3.1 - Transnational Corporation Case Study: Nike - USA and Vietnam (Paper 1)

Question 1

Explain the costs of the global operations of Nike on Vietnam: (3)

Answer 1

• Nike lacks sustainability when it comes to producing their goods. This is because 92 million tonnes of textile waste which ends up at landfills every year. This can lead to toxic being released into the atmosphere because the waste at the landfills degrade and this can lead to the environment being destroyed. (1)
• Another cost is the poor working conditions that workers have to cope with. There was an incident at the pouchen factory in 1996 where in November 1996, 100 women were forced to stand outside in the sun for 30 minutes after spilling a tray. This caused 12 of them to faint due to the poor conditions that they were put through and is therefore a cost. (1)
• Nike also employs children to help manufacture products and they are expected to work for 10 and a half hours per day for 6 days a week. This means that the children that work here cannot go to school and therefore aren’t educated which is a cost. (1)

Question 2

Explain the benefits of the global operations of Nike in Vietnam: (3)

Answer 2

• Nike creates jobs for over 350,000 Vietnamese people. This is a benefit because due to these job opportunities, more people can earn income and it also reduces unemployment in the country which is a benefit. (1)
• In Ho Chi Minh City, Nike pays its workers $54 on average, which is three times the minimum wage for those working in a state-owned enterprise. This is a benefit because people working at Nike earn a higher income and therefore have more disposable income to spend.
• Nike began manufacturing in Vietnam in 1995, and started of with started off with five footware factories. Since then, it has expanded to over 155 factories located across to the country. This influenced other TNCs to set up in Vietnam due to the success of Nike like Toyota, Honda and Panasonic. This can lead to increasing business activity and output in Vietnam which can result in economic growth. (1)

Question 3

Explain the costs of global operations on Nike’s country of origin which is the USA: (3)

Answer 3

• Due to outsourcing, over 6000 jobs were lost in Nike in the US. This is because manufacturing and most other industrial processes to manufacture products started to take place outside of the USA, which leads to workers not needed therefore resulting in unemployment and a loss of jobs. (1)
• Over the 2010s, operating expenses have been increasing year by year with an increase of 11.59% per year. This can cause business profits to lower because Nike has to pay for the high operation costs in the USA which can cause cuts to happen in different sectors of the TNC (1)
• Nike’s brand stock dropped by 13% in 2023. This could be because the poor working conditions of workers working at Nike factories in countries like Vietnam, this could discourage customers in the USA from purchasing products from Nike as the condition of work places in Vietnam damage the TNCs image as they are exploiting and abusing workers. (1)

Question 4

Explain the benefits of global operations on Nike’s country of origin which is the USA: (3)

Answer 4

• Nike has around 600 factories set up in over 45 countries. This can bring benefits due to the low manufacturing costs in these countries. Most of Nike’s products are manufactured in these countries and then they are shipped back to the USA to be sold. This brings benefits as Nike can earn more profit due to large amounts of selling as well as low manufacturing costs. (1)
• The literacy rate in the USA is relatively high with 79% of adults being literate and 76.8 students enrolled in school. This can lead to people acquiring skills from education and training and this brings benefits to Nike as people have high skills in design, technology, business management etc. which can lead to an increase in productivity and output in Nike. (1)
• Because Nike is a TNC which revolves around sports and fitness, it encourages a healthy lifestyle. Nike first addressed the issue of physical inactivity in the 1970s, and since then 25 million Americans embraced running and jogging. This can lead to a better lifestyle which in turn leads to a higher life expectancy. (1)