Utility, value, commodity, land labor and capital are the main elements of political economy. The same basic features rule international economy. Different countries have fundamental laws which govern international trade relations which players must adhere to. In addition, they also provide certain advantages to international firms such as tax advantages, regulated labor supplies, power subsides, infrastructure provision and free trade zones. Protectionism is usually hyped as the means of providing a warm and favorable climate for investment which then implies an expense to the environment, and the social concerns of the host country.
Protectionism policies also imply a considerable relaxation of the burden on the business in the aim of leveling the playing ground for foreign investors. (Deuchars, p174) The intention of this paper to give an account of the protectionist advantages provided to Nike by host countries in view of free trade zones, incorporating tax advantage, power subsidies, regulated labor supply, infrastructure and provision. In additional, it will outline the essential components of multinational apparel companies Nike will also be explored and possibly linked with state protectionist systems and political economic support.
Introduction Nike Inc is a profitable shoe manufacturing company that manufactures and distributes sports gear, athletic shoes and sports equipment. Its subsidiaries are mainly in South East Asia in countries like Thailand, Malaysia, Indonesia, South Korea, Vietnam, Laos and china. Its main competitors are Italian sportswear shoemaker (Fila), Reebok, Fubu among others. In the recent years Nike has closed down its subsidiaries in Europe and shifted to the S. E. Asia where there is low skills and high labor.
Nike reports attractive gains yearly and has extended operations to other countries mostly in Asia. The drive to maintain competitiveness has forced Nike Company to go global and to restructure their operations for example restructuring their systems of producing, distributing, wealth utilization among others in order to derive maximum economic gains. This has been facilitated by the ease of capital flight across borders and the need to fid cheaper raw materials and labor as well as avoid interferences from strong trade unions.
It seems that its expansion has not only extended economic prosperity and internationally peace but also inequality. Nike is affiliated to United States of America which is a super power. This means that the political influence that they have on the economic and political structure in the host countries is immense. In turn, hosts countries have been compelled to give larger subsidies, improve the level of infrastructure, sign free trade agreements and regulate labor supply among other incentives and regulations, in order to attract investors who can invest in the country thus improve the economic standing.
This is especially the case where the host country is among the low income developing countries say Pakistan and Vietnam. The executives in these companies are usually well-connected individuals to the high and mighty political leaders and policy makers who with a little intimidation are compelled to increase protections advantages to Nike so that Nike in the end becomes in a position to maximize profits. (Clairmont, 1996).
Host countries make deliberate actions to provide land in designated areas where international companies like Nike can build factories and employ people to work in those counties. These areas are served with good infrastructures like road, power supplies, low cost rent buildings within the vicinity of the factory, transport facilities and communication networks which are very attractive to retaining and attracting investors. There areas are what are normally called export processing zones. (Abott, 2003).
The free trade zones enclave a myriad of extensive incentives which more often than not are inclusive of other exemptions of legislative requirements, for example Nike enjoys duty free import goods for re-exporting. These zones are mostly dominated by apparel companies like Nike. The downside of this is that the same noble idea of attractive environment for foreign investment offers the host counties citizen to the hands of capitalist as an exploitable recourse. The advantage of the increased foreign investment is that the country increases its economic status.
Another advantage of free trade zones is that the stringent restrictions on foreign ownership that are enforced in the rest of the host countries are waved of in this area for the foreign firms that establish there. Nike being positioned to producing for the mass market positions in the free trade zones and in turn it positions itself for profit maximization. Nike, as a multinational company with great influence on a country’s economic well being in the south East Asia countries; Nike employs a significant number of workers to work in the footwear factories.
A large part of that workforce is women who are breadwinners for their families. In the same breath, Nike engages other business entities such as banking, petty errand companies and suppliers among others in business However; it seems that Nike has enjoyed protection in host countries with no real benefits realized by the country’s citizens. Economic inequality increases their wealth. By threatening its exit from host countries, Nike ensures that it always has an upper hand in influencing the politics of a country. (Vaknin, 2003, www. personal. umich. edu, www. nike.
jp) This is because the host country bows down to pressure that the company imposes since it would be at the greatest advantages incase the company withdrew its investment. Another protectionist advantages accorded to Nike are tax advantages that mainly include tax holidays and tax subsides. Host countries aggressive to stay competitive in the global marketeering game offer tax incentives derived from their tax base to attract investors such as Nike. This they do as a way of being sensitive to the international business requirements and also as a way of affording investment protection to the valuable foreign clients such as Nike.
(Deuchars, 2006) these tax advantages more often than not are to the disadvantage of the domestic economy. Nike ensures that it avoids tax by engaging in philanthropic activities for example contributing balls to schools among other contributions that only take up a small share of the profits. The rest of the money is pocketed. This is another strategy used by Nike to maximize profits. (http://www. nike. jp/nikebiz/global/pdf/case/gdmornviet. pdf) According to Joel Bakan, Nike exploits the employees by forcing them to make a shirt in six minutes and nine shirts in an hour.
The prices that the shirts are sold for apparently do not match with the daily wage of factory workers. (Bakan, 2004). On top of that, Nike directly intervenes in host countries’ political system and international relations to facilitate profit and minimization. Nike has in the past been criticized for dealing with companies that use sweatshops (manufacturing companies with poor working conditions and meager pay) These companies go against the international labor wage standards and overwork their employees. This was the case as witnessed in Vietnam in 1996. (www. personal. umich.
edu) Nike invests in other countries to expand its horizons to new markets and more particularly to avoid stringent tariffs in their home country and take advantage of the lax trade restrictions in the host countries. The raw materials in most host countries in the third world tend to be cheaper and require less transport to the manufacturing plants. Nike capitalizes on these aspects. The structure of the international economic world predisposes the financial returns to the few elites in the corporate world while the poor in the developed and developing world wallow in poverty.
“Financial liberalization, for example, has already resulted in a significant shift of resources and power in favor of those who have capital globally, thereby leading to a further concentration of capital in fewer and fewer hands. Full capital account liberalization as demanded by the IMF, and even more starkly in Fukiyama’s vision of the ‘end of history’ will, if implemented, therefore, represent the biggest single shift in the balance of power in favor of those who have already accumulated capital at the expense of labor globally”( Clairmont, 1996)
For the most part, Nike has automated its systems to reduce the menace of labor encroachment into the critical areas of labor (living, firing, and safety) (Rifkin, p23). "Menaced by the increasing intensity of labor’s demands and determined to maintain its long-standing control over the means of production, "America's industrial giants turned to the new technology of automation as much to rid it of rebellious workers as to enhance its productivity and profit.
" (Rifkin, p23). The essential components of multinational apparel companies include prohibition of child labor, unfair discrimination against individuals based on color, race or gender prohibition of forced labor, protection of freedom of expression and collective bargaining, imposing of a minimum wage limit, provision of health and safe working environment, limits on working durations or compensation on voluntary overtime within the restrictions of local laws among others.
These components are bare without a proper structure of implementation. Nike establishes its subsidiaries in countries where failure to abide to international labor law standards attracts no different penalties. It influence and prestige only give leeway for Nike to retain their protections as well as oppressing the citizens in the host countries. Conclusion The economic advantages offered by host states have both advantages and disadvantages to the host countries.
The disadvantages are mainly the negative impacts on the social welfare of the workforce of the host state. The advantages are economic, political and social and far outweigh the disadvantage. Seen as it is, Nike has most of its subsidiaries in developing countries where their economy is poor. In order to root out of the economic slumps characteristic of these countries they have to employ outside intervention and this is where Nike comes in.
Nike paves way for economic development by reducing the unemployment rate, and contributing to the Gross Domestic Product of the host countries. Nike is provided with attractive protectionist advantages such as discussed above to encourage them to invest in the country. Additionally, the economic power carried by Nike ensures that it solicits political favor in host countries further increasing their protectionist advantages and maximize their profits.
Although at many points the image of Nike has been tarnished, the economic truth is that it has jumpstarted nearly dead economies and taught the people how to catch fish rather than depending on foreign aid which sinks them further into international indebtedness.
Bakan, J. (2004). The Corporation; The Pathological Pursuit of Profit and Power. London: Constable p. 66 Clairmont, F. F. (1996). The Rise and Fall of Economic Liberalism, Southbound, Third World Network, Penang, Malaysia. p. 12. Facts and FAQs about Nike labor abuses. Viewed from http://www-personal.umich.edu/~lormand/poli/nike/nikelabor.htm