[SPORTS] Nike in China
- Nike grows in China
Nike China (Translated Version): http://translate.google.com/translate?hl=en&sl=zh-CN&u=http://www.nike.com.cn/&ei=5oTvStKgK4vkswPgldn8BQ&sa=X&oi=translate&ct=result&resnum=2&ved=0CBMQ7gEwAQ&prev=/search%3Fq%3Dnike,%2Bchina%26hl%3Den%26rlz%3D1R2RNTN_enUS334
NBA Basketball Championships China:
In May 2007, Nike China and DMG organized an epic street ball tournaments to unearth the best young ballers in Beijing. Held over three intense days, only the most Baqi of ballers made it to the final inside the walls of the Forbidden City. Preliminary games were played around the Forbidden City gates, hence the title of the tournament, 'The Battle of the 9 Gates'. Inspiration was drawn from the capital's imperial heritage, street ball culture and the arrogant Baqi style of Beijing baskeball. The campaign incorporated multi-media spanning from recruitment drives to artist-collaborations, music, videos, and post-final celebrations.
Nike marked a big year for its presence in China during fiscal 2009. Year-over-year revenue grew by 22 percent in China, while growing only 2 percent in the United States. The company's CEO called the Beijing Olympics "the biggest win of all" for Nike. Jin Lee / Bloomberg News
Swoosh! describes the sound heard over China as Nike (NYSE: NKE) reorganized itself in August to better exploit opportunities it sees there.
Previously, China was part of Nike's Asia Pacific operating segment, encompassing 13 countries. Now, Greater China has become its own operating unit, as Nike focuses on China's youth.
At the company's annual shareholders' meeting in late September, Nike President and CEO Mark Parker called the Olympics in Beijing the biggest win of all for Nike in fiscal 2009. For 2009, Nike's revenue in China grew by 22% year over year, on a currency-neutral basis. By comparison, its revenue growth in the United States for the same period was only 2%. During a year of economic crisis, Nike's having grown revenue at all reflects a fierce global competitor.
In terms of total revenue, net income and operating margins, Nike is the clear winner among its competitors, with a strategy to boost margins by eliminating its least-popular styles. The company has 600 to 700 styles in the works at any one time. According to Parker, "that's too many ... we're really trying to edit the product down to fewer and better product."
As Nike continues to promote events such as the Nike+Human Race, it is sure to attract more and more Chinese youth. Last year, the race featured 780,000 participants worldwide.
Nike jumps into China
"Swoosh!" describes the sound heard over China as Nike (NYSE: NKE) reorganized itself in August to better exploit opportunities it sees there
Previously, China was part of Nike's Asia Pacific operating segment, encompassing 13 countries. Now, Greater China has become its own operating unit, as Nike focuses on China's youth.
At the company's annual shareholders' meeting in late September, Nike President and CEO Mark Parker called the Olympics in Beijing "the biggest win of all" for Nike in fiscal 2009. For 2009, Nike's revenue in China grew by 22 percent year over year, on a currency-neutral basis.
By comparison, its revenue growth in the U.S. for the same period was only 2 percent. However, during a year of economic crisis, Nike's having grown revenue at all reflects a fierce global competitor.
In terms of total revenue, net income and operating margins, Nike is the clear winner among its competitors, with a strategy to boost margins by eliminating its least-popular styles.
The company has 600 to 700 styles in the works at any one time. According to Parker, "that's too many ... we're really trying to edit the product down to fewer and better product."
As Nike continues to promote events such as "The Nike+ Human Race," it is sure to attract more and more Chinese youth. Last year, the race featured 780,000 participants worldwide
Nike says to build logistics centre in China
BEIJING, Feb 18 (Reuters) - Nike Inc (NKE.N) will build a logistics centre in eastern China, the facility will become Nike's largest such centre in Asia when it is completed at the end of 2010, the company said in a statement seen on Wednesday.
Construction on the centre will begin in the first quarter of 2009 and will help direct the flow of Nike shoes and apparel in China, Nike's second-largest market after the United States and one of its fastest growing.
Nike, the world's largest athletic shoe and clothing maker, did not put a value on the centre, its third in Asia, but China Business News said the investment would be $99 million.
Investment in the centre could be expanded to include other brands in the Nike stable, it said, without elaborating.
The expansion comes as Nike has recently announced a new focus on cost-cutting to cope with the global recession, announcing up to 1,400 layoffs, or 4 percent of its workforce.
Student's sneaker design attracts Nike's attention
With a revolutionary shoe design, Taiwan might provide a perfect answer for solving the problem of many international basketball superstars.
Chen Yun-chen, a student of the National Cheng Kung University majoring in Industrial Design, is negotiating a possible deal from Nike for his innovative "wear-resistant shoe sole" design. Chen developed this blueprint during his study as an exchange student at the College of Creative Studies in the U.S.
During his first semester, he was among the students that cooperated with Nike in a plan to design basketball sneakers.
After interviewing numerous basketball players on creating better sneakers, he realized one of their biggest concerns surrounded the durability of sneaker soles. Chen reported that when many basketball players engage in long periods of intense training, their sneaker soles wear out easily and frequently.
As soon as the sole wears out, the players need to replace their shoes with a brand-new pair.
This new "wear-resistant shoe sole" design incorporates the idea of an invisible sole hidden within the original shoe sole. Using an eraser as a model for the shoe sole, he rubbed the eraser from every possible angle for an entire week. During the process, he discovered that by implanting extra small holes within the sole, when the original sole wears out, the shoe can still retain its grip as the weathered surface of the sole will still be uneven, preventing the sneakers from skidding.
Moreover, as the shoe sole wears out, the Nike mark will appear on the rear of the sole. Chen hopes this mark can signify the perseverance of the players; the more they play, the more visible the Nike mark appears.
Chen is in the process of obtaining a patent for his design and will be formally negotiating a deal with Nike. It was reported that several sneaker-makers from China are also planning to fight over this unique design.
Nike Jumps Into China With Both Feet
By Angelique Keenley
"Swoosh!" can best describe the sound heard over China as Nike (NYSE: NKE) reorganized itself in August to better exploit the opportunities it sees there.
Previously, China was part of Nike's Asia Pacific operating segment, which included 13 countries. Under the new structure, Greater China has become its own operating unit and Nike is focused on China's youth.
At the company's annual shareholders' meeting in late September, Nike President and CEO Mark Parker called the Olympics in Beijing "the biggest win of all" for Nike in fiscal 2009. For 2009, Nike's revenue in China grew by 22% year over year, on a currency-neutral basis. By comparison, its revenue growth in the U.S. for the same period was only 2%. However, during a year full of economic crisis, the fact that Nike grew revenue at all proves that it remains a fierce global competitor.
At the meeting, management was asked about the competitive threat posed by Li Ning, a Chinese footwear and apparel company that had revenue of more than $1 billion -- second only to Nike in China. Parker responded, "We don't take any competitor lightly ... I think if you look at our brand strength in China, our market share position and how both of those have actually grown considerably over the last five to seven years, we feel very strong about our position there." In other words ... meiwenti (that's Mandarin for no problem).
In terms of total revenue, net income, and operating margins, Nike is the clear winner among its competitors, as shown in the chart below.
TTM Net Income
TTM Operating Margins
Under Armour (NYSE: UA)
Columbia Sportswear (Nasdaq: COLM)
Timberland (NYSE: TBL)
Callaway Golf (NYSE: ELY)
Skechers USA (NYSE: SKX)
TTM = trailing 12 months. Data from Capital IQ, a division of Standard & Poor's.
Its operating margins are much higher than those of competitors, and Nike has a strategy to further increase those margins by eliminating its least-popular styles. The company has 600 to 700 styles in the works at any one time. According to Parker, "that's too many." The CEO added: "So we have a big focus or initiative at Nike, what we call edit and amplify. So we're really trying to edit the product down to fewer and better product."
The summer Olympic Games in Beijing last year truly vaulted Nike into China's culture. The company sponsored athletes in almost every event and became the Games' brand of choice. As Nike continues to promote events such as "The Nike+ Human Race," it is sure to attract more and more Chinese youth. This running event showcases the Nike Plus technology developed with Apple (Nasdaq: AAPL). Last year, the race featured 780,000 participants worldwide, and it's scheduled for Oct. 24 this year. I'm off to get myself some of those cool Nike Plus shoes so I can play along, too.
More Than A Game: Hope in China
Beijing/Shenyang: China Children & Teenagers' Fund
Shanghai: Hands on Shanghai http://www.handsonshanghai.org/
Children's Arts Initiative http://www.cai-china.org/site/index.php/zh
More Than a Game: Zhang Yuan Wei is one of China's more than 20 million migrant kids, who often live on the move, in poverty and with only a 9th-grade education. Despite it all, basketball gives him the confidence, determination and friends to push for a better life for him and his family
Zhang Yuan Wei won't let anything keep him from playing basketball. And that makes him unstoppable off the court as well. There's no denying that life for most of China's 20 million migrant kids is hard. Through sport they gain self-respect, determination and skills that will help them in life, like communications, teamwork and creativity.
Since 2006 Nike has supported school sports for migrant kids through China Children and Teenagers' Fund's "Let Me Play" program. Together we have reached over 300,000 youth in 7 cities across China. This week Nike Basketball and Lebron James helped raise awareness about the situation for migrant kids and how basketball is empowering them. To commemorate the week's events, the sports program was expanded to 2 new cities. Now migrant kids in Shenyang and Shanghai will also benefit from special PE curriculum, equipment and teacher training as well as have a basketball league all their own!
How Nike Figured Out China
By Matthew Forney
Nike swung into action even before most Chinese knew they had a new hero. The moment hurdler Liu Xiang became the country's first Olympic medalist in a short-distance speed event he claimed the gold with a new Olympic record in the 110-m hurdles on Aug. 28--Nike launched a television advertisement in China showing Liu destroying the field and superimposed a series of questions designed to set nationalistic teeth on edge. "Asians lack muscle?" asked one. "Asians lack the will to win?" Then came the kicker, as Liu raised his arms above the trademark Swoosh on his shoulder: "Stereotypes are made to be broken." It was an instant success. "Nike understands why Chinese are proud," says Li Yao, a weekend player at Swoosh-bedecked basketball courts near Beijing's Tiananmen Square.
Such clever marketing tactics have helped make Nike the icon for the new China. According to a recent Hill & Knowlton survey, Chinese consider Nike the Middle Kingdom's "coolest brand." Just as a new Flying Pigeon bicycle defined success when reforms began in the 1980s and a washing machine that could also scrub potatoes became the status symbol a decade later, so the Air Jordan or any number of Nike products turned out in factories across Asia has become the symbol of success for China's new middle class. Sales rose 66% last year, to an estimated $300 million, and Nike is opening an average of 1.5 new stores a day in China. Yes, a day. The goal is to migrate inland from China's richer east-coast towns in time for the outpouring of interest in sports that will accompany the 2008 Summer Olympics in Beijing. How did Nike build such a booming business? For starters, the company promoted the right sports and launched a series of inspired ad campaigns. But the story of how Nike cracked the China code has as much to do with the rise of China's new middle class, which is hungry for Western gear and individualism, and Nike's ability to tap into that hunger.
Americans have dreamed of penetrating the elusive China market since traders began peddling opium to Chinese addicts in exchange for tea and spices in the 19th century. War and communism conspired to keep the Chinese poor and Westerners out. But with the rise of a newly affluent class and the rapid growth of the country's economy, the China market has become the fastest growing for almost any American company you can think of. Although Washington runs a huge trade deficit with Beijing, exports to China have risen 76% in the past three years. According to a survey by the American Chamber of Commerce, 3 out of 4 U.S. companies say their China operations are profitable; most say their margins are higher in China than elsewhere in the world. "For companies selling consumer items, a presence here is essential," says Jim Gradoville, chairman of the American Chamber in China.
The Chinese government may have a love-hate relationship with the West eager for Western technology yet threatened by democracy but for Chinese consumers, Western goods mean one thing: status. Chinese-made Lenovo (formerly Legend) computers used to outsell foreign competitors 2 to 1; now more expensive Dells are closing the gap. Foreign-made refrigerators are displacing Haier as the favorite in China's kitchens. Chinese dress in their baggiest jeans to sit at Starbucks, which has opened 100 outlets and plans hundreds more. China's biggest seller of athletic shoes, Li Ning, recently surrendered its top position to Nike, even though Nike's shoes upwards of $100 a pair cost twice as much. The new middle class "seeks Western culture," says Zhang Wanli, a social scientist at the Chinese Academy of Social Sciences. "Nike was smart because it didn't enter China selling usefulness, but selling status."
The quest for cool hooked Zhang Han early. An art student in a loose Donald Duck T shirt and Carhartt work pants, Zhang, 20, has gone from occasional basketball player to All-Star consumer. He pries open his bedroom closet to reveal 19 pairs of Air Jordans, a full line of Dunks and signature shoes of NBA stars like Vince Carter more than 60 pairs costing $6,000. Zhang began gathering Nikes in the 1990s after a cousin sent some from Japan; his businessman father bankrolls his acquisitions. "Most Chinese can't afford this stuff," Zhang says, "but I know people with hundreds of pairs." Then he climbs into his jeep to drive his girlfriend to McDonald's.
Zhang hadn't yet been born when Nike founder Phil Knight first traveled to China in 1980, before Beijing could even ship to U.S. ports; the country was just emerging from the turmoil of the Cultural Revolution. By the mid-'80s, Knight had moved much of his production to China from South Korea and Taiwan. But he saw China as more than a workshop. "There are 2 billion feet out there," former Nike executives recall his saying. "Go get them!"
Phase 1, getting the Swoosh recognized, proved relatively easy. Nike outfitted top Chinese athletes and sponsored all the teams in China's new pro basketball league in 1995. But the company had its share of horror stories too, struggling with production problems (gray sneakers instead of white), rampant knock-offs, then criticism that it was exploiting Chinese labor. Cracking the market in a big way seemed impossible. Why would the Chinese consumer spend so much twice the average monthly salary back in the late 1990s on a pair of sneakers?
Sports simply wasn't a factor in a country where, since the days of Confucius, education levels and test scores dictated success. So Nike executives set themselves a potentially quixotic challenge: to change China's culture. Recalls Terry Rhoads, then director of sports marketing for Nike in China: "We thought, 'We won't get anything if they don't play sports.'" A Chinese speaker, Rhoads saw basketball as Nike's ticket. He donated equipment to Shanghai's high schools and paid them to open their basketball courts to the public after hours. He put together three-on-three tournaments and founded the city's first high school basketball league, the Nike League, which has spread to 17 cities. At games, Rhoads blasted the recorded sound of cheering to encourage straitlaced fans to loosen up, and he arranged for the state-run television network to broadcast the finals nationally. The Chinese responded: sales through the 1990s picked up 60% a year. "Our goal was to hook kids into Nike early and hold them for life," says Rhoads, who now runs a Shanghai-based sports marketing company, Zou Marketing. Nike also hitched its wagon to the NBA (which had begun televising games in China), bringing players like Michael Jordan for visits. Slowly but surely, in-the-know Chinese came to call sneakers "Nai-ke."
And those sneakers brought with them a lot more than just basketball. Nike gambled that the new middle class, now some 40 million people who make an average of $8,500 a year for a family of three, was developing a whole new set of values, centered on individualism. Nike unabashedly made American culture its selling point, with ads that challenge China's traditional, group-oriented ethos. This year the company released Internet teaser clips showing a faceless but Asian-looking high school basketball player shaking-and-baking his way through a defense. It was timed to coincide with Nike tournaments around the country and concluded with the question, "Is this you?" The viral advertisement drew 5 million e-mails. Nike then aired TV spots contrasting Chinese-style team-oriented play with a more individualistic American style, complete with a theme song blending traditional Chinese music and hip-hop.
Starting in 2001, Nike coined a new phrase for its China marketing, borrowing from American black street culture: "Hip Hoop." The idea is to "connect Nike with a creative lifestyle," says Frank Pan, Nike's current director of sports marketing for China. The company's Chinese website even encourages rap-style trash talk. "Shanghai rubbish, you lose again!" reads a typical posting for a Nike League high school game. The hip-hop message "connects the disparate elements of black cool culture and associates it with Nike," says Edward Bell, director of planning for Ogilvy & Mather in Hong Kong. "But black culture can be aggressive, and Nike softens it to make it more acceptable" to Chinese. At a recent store opening in Shanghai, Nike flew in a streetball team from Beijing. The visitors humiliated their opponents while speakers blasted rapper 50 Cent as he informed the Chinese audience that he is a P-I-M-P with impure designs on their mothers.
Thanks in part to Nike's promotions, urban hip-hop culture is all the rage among young Chinese. One of Beijing's leading DJs, Gu Yu, credits Nike with "making me the person I am." Handsome and tall under a mop of shoulder-length hair, Gu got hooked on hip-hop after hearing rapper Black Rob rhyme praises to Nike in a television ad. Gu learned more on Nike's Internet page and persuaded overseas friends to send him music. Now they send something else too: limited-edition Nikes unavailable in China. Gu and his partner sell them in their shop, Upward, to Beijing's several hundred "sneaker friends" and wear them while spinning tunes in Beijing's top clubs. To them, scoring rare soles and playing banned music are part of the same rebellious experience. "Because of the government, Chinese aren't allowed access to a lot of these things," says Gu's partner, Ji Ming, "but with our shop and Nike-style music, they can get what they want."
The Nike phenomenon is challenging Confucian-style deference to elders too. At the Nike shop in a ritzy Shanghai shopping mall, Zhen Zhiye, 22, a dental hygienist in a miniskirt, persuades her elderly aunt, who has worn only cheap sneakers that she says "make my feet stink," to drop $60 on a new pair. Zhen explains the "fragrant possibilities" of higher-quality shoes and chides her aunt for her dowdy ways. Her aunt settles on a cross trainer. For most of China's history, this exchange would have been unthinkable. "In our tradition, elders pass culture to youth," says researcher Zhang. "Now it's a great reversal, with parents and grandparents eating and clothing themselves like children."
Success aside, Nike has had its stumbles. When it began outfitting Chinese professional soccer teams in the mid-1990s, its ill-fitting cleats caused heel sores so painful that Nike had to let its athletes wear Adidas (with black tape over the trademark). In 1997, Nike ramped up production just before the Asian banking crisis killed demand, then flooded the market with cheap shoes, undercutting its own retailers and driving many into the arms of Adidas. Two years later, the company created a $15 Swoosh-bearing canvas sneaker designed for poor Chinese. The "World Shoe" flopped so badly that Nike killed it.
Yet all that amounts to a frayed shoelace compared with losing China's most famous living human. Yao Ming had worn Nike since Rhoads discovered him as a skinny kid with a sweet jumper and brought him some size 18s made for NBA All-Star Alonzo Mourning. In 1999 he signed Yao to a four-year contract worth $200,000. But Nike let his contract expire last year. Yao defected to Reebok for an estimated $100 million. The failure leaves Nike executives visibly dejected. "The only thing I know is, we lost Yao Ming," says a Shanghai executive who negotiated with the star.
Nike is determined not to repeat the mistake. It has already signed China's next NBA prospect, the 7-ft. Yi Jianlian, 18, who plays for the Guangdong Tigers. And the company has resolved problems that dogged it a few years ago. Nike has cleaned up its shop floors. It cut its footwear suppliers in China from 40 to 16, and 15 of those sell only to Nike, allowing the company to monitor conditions more easily. At Shoetown in the southern city of Guangzhou, 10,000 mostly female laborers work legal hours stitching shoes for $95 a month more than minimum wage. "They've made huge progress," says Li Qiang, director of New York City based China Labor Watch.
In China, Nike is hardly viewed as the ugly imperialist. In fact, the company's celebration of American culture is totally in synch with the Chinese as they hurtle into a chaotic, freer time. In July, at a Nike three-on-three competition in the capital, a Chinese DJ named Jo Eli played songs like I'll Be Damned off his Dell computer. "Nike says play hip-hop because that's what blacks listen to," he says. "The government doesn't exactly promote these things. But we can all expose ourselves to something new." That sounds pretty close to a Chinese translation of "Just Do It."
China's Li Ning Toe-to-Toe Against Nike and Adidas
Chinese athletic wear maker Li Ning is raising its international profile to win over shoppers at home
China's top athletic wear maker, Li Ning, has quite a lineup of sponsorships for the Beijing Olympics. There's the U.S. ping-pong squad (the men are ranked 44th globally and the women are 12th), Sudan's track and field athletes (none of whom has ever won an Olympic medal), and Sweden's Olympic delegation (but the athletes won't wear Li Ning during competition, only for ceremonies).
Why would a shoe and clothing manufacturer that does 99% of its business in China bother with athletes from far-flung locales where its products aren't sold? It has to do with Li Ning's unusual position in the Chinese market. The 18-year-old company once ruled China's sneaker business, but today it lags behind giants Nike (NKE) and Adidas (ADDDY) even at home. And a big part of the appeal of those powerful rivals is their profile on the global stage. "We don't have as strong a brand" as Nike and Adidas, says Abel Wu, who oversees Li Ning's footwear division. "Our thinking is that as a local brand, we need to have an international image."
Call it paper-tiger marketing. Li Ning tries to create the illusion of being a global player despite its near-total reliance on its home market. In addition to the international sponsorships, the company is running an ad campaign called "One Team, One Belief" featuring European, African, South Americanand Chineseathletes standing in a stadium with their hands across their hearts. And Li Ning has teamed up with the National Basketball Assn. as a sponsor of the "NBA Jam Van Tour." The event, which rolls through dozens of Chinese cities, includes a basketball court that can be assembled at every stop. Local kids are invited to participate in competitions such as the "Li Ning Slam Dunk Contest."
To be fair, Nike and Adidas also back athletes who have little chance of winning medals. And Li Ning's marketing isn't based entirely on third-stringers from abroad. Its chairman and eponymous founder brought home three gold medals in gymnastics from the Los Angeles games in 1984. Basketball star Shaquille O'Neal is an endorser (but only in China; in the U.S. he wears shoes made for him by Li Ning, though they don't bear the company logo). And Li Ning is sponsoring China's ping-pong players, divers, gymnasts, and sharpshooters at the Beijing Gamesall strong medal contenders, but not events where high-tech footwear plays much of a role.
Li Ning makes no bones about admiring its bigger rivals. Its gleaming corporate campus near Beijing, complete with indoor swimming pool, basketball courts, and a climbing wall, seems like a page out of Nike's playbook. Ads feature the slogan "Anything is Possible" (which the company launched before Adidas came out with "Impossible is Nothing," but long after Nike's "Just Do It"). And its logo is strikingly similar to the Nike Swoosh. "They just dusted off a Nike marketing plan, took bits and pieces, and said, "Voilà!'" says Terry Rhoads, a former Nike China executive who runs Shanghai sports consultancy Zou Marketing.
Some branding experts say the paper-tiger strategy is paying off. The deal with the U.S. table tennis team cost a fraction of the $80 million that Adidas is paying as an official Olympic sponsor in China. Similarly, getting Shaq to endorse the brand in China clearly cost far less than persuading the Phoenix Suns star to wear Li Ning shoes in the U.S.though the company declined to say how much it's spending on any of its sponsorship deals. "They are the most efficient marketer for the Olympics in terms of spend vs. return," says Greg Paull, a partner at market researcher R3 in Beijing. Last year, Li Ning's profits jumped 61%, to $66 million, as sales climbed 37%, to $603 million, giving it 9.3% of the Chinese market, according to JPMorgan (JPM).
With sportswear sales in China growing at 30% per year, there's plenty of room yet for Li Ning to expand. It now rolls out about 600 different shoe styles a year. And in 2004 it hired Ned Frederick, a former research director at Nike, and Portsmouth (N.H.)-based Daniel Richard Design, which has worked with Converse (NKE) and Saucony, to come up with a technology that could compete with the Nike Air lineup. Their answer was the Basketball Bow, which tops Li Ning's product range at $140about $20 less than the Nike Air Jordan. But most of Li Ning's business is in models selling for $30 to $70 a pair. And Li Ning's strength is in smaller cities where the big rivals haven't yet focused much effort. So it still has to prove it can face off against Nike and Adidas in Beijing and Shanghai let alone the U.S., where Li Ning in January opened a small design office in Nike's backyard, Portland, Ore.
To compete with the big names either at home or abroad, Li Ning may need to decide what it wants to be. Today, it's difficult to say whether it's a trendy brand for urban teenagers or a bona fide performance shoemaker, and simply creating an image of global reach won't clear that up, says Tom Doctoroff, chief executive officer for China at ad agency JWT (WPPGY). While Nike may now be both, it established its name as a maker of serious athletic footwear before it was ever cool. "The challenge is to link to a brand idea that is the basis for enduring loyalty," Doctoroff says. Li Ning's "helter-skelter messaging is probably not an effective way of establishing that."
CHINA: At Nike Plant, no Sweatshop, Plenty of Sweat
by Richard Read, The Oregonian
DONGGUAN, China -- More than 4,000 workers who churn out athletic bags in a huge Nike contract factory here breathe ventilated air. They wear earplugs when pounding rivets. They use bathrooms with running water. And they read their rights on wall-mounted bulletins.
Gone are the acrid fumes, the scant protective gear and the foul restrooms evident during past years in plants making Nike products. Workers flocking from poor villages to booming, smog-choked southeast China express eagerness for their jobs here, belying the image of sweatshop exploitation that has plagued the Beaverton-based company for years.
Yet the Golden Prene factory, which makes about 25,000 bags a day and generates $80 million in annual revenues, is hardly a carefree place. Assembly workers toil long hours at repetitive jobs. Many of them endure separation from families. Their wages are higher than incomes back on the farm, but meager by U.S. standards at an average of $5 a day, including overtime. Workers' modest dreams reveal difficult lives.
"My mother is raising our 3-year-old son back home," says Kuang Wangxin, a 27-year-old floor supervisor. Twice a year, Kuang rides a bus eight hours with his wife, an assembly worker, to see their child. "I hope when he grows up he can start as a manager," Kuang says, "and not go through what I did."
After Nike's recent disclosure of the names and locations of 705 independent contract factories in its network, a plant visit reveals significant improvements since the 1990s. The main issue to surface is one that Nike managers acknowledge as a widespread problem: overtime hours exceeding maximums set by Nike and local laws.
A few hours in one factory is not enough time to thoroughly assess working conditions, and the Golden Prene factory may or may not be representative. Nike still does not release audit scores for individual plants.
A Nike manager hosting the visit substituted Golden Prene for Bonny Sports, another Chinese factory requested from the disclosure list. He said Bonny made products for Bauer Nike Hockey, a subsidiary not yet fully covered by Nike's compliance standards.
At Golden Prene, randomly selected workers voiced few complaints during interviews with and without a Nike manager present. But fundamental issues of fairness linger from the days when activists dragged Nike into the headlines, contrasting factory workers' wages with rising sneaker prices and lavish endorsement contracts.
Nike public-relations officers once bristled at suggestions that their company, dedicated to lofty goals of athletics and achievement, would exploit workers who, in their view, were gaining economic opportunities. But today Caitlin Morris, Nike compliance integration and collaboration director, sticks to a positive message.
"The obligation that Nike has is to make good on the concept that foreign investment in these countries does raise standards of living," Morris says. "My aspiration as someone in Nike's corporate-responsibility department is to make a positive contribution to that."
Longtime critics acknowledge progress made by Nike managers, adding that it occurred only due to public pressure. "What they've eliminated is super exploitation, and now they're just down to plain exploitation," says Medea Benjamin, founding director of Global Exchange, a San Francisco human rights organization.
Benjamin says Nike, which reported record profits last year, could afford better wages for its contract workers. She says the company should shun China and other nations that ban unions; Nike managers maintain they can do more to support freedom of association by engaging with China.
Jeff Ballinger, director of Press for Change, a tiny but vocal activist organization in Toronto, says Nike executives should empower workers instead of imposing conveniently crafted initiatives. "They're skating by with some corporate social-responsibility template that's been hammered out by expensive consultants," Ballinger says.
Ballinger and Benjamin grant that consumer outrage has waned. Instead of actively targeting Nike, Global Exchange is pushing U.S. city governments to buy "sweatshop-free" products.
Contract payroll increases
Nike's contract work force, meanwhile, has grown to 653,000 in more than 50 countries. One of those workers, Lu Ling, a 26-year-old Golden Prene stitching operator, left her distant rural village eight years ago. She works a standard 60-hour six-day week.
As the eldest child, the middle-school dropout sends money home from her $145 monthly earnings so that her siblings can attend school. Hunched over a sewing machine, she races to exceed hourly production targets so her team can earn more. "Someday," Lu says, "I want to have my own bag factory."
Lu and other workers are so pressed that they don't glance up when visitors come by. They receive health benefits required by Chinese law. They earn enough to buy bicycles -- some workers buy motor scooters -- but not cars.
The Golden Prene factory, owned by the Guang Der Corp., comprises four hulking manufacturing buildings. The 15-year-old complex is located in the gritty Hua Nan Industrial Zone, one of the many huge new manufacturing districts that sprawl across a mainland Chinese region near Hong Kong.
Factory manager Charles Shang, a former Taiwanese army major who served in a military boot-making plant, says the decision to begin making Nike goods about seven years ago forced changes. Before then, he says, employees worked from 7:30 a.m. until 11 p.m. with two one-hour breaks -- every day of the month.
In those days, about 30 percent of the workers failed to return after Chinese New Year holidays. But now, Shang says, annual turnover is under 10 percent.
Nike accounts for between 55 percent and 65 percent of the plant's production. The factory also makes bags for Dakine Hawaii Inc., the Hood River sports-accessory company, and for other brands. Adidas moved out several months ago.
Golden Prene has followed Nike's transition away from oil-based solvents and other hazardous chemicals to water-based materials. Plant managers have grown accustomed to Nike audits, which Shang credits with helping attract customers.
"After they heard we were doing business with Nike," Shang says, "they understood we were qualified."
About 30 Nike employees work in offices inside the Golden Prene plant, with responsibilities ranging from conducting audits to readying Beaverton-designed products for manufacture.
Government, family connections
Golden Prene and other Guangdong-province manufacturers have faced a tightening labor market recently, as workers favor other industrial regions. Instead of raising wages, as some factories have done, the plant works through rural provincial officials, who steer workers its way.
Village and family connections also help. Wan Tianyan, a 21-year-old riveter who projects a macho air, followed his two older sisters to the plant from the family rice paddy. He's saving $97 a month so that he can get married by 25 and give his parents what they want most: a grandson.
"It's not easy here," Wan says.
Watch out Nike: China's sports brands coming on fast
GUANGZHOU, China (Reuters) - College student Li Aihua wears his tattered, grungy Li Ning basketball sneakers with pride.
"Li Ning is our Olympic gymnast and his brand is China's most famous so I like to support them," the student at the South China Agricultural University said, sitting in Guangzhou's chic Shangxiajiu shopping area.
Li, whose given name Aihua means 'love China', is among a growing number of young consumers who are buying Chinese sportswear from home-grown brands, such as Li Ning (2331.HK) and Anta (2020.HK), as Beijing gears up for this summer's Olympic Games.
Li Ning, the eponymous company founded by the Chinese gymnast who won three gold medals at the 1984 Los Angeles Games, and other sportswear makers such as Anta, China Hongxing Sports (CHXS.SI), Peak, and Kangwei still lag global giants Nike (NKE.N) and Adidas (ADSG.DE).
But they are catching up fast.
"They understand the Chinese market better than international players, and their prices are lower," said Rui Wu, an analyst at JP Morgan. "Li Ning is definitely the market leader because it started earlier than the others."
Analysts say the sportswear sector is a good way for investors to benefit from China's surging consumer boom. Retail sales in the country jumped 17 percent last year to $1.3 trillion as increasingly well-heeled Chinese took an interest in better products and lifestyles.
China's sportswear market is expected to grow to $7.2 billion in 2009 from $3.84 billion in 2006, according to Shanghai-based brand strategists ZOU Marketing.
In 2006, Nike controlled roughly 16.7 percent of China's sportswear market, compared with Adidas' 15.6 percent, ZOU Marketing says.
Li Ning claimed third place with a 10.5 percent slice, and Anta fourth with 4 percent, but those figures are climbing as aggressive marketing lifts their brand recognition.
Some foreign investors have seen the writing on the wall. Houston Rockets owner Les Alexander, who provided a home for basketball superstar Yao Ming -- China's top sports celebrity-- invested $30 million for a stake in Anta, which raised $406 million in its Hong Kong IPO last year.
Li Ning, whose aerodynamic logo bears an uncanny resemblance to Nike's famous swoosh and whose logo "Anything is possible" echoes Adidas' "Impossible is nothing", is planting a flag in the United States.
In 2006 the company struck a five-year $1.25 million deal with U.S. basketball celebrity Shaquille O'Neal in 2006. It also has sponsorship deals with U.S. National Basketball Association (NBA) stars Damon Jones and Chuck Hayes.
Other Chinese sports brands are striking deals with foreign stars in a bid to break into the global brand consciousness.
Anta sponsors three players for U.S. basketball team the Houston Rockets, and Peak signed a fourth, Shane Battier, to a $4 million endorsement deal.
Chinese brands aren't just looking at the United States. Anta is also trying to sell in the Middle East and South America.
So aggressive is that push, some deals have raised eyebrows. Li Ning sponsors Sudan's track and field team, and Hongxing's Erke logo will grace North Korea's Olympic team in Beijing.
Earlier this month Hollywood director Steven Spielberg quit as an artistic adviser to the Beijing games, saying China was doing too little to help halt bloodshed in Sudan's Darfur region, where Khartoum-linked militia have battled rebel groups.
"For China, ordinary consumers do not really care about these political implications," JP Morgan's Rui Wu said. "They might not even know about Sudan."
Some analysts warn that margins are too tight in a cut-throat arena dominated by deep-pocketed global brands. UBS estimates that wages are rising 10-20 percent annually in the clothing industry as labor unions and authorities clamp down on alleged sweatshop conditions and low wages.
"Footwear is one of, if not the most susceptible industry to cost pressures from China," UBS said in a Feb 13 report.
"What we have also observed, however, is that the strongest brands have been able to offset these costs with selective price increases on new products, and that selective improvements along the supply chain are providing some help."
Local sportswear firms, whose products are often churned out in the same factories used by their global rivals, must simultaneously build prestige and also compete on price.
Their sneakers cost on average 200-400 yuan ($30-$56) compared to Nike's 600-1000 yuan.
"We offer value for money products," Anta CFO Paul Ling Shing Ping told Reuters. "We always tell investors we want to be just like Toyota is in the car industry."
Anta runs a network of roughly 4,700 shops, all run by distributors. Li Ning -- whose products are roughly 30 percent pricier than its rivals -- has about 5,000 shops across China.
Not all are sold on Chinese brands -- yet. U.S. sports and U.S. brands continue to thrill. On February 2, between 100 to 200 million Chinese tuned in to watch Yao and Yi Jianlian battle when the Houston Rockets played the Milwaukee Bucks.
"Nikes look cooler but they're more expensive," said Li Haiming, another South China Agricultural University student. "If you have the money, you'll buy Adidas or Nike."
Nike's Game Plan: Growth In China, India
Nike shares rose Wednesday, a day after the athletic footwear maker outlined an ambitious five-year growth plan to boost annual revenues by $8 billion. Analysts say the bulk of that growth could come overseas where Nike is making agressive incursions into the Chinese and Indian markets.
Nike (nyse: NKE - news - people )'s greatest growth barrier is its company's greatest strength, market share. Far and away the U.S. leader in athletic footwear, Nike's current 45% market share is in line with the company's early February numbers since 2005. When it comes to Nike's bread and butter, basketball shoes over $100, domestic market share exceeds 95%.
Growth therefore, has to come from auxiliary brands and increased international presence.
Chief Executive Mark Parker laid out a domestic plan to reorganize operations into six segments: soccer, basketball, running, men's training, women's fitness and sports culture. Parker said unbundling the brand, and new partnerships like tech division Nike Plus and Apple (nasdaq: AAPL - news - people ) building Nike iPod accessories would increase the agility of the athletic in attracting new customers.
"We're fundamentally changing the way we organize the company," said Parker.
Analysts agreed that Nike's reorganization could account for a steady 10% sustainable growth, but that there was more growth potential in its other brands.
"Cole Haan, Converse, Nike Golf, Exeter, Starter should account for 25% of growth moving forward," said Bank of America Analyst Robert Ohmes, who placed a 12-month price target of $115 on Nike's stock price. On Wednesday, the stock ended at $102.90, up 1.7%, or $1.73, as investors welcomed the plan.
Aggressive incursions into foreign markets, specifically China, India and Russia will also pay big dividends according to Ohmes.
"Nike's business in China is nearing $1 billion in revenues and is close to becoming Nike brand's second-largest country in revenues," said Ohmes. "We expect Nike to continue to broaden its focus across the next tier of cities in China, particularly as the middle class grows and younger generations increasingly move into these cities."
Nike is pushing hard in China, sponsoring the 2008 Olympic Games in Beijing, several Chinese athletic federations and key Chinese athletes. It's a strategy which has worked in India, where Nike's sponsorship of the national cricket team coincided with a 40% boost in revenue last year.
"In China, 50 million kids are starting to play basketball," said Charlie Denson, the Nike brand president. "They haven't bought their first Nikes yet, but they will.
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Nike | China
The lowdown - Nike China launched its Nike Olympics 'Fang dan zuo' ('Dare to Do') campaign in early February to challenge China's youth not to play an online game but to get out and play sports instead. In preparation for the Olympics, the campaign features six of China's star athletes who will compete in Beijing: hurdler Liu Xiang, basketball player Yi Jianlian, tennis player Li Na, marathon runner Zhou Chunxiu, swimmer Wu Peng and BMX rider Ma Liyun.The athletes aim to inspire website viewers through videos and other interactive elements, some set to David Bowie's 'Heroes'.