Nike, Inc.

About:
Nike, Inc. (pronounced /ˈnaɪki/) (NYSE: NKE) 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. It is the world's leading supplier of
athletic shoes and apparel[4] and a major manufacturer of sports equipment with revenue in
excess of $18.6 billion USD in its fiscal year 2008 (ending May 31, 2008). As of 2008, it
employed more than 30,000 people worldwide. Nike and Precision Castparts are the only
Fortune 500 companies headquartered in the state of Oregon, according to The Oregonian.

The company was founded on January 25, 1964 as Blue Ribbon Sports by Bill Bowerman and
Philip Knight, and officially became Nike, Inc. in 1978. The company takes its name from Nike
(Greek Νίκη pronounced [níːkɛː]), the Greek goddess of victory. Nike markets its products under
its own brand as well as Nike Golf, Nike Pro, Nike+, Air Jordan, Nike Skateboarding and
subsidiaries including Cole Haan, Hurley International, Umbro and Converse. Nike also owned
Bauer Hockey (later renamed Nike Bauer) between 1995 and 2008.[5] In addition to
manufacturing sportswear and equipment, the company operates retail stores under the Niketown
name. Nike sponsors many high profile athletes and sports teams around the world, with the
highly recognized trademarks of "Just do it" and the Swoosh logo.

Company Perspectives:

The Nike Mission: "To bring inspiration and innovation to every athlete* in the world."

*If you have a body, you are an athlete.

History Origin :
Nike, originally known as Blue Ribbon Sports, was founded by University of Oregon track
athlete Philip Knight and his coach Bill Bowerman in January 1964. The company initially
operated as a distributor for Japanese shoe maker Onitsuka Tiger, making most sales at track
meets out of Knight's automobile.[6]

The company's profits grew quickly, and in 1966, BRS opened its first retail store, located on
Pico Boulevard in Santa Monica, California. By 1971, the relationship between BRS and
Onitsuka Tiger was nearing an end. BRS prepared to launch its own line of footwear, which
would bear the newly designed Swoosh by Carolyn Davidson.[7] The Swoosh was first used by
Nike in June 1971, and was registered with the U.S. Patent and Trademark Office on January 22,
1974.[8] Today the Onitsuka Tiger brand is owned by one of Nike's competitors, ASICS.[9]

The first shoe to carry this design that was sold to the public was a soccer shoe named "Nike",
which was released in the summer of 1971. In February 1972, BRS introduced its first line of
Nike shoes, with the name Nike derived from the Greek goddess of victory. In 1978, BRS, Inc.
officially renamed itself to Nike, Inc. Beginning with Ilie Nastase, the first professional athlete to
sign with BRS/Nike, the sponsorship of athletes became a key marketing tool for the rapidly
growing company.

By 1980, Nike had reached a 50% market share in the United States athletic shoe market, and the
company went public in December of that year.[10] Its growth was due largely to 'word-of-foot'
advertising (to quote a Nike print ad from the late 1970s), rather than television ads. Nike's first
national television commercials ran in October 1982 during the broadcast of the New York
Marathon. The ads were created by Portland-based advertising agency Wieden+Kennedy, which
had formed several months earlier in April 1982.

Together, Nike and Wieden+Kennedy have created many indelible print and television ads and
the agency continues to be Nike's primary today. It was agency co-founder Dan Wieden who
coined the now-famous slogan "Just Do It" for a 1988 Nike ad campaign, which was chosen by
Advertising Age as one of the top five ad slogans of the 20th century, The "Just Do It" trademark
was filed by Nike, Inc. on October 3, 1989 with the description attributed to sports clothing, on
which the mark was to be affixed.[12]Throughout the 1980s, Nike expanded its product line to
include many other sports and regions throughout the world.[13]
Accquisitions :

 As of November 2008, Nike, Inc. owns four key subsidiaries: Cole Haan, Hurley
International, Converse Inc. and Umbro.
 Nike's first acquisition was the upscale footwear company Cole Haan in 1988.
 In February 2002, Nike bought surf apparel company Hurley International from founder
Bob Hurley.[14]
 In July 2003, Nike paid US$305 million to acquire Converse Inc., makers of the iconic
Chuck Taylor All Stars.[15]
 On March 3, 2008, Nike acquired sports apparel supplier Umbro, known as the
manufacturers of the England national football team's kits, in a deal said to be worth £285
million (about US$600 million).[16]
 Other subsidiaries previously owned and subsequently sold by Nike include Bauer
Hockey and Starter.[17]

Global business :
From a sleepy little town in Oregon, Nike has grown into the world’s largest athletic
footwear and apparel company. It started with a shoe and a t-shirt. Today they are a
diversified and complex global organization:
 sell our products in 170 countries.
 have more than 33,000 worldwide employees.
 have a dozen brands that serve more than 30 major sports and
consumer lifestyles.
 work with 600+ factory partners.
 serve millions of consumers with thousands of products.

From the beginning, nike’s business model was built on partnerships – athletes, teams,
retailers, manufacturers, and supply chain providers. They work with the best of the
best all over the world and do it all with a singular purpose – to serve the needs
of their global consumers.
The company manufactures in China, Taiwan, Korea, Mexico as well as in the US and
in Italy.Since 2005, more than 50 percent of Nike’s revenue has come from outside the
U.S.
With leadership positions in established markets like the U.S. and Western Europe
and in emerging markets like China and Brazil, they have tremendously grown in the
global market and believe to continue to grow .

R E G LOBAL .
Legal, Cultural, and Ethical Challenges that Nike
Faces in Global Business :

This hub examines the Nike Sweatshop Debate, and addresses the following:

1)    Summarizes Nike's case focusing on key points

2)    Describes the legal, cultural, and ethical challenges that confront Nike as a global business.
3)    Determines the various roles that the host government played in this particular global
business operation.
4)    Summarizes the strategic and operational challenges facing global managers illustrated in
Nike's case.

  Nike - Successful Global Business doesn't come without Challenges.

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. Thus, a summary of the case, the legal,
cultural and ethical challenges, an understanding of the roles the host governments play, and the
strategic and operational challenges faced are important to gain a thorough understanding of the
issues and case.

    Most people could easily define Nike and are familiar with the products offered, like the
customized options available in the Nike store online, Nike Sportswear, Nike Women, Nike
Basketball, and Nike Football. These products, among others, have led Nike to a profit of $15
billion in 2006 and a catchy “Just Do It!” slogan (Hill, 2009). The company outsourced its
manufacturing plants to several countries in order to lessen costs and become more efficient in
productivity. The outrage and protests that followed were far from what Nike expected; the
company was labeled as forcing “children to slave away in hazardous conditions for below-
subsistence wages” (Hill, 2009). As a result, protestors of globalization and human rights
activists criticized Nike for taking advantage of the workers overseas and placing them in a
destructive working environment. Moreover, the fact that Nike was making billions of dollars
and still failed to provide a safe working environment only made matters worse. After Nike
realized it was the target of several protests and complaints against globalization, it recognized
the need for safer work environments and an adherence to certain standards for each of the
overseas factories. The factory workers were forced to work exceptionally long hours to fulfill
quotas and had to follow strict rules during work for below minimal pay despite having “77
percent of the employees in Vietnam suffer from respiratory problems” (Hill, 2009). Therefore,
the legal, ethical, and cultural challenges began to add up for Nike and it was time for the
company to confront them.

    The 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” (Hill, 2009).
Nike could have avoided this challenge by paying each employee worker the living wage of the
country he or she lives in to purchase necessary items. Moreover, the living wage is a cultural
expectation which Nike failed to meet that led to protests. Another ethical issue involved “a
report that found workers with skin or breathing problems had not been transferred to
departments free of chemicals and that more than half the workers who dealt with dangerous
chemicals did not wear protective masks or gloves” (Hill, 2009). The debate was over the unsafe
conditions Nike was providing its factory workers while it experienced continual increase in
profits. Nike was also criticized for failure to follow child labor laws by hiring children who
were not allowed to work and forcing them to work overtime for below minimal pay. For
example, “according to Global Exchange, in one factory, owned by a Korean subcontractor for
Nike, workers as young as 13 earning as little at 10 cents an hour toiled up to 17 hours daily in
enforced silence” (Hill, 2009). Exposing workers to harsh and toxic chemicals including
carcinogens were also factors that placed the company at odds with human rights activists. The
company attempted to redeem itself by stating “it had formulated an action plan to deal with the
problems cited in the report, and had slashed overtime, improved safety and ventilation, and
reduced the use of toxic chemicals” (Hill, 2009). Even though Nike took steps to improve the
accusations in the report, it should have been corrected once it was aware of the conditions and
provided each worker with a fair and safe work environment.

    Ernst & Young was the accounting firm hired by Nike to conduct an audit of its business
practices; however, the discovery became public knowledge instead of remaining confidential.
Another host government that played a role is “one-time hired U.S. Ambassador to the United
Nations and former Atlanta Mayor and Congressional representative Andrew Young”; his role
was to “assess working conditions in subcontractors’ plants around the world” (Hill, 2009).
Unfortunately, there were accusations made that stated discrepancies in his report and the
method by which the report was conducted. Moreover, “Nike joined a task force called Fair
Labor Association to assess whether companies are abiding by the code and banish sweatshops
in the shoe and clothing industries” (Hill, 2009). The debate over independent auditors
performing audits of overseas factories came from the “United Students Against Sweatshops to
ensure a truly independent audit” (Hill, 2009). Nike is a widely recognized brand, which is the
reason several other host governments became involved in the sweatshop case.
    The strategic and operational challenges Nike faces are vast and will require a large amount of
time and effort. This is especially true because the operational practices and strategies Nike
previously adhered to was no longer effective; rather, those practices began to hinder its success.
One operational challenge Nike faces is the development of a strict monitoring system in its
factories overseas. On the other hand, hiring a firm to ensure accurate accounting reports are
produced is a strategic challenge. Moreover, determining a country to set up another factory in is
both a strategic and operational challenge. Nike faces several challenges; however, it can achieve
continual success through an effective operational and strategic plan.

    Therefore, the factories and sweatshops established overseas by Nike launched a debate
regarding whether Nike was in compliance or violation of ethical guidelines and regulations.
Despite several attempts, Nike is still the focus of protests regarding violation of child labor laws
and unsafe working environments. Moreover, numerous governmental organizations have
worked with Nike to ensure safe and ethical business practices and to monitor the sweatshops
Nike established overseas. Consequently, Nike was forced to change its operational and strategic
plans drastically in order to remain successful and appease labor and civil rights unions. The case
of the Nike sweatshops demonstrated how difficult it can be for a business to become global
because of the different rules and regulations established by that country.

Excellence :

As Phil Knight, our co-founder and Chairman, once said, “It’s not a single product model, or a
single manager, or one ad, or a single celebrity, not even a single innovation that is key to Nike.
It is the people of Nike, and their unique and creative way of working together that makes Nike
special.”

Their products, brands, and marketplace management are the engines of profitable growth,
operating with excellence is the transmission that converts revenue growth into profitability and
shareholder value.

Their financial model is built on expanding profit margins and increasing capital productivity.
This goal demands that we deliver on the fundamentals that create value:

 Driving top-line revenue

 Expanding gross margins
 Leveraging SG&A expenses
 Focusing on the highest return opportunities

Profit margins are a dynamic global equation and a function of many factors – some they control
and somet hey do not. Nike is deeply committed to driving productivity on those factors that it
do controls. Expanding profit margin starts with gross margins, where they’v worked to reduce
product costs by paring down the number of styles, eliminating waste, and streamlining our
sourcing base. Additionally, Nike been managing their supply chain to reduce closeouts and
improve their profitability. And they’v become much more strategic in managing their product
mix and pricing to increase both revenue and profitability.

SG&A (selling, general and administrative) cost is an area where they’v made good investments
over the last few years, and those investments have delivered industry-leading growth in
revenue, market share and profitability. That said, the current macro-economic environment
presents a unique opportunity for them to reset their business – both operationally and
fundamentally – making strategic investments to deliver consistent, profitable growth for the
future. An opportunity they won’t miss.

While Nike certainly put a great deal of focus on the P&L, they never forget that cash is king.
Operating with excellence means increasing the productivity of the capital their shareholders
entrust to them. Nike deliver a solid return on their capital investments – being careful not to
sacrifice long-term growth for near-term gain. From a capital structure standpoint, they work to
consistently increase dividends and payout ratios. Over the past 10 years, Nike has returned $5.5
billion to shareholders through stock repurchases and dividends.

Conclusion/growth :
Nike is committed to consistent, profitable growth over the long term.

From FY05 to the end of FY09 we averaged 9% growth in revenue, 12% growth in EPS, and
delivered a 60% increase in stock price while the S&P 500 averaged down 18%.

Today’s environment continues to challenge every company to leverage their core strengths
while adapting quickly. At Nike, they do both by focusing on what they do best – create great
product, tell compelling stories, and seize every opportunity to increase competitive separation.
They are a strong and competitive leader in their industry across every dimension – by
geography, by product type where the innovation drives them and now, and most importantly, by
sport performance categories where they have the most focus. When they do these things
successfully, they’re convinced over time, they will be a larger, more profitable, and ultimately
more valuable company.