Impacts of NIKE's Multinational Operations

Introduction 

Nike is one of the biggest firms in the athletic apparel and footwear industry. The firm is involved in the design, marketing and development of a wide range of products that are primarily targeted at athletes. These products include apparel, equipment, footwear and accessories (“Nike Inc”, n.d). The firm also offers services that seek to enhance the experience and performance of athletes. Some of the brands that the firm is responsible for include Converse, Jordan and Hurley (“Nike Inc”, n.d). The North American market is the primary focus of the company. However, the firm has also established a presence in other markets. Europe and Asia constitute a significant portion of the company’s international operations. As a multinational company, Nike continues to shape the economies of the countries in which it operates. Apart from creating employment for thousands, Nike also helps to improve standards of living. For the most part, the impacts of Nike’s multinational operations are positive. However, the company’s operations are responsible for some negative impacts that economies across the world have witnessed. The local issues in the markets where Nike has establish a presence play a crucial role in defining the operations of the company.

Positive effects 

In the introduction above, it has been pointed out that the impacts that Nike’s operations have had on the global economy are mostly positive. This firm joins the long list of companies that work tirelessly to add to the productivity of the economies in which they operate. While the United States has received much focus from the company, Nike has not abandoned the international market. This is a firm that recognizes the tremendous potential that the international market holds. The discussion below examines some of the many positive effects that Nike’s multinational operations continue to have on the world economy.

Employment 

Providing employment to their people is one of the primary mandates of all governments. No government is able to ensure 100% employment without the involvement of the private sector. Nike is among the companies that have joined forces with governments to create opportunities for productive engagement. In the United States, the firm operates 362 stores (“Form 10-K”, 2016). In addition to these stores, the firm has set up distribution centers through which it delivers its products. At each store and distribution center, Nike has employed dozens of individuals. In 2015, the total Nike employee population stood at 31,997 (Kell, 2016). This figure is indeed significant as it highlights Nike’s commitment to providing employment opportunities. This firm has also ensured that its workforce reflects the demographic profile of the US. While it is true that a majority (48%) of the employees are white, the firm has made remarkable progress in employing minorities. For example, 21% of the employees are from the African American community while 18% are Hispanic (Kell, 2016). Nike has not abandoned the international markets in its quest to promote employment. As of 2016, Nike had 70,700 employees working in international markets (Thomas, 2017). This number is a reflection of the important role that Nike continues to play in building the global economy. It is important to note that there are thousands of other workers who while not direct employees of Nike, contribute to its operations. For example, hundreds of thousands of employees in Asian markets are involved in the development of Nike products (Wilsey & Lichtig, n.d). Apart from the third party contractors in Asia, Nike also partners with contractors in such countries as Brazil, Mexico and Argentina (“Form 10-K”, 2016). There is no doubt that Nike is one of the biggest employers in the world. Its impact on employment results from the fact that it has established a multinational presence.

Employee welfare and standards of living 

Many Western companies which have offshored their production operations to Asia face criticism for their failure to improve the welfare of the employees in the Asian markets. Nike is among these companies (Wilsey & Lichtig, n.d). Whereas it remains true that the company has disappointed many through its failure to advocate for employee welfare, the firm has performed remarkably well in the United States. The firm’s excellent performance can be seen in the efforts that it has implemented to enhance the wellbeing of its employees in the US. In his discussion on the impact that Nike has had on the American economy, Shannon Wells contends that the company compensates its employees handsomely. An average position in Nike pays as much as $100,000 (Wells, 2014). This figure is indeed significant. It underscores Nike’s continued commitment to attending to the financial needs of its employees. As it invests in the wellbeing of its employees, Nike is effectively improving their standards of living. With the high incomes that they earn, Nike employees are able to plough back into the economy through purchases. As it enhances the standards of living of its employees, Nike essentially helps to build the American economy. It is indeed unfortunate that this situation is not replicated in such markets as Asia where employees receive meager wages and endure harsh working conditions.

Contribution to GDP 

The effect that Nike’s multinational operations have had on the global economy goes beyond the creation of thousands of employment opportunities. The company is also a key participant in the economic development of the countries where it has set up base. Its operations and the taxes that it remits constitute a significant portion of the GDP’s of these countries. To understand the role of Nike in enhancing productivity, it is helpful to consider the impact that its operations have had on the economy of Oregon. This state hosts the company’s headquarters. In 2005, Nike injected $2 billion into the economy of Oregon (“Nike Adds Nearly”, 2005). The economic impact that Nike had on Oregon mainly took the form of investment in employees. The construction of facilities and the taxes that the company remits to the state government also make up the $2 billion ((“Nike Adds Nearly”, 2005). It is true that Nike’s impact on Oregon’s economy in 2005 does not offer a current understanding of the value of the company. It is helpful to examine how the company’s operations have affected Oregon’s economy in recent years. As he discusses the impact of Nike’s operations, Wells (2014) notes that this company adds as much as $2.5 billion into the economy of its host state. This figure represents an increase over the 2005 figure. At a time when companies are facing harsh economic conditions, Nike has managed to continue to make significant contributions to the economy. It should be noted that the economies of other countries in which Oregon operates have also benefited. For example, China is one of the markets that Nike relies on for sales. In 2017, Nike earned $1.1 billion in revenue from the sale of its products in the Chinese market (Thomas, 2017). A portion of this amount must have been to the Chinese authorities in taxes. The example of China and Oregon highlight the important role that Nike plays in building economies.

Infrastructure development 

Infrastructure is among the factors that determine the level of economic productivity of a given country. Countries that have invested in solid and modern infrastructure tend to record strong economic performance. On the other hand, countries whose infrastructure is in a state of dilapidation witness poor economic performance. Nike recognizes the critical role that infrastructure plays in defining economic performance. In the markets in which it operates, the company has invested in various infrastructure projects. For example, in 2014, Nike announced plans to construct a new campus that would host its operations in Oregon (Wells, 2014). Apart from this project, the company has also erected other structures. These structures include the Southwest Murray Boulevard campus (Wells, 2014). Nike has also been involved in the development of such infrastructure as roads. For example, in 2012, the firm built the Jenkins Road (Wells, 2014). Nike understands that it cannot single-handedly finance infrastructure projects since these projects are costly undertakings. The company has joined forces with such stakeholders as suppliers for the purpose of infrastructure development. For example, Nike has challenged its suppliers to build capital infrastructure initiatives which seek to minimize the amount of water and energy that the suppliers use (Porteous & Rammohan, 2013). It is evident that Nike is dedicated to developing the economies of the countries that host its operations. Through the infrastructure projects, Nike is essentially laying the foundation for economic productivity. For example, at its campus in Oregon, thousands of its employees work tirelessly to build the American economy.

Community engagement 

Profit maximization is the primary strategy that guides the operations of nearly all companies. In their pursuit of profits, many companies have neglected their responsibility to such stakeholders as communities. Nike seeks to set itself apart from the companies that fail to safeguard the welfare of their stakeholders. The company has invested heavily in the wellbeing of different communities around the world. Promoting healthy lifestyles is among the initiatives that Nike has adopted as part of its community engagement effort. For example, the company has successfully persuaded 14 million children to embrace sports and physical activity (“Community Impact”, n.d). Moreover, Nike has issued over $10 million in grants to communities in different parts of the world. This amount is aimed at addressing the most pressing needs of these communities. Thanks to the financial support that the communities receive from Nike, they have been able to embrace sports and physical activity. Nike’s employees are also involved in the company’s efforts to engage with communities. As many as 3,900 Nike employees have offered to serve as coaches (“Community Impact”, n.d). They are involved in sports programs across the world. It is true that the community engagement initiatives that Nike is pursuing do not have a direct impact on the economies of countries. However, the association between these initiatives and economic development becomes clear when one considers the link between economic output and health. Healthy communities tend to be more productive (Chandra, 2017). On the other hand, communities which grapple with health challenges make very little contributions to their economies. Therefore, through the community engagement programs, Nike helps to build the economies of countries where it operates.

Sustainability 

Today, an increasing number of firms are integrating sustainability into their operations. These firms seek to minimize their carbon footprint, enhance efficiency and conserve the environment. Essentially, through sustainability, firms are able to enhance the performance of an economy. Sustainable business practices allow for increased productivity while reducing waste and minimizing the resources used in production. Nike is among the companies that recognize the value of sustainable production processes. The company has adopted a number of initiatives which seek to eliminate waste and promote environmental conservation efforts. For example, Nike uses recycled materials in 71% of its apparel and footwear (Kell, 2016). The company also uses the recycled material to construct such facilities as playgrounds and running tracks. By 2020, the company hopes that it will be using sustainable processes to source for cotton. Furthermore, Nike has set a target to reduce the waste that is dumped in landfills. In recognition of its commitment to environmental conservation, Nike has received awards and commendations. For instance, in 2017, the firm received the Accenture Strategy Award for Circular Economy at the World Economic Forum (“Patagonia and Nike”, 2017). This award points to the tremendous commitment that Nike has demonstrated to conserve the environment. Through its sustainability efforts, Nike is allowing economies to function more efficiently and effectively.

Negative effects 

From the discussion above, it is clear that Nike continues to help economies grow. However, as is the case with many other companies, the operations of Nike have had some detrimental impacts on economies. While these impacts do not erode Nike’s position as a key driver of economic growth, they blight the company’s image. In the discussion that follows, some of the negative effects are explored in detail.

Outsourcing 

Many firms in the United States have outsourced their manufacturing processes to markets in Asia. The cost benefits that outsourcing offers is one of the features that enhance its appeal. For example, the cost of labor in Asian markets tends to be lower compared to such Western markets as the United States (Soni, 2014). Moreover, outsourcing provides Western companies with access to affordable raw materials. Given the numerous benefits that outsourcing provides, one is made to wonder why outsourcing is a negative effect of Nike’s multinational operations. To understand why outsourcing is negative, it is helpful to examine the impact that it has had on the economies of such countries as the United States. Outsourcing exports jobs out of the United States. It has received some of the blame for the unemployment that the United States experiences (Amadeo, 2017). When companies outsource their manufacturing operations, they are taking away jobs that Americans can perform. Outsourcing is responsible for the collapse of a number of industries in the US. For example, American manufacturing has recorded a worrying decline as a result of outsourcing (Gerard, 2016). As it outsources its operations, Nike is effectively contributing to the unemployment in the US, thereby depressing the performance of the American economy. Furthermore, the company turns to Asian markets for supply of raw materials (Soni, 2014). This further denies the US economy the revenue that it would otherwise earn from supplying Nike with the raw materials. While outsourcing facilitates the growth of the Asian economies, it has a detrimental impact on the economy of the United States.

Violations of employee rights 

In the later 20 th century, Nike faced accusations that it was using child labor at its plants in Asia (Bain, 2017). In the years that followed, the company made a commitment to address the issue of child labor. However, after years of honoring this commitment, new allegations that threaten to taint the company’s image are emerging. It is alleged that many employees who work at plants that make Nike’s products endure various forms of hardships. For example, these employees are robbed of their wages and others are subjected to verbal abuse. There are also allegations that the employees work in tough conditions and for long hours (Bain, 2017). It is the case that Nike’s failure to stand up for its employees does not directly affect the economy. The impacts of the company’s poor employee management record on the economy become evident after an examination of the association between employee productivity and working conditions. It has been established that low wages and harsh working conditions hinder employee productivity. On the other hand, when a company invests in the wellbeing of its employees, it offers the employees reason to be loyal and productive. Therefore, one can argue that as it condones and refuses to intervene in the mistreatment of employees, Nike is discouraging employee productivity, thereby hampering economic growth. While there is no concrete evidence that the poor employee management practices at the plants in Asia have negatively affected the economic performance of these countries, it is reasonable to expect that these economies have suffered in some way.

Effects of local issues 

Nike’s operations are subject to the realities in the markets where it operates. The local issues in these markets significantly shape the direction that the company takes. The discussion below sheds light on these issues and how they influence Nike’s operations.

Competition 

Competition usually has the effect of disrupting the operations of a firm. If a company finds competition to be overwhelming, it may be forced to exit the market. In the various markets where it operates, Nike faces intense competition from other makers of sports apparel, shoes and equipment. In its 2016 annual report, Nike admits that it “competes internationally with a significant number of athletic and leisure footwear companies” (“Form 10-K”, 2016). In its American market, Nike faces cut-throat competition from such companies as Under Armor and Adidas. As a result of the competition that these companies pose, Nike has registered a decline in its market share (Green, 2016). Each of the competitors is aggressively marketing its products. The competition that Nike faces is not confined to the American market. The firm also faces stiff competition in China and Europe (“Nike Faces Tough”, 2014). Unless it takes urgent action to counter the competition that these firms pose, Nike could witness a further decline in sales and market share.

Local partners 

Nike works with a number of stakeholders to promote its products. These stakeholders include professional athletes and sports teams (“Form 10-K”, 2016). Thanks to the efforts of these stakeholders, Nike has been able to establish a strong brand presence in most major markets. While these stakeholders are important, their continued collaboration with Nike is not guaranteed. Nike suggests that high costs are among the factors that threaten its relationships with the stakeholders. The company adds that it competes with other firms for endorsements (“Form 10-K”, 2016). If the firm’s future is to be secured, it needs to revitalize its relationships with professional athletes and other stakeholders.

Economic conditions 

The realities in a given economy are among the major factors that influence the operations of a firm. Strong economic performance encourages firms to invest in a country. On the other hand, poor economic performance discourages investment. Nike has operations in different countries whose economies behave differently. In its 2016 report, the firm raises the fear that reduced consumer spending could negatively impact its operations (“Form 10-K”, 2016). The company also notes that a poor economic climate hinders access to credit and introduces anxiety among investors. Moreover, instabilities in the market erode the confidence of retailers and manufactures (“Form 10-K”, 2016). Overall, positive economic conditions facilitate Nike’s operations while a volatile environment threatens the company’s operations.

Seasonality 

Seasonality is among the forces that shape the demand for a product. Seasonal fluctuations dictate the revenues that Nike receives. In the first and fourth quarters, Nike receives its highest revenues. The firm records depressed revenue in the second and third quarters. Local issues are responsible for the seasonal fluctuations. For example, during such major sports events as the European football championship and the Olympics, Nike receives massive orders (“Form 10-K”, 2016). In addition to the sports events, such other factors as weather conditions and economic realities also drive the seasonal fluctuations (“Form 10-K”, 2016). These fluctuations have the effect of either facilitating or depressing the company’s operations.

Customer financial health 

The amount of disposable incomes that consumers have plays a vital role in determining their purchasing power. As part of its effort to maximize sales and earn the confidence of customers, Nike has developed a credit program. Through this program, the company offers products to such consumers as retailers on credit (“Form 10-K”, 2016). The firm fears that there are some customers whose credit worthiness is in question. When the customers fail to pay for the products, the firm suffers. Moreover, the low credit worthiness of some of the customers has a damaging impact on sales (“Form 10-K”, 2016). In such markets as China, the middle class has grown in size. This growth has translated into a significant increase in the size of Nike’s market. As a result, Nike has witnessed an increase in sales in China. The financial health of customers can either increase sales or adversely affect the performance of Nike.

Technology 

Today, most companies have adopted technology in their effort to modernize their operations. Nike is one of these companies. For example, the firm has created an e-commerce platform through which customers are able to place orders (“Form 10-K”, 2016). Nike has also adopted social media and developed mobile applications. Through these services, it is able to engage with its customers and enable the customers to compare the prices of its products against those of its competitors (“Form 10-K”, 2016). The company is concerned that the collapse of its e-commerce platform and other technologies could compromise its operations. For instance, should the e-commerce platform fail to function properly, customers will be unable to place orders. While technology facilitates Nike’s operations, it also poses a threat. The collapse of the technology would halt the company’s processes.

Tax rates and tax laws 

Different countries have varying tax rates and laws. To attract investment, countries usually offer companies attractive interest rates and implement friendly tax policies. For example, in his quest to boost investment in the American economy, the Trump administration successfully passed a bill that lowers the corporate tax rate. The tax rates and laws in the different markets where Nike has set up operations have varying impacts on the company. For example, the company finds the tax rates in the European Union to be so high that it has resorted to offshoring its profits to tax havens. The Paradise Papers leak revealed that Nike is among the companies that exploit loopholes to benefit from friendly tax rates in such places as Bermuda (Bowers, 2017). The revelations in this leak offer insights into the impact that a country’s tax policies has on the operations of a company.

Conclusion 

Many countries in different parts of the world have enjoyed strong growth thanks in part to the operations of such companies as Nike. With operations in dozens of different countries, Nike is a leading player in the sports apparel, equipment and service industry. For years, the company has delivered exceptional quality. Thanks to its focus on quality, Nike has managed to have a significant impact on the global economy. The impacts of its operations include the creation of employment opportunities, improvement in living standards and contribution to the GDP. Nike’s operations have also had negative impacts. Violation of worker rights and the exportation of jobs through outsourcing are among the negative effects. As it conducts its affairs, Nike is subjected to different local issues. These issues either impair the firm’s performance or facilitate its operations. If Nike is to maintain its strong performance, it needs to insulate its operations against negative issues while exploiting the positive realities.

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