Business Environment Case study on Nike in China

Submitted to: Prof. M Bhattacharya

Submitted By Aastha Singh D1 Abhishek Sood D3 Ambika Bisht D7 Prashansa Shrivastava D35 Sabeera Chandok D43 Saurabh Dhawan D48

Introduction
Nike is Americas leading sports shoe company Footwear accounts for 90 per cent of its revenues Nike source almost all its products from offshore producers Negligence of China government on the food industry Infrastructure was quite outmoded Chinese reluctant to do business with strangers

Political Issues
1) Chinese Bureaucracy Impenetrable: Like many other foreign companies, Nike found that Chinese Bureaucracy was impenetrable. It was difficult to obtain visa easily and the government policies were Stringent. To overcome this, Nikes management hired David Chang as consultant. 2) Language barrier: Chinese government took long to consider a proposal if it was in any other language than Chinese. 3) Entry of Taiwanese Managers difficult: To train the Chinese in advanced technology, Nike considered bringing managers from Taiwan, but the Taiwanese managers were unable to come due to political reasons arised due to China Taiwan conflict. 4) South Korean managers were willing to cooperate but due to political insensitivity, Chinese leaders wanted South Korean Managers to obtain US passports and they remained obstinate about this issue.

Legal Issues
In 1978 great changes were made in Chinese trade practices and various flexible policies were adopted . They had two important forbidden zones mentioned below which were broken down: 1) They would not accept government to government loans(only commercial loans between banks)

2) Foreign investments were not considered The negotiations took very long . It took almost a year to complete negotiations .Chinese were not familiar with the standard exclusivity clauses within the contracts.

Social Issues
Nike had determined that China was a major untapped source of workforce. But they faced some social issues: 1) Sensitivity of the Chinese to past exploitation Trust and reliability are important components of business relationships in China. Past experience with untrustworthy foreigners had made the Chinese reluctant to do business with strangers. 2) Planned economy There were quotas in all sorts of different areas and pricing stipulations were established in Beijing. 3) Language barrier: Maximum people in China couldnt understand English and a similar problem was faced by Nike in understanding Chinese. Therefore they had to hire translators. 4) Lack of talent The Chinese workforce mainly consisted of unskilled labour. 5) Lack of motivation The major problem was iron rice bowl concept which guaranteed everyone equal pay regardless of performance. 6) Lack of adherence to schedules This was due to the lack of incentives. There was no difference in pay in case of better performance.

Economic Issues
1) Inconsistent quality of manufactured goods B grade production was one of the major issue nike faced .there are certain standards which need to be followed while production and they were not familiar

with it . they believe in packing 100 % of what they produce.of inconsistent quality of manufactured goods was one of the economic issues nike need to solve 2) Pricing strategy Pricing were not based on the market needs and demand ;instead they were arbitrarily set by the commission to realize national goals.for example food prices were kept low to meet consumption needs,and luxury items were priced high.so pricing of the goods was all in the hands of the commission. 3) Inadequate transportation system Chinese transportation and communication infrastructure was quite outmoded.the government had only just begin to rebuild port facilities to handle larger ships ,and many roads were under construction. So transportation system lead to one of the issue china was concerned of. 4) Entry as production source Nike wanted to enter china as the production source but could not neglect the 2 billion feet to tap on .so they wanted to establish themselves as market as well as production source. 5) Iron rice bowl Chinese workers were paid equally ,regardless of the performance,so workers had few incentives to produce more and they were not motivated.so nike need to work upon it to introduce bonus and incentive system to motivate them to produce to there maximum

Strategies

STRATEGY

IMPLICATION

Hired David Ping- Chang as consultant

Helped Nike to enter into China

Long term nature of Contract

Helped in establishing trust in Chinese counterparts

Proposal translated into Chinese

Overcoming language barrier

Entered into compensation trade agreement

Overcoming the problem of lack of foreign currency with local factories to purchase equipment

Compared prices paid to other suppliers

Helped to achieve some advantage of price over other countries

Agreed to pay directly to Ministry of Foreign Trade

Factory received currency at higher than fixed rates