A TNC Case Study

Background

Nike’s global headquarters is located in Beaverton,

Oregon, USA

Nike employs more than 700,000 contract workers in

over 700 factories worldwide.

The list includes 124 plants in China, 73 in Thailand, 35 in

South Korea and 34 in Vietnam.

More than 75% of the workforce is based in Asia.

How the TNC works...

• Like many TNCs, Nike subcontracts or uses

independently owned factories in different countries to

produce its products.

• Often this takes place in less economically developed

countries (LEDCs) where labour costs are lower than

in MEDCs.

• Nike say they are in the business of "marketing" their

products, not making them.

The costs

The figures supplied by Nike for its cost/price chain are

as follows:

– Contractors are paid an average of $18 a shoe by Nike.

• This is made up of $11 for materials, $2 for labour, $4 for other costs,

and $1 for profit.

– Nike sells the shoes to retailers for $36. The mark up of

100% accounts for the costs of design, research and

development, marketing, advertising, shipping, production

management, other sales and business costs, taxes and of

course a profit.

– Retailers mark up another 100% to $72 (on average) to

cover wages, shrinkage, insurance, advertising, supplies

and services, depreciation, taxes and profit.

Expansion

• In mid-2003 Nike paid $305 million to acquire retro

shoemaker Converse. Most large TNCs grow by

acquiring other businesses as well as generating their

own growth.

Impacts on host country

• Outsourcing creates substantial

employment in Vietnam.

• Nike pays (slightly) higher wages

than local companies.

• Improves the skills base of the

local population.

• The success of the global brand

may attract other TNCs setting off

cumulative causation.

• Exports are a positive contribution

to the balance of payments.

• Contribution to local tax helps pay

for new and improved

infrastructure.

• Workers at nine Nike plants in

Indonesia (including Jakarta) have

been found to suffer from sexual

and verbal abuse, lack of medical

attention and compulsory overtime.

• Suspicions have been raised over

the use of child labour.

• Company image and advertising

may help to undermine national

culture.

• Huge demand on water resources &

use of fossil fuels.

• In the late 1980s labour costs in

South Korea rose, so Nike decided

to move production to Indonesia

where costs were lower.

Impacts on country of origin

• Positive employment impact

and stimulus to the

development to high level

skills in design marketing and

development in Beaverton

Oregon.

• Direct and indirect

contribution to local and

national tax base.

• Nike does not manufacture in

the US which leads to indirect

loss of jobs and negative

impacts on balance of

payments as footwear is

imported.

• Trade unions complain over

an uneven playing field

because of the big contrast in

working conditions between

LEDCs and MEDCs.

Future

• In 1993, Nike setup a Reuse-a-shoe program to

encourage people to recycle their old shoes.

• Benefits both the environment and community

• Old shoes recycled to make material that can be used

for sports surfaces such as basketball courts, running

tracks and playgrounds.