Production 1: Nike

Steve Spence
Updated: 19 September 2022

Nike Revenue, Updated

Korzeniewicz notes that Nike's revenue grew from $270 million in 1980 to $3 billion in 1991. As the chart below demonstrates, the company's explosive growth has continued in recent years. In 2022, it was $46.7 billion.

The twin keys to Nike's success

Nike Factory Michael Jordan with "his" shoes

The keys of Nike's success, continued

Korzeniewicz attributes Nike's extraordinary success to "its twin strategies of overseas subcontracting and domestic marketing" (184).

The two strategies are related, he notes, and should be understood as the company's successful effort to manage the entire chain that links raw materials in the ground (like petroleum) to products in the hands of consumers:

Nike LeBron 11“Nike's successful implementation of its overseas sourcing strategy can best be understood as part of the firm's effort to retain control over highly profitable nodes in the athletic footwear commodity chain, while avoiding the rigidity and pressures that characterize the more competitive nodes of the chain” (178).

What is a Commodity Chain?

The graphic on the following slide illustrates a single commodity chain tracing the path of a one part (the keyboard) from a very complex product that includes hundreds of such parts. Like Nike, today laptop manufacturers gain competitive advantage by forming alliances with dozens of different businesses and managing those relationships.

Commodity Chains 2

Supply Chain - Wikipedea The mapping site SourceMap includes a more comprehensive (though still incomplete) picture of a laptop's commodity chain.

Finding the profitable links in the chain

Nike avoids competing with companies in manufacturing, where the competition is fierce and the profit margins are tiny. Instead, it has turned itself into a customer of shoe manufacturers.

Nike FactoryNike contracts with hundreds of manufacturing companies in dozens of countries, and it constantly matches its needs (e.g. lowest cost vs. more skilled workers and sophisticated assembly lines) to particular countries and manufacturing firms.

Most importantly: because Nike does not own any of these factories or machinery, it can move on when a better deal presents itself.

Divisions in the world economy

To explain Nike's approach to manufacturing, Korzeniewicz cites a common distinction drawn from World Systems Theory, which divides the sectors within the world economy into Core, Semi-periphery, and Periphery

These are the most developed nations or regions, like the United States, Western Europe, and Japan. A generation ago, the vast majority of manufactured goods were produced in the Core, often using raw materials (e.g. wheat, iron ore) imported from less developed regions
Today, most manufactured goods are produced outside of the Core. The exceptions are high-technology products like airplanes and electronics, which are still (mostly) manufactured in Core countries. The term Global North is basically synonymous with Core.

Divisions in the world economy, continued

World Systems theory divides the countries called the Global South into two distinct groups.

These are industrializing economies and manufacturing centers with characteristics of both the Core and the Periphery.
They are places like Mexico, Poland, and Iran, with workforces, infrastructure, and businesses capable of building more sophisticated products than those made in the periphery. Labor costs are correspondingly higher as well, though not as high as in the core. Korzeniewicz cites both South Korea and Taiwan as semi-periphery.

Divisions in the world economy, continued

These are some of the least developed regions in the world, for example Bangladesh, Vietnam, and Nigeria. Low-cost labor is their major competitive advantage in the world economy. Korzeniewicz cites China, Indonesia, and Thailand.

Updating Korzeniewicz

In the years since Korzeniewicz published this article, things have changed. Many Americans still believe (incorrectly) that China offers companies only low-cost labor. In fact, China now manufactures many sophisticated products that simply can't be made in the United States. Our next assignment, on Apple, emphasizes this point.

Markets and Marketing

Of course, Nike's success stems from more than just its creative management of globalized manufacturing. Rather than shoes, Nike's main "product" is actually in consumers' heads. Nike spends billions of dollars every year to manufacture the feelings and ideas that we associate with the Nike swoosh.

We wear Nikes in order to associate ourselves with those feelings and ideas, not because they allow us to play a better game of <fill in the blank>.

As Korzeniewicz notes, athletic shoe companies in the United States managed to create a new market for their products: the vast majority of "athletic" shoes purchased in the U.S. today are not used for athletics (162). Instead, they are bought by young people as everyday wear.

Today, consumers buy and wear Nikes in order to associate themselves with the values that Nike promotes as its brand: "hipness, irreverence, individualism, narcissism, self-improvement, gender equality, racial equality, competitiveness and health" (181).

Marketing Fictions

Nike sells the fiction that we can buy the same shoes worn by our heroes. In fact, stars like Zion Williamson typically wear custom-made versions of the shoes associated with their names. The company wants to avoid publicity disasters like the shredded shoe that resulted in Williamson's 2019 knee injury.