Nike’s outsourcing activity

due to COVID-19

NIKE’s OUTSOURCING ACTIVITY

DUE TO COVID-19

ID number
Due date:
 TABLE OF CONTENTS

1. Introduction.........................................................................................................................................2
2. Covid-19 outbreak and its effects to Nike’s outsourcing....................................................................3
3. Covid-19 outbreak - an analysis on its real effects on Nike’s outsourcing..........................................5
4. The unique role of theories in analysis – Nike’s outsourcing model....................................................7
4.1. Cost concerns – Contractual theory on the Effect 3.....................................................................7
4.2. Partnership concerns – Stakeholder theory on the Effect 2..........................................................7
4.3. Resources concerns – Resources based theory on the Effect 1....................................................8
5. Suggestions on outsourcing model afterwards the pandemic - advantages or challenges....................9
REFERENCES..........................................................................................................................................10
 1. Introduction

The worldwide economy has been damaged due to the outbreak of Coronaviruses (CoVs)
spreading uncontrollably across all continents. The case fatality accounted for 2.2%, which was
calculated roughly of 170/7824 according to the investigation of Rothan et al (Rothan &
Byrareddy, 2020). The unprecedented outbreak preferentially leads to the isolation of each
nation from all entry of immigrants and non-immigrants, resulting in the disruption of the global
trading market. It is estimated that a moderate economic impact of the COVID-19 crisis caused
roughly -4.4% of GPD in different countries (Fernandes, 2020). In particular, the apparel
industry witnessed the collapse across its supply chain and has been becoming one of the most
vulnerable industries in the globe. All the stakeholders of the apparel field, including
Government, Customers, Manufacturers, Suppliers, Retailers, etc was effected, and Outsourcing
is not the exception. This essay will represent all effects of the Covid-19 outbreak to the
outsourcing industry followed by thoroughly analyzing its effects. In order to reinforce the
reliability of this practical assessment, some theories will be provided. Last but not least, the
essay also sheds light on multiple suggestions to get the outsourcing retrieved after the
pandemic. All the information will be revealed thanks to the data on Nike’s outsourcing.
 2. Covid-19 outbreak and its effects to Nike’s outsourcing
Generally speaking, the footwear market has been experiencing the flourish proliferation
since it entered the worldwide trade in late 1990s (Collins, 2009), resulting in the successfully
well-known brands such as Nike, Adidas, Puma, etc. However, due to the harsh competition of
the market, companies are seeking the alternatives to be in charge of secondary processing,
especially producing semi-finished products. Outsourcing – an abbreviation used to emphasize
the utilization of external sources to serve the home company (Chai & Ngai, 2020). Apparently,
outsourcing appears in all phases of the apparel industry, from materials supplement to
production management, and even in the downstream stages such as marketing, trading, and
logistics. Therefore, the dependence of outsourcing companies to the home company is
inevitable.
Nike, the leading company in the apparel industry, becomes the unique business successfully
establishing the outsourcing system, called Business Process Outsourcing. Products of Nike are
traded under the affiliate representatives such as Bragano, Hurley, Chuck Taylor, Converse, All
Star, Starter, Team Starter, Asphalt, etc., as a distribution channel ("2014 ANNUAL REPORT ",
2014). In terms of production, its primary yield was attained thanks to multiple factories located
in Vietnam and China. In order to maintain the production, all materials are delivered by plane or
ship adjacent to the administration of six primary distribution centers. Nike also established the
R&D Headquarter named Nike Explore Team Sport Research Lab located on Beaverton, Ore to
embark on sustainably new materials and products. In terms of marketing programs, Nike vitally
outsourced its advertising strategies to Wieden and Kenedy – an advertising agency based on
America – to gear them towards the worldwide market (Quinn & Hilmer, 1994). The
combination among several sectors accelerated the development of Nike for many decades, but
the Covid-19 outbreak period.
The pandemic directly puts burdens on the home company, Nike, as well as its stakeholders,
outsourcing. Firstly, the impact of the Covid-19 outbreak directly deactivates the functions of
several outsourcing stakeholders temporarily, or even bankrupt. Logistics perfectly exemplifies
this phenomenon, where shipping by plane is restricted. Secondly, the strategy of outsourcing
can directly diminish the plan of another. For instance, the marketing agency promotes the
“Staying at home” policy to stop the spread. However, retail stores face a significant decrease in
profit. Last but not least, some outsourcings are changing their mission and vision, which ends
the line of common development.
 3. Covid-19 outbreak - an analysis on its real effects on Nike’s outsourcing
The scrutiny on the influences of the Covid-19 outbreak on different outsourcings of Nike
will be represented. As mentioned, the three main highlighted effects are function deactivation,
competitive influence, and modification on orientation.
First and foremost, the limitation on some outsourcing is undeniable (Effect 1). Obviously,
the demand for shoes and clothing are decreasing significantly during the pandemic. The statistic
from Nike revealed that its profit declined due to the closing of EMEA and APLA, the two
partners in the US. According to the sales report in the fourth quarter of Nike, Inc., the gross
profit accounted for -7%, while the net income made up -37%. Retail stores, including EMEA
and APLA, are the main sources of income for Nike, Inc., however, due to the negative growth
during Covid-19, those retail stores were either temporarily or permanently closed to cut down
on expense. It is clear that one of the outsourcings – retail stores – was damaged. The pandemic
also leads to the decreasing gross margin due to the shutdowns of multiple factories across
China. Unemployment, maintenance cost during shutdowns, and production interrupts directly
affect to the production outsourcing. All market trades experienced negative growth (except the
Greater China market), which leads to the total revenue of the Nike brand of -2% (NIKE, 2020).
Besides, the impact of the Coronavirus on outsourcing causes the crisis of other outsourcing. For
instance, the raw materials cannot be shipped by plane, resulting in a lack of feedstocks for
production. Additionally, in the Vietnam market, Insee is the outsourcing of Nike in terms of the
decomposition of defective samples, prototypes, or even final products. Outsourcing, Insee,
suffered the consequences of Nike.
Another impact of this outbreak of outsourcing is competitive influence (Effect 2). As
mentioned, the retail store witnessed the fluctuated period by closing several stores across the
world. However, e-commerce has been brilliantly developing during the pandemic. Due to the
social distancing on several continents, shopping online becomes the crucial choice of humans. It
is estimated that the overall sales e-commerce of some websites, such as Amazon, eBay,
Samsung, are increasing dramatically, especially Walmart grocery stores with 74% (Bhatti et al.,
2020). The performance of shopping online is promoted by online marketing. However, the
reliance on the host company, Nike Inc., subsequently caused unforecast troubles as well as
opportunities to an outsourcing company, Wieden and Kenedy, marketing agency of Nike,
during the Covid-19 pandemic. The outbreak urged the marketing firms to redesign their logo as
well as promoting creative campaigns. For instance, in order to limit exposed cases, Wieden and
Kenedy conduct the challenge to galvanize people staying at home and attracted public attention
(Alina). However, the demand for shoes sold at retail stores decreased significantly after the
implementation of this strategy, but e-commerce made a difference. Obviously, the competitive
influence between retail stores and shopping online completely changed the market situation as
well as outsourcing’s equity.
There are sufficient grounds to address the effects of the Covid-19 on the re-structured
mission and vision of some outsourcings (Effect 3). China and Vietnam are chosen as market
labor to support the production outsourcing of Nike Inc., due to the cheap workforce resources.
However, during Covid-19, the cut down on employees due to the production cancellation
caused severe problems in a strike, smashing, and legal proceedings arise. Therefore, a number
of stakeholders decided to fire thousands of employees to minimize their monthly expenditure,
leading to the change of their mission and vision. For instance, Ching Luh, a China outsourcing
of Nike, having factories across China, Taiwan, Vietnam, and Indonesia, stated that one of their
core values is Employees are family. However, in order to survive during Covid 19, there is no
family anymore!
 4. The unique role of theories in analysis – Nike’s outsourcing model
The market situation reflects the serious effects of Covid-19 on outsourcing. In order to
explain the relationship among those firms to the development of Nike during the pandemic, the
theories relating to this field will be addressed. The concepts of theories of outsourcing were
identified by Dibbern et al, which comprises Transaction cost Theory, Agency Theory,
Resources Based Theory, Partnership and Alliance Theory, Stakeholder Theory, etc (Dibbern,
Goles, Hirschheim, & Jayatilaka, 2004). Generally speaking, all theories belong to three main
fields, namely Cost concerns, Resources concerns, and Partnership concerns. The pragmatic
effects of Covid-19 to the outsourcing relate to some theories given by different researchers.
4.1. Cost concerns – Contractual theory on the Effect 3
In terms of contractual theory-based perspective, contract compliance is supposed to be
the most important aim, especially in international joint ventures. Obviously, the collaboration
between Nike and China-based outsourcing firms can be maintained thanks to the contract. In
order to get the two-side nod, all terms and policies should be scrutinized to suit the mutual
demands. However, in terms of international corporations, not all terms are implemented
effectively. Regarding Nike Inc., some China and Vietnamese firms often unilaterally breaks the
contract, to seek new cooperation opportunities during the COVID-19. The primary reasons for
this phenomenon are the lack of strictness of terms and the ineffectively simultaneous
implementation of contract and collaboration.
4.2. Partnership concerns – Stakeholder theory on the Effect 2
Generally speaking, Stakeholder theory concentrates on the final purpose – balance
interests of all stakeholders. Obviously, as mentioned, the emergence of e-commerce during the
COVID-19 has skyrocketed, for instance, up to 237% (Miss Fresh – the China online retailer)
compared to that of retail stores (Pantano, Pizzi, Scarpi, & Dennis, 2020). It is clear that elderly
consumers join the online market instead of physically going the traditional stores, which
directly affects to revenue of retail stores, and subsequently leads to the unequal treatment
among firms. The main reason is stemmed from the marketing strategy of Wieden and Kenedy.
Therefore, in order to address the partnership concerns, new promotions such as discount price
should be implemented at retail stores to maintain the profit of those stakeholders
4.3. Resources concerns – Resources based theory on the Effect 1
Without a doubt, the final products of Nike are comprised of the details of different
outsourcing. The pandemic restricted the potential, especially human resources, of some firms
across the supply chain, for example, China outsourcing – the origins of COVID-19. Ching Luh
perfectly exemplifies the situation, in which lacking human resources directly affected the
operation of this outsourcing firm as well as its home company, Nike, due to internal riots and
strikes (Iswara, 2020). Disputes lead to the temporary close of some factories as well as the
substantial decrease of yield during production, and thus, further corporation among Ching Luh
and employees so far. The ability to leverage the outside competencies, workforce, limits the
development of Ching Luh and Nike in the future.
 5. Suggestions on outsourcing model afterwards the pandemic - advantages or
challenges
Undeniable, COVID-19 completely changed all fields of the worldwide trade, and Nike is
not the exception. The development strategy on economic recovery could be implemented
immediately after reaching the stability of society in each nation by following recommendations.
First and foremost, in order to maintain the business continuity, Nike Inc. should allocate the
production among several outsourcing firms instead of implementing monopoly supplication
(Ching Luh). The allocation of human resources and technology issues among multiple sectors
can effectively deal with the fluctuation of production, perhaps due to the social upheaval or
pandemic (Arvind dixit, 2020). Secondly, outsourcing firms such as Wieden and Kenedy should
have agile strategic planning to recover the retail stores as well as promoting the effectiveness of
e-commerce. Obviously, the COVID-19 challenged the operation of retail stores, however, the
proliferation of shopping online is undeniable. By seizing opportunities for developments on
both means of selling, Nike Inc will dominate the market. The marketing activities should vary
per domain to create a win-win strategy in any type of market as well as creating the balance
among stakeholders. In responding to the COVID-19 effect, contract compliance should be also
stringently conducted as the Contract theory revealed. It is noted that the home company should
put more weight on the contract’s terms to evade any litigation with outsourcing. By contract,
outsourcing firms must comply with the contract as well as keep learning on new technologies to
adapt market volatility according to the resources based theory.
The restructuring and improvement of outsourcing firms to the development of Nike during
COVID-19 can be considered as the bright side. The pandemic sheds light on e-commerce and
opens new doors to the online market. Apparently, elder people become the target customer for
this market after the pandemic. Moreover, sustainable competitive advantages have been
established thanks to the new adaption of production outsourcing (in Vietnam and Thailand
market). In terms of its downside, the pandemic eliminated the performance of some outsourcing
firms out of Nike Inc, resulting in the exploration of new outsourcing firms in the future. Unfair
interests among stakeholders are also the main problems during the pandemic. By understanding
all the opportunities and challenges, Nike Inc can create the driving force to accelerate their
career in the future. Outsourcing – the potential but vulnerable field – should be scrutinized to
reach sustainable development.
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