= StuDocu oO - NOVA SCHOOL OF BUSINESS & ECONOMICS © Ain Global sourcing at Nike case analysis David Ursu 43549 Table of contentsAnalysis of questions 1, 2,3 & 4 of “Global sourcing at Nike” |. Which factors should Nike take into account when choosing counties where is sporswear will be manufactred?. 2, Describe benefits and sation that Nike is using as incentives forts suppliers to improve working conditions, Evaluate the ellectivenes ofthese benefits and sanctions 23 5. Do you think that Nike shouldbe more involved in the eofletve industy-level initiatives to improve working conditions at supplies’ Factories? Evaluate advantages and potential problems associated with these industy-lvel niles... 3 4. Which of Nike's initiatives to improve wodking conditions at its suppliers’ factories you would recommend for other companies to replicate? Why the solutions used by Nike can be less effective when used by other companies? a4 Bibliography, s ‘The main reason why Nike outsources most oftheir shoe and clothing manufieturing to ether sunt has to do with building a cost based competitive advantage. In onder to do that the Jnmportance af cheap labor ply a pivotal ele in the choosing of couney 10 whom Nike is outsourcing. Big companies, suc as Nike are exploiting the avantges of global integration whch in this ease is referring to arbitrage opportunites in terms of eheape labor coms. To lunderstnd central factors related to outsourcing on deeper level, the CAGE: framework can bbe applied to enlighten the stategcal reasons. Cultura easons are of heavy weight since Nike will mostly likely ousource to country who has high working moral with respect 0 the large order quantities. Inreent years, geographical importance hs inexcase ot inconjuction withthe CDO program that aims to connect Nike with its customers wo a greater extent. In practice, Nike i therefore centralizing operations and outsourcing partners closer to the consumers which reduces logistical expenditures and enables a more direct relationship with the end customer During the easly 90s, lot of eticism were pointe towards the Nike for working with ‘suppliers unde poor condition, under payed workforce and even child bor. Adjustment were made to prevent adltonal damage resting i the establishments of codes of conduct, & country sk index and a manufacturing index (O, Hull. Hsieh & W. Tolfl, Global sourcing at Nike, 2019). These tools serve as acompass when deciding the outsourcing partner, Both oftheir own constructed indexes have some resemblances to the aministative ‘nd the economic part of CAGE. Nike will hesitate to expand toa nation with poor legal jurisdictions and potential comuption since it will sore high mark onthe country risk index. “The economical aspect can be linked! to the company’s manufacturing index as labor wages is key factor regarding rating oftheir supplicr performance relating o the choosing of partners 2 nm opinion, Nike have developed ssrict but construtive way when t comes to how they ‘cal with supplier who does not grant ther employees fair working conditions. Instead of sending out harsh signals when a supplier does not meet the lowest tolerated standard, Nike progressively cutback orders for that supplier. It frees the suppliers to emphasize on creating Jong term oriented and safe environments where workers fel empowersd. Progressively slossing the supplier growth plan allows the supplicr to revise is omporae clare without ‘deriving huge Financial loses and possible workForce lay off, Sharing this essential sustainable vison is favorable for bath pars ad excludes negative measures. As Nike's vie president of sourcing, Amands Tucker said, “We are not tying fo inflict needles pai." (O. Hull, N. Hsieh SW, Tolle, Glo sourcing at Nike, 2019, 9.9, very outsourcing partner sated at Teast once every 12 months whereas the Tow soaes on the manufacturing index might be monitored more often ensue ebical validity. Aeoeplable ‘quulification standards resemble a bronze position inthe index. Non qualifiers who regardless ovement plans led by Nike managers, sil did not meet the requirements have been removed rom Nikes vl in, Since 2009, the numberof supplies decrease fom roughly 1000 to $00. When dismantling the parmership, Nike does so incrementally to avoid abrupt revenve loses forthe outsourcers and give them a chance restructure their business plan However, in coirast to the benef, some sks and drawhacks comes with sanctioning. An ‘example ofthis can be illustrat when in 2017 a supplier fora highly specialized product ‘commited code viokaton in numerous ways, Nike sourcing department then sanctioned the ‘manufacturer by fcezing orders for the coming 3 years Unfortunately, demand forecasts for that produc spiked extensively, ending in substantial revenue loses for Nike if sanctions were Tulle. This example underlies the effect of being tow reliant ofa supplier which means they ‘might slip away from sanctions. It can essentially send out dishonorable signals exterally and ‘in media, damaging the brand reputation. 2% Due to Nike's share size and influence over the market. they are therfore presumably role ‘models and have the power to change believes int te Beiter. As market Ieaders, they may Jead by example. Devoting time, efor and capabilities tothe improvement of working ‘condition, ether Fis possibly follow the lead. Incentivizing through actual practical changes Js powerful ool for Nike to come out asa symbolicl figure with reference o more sable ‘working conditions. Even if Nike doesnot strive for collective industy level improvement, the invisible hand analogy will dive collective development forward since companies will pickup the winning concep AA problem can be that this has no or ite effet in individualistic countries where such tories are being operated. In those countries, the individuals ae supposed wo sustain Uhemselves without the need for ethical instrtions on work coniions, Tn some cases, Lm sho scm as an uncertainty which conservative factory managers might avoid Another option would be to partner up with some major sakeholders in the industry. Forming ‘relationship with a big player i the industry and tether working with CSR goals can beastuong way of promoting working conditions, When combing fore’, eters might be incemtivized to follow. Let us say for example that Nike tsames up with Adidas with an end purpose of encouraging other smaller Fins to follow. Adidas and Nike could emphasize building strong connections through stakeholder management where they clearly state the portance of corporate socal responsibility. Tiss going to make their work with better ‘working conditions more visible and inthe end increase transparency. The main avanage in cooperating with another big player les im sting a colletive standard. In hat way Nike ‘would not come out as unique compared with them ding these promotions lone Fin, {hey can ry to establish this new norm of conducting sustainable business with more than Fare ‘opportunites forthe lactory workers, Just when looking at the data from the lean based initiatives iis safe to say that such an ‘apprsch is worth ying. According to the aticle, Nike has boon handling different iypes of Jean strategies. Lean 1.0; fundamental for enkancing productivity and delivery speed and by 2011, 80% of the company’s Footwear producers dealt wth his program (O. Hull, N. Hsich & W. Toflel Global sourcing at Nike, 2019), Lean mentality isnot only beneficial from a Ictoryelfcieney perspective Iwill also indirectly raise the working conditions since employees willbe tated beter because they ae mare proactive and therefore more ‘Valuable forthe suppliers. A Nike apparel study showed thatthe on average violation of their cade of conduct fell by 15 percentage point from 40% to 25%. I would recommend oer big ‘companies such as H&M and ZARA who had scandals, focus on ean taining in ord 0 promote working conditions. It is mutually beneficial forall parts. The factories deliver in a higher standard, the employees receive prope raining and enjoy sir conditions while the ‘multinational established companies preserve its brand reputation by not dsmupting human rights and ethical codes. [eyond that Nike constructed lean 20 progrum that compared with lean 1.0 includ pasts circulating sround worker engagement and wellbeing. Walin te program, a goal of safety ‘an culture maturity was driven Forward. As with lean 1.0 al stakeholders gained rom this ‘methodology, The difference however now could be explained in greater weigh eing placed ‘on evolvement ofthe factory workers and working conditions, Satisfied and motivation ‘workers i essential forall companies as it increases elficency and profits. Herzberg's ‘wo factor theory of mekivation from a slid argument to why firms should inves in thee personnel. When factory workers are handed esponsibility anda personal growing pun, thir ‘moxivators are satisfied resting in better performance. They fel recognized and an urge foe ‘advancement Same goes forthe hygiene Factors which are directly related tothe working ‘conditions. high technical supervision with legtimately policies achieved by lean raining ‘boosts hygiene factors and prevens dssaslaction and paves the way for long er sustinabiity forthe individu ad the company” However, operating lean management om alrge seal as Nike s, requires substantial pital investments and monitoring may be incorperated by exer multinational brands but is surely less achievable fr smaller companies. Besides scale, culture portrays a fundamental role. vis crucial o fully understand Ue culture where you ate operating before sight olf ‘implementing Nike's program. I cultures differ, it can erate cashes where no pais benefitingiliography Hull, Hsich & Toftel, Global sourcing at Nike, 2019 n/a hacen 08 _ENG/slnis/edopsrb TETAS NdSOG) 889°