Nike: Emerging Business Themes - Essay Example

?Table of Contents Introduction Sustainability Global Growth Global Governance Conclusion Nike: Emerging Business Themes Introduction Nike, Inc. is one of the premier manufacturers of athletic wear and has spread its product and branding to a global level. Few nations are without the availability of Nike wear, nor are any economically stable countries without distribution within their borders of the product. Nike holds a strong and profitable market share across all markets, proof of which is that the American market leader Warren Buffet has .7% of his portfolio dedicated to the company which gives the stock the seal of trustworthiness.1 Nike has a stellar reputation for its products, with high quality and careful branding creating demand from the public. However, the brand has taken on some decay with evidence of human rights violations being committed in the factories that are supplying the product There is some evidence that these violations have occurred without Nike having created any attempts towards improvements on their own in order to increase their profits. While Nike promotes its goods under the brand mythology of good health, environmental awareness, and a sense of a social conscious, there has been a significant number of reports of human rights violations that violate these representations. The Nike corporate website has a great amount of detailed information regarding codes of operation and codes of ethics that create an image of corporate and social responsibility. The following code of ethics is on the website, creating a specific structure in which social responsibility is promoted. Our code of ethics for employees is called Inside the Lines; it defines the standards of conduct we expect of all our employees. Every year, employees are required to verify that they have read and understand Inside the Lines. We operate a global toll-free Alertline for employees to report in confidence any suspected violations of the law or our code of ethics. Any reported concerns around accounting, auditing or internal control are communicated to the Audit Committee of the Board. We expect our suppliers to share our standards and to operate in a legal and ethical manner. While Inside the Lines covers the behavior of Nike employees, our Nike Code of Conduct covers contractors who manufacture Nike-branded products. It directs them to respect the rights of their employees, and to provide them with a safe and healthy work environment.2 The framework that is provided by this code allows for a revelation about the intentions of the company to emerge, which is then countered by the actions that the company has made. As the company has taken advantage of the global marketing opportunities, it has also taken advantage of the lesser regulatory practices in labour, thus putting the company into a paradox against its own branding. While there have been a great many advances in Nike towards behaviours that are more socially responsible, the company still has the shadow of irresponsibility on a global level, thus creating a taint on the brand. Sustainability There are a great many ways in which the word sustainability can be used towards creating socially responsible organizations. Environmental sustainability is one of the most ways in which sustainability can be defined. As well, social responsibility in the way in which employees are treated, the issues of human rights made a priority within an organization, is another way in which sustainability is achieved. According to Bitsch, “Social sustainability is typically broadly defined to include human rights and social injustice, corporate governance, and labour rights and treatment”.3 Furthermore, a business is responsible to keep up on the latest interpretations of human rights and to adhere to keeping safe and secure those workers who are under their management.4 Nike has had serious issues regarding violations of human rights issues and more so concerning violating the spirit of correcting those issues. In Bulgarian factories, when serious human rights violations were discovered, Nike, Adidas, and a variety of other apparel manufacturers participated in a program that was meant to start a dialoge between management and labour in order to learn about corporate responsibility and to design a more socially humane set of labour guidelines in which these factories would operate. After participating in these programs, Nike decreased or cut the orders to these factories after employees were encouraged to speak up against the conditions of the factory in order to improve conditions. Adidas, on the other hand, continued ordering and helped to facilitate the improvements.5 Marc Kasky, acting as a private individual under the rights to act as a representative of the people, filed a lawsuit in 1997 alleging that Nike had actively pursued a strategy of lying to the public in attempts to bolster their image in regard to allegations of human rights violations in In this lawsuit, Kasky alleged that Nike had lied in a campaign to bolster its image after a series of allegations were raised that supported the view that Nike was responsible for a great number factories that made the Nike product line.6 Kasky claimed that the lies that Nike told included that workers were not subjected to physical and sexual abuse, that products were made according to regulations about wages and hours, that they doubled the wages in Southeast Asia that were abysmally low, that workers were receiving free health care and meals, and that the company was making changes that proved that they were acting morally and ethically in regard to human rights within factories. In 1997, the factories in Vietnam were leaking reports that 77% of their workers were suffering from respiratory problems because of the poor safety standards as well as Chinese factories reporting 12 hour work days with compulsory overtime and violations of minimum wage laws. There were also reports of toxi dust and fumes proliferated throughout the factory and the employment of children under the age of 16. 7 An aggressive public relations campaign was started as opposed to fixing the issues within the companies. Kasky filed the lawsuit in order to combat this irresponsible behaviour on the part of the company, but disappointingly settled out of court, which left all of the evidence off the record and kept outside of the public’s scrutiny.8 The strategy that Nike uses is offshore outsource manufacturing, which means that Nike hires manufacturers, rather than using plants of their own, in order to sidestep the laws and socially imposed regulations that the United States expects from its businesses. This can also be considered both a centralization and specialization strategy. The partnering overseas factories follow the common production pattern but apply their local laws for the process. These partners are typically independent companies located in various Asian countries. However, because of their association, they were not immune to the bad publicity that was created because of these violations. Global Growth Nike, Inc. has had an ongoing strategy of globalizing their presence for a couple of decades. Concessions are made in labour, often to open the market of a third world country. One of the ways in which the markets in the third world have been opened is by lowering the prices of the products, thus matching the economic viability of the sales to the socio-economic level of the country in which sales are being attempted. The strategy of manufacturing locally in order to create local rates in local markets has become a common strategy for Nike. Opening markets in some countries has proven difficulty, thus offering to do the manufacturing in local factories has opened the door to putting their products into those nations. While using local labour is a positive part of global marketing, violating human rights in order to open that door is not the way to expand into the world. In the process of creating deals that would satisfy the government, the jobs that were provided have often meant violating the standards of labour in Western societies with wages that are so low that workers were still at a rate that prevented them from providing the barest needs for their families.9 In order to facilitate entry into a world market, Nike has developed a broad mission statement. Nike’s mission statement is as follows: To maximize profits to shareholders through products and services that enrich people’s lives”.10 In conjunction with this vision statement, there has been a specific strategy put into place to facilitate the global efforts. Nike intends to “provide an environment that encourages people to maximize their contribution to Nike, identify focused consumer opportunities, provide quality and innovative services and products internally and externally, establish and nurture emotional ties with consumer segments and maximize profits”.11 The ways in which this was accomplished was through strategies in manufacturing, combined with philosophies that supported putting their products onto every person in the world. The philosophy that most supported this was that the company first considered every person an athlete, that the nature of the human condition was to pursue athletic achievement, no matter what the size, shape, physical condition, of age of the individual. With this in mind, every person was then a potential consumer.12 In order to reach that consumer, the branding and the nature of the emotional ties that their marketing could create within the consumer became a key resource. Phil Knight, inventor of the first Nike shoe and founder of Nike said that , “Nike’s mission is not to sell shoes, but to enhance peoples lives through sports and fitness”13 In approaching their marketing, the most powerful resource that Nike has at their disposal is the branding that it has put into place. One of the most recognized symbols on the planet, the Nike swoosh is an icon in modern pop culture. The power of the brand is in its “effect of contemporary branding strategies to push the “host” or sponsored, culture into the background so that the brand emerges as the “star”.14 The swoosh is on every piece of clothing, shoes, and equipment made by the company, an image so powerful that it no longer is necessary to put the Nike name next to it to create recognition on a global level. In 1987 the marketing budges was just 25 million dollars, but in the global spread of the market, the budget had soared to an impressive 500 million in just ten years, showing the value of marketing as the budget didn’t compare to the overall profit figures.15 The level of this budget indicated how the business intended to compete in the market. It was not the product that was at the center of their business, but the philosophies and belief systems that would best represent their intentions. When the issues over labour were at their height, Nike dropped the swoosh and made their name into a lower case version. The thought was to change the branding in order to change the public image of the company. This proved to be a mistake. According to LePla, a company should not drop a successful image in order to combat bad press. The association to the name and the logo are so strong that the emotional ties to those symbols can’t be severed, only repaired.16 The brand, the indicative swoosh, has the world held spellbound by the company, and all negative associations are combated with the power of the celebrity endorsements, the appeal to the inner athlete in all consumers, and the desire to belong to the group that buys this product, and thus represents those aspect of the lifestyle in which the Nike aesthetic is present. The Nike portfolio has a substantially broad diversity of products that support a high level of profits for its shareholders and stakeholders. The portfolio includes; Hurley International, a maker of skateboard equipment that was purchased in 2002 for $95 million; Cole Haan, the first acquisition that was made by the corporation which was purchased in 1988 for $80 million; Bauer, a maker of hockey skates and gear which was purchased in 1995 for $405 million, and Converse, the very lucrative purchase, which is a manufacturer of retro-style sneakers which was purchased in 2003 for $305 million. According to Geoff Taylor, Nike Director of Risk Management, the current earning levels of the company are: Revenues $14.9Billion – USA $5.7BN – EMEA $4.3BN – AP $2.0BN – Americas $0.90BN – Other $1.9BN Employees – 26,000 Operations in – 46 Countries World HQ – Beaverton, OR, USA17 Nike has a strong and consistent portfolio that provides a solid foundation for profit for its shareholders. Global Governance There are three entities that must be recognized as a business enters the global market. The first entity is the business, the vision and mission statements from which the destination of the business has been determined. The second entity that must be considered is the country in which entry is sought by a business. The third entity, as in the example of the problems that Nike has had in reference to the labour practices in other countries, is the home country and culture for which sustaining reputation must be upheld in concert with the entry into the new environment. Under these defining entities, the concept of the supernational level emerges as the space in which regulatory practices must be addressed. The globalization efforts supersede, in many instances, the national level of sovereignty and democracy, the needs of the economic entry of businesses creating an adaptation to the cultural concepts that come with those entities.18 The third tier of entering into a global market strategy, the opinion of the home culture, is the aspect that Nike did not take into consideration as it entered into markets where labour regulations were much less restricted than those in the United States and generally accepted in Europe. There are over 900 Nike factories worldwide in which the manufacture of Nike products is conducted through subcontracts. While the first response was a somewhat deceptive marketing strategy of press releases and statements, the company has since had to adopt specific codes of conduct so that firms outside of Western regulation represent human rights in a positive capacity. Barnett states that “a not inconsiderable amount of upward ratcheting of conditions within the Nike subsystem of global apparel production has taken place”.19 In countries where there are no regulatory practices put into place for unions, collective bargaining, and general worker rights, the entry into these countries when utilizing their labour resources creates a conflict for countries who must also maintain their level of social responsibility. The attraction of creating factories in these countries is often that the lowered regulations provides a higher level of profit, but when public opinion goes against those inhumane practices that exist in these types of factories, then the corporate image suffers and the bottom line is affected.20 One of the problems, however, that arises from changes made within those factories is that the political environment is affected by regulatory practices put into place that do not reflect that political culture. Despite the perception of a positive effect, the negative effect can be to impose upon a country, changing its culture without the permissions and affecting the nature of the society as a whole.21 Because of the imposition that is created upon cultures through globalization, there is some efforts to stop the process. Nike is used as one of the examples as to why globalization is not considered a good process. Siebert suggests that because of the wide differences seen in regulations from third world nations in comparison to Western nations, there is little change that lapses in Western cultural ethics will not occur.22 The drive for profit is an overwhelming incentive to allow for conditions that are less than those that would occur in a Western nation. However, imposing regulations that are outside of the regulations that are in place within a country can create a dilemma in cultural traditions and the way in which business is conducted in emerging economies. The conflict poses an unsettling question on the rights of the West to influence other cultures, while making sure that human rights are not violated. Governance from the perspective of international relations, is a difficult aspect of globalization in which to navigate the strategy of a company. As in the example of Nike, the diversification into a world market can create a great deal of profit, but the problems that are encountered when marketing in a variety of cultures can lead to imposing Western values onto those cultures, especially when dealing with foreign government regulatory systems. Creating a business that has a defined set of values is most likely going to represent the culture in which those values have been defined. Therefore, global governance exceeds just the use of local regulations, but should not impose upon them either. Conclusion The current policies in Nike, Inc., just like in most companies, prohibits disclosure of private information about the company to the public. Therefore, it is difficult to assess the level of problems globalization and sustainability have caused within the corporation. As well, assessing the real changes that have taken place to increase human rights within the factories in which they are being violated is difficult to fully realize. Because these companies are not owned by Nike, their regulations are the purview of their host nation and their own business management. However, the results of the terrible violations, such as rooms filled with toxic fumes that are destroying the lungs of the workers, physical punishment, and pay that is so low it is unable to support the workers, affect Nike through the public outcry that has been brought against the corporation for using these types of labour. Nike is run as a shareholder model of governance, just as most corporations in the United States and in Great Britain. Therefore, this type of corporate culture is designed to support the need for profit for the shareholders over those of the community of stakeholders involved with the corporation. The bottom line of the financial portion of the company is the foundation for all decisions made within the company. Therefore, balancing sustainability, responsibility, globalization efforts against global governance in individual nations, becomes driven by the profit margin as balanced against the dynamics of these aspects to influence the success of the company. The need to have a socially responsible company is not the prime motivating factor for a corporation like Nike. It is the care of the shareholders that takes precedence over all other concerns. Word count 2999 References Barnett, Michael N. 2007. Power in global governance: Cambridge studies in international relations Vol. 98. Cambridge: Cambridge Univ. Press. Bitsch, Vera. June 2010. Labour aspects of sustainability. Department of Agricultural, Food, and Resource Economics. PDF Retrieved 20 January 2011 from https://www.ifama.org/events/conferences/2010/cmsdocs/76_paper.pdf Breyer, J., 26 June 2003. Dissenting: Supreme Court of the United States: No. 02-575 - Nike, Inc., et al., Petitioners v. Marc Kasky on Writ of Certiorari to the Supreme Court of California. Retrieved on 3 February 2009, from http://www.law.cornell .edu/supct/html/02-575.ZD1.html. Conner, T. and Dent K. 2006. Offside: Labour rights and sportswear production in Asia. Oxford: Oxfam International. Retrieved on 3 February 2009, from oxfamamerica.org/n ewsandpublications/.../5792oxflrrweb.pdf Great Britain, and Andrew Dismore. 2009. Any of our business?: human rights and the UK private sector : first report of session 2009-10. Vol. 2, Oral and written evidence. London: Stationery Office. Johnson, Debra and Colin Turner. 2009. International business: Themes and issues in the modern global economy. London; Routledge. “Kasky v. Nike: Just the Facts“. 2007. Reclaiming Democracy: Restoring Citizen Authority over Corporations. Retrieved on 3 February 2009, from http://www.recl aimdemocracy.org/nike/kasky_nike_justfacts.html. Katsioloudes, Marios I., and Spyros Hadjidakis. 2007. International business: a global perspective. Boston, Mass: Butterworth-Heinemann. LePla, F. J., & Parker, L. M. (2002). Integrated branding: Becoming brand-driven through company-wide action. London: Kogan Page. Nike Responsibility Governance: Nike was founded on a handshake. (2009). Nikebiz: official site of Nike Incorporated. Retrieved on 19 January 2011, from http://www.nikebiz.com/responsibility/cr_governance.html. Siebert, Horst. 2003. Global governance: an architecture for the world economy. Berlin [u.a.]: Springer. Slaughter, S., & Rhoades, G. (2004). Academic capitalism and the new economy: Markets, state, and higher education. Baltimore: Johns Hopkins University Press. Taylor, Geoff. 2008. Corporate risk management: The risk manager’s perspective. Retrieved on 21 January 2011 from www.ferma.eu/Portals/2/events/FERMA Seminar - G Taylor.PDF. Warren Buffett’s Berkshire Hathaway Holdings - Current List of Stocks. Warren Buffet’s Stock Portfolio. Retrieved 19 January 2011, from http://warren-buffett-portfolio.com/. Read More