. The members of the organ are big companies such as Nokia, BMW, BP, and Nestle. The design of the organ poses numerous challenges to the company since it can affect its brand. The company is predisposed to adverse selection since some of the organ members may be desperate to restore their public images after being tainted by the negative media. Their history of labor and environment could impede other companies that are willing to join Compact. This means that firms with excellent history could quickly join it. The knowledge of the company by the public will be dependent on the released information. If Nike partners with such firms with a negative reputation, its brand will be tainted in areas where its partners have a poor record.

Adverse selection is a severe problem for the transactions done by Nike since its partners tend not to care since they cannot be held responsible for their actions. Hence, Nike must initiate accountability and transparency provisions to avoid being victimized by such companies of such adverse selection. The regulations will be instrumental in acting as a reliable procedure of reporting that enhances the verification and monitoring process per the Global Reporting Initiative (3). They will enable Nike to communicate opportunistic partners to provide their splendid statements without worrying about the firm to be responsible for their actions. This move creates a consensus between Nike and its partners over its noble goal and enhances its activities and strategy. It will also minimize the expenses incurred by Nike Company in developing its accountability structure and annual report on the related activities of the company based on the watchdog position of media and NGOs.

The Moral Hazard Problem

Different moral hazard problems affect Nike Company. Some of these problems are connected to health, safety, internal conflicts, and raw materials. Such challenges can grossly derail its operations; thus, it took an initiative of devising means of dealing with them. One of the primary challenges faced by the company is the labor hazard issue. To resolve this challenge, the company is setting standards that have to be followed by all manufactures across the globe. For instance, the company should refrain from using any sort of forced labor, such as indenture, bonded, or prison. The firm does not also engage children in the form of their energy by following the rules of the country of origin. The company also closely observes its working hours and provisions of overtime by applying the local law on compensation of workers. In cases where their partners have violated their regulations, the company ceases cooperation with them, closes down facilities, and complies with the standards and guidelines to compensate the affected group. The company decided to take such actions for future cases after, in the recent past, some foreign companies tainted its positive image (4). The process is very costly for the company since it leads to a massive loss of profit and the inability to supply goods to potential clients in the affected areas. However, it restores the company's image and eliminates the challenges such as injuries in production plants and minimization of the application of dangerous chemicals used in the production.

The best solution to the problem is for Nike Company to spell out its primary objective to its workers, ensure that they have incentives that motivate them to perform better in their work. Moral hazard mainly occurs when employees do not fulfill their tasks well due to low payment, lack of benefits, and failure to understand the firm's expectations. The company should motivate its employees to maintain top-notch performance by offering bonuses to them when they deliver quality work or after completing a complex task in time. Benefits and creation of awareness among employees about the company's objective enable employees to be disciplined and perform in their work. By implementing such recommendations, the company should offer long term benefits to its workers by advising them to be more loyal and productive.

Principal-Agent Problem

The organizational structure of Nike Company is designed in a way that is controlled by a corporate head. Below them, other managers manage operations of the company in its various branches across the globe. These managers are mandated to effectively carry out activities of the company, maximize the profit, and act according to the company's standards. Given that the regional managers work in a different time zone with the corporate manager, the principal-agent problem is that agents working in the company's branches listen to their leaders' directives and work in their best interest. At times, these agents may be selfish by ignoring the company's guiding principle, which creates moral hazards and conflicts of interest. The flow of information and operations among such agents would be asymmetrical and result in agent failure and conflict of interest.

Besides agents failing to comply with the company's principles, the other problem would be the failure of the board of governance to act in the best interest of shareholders. The firm is structured in a way that the CEO operates via the board of directors who rely on their regional heads for direction. The structure modifies the interests of the principal agents, which results in the chief problem. Based on the structured nature of the company, the agents have the freedom to focus on the agreed roles or fail to be loyal to the company's general objectives. As observed by Germano (2), the above statement suggests that the agents' yields will decrease since the principal-agent relies on the cost evaluation by the agents. The directors of the firm are inclined to executives than the shareholders to protect their career, and this results in the principal-agent problem.

Nike Company employs various tools to control its activities, incentives, and enhance its level of return. One of the firm's means is the debut tool to combine agent and principle interests and highlight their variations. The directors must be the firm's shareholders to increase their commitment and work for the firm's best interest rather than their own. Their actions are controlled by the executives w...