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Why does the multinational company Nike choose Indonesia as the location to be its main producer, and how do they benefit from the choice?

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Introduction

Elliott Lee Modules 5&6 Option 1: What is the Global future? Portfolio Question: Why does the multinational company Nike choose Indonesia as the location to be its main producer, and how do they benefit from the choice? Introduction. In the early 1980's Nike began manufacturing in Asia an Indonesia where labour is cheap and the hosting governments aid Nike by using military action to prevent labour strikes. Nikes presence in Asia and Indonesia then spanned into Vietnam, China, Pakistan, Thailand and Taiwan. Today, Nike's largest sub-contractors are in China, Indonesia and Vietnam. My aim in this Investigation is to evaluate the motives behind the multi-national company Nike, using the less economically developed country Indonesia as its main producer. I will explore issues such as the cheapness of labour, Globalisation, Infrastructure of Indonesia, political stability, possible exploitation and other topics to assess the costs and benefits for both Nike and Indonesia. I will use sources such as SECOS 2000, the Internet, Nuffield economics textbook and various class notes to piece together relevant data and information to aid my investigation. Why Nike choose to manufacture in Indonesia - Indonesia is currently the main producer for Nike with 17 publicly reported factories. Some sources I have found claim that there are up to 30 undisclosed factories in Indonesia producing Nike goods. Below I will assess some of the main motives behind Nike using Indonesia as its main producer. ...read more.

Middle

The main advantage for Nike is the fact that they are able to set up factories and employ workers more cheaply than in any country in the Western world. These low set-up and running costs enable Nike to maximise profits. As the minimum wage in Indonesia is very low, Nike can legally pay workers very poor wages, again cutting down on costs. Another huge benefit for Nike is the fact that if the Indonesian economy begins to grow, become more competitive and national minimum wage increases, Nike can terminate manufacturing in Indonesia and move to more under-developed countries and begin the process again, for example in Cambodia. This is a disadvantage for Indonesia as they may have become dependant on the work and income, but an advantage for Nike as revenue will always stay at a peak due to maintaining low running costs. One of the main disadvantage for Nike is the fact that they are setting up technically modern factories in an under developed country. All workers would need training in order to work for Nike. Even though the training is very basic, it would still be extra costs for the company to pay. I think another big problem facing Nike in their 3rd World production is the damage to their brand image. Nike has had a great deal of bad publicity due to the reports of child labour and extremely poor working conditions for their 3rd world workers. ...read more.

Conclusion

This is due to the fact that as income levels rise, such products as branded goods come into peoples income range, Nike are then able to capitalise on this and sell to many millions of Indonesian people with no competition as it is an un tapped market. Conclusions and Recommendations. After assessing all available information it is clear why Nike choose Indonesia to be it's main producer. Nike is able to benefit from low running costs, cheap labour and the assistance of the Indonesian Government to achieve high productivity and maximise profits with as little costs as possible. However, manufacturing is not the only aspect Nike will benefit from. Once Indonesia has become the competitive economy it is growing to become, Nike will be able to target Indonesian people as potential consumers in a un tapped market. This will give Nike great competitive advantage in the global market against other leading sports labels. I believe that Nike now how to be careful about not letting their reputation suffer any more, as this may have a negative effect on consumer confidence in the label. I feel that Nike should make a conscious effort to rectify any miss-management and unfair labour conditions in their 3rd world manufacturing plants. If they are seen as recognising the problem and doing all they can to put it right then those consumers who have shunned Nike because of their unfair practices may become consumers of Nike products. This could increase Nike's market share in the industry and keep them as the number one sports label. ...read more.

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