Hitting the Wall: Nike and International Labor Practices Essay

By July 25, 2017 Accounting

Nike’s scheme of shaving costs caused ethical quandary that finally damaged its repute. Nike outsources all of its fabrication. This attack has provided Nike with immense net incomes. “from a 1972 degree of $ 60. 000 to a startling $ 49 million in merely ten years” ( Bartlett. Ghosal. & A ; Birinshaw. 2004 ) . “Production is now globalised. with different states concentrating on different parts of the procedure depending on what they are good at. or what they can make most expeditiously or cheaply. Poorer states get the less moneymaking activities such as lowly paid semi-skilled or unskilled production or assembly” ( Ballinger & A ; Olsson. 1997 ) . This attack besides allows Nike to maintain an arms-length agreement with its subcontractors. saying that. “it is non they who employ inexpensive labour. but their contracted providers. hence the duty lies with the latter” ( Ballinger & A ; Olsson. 1997 ) .

This scheme resulted in Nike necessitating steep pay grants from its subcontractors to go on its intense growing forms. “Nike has ever paid the lowest possible rewards in Indonesia. claiming twelvemonth after twelvemonth that it could non afford even to pay the country’s lower limit pay. Each twelvemonth. Nike contractors in Indonesia refused to pay minimal pay rises of a few cents a twenty-four hours. Thankss to a corrupt and inefficient authorities. they normally got off with it” ( Global Exchange. 1998 ) . Adding to this job was the issue of child labour. “Nike went into Pakistan. cognizing full well that kid labour is an ages-old pattern at that place and taking no safeguards whatsoever to forestall the usage of kid labour in the production of its association football balls. We have to reason that Nike expected to gain from its Pakistani contractors’ known use of bonded kid labor” ( White. M. . 1997 ) .

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Nike farther tarnished its repute by trying to thin information that had come to the attending of the general public sing its patterns. ensuing in a case. “Mike Kasky is actioning Nike. Inc. under California Torahs modulating unjust competition and false advertisement. Kasky claims that when an internal audit was leaked to the imperativeness that revealed illegal employment patterns in Nike’s mills in China. Vietnam. and Indonesia. Nike responded by publishing to the imperativeness legion statements it knew to be false” ( Truthout Forum ) . “The California tribunals ruled last twelvemonth that Nike’s PR attempt was meant to bolster its image and better its gross revenues – so so. it did amount to advertisement. and. as such. it needed to be truthful” ( Hightower. J. . 2003 ) .

Nike has a hard state of affairs to decide. Its scheme to utilize famous person indorsements to develop a strong trade name individuality had the consequence that “Nike became by the 1990s one of the world’s best known trade names. every bit good as a planetary symbol of strenuosity and urban cool” ( Bartlett et all. 2004 ) . This state of affairs began to alter by 1998. when currency sufferings in Asia along with the harm to its image resulted in Nike sing a loss for the first clip in 13 old ages. Nike must do serious alterations if it is to mend its image and hopefully recover its market in the hereafter.

One option for Nike is to implement its ain Code of Conduct with its subcontractors. This Code has been amended several times. but had been really general in its listing of concern patterns. Its current version stipulates many demands that we take for granted. one of which is that a subcontractor “certifies that it pays at least the minimal entire compensation required by local jurisprudence. including all mandated rewards. allowances and benefits” ( Instituto per Il Lavoro ) . An immediate benefit of this determination would be the good imperativeness it would bring forth that Nike would be willing to set force per unit area on its providers so that the people who produce its goods are treated reasonably. Another benefit would be to aline Nike’s suppliers’ actions with Nike’s vision as listed on its web site World Wide Web. Nike. com. ”to bring inspiration and invention to every jock in the world” . This would include those employed by Nike because the company considers wholly people to be jocks. A 3rd benefit would be to forestall work arrest work stoppages that had antecedently affected the company in Indonesia.

This alteration in how Nike will manage its operations has important drawbacks. Closely adhering to its Code of Conduct will be really expensive for Nike. Nike’s success has been to a great extent driven by the aggressive stance it has taken on labour costs. In add-on. Nike’s subcontractors have used the freedom given to them to supply Nike the labour expense degree they expect while besides leting themselves to gain every bit good. Nike will now be supervising their subcontractors’ workplaces and pay patterns. which will put a strain on their relationship. This new focal point for Nike will necessitate the company to deviate some of its attending from its chief selling focal point to oversee the abroad operations.

Another option for Nike would be to contract with a U. S. shoe maker. Although the benefit of holding its providers overseas has been the low monetary values for the finished goods. Nike would derive an advantage by supplying work for the people at place. “Made in USA” labels are really of import to many Americans. Besides. the combination of occupation creative activity and openness to supplying just rewards and benefits for its workers as required in this state could cut down the tumult about its labour patterns. particularly among the young person. In add-on. Nike could integrate at least one mill into a tourer attractive force. supplying visitants with the chance to tour the works. larn the history of the company. and go more familiar with the merchandises Nike produces. therefore developing more client trueness.

This option would necessitate Nike to do a major displacement in its focal point from holding a limited. long-distance relationship with subcontractors to playing a more active function in the industry of its merchandises due to the propinquity of its providers. This important alteration in how Nike does concern would be really expensive. both in footings of the fiscal spending and usage of forces. It would necessitate a more direct engagement of the company in a part of the concern in which it has no first-hand experience. which would imply a considerable acquisition curve. This would ensue in major turbulence for the company. and a loss of assurance by investors. Nike would besides lose the competitory border of its rivals who have lower foreign rewards.

A 3rd option for Nike would be to both implement its Code of Conduct and put at a high degree in the states where it has mills. and extremely advertise those attempts. Per Nike’s web site ( 2004 ) . “Since 1997. Nike. with aid from several of its cardinal spouses. has supported micro-enterprise ventures in Asia. playing a little but important and direct function in edifice and spread outing the figure of locally-owned concerns in largely rural countries throughout the part. Nike has funded micro loans and provided proficient aid in Thailand. Vietnam and Indonesia. working with the Population and Community Development Association ( PDA ) . Vietnamese Women’s Union and Opportunity International. respectively” .

The imperativeness has given faces to the people who have been affected by Nike’s contractors’ development. Nike must rectify the amendss by giving faces to the people who have been affected in a positive manner by the loans and other aid given to the local populations. This. coupled with Nike’s house stance on the intervention of those doing its goods. would assist recover its lost positive image. In add-on. this option would hammer a stronger relationship with the states where the mills bring forthing Nike’s merchandises are located. It would besides assist Nike’s subcontractors to lure and retain the best local employees. therefore guaranting higher quality merchandises.

This attack would be expensive for Nike. The costs of implementing the Code of Conduct entirely will significantly impact the overall cost of its merchandises. The higher degree of investing in little concern will necessitate farther usage of Nike’s hard currency. restricting its ability to retain the high profile jocks who have added credibleness to Nike’s merchandises. The company will besides hold to use more energy to both supervise the fabrication installations and find which little concerns to back up. deviating its attending from the company’s primary focal point of marketing its merchandises and doing a net income. In add-on. doing investings in other states will assist Nike associate in more personal ways to their local environments. This will do it more hard for Nike to direct its subcontractors to travel to another state when local labour rewards have become excessively expensive. However. there would likely be no deficiency of involvement if motion to new states became necessary with Nike’s merchandises so good known.

Nike as a corporation has many strengths. but peculiarly its strong trade name acknowledgment. Nike is known worldwide for its places and dress. every bit good as indorsements from athleticss jocks and famous persons. The company can construct on its strong name association. and utilize this already established foundation to foster its name acknowledgment. If necessary. Nike could trust on its quality merchandise repute for procuring fiscal. direction. and marketing support in the hereafter. The “swoosh” is really much a feasible and extremely recognized symbol.

Because Nike is good known. subcontractors every bit good as providers are more than willing to work with Nike. and the channels of distribution and supplies needed to fuel their mills are in topographic point. The company has established distribution webs and supply channels set up around the universe. supplying Nike with the necessary construction to maintain its customers’ demands. and its net incomes. addressed.

Nike has a definite strength in its fiscal wellness. The company has experienced phenomenal growing. Since traveling public. the market cap for this company in 1999 was over 17 billion dollars. Share monetary value has grown from about $ 5 per portion in 1989 to about $ 16 per portion in 1999. Nike has about $ 200 million in liquid assets it could utilize if necessary. With its market cap so big. and its hard currency militias vast. Nike could tap its resources to alter operation tactics or selling to battle jobs. It besides would look that the company could drift more stock. or have extra offerings if necessary.

Even Nike’s deep pockets have non prevented it from enduring from negative name acknowledgment. Because Nike is so seeable and financially strong. the company has been targeted for taking advantage of inexpensive labour and employment patterns. Peoples now associate the name with hapless people doing their merchandises and rich indorsements given to jocks to market the goods. The sentiment of Nike by its present and possible clients is really of import. Currently. Nike has an image job. and its name is a failing for the hereafter of the company if that image isn’t improved.

Nike’s image was impacted by the mills doing its merchandises non being under the control of the company. Subcontractors have exhibited hapless labour patterns. and their behaviour has hurt Nike’s repute. Part of the ground for these patterns has been the monetary values Nike has set refering rewards. This has forced these contractors to travel their operations from Japan. so to China. and South Korea. and now to Indonesia. Another related job with deficiency of control is non maintaining these production installations up to code refering working conditions and hiring patterns. Nike has turned its caput sing these issues. As a consequence. its subcontractors have dictated what the Nike trade name represents now. every bit good as in the hereafter.

Another failing is the diminution in grosss over the past twosome of old ages. It is of import that this state of affairs does non turn into a tendency. Nike has lost market portion along with its worsening gross borders. Nike needs to keep its gross position and at the same clip increase its stock monetary values. There are economic conditions that have had an consequence on the worsening gross state of affairs. but the company must go on to turn its net incomes. If this tendency continues. Nike’s evaluation may deteriorate. Nike should look at the current year’s figures as a failing and be argus-eyed in its hunt for the grounds behind its worsening net incomes. The concern theoretical account may be all right. but consumer attitudes have been affected by the exploited patterns. Grosss are a true index of a company’s success. Nike needs to pay closer attending to its bottom line.

There are chances for Nike to prosecute to convey its image back into favour with its clients. President Clinton convened a alliance. called the Apparel Industry Partnership ( AIP ) . to assist develop acceptable labour criterions for foreign mills and Nike was the first company to fall in. Nike initiated a series of all-embracing alterations that included following age limitations of workers. U. S. based policies on clean air in mills. and other betterments. Nike besides became more involved in Washington-based reform attempts. The AIP organized an inadvertence organisation called the Fair Labor Association ( FLA ) that was tasked with 3rd party monitoring of company mills. Nike worked diligently to acquire other makers to fall in the FLA. Nike besides helped fund the Global Alliance that is devoted to bettering the lives of foreign workers. The alterations that Nike initiated have helped to mend and originate a new image of the company.

Nike has provided preparation plans for its subcontractor directors and supervisors so that their patterns were in alliance with its new image. All directors are required to be trained on cultural differences and acceptable direction manners of the county in which they are working. They are besides required to larn the native linguistic communication of the workers.

The chief unfavorable judgment of Nike’s human rights misdemeanors concerns worker’s rewards. Nike hired the accounting house Ernst & A ; Young to scrutinize its foreign mills. Nikes besides created a Labor Practices Department to foster address just labour patterns. Critics were still disbelieving about Nike’s stance on rewards and felt the company was still non making plenty to extinguish the job. All of the chances will assist Nike to better its image as being an militant in human rights issues alternatively of being a human rights lawbreaker.

The human rights misdemeanors are a effect of Nike’s policy of outsourcing all merchandise fabrication to independent subcontractors. The company merely has contracts with mills in low-wage countries of the universe. The Asian-American Free Labor Association ( AAFLI ) published a critical study on foreign companies runing in Indonesia. The AAFLI along with other Western labour groups investigated labour patterns and charged the authorities with rectifying the jobs. The militants besides went after the companies by pulling world-wide attending to the geographic expedition of the workers. particularly Nike. Public indignation resulted in harm to the company’s image and disaffection of clients. Menaces of following American-style governmental ordinances sing labour patterns in Indonesia were advocated.

In the U. S. . other menaces loomed. Some of Nike’s best clients are the immature hip-hop coevals. Due to anti-Nike sentiments. and a weak economic demand for Nike merchandises. its competitors’ gross revenues surged. Adidas replaced Nike with adolescent trendsetter places in 1998. New Balance and Airwalk besides took over portions of the Nike’s market.

The ripple consequence of negative consumer sentiment affected more than merely Nike’s retail gross revenues. New and bing indorsement contracts with college and university athletic sections were lost or voided. College pupils staged sit-ins and other signifiers of civil noncompliance to protest the usage of Nike merchandises irrespective of whether their school used or did non utilize Nike merchandises. The protests were chiefly about the conditions under which Nike’s merchandises were manufactured. The pupils demanded that the company rectify its labour patterns. All of these menaces could do Nike to lose clients. ensuing in lost gross and market portion.

To reinstate the Nike image back to its earlier prominence. Nike would be wise to prosecute the option to implement its Code of Conduct. and invest in the states in which its mills are located. The Code of Conduct should necessitate unheralded audits of Nike’s mills at random. frequent clip intervals to guarantee conformity to regulations and ordinances. Equipment should be inspected to run into higher safety criterions than would be required in the host state. For illustration. if the mill is located in Indonesia. the equipment should be inspected to be compliant to United States’ Occupational Safety and Health Association ( OSHA ) safety criterions. Making so is above-and-beyond what may be considered “reasonable” and should cast positive visible radiation on Nike’s attempt. In add-on. engaging certification should be verified in the audits to guarantee that workers are of the appropriate age. and that kids are non placed into the work force. Subcontractors would be trained in cultural consciousness and required to keep consistent and sensible direction patterns.

Although choosing the option to contract with a U. S. shoe maker would better Nike’s image in the ever-important domestic market. it would finally impede the company’s ability to be competitory with the other shoe makers who use Indonesian labour. The spread between U. S. workers’ rewards and Indonesian workers’ rewards is excessively great to disregard. and fabrication places in the U. S. would finally impede Nike’s ability to recover profitableness.

Nike must follow a solution that will rectify its image predicament while besides leting for a similar competitory border to its challengers. Necessitating Nike to implement its Code of Conduct would decidedly assist. but may non be plenty to give Nike the encouragement it needs in the market place. Further attempt transcending normal steps would be required. This extra attempt would be best spent on puting in the little concerns of local communities in the states where the Nike mills are located. An extra component of this run would be to supplement the lower limit pay demands in the host states by the usage of “bonuses” that are given to workers with the lowest lower limit pay base. Although this measure adds more cost to the merchandise. the positive consequence of this action on Nike’s image should non be underestimated. Basically. this would drive place the fact that Nike cares about the workers that make superior Nike athletic merchandises. As an illustration. telecasting selling can stress this point through a slogan such as: “Superior athletic merchandises made by people who care. – At Nike. we are pleased to denote our ‘workers first’ inaugural. ”

The separating difference between Nike and other companies with mills in Indonesia ( such as Reebok ) was the proactive attack to turn toing the human-rights concerns. Reebok addressed these issues head-on by making the Reebok Human Rights Award in 1988 and following a human rights policy in 1990. This measure may hold efficaciously “shielded” Reebok from extra unfavorable judgment. and may hold finally set the phase for human rights militants to pick Nike as their mark. Nike will necessitate to get the better of this stigma in two consecutive stairss:

A ) Correct the Problem: Bring factories up to generally-accepted human rights criterions. Code of Conduct criterions. and OSHA criterions

B ) Market the Changes: Make sure the populace and critics see the important alterations and. more significantly. see the earnestness of Nike to sharply better. This can be accomplished by utilizing the position of famous person jocks to stress the “humanitarian” attempts of Nike’s overseas’ mills. For illustration. a star jock could do a telecasting commercial that is basically a docudrama of how an Indonesian worker’s life has improved as a consequence of Nike’s micro-loans. The star jock would basically “put a face to the policy” and expose how existent mill workers have improved their quality of life as a consequence of Nike’s policies.

In order to be effectual. proper and consecutive execution of the above solution is critical. These actions must be performed in well-planned stairss
that are based on an aggressive. but realistic timeline. Failure on the sub-contractor’s portion to follow with Nike’s new enterprises should be handled quickly. with terrible misdemeanors ensuing in fiscal punishments or loss of contract. The preliminary execution timeline is as follows:

Execution Measures:


Enforce safe working conditions in mills by: supplying step-by-step processs for effectual execution of Occupational Safety and Health Association ( OSHA ) criterions. 3 months

Hire a safety adviser to help mills in execution of OSHA criterions. 5 months

Perform periodic. unheralded safety reviews to guarantee uninterrupted conformity ( lower limit of 2 per twelvemonth ) 12 months

Update the Code of Conduct to include the undermentioned ordinances: uStatement that limits the maximal figure of hours worked per individual to 60 hours per hebdomad. uMandatory preparation of mill direction on cultural consciousness. uThe minimal pay rate ( as required by local jurisprudence ) is to be paid as a lower limit. Based on profitableness. the mill contractor and workers would portion in fillips offered by Nike. These fillips are non merely contingent upon works profitableness. but are besides based on attachment to the other demands of this program of action. uStatement ordering the minimal age demands of mill workers. 9 months

Supply micro-loans to employees and community aid to the states in which the mills are located. Become involved in community development plans in the worker’s communities. 9 months

Launch a media run in print and telecasting to back up the new inaugural “Superior athletic merchandises made by people who care. – At Nike we are pleased to present our ‘workers first’ inaugural. ”uCelebrity jocks are used to demo the “real-life” difference that the Nike enterprises are doing. Television commercials are changeable on-site with a famous person jock questioning a worker that has benefited from Nike’s enterprises. uFocus is put on “putting a face” to the new enterprises. 12 months

In both the short and long tally. Nike must follow and implement policies and steps to command the conditions in which their merchandises are produced. Control policies must be practiced from the corporate degree down to the mill degree to guarantee conformity throughout the organisation. Current contracts with makers will be changed to reflect the new Nike Code of Conduct policies. and future contracts will be awarded based on credence and conformity with the policies. Subcontractors who fail to run into the lower limit demands will be penalized up to and including possible dismissal from the Nike supply concatenation.

To guarantee conformity and show the earnestness of Nike’s resoluteness. a corporate degree place of Vice President of Corporate Responsibility will be created. The VP of Corporate Responsibility will describe straight to the CEO and will be charged with the duty of policy execution. monitoring and control. Further responsibilities include public dealingss and media control. OSHA dealingss. and inadvertence of foreign dealingss through correspondence with each country’s Nike Operations Director.

Members of the Corporate Responsibility squad will describe straight to the VP. These members include the Chief Labor Policy Spokesman. the Nike. com Spokesman and each country’s Nike Operations Director. For each state that Nike has operations. a director degree place will be created to assist guarantee conformity with the new Nike Code of Conduct. Each director will be of the same nationality as the state they direct. This will supply Nike with cultural penetration and guarantee that the cultural demands of the workers are being properly met and communicated. These directors will be responsible for helping local authorities bureaus in charge of labour jurisprudence enforcement. helping the Global Alliance appraisal squads. helping other 3rd party review and audit squads ( such as Ernst & A ; Young ) . and carry oning the semiannual safety reviews of Nike contract mills. The directors will hold the authorization to implement the Code of Conduct by imposing mulcts and executing conformity follow-up audits. The recommendations made by the directors will be to the full supported by the corporate office.

The cost of these places has become necessary to reconstruct good will towards the Nike name and show that positive disciplinary actions are being taken. By comparing. these costs are little and undistinguished to the cost of lost concern and market portion ensuing from ailment will and a tarnished image. Merely after these steps are taken will Nike return to the good graces of their mark markets and return to profitableness.


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