Why did Nike fail to address corporate social responsibility earlier?

Corporate social responsibility is an evolving concept that does not currently have a universally accepted
definition. It frequently overlaps with similar terms, such as corporate sustainability, corporate
sustainable development, and corporate citizenship. Whether or not or to what extent businesses must
implement CSR has been a heated topic of discussion through the years, but was particularly vociferous
during the debate about conducting business like in the case of Nike.

The management of Nike maintained that their responsibility extended only to their shareholders, which
is the wrong concept as the corporate social responsibility also includes the labors. The working
conditions for the workers of Nike factories have been debated by many critics. As various assertions has
been made against the Nike factories. These allegations include poor conditions, child labor, widespread
harassment and abuse. For the reason that the Asian factories have further subcontracted out the work,
therefore, it has become increasingly difficult for Nike to regulate the working environment and wages
in the factories (Arnold & Bowie, 2008).

Sweatshop Labor

Nike was failed to address the corporate social responsibility is the past as the company was focusing on
the low-cost production. This low-cost product was being done through manufacturing in the Asian
countries that include China, Pakistan, Indonesia, Vietnam and Bangladesh. As in these countries the
labor is cheap, due to which the company was focusing on these countries. In addition to this, the labor
laws is also not strong in these counties, due to which child labor, excessive work hours, hostile work
environments, inappropriate payment, or other unethical actions were common practices (Ballinger,
2010). Therefore, Nike failed to address this issue, but when the international laws came across, the
Nike was forced to change its strategy as the products of Nike started to boycott in the European
countries.

With an increasing focus on cross-border trade, multinational corporations like Nike faced increased
demand to adopt CSR policies detailing their approaches to human resource management practices,
environmental protection, health and safety, and sustainable economically development in their foreign
operations, which was not adopted by the Nike earlier. As the urgency to respond to the challenge of
global change has become apparent, many convinced the scope of CSR should be expanded by Nike to
eliminate the issue of Sweatshop labor practices by Nike. Social and Ethical Issues in Stakeholders’
Relationship Nike’s business model incorporates heavy outsourcing of its production to factories
overseas. This is due to the availability of cheap labor in countries like China, Indonesia and Vietnam.
However, this opens the path for exploitation of human rights, which caused the, issue in the first
instance (Ballinger, 2010). Since, it is the Korean and Taiwanese subcontractors who are managing
production, with little or no monitoring by Nike.

1. Evaluate Nike’s response to societal and consumer concerns about its contract manufacturing.2. What
are the challenges facing Nike in the future?Phil Knight and his U…

1. Evaluate Nike’s response to societal and consumer concerns about its contract manufacturing.

Phil Knight and his University of Oregon track coach Bill Bowerman founded Blue Ribbon Sports, later
renamed Nike, in 1964. The idea, born as a result of a paper written by Knight during his Stanford MBA
program, was to import athletic shoes from Japan into the U.S. market otherwise dominated by German
competitors Puma and Adidas. The company initially operated as a distributor for a Japanese athletic
shoe company, Onitsuka Tiger, but also developed its own brand of athletic footwear to promote in the
American market. The company’s relationship with Onitsuka Tiger ended in 1971, and the Nike brand
was created in 1972 (“Nike” after the Greek goddess of victory). The company was renamed Nike in
1978, and has grown to be the largest worldwide seller of athletic goods, with approximately 19,000
retail accounts in the United States and about 160 countries around the world.Nike’s main popularity
came from celebrity athlete sponsors. As the popularity of the Nike product grew, so did its product
demands and the need to produce more apparel to meet the demands of customers. In contrast to its
meteoric rise in the 1980s after going public, the late 1990s began a period composed of combating
allegations about labor and human rights violations in Third World countries in which manufacturing had
been subcontracted. Nike’s response to this issue has been considered by critics to be more of a
damage-control stunt than a sincere attempt at labor reform.

Ans3

Nike Inc. (NYSE:NKE) is the largest footwear and athletic apparel company in the U.S. with approximately
$49 billion in global revenue.

Under the Nike Jumpman trademark, the company provides athletic and casual footwear, apparel and
accessories. It also sells shoes and clothing under the Converse, Chuck Taylor, All Star, One Star, Star
Chevron and Jack Purcell brands. In addition, Nike offers sporting equipment and accessories such as
bags, balls, eyewear, bats, gloves and other protective equipment.

The company sells Its goods through a variety of channels and outlets, including footwear stores,
sporting goods stores, athletic specialty stores, department stores and its own branded Nike stores. It is
found at the top of the list of the world’s more recognizable and value brands.

Founded as Blue Ribbon Sports in 1964, the company changed its name to Nike in 1971. It currently has
a market capitalization of $143 billion.

Financial review
In late September, Nike reported its fiscal first-quarter 2023 results for the period ended Aug. 31.

Revenue increased 10% on a constant currency basis, with strength in direct sales at 14% constant
currency growth. Nike brand digital sales increased 23%. Gross margins decreased 2.2% to 44.3% as has
been common in corporate America recently, in this case due to elevated freight and logistics costs.
Diluted earnings per share for the quarter were 93 cents, down 20% from the prior-year period.One of
the stunning notes in the release was the comment on inventories, which increased 44% to $9.7 billion.
This was driven by elevated in-transit inventories from ongoing supply chain volatility.

Cash and equivalents and short-term investments were $11.9 billion, which decreased approximately
$1.8 billion from last year as free cash flow was offset by stock repurchases and payment of cash
dividends. Total debt was $9.4 billion and operating lease liabilities were $2.7 billion.The company
generates significant amounts of free cash flow most years, ranging from $4 billion to $6 billion.
Dividend payments totaled $480 million and share repurchases totaled $1 billion for the quarter.
However, buying back that many shares with the company’s elevated valuation levels may not be the
best use of corporate capital.

Valuation

Consensus analyst earnings per share estimates are $2.98 for the fiscal year ending May 2023 and $3.78
for the following year. Giving it the benefit of using next year’s more normalized earnings, Nike’s stock
trades at 23 times forward-looking earnings. The forward enterprise value/Ebitda ratio is approximately
15. Management expects gross margins to decline between 2% and 2.50% in 2023.

The GuruFocus discounted cash flow calculator creates a value of $67, or roughly 30% below today’s
price. Inputs used were next year’s earnings per share estimate of $3.78 and a 10% long-term growth
rate.

The company pays an annualized dividend of $1.22, which creates a dividend yield of 1.35%.

Guru trades

Gurus who have purchased Nike stock recently include Ken Fisher (Trades, Portfolio), George Soros
(Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio), while Mario Gabelli (Trades, Portfolio) reduced
his holding.
Conclusion

With one of the most recognizable logos in the world, Nike is truly a global company with a dedicated
fan base. However, margins and continued growth are both facing headwinds. Sales to China, a critical
component to overall growth, fell 13% last quarter. The excess inventory issue will continue to create
operating margin headwinds for the foreseeable future.

The stocks excessively high valuation multiples do not create a margin of safety at this time when
considering the multiple global and operating risks the company is facing. A lower entry point for
investors is probably warranted, perhaps with a price-earnings ratio in the mid-teens range.