Nike and International Labor Practices

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Nike and International Labor Practices

Nike has long been known as the only brand of shoes to wear. Since its inception in the early 1970s, teenagers have seen the brand’s “swoosh” as a mark of cool. With their celebrity endorsements with people like Tiger Woods, kids have wanted the shoes so that they could be like their sports star. Nike was headed to the top rung of the athletic shoe industry until it hit trouble in the 1990s with news leaking out about labor violations in its factories overseas.

Executive Summary
Nike’s company strategy is a clever one. One that founder Phil Knight thought of while still in school at Stanford. Instead of paying Americans to put together Nike’s shoes, Knight thought that it would be a better idea to take manufacturing plants overseas to places where labor is much cheaper than in the U.S., places like Taiwan and South Korea. With 86% of its products being produced in one of those two countries and Nike employing a large number of people who lived there, the countries became richer and richer until Knight decided prices were too high to manufacture there anymore (Hitting the Wall, 3). He decided to move the factories to places in China like Indonesia where countries were practically begging for foreign investment. Production was going well until the early 1990s when labor strikes rose to 112 in 1991 and news began to leak out about the terrible conditions Nike’s labor force was working in. The company was using underage workers and underpaying them to the point that a family couldn’t even survive off of the wages made at a Nike factory. From this point, Nike’s sales began to slip and returned into the media’s spotlight numerous times in the 90s for their bad labor practices.

Porter’s Five Forces
What kept Nike ahead of its competitors was its strategy, which it still employs today. Instead of manufacturing the shoes in the U.S., Nike moved all of its factories overseas where cheaper labor could be used to make the shoes. With the money it had saved by doing this, Nike decided to put it toward marketing to have huge names in sports Like Michael Jordan to promote its products. In 2003 alone Nike spent $153 million on advertising, more than four-and-a-half times more than Adidas spent on ads that same year (The FN List).

There are many popular brands of athletic shoes in the U.S including Adidas, Saucony, Reebok, and New Balance. But none of these has the power that Nike has held for the past 30 years. The company’s sales reached a staggering $49 million within the first 15 years of Nike’s existence (Hitting the Wall, 8). Nike is not only seen as an athletic shoe company, but also a fashion brand. Not only has Nike had power over shoes made specifically for athletic purposes, but it has created a conglomerate over the shoe fashion industry. Not until the early 90s when Nike came under fire for bad labor practices in foreign countries did other companies start to gain real market share.

It is not easy to enter the shoe manufacturing industry. Large amounts of start up capital are required to buy materials, warehouses and a place to work, and people to do the labor. Although other companies have received flack in the past for using underage workers and underpaying them, Nike got the brunt of the heat because it was the industry leader at the time. So while Nike’s stock fell, other companies saw their chance to make a move and gain a larger share of the market. Many shoe companies took after Nike’s marketing strategy and began to spend large amounts of money on ad campaigns to get their name out to the public and to keep the company name out of the labor problems in the news.

Threat of Substitutes
There are plenty of other brands of athletic shoes out there. Adidas is second to Nike followed by Reebok in third. When Nike ran into trouble in the 90s, many customers decided to strike against Nike and not buy its products any more because of the labor...
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