Nike And What It Does To Third World Countries :: essays research papers

The Manufacturing Practices of the Footwear Industry: Nike vs. the Competition The current manufacturing practices of the sneaker industry, in particular companies such as Nike, Reebok, Adidas, Converse, and New Balance, takes place throughout the globe. With the industry experiencing severe competition, and the product requiring intensive labour, firms are facing extreme pressure to increase their profit margins through their sourcing practices. The following paper will analyse the sneaker industry, while examining the multitude of viable manufacturing options, and critiquing their current manufacturing structure. Footwear Industry – Players, Revenues, Market Share To properly review the manufacturing in the footwear industry, it is necessary to first gain an understanding of the dominant leaders in the marketplace. The industry is currently experiencing hyper competition, led by six main firms – Nike, Reebok, Adidas, Fila, Converse, and New Balance (see exhibit 1), with nearly $7 billion in revenues domestically. Nike is the industry leader, with a 47% market share, followed by Reebok, a distant second at 16%, and Adidas at 6% (see exhibit 2). This category is facing decreasing demand and the rising popularity of alternative footwear, resulting in more pressure than ever before to achieve high gross margins through effective global sourcing practices. Manufacturing options Footwear companies have two basic options in the manufacturing of their products, they can both own and operate the factories that produce their products, or subcontract their products out to secondary manufacturers. These facilities can be located either domestically or internationally, and both present a myriad of positives and negatives. Firms that produce domestically benefit from ease of monitoring, skilled workforce, government stability, job creation, and well understood labour rules, while suffering from the relatively high wages required in the U.S. as compared to developing countries. By manufacturing products overseas, in particular in third world economies, tremendous efficiencies are gained in the form of reduced wages, but are countered by the increased difficulty of monitoring the quality of their products and the actual working conditions in the factories. Companies that are vertically integrated, who own and operate the factories where their products are manufactured, are faced with large capital expenditure requirements and the management of the factories themselves, resulting in lower profit margins. Strategic Outsourcing In analysing the sneaker industry, we are faced with the question, "What are these firms core competencies?" If manufacturing falls under this umbrella, then firms should look to produce internally. However, the core skills that set these companies apart from the competition, are their marketing, distribution, and technological expertise.