Back in the mid-1990s, Jardine Fleming Securities (now part of JP Morgan Chase) came up with the Swoosh Index, which was its theory that once Nike selects a country for its newest factory site, economic growth, rising stock markets, and other foreign companies follow. A Business Week article, entitled, The Swoosh Index for Emerging Markets, explains it:
Nike first started using Japanese plants in 1964. When labor costs there climbed in the mid-1970s, it gave South Korea and Taiwan a run. In the 1990s, production jumped to Indonesia and China, which now account for two-thirds of Nike output. Nike pulled back from Thailand recently ahead of a collapse in stock and property prices. Next up: Vietnam. While production there is now only 2% of Nike output, that’s expected to double within a year.
When choosing factory sites, Nike looks for cheap labor. However, it also picks countries with stable–usually authoritarian–leadership, decent infrastructure, a pro-business government, and a liberal trade regime.
When it decides to leave, that doesn’t signal the end of prosperity. It often means that countries are ready to move on to high-end manufacturing. And democracy.
Many companies watch Nike and then follow Nike into whichever country Nike locates.
Tully’s Coffee is well known for once following an expansion strategy of opening stores adjacent to the opposing coffee giant Starbucks, also based in Seattle. There’s a running joke in Seattle that the easiest way to find a Tully’s is to stand in front of a Starbucks and turn around.
I once sat on a plane next to a hotel chain executive who told me that his company did no independent research on where to locate within Asia: they simply considered new countries in Asia only after learning that the Westin/Sheraton had done so.
For more on choosing your China location, check out the following:
- Where To Locate Your Business In China? Think Electricity.
- Where To Locate In China. Put Pollution On Your List.
- Where To Locate In China? Or Why Weifang Isn’t Suzhou.
- China Factories Moving In Droves To Cambodia/Vietnam/Myanmar/Malaysia. NOT.
- China Business: Location, Location, Location
So what companies should others be following in determining where to locate within China? Nike? Gome? Intel? Starbucks? Tiffany’s? And what about elsewhere in Asia?
And what do you think of this strategy at all? I have to say that I hate it as it both fails to weigh the factors that might really matter to the company looking at where to locate and it fails to account for the huge differences between one company and another.