Nike and What It Does to Third World Countrys

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The Manufacturing Practices of the Footwear Industry: Nike vs. the Competition

The current manufacturing practices of the sneaker industry, in particular companies such as Nike, Reebok, Adidas, Converse, and New Balance, takes place throughout the globe. With the industry experiencing severe competition, and the product requiring intensive labour, firms are facing extreme pressure to increase their profit margins through their sourcing practices. The following paper will analyse the sneaker industry, while examining the multitude of viable manufacturing options, and critiquing their current manufacturing structure.

Footwear Industry – Players, Revenues, Market Share

To properly review the manufacturing in the footwear industry, it is necessary to first gain

an understanding of the dominant leaders in the marketplace. The industry is currently

experiencing hyper competition, led by six main firms – Nike, Reebok, Adidas, Fila,

Converse, and New Balance (see exhibit 1), with nearly $7 billion in revenues

domestically. Nike is the industry leader, with a 47% market share, followed by Reebok,

a distant second at 16%, and Adidas at 6% (see exhibit 2). This category is facing

decreasing demand and the rising popularity of alternative footwear, resulting in more

pressure than ever before to achieve high gross margins through effective global

sourcing practices.

Manufacturing options

Footwear companies have two basic options in the manufacturing of their products, they

can both own and operate the factories that produce their products, or subcontract their products out to secondary manufacturers. These facilities can be located either domestically or internationally, and both present a myriad of positives and negatives. Firms that produce domestically benefit from ease of monitoring, skilled workforce, government stability, job creation, and well understood labour rules, while suffering from the relatively high wages required in the U.S. as compared to developing countries. By manufacturing products overseas, in particular in third world economies, tremendous efficiencies are gained in the form of reduced wages, but are countered by the increased difficulty of monitoring the quality of their products and the actual working conditions in the factories. Companies that are vertically integrated, who own and operate the factories where their products are manufactured, are faced with large

capital expenditure requirements and the management of the factories themselves, resulting in lower profit margins. Strategic Outsourcing

In analysing the sneaker industry, we are faced with the question, "What are these firms core competencies?" If manufacturing falls under this umbrella, then firms should look to produce internally. However, the core skills that set these companies apart from the

competition, are their marketing, distribution, and technological expertise. Applying the

dominant sneaker companies areas of expertise, let's review the following questions:

Is internalization a source of competitive advantage?

Is manufacturing a skill our firm does better than anybody else?

Will firms be able to leverage their manufacturing expertise in the future?

Are we releasing any of the firm's proprietary skills/information by

outsourcing?

With all of the above questions posed to any of the big four sneaker companies, they would respond with a resounding "no". Therefore, in today's global environment, the most strategically viable manufacturing strategy is the outsourcing of their products. The efficiencies that are gained, in the form of shifting of risk, reduced capital requirements, lower wages, and ability to focus on their core competencies, strongly outweigh...
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