Thursday, February 24, 2011

Nike and Outsourcing


      Sport goods producer companies have two options for manufacturing their products. They can own and operate the factories, or look for the ways of outsourcing. Facilities that are enough efficient for outsourcing, could be located either domestically or internationally. Outsourcing to domestic firms (US) gives advantage of easy monitoring, skilled workforce, well understood labor rules, but on the other hand it is relatively expensive if compared with outsource in developing countries. By manufacturing products overseas, in the third world economies, tremendous efficiencies are gained because of low salary expense, but in this case company has to face increased difficulty of monitoring the quality of their products and the uncontrolled working conditions in the factories.
      Nike uses outsourcing strategy, using only subcontractors throughout the globe. It currently owns a 47% market share of the domestic footwear industry, with sales of $3.77 billion. Nike has been manufacturing throughout the Asian region for over twenty-five years, and there are over 500,000 people working for Nike. Vast majority of production comes from China, Indonesia, Vietnam, Philippines, Taiwan, and South Korea. Factories in these countries are owned by subcontractors, with the majority of their output consisting solely of Nike products. 
        To avoid pressure from customers and legal cases against the company, Nike employ teams of four expatriates per each of the big three countries (China, Indonesia, Vietnam), that focus on both quality of product and quality of working conditions, visiting the factories weekly. They also developed their code of conduct in 1992 and have implemented it across the globe. Its goal is to set the standard for subcontractors to follow. However, company still faces problems with executing code of conduct because most of the factories are owned not by the company, but by subcontractors. Factory conditions and human rights issues have been widely criticized by different pressure groups. Even though company responded these issues with Andrew Young report, the Dartmouth Study, and Ernst & Young’s continual monitoring, Nike still needs couple years to eradicate mentioned problems. 

1 comment:

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