Case Study - Nike

Reasons for Globalisation

Like any multi-national company, Nike used the process of globalisation because the managers felt that the company could benefit by doing so. However, it is worth noting that the company actually started out as a global network; the very first shoes that they sold were made in Japan, and imported into the United States. Today, the global reach of Nike is much more significant. They have manufacturing operations in 45 countries, and their products are sold in almost ever country on Earth. This sort of expansion can not happen without a detailed plan, and a plan needs to be “sold” to the decision makers if it is to be accepted. These are some of the reasons that the managers at Nike could have used to justify their expansion:

Lower input costs: Like any business, Nike aims to buy their products for the lowest possible price, and then sell them for a profit. The higher the margin, the more their wealth will increase with each sale. There is no doubt that in choosing to have their shoes manufactured in other countries, Nike has been able to access workers who are paid lower wages than they would have to pay if they established their production lines in America. Lowering costs is a key goal for managers in most companies.
Access new markets: While the population of the United States is large, there are even more people in the rest of the world. In choosing to sell their shoes in other countries, Nike was able to gain access to even greater number of consumers. This allowed them to increase their global sales, which ultimately resulted in an increase in profits.
Access resources: One of the most important inputs used in the production of Nike shoes is rubber. Rubber is a resource which is not produced in the United States; if the manufacturing arm of Nike wants to use it, they will need to find it in other countries.
Transportation costs: At first glance it might seem that transport costs for the company would be higher if they adopt a globalised approach. However, with customers all over the world, Nike needed a way to ensure that their transport costs could be minimised to all of their customers. While it might be cheaper to sell to American customers from a US based distribution centre, it is far more expensive to sell to other customers from that location.
Economies of scale: We have seen that Nike is keen to expand their customer base, but at the same time they would like to minimise their transport costs. In order to achieve these joint goals, production has been centralised in certain countries. This has allowed for very high production levels, and as a result of this the company has been able to achieve economies of large scale production. In other words, producing in this way has enabled them to lower their cost per item.

If you were to examine the motives of any globalised company in the world, you would find that they can be grouped under very similar headings to those that have been used above.

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