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Nike in China

Nike in China

 

In April 1980 Nike, the leading sports footwear company in the United States submitted a business proposal to the People's Republic of China (PRC). In a letter of transmittal, Nike founder and president Phil Knight laid out the project's objectives and rationale:

Primary among our objectives is to establish the means by which we would buy a finished shoe product from the People's Republic of China. We presently target a goal of 100,000 pair per month in the first phase, with growth to 1,000,000 pair per month, or US $ 30 million per year, by the mid-1980s. We feel that the People's Republic of China, with its long tradition of excellence in this field of manufacture, would be an ideal additional source for our product. We see immediate benefits to be derived by each party in this business relationship with even more important long-term benefits in the future. Five months later the first production supply contract was signed; by October 1981 shoe production had begun. The rapidity with which Nike had maneuvered through the Chinese bureaucracy was hailed in the business press as "dazzling."

By late 1984, however, production had reached only 150,000 pair per month. Many unforeseen problems had led Knight to comment, "China has got to be about the toughest place in the world to do business." In addition, the rapid growth of the sports shoe market was declining and competition was increasing; this had caused a drop in volume and major cutbacks in Nike's orders from its suppliers in South Korea and Taiwan (which provided 86% of its shoes).

David Chang, a Nike vice president and key player in China project from its beginning, commented, "Unfortunately, China has not come on-stream as we expected. Although there have recently been encouraging changes in the government's policies, with our earnings going down there is pressure to get out of China." However, given the importance of Nike's global sourcing strategy to its past and future success, Chang felt it was time to review the China experience and make recommendations on future actions.

Nike's Entry Strategy and Negotiations

Nike saw sourcing from China as a logical next stage in its global production strategy. It had shifted to South Korea and Taiwan from Japan when rising wages and the value of the yen pushed costs up. As costs in South Korea and Taiwan rose, Nike signed small production contracts in 1980 and 1981 with suppliers in the Philippines (250,000 pair), Thailand (250,000), Malaysia (75,000) and Hong Kong (50,000). A company study on future sourcing indicated India and China as the long-term, lowest-cost suppliers; China won out.

The company's director of Far East operations, Neal Laurinson, was the first Nike official to visit China; he went to the Canton Trade Fair in October 1979. Knight, deeply interested in Asia and China, waited in Hong Kong two weeks for a visa that never came.

Like many other foreign companies, Nike at first found the Chinese bureaucracy impenetrable. To gain access, management hired David Ping-Ching Chang as a consultant. A Princeton-educated architect, Chang was born in China but left in 1941 at age 10. He was still a favored guest of the PRC and held a rare, multiple-entry visa. His father had been China's ambassador to Czechoslovakia, Portugal, and Poland in the 1930s. Before he joined Nike, Chang had helped arrange a deal between a Chinese factory and a U.S. auto part s company. His experience, contacts, language ability (he spoke Chinese but did not read or write it), and personality facilitated Nike's entry.

Chang described the entry period

One of the keys to Nike's success so far has been determining ongoing economic sources of supply. The president of the company had determined that China was the last major untapped source for a relatively labor-intensive product. We had to go. It was not a market; it was a production source. But we couldn't help but notice the two billion feet.

Success in China depends on common sense. The first thing we did was write a proposal to the Chinese, outlining the long-term nature of our commitment, the scope that would indicate to them that we were not just coming in to buy 100,000 pair of rack shoes and then heading over the hill. And we had the common sense to have the proposal translated into Chinese. We wrote the proposal in April 1980 and got an invitation in July to come and hold a seminar. We were directed to the Ministry of Light Industry, which supervises the footwear industry. Our group of six visited 20 to 30 factories in Tianjin and Shanghai.

Negotiations continued in September and November 1980. The Nike team (Chang, the corporate counsel, and production and finance people) met daily with their Chinese counterparts, who numbered 20 to 30 -- depending on the issues discussed. Supply contracts were signed between two factories each in Tianjin, Guangzhou (formerly Canton), and Fujian province, and one in Shanghai. Ten trips over 12 months were required to complete negotiations involving provincial and municipal officials where the factories were located and the ministries of Light Industry, Chemistry (which controlled the rubber supply), and Foreign Trade.

Christopher Walsh (Nike's first resident managing director in China), who had worked two years in South Korea, three in Taiwan, stated:

The negotiations were some of the most strenuous exercises I have ever participated in. The major issues we faced were issues we did not expect to arise. The Chinese were not familiar with the standard exclusivity clauses within our contracts. We wanted exclusive rights to these particular factories. We do not have difficulties enforcing these clauses in our other Asian countries and so tried to institute them in China.

The second issue was B-grade production. The Chinese will package almost 100% of what they make. There are certain standards that had to be adhered to which they were not familiar with, so that was a stumbling block for us.

The third issue was defective returns. A great deal of Nike's success today comes from standing behind its product. The Chinese could not accept that particular concept…They felt that once a shoe had been put in the container and was on its way to the United States, that was the end of the production agreement. In Taiwan or Korea that particular clause is long-standing and not questioned whatsoever. What we were able to procure from the Chinese was that they will guarantee the shoes for only 9 months after they depart China. This virtually eliminates that clause, for 9 to 12 months will have passed by the time the shoes reach the consumer.

Pricing was another key issue in the negotiations. Chang described Nike's approach:

One of the first things we told the Chinese was that their prices had to be more than competitive with our other Far East sources because the cost of doing business in China was so enormous. We opened our books to them and showed what we were paying our other suppliers.

Walsh commented on the results of the price negotiations:

I think a lot of American corporations are misled in that you go to China expecting to pay much lower prices because people are earning $ 40 per month. However, the foreign trade corporations are of the opinion that since the standards are the same for them as for Nike in Korea or Taiwan, they deserve equal prices. We gave the Chinese a break on the first pricing round to get started, but we have to be more adamant in the future. The hope is for a 20% price advantage over Korea.

All contract agreements were negotiated with the ministries' staffs and the factory managers, and were based on specific shoe models' price, volume, delivery, and specifications. Because the factories had no foreign currency to purchase equipment, Nike entered into compensation trade arrangements whereby equipment was paid for shoes. Nike would purchase B-grade shoes at a 20% discount during the first two years, then at a 40% discount. The agreements stipulated that factories could not sign contracts with Nike's competitors; they also granted Nike trademark protection.

Nike agreed to pay for purchases directly to the Ministry of Foreign Trade or its local offices. The factories would then receive Chinese currency at exchange rates higher than the fixed rateas subsidies from the foreign trade unit. In Guangzhou the contracts were signed through the municipal government; new contracts were to be negotiated directly with the factory managers.

Operating Experiences

Walsh recounted the original production plans:

In July 1981 we established forecasts for 10,000 pair per month in the initial 12-month period, with the gradual increase over 15 months to 100,000 pair. In retrospect those expectations were far too high. In the first 9 months we were able to export a total of only 35,000 pair. Not until 1984 did we reach 100,000 pair per month. We originally thought we would be producing a million pair a month by now.

The annual production figures were 140,000 pair in 1982, 263,000 in 1983 (9 models), and about 700,000 in 1984 (12 models).

Nike had to deal with a multitude of problems in technology transfer, materials, quality control, inventory control, production flexibility, worker and manager motivation, transportation, pricing, plant location, expatriate staffing, and government relations.

Technology transfer

Walsh described the transfer process:

During the start-up period, we had to arrange for technology transfer. The Chinese are looking for something in return. In the footwear industry, the machinery was very antiquated; they expected us not only to import machines but to provide them with technical designs to help them get away from the cottage industry that had existed in China. Normally they would sit in small rooms and do most of the work by hand. A South Korean factory that makes 100,000 pair a day has good systems, so we brought those to China.

We ran into difficulties, however. We did not really recognize what lay ahead for us. Lots of things evolve in these relationships with the Chinese that simply cannot be foreseen from overseas. It takes an on-site presence to get a feeling for the situation. As a result, six individuals and I located in Shanghai. We visited the factories daily. We attempted to institute inventory and transportation strategies. We assessed what these people could actually accomplish relative to our expectations.

Communication is one of the chief liabilities in entering the Chinese market, and we went to great lengths to develop a communications system that would enable us to identify on-site problems and provide solutions to problems that arose in those factories. Only two Nike residents spoke Chinese, and no one at the factory spoke English, so we had to use interpreters.

Managers from the Fuzhou factory visited Nike headquarters in Beaverton, Oregon, in May 1981 and the Hong Kong factory in July 1983; managers from the Tianjin No. 2 factory visited Nike's Thailand producer in December 1982 and those from the Guangzhou and Quanzhou (Fujian) factories traveled to the facilities in the Philippines and Thailand in November 1983.

Nike considered bringing native managers from South Korea and Taiwan to teach the Chinese the advanced technology. However, the Taiwan factories were much smaller than those in China and the managers were unwilling or unable for diplomatic and political reasons to go to China. South Korean factories, on the other hand, were similar in size to those in China, and their managers were willing to cooperate.

Chang approached the Chinese about bringing South Korean managers to China to help in training. The Chinese leaders agreed, but only if the South Koreans obtained U.S. passports.  Unable to arrange entry for the South Koreans, Nike finally resorted to using videotapes of how the South Koreans operated different equipment. Walsh concluded:

The biggest problem is that we are the buyers and they have to do it our way. It is difficult to convince them to use our processes and not theirs. For example, the factories need conveyor systems which are not now there. Our shoes, although simple require a lot of preplanning and coordination on procurement. But their systems can't be changed overnight. There was give-and-take on processing methods. You have to be flexible.

Quality control

Nike had a worldwide policy that its B-grade shoes could not constitute more than 5% of a supplier's total production during the first year, or 3% thereafter. B-grade shoes had cosmetic defects but were structurally sound. Nike sold them as promotional items or in discount stores, at a 40% discount. However, because of quality-control difficulties in China, Nike offered a 20% discount on all its PRC shoes for the first two years and initially lowered its quality specs. After four years, still only 80% of the Chinese shoes were A-grade. Nike and the Chinese argued constantly about the proper discount for B-grade shoes and the standard measurements for A-grade. Nike felt that Chinese managers used more energy arguing than improving production quality.

Walsh commented on the quality problem:

The Chinese don't understand the brand concept. They couldn't grasp why C-grade shoes had to be destroyed and not sold locally or in another country. In fact, one batch of these was shipped to Australia without our knowledge.

We are educating factory managers that Korean, Taiwanese, and Chinese shoes are sold as equals and must, therefore, meet international standards. We are also getting the China Trading Company to understand the Nike production and marketing concept. The trading company staff and factory managers don't communicate enough with each other. Nike's people are physically in each of the factories almost daily. Our role is quality control, but we're looked on as educators. We prepared lots of manuals to define our methods.

Nike hired one Chinese inspector for each factory through the Foreign Services Company, to which it paid $ 300 a month per inspector. The inspectors received $ 60 monthly from the services company. They monitored quality, production volume, new model development, and shipping documentation.

One cause of the quality problem was the high level of dust in the cities and factories, which impeded the gluing of insoles to soles. All the Tianjin factory windows had to be shut to keep dust out. However, this made the work area too hot. Since air conditioning was too expensive, the factory had to stop production during the summer. The cleaning procedure was to blow dust off the soles with a squeeze bulb, but workers tended not to do this. Nike took factory managers to the Thailand plants, where they saw the conditions and results of a less-dusty environment and process. Dust-control procedures improved significantly after the visit.

Inventory control

Some shoe materials, unavailable locally, had to be imported. Ordering took six weeks. To guarantee normal production schedules, Nike had to know in advance what needed to be imported and when. Chinese managers, however, were unable to relay this information because they did not keep adequate inventory records. Planners did not recognize the importance of the time factor. In the Long March Factory in Guangzhou, the large storage room was on the top floor of the production building. A woman at the door checking materials in and out functioned more as a door-keeper than as a record-keeper: she did not know what materials were needed for next month's production schedule and did not regularly coordinate her records with the planners. The planning staff responsible for ordering materials from Nike kept their own records based on a guess method of expected usage; very rarely did they check what materials actually remained in storage.

To remedy this, the Nike staff tried to keep track of materials needed for forthcoming contracts and to coordinate these needs with the supply room records to ensure that supplies were available. They also began teaching Chinese workers how to store the materials correctly to prevent damage.

Production flexibility

Flexibilitya primary characteristic of South Korea and Taiwanallowed Nike to expand production quickly. These factories were able to develop shoe models quickly from written specifications. Chang remarked on the contrasting situation in China: "Decisions in China are cast in concrete. You can't tell them, 'Stop making that shoe next month and start making this one.' Forget it! It's another round of meetings."

To increase flexibility, Nike hoped the Chinese would:

1. build sample rooms enabling them to produce new models from patterns and specifications. This would require some new advanced equipment, about 19 more people, and an investment equal to about 2% of sales. The Chinese were unwilling to make such an investment.

2. produce, rather than import, lasts, molds, dies, and small tools necessary for the construction of each model. The initial investment could cost over $10 million, but individual factories had the authority to invest only $100,000. The Chinese were thus willing to accept small orders for different styles requiring different equipment. It was safer and easier for Chinese managers to import materials than to try to develop or purchase local materials. Local suppliers tended to charge high prices because they did not want to incur losses; under the government's new policies, factories incurring losses risked being closed. Become more cooperative. Chinese factory managers, however, felt that as yet there was no real commitment from Nike. Furthermore, Nike's efforts to negotiate further price and quantity reductions had antagonized the managers.

Worker and manager motivation

Walsh described the basic, unexpected motivational problems encountered:

We set out more or less to emulate the South Korean and Taiwan factories. We wanted to get Chinese factories up to where they could compete from development, pricing, and quality standpoints. We didn't realize the problems we would run into from the system. It's a planned economy: there are quotas in all sorts of different areas; pricing stipulations are established in Beijing. But most of all, there's the "iron rice bowl" concept that has long been a thorn in the side of the economy. It is hard to break. The factories are often poorly run because there is just no background in managing factory facilities. By dangling big numbers we thought it would entice these people. It did not. We'd approach factories in midday and our production would be at a total standstill, and they still had quotas to reach for that particular month. There was no motivation or incentive to increase the production.

A big problem is adhering to schedules. We've brought in graphics outlining schedules, and they don't grasp this. Partially the problem is related to the lack of incentives. There is no difference in pay if they produce more shoes sooner. There is also a lack of talent on production scheduling. The talented business people are in the trading companies.

What we did was to institute our own incentive program. We lined up criteria based on productivity, quality, and delivery. We virtually put money on the table. If they could satisfy our demands, we would reward them with cash bonuses given to the factories. This concept was presented to Vice Premier Huan Lee in November 1981, and he was receptive to the idea. We instituted it in our first year there with mixed results. We saw a great leap forward for about 60 days. After that it was back to the same lack of motivation.

Pricing 

Tensions in the initial pricing negotiations continued to exist. The Chinese partners were used to the stable prices of a central planning system. Because of unexpectedly high overhead, the initial price had to be reduced by 25% after two years. Although Nike had to pay extra dollars because of inefficiencies and scarcities in the Chinese system, the Chinese felt that the costs for foreign firms to do business in China were still lower than in South Korea or Taiwan because of lower food and transportation costs. They also disagreed about which side should benefit from the dollar's relative strength. The Chinese felt Nike should first reduce its own costs before asking them to lower theirs. For example, they felt that Nike could reduce costs if Nike employees were to live and eat right at the factories. Managers of one factory were dissatisfied because a price agreement reached with Nike's Shanghai representatives was later rescinded by Nike headquarters.

None of the Chinese participants in price negotiationstaff from the foreign trade bureau, factory directors, and local production bureau leadershad authority to make price decisions. Everything had to be relayed to authorities in Beijing. Thus, compared with Korea or Taiwan, negotiations were slow. The lack of a cost accounting system and of market prices also made estimating actual costs' very difficult. The amount of the government subsidy became a key factor in the costing.

Expatriate staffing

In September 1981 Nike opened its residential headquarters in Shanghai with a staff of six, all in their twenties and thirties, and all with previous experience in Nike's other Asian operations. The Beijing office was closed in December 1983 because it was deemed no longer necessary and because housing was scarce. Walsh commented on the expatriates:

It's always been Nike's production philosophy to assign expatriates to foreign communities for control purposes. I think that has a great deal to do with our success in the Far East. The expatriate community for Nike in Asia is 80 to 90 people. In Shanghai we represent 20% of the American community. Most of the people are from the State Department, but two other U. S. joint ventures are there. The Americans are a very small but close-knit community.

Shanghai was considered the best place in China for foreigners to live. It was China's commercial center; transportation and communications facilities were relatively more advanced than elsewhere in China. But there were few Western movies; TV consisted almost entirely of programs in Chinese and operated only from 5 P.M. to 10 P.M. It was rumored that the Shanghai city government wanted Nike to remove its office from the city because it had closed the factory. Meanwhile, the Guangzhou and Fuzhou city governments were trying to persuade Nike to move their offices south, but Nike employees resisted because of inferior living conditions and weather.

The Nike staff flew to the factories in the south and stayed for three or four days before returning. More than half the staff brought their families to China. They lived in Western-style apartments built in the 1940s. Nike paid their living expenses and a 30% salary supplement for working abroad. The staff also received a week's vacation every two months, when they could go anywhere with their familiesfully paid for by Nike. The staff usually rotated every two years.

Government relations

From the beginning, Nike tried to establish a positive relationship with the Chinese government through contributions to the country's sports activities (e. g, holding sports clinics and equipping the national 1984 Olympic team). Nike also hosted various Chinese officials visiting the United States.

China received Nike with great hospitality. During banquets, the Nike staff met many high-level Chinese leaders, who listened carefully to its problems. However, this interchange resolved nothing. The Chinese leaders seemed more intent on persuading Nike to sign joint-venture agreements.

Nike often did not know with whom it should talk to solve its problems. The combination of decision makers for different problems was always changing, and it was not always apparent who was in charge of what. Sometimes officials failed to show up for appointments. The local Nike staff often felt it was necessary for high-level managers from Nike headquarters to come to China to get the attention of and gain access to China's higher-level officials. At a banquet given by a city mayor for the Nike staff, one factory manager remarked that he was very happy to see so many leaders for the first time.

Nike sent a report to First Vice Premier Wan Li, reviewing the company's progress and problems in the 1980 - 1983 period. An excerpt from Knight's letter of transmittal indicates Nike's approach to dealing with the government:

In my country there is an old belief that in order for any relationship to grow and to develop there must be a mutually candid and beneficial relationship. In our co-equal partnership effort in China, I feel that I should, representing Nike, mention in candor, some of the problems we must face and resolve together if our long-term goals are to be met.

The problems, according to Knight, were:

1. non-availability of local materials (a detriment to both Nike's and China's economic goals);

2. inadequate shipping and transportation provisions (causing Nike's inability to meet delivery dates);

3. inconsistent high quality in China's manufactured goods; and

4. non-motivation and non-commitment attitudes of Chinese workers (Nike's incentive programs had brought mixed results).

Many factory managers had negative feelings about the $ 7 million Nike contributed to support the Chinese national sports teams. They felt that such extravagant promotional (PR) expenses did not solve Nike's production problems and only increased Nike's overhead, and that the PR program attracted the attention of only the national leaders, thus fostering good relationships only at the top rather than at the local level. They felt that a Nike joint-venture agreement would be stronger evidence of Nike's commitment to China's modernization programand at a fraction of the cost. They also noted that the Chinese Olympic team was criticized in the Hong Kong media for wearing Nike apparel rather than Chinese-made clothing.

Chang reflected on Nike's approach to relations with China:

China historically has been exploited for so long by the West. I, as a Chinese, am perhaps more aware of the sensitivity of the Chinese to the past exploitation. So I want to do everything that we can to come across, for lack of a better term, as good guys. We don't want to be the rapers and plunderers of colonial days, because the Chinese are very, very sensitive to any possible re-emergence of that kind of attitude.

Future Strategic Considerations

As Chang deliberated on possible recommendations for Nike's future Course of action regarding China, he focused on six areas: (1) the situations of Nike's other suppliers, (2) recent changes in the business environment in China, (3) joint ventures, (4) new factory locations in China, (5) the domestic China market, and (6) Nike's competitors.

Other Suppliers

Chang compared Chinese factories with Nike's primary suppliers, using several criteria:

1. Development and production start-up time. The time from when the factory received the shoe model's technical package to the point of shoe production was four months in South Korea and eight months in China.

    2. Quality. The A-grade to B-grade ratio was 99:1 in South Korea, 98:2 in Taiwan, and 80:20 in China.

    3. Quantity. Taiwan produced I million pairs a month, South Korea 2.25 million (with installed capacity sufficient to double output), and China 100,000 (with current capacity for 180,000).

4. Raw materials sourcing. The Taiwanese and South Koreans sourced 100% of their raw materials domestically; the Chinese imported 70%.

5. Financing. South Korea and Taiwan provided their own financing and had a straight trading arrangement with Nike; China required compensation trade.

6. Transportation. Shipping time from Taiwan and South Korea was 20-25 days; from Shanghai it was 35-40 days.

7. Labor costs. For the factories, labor costs as a percentage of total costs were about 30% in Korea, 20% in Taiwan, and 10% in China.

8. Landed costs. The landed costs for a pair of shoes from South Korea were $ 7.86; from the PRC they were $ 9.87.

Nike estimated it was losing $1.00 on each pair of Chinese-made shoes. South Korean shoe manufacturers had been encountering rising labor costs. Between 1972 and 1979 the unit labor cost rose by more than 300%, and was still rising in late 1984. In addition, the South Korean government in 1981 discontinued all its support, mostly financial, for the shoe industry. One Korean government official said, "We believe that our shoe industry is now fully developed to compete internationally. Our limited resources for support should be directed to higher-growth-potential industries such as heavy, chemical, and high-tech industries."

An executive from one of Korea's largest shoe-exporting firms (and a Nike supplier) had this to say about his country's rising labor costs:

In the athletic shoe industry, labor cost must not exceed 24% of total cost to maintain international competitiveness. As of 1984, our proportion of labor costs is between 22% and 24%. This is about 30% higher than in Taiwan. To cope with this problem, we recently modified our production facilities; we reduced the capacity for cheap products (canvas/vinyl shoes) by 25%, and we increased capacity for more expensive products (nylon/leather shoes). In simple and cheap products, we cannot compete with Taiwan and other countries with cheaper labor such as China, Sri Lanka, Thailand, and the Philippines. Moreover, in response to recent decreases in orders for canvas shoes, we are concentrating in the high-end products such as aerobic shoes. Whatever market segments we may concentrate on, however, I do not think that our international competitiveness with large-scale production can last more than five to ten years from now. We have to get out of this sunset industry successfully and as soon as possible.

In 1983 Korea exported $ 928 million worth of footwear; in 1984, $1 billion worth. Taiwan exported about 50% more than Korea. About 70% of both countries' footwear exports went to the United States. As of late 1984, most Taiwanese footwear products cost $ 3 to $ 4; the Korean products cost $ 4 to $ 5.

Most Korean footwear firms were large employing up to 17,000 people. This size gave advantages in dealing with large foreign buyers, rather than affording technical economies of scale. Almost all companies exported their footwear under foreign names.

Chang remembered that "when we first went to China, Korea and Taiwan saw their meal leaving the table." He wondered now if it should be brought back, and if other newer suppliers should be expanded. The two Thai factories' combined output was up to 260,000 pair a month, with a capacity for 400,000. The A: B-grade ratio was 97:3. Delivery time from Bangkok was 30 days. Price negotiations took two weeks. Thailand had been able to reduce its raw material imports to 40% for canvas and nylon-shoes; however, it would not be able to supply locally significant quantities of leather if these shoe types were to be manufactured there. Knight looked at Thailand positively but wondered if "it might turn into West Vietnam," given the political dynamics in Southeast Asia. India and Sri Lanka could also be reconsidered for future sourcing.

Joint Ventures

The joint-venture form of foreign investment was increasingly favored by PRC authorities: about 20 involving $ 20 million had been mounted by 1984, and the number increased significantly by 1984. Under the 1979 law, a foreign investor's participation could not be less than 25%, technology contributed was to be "truly advanced and appropriate to China's needs and exports were encouraged. However, joint-venture companies were allowed to sell their products in China. State subsidies were available to joint ventures, and the foreign partner could screen workers and require new employees to pass skill examinations. Presumably workers could be fired for violating work rules. But some existing joint ventures had met difficulties in exercising these management prerogatives. Salaries were about 20% higher than in local factories.

Such joint ventures, if undertaken by Nike, were estimated to require an investment of $ 500,000 per factory, which could reduce Nike's flexibility in later shifting production sites if necessary.

Domestic Market

Visions of two billion feet still floated in Chang's mind. Thenumbers held inevitable market magnetism, but he was not optimistic about selling Nike shoes locally. The product was made for an affluent consumer, and the Chinese were more interested in Nike's exporting than in selling locally. But still two billion feet.

Competitors

Finally, Chang wondered about the possible reactions of Nike's competitors: Puma, New Balance, Adidas, and Bata have visited China; none are sourcing from there yet. Dunlop has been buying canvas court shoes from the PRC, but we don't consider them to be a significant competitor. We are the point man for the industry. They are observing closely our experience and moves.

What Recommendations?

The China project had brought Chang into Nike, and he had made a Heavy personal and professional investment in it. Now well-established in the firm and in charge of the company's apparel division, he believed it was important to analyze the China situation objectively and make recommendations that would best further Nike's success. He remembered Knight's words: "Winning is ultimately defined by the scorecardwhich is financial results, but in the long run. We've had success, but we have to keep looking forward."