The Real Economy In The Long Run Dirk Bair, Michelle Kinchen

The Real Economy in the Long Run Dirk Bair, Michelle Kinchen, Amera Hatcher, Raz Faraji, Eboney Allen

The assignment requires an analysis of Nike's global manufacturing strategy, particularly focusing on China’s productivity, policies influencing its economic growth, and the country's financial system. It also involves evaluating Nike's risk management in relocation, current and future unemployment trends in China, and the overall impact of these factors on Nike's expansion plans. The paper should incorporate relevant economic theories and data, providing a comprehensive review of how Nike's outsourcing and expansion strategies intersect with China's economic environment. The discussion should draw upon credible sources and scholarly research to support the analysis, offering insights into Nike's strategic considerations and the macroeconomic context of China’s development and labor market.

Paper For Above instruction

In the ever-competitive landscape of the athletic apparel industry, Nike's strategic decision to outsource production to countries like China has been pivotal in sustaining its market dominance. With a market share of approximately 36% and a brand valuation nearing $102 billion, Nike has leveraged global production networks to optimize costs and expand its global footprint (Strider, 2016). This paper explores the multifaceted economic considerations underlying Nike’s offshore manufacturing strategy, emphasizing China's productivity, government policies, financial system, risk management in relocation, and unemployment trends. Drawing on economic theories and empirical data, it offers a comprehensive understanding of how these macroeconomic factors influence Nike’s strategic expansion and operational sustainability in China.

China’s Productivity and Economic Policies

China’s remarkable economic transformation since the 1970s exemplifies successful policy-driven productivity growth. Initially characterized by limited industrial capacity, China adopted reforms that liberalized trade, attracted foreign investment, and promoted private enterprise, leading to substantial productivity gains (Dasgupta, 2007). Elevated levels of human capital development, infrastructure improvements, and a burgeoning manufacturing sector fostered a conducive environment for multinational corporations like Nike. The Chinese government actively supports the labor force through education and vocational training programs, which enhances the skill levels necessary to meet the demands of sophisticated manufacturing processes, albeit with a large base of unskilled and semi-skilled labor (Greenberg & Knight, 2004). These policies have aligned with Nike’s needs for a low-cost, scalable labor force, further incentivizing the company’s investment in China.

Financial System’s Role in Economic Growth

China’s financial system significantly influences macroeconomic stability and growth, impacting foreign direct investment (FDI) and industrial expansion. The banking sector, predominantly state-controlled, facilitates capital allocation through loans and investments, thereby supporting manufacturing infrastructure and technological upgrades critical for firms like Nike (Trading Economics, 2016). The inflow of foreign currency and investment bolsters the country's GDP, which in turn creates a more attractive market for Nike’s products and manufacturing facilities. Moreover, the rising consumer market, driven by increased disposable incomes, propels sales of Nike’s branded products, reinforcing the cycle of productivity and economic expansion. The government’s monetary policies aimed at controlling inflation and supporting liquidity are crucial for maintaining an environment conducive to sustained industrial growth and stable employment levels.

Risk Management in Nike’s Relocation Strategy

Relocating manufacturing operations involves complex risks including political, economic, and social factors. Nike mitigates these risks through comprehensive site analysis, including demographic assessments, infrastructure evaluation, and local labor market analyses (Henrick, 2016). Conducting physical inspections and engaging with local stakeholders help ensure the chosen site can meet operational needs and regulatory standards. Minimizing asset transfer costs involves selling excess inventory and only relocating essential equipment, which reduces financial exposure. Establishing a dedicated relocation team fosters clear communication and decision-making, crucial in managing logistical challenges. An essential aspect of risk management is understanding local labor laws, working conditions, and cultural nuances, enabling Nike to implement responsible supply chain practices that uphold its brand reputation while maintaining cost efficiencies.

Unemployment Trends and Future Outlook

China’s unemployment rate has historically fluctuated, peaking at 4.3% during economic downturns and stabilizing around 4.1% in recent years (Trading Economics, 2016). Projections indicate an upward trend, with forecasts reaching approximately 5% by 2020, primarily due to economic restructuring, automation, and demographic shifts (Wilsey & Lichtig, 2015). Despite these rising figures, China’s vast labor pool—capitalized upon by Nike—remains a valuable asset. The country’s large population, nearly two billion, provides a continuing supply of unskilled and semi-skilled workers essential for low-cost manufacturing. Nonetheless, Nike must monitor these trends to adjust its operational models proactively, including investing in workforce training to offset potential labor shortages and skill gaps.

Conclusion

nike’s strategic expansion into China exemplifies a sophisticated integration of economic, political, and social factors. China's economic reforms have not only enhanced productivity but have also created a favorable environment for foreign direct investment and manufacturing. The country’s evolving financial system supports this growth through liquidity provision and infrastructure development. However, risks associated with relocation—such as political stability, labor standards, and demographic shifts—necessitate meticulous planning and risk mitigation strategies. Projected increases in unemployment may influence labor costs and worker availability but are unlikely to deter Nike’s commitment to sourcing in China due to its large resource base. Overall, China’s strategic importance for Nike remains significant, offering both growth opportunities and challenges that require careful navigation to sustain long-term success.

References

• Dasgupta, D. (2007). China engaged: Integration with the global economy. Washington, DC: World Bank.
• Greenberg, J., & Knight, G. (2004). Framing Sweatshops: Nike, Global Production, and the American News Media. Communication and Critical/Cultural Studies, 1(2). https://doi.org/10.1080/
• Henrick, M. (2016). How to Relocate Your Business. Entrepreneur. Retrieved August 28, 2016, from https://www.entrepreneur.com/article/
• Strider, J. (2016, January). Adidas Vs. Nike Vs. Under Armour: Which for 2016? Investopedia. Retrieved from https://www.investopedia.com/
• Trading Economics. (2016). China Unemployment Rate. Retrieved from https://tradingeconomics.com/china/unemployment-rate
• Wilsey, M., & Lichtig, S. (2015). The Nike Controversy. Stanford.edu. Retrieved from https://www.stanford.edu/
• Wilsley, S., & Lichtig, S. (2015). Nike’s Expansion Strategy. Business Insider. Retrieved from https://www.businessinsider.com/
• Li, H., & Zhou, L. (2005). Political turnover and economic growth in China. Journal of Public Economics, 89(9-10), 1743–1762.
• Chen, X., & Ulf, M. (2014). Foreign direct investment and economic growth in China. Asia Pacific Journal of Management, 31(2), 135–157.
• O'Sullivan, D. (2018). The Dynamics of Global Production Networks in China. Journal of Economic Perspectives, 32(3), 45–70.