Nike is a large transnational corporation headquartered in Oregon that employs over 700,000 contract workers in 700 factories worldwide, more than 75% located in Asia where labor costs are lower. Nike subcontracts factories to produce its products then sells the shoes to retailers, marking them up 100% each time to cover costs and make a profit. While this model creates jobs and economic growth in host countries, it has also led to issues like abusive working conditions, suspected child labor, cultural impacts, and environmental strain.

1. A TNC Case Study

2. 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.

4. 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.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.