Globalisation and emerging markets

Human societies made closer contacts worldwide in a gradual and progressive pace. In current times, the global integration dramatically increased and the globalised world swept to the globalisation of economy, geography, politics, laws and the culture. The term ‘globalisation’ reflects several factors of social, economic and political changes in different scenarios. Globalisation has affected the worldwide processes in several ways (Burr &Fischmann, 2008). There are some costs and benefits of going global for a business. Nike is one such internationally established company, which has undergone several processes of globalisation. In this regard, some of the international challenges and concerns that poses obstacles to the success of an organisation with its existence in foreign country, are also an eminent debate of globalisation.

Globalisation at many times is assessed in parameter of economic geography. It is one of the prominent dimensions of the globalisation. That is why in everyday life, the processes on macroeconomic level and specific geography of globalisation phenomenon can be observed along with the economic sectorial horizons (Vertova, 2006). Today goods, services and capital are mobile, because the globalisation of economy has given birth to the advancements in technology, transportation, communication and the free market ideology (Hurrell, 2007). For instance, the attempt of northern countries is to open world markets of goods and services so that they receive maximum advantages and make use of cheap labour in southern parts (Ravenhill, 2008). Nike has been world recognised due to its product line; that is, Nike shoes, clothing & gear. Nike is a well-known global brand with its familiar products of shoes line and apparel offered, where it earned billions of revenues out of these products. In 2006, the profits of the company from worldwide operations were $15 billion. To reduce costs, the company outsourced a bulk of its products from several countries and became very efficient in productivity. However, the threats of being a global business started when the concerns of Nike as engaged in sweatshops were highlighted in news (Hill, 2009). It raised the global activists and human right protestors to bring more issues in notice like Nike as making use of overseas poor workers at very low wages and forcing them to work in a hazardous environment (Hill, 2009). After the severe effects and protests that Nike received from public, the company rushed to setting some standards in the organisation. All this shows that at a global level business, there are several issues, concepts, theoretical backgrounds and standards that can be regarded toward globalisation and the international businesses working in this scenario; which means, at broader level, it brings more complications, challenges and concerns apart from revenues and profits or loss. There are varying magnitudes among the sectors where Nike competes. It is quite evident to have big concerns of global level with a company where only the apparel products are manufactured in over hundreds of factories throughout the world. In a global scenario, some forces like rules governing to the international trade in industries (in case of Nike the apparel industry and the footwear industry, with large, capital intensive, and extremely labour intensive operations) pose big challenges to the business overall (Locke, 2002). The use of sweatshops by producers is another illustration of anti-globalisation protestors. Nike has been criticised by several authorities in this regard (Global Exchange, 2011).

Regionalisation supports social confession restricted to few geographical regions like North America, Europe, NAFTA (North American Free Trade Agreement) and APEC (the Association for Pacific Economic Cooperation) (Beeson, 2007). Regionalisation can occur in same time zone as the globalisation and it also has some costs and benefits over globalisation (Best & Christiansen, 2008). Globalisation also expands ideas and commodities over wide distances; consequently the global perspectives can be used to determine globalisation, but its most influential impacts are often localised (Held et al, 2005). Nike used localisation strategies in a variety of ways to make its impression in the countries it operates. For example, in China it uses localisation to connect to majority of customers. Superstar Li Na was chosen as Nike campaign spokesperson in China with a great influence on locals (Sauer, 2011). In Africa, it targeted the culture by bringing shoes with Safari/ African feel (Khan, 2007).

Source: Nike Dunk High – Safari / African Customs by Thirst; Khan, 2007 In Japan the Osaka Dunk, Fukuoaka Dunk, Nagoya Dunk, and Tokyo Dunk (landmark and very influential geographies of Japanese city named after) are used to represent the shoes, with some bold and eye catching colours, showing the zeal and bright nature of Japanese people and their culture (Hypebeast, 2008).

Source: Nike Dunk Japanese City Pack, Hypebeast, 2008 Same can be observed for US and UK with the distinct positioning of Nike according to local environment (Yunker, 2012) where it localised ‘football’ by its new navigation menu, and incorporated the word by simply changing the icons; which clears any doubts from the word ‘football’

Source: Yunker, 2012

However some researchers like Rugman (2005) argued that the position of Nike can be considered as bi-regional rather than global. The author illustrates that Nike receives over 58% sales benefits from North America, more than 28% in Europe, and only 13% in Asia. Despite the fact that the company outsources 99% of production to South East Asia and the brand is lobbying by NGOs on worldwide basis (Rugman, 2005). As the author gives regional strategy framework, depicting the firms in global and regional matrix

Source: Rugman, 2005

The Swoosh brand of Nike is globally familiar; however the brand receives majority of its sales from North America. It shoes that the product has restricted global geographic sales scope and has increased the regionalised perspective (Herkenrath, 2007) The position of Nike can therefore be illustrated well as bi-regional, where it also targets markets with their unique localised features and influences them by their well-known local factors (culture, personalities and the distinct inspiring features of the region) in the globalised marketplace scenario.

The global production networks (GPN) are the functions and operations interlinked worldwide, which demonstrate that how the goods and services should be produced and distributed. GNP also reshapes the production and knowledge usage which brings an economic change. Today global production networks have been complex in organisational and geographic extent (Locke, 2002; Revenhill, 2008; Sweeny, 2005). An advantage of GPN is that, they integrate firms by helping them in making equity and non-equity relationships and diversifying their structures. In broader level, they integrate national economies for overall wellbeing. Nike has long focused on global international campaigns, at times when it started its Indonesian factories decade ago. O’Rourke (2002) determines that Nike integrated all possible ways to control and improve conditions in its good production factories (O’Rourke, 2002). In this regard, several global initiatives are taken by the company, which embraces companies, non-governmental and governmental agencies for certification of code of conduct compliance. Nike also redesigned its products and services to work properly in GNP (O’Rourke, 2002). Since the global competition has increased, the organisations engaged in international level have come up with three interrelated transformations. Borrus, Ernst & Haggard (2000) describe that GNP has brought an enhanced innovation in globalised operations. Second, the knowledge exchange increased, local capacities are boosted and lower cost areas are selected for operation to benefit at maximum level for MNCs. Third, as indicated by Chandler &Cortada (2000), ‘digital convergence’ has brought long term processes, through voice, video and data transmission, opening maximum opportunities for the organisations and national economies, which enlarges first two transformations further. The international geography, production, innovation and economy are dramatically transformed by these three transformations of GPN. The first two transformations can be known as ‘divide’ in industrial organisations.

Globalisation can also said to be a window where residents of poor country with scared resources can look inside to an international market (Locke, 2002). Likewise, it can also be illustrated as an opportunity for countries who have inadequate physical products harvested from their own soil, so there are several international businesses who perceive it as an opportunity to benefit from the ‘export poverty’ of such nation (Soderbaum&Sbragia, 2010). According to Global Exchange (2011) sports shoe companies have been widely practicing this unacceptably non-productive practice where Nike is highlighted on top (Global Exchange, 2011).

Nike made its presencein global marketplaceby multiple ways, including the Nike-owned retail stores and a combination of independent distributors and licensees globally. Outside the United States, the offshoring has become the backbone of the company. There are over 28,000 retail accounts worldwide, apart from the licensees and independent distributors, which are generating an increased estimated sell for Nike. Likewise, there are 14 distributions outside the United States and the company has future expansion plans for its retail accounts in Europe, Asia, Canada, and some countries of Latin America (Nike, 2009). Globally (outside the United States), the company outlets are generating big revenues for the company

Source: Nike, 2009

According to BBC (2005) the critics view globalisation as a process which is majorly beneficial to internationally operating firms, but a threat to states and very defeating to poor countries. The report demonstrates that Nike has been very successful in maximising its profits in global marketplace by using people from poor countries as a medium for reducing costs and not giving any attention to human rights. It is claimed that sometimes, by exploiting the good aspects of globalisation, some international businesses generate maximum profits and exploit Third World workers by offering unacceptably lower wages, poor working environment and the hazardous conditions of works.

The competitors of Nike are also outsourcing a big percentage of their production from Southeast Asia. This is done due to the factor of having ‘cheap labour’ from these regions. As an international organisation, there are many potential competitors that have an equal strength to target customers in the marketplace, which is a big challenge for the company to manage. Some of the well-known and potential competitors of Nike are Adidas, Reebok, Puma and the UnderArmor (Locke, 2002). Besides, all those producers of athletic footwear are also competitors to Nike in global marketplace. Profits are achieved from the businesses either of two ways; that is, to offer identical products or services as of their competitors but keeping the costs lower, or provide a product or service on highly unique and differentiated way that the customers are ready to pay an exceeded cost of differentiation. Nike competitive advantage is that, it has adopted Product Differentiation Strategy. It is today known as a leader of product differentiation industry. It sales different products with varying brand advertisement, quality, design and services; where by different segments of people are targeted for its footwear (Bamford, 2011). Sustainability is perceived as a competitive advantage by the company (Sustainable Cotton, 2012).

The importance of understanding the impact of globalisation on labour is very critical, specifically when understanding an international business. The geographies of labour encompass the labour market from a variety of dimensions. For example, globalisation creates an opportunity of increased earnings for labours and brings advantages to those lacking ownership of material assets (Locke, 2002; Hurrell, 2007; Held et al, 2005). However, it brings some negative concerns as well, like large scale technological development giving birth to less demand of skilled workers, the inadequately developed labour policies of poor countries, where the powerful parties are benefitted by offering low wages and hazardous working environment for financially supressed workers (Appendix A showing the labour supply trends of certain regions from 1980 to 2015). In China there is no single minimum wage; varying wages are offered from one province to another in the region. For instance, according to Chinese law, workers maximum working hours are 40 hours weekly and 36 hours with over time in a month. However the international firm like Nike has not enforced this and the company workers are those with 80 hours of overtime monthly in order to generate maximum productions (GCSE Geography, 2008). Apart from it, Nike has been criticised heavily for sweatshop conditions, the low wages issues and the harmful work environment as discussed earlier. In order to ensure that the organisation has fair labour policies and standards to be implemented, it hired Ernst & Young, an accounting firm, for the audit of its business practices. Later on, Nike connected to a task force, the Fair Labour Association to evaluate if the codes of conduct and the sweatshops concerns of the company are equally noticed and eliminated by the company globally (Hill, 2009).

Idowu&Filho (2009) determine that corporate social responsibility is not an option or choice, but a part of the normal business operations today. In modern societies, corporate social responsibility has become an integral obligation and the success of an organisation, specifically those with an international existence, is also dependent majorly on the Corporate Social Responsibility. In organisations and the global operations, diverse social problems are faced today. The companies are reacting to problems of environmental, societal and organisational issues by establishing practices labelled as the Corporate Social Responsibility. In a research survey conducted, 90% of corporate executive indicated that in order to protect their reputation they took actions through responsibility initiatives. Fair Labour Association is an example of administrating and supporting actions toward international monitoring of labour condition, which was founded and supported by the company (Rouker, 2002). Nike is also a supporter of UN Global Compact, one of the programs encouraging corporate social responsibility. Nike is also a participant of the Global Reporting Initiatives, which is an internationally credited voluntary standard for social reporting. The impact of Nike products on environment and sustainability is questioned today. For example, Global Exchange (2012) reported that the efforts of Nike toward public relation, damage control and global sustainability are commendable to date. However, some fierce opponents and critiques, including the non-governmental groups do not show faith in Nike or other auditing firms that the company hires to monitor its factories faithfully. It is argued by these opponents that the central problems of supply chain, labour working conditions, the issues of supressing labour rights and very low wages below-subsistence are not yet addressed fully by the company. For example, one the world recognised Malaysian group, the Third World Network, argued that, Nike is a global symbol of ‘sweatshop’ and leader of ‘race to bottom’ today (Rouker, 2002). The major issues in global level faced by Nike are pertaining to ethical standard issues. Hill (2009) illustrates that even though the globalised and expanded presence of Nike brought jobs to a big populace, the wages paid to workers are extremely low; that is, merely $1.60 a day to Vietnam factory labours, which is hazardous for a working environment. It was noted that 77% of Vietnam factory workers suffered from respiratory problem due to unsafe environment given to them. It shows that it is difficult to judge, whether Nike has actually met the conditions of corporate social responsibility or not. Since, the apparent conditions demonstrate that the company has no sound and credible measures toward corporate social publicly. In the run of successful CSR strategies, Kemper & Martin (2010) gave some effective guidelines, which must be considered by Nike as well.

Source: Kemper & Martin, 2010

The authors depicted that in global businesses, the values and code of conduct are no longer local or regional; rather they are regarded highly broader. For instance, first of all, in order to establish a clear, effective and valuable approach in society and environment, an organisation must be viable. A good CSR approach may not have negative impacts in return on a business. Second, the legal compliance and the adherence of law is mandatory, here compliance is essential. Third, the fundamental expectations of the industry, the organisation is into, must be fulfilled.

Another aspect of globalisation and the global organisations is to view in the light of financial globalisation. Northern countries want to introduce their products in global markets and take advantage of cheap labour markets of Southern regions. The use of international financial institutions and regional trade agreements prove to be useful for them (Sweeney, 2005). Many of them force poor countries to make integration by reduced tariffs, privatisation of state enterprises and giving a relaxation in environmental and compromising on labour standards. Resultantly, investors receive bulk of profits and labours are supressed, provoking a powerful backlash and civil society (Jacoby &Meunier, 2010).

It is also an extensive debate of financial reform policies against global crisis and more recently the Eurozone crisis has been increasingly argued in this perspective. Financial globalisation in general and specifically in case of Nike can have two dimensions. First, the financial diversification, where the holdings of other country’s assets and liabilities are discussed; second, the financial offshoring, whereby the cross national jurisdiction in terms of conducting financial transactions are maintained. Financial diversification comes under the macroeconomic dimension of globalisation. One of the benefits of financial diversification is risk distribution and more opportunities. Financial offshoring is microeconomic by nature and it reflects the working of financial sector. For this, local inhabitants are used for offshoring rather than onshore intermediaries. For example, Nike offshores 99% of its entire brand apparels outside the United States, in more than 33 countries. According to a breakdown of its financial offshoring in 2008, it was recorded that it produced 36% of its products from China, 33% from Vietnam, 21% from Indonesia, 9% Thailand and the remaining from other Asian countries. Over 52% of its overall revenues were received outside of US in 2008. Schachtel (2011) describes that the international sales of Nike are accounted for 57% in the year 2011 which owes to its offshoring business. It has earned big revenues from the emerging market China as well. As an emerging market, China has proved to be very fortunate for the company and very sound profits are generated from the region with an EBIT (earnings before income and taxes) 22% higher (Schachtel, 2011).

In short, globalisation, with its processes of connecting world nations has certain paybacks, concerns, challenges and costs. One of the influence that globalisation resulted in case of Nike is the creation of labour markets. It has helped the company offshore its major production and add revenues and profits to its list. Today Nike has expanded its roots outside the United States and brought its presence worldwide. Its products are sold in several countries with big revenue generation and have positioned the company as a leading name. However, the geographies of economy and labours are not dispersed fairly by the leading international firm, which has augmented the debates of sustainability and corporate responsibilities. It has been found from different research studies and analysis that the Nike globalisation case has hampered the development of poor countries and the smaller firms of those countries, who cannot compete with an international giant like Nike. The recommendations to Nike are quite simpler and evident that the company needs adhering strict standards of ethical and CSR policies; besides, the proper address to certain issues in a swift manner is essentially required, as the ignorance to these issues in long run may bring negative impacts to the company.