I will use the STEP checklist, being the simple and less complex method to start my discussion with. Basically, we can identify four major environments that affect any kind of businesses, Social, Technological, Economical and Political environments.
I can say that those environments have a global effect. This is due to the fact that globalization did not leave anything to be national, including business environments. While some of the environments might start nationally, its impact soon to become global. So I guess we can identify Nike’s environments in general to be mixed.
Social Environments:
I found out through my readings about Nike that the major interaction is with the society. This is, as I think, because Nike's strategy in promoting its products is to link those products to humanity features and social dimensions such as self esteem, confidence, strength, reaching the dream, achievements, etc.
To begin with, let me explain what is meant by Social environment? It is basically related to people and households, to their values, expectations, change in income (classes), employment, education patterns, etc.
* The biggest effect of the MNCs is on employment. As they grow in size, they expand outside the national borders and move production to developing countries, in pursuit of cheap labor. This provides huge opportunities for employment in those countries.
* The most clear social impact on Nike was the social sobering for human rights in the western societies in the 1990s; this caused a movement against Nike and other businesses that are directly or indirectly involved in any kind of violation for the human rights. Nike was accused of exploiting the poor economical and social status in the Southeast Asian countries in its employment pattern. Faces of exploiting included employing large percentage of unskilled women, underage employment, bad working conditions, paying less than the minimum wage rates, etc.
To keep it reputation, Nike was forced to produce a code of conduct to show its good intentions towards this matter. This meant increase (very little) in the wages to reach at least the minimum local wage.
* Also, the society interacts with the reputation of the global and multinational corporations. For example the mistreat accusation that Nike faced caused a withdraw in the interest for their products – at least for a period of time.
* The influence of Nike as a global business on the society can be illustrated in the fact that the pattern of employment in the subcontracted factories in Southeast Asia constituted a new division of labour in those countries, as well as a new international division of labour in the developed countries (USA) represented in the focus on consulting, executive and services jobs, and consequently leading to a poorly trained potential hand workers. This is better clarified in the technical environment impact also.
* The social influence is demonstrated clearly again in the change of the public (customers) taste in the 1998, when the taste shifted from sports to outdoor casual (brown shoes) and caused Nike a big drop down of sales.
Technological Environments:
The globalization phenomenon is a result of a fast and rapid technology movement, where telecommunications and transportation, in particular, have developed very quickly during the past quarter-century. The development is continues and in all aspects of life and definitely of businesses. The Technical analysis includes studying the impact of new technologies, the internet, and the development of computer, the IT and the new models in doing business.
It is very important to address the impact of technology as it changed the structure of businesses and how marketing, distribution and manufacturing is processed. The development of IT enhanced the business confidence throughout the time and eventually we see more adventurous business strategies.
* I have mentioned how technology created a poor skilled labour in the developed countries (e.g. USA the origin of Nike). Hence, this can be considered as a reason why most of the multinational and global corporations are driven to shift their production to the third world countries (developing countries), and eventually that has an economic impact in those countries.
* The vast development in the technologies of observation, communication and computation led to a major shift in the way of marketing, advertising and distributing. It also affected the branding very much to the extent that brands and logos became a vital tool for the MNCs to expand. Branding, according to the technological development, led Nike to be familiar and helped it to become global.
* On the other hand, Nike realized the effect of technological environment and took advantage of this in enhancing the designing role and the quality of its footwear. Using last advanced tools and measurement instruments to assure best of quality to its customers. Accordingly, better quality means more competitive product and eventually increase in sales rate and profit (economical impact).
* Influence of technology can be illustrated also in Nike’s respond to the growth of e-commerce, as it used this technological break through as a mean of sale and distribution. Nike also, being innovative and trying to reach a wider sector of clients, established what is called Nike ID through the internet, where it uses a successful aspect of customer servicing called “customization” to reach its clients satisfaction.
* Technology and science development led the footwear industry to come very far by studying the fashion, leisure, fitness and sport consumer. Therefore, Nike is investing so much money in the research and development as well as in advertising.
We can see clearly, specially from the above two points how Nike and all global and multinational organizations have a hand in creating a new sector of computer literate and executive employees. Accordingly, more jobs are generated for those sectors because of the technological influence.
Thus the technological environment have a positive influence on the MNCs, but I think that the technological advances are heading towards the new and developed gadgets such as the mobile phones, computers and electronic games. This generates a threat of diverting the young sector of customers to that area of spending.
Economical Environments:
Economical environment includes the interest rates, level of inflation, income growth, saving levels, debt levels, etc. Although, all the other factors also have an influence, but the economical environment is more directed to planning and decision making, e.g. when and where and to how extend to invest.
* The most clear impact for multinational corporation in general and Nike in particular on economy is the fact that being global or multinational means increase in branches, outlets and production sites. All this lead to increase in employment rate and hopefully a more stable and secured economy. For example, investing in opening a large retail stores (NikeTown stores) provided employment for a lot of people. In addition, it means extra investments and having the capital to invest locally and internationally and enhance other sectors of business.
* Also, outsourcing to Asian countries is creating skilled potential competitors in the local market of the Asian countries. Especially with the high prices of Nike’s products.
* Economic influence on Nike can be demonstrated in its outsourcing history, as it started outsourcing in Japan and Korea and when those countries improved in economy and wages rate rose, they shifted to Taiwan, China and after that to Indonesia and Vietnam, looking for cheaper and cheaper labours. This process is for the advantage of Nike as lower costs means more money to invest in other aspects such as advertising.
* The poor economy condition and unemployment is the main reason why the developing countries seek to attract multinational companies. Because it means creating more jobs, and bringing in improved technologies, which may be transferred to the local market. This improves the employment situation as well as raise productivity levels throughout the developing country’s economy.
Accordingly, and due to economical improvement, income rises and living situation improves in the developing countries. (Social impact).
* The Asian economical crises in 1998-1999 hit a lot of global and multinational organizations badly including Nike as the sales of footwear fell in the Asian market. Wages in the Southeast Asian countries decreased further, workers had not enough to live and this led to protests and strikes. Nike had to close few factories in some of those countries like Philippines and look for other places like Indonesia. This among other reasons emerges new rules and regulations which will be pointed at in the next section (political environment).
Political Environments:
Laws and regulation that influence what organizations can and cannot do. Putting in mind that, while MNCs are obliged to follow international laws, there is a problem with regard of enforcement. Developing country governments are often unwilling to impose requirements upon and multinational company which has invested in their country either because of a fear of driving such investment away or perhaps because of corruption.
* The internal regulation for the Southeast Asian countries which allowing the free trade zones (no taxes and no right to union organization for workers), attracts the global corporation, and eventually enhance the economic in those countries. But with social and human rights side effects.
* The diplomatic relations with the developing countries is critical for the footwear business, as the manufacturing is done in those countries. So maintaining good relationship is vital.
* The formation of the European Union and the introduction of the Euro, created one European market.
* The tax policies in the country of origin (USA) encourage MNCs to shift production to nations with weaker fiscal or regulatory systems.
* Nike’s scandal of the mistreatment towards workers in the Southeast Asia produced (under the social pressure) many laws and regulations to seize such matter. One example is the Civil Rights Act (1991, USA), which reaffirms and tightens prohibition of discrimination; permits individuals to sue for punitive damages in cases of international discrimination.
* The International Labour Organization (ILO) is an institute which monitors the labouring conditions. In 1994 and as a respond to the increased labour and working environment violation, the ILO adopted a new Declaration of Fundamental Principles and Rights at Work which sets out the main labour rights.
* The North American Free Trade Agreement of 1993 is another example why MNCs move their production outside the borders. This law created a free-trade zone between the United States, Canada, and Mexico. Nike took advantage of this law and already has production on the borders between USA and Mexico.
Conclusion:
Organizations are not self-contained or self-sufficient. They interact with and are influenced by their environments. Organizations including global and multinationals depend on their environment as a source of inputs and as a recipient of their outputs. It is a two way connection.
Total word count is: 2163.
References:
- Jane Sturges, “Keep on Running”, B200 Understanding Business Behavior, OU.
- Video, B200 Understanding Business Behavior.
- Understanding Business: Environments, Edited by: Michael Lucass,The Open University,
- Nike official Web site (www.nikebiz.com)