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  • Subject area(s): Marketing
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  • Published on: 14th September 2019
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Nike, Inc., originally known as Blue Ribbon Sports (BRS), is an American multinational corporation that designs, manufactures, and sells footwear, sports apparel, and sports equipment. Nike was founded in 1964 by Bill Bowerman, a track and field coach, and Phil Knight, a middle distance runner and student of Bowerman (successstories.com). When Bowerman wasn't coaching, he was spending his time trying to enhance his runners' shoes in order to help improve their performance. Knight, on the other hand, was a business-minded MBA student, who saw that it would be lucrative to compete with the established German brands of shoes by importing shoes from Japan (Onitsuka Tiger running shoes specifically) and selling them at a competitive price. Knight began this shoe selling business, and Bowerman asked to join him as his partner. None of Bowerman's shoe designs were successful when he was working alone, but after the business started to achieve success (reaching sales of $20,000 after the first year), Bowerman and Knight attempted to launch their own line of designs for sale. Unfortunately, these designs did not yield many sales in the first few years, but Bowerman and Knight continued to create new designs and put them on the market. Finally, in 1971, the business partners created a lightweight running shoe that they introduced to the public at the 1972 U.S. Track and Field Trials. This shoe was launched as the first “Nike” brand shoe, and was the company's first big step away from the business of shoe retailing, and towards the design, manufacturing, and shoe selling business that we know Nike as in the present day.

In 1978, Blue Ribbon Sports was renamed Nike, Inc., and throughout the 1970's Nike had many successful brand ambassadors, including American record holding collegiate runner Steve Prefontaine.  In 1979, Nike launched their Nike Air Technology, and the growth that the company experienced in the late 70's lead them to become a publicly traded company in 1980. By the mid 1980's, Nike was a recognized brand throughout the world. Both the Nike “Swoosh” logo and the slogan “Just Do It” were well-established, and easily identifiable.

Throughout the 1980's, 1990's, and early 2000's, Nike rose to success as it acquired several shoe and sports apparel companies, and obtained many endorsements from well-known athletes. Nike benefited from the acquisitions of shoe and apparel companies Cole Haan, Converse, Canstar Sports, Inc., and Umbro. Furthermore, athletes including Tiger Woods, Michael Jordan, and Roger Federer furthered the popularity of Nike by sporting their custom shoes and apparel (britannica.com). Jordan in particular greatly increased Nike's sales to record-breaking-heights in 1985, after wearing signature shoes designed for him, called the “Air Jordan”. In addition to acquisitions and endorsements, Nike has benefitted from signing numerous sports teams including the U.S. men's and women's soccer teams, and various international teams. As the company grew over the years, the product range that Nike offered expanded to not only including many different athletic shoe designs, but also sports and workout clothing, products for extreme sports (snowboarding and mountain biking), gear for numerous sports activities, and sports technology accessories.

To the present day, most of the companies that Nike acquired were sold off, and Nike's only two subsidiaries are Hurley International and Converse, Inc. Nike has grown tremendously in the last two decades-- it employs 44,000 people worldwide and sells its products in over 22,000 retail stores worldwide. Furthermore, Nike's products are sold in 160 countries worldwide, and the company is valued at a near $10 billion (xroads.virginia.edu). Nike is structured like a truly global company; all units are integrated, and all products are standardized worldwide. According to it's official website, Nike's mission statement is “to bring inspiration and innovation to every athlete in the world,”. Nike hopes to achieve that mission statement by innovating sportswear, making products sustainably, and making a diverse team that has an impact on communities worldwide (nike.com).  Nike has seen remarkable growth and popularity since its inception in the early 1960's, and along with that growth there have been many challenges along the way, and a few controversies that Nike has been involved in. Notably, the three major problems that Nike has faced include public controversy over the use of sweatshops and poor working conditions in factories, public controversy in response to the Paradise Papers, which exposed the fact that Nike has avoided paying taxes, and public controversy regarding the recent advertisements that include the contentious athlete Colin Kaepernick.

One of the problems that Nike faced was public controversy in response to revelations that Nike's factories have extremely poor working conditions. This issue was brought to the public eye when activist Jeff Ballinger published a document reporting extremely low wages and questionable working conditions in Indonesia. Later in 1992, Ballinger released an exposé of Nike which accused the company of hiring Sadisah, an Indonesian worker, for “just under 14 cents per hour…less than the Indonesian government's figure for ‘minimum physical need.” It also claimed that other workers like Sadisah are forced to work extra hours to keep up with basic life necessities (Ballinger). Protests started to erupt as the issue was brought into mainstream attention. Following this, Nike attempted to mitigate this scandal by establishing a department in 1996 that focused on improving work conditions in factories (Nisen). However, reports of horrendous labor practices and low wages continued to emerge. As criticism started to raise and sales dropped, Nike knew there was a problem that needed to be fixed immediately. In 1998, Phil Knight acknowledged the negative perception of the corporation by stating that it has become “synonymous with slave wages, forced overtime, and arbitrary abuse.” He stated that Nike would be raising the minimum age of workers, increasing monitoring, and adapting OSHA clean air standards in all factories. From 2002 to 2004, Nike performed around 600 factory audits to make sure that that they were following the codes of conduct and adhering to labor laws (Nisen). This was a turning point for Nike, as they started to reform labor conditions and improved the negative connotation that came with Nike products. While Nike wasn't the only corporation to abuse labor laws, they were the most public, and the one most people could recognize. However, with transparency and changes, Nike was able to turn themselves around and become a global leader in improving work conditions.

Another problem that Nike faced was public controversy in response to the Paradise Papers, which exposed that Nike has avoided paying taxes. The Paradise Papers are 13.4 million financial documents, spanning over the years of 1950-2016, that have to do with offshore investments (theguardian.com). These documents were leaked to German journalists in 2016, and were published in the newspaper Süddeutsche Zeitung. The Paradise Papers exposed that with the help of tax loopholes, tax havens, and complex laws, Nike was able to transfer its profits from its European headquarters, to a subsidiary in tax-free Bermuda (from 2005-2014), and eventually to an un-taxed subsidiary called Nike Innovate CV (from 2014- present) (cbc.ca). Bermuda is an offshore tax haven, and Nike was able to legally transfer its profits there through creating a Nike subsidiary in Bermuda that held the company's property rights. The Bermudan subsidiary would charge Nike's European headquarters for trademark royalty fees, and this allowed Nike to legally transfer large amounts of profits from Europe to Bermuda. In 2014, Nike's contract with the Netherlands (the country where Nike's European Headquarters are located) was up to expire, and the company made a new deal with the Dutch government where it can avoid paying taxes by using a CV model. Despite significant public backlash, hundreds of breaking-news news articles, and a lot of attention from consumers, Nike has only responded to this controversy by claiming that all of its actions were in accordance with the law (straitstimes.com). Charities such as Oxfam commented on the revelations by stating, “These tens of billions that escaped being taxed benefit a tiny mega-rich minority and represent a considerable loss to state budgets, and it's the poorest who pay the price," (straitstimes.com). Despite the fact that the action of avoiding taxes is seen as largely unethical by many, Nike stands behind its choices, and has not taken any action in response to public outcry.

In addition to these issues, another problem Nike faced was a mix of backlash and support in response to their controversial campaign starring Colin Kaepernick. Earlier in 2016, the San Francisco 49ers quarterback was in the news for kneeling during the national anthem - a decision which angered many Americans. While Kaepernick justified his decision by stating that he would not “stand up to show pride in a flag for a country that oppresses black people and people of color”, this was pushed off as blatant disrespect to the flag and American soldiers. The controversy with the ad started off as a black and white picture of Kaepernick's face. In a white font says “Believe in something. Even if it means sacrificing everything.” While Kaepernick's decision to kneel was over 2 years ago, the constant divide between whether it was disrespectful or not was still prevalent. With this in mind, it was not surprising that there was a negative reaction to the ad; some even going as far as burning their own Nike products. Despite the backlash there was a considerable amount of support and praise for Nike. Even though Nike could have backed down on their stance, they chose to double down on Kaepernick by releasing a full-length tv ad which featured many athletic superstars such as Lebron James and Serena Williams. In the end, it proved to be very successful as they saw an increase in sales and stock prices. Furthermore, this shows that Nike isn't afraid of tackling social issues head on and we will continue to see them take stances on controversial issues.

Going forward, it's important to take a look at the implications of each of the previously discussed problems, and how the problems impacted the business. How was Nike truly affected by the sweatshops scandals being exposed globally? As a successful business that portrays its image and vision to provide the highest quality products to its customer, Nike truly faced major issues with manufacturing for large amounts of orders. In order match the supply to the demand, Nike put a lot of laborers globally into harsh working conditions. With such a large, well-known image that Nike carried and portrayed at this time, sweatshops played a large role in the Nike scandals that went on in the late 90's. When this was exposed to the world, it angered the organization United States Against Sweatshops, which organized a “Global Call to Action Against Nike”(Segran). By doing this they wanted to gain the most awareness they possibly could on this issue. At this point, Nike knew they were facing an issue, activist began protesting in front of Nike stores around the country. At times these protests grew larger and larger which actually caused some stores to close down its operations for a couple of hours because protesters would rally up against Nike. Nike was affected greatly by these protest because when they needed to close down operations for safety purposes they would lose revenue throughout times of protesting. Not only was their revenue affected by the protesters standing outside the doors of stores, but shareholders equity also declined greatly. An article written by, The Guardian, it states, “In 1996 Nike was severely embarrassed when a US magazine featured a photograph of a young Pakistani boy sewing together a Nike football” (Wazir). It further then explains how later that year it revealed that workers were being exposed to harsh toxic fumes up to “177 time the legal limit” (Wazir).  So how did Nike react to these scandals that were being brought to light? Nike took a three year pledge to improve working conditions and highered a team of auditors who worked alongside with OSHA to provide and ensure that the standard labor laws were being met in order to allow laborers to work in safe and non-toxic environments.

    Moving along from the Sweatshop scandal, Nike also faced the controversy when it became public knowledge, through the Paradise Papers, that they were avoiding paying taxes. They were able to transfer profits into an offshore account legally without having to pay as much in taxes. Nike faced a lot of controversy during its exposure of paying less taxes, but reacted as if there was nothing really going on. Nike believed if they were going to continue on with this, they needed to stay one step ahead of taxman. By doing this, Nike avoided making comments or official company statements on this topic and continued with their regular operations. Because Nike had subsidiaries located in Bermuda, and they were paying royalty fees to maintain that relationship with their offshore accounts, what they were doing was completely legal. Nike has figured out a way to transfer its profits back into the company outside of the U.S., and that has allowed them to avoid abiding by the rules and tax regulations within the U.S.

Lastly, one of the most recent controversial events Nike has dealt with revolves around a well known professional football player. As previously stated, Colin Kaepernick has decided to display his concerns for the events happening in the world today by kneeling during the national anthem. With Nike's 30th year anniversary of “Just Do It” slogan occuring at the same time as this scandal, it was almost like a match made in heaven. Nike knew this was a campaign that would open up the doors to many different opinions. No matter if it was good or bad publicity, it was still affective marketing for the company.  Even though some customers went as far as burning their Nike products, the public outcry didn't have a huge effect on Nike at all. As stated

by Alex Abad-Santos “ the $6 billion increase in overall value that Nike has experienced since Labor Day clearly overshadows their efforts.” This is a perfect example of why Nike decides to participate in such controversial topics. The loyalty of their customers to stick by them, while Nike makes the move to support the people they choose to, is directly shown. Overall, Nike's decision to take part in this risky campaign with Colin Kaepernick resulted in a positive impact.

There are many different concepts we have learned in class that can be related to the problems and controversies that Nike has faced. One main concept presented throughout this paper is Nike's corporate identity. Corporate identity is how a company presents itself and how people perceive the company. Nike allows there corporate identity to be shown through who they choose to support. With the different scandals coming to the public's eye like the sweatshops, it allows people to create their own opinions regarding Nike. Additionally, Nike also has a comparative advantage by outsourcing their factories. By doing this they can make their products at the cheapest price point. This results in the company maximizing their profit, which previously was at the cost of being ethical in regards to working conditions. Nike has participated in globalization, due to the fact that globalizing yields more efficient costs and higher profits for them. Lastly, through the Paradise Papers, the public learned that Nike used environmental scanning. Environmental scanning allows companies to look at the different opportunities and threats that could affect their business. The opportunities of legally avoiding taxes outweighed the threats of public outcry, in the eyes of the company-- they determined this through environmental scanning, and acted accordingly.

To summarize, after the sweatshop scandal in the 1970s, Nike was still the leading and dominating sporting apparel brand for teenagers. According to Business Insider, in 2015, “The brand was the top preferred clothing retailer among teens surveyed by research firm Piper Jaffray, beating out Forever 21, Victoria's Secret, Ralph Lauren, Urban Outfitters, and Hollister.”, and “Nike also topped the footwear category, with 46% of the vote. The second-place winner, Vans, received just 9% of endorsements” (Business Insider, . Most people might be wondering how the company could recover and restore trust from such a tremendous issue. There might be a lot of answers to this, but the strongest one is that Nike was brave and honest enough to take responsibility publicly by laying off staff, raising their minimum wage, and being transparent by publishing a 108-page-report which shows how the working condition is for its workers, and how much they are paid. Although Nike did not end up earning back exactly the number of consumers that it had lost, it is easy to see that it had overcome this first major scandal, and has been gradually building up its credibility. With the recent Kaepernick scandal, it is easy to see that Nike's Marketing Department leaders are able to see things from a different perspective, and choose to go into risky territory to express this. As stated in an article on Forbes, “When Tiger Woods went through his sex scandal in 2009 that led to his divorce, Gatorade, Pepsi and AT&T dropped their endorsements with him, but Nike remained” (Forbes, 2018). Nike also kept its contracts Kobe Bryant, after numerous companies dropped him following his rape case in 2003. With this being said, we can see that Nike is more interested in making long-term profits with their ambassadors, rather than doing whatever it can to please the public. Moreover, the fact that the controversies surrounding this issue have drawn so much attention from the public has made the company even more popular than it was before, and has given it a ‘rebellious' persona. Finally, in regards to public revelations of Nike avoiding taxes, the company has not commented on the situation, or suggested solutions to the problem. Even though avoiding tax seems to be something that can only hurt the government, yet everyone, especially the consumers deserve to know the truth. Consumers can be understanding and forgiving but not at all times. Therefore, Nike needs to be more careful with the choices being made, and show the consumers that they are truly being valued.

Throughout the years, no matter what the company has been through, Nike is still one of the largest, most influential, and most  profitable sporting products manufacturing companies in its market. According to Statista, Nike has always been the winner among its two major competitors - Adidas and Puma, when it comes to earning revenue ever since 2006. Every successful company has to face its own challenges and hardships, but the way they handle difficulties can surely determine whether it can still exist in the market or not. It is apparent that after almost every scandal, Nike has turned their bad situations into good ones that provide profitable outcomes. One of the beneficial outcomes that Nike has obtained out of the scandals is popularity. To be more specific, after the scandals, more and more people get to acknowledge the company, and have the urge to want to know what it is all about. However

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