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Case Study On Outsourcing

This document discusses Nike's outsourcing strategy and its impacts. Nike outsources 100% of its shoe production to countries with lower labor costs like Indonesia and China. This allows Nike to cut costs and invest profits in marketing while maintaining high quality. However, outsourcing also has negative impacts like potential human rights issues and environmental impacts in host countries. Overall, Nike's outsourcing strategy has made it possible to competitively price products and grow into a global brand.

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Abhinaya
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198 views

Case Study On Outsourcing

This document discusses Nike's outsourcing strategy and its impacts. Nike outsources 100% of its shoe production to countries with lower labor costs like Indonesia and China. This allows Nike to cut costs and invest profits in marketing while maintaining high quality. However, outsourcing also has negative impacts like potential human rights issues and environmental impacts in host countries. Overall, Nike's outsourcing strategy has made it possible to competitively price products and grow into a global brand.

Uploaded by

Abhinaya
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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CASE STUDY ON

OUTSOURCING

PRESENTED BY:
M.ABHINAYA(14M201)
OUTSOURCING
 Outsourcing is the act of obtaining gods or services from an
outside or foreign supplier in place of obtaining the goods or
services inside the same factory.
 Outsourcing allows for companies to maintain a higher quality at
a lower price.
 Instead of the company doing all the work by themselves and
potentially giving up quality, they hire outside parties to provide
higher quality products/services at a lower cost
 A company can sucessfully do this by finding areas where thy
can cut costs while still maintaining a high quality standard for
their product or service they are outsourcing.
NIKE
 Nike is an American globally-known sport brand.
 This very successful company was initially establish in September
1969, and is an American based sports clothing and shoes seller. 
 They have a net revenue of 27.8 billion, with an average net income
worldwide of of 2.6 million.
 They spread around the world over 858 different retail stores, with over
56,000 employees.
 Nike has had a huge impact on the shoe industry especially in America.
When Nike was founded, only 4% of US footwear was imported, while
now in the 21st century it has risen to the massive 98%.
 This is because a lot of Nike's products are outsourced, which also
helped them spread around the world and be as well known as they are
today. 
 Nike’s first supply contracts started in Japan.
 Then the supply base was shifted to South Korea and Taiwan in
the 1980’s
 By 1990,Indonesia and China replaced previous supplying
countries.
 Indonesia has currently 6 factories.

These counties favorable because of:


 Low wages
 Efficient work force and
 Favorable government
IMPACTS ON HOST COUNTRY
 Outsourcing creates substantial employment in Vietnam.
 Nike pays (slightly) higher wages than local companies.
 Improves the skills base of the local population.
 The success of the global brand may attract other TNCs setting
off cumulative causation.
 Exports are a positive contribution to the balance of payments.
 Contribution to local tax helps pay for new and improved
infrastructure.
NEGATIVE IMPACTS OF OUTSOURCING
 Workers at nine Nike plants in Indonesia (including Jakarta) have
been found to suffer from verbal abuse, lack of medical attention
and compulsory overtime.
 Suspicions have been raised over the use of child labour.
 Company image and advertising may help to undermine national
culture.
 Huge demand on water resources & use of fossil fuels.
 In the late 1980s labour costs in South Korea rose, so Nike
decided to move production to Indonesia where costs were
lower.
NIKE’S OUTSOURCING STRATEGY
 Nike outsources 100% of its shoe production and manufactures
only the key technical components of Nike Air System.

 It produces maximum values by concentrating on pre-production


areas including research and development and post-production
areas like marketing, distribution and sales.

 Using a carefully developed expatriate program to co-ordinate its


foreign based suppliers, Nike even outsourced the advertising
component of its marketing program to Wieden & Kennedy
whose creative efforts drove Nike to the top of product
recognition scale.
SUCCESS IN OUTSOURCING
 Cutting costs by employing workers at a reduced rate or paying
less for plants allows Nike to invest the additional profit in
other areas such as research, marketing and advertising thereby
increasing potential for company growth.

 In addition decreased operational costs are more likely to


attract and retain company investors because more money can
go into increasing business profitability.

 Nike is able to competitively price its products because of its


efficient outsourcing strategy.
 Nike’s competitive pricing at increased quality has made it
possible to give a tough fight to its opponents throughout the
world.
 Outsourcing allows Nike to skirt some financial obligations it
might face with the confines of tax laws within the United States.
 In addition when it outsources to subcontractors it assumes less
risk associated with producing its products such as insurance
liability.
THANK YOU

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