1

NIKE in CHINA

Group 7
SUBMITTED BY :
ANURAG PRATEEK - 10
DIPANKAR SINGHAL 21
MANEENDRA SHUKLA - 32
RAJAT SETH - 43
THAKOR DHARSHAN - 53
 2
NIKE

Started in1964 Nike became Americas leading Sport shoe company with sales $1 Billion.
It sourced it products from offshore producers e.g South Korea,Taiwan,Hong Kong &
Thailand.
It held 30% market share mainly because of its high quality, economic offshore sourcing,
dependable delivery & outstanding brand image.
Other competitors were Adidas , Converse , Puma & Keds.
Growth rate declined in 1980s due to various reasons e.g. PLC , Seasonality & pricing.
It suffered a loss of $2.2 Million in 1984,
Closed its US plant & reduced output of Korean plant by 1/3rd.
Then Nike shifted in focus on apparel business which was majorly captured by Adidas.
Sourcing was tough in case of apparel business.
 3
Developments in China

Till 1978 China was a closed economy after 1978 they opened their economy
By 1981 they were following more or less all the know trade policies known to
world
Foreign investment in china reached $1.2 Billion by 1981
Development priorities were set by party
Policies were implemented by State Planning commission.
Prices of goods produced were arbitrarily set .
1978 reforms promoted performance based incentives
Chinese were reluctant to do business with outsiders & wanted to be treated
equally
 4
NIKE in CHINA

Nike shifted its focus towards china because of low cost of factors of production
Contracts for 2 factories in Tianjin & Fujian were signed expecting 20% price advantage
Major issues that came in negotiating were:
Exclusivity Clause
B-Grade production
Defective returns
Pricing
Nike paid for the factory equipment due to lack of foreign currency with Chinese.
In return for finished goods
 5
NIKE in CHINA

Operating Expenses
700,00 pairs of shoes made in 1984 while the established forecast was 1 million per month
by 1984.
Nike had to face multitude of problems like:
Problem : Technology transfer:
South Korean factory system was brought to china.
Communication gap was present between advanced technology and users.
Political sensitivity over South Korean officials entry in china.
Solution: Used video tape of south Korean managers and workers for knowledge transfer
 6
Problems

Materials issue
Lack of local material (only 1/3rd of nikes need were available locally.)
Bureaucratic obstacles (shipment of canvas to tianjin required approval of 6 ministries)
South Korean and Taiwan reluctant to supply to china and Fine on south Korean Goods
Solution: Nike increased trade via Hong Kong and Tokyo and kept track of material
Quality Control:
After 4 years only 80% of A grade goods were exported (no sense of brand image in Chinese workers)
High level of dust in cities which created problem in gluing the soles
Discount issues on 20% discount rate on b grade shoes
Solution: Nike educated Chinese workers about international standards, hired a quality inspector as
well as kept dust problem under control with Thailand model
 7
Problems

Inventory Control
Inadequate inventory record
Record keeper worked as door keeper
Solution: Nike staff kept track of material required and taught material storage to prevent
damages
Production Flexibility
Rigid production system
No investment in advance equipment
Suspicion on nikes commitment
Solution: Nike encouraged them to produce new tools as well as produced new patterns and
specification
 8
Problems

Worker and Manager Motivation

There was no incentive or motivational factor and Lack of talent in production scheduling
Inefficient management of factory facilities
China had a planned economy which provided quotas in all areas
Solution: Nike offered cash bonuses and tried own incentive program based on productivity, quality
and delivery
Transportation
Lack of proper infrastructure ( small streets, no roads as well as rain problem on docks)
Only few factories had access to container vehicles
Solution: Nike used factories situated in Ghuanzau ( which had enough space for trucks) and
Fuijan(which were on the road)
 9
Problems

Plant Location
Followed government recommendations because of less knowledge of area and Less support
from local authorities
False allegations on Nike about sincerity, commitment, breach of agreement
Solution: Nike diverted to areas having less red tape and areas with decentralized authority
for decision making
Expatriate Staffing
Staff resisted the move to move from Shanghai
Solution: Nike allowed staff to bring their families to China and paid living expenses and
30% salary supplements for working abroad plus a week vacation every 2month
 10
Problems

Government Relations
Combination of decision makers kept on changing
Officials failed to show up on appointments
Emphasis on joint venture agreement
Solution: Contributed to Chinese sports activities, Took Chinese officials to US, sent report
to Vice Premier Wan Li about progress and issues in1980-3 period
 11
Future Strategic Considerations

Situation of Nikes other Suppliers:

Development and production startup time
Quality
Quantity
Raw material sourcing
Financing
Transportation
Labor costs
Landed costs
 12
Future Strategic Considerations

Chinas changing business environment

Ideological shift favourable for private and foreign investors
Joint Ventures
Subsidies available
Firm can fire workers for violating work rules
New factory location i.e. SEZ
Preferential tax treatment, special facilities(infrastructure and services)
Bureaucracy was simplified
Protection to investors legitimate rights and privileges
Favorable consideration in land rent, choice of land sites, corporate income tax of 15%(half
the normal rate), import duties waived
 13
Future Strategic Considerations

Domestic Market
To sell products in local market
Competitors
None of the competitors(Adidas, Puma, Bata, New Balance) are sourcing from
China yet
 14
Our Analysis

We are suggesting to carry on with the China as a production country. The

problems associated with the Nike in China is mostly external such as
bureaucracy,
demotivated workers,
communication issues.
Cultural
Environmental
However, labour wages in China was very low which is the main
motivation factor to be present in China

Our Analysis - PEST
Political Factor
Promotion bas on seniority
Communism in china
Visa issue
Changing decision delayed the
decision process
Social Factor
Difficulty in aligning with
Chinese culture
Trust and reliability factor
China a major untapped
location for low cost labour
15
Economic factor
Prices were not based on
market needs and demands
Iron Rice Bowl policy
Pricing issues
Technological Factor
Resistance in adopting new process
Poor telecommunication method
Lack in production technology to
produce A grade sports shoes

Our Analysis - SWOT
Strength
Competitive organisation
Strong R&D
Global brand
Strong presence
Experienced player
Opportunities
China as a huge market
Develop other sports product
Expansion into emerging
market
16
Weakness
Contract manufacturing
Chinese culture
Delivery time is high
Dependent upon footwear
Threats
Fluctuations in currency
Communication barrier
Lack of information,
resources and government
policies
Fierce industrial competition
 17
Our Analysis

Ex-ante

Ex-post
 18
Our Analysis

Transaction cost

Search cost

Renegotiation cost
 19
Our Analysis

Problem Solution
Proper training should be provided to labours to increase the Partner with some universities (e.g. - Zhejiang University) in China to
productivity. From 80:20 ratio to 99:1 standard. train workers as well as manager.
Improving the working process to meet the quality Follow DMAIC and PERT methods to improve quality.
standards.
Improving the perception of NIKE & instil the motivational Follow better communication techniques
factor among employee Empower employees
Incentivise to motivate as per output & quality
Forecasting of material was highly un-reliable, so implement Considering seasonal and trend factor the forecasting technique should
proper forecasting technique. be based

Need to create demand Aggressive advertise and brand awareness among people to create
demand
Timely Audit and Internal research should take place to Regular audit should prevail in every department to keep check on
improve the process productivity, quality, maintenance, work environment
 20
Our Analysis

Improve logistics & reduce lead time Use strategic locations for plants to be close to market
Iron Rice Bowl kind of behaviour which didnt allow the We can use outbound training methods to improve the behavioural
plant to follow the market tendency
 21

Thank You