1 8The Real Economy in the Long RunDirk Bair, Michelle Kinchen, Amera Hatcher, Raz Faraji, Eboney AllenECO/372August 29, 2016Kate StoweThe Real Economy in the Long Run Introduction Nike holds 36% of the market share and brand recognition amongst its competitors in the athletic apparel industry, with a market capitalization around $102 billion and aggressive growth projections (Strider, 2016). Nike’s dominance in the market results from global brand recognition, using celebrity endorsements, advertisements, and sponsorships to fuel brand image and company success. Nike’s success has been dependent on “the ability to control the initial and final stages of the production process, i.e., product conception, design, and composition, on the one hand, and marketing, promotions, and consumer relations on the other” (Greenberg & Knight, 2004). The true production part of the manufacturing process is outsourced to third-world countries due to the low cost to manufacture. This low cost structure has allowed Nike to turn large profits and returns to their stockholders. However, along with a low cost of to manufacture overseas, Nike attracted negative attention from the press for poor working conditions and limited labor standards. To achieve Nike’s growth projections, they will need to continue to strategize and expand in their manufacturing sites outside of the United States, in particular China. In order to uphold their brand reputation, Nike will have to manage their outsourcing in low-income countries and labor law requirements and standards. This paper will evaluate China’s productivity, policies that influence its productivity growth, and financial system. Further, Nike’s strategy for risk reduction in relocation will be evaluated as well as their current and projected unemployment for the next 5 years. The factors that determine the country's productivity China is a good strategic location for Nike’s manufacturing facilities because of their low cost of production driven by high population and low wage structure. According to Greenberg & Knight, 2004, “the intervening stages of manufacturing are sourced out to subcontractor factories in less-developed countries where wages are already low, unskilled and semi-skilled (particularly female) labor power is plentiful, and labor standards are limited and/or easily ignored in practice.” Nike responded to negative criticism for poor working conditions with explaining that “weak labor conditions are a necessary, short-term stage along the road to long-term economic prosperity” and that they wish to be a good, beneficial employer. Nike’s offshore production strategy works because they reduce operating costs in China with cheap, relatively unskilled labor due to the high population of nearly 2 billion people. China also is positioned as a “stepping stone” for Nike’s productions sites to expand further into Asia (Wilsley & Lichtig, 2015). Nike’s presence in China and in Asia diversifies the business, ...

1. 1
8The Real Economy in the Long RunDirk Bair, Michelle
Kinchen, Amera Hatcher, Raz Faraji, Eboney
AllenECO/372August 29, 2016Kate StoweThe Real Economy in
the Long Run
Introduction
Nike holds 36% of the market share and brand recognition
amongst its competitors in the athletic apparel industry, with a
market capitalization around $102 billion and aggressive growth
projections (Strider, 2016). Nike’s dominance in the market
results from global brand recognition, using celebrity
endorsements, advertisements, and sponsorships to fuel brand
image and company success. Nike’s success has been dependent
on “the ability to control the initial and final stages of the
production process, i.e., product conception, design, and
composition, on the one hand, and marketing, promotions, and
consumer relations on the other” (Greenberg & Knight, 2004).
The true production part of the manufacturing process is
outsourced to third-world countries due to the low cost to
manufacture. This low cost structure has allowed Nike to turn
large profits and returns to their stockholders. However, along
with a low cost of to manufacture overseas, Nike attracted
negative attention from the press for poor working conditions
and limited labor standards. To achieve Nike’s growth
projections, they will need to continue to strategize and expand
in their manufacturing sites outside of the United States, in
particular China. In order to uphold their brand reputation, Nike
will have to manage their outsourcing in low-income countries
and labor law requirements and standards. This paper will
evaluate China’s productivity, policies that influence its

2. productivity growth, and financial system. Further, Nike’s
strategy for risk reduction in relocation will be evaluated as
well as their current and projected unemployment for the next 5
years.
The factors that determine the country's productivity
China is a good strategic location for Nike’s manufacturing
facilities because of their low cost of production driven by high
population and low wage structure. According to Greenberg &
Knight, 2004, “the intervening stages of manufacturing are
sourced out to subcontractor factories in less-developed
countries where wages are already low, unskilled and semi-
skilled (particularly female) labor power is plentiful, and labor
standards are limited and/or easily ignored in practice.” Nike
responded to negative criticism for poor working conditions
with explaining that “weak labor conditions are a necessary,
short-term stage along the road to long-term economic
prosperity” and that they wish to be a good, beneficial
employer. Nike’s offshore production strategy works because
they reduce operating costs in China with cheap, relatively
unskilled labor due to the high population of nearly 2 billion
people. China also is positioned as a “stepping stone” for Nike’s
productions sites to expand further into Asia (Wilsley &
Lichtig, 2015). Nike’s presence in China and in Asia diversifies
the business, as well as their global recognition and footprint
and easy boost of sales in these countries.
How China’s Policies Influences Its Productivity Growth
In the early 1990’s China was a country not anywhere in the
world economic productivity map but as from 1970’s China
made significant changes in economic policies. The changes in
economic policies have since made significant productivity
growth which has since impressed the world. In this regard,
China’s policies encourage the liberation of foreign trade and
investment, promotes industrialization, and also supports the

3. formation of private businesses and rural enterprises (Dasgupta,
2007).Besides, China’s policies encourage the education of its
workforce. China’s labor policies encourage foreign investors
and as such these factors indicate that the foreign companies
like NIKE will leverage on the foreign-friendly labor policies.
Thus, these policies significantly spur its productivity growth.
How the country's financial system is related to key
macroeconomic variables
Our new Nike Store will bring much needed revenue to China.
The economic output from the revenue received from our
products will help China become more stable. From allowing
china residents to come work for Nike will increase the
employment rate. Even with consumer spending they will help
balance out the financial market value of goods and services in
China. When new brands come out and consumers wanting the
latest trends this will only heighten inflation rate of sales.
Banks and other financial institutions are becoming a reliable
interest for the economy because of sales and the ability to
deposit and withdrawal money easier. Majority of the money in
financial institutions are government owned. The more money
deposited it helps banks with liquidity to the government on
loans and spreading money out where it’s most needed. Being as
though the new manufacturing plant will be in a new area
finding the best prices of equipment and materials is a must.
The quality of products will have to be top notch and down
right out of this world. China has produced lots of products for
the U.S. and finding good materials shouldn’t be an issue. Just
as long as consumer prices continue to rise it will give China a
better chance to help the government out with the inflation
rates. Once the Gross Domestic Product value is summed up for
the year it will show China if the total output of goods for NIKE
is worth wild or not. Using this method can show if we should
continue in China or Move to another location.
How your organization can reduce the risk they would face in

4. relocating
The process of relocating is definitely tough however, it is
nothing in comparison to actually moving. As an organization
we need to start with writing detailed specifics in regards to the
new location. When venturing to different locations it is
important not to be distracted by favorable leased offers.
Secondly, it is crucial to research by looking into statistical
abstracts, chamber of commerce, utility companies, real estate
brokers, employment agencies, small businesses and business
magazines to see if the demographic is suitable for your work
force (Henrick, 2016). A pertinent question would be to ask how
many Class-A offices are vacant in the area and what the plans,
term and prices are? In addition, members of the organization
should visit all sites on the targeted list. By physically walking
and or driving around the places it is easy to gage traffic pattern
and the dynamics of the retail zone.
Moving is a tough process and that is why minimalism is
important. That being said, it is important to only take
equipment, fixtures and records of necessary items. It even
might be better to sell a large chuck of inventory than paying
money to haul it across town and or even country.
When it comes down to the move, it is important to have
someone in charge of the move. This people will keep all
employees in the loop and seek bids for movers. The most
important part of all is making sure that the relocation has a
valid reason as the grass is not always greener on the other side.
The current and projected unemployment over the next five
years

5. Similar to the United States, China’s unemployment rate is
measured by the number of people actively looking for a job,
who are a part of the labor force. Those members of society
such as retired citizens, which is around age 50 for women and
60 for men, or full time students do not count as being members
of the labor force. Also similar to the United States, China has
dealt with highs and lows with their unemployment rates over
the years. China’s highest percentage of unemployed citizens of
the labor force was in the fourth quarter of 2003 when it
reached 4.30%, based on reports by the Ministry of Human
Resources and Social Security of the PRC (Trading Economics,
2016). Between, January 2014, to January 2015 the rate of
unemployment remained steady at 4.1%. During the third
quarter of 2002 China reached an all-time low unemployment
rate of 3.90%. The unemployment rate has remained steady
between 4.04% and 4.05% between July of 2015 and July of
2016. The rate of unemployment for citizens in China is
predicted to remain around 4.1% for the remainder of this
quarter, according to Trading Economics global macro models
and analysts’ expectations (2016). However, predictions of
China’s unemployment future has a pessimistic outlook. In the
first and second quarters of 2017 China’s unemployment rate is
expected to increase to 4.3%. Analysts have forecasted that by
the year 2020 China is expected to have an unemployment rate
of 5%, which will be the highest in its history.
Conclusion
Nike has built a strong, thriving reputation in the athletic
clothing and apparel industry through strong brand recognition
and a competitive cost strategy because they outsource their
manufacturing to lower income countries. This low cost
structure has allowed Nike to turn large profits and returns to
their stockholders. To achieve Nike’s growth projections, they
will need to continue to strategize and expand in their
manufacturing sites outside of the United States. China is an

6. ideal country to manufacture apparel for Nike due to the low
cost wages, opportunity for increased sales in China as well as
increased recognition further into Asia. In order to uphold their
brand reputation, Nike will have to manage their outsourcing in
low-income countries and labor law requirements and standards.
The foreign-friendly labor policies and encouragement for labor
work-force education should be capitalized on to uphold Nike’s
reputation. Unemployment should not be an issue as China is
one of the most populous nations with a readily-available source
of labor. Overall, China is a strategic nation for Nike to expand
into and will bolster Nike’s profitability as a business as well as
build a national brand.
References
Trading Economics (2016). China Unemployment Rate.
Retrieved from www.tradingeconomics.com
Greenberg, J., & Knight, G. (2004, June). Framing Sweatshops:
Nike, Global Production, and the American News
Media. Communication and Critical/Cultural Studies, 1(2), 151-
175. doi:10.1080/14791420410001685368
Strider, J. (2016, January). Adidas Vs. Nike Vs. Under Armour:
Which for 2016?. Investopedia.
Retrieved from http://www.investopedia.com/articles/markets/0
12616/adidas-vs-nike-vs-under-armour-which-2016-nkeua.asp
Wilsey, M., & Lichtig, S. (2015). The Nike
Controversy. Stanford.edu, (), .
Retrieved from https://web.stanford.edu/class/e297c/trade_envir
onment/wheeling/hnike.html
Dasgupta, D. (2007). China engaged: Integration with the global
economy. Washington, DC: World Bank.
Henrick, M. (n.d.). How to Relocate Your Business. In
Entrepreneur . Retrieved August 28, 2016, from
https://www.entrepreneur.com/article/81406