Hitting the Wall: Nike & International Labor Practices Presented by: Shradha Bhutra Prerna Sharma Sayan Mitra Thakur Sunny Singh
Hitt ing the Wall: Nike & International Labor
PracticesPresented by:
Shradha Bhutra
Prerna Sharma
Sayan Mitra Thakur
Sunny Singh
What is Nike?
Champion in the sport and apparel industry
Well-recognized brand in every corner of the globe
Efficient manufacturing facilities Able to outsource its products to be
manufactured overseas, and is thus able to achieve: Economies of scale Economies of scope
Outsourcing all manufacturing
No dedicated manufacturing lines
Low cost manufacturing Independent (arms
length) contracting factories
One of the World’s first “Virtual Corporations”
Business Strategy – Two Pronged Approach
Cost Control Marketing Pour all money saved
into marketing Celebrity endorsements Brand Identity Differentiation strategy Fashion driven The swoosh
Problem Statement
Through continuous waves of protests resulting in negative publicity for Nike on its international labor standards, complimented with a lack of responsiveness and action on Nike’s part, what is the best strategy Nike must implement to reposition itself as a champion in the global sports and apparel industry
An example
In 1997, a 23 year-old Vietnamese woman died while making sneakers. As she was trimming synthetic soles in a Nike contracting factory, a co-worker’s machine broke, spraying metal parts across the factory floor and into her heart. She died instantly.
Problems
Three major problems: Labor Conditions Ages of Workers Wages
Nike is criticized on all three issues, and their response (if any) has been “We’re not responsible, because we don’t manufacture the shoes”.
They believe that since they outsource all of their shoes, they are not responsible.
Key issues
International outsourcing operations Status Quo of outsourcing without external
pressures Difficulty controlling international suppliers
Non Governmental Organizations Increased organization and respect Increased funding and power International presence Power of the Media: Film, Print and Television
Key issues
Powerful Image The strengths and power can also be source
of extreme pressures Image and support are everything for Nike
Government Interaction Increasing Pressures from US Senate Increased pressures from Asian (Indonesian)
Governments
Key issues
Labor Unions Increasing influence in operations Increasing expenses
Follow Up Continued mistakes and lack of perceived
actions to fix problems Poor Public Relations Research Results Flawed Poor Stakeholder Engagement
Key issues
Lack of understanding, regarding stakeholder management
Disconnection between company, brand awareness, and manufacturing plants
Public relations failure
Poor labor standards
Nike-Ethical Analysis
Is Nike an Ethical Corporation?
An Ethical Analysis of NIKE can use the following Tests: Some Ethical Tests can help analyze NIKE case.
1) The Categorical Imperative - Do you want this action to be a universal standard?
2) The Light of Day Test - What if your actions appeared on TV? Would you be proud?
3) The Benefit Cost Test - This test employs the Utilitarian perspective of the greatest good for the greatest number.
NIKE-Carol’s Pyramid
PhilanthropicCan take information and use it
positively.
EthicalAlthough it is legal, it was not received
ethically
LegalThey are not breaking any laws, with any
alternatives
EconomicIt is in the best interest to use the information to develop new
contracts in new environments
Nike-Ethical Analysis
What can be done:
The Ventilation Test - Get a second opinion from a wise friend with no investment in the outcome (Pagano, 1987)
Statement of Values or Philosophy
Ethics Training
Ethics Audits
Ethics Ombudsperson (or Ethics Advocate)
Does Jeff Ball inger Have A Convincing Argument About Nike?
Ballinger believed that Nike’s policy of competing on the basis of cost fostered and even encouraged contractors to mistreat their workers in pursuit of unrealistic production quotas.
Does Jeff Ball inger Have A Convincing Argument About Nike?
He was very proactive A labor activist since high-school In 1998, assigned to run the AAFLI office in
Indonesia.Once noticed his influence grew and he
was able to convince media and the public In the early 90’s, his arguments coincided
with strikes that swept across Indonesia and the newfound interest of media groups.
Nike’s Response:
“We don’t make shoes”.....
Nike is just one link in its subcontracting chain Nike contracts out the production of it’s shoes The subcontractors also contracted out their
work
How Well Has Nike Handled The Publicity Surrounding Its Labor Practices?
Kept an arms length distance with their stakeholders
Research findings were flawedProper access to Nike facilities was
deniedFailed to respond to media claims
As a result, major contracts were lost
Alternatives
Leave countries with low wages and poor working conditions
Evade the criticism through denial or deflection
Change its business practices
Alternatives
Leave countries with low wages and poor working conditions
Pros• Avoid negative publicity associated with operating in
overseas plants
Cons• Cost of production increases drastically
• Incur costs of moving current operations
• Competitors gain advantage
• Economies of scale and scope lost
Alternatives
Evade the criticism through denial or deflection
Pros• Very little effort required
• Issues may disappear overtime
• Retain cost advantage by operating overseas
Cons• Negative press will continue
• Sales and stock prices will decrease
• More employees may be laid off
• Loss of university endorsements, and celebrity contracts
• To date, this strategy has degraded Nike’s image
Alternatives
Change business practices
Pros• Help improve brand image
• Regain: customer confidence, employee satisfaction
• Productivity and sales increase
• Role model for corporations in the future
Cons• Financial costs involved
• Extensive negotiations with all relevant stakeholders
What should Nike do?
Leave countries with low wages and poor working conditions
Evade the criticism through denial or deflection
Change its business practices
Recommendation
Change its business practices through improving conditions in foreign manufacturing plants, and highlighting issues such as: wages, employment terms and conditions, age requirements, and safety issues
Focus on “best practices”How?
Recommendations
1. Protecting Nike’s image through a code of conduct
2. Developing and coordinating very strong linkages with country and factory managers
3. Taking a proactive approach towards becoming socially responsible
Recommendations
4. Understanding why children work, and allowing opportunities for growth and advancement
5. Ensuring transparency and accountability
6. Improving public relations
7. Addressing the issue of wages
Fair wages in Indonesia and Vietnam?
What is a fair wage in Vietnam and Indonesia? Should the wages increase?Facts from the case: 91% of workers in Indonesia reported being able to
support themselves. 82% of workers in Indonesia either saved wages or
contributed each month to their families. Of the workers surveyed, it was found that most workers
were not the primary wage earners in their households. Many families even purchased luxury items with this
supplement to their income.
Increase the wages to meet or surpass minimum standards, but most importantly help develop life-long skills
Implementation
Stakeholder management Identify key stakeholders Understand their varied needs Work closely to find common solutions
• Recognize mutual interests that will help in the development of corporate and social policies
Support at all levels Extensive communication to ensure all are
well-versed
Proposed model of stakeholder management
Why are stakeholders important?
Because they…
Place something at risk
Supply critical resources
Hold sufficient power to affect the performance of the enterprise.
Nike and its Stakeholders
Regulatory Authorities
Customers and Users
Investors, Shareholders,
Lenders
Employees
Supply Chain Associates
Joint Venture Partners, Alliances
Governments
Unions
Private Organizations
Local Communities and
Citizens NikeNike
Proposed view of Stakeholder management
Governments
SOCIAL POLITICAL ARENA
INDUSTRY STRUCTURE
InvestorsEmployees (including children)
Customers
RESOURCE BASE
Nike
Communities /
Citizens
Private Organizations / NG
O’s
Su
pp
ly C
hai
n /
Man
ufa
ctu
rin
gUnions
Authorities
Joint Venture Partners and Alliances
Implementation
Keeping stakeholders informed on a regular basis
Arms-length relationship Well-versed, well-informed relationship
Top-down support requiredRecognizing stakeholder management as
a core competenceBecome alert of new stakeholders and
their varied needs
Implementation
Development of acceptable best business practices in consultation with stakeholders Code of conduct
• Highlight:– Government regulations– Environmental requirements– Ethical standards– Health and safety
Ensure compliance through:• Support from all levels of management• Extensive communication with all relevant
stakeholders
Implementation
Provide training to factory managers (local), and US managers who will oversee foreign manufacturing plants. Ensure compliance through the Code of
Conduct, and implications for not doing so Provide cross-culture training Enhancing on the partnerships developed
with the National University of Vietnam
Implementation
Becoming a socially responsible leader Advocate of human rights (example: Reebok) Must be willing to add to the economic fabric
of the countries they operate• Developing and enhancing the educational system• Teaching life-long skills• Benefits to Nike:
– New knowledge and expertise = increased productivity– Becomes an advocate of life-long learning
Requires the support of top management Redefine mission and work towards a
sustainable future
Implementation
Improving Nike’s image through public relations and marketing campaigns Communicate the success of Nike Engage in public relations campaign to
showcase the strengths of Nike’s image, through:• Speaking events• Annual reports• Photo’s showcasing Nike’s support in the
communities they serve• Web site
Implementation
Ensuring transparency and accountability Conduct research in an unbiased manner Open door policy on research Conform to acceptable research methodology Ensuring findings are autonomous, and
conducted by independent organizations Invite the world to witness the changes
taking place
Nike Bingo
Question 1:Who did Nike sign its first contract with?
Nike Bingo
Question 2:How much did a pair of Penny Hardawaybasketball sneakers cost?
Nike Bingo
Question 3:How many years would it take anIndonesian worker to make the equivalent
ofJordan’s endorsement deal?
Nike Bingo
Question 4:How many workers did Nike layoff during
itsfirst loss in 13 years?
Nike Bingo
Question 5:How many strikes occurred in Indonesia in1991?
Nike Bingo
Question 6:What was the daily minimum wage ofworkers in South Korea in 1991?
Nike Bingo
Question 7:In what fiscal year did Nike have its firstloss?