Nike: a Multinational Company in China
Nike: A Multinational Company in China Nike is one of the largest athletic shoe brands in the world and sells millions of shoes and clothing each year. The company was founded on January 25, 1964 by a University of Oregon track athlete Philip Knight and his coach Bill Bowermanas. It was first named Blue Ribbon Sports and it officially became Nike, Inc.
on May 30, 1978 (Nike). As a multinational company, it operates retail stores domestically and overseas and all of the products it sells are manufactured by independent contractors located predominantly in foreign countries.
Nike first entered the international market through China overcoming the many challenges it faced while trying to do business with them. Nike has no involvement in the manufacturing of its products and all of its production has been outsourced, mainly to manufacturers based in low-wage countries. In 1980, Nike created its first joint-venture with the People’s Republic of China (Nike Inc. ). It entered into the emerging economy just after the country rose from the turmoil of the Cultural Revolution.
In James Austin’s case study of Nike in China, he described Nike’s entry strategy into China to be very difficult and found the Chinese government almost impenetrable to do business with. To gain entrance into the tough country Nike hired David Ping-Ching Chang, who was originally from China, as a consultant to help arrange a deal between them (Austin 34). Chang had the experience and knew the language and customs that it would take to create a successful agreement. The first thing they set out to do was write a proposal to the Chinese government outlining their objectives and the advantages their joint venture would bring to China.
Chang was familiar with how the Chinese performed business transactions and used that as an advantage to get their foot in China’s tightly closed door. The Chinese are relationship-orientated and to them a transaction is not only business. After writing a very well written proposal translated in Chinese stating how Nike was committed to long-term business with China, they received an invitation to start negotiations. Major problems arose between the two when China demanded for more control, pricing, and rights to each factory (Austin 35).
The Chinese felt that Nike was trying to take advantage of them when Nike would not allow them such control. The Chinese became was very close to ending any negotiations they had agreed upon but luckily settled on an agreement. Nike’s primary objective was to “establish the means by which they would buy a finished shoe product from the People’s Republic of China,” as written in their submitted business proposal (Austin 29). Some of Nike’s other aims Austin describes in his case study were a target goal of 100,000 pair of shoes per month in the first phase and growth to 1,000,000 pair per month.
Five months after their initial offer, a contract was signed and shoe production began by October 1981. Nike’s joint venture with China promised lower costs because of their cheap labor and high production. However, by 1984 production had only reached about 150,000 pairs per month instead of the 1,000,000 they had previously agreed on. During the 1990’s, another problem Nike faced during its joint-venture in China was the bad working conditions and low wages at their factories.
Nike was accused of profiting from sweatshop labor that included child labor, physical abuse from factory managers and exposure to dangerous chemicals. They originally denied claims against them; however, in an article published by AllBusiness online in 2001, Nike director Todd McKean stated that since “Nike does not own the factories in China, we don’t control what goes on there. ” This brought a major uproar in the media and along with it came campaigns of human rights groups who would endorse only companies who use “sweat-free” labor.
According to Business Week Magazine, when Nike began to see protests from factory workers they decided to finally make a change and monitor working conditions in factories that produce their products. They hired independent auditors to make sure subcontractors used by the company follow Nike’s code of conduct (Hill 152). Although Nike faced many challenges with their joint-venture, China gained some advantages with doing business with Nike. Nike donated equipment to schools and paid them to open up after-school sport teams for children.
In 1995, Nike sponsored all the Chinese pro-basketball league teams and provided uniforms and shoes for them. Another benefit China received was the outsourcing of jobs into their country (Sports). Granting, the sweatshops were an enormous mistake that Nike should have never let occur, they have corrected the problem and it has produced over 500,000 jobs in China alone. Nike is now working with the Xiaochen Hotline Program in China to provide training on their labor laws and to improve worker’s accessibility to the hotline (Dutton).
Nike is a good example of a multinational company that faced major challenges entering the emerging economy of China in 1980. Nike was confronted with problems while negotiating business with China and also during the actual manufacturing in their facilities. Even with such problems there came advantages to both countries; China acquired many jobs and Nike experienced lower costs that lead to higher sales. Nike and China have turned out to be a successful joint-venture and should continue to advance if both take into consideration each other’s needs.