Evaluate the impact of Nike's outsourcing strategy and factory location on the host nation

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Evaluate the impact of Nike’s outsourcing strategy and factory location on the host nation

Introduction

Nike is a multinational corporation, which has outsourced many parts of its supply chain such as production of sportswear, to developing countries. The aim of this assignment is to assess the impact of Nikes operation in these countries to identify what benefits and disadvantages Nikes operations bring to the host nation. Secondary research will be conducted to identify Nikes Multinational operations, which countries are involved in the process of outsourcing and the impact they have.  After the research has been analysed a conclusion will be drawn to whether the impact of Nikes outsourcing strategy will benefit the countries Nike operates in.

Analysis and knowledge

A multinational corporation such as Nike can be described as firms that have productive capacity in several countries. Before evaluating the impact of Nikes operations in particular on the host nations it is necessary to look in general at the possible effects of multinational operations in host countries. There are many potential benefits to host nations of multinational operations in there country, which include the spread of wealth, work, technological growth, raised standards of living; which will be discussed below.

 One possible benefit multinational operations may bring to the host country is skills and educations for employees. Developing countries often have an insufficient supply of highly skilled personnel. This can be improved since multinationals provide educations and training for employees creating an increasingly skilled workforce. For example, in 1997 Nike launched an education initiative to provide opportunities for contract workers to receive a higher education. A better skilled population will significantly increase the value of the host country perceived by other firms, which can increase investment into the economy. This can become a valuable source of capital for the host country. These skills can also be transferred to other areas of the country.

Another possible benefit multinational operations would bring to the host nation is providing the government of the nation with revenue including tax that the country wouldn’t of otherwise had. This revenue benefits the host nation because it can assist in funding the development of the country’s infrastructure and the provision of other facilities, which will help improve the quality of life of the host countries population.

Multi national corporations such as Nike bring foreign capital into the economy and rapidly increase economic growth that wouldn’t otherwise occur. In which case Multi national operations in an area of the host country may result in an injection in the local economy, which may provide jobs directly through the growth of the local subsidiary businesses such as banks. This might initiate a multiplier process generating more income as newly employed workers spend their wages. There will also produce a reduction in the unemployment rate.

It could also be considered that multinational operations will lead to a transfer of know-how and technological advances. These would benefit the host nation as they could benefit from new production techniques and knowledge on how domestic businesses can improve.

On the other hand there are also many costs to the Host nations of multinational operations that also need to be considered, and the benefits outlined above to the host nation are all questionable. In relation to the perceived benefit of increasing the skills of the work force it could be argued that there will actually be no transfer of skills to benefit the host nation because multi nationals are inclined to bring in staff from abroad that were previous managers. Therefore there will be no need to train the local workforce if the experts required are brought in from abroad. Consequently the jobs carried out by the host countries population are menial and low skilled, which reduces the transfer of technology.

It could also be contemplated that importing the latest technology may have little effect on the population of the host country and could actually undermine existing companies that are trying to compete using less sophisticated equipment. As result local businesses may feel that they are disadvantaged by multinational companies operations, which can discourage local investment and reduce economic growth. In which case it could be argued therefore that a transfer of technology from multinational operations will not benefit the host nation.

The argument that the host nation will benefit from reduced unemployment if a multinational firm invests in that country can be countered as investment in less developed countries usually involves the use of capital intensive production, this means less people will be employed so high levels of unemployment will be maintained. Tax revenues may also not be of as much benefit to developing the infrastructure of the host nation as tax revenue may be reduced to a minimal amount by multinationals by switching production between countries with lower tax reductions.

A possible cost of multinational operations to host nations is a widening of the income distributions. This may occur because Multinationals may employ large expatriate managers ensuring that incomes generated are kept within a relatively small group of people. Multinationals can employ cheap labour that they pay low wages. This exacerbates the increasing disparity of incomes, which increases inequalities by creating a prosperous middleclass with the majority of employees being low paid. 3

We also have to consider that multinational corporations are extremely large and powerful therefore they can exert considerable influence on governments to gain preferential tax concessions and subsidies and grants. This can be costly to the host country, as they are not gaining the amount of revenue they are entitled to from multi nationals. However it could be argued that multinationals aren’t able to exert that much influence and power on the host country that could be costly, because they are at least accountable to their shareholders and the law. Multi nationals may take the profits from the country they made the profit in, and distribute them to shareholders or reinvest them in other countries.3

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Less developed countries can sometimes have lax regulations in terms of working conditions. This can encourage multinationals to exploit employees and provide bad working environments and unsafe working conditions. Workers are also paid extremely low wages as there are limited minimum wage requirements. This is because some laws are designed to encourage businesses rather than protect employees. However although wages are low compared to wages in other countries, the wages multinational corporations provide for employees are significantly higher than the wages provided by domestic firms.

There are also environmental trade offs from multinational investment in developing counties. Multinationals will take ...

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