Case Study 4.

3 - The global fashion industry: Nike

Nike is a transnational corporation. You should be able to mark its headquarters and

areas of sales and manufacture on a blank world map.

Headquarters - Oregon (USA).

Sales - Nike shops are located mainly in southern and western Europe, also Asia

and North America (very few in South America or Africa). Sales are highest in

Canada, USA and Europe.

Manufacturing - this takes place in 40 countries. The clothing is mainly made

in the Asia Pacific area and footwear in China, Indonesia, Vietnam and Thailand

(1% of footwear is made in Italy). No Nike clothing or footwear is made in

the USA

Nike has a huge market. Its advertising is everywhere and is designed to make people

feel that they must get the brand. The number of shops selling Nike and the number

of countries with shops selling Nike have therefore expanded.

Nike's manufacturing takes place in LEDCs for a number of reasons:

Wages are lower.

Land is cheaper to buy.

The workforce is more flexible,

Access can be gained to global markets.

Trade restrictions can be avoided.

Factories can be sub-contracted (new factories do not have to be built).

Nike facts

Nike employs 25 000 people directly and one million others are involved in

making, supplying and selling goods.

Nike has a huge number of customers. e.g. in the year 2000. 70% of 16-24 year

olds in the UK bought at least one item of Nike clothing or footwear.

In 2004, Nike made $1.6 billion profit!

In 2004. Nike paid out $1.7 million to get athletes and teams to wear its gear,

increasing its appeal to customers across the world.

It employs sports scientists.

It has a website and is therefore accessible worldwide.

The benefits of Nike going global

Greater profit can be made by increasing revenue and reducing costs.

Costs can be reduced by using cheaper labour in LEDCs.

Revenue can be increased by increasing the size of the market.

Advertising can be wide.

Savings can be made by producing goods on a large scale (economies of scale).

Trade barriers can be overcome.

Countries with special expertise can be tapped into (e.g. Italy used for making

high fashion shoes).

Problems

Can cause environmental damage and

pollution

Influences host country's government

decisions

Pays low wages (£4 for 12-hour day)

Encourages poor working conditions

Slows down LEDCs developing their

own industries

Often workers are sacked without any

notice

Some sweat shops develop (factories

where workers are crowded or confined

or compelled to work unreasonable

hours for low pay)

Benefits

Provides jobs

Attracts others to set up TNCs

Increases country's wealth

Provides expert managers

May provide healthcare benefits

for workers

Uses latest technology

Increases exports

Increases skills of country's workforce

Helps improve country's roads and

power supply

nike’s global headquarters is located in Beaverton,Oregon, USA

Nike employs more then 700,000 contract wokers in over 700 factories worldwide

The list includes 124 plants in china, 73 in Thailand, 35 in south korea and 34 in Vietnam

More than 75% of workforce is based in asia

How tnc works

Like many tnc’s nike subcontracts or uses independently owned factories in different countries to
produce its products

Often this take place in less economically developed countries (LEDCs) where labour costs are lower
than in MEDCs

Nike say they are in the business of “marketing” their products, not making them

The costs

The figures supplied by nike for its cost/price chain are as follows:

Contractor are paid on an average of $18 a shoe

This is made up of $ 11 material $2 of labour $4 for other costs and $1 for profit

Nike sells the shoe to retailers for $36 the mark up of 100% accounts for the costs of design,
research and development marketing advertising shipping production management other sales and
business costs taxes and course a profit

Retailers mark up another 100% to $72 (on average) to cover wages shrinkage insaurance
advertising suppliers and services depreciation taxes and profit

Impact on host countries

Outsourcing creates substantial employment in Vietnam.

Nike pays (slightly) higher wages than local companies.

Improves the skills base of the local population.

The success of the global brand may attract other TNCs setting off cumulative causation.

Exports are a positive contribution to the balance of payments.

Contribution to local tax helps pay for new and improved infrastructure

Impact on country of origin

Positive employment impact and stimulus to the development to high level skills in design marketing
and development in Beaverton Oregon.

Direct and indirect contribution to local and national tax base.