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Nike is a transnational corporation (TNC) founded nearly half a century ago. It is one of the world's largest suppliers of athletic shoes and apparel and a major manufacturer of sports equipment, with revenue in excess of US$24.1 billion in its fiscal year 2012 (ending May 31, 2012). As of 2012, it employed more than 44,000 people worldwide. The brand alone is valued at $10.7 billion, making it the most valuable brand among sports businesses.
Globalisation occurs as more connections are made between countries through trade and communications. It can bring wealth but it also causes inequalities.
Nike links many parts of the world. Its headquarters and mush of its research takes place in Beaverton, Oregon, in the USA. The rubber for its trainers comes from Malaysia and Indonesia and cotton comes from Turkey, India and the USA. Its products are manufactured in Indonesia, China, Pakistan, the Philippines and Vietnam, where labour costs are cheaper.
The key to increasing profit for a TNC is to make the product as cheaply as possible and keep transportation costs down, and to sell to countries with the highest increasing incomes. This is why in the 1980s, Japan, with its growing economy, became Nike's biggest market outside the USA. A regional headquarters was established there and efforts have been made to expand the market still further by promotions from visiting sports and music superstars.
In its factory in Guangzhou, China, Nike has been allowed tax benefits and to pay low wages. This has had a multiplier effect by attracting other foreign TNCs. China has a wealth of resources, and with its population becoming wealthier and keen to buy Western goods, Nike has been able to source, produce and sell many of its products within the country. China is now Nike's fastest-growing market and has its own regional headquarters.
The company has located many of its factories in Southeast Asia because:
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- labour is cheap
- each of the countries involved offered various government incentives to get Nike to choose them over other economies
- raw materials (rubber and cotton) are grown in these countries or nearby
- the countries are close together, reducing transport costs
- the countries are in a trade bloc, meaning that products can be transported between them without incurring import and export costs
TNCs often relocate to other areas after poorer regions have become economically dependent on them. This can lead to high unemployment and a decline in standards of living. This situation occurred when Nike moved away from Jakarta in Indonesia.
Relocation can also have a domino effect on small local companies reliant on Mike employers to buy their goods or use their services and on farmers who rely on Nike to buy their raw materials.
Factories making Nike products have been accused of expecting long working hours, using child labour and taking advantage of poor health and safety regulations. The Indonesian government was associated with oppression in the 1970s and 80s, which tainted Nike's public image. Manufacturing in urban areas of Indonesia contributed to rural-urban migration, resulting in overpopulation of cities and the growth of shantytowns.
There are many benefits brought by a TNC such as Nike in these regions. The company subcontracts to over 800 factories in 50 countries, employing over 600,000 workers. Manufacturing helps the social and economic development of countries through the transfer of skills, technology and the rise in wages. All this ultimately improves living standards.
The multiplier effect is strong meaning that new businesses can exist because of Nike. For example, a local catering company may be employed to feed workers, farms supply raw materials and local companies may supply component parts such as zips and laces.
TNCs such as Nike often improve infrastructure and communications and create a skilled and experienced workforce, which can encourage further investment in the country by other countries.
Effects in the USA
With the shift of production from the USA to economically developing countries, 4000 people lost their jobs in Oregon, resulting in lower levels of income and reduced living standards in the area.
However, Nike still employs large numbers of Americans in research and in the advertising and selling of its products. Organic cotton for both trainers and sportswear is also grown in the USA.
The company has spent millions of dollars in an attempt to reduce the production of greenhouse gases when making its trainers. It has also initiated a scheme to recycle trainers, using the rubber to make new soles for the manufacture of sports ground surfaces.
This content reflects the personal opinions of the author. It is accurate and true to the best of the author’s knowledge and should not be substituted for impartial fact or advice in legal, political, or personal matters.