In May 2015, Nike joined President Barack Obama in supporting the Trans-Pacific Partnership (TPP), a trade agreement among a dozen countries including the United States and Vietnam [1].\u00a0 The deal, if approved, would reduce or eliminate the approximate 20% tariff on athletic shoes imported from Vietnam, where Nike currently manufactures approximately 46% of its branded footwear [2,3].\u00a0 Wall Street analysts estimated the deal would improve Nike\u2019s gross margins by 0.5% and result in a ~4% increase in earnings [4].<\/p>\n
It is unsurprising that Nike is a fervent supporter of free trade considering the financial impact and the company\u2019s global reach.\u00a0 Nike products are manufactured in 566 factories, distributed through 75 distribution centers, and sold in over 30,000 retailers located in more than 190 countries [5].\u00a0 Mark Parker, President and CEO of Nike, has said, \u201cwe believe agreements that encourage free and fair trade allow Nike to do what we do best: innovate, expand our businesses and drive economic growth\u201d [1].\u00a0 Unfortunately for Nike, the United States withdrew from the TPP deal with the election of Donald Trump, and free trade is being increasingly rejected by voters in the United States and Europe as demonstrated by the United States\u2019 2016 election, Brexit and the growing power of the nationalistic movement in both regions.<\/p>\n
Of all the threats President Trump has made against free trade, the potential trade war with China would have the most negative impact on Nike\u2019s operations [6,7]. \u00a0Nike views China as a tremendous growth opportunity with sales growing 18% per year since 2015 while still only representing 13% of total branded revenue [3]. \u00a0Conflict between the two global powers could have disastrous effects on supply chain costs and the Chinese retail opportunity.<\/p>\n
In response to these nationalistic threats, Nike has taken the offensive by lobbying public policy, shifting to more onshore manufacturing, and increasing manufacturing automation. \u00a0Nike hired the Alpine Group, a lobbyist firm, in 2013 to help influence trade policy [8].\u00a0 Although at first successful during the Obama administration, their lobbying efforts have stalled under the nationalistic Trump administration.<\/p>\n
Additionally, to confront nationalistic trends in the medium term, Nike launched a \u201cmanufacturing revolution\u201d initiative which will move manufacturing onshore or nearshore to serve major markets.\u00a0 The company formed North American strategic partnerships with Flextronics in 2015 to manufacture footwear and with the private equity firm Apollo Global Management in 2016 to manufacture apparel.\u00a0 Not only will this initiative allow the company to avoid costly tariffs, but it will also shorten the time it takes to bring a product to market from 60 days down to 10.\u00a0 As a result, Nike can better align consumer demand with product supply, which will lead to better sell through and lower markdowns [9].<\/p>\n
Nike plans to further optimize their supply chain by investing in innovation and automation.\u00a0 Through new digitization and robotics technology, Nike can now manufacture a pair of uppers in only 30 seconds with 30% fewer steps and up to 50% less labor [5].\u00a0 Automation has drastically decreased labor content per unit allowing Nike to move some manufacturing onshore.\u00a0 However, Nike\u2019s actions illustrate that isolationist policies may help bring manufacturing back home, but the expected jobs may not follow.<\/p>\n
Even though Nike has made some effective moves to confront isolationism, they can do more.\u00a0 Specifically, they should change their lobbying approach and prepare a contingency plan if trade wars ensue.\u00a0 Instead of taking their free trade message to D.C., they should speak directly to consumers.\u00a0 Nike can educate consumers that free trade will create savings that will be passed along to consumers through lower prices.\u00a0 To avoid being labeled as anti-American, they can continue to tout their commitment to bring 10,000 manufacturing jobs back to the United States [1].<\/p>\n
In addition, the company should have a plan in place to move manufacturing from China to the United States or alternative low-cost countries in the result of a United States versus China trade war.\u00a0 If President Trump follows through on his threat to halt all trade with China, it would spell financial disaster for Nike [9].\u00a0 Not only would Nike no longer be able to sell China-made goods in the United States but China may also respond by restricting American companies\u2019 access to the Chinese market.\u00a0 Even if the President takes a more modest approach and fulfills his campaign promise to increase Chinese tariffs to 45%, Nike would likely need to find alternative locations to manufacture goods [10].\u00a0 Nike should decrease their supply chain exposure to China where possible and develop a supply chain restructuring plan to implement if a trade war begins.<\/p>\n
However, questions remain.\u00a0 How best can Nike advocate for free trade policies that protect their financial interests?\u00a0 How worried should Nike be about Trump\u2019s threats against China, and what precautions should they take?<\/p>\n
(796 words)<\/p>\n
Sources:<\/strong><\/span><\/p>\n Nike is in a precarious position as global superpowers fight over free trade agreements. Can Nike and its global supply chain successfully confront the rise of nationalism?<\/p>\n","protected":false},"author":9720,"featured_media":0,"comment_status":"open","ping_status":"closed","template":"","categories":[],"class_list":["post-25856","hck-submission","type-hck-submission","status-publish","hentry","hck-taxonomy-organization-nike","hck-taxonomy-industry-retail","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/rc-tom-challenge-2017\/","yoast_head":"\n\n