Nike, Inc. Banks on Vietnam Despite Doubts
By Gherardo Liguori
Aug. 7 – Nike, a consistent outsourcer of Vietnamese labor, continues to produce its footwear in Vietnam despite downturns in the country’s economy.
Nike, the world’s leading designer, marketer and distributor of athletic apparel, was officially incorporated as Nike, Inc. in 1978. Today, this massive brand hardly needs an introduction as its logo can be recognized in even some of the world’s more remote locations. In 2012 alone, Nike’s revenues topped US$24 billion, an increase of over 16 percent from the previous fiscal year. With these statistics in mind, it is no surprise that Nike is one of the world’s major outsourcers.
Attracted to the low labor costs in Vietnam, Nike first set up shop in the country in 1995. Even now, labor costs in Vietnam are estimated to be 50 percent lower than in China, a fact that no doubt contributed to Vietnam surpassing China as the leading producer of Nike footwear in 2010.
The distribution of production of Nike footwear in 2012 shows that this trend has remained consistent; Vietnam produced 41 percent of Nike’s footwear, while China produced only 32 percent (Indonesia, the other strong contract factory location in Asia, follows with 25 percent). The concentration of Nike factories in Asia shows that while Vietnam is highly attractive to Nike, there are viable regional competitors for low labor costs.
Despite the attractiveness of low wages, Vietnam continues to face hurdles that make corporations hesitant to invest in the country. These problems include inflation, high interest rates and corruption. In A.T. Kearney’s 2012 Foreign Direct Investment (FDI) Confidence Index, the global management consultancy firm notes that Vietnam is the only Asian country whose rank decreased from 2011 to 2012. In 2011 Vietnam was ranked 12, and this year it dropped to position 14.
To counter these issues, the Vietnamese government is taking an active approach to promote foreign direct investment, continually issuing policies aimed at attracting inflows. In order to encourage the development of the economy, there are tax incentives that apply to investment projects in specific sectors and areas with difficult socio-economic conditions, as well as those in high-tech zones and economic zones.
Those who think Nike is taking an unnecessary risk by investing in a country that others have lost confidence in should remember the success of one of Nike’s most famous risks – signing a US$5 million annual contract with Tiger Woods before he was famous. Time will tell whether Nike’s confidence in Vietnam will reap the rewards it desires.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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