NIKE IN CHINA

GROUP NAME: Numero Uno

Akanksha Durgavanshi Abishek Machama Unmesh Kulkarni Rajesh Gupta Subrata Matia Aditya Nair

ABOUT NIKE
Incepted in 1964 and grew to be Americas leading sport-shoe company in 1984. Had no factory of its own but strong R&D capabilities. Emphasis on importing and marketing. Global brand recognized by swoosh. Product ranges from shoes(leisure and sports shoes), apparel and gear Competitors: Adidas, Puma, Converse, New Balance, Bata, etc.

ENVIRONMENT OF CHINA (BEFORE 1978)

China known as Iron rice bowl Centrally planned economy. Closed economy ( Not open to foreign investments and government-to-government loans) Prices were arbitrarily set to realize national goals. Reluctant to do business with strangers. Outmoded infrastructure and technology Uninstitutionalized legal systems.

CHINA

Opportunities China implemented open door policy in 1978, expanding its foreign trade into different form of international economy Labor Cost was comparatively lower than its previous suppliers (South Korea & Taiwan) Nike saw a business opportunity in China, which they quoted as There are 2 billion feet in China

Threatso Environment in China was not very conducive to business. o Communication inefficiency o Cumbersome bureaucracy and red tape o Strain between China and South Korea/Taiwan

NIKES ENTRY STRATEGY

Appointment of David Chang as a consultant Nike knew that success in China depends upon common sense(Letter of long-term commitment translated into Chinese). China was not only a market but also a production source Trust and reliability were important in business relationships in China, so Nike made a proposal of long term commitment to Chinese Market.

OPERATING EXPERIENCE
Technology transfer Materials Quality control Inventory control Production flexibility Worker and manager motivation Transportation Pricing Expatriate staffing Plant location Government location

COMPARISON OF LABOR COST

250

200

150 Korea Taiwan Singapore 100 USA Japan

50

0 1972 1973 1974 1975 1976 1977 1978 1979

LANDED COST COMPARISON

25 20 15 10 5 0 landed cost comparison korea(in $) landed cost comparison PRC(in $)

PROBLEMS FACED IN CHINA

Non-availability of local materials Inadequate shipping and transportation provisions Inconsistent high quality in Chinas manufactured goods Non-motivation and non-commitment attitudes of Chinese workers

EMERGING TRENDS
Emergence of free trade It decided to break down forbidden zones and welcoming foreign investments Technological advancements Performance based incentives Employees could also be fired for violating work rules Emergence of Special Economic Zones(SEZs) to attract foreign investment

RESPONSE TO TRENDS
Shifting of production base from South Korea to China Due to restriction in material availability Nike imported raw material from South Korea

FUTURE ENVIRONMENT FOR NIKE

Production TimeSouth Korea- 4 months China- 8 months o Quality (A Grade : B Grade) South Korea- 99:1, Taiwan 98:2, China 80:20 o Quantity (in millions) South Korea 2.25, Taiwan 1, China 0.1 o Raw Materials sourcing South Korea 100%, China70% o Transportation (time in days) South Korea 20-25, China 35-40 o Labor cost South Korea 30% Taiwan 20%, China 10%

JUST DO IT