necessary to run a company, but not related specifically to the core business, to emerging
service companies to deliver accounting, human resources, data processing, and security.
Today, business process outsourcing puts more focus on developing strategic partnerships to
achieved improved results. Selecting outsourcing as a strategy is based more on who can
deliver more effective results for a specific function, than on whether the function is core or
commodity. Previously, companies were reluctant to hand over core processes defined as
anything that has to do with dealing with customers. As service companies strive to be more
proficient; these core competencies, such as customer service, were also outsourced precisely
because it is so important.
Outsourcing has become the current trend in how the companies in the nations of the world do
business and modern economists declare that it’s irreversible. It is hoped that since its principles
began after an age of conflict, outsourcing could very well be the agent for interdependency
and cooperation towards mutual prosperity between peoples.
Presentation of Nike
Nike, Inc. is the biggest manufacturer worldwide of both athletic footwear and apparel in
terms of sales. It specializes in the production and sale of athletic footwear,
apparel and equ ipme n t . F o r t he f i s cal y ear 2009 i t an nou n ce s re ven ue s
of abo u t $19.2 bi l l i on .
I t i s a global company that besides in the US, which accounts for 34% of its
revenue, operates in Europe, Middle East, and Africa. Nike has manufacturing
plants and operations throughout Asia. The global slowdown in both sales and
consumption in the retail industry affected Nike and it recorded a revenue growth
of only about 3% in 2009. Net income fell by 21% and was expected to continue
to fall in 2010.
However, net income in the third quarter of 2010 is almost double in the net income in
the same period of the previous year bringing it up to $496million
- Motivation of outsourcing for Nike
The decision of Nike to locate its plants abroad depends on several reasons. On the one
hand, in order to react to current problems as: the reduction and control of costs, to avoid
large capital investment costs and to face to insufficient resources available.
On the other hand, the decision is based on a business strategy, meaning a strategy which
allows Nike to stay focus on their core competencies. We can also consider that the decision is
taken in order to create value for the customers and mainly the organization. We can include
the fact that it could be a strategy to build business partnerships.
However, the most important reasons that have conducted Nike to outsource are:
Reduction of costs
Lower labor costs and freight charges
Focus on the core market
Improve quality and productivity
Increase speed to market
To encourage innovation
To summarize, the most significant causes for Nike are:
1) The economic search of lower wage costs as well as other benefits like smaller fiscal
pressure, grounds cheap, governmental aid, etc.
2) The increasing and global competitiveness of the companies, to which the vision of the
multinationals of the world is like a market without regulation.
3) The great inequality of rights and labor conditions between the countries.
4) The State, more than an obstacle, is an element that contributes to support this kind of
situations, which demonstrates a weakness of the current policy against economy.
5) The lack of pressure in the union movements and the consciousness of working-class which
are translated in competitiveness and lack of solidarity between the workers, to which the lack
of international union is added.
6) The change of the production way and of the international division of the work: in countries
the investigation is realized, the development and the design of products, in others countries
the manufacture, and others the assembly.
7) The development of new forms of investment, essentially, international sub-contracting, the
tax exemptions, the fusions of companies…
8) Like consumers of the north, our complicity has its foundation in which this situation benefits to
us for our way of life (cheaper products, consumption, etc.
- Risks due to outsourcing for Nike
One of the main risks affects the outsourcing destination countries that are the main victims with
their workers. Although, apparently, the transfer of Nike to poor countries would have to result
in a better development, the reality is very different. In these countries to where they go the
firms to relocate, are caused: dependency of the multinationals, labor operation, union
repression and evasion of capitals. Outsourcing also brings very negative consequences in the
origin countries of Nike: unemployment, competition between workers, and uncertainty of the
labor conditions like the loss of labor rights.
But, in general for Nike the mains risks are the following:
Loss of Control
Increased cash outflow
Confidentiality and security
Selection of suppliers
Too dependent on service provider
Loss of staff or moral problems
Provider may not understand business environment
Provider slow to react to changes in strategy
- Results of outsourcing for Nike
Let’s begin with negative results for outsourcing for Nike: Nike is characterized of making its
equipment in countries which are in the developing phase, having very cheap labor,
authoritarian government and lack of human rights appeal and union movement. In doing this it
has made greater margins on the cost of mere cents to its workers. So Nike success story is not
based on good name and advertising alone but also attached to it is the tears of tortured
workers and child labor. However, children were working for them. It had a huge impact on
their brand image. Thus there was for example a strong campaign of boycott of Nike’s
products. Many organizations are scrutinizing Nike for their employment of severely underage
children, their lack of health regulations, and their unlivable wages. While, by law, Nike is
responsible for the fair treatment of all of their employees, the use of subcontractors often
veils the misconduct that is occurring in their overseas workshops. While Nike's use of offshoring
has attracted negative media, it can also be said that their presence in these third
world countries has dramatically increased the standard of living for their underprivileged
workers.
Positive results of outsourcing for Nike: With this strategy, Nike has increased in a couple of
decade its revenue by 3. The production abroad really changes the position of the brand in
terms of figure.
Explanation of Nike outsourcing with the theory of value chain
Support fonctions
Infrastructure of Nike:
Diversify business portofolio with new acquisitions
Empowerment of top management
Structure of Matrix
Focus on key countries, key factors, and critical compliances.
Drive a lean effective compliance process through strategic knowledge, remediation and verification
Drive a shared accountability and work place ownership of CR compliance
Encourage work ethics
financially discipline
Calculate risk taking
Strong financial position with minimal long term debts
Human resource management of Nike
Core values of the company is honesty: Competitiveness and team work
Operates with minimum of hierarchy
There is several collaboration and consensus decision making
Strong management team and good corporate strategy in both north American and overseas market
Mix of new hires and promotions
Technology
First mover advantage in E-commerce
Diversity and variety in products offered on the web (footwear, apparel, sporting equipment…)
Innovative designs in footwear enabling customers to design their own shoes online (Nike ID)
Air Sole technology specially used
Procurement
Just in time strategy = Components arrive as they are needed. Finished goods shipped after leaving
assembly line.
Safety stock: buffer for lack of flexibility in supply chain.
Bullwhip effect: Information about product demand gets distorted as it passes from one entity to next
across supply chain.
Primary Functions
Logistics
Low production cost
Outsource non-core activities
Focus on their core-competencies of: Product design, marketing and air sole technology
Worldwide supply chain project used by Nike help it to reduce inventories and investment risk
Shared process through a wholly owned subsidiary called Nike.in house manufacturing (Nike IHM)
produces many of specialized rubber, foam and plastic components used in this products.
Nike IHM’s primary facilities are located in Portland and Saint Louis.
Operations
Centralization of R&D in Oregon..
Application of NSRL..
Nike requires manufacturing partners to devote environmental resources..
Nike provides technological resources to its resources center such as R&D centers, laboratories.
Nike personnel in each factory to assist factor management.
Working on low and no packagino options.working on low and no packaging options:
Reduce box styles from 18 to 2.reduce box styles from 18 to 2.
Corrugated card board.
100% post content.
Marketing and sales
Brand recognition and reputation
Higher allocation of marketing budgets
Use endorser in every sport
Emerging brand name
Strong customer base
Diversity and variety of products offer on the web
E-commerce reduces the cost of goods sold
Services
Improved service to meet customers’ needs through the use of technology
improved process, information and product quality
Provide customize shoes for customers
A company call planner has installed touch screen system in Nike stores to allow customers to build
their own shoes
Nike also allows customers to order customize shoes online through their company website.
Conclusion
Nike's success is based on an important strategic innovation, to subcontract the complete
manufacturing from the start. This process of outsourcing led to the appearance of the first true
network firm without factories.
Nike is a company that does not produce anything. The company mainly focuses on concept
and advertising and brand management. The company is relatively small compared to its sales
and worldwide volume of production.
Source
www.wikipedia.com
http://christian.marmuse.free.fr/pub/External.pdf
http://www1.american.edu/ted/nike.htm
http://www.civ.utoronto.ca/sect/coneng/tamer/Courses/1299/Ref/startegic%20outsourceing.
pdf
http://www.scribd.com/doc/20597365/Final-Ppt-of-Nike
http://voices.yahoo.com/the-ethics-outsourcing-481852.html?cat=3
