Nike in China
Executive Summary
Overview
Nike is the market leader in athletic shoes in the United States. The Oregon based company has always utilized offshore facilities in low-income countries to produce at minimal costs followed by importation into predominantly the US for sales. Nike is quick to divest from emerging markets as costs rise and has recently signed short term production contracts with a long term strategy of production in China. Unlike Nike’s previous global endeavors, the political and cultural atmosphere in China has made the collaboration more demanding.
Opportunities
As the South Korean standard of living continued to improve, expected wages grew forcing Nike to look elsewhere for low cost shoe production. Market research identified China and India as the best long term possibilities for the new production facilities based on finances. Due in part to a trusting relationship between Nike and the Chinese government based on the family lines of vice president David Chang, China was determined to be the optimal location to grow. The possibility of a joint venture giving Nike access to a possible billion customer market was another opportunity that could only be found in China.
Issues in China
Nike has spent the last four years building facilities, training staff, and developing relationships in China. Unlike other facilities in low GDP countries that had been utilized previously, the China collaboration has been less than successful. The current infrastructure combined with landlocked facilities made transportation logistics difficult. The Chinese government had certain expectations and standardization requirements that were misaligned with Nike’s incentives in terms of quality, pay, pricing, and employee motivation. The PRC government also created difficulties in import/export restrictions causing logistical problems with raw materials, specifically anything entering the country through South Korea, a major Nike supplier. While a foothold in China
Overview
Nike is the market leader in athletic shoes in the United States. The Oregon based company has always utilized offshore facilities in low-income countries to produce at minimal costs followed by importation into predominantly the US for sales. Nike is quick to divest from emerging markets as costs rise and has recently signed short term production contracts with a long term strategy of production in China. Unlike Nike’s previous global endeavors, the political and cultural atmosphere in China has made the collaboration more demanding.
Opportunities
As the South Korean standard of living continued to improve, expected wages grew forcing Nike to look elsewhere for low cost shoe production. Market research identified China and India as the best long term possibilities for the new production facilities based on finances. Due in part to a trusting relationship between Nike and the Chinese government based on the family lines of vice president David Chang, China was determined to be the optimal location to grow. The possibility of a joint venture giving Nike access to a possible billion customer market was another opportunity that could only be found in China.
Issues in China
Nike has spent the last four years building facilities, training staff, and developing relationships in China. Unlike other facilities in low GDP countries that had been utilized previously, the China collaboration has been less than successful. The current infrastructure combined with landlocked facilities made transportation logistics difficult. The Chinese government had certain expectations and standardization requirements that were misaligned with Nike’s incentives in terms of quality, pay, pricing, and employee motivation. The PRC government also created difficulties in import/export restrictions causing logistical problems with raw materials, specifically anything entering the country through South Korea, a major Nike supplier. While a foothold in China