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Hitting the Wall: Nike & International Labor Practices Presented by: Arif Husain Jerry Croke Josh Quinton Ashley White Organizational Strategy: Business 7000 September 20, 2006 What is Nike? Champion in the sport and apparel industry Well-recognized brand in every corner of the globe

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hitting the wall nike international labor practices

Hitting the Wall: Nike & International Labor Practices

Presented by:

Arif Husain

Jerry Croke

Josh Quinton

Ashley White

Organizational Strategy: Business 7000

September 20, 2006

what is nike
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
business strategy two pronged approach
Business Strategy – Two Pronged Approach

Outsourcing all manufacturing

No dedicated manufacturing lines

Low cost manufacturing

Independent (arms length) contracting factories

One of the World’s first “Virtual Corporations”

Cost Control

Marketing

Pour all money saved into marketing

Celebrity endorsements

Brand Identity

Differentiation strategy

Fashion driven

The swoosh

problem statement
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
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
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
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 issues8
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 issues9
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 issues10
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
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.

  • The Categorical Imperative - Do you want this action to be a universal standard?
  • The Light of Day Test - What if your actions appeared on TV? Would you be proud?
  • The Benefit Cost Test - This test employs the Utilitarian perspective of the greatest good for the greatest number.
nike carol s pyramid

Philanthropic

Can take information and use it positively.

Ethical

Although it is legal, it was not received ethically

Legal

They are not breaking any laws, with any alternatives

Economic

It is in the best interest to use the information to develop new contracts in new environments

NIKE-Carol’s Pyramid

nike ethical analysis13
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 ballinger have a convincing argument about nike
Does Jeff Ballinger 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 ballinger have a convincing argument about nike15
Does Jeff Ballinger 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
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
How Well Has Nike Handled The Publicity Surrounding Its Labor Practices?
  • Kept an arms length distance with their stakeholders
  • Research findings were flawed
  • Proper access to Nike facilities was denied
  • Failed to respond to media claims
  • As a result, major contracts were lost
alternatives
Alternatives
  • Leave countries with low wages and poor working conditions
  • Evade the criticism through denial or deflection
  • Change its business practices
alternatives19
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
alternatives20
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
alternatives21
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
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
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
Recommendations
  • Protecting Nike’s image through a code of conduct
  • Developing and coordinating very strong linkages with country and factory managers
  • Taking a proactive approach towards becoming socially responsible
recommendations25
Recommendations

4. Understanding why children work, and allowing opportunities for growth and advancement

5. Ensuring transparency and accountability

  • Improving public relations
  • Addressing the issue of wages
fair wages in indonesia and vietnam
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
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
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
Nike and its Stakeholders

Supply Chain

Associates

Governments

Employees

Private

Organizations

Nike

Local

Communities and

Citizens

Investors,

Shareholders,

Lenders

Customers and

Users

Joint Venture

Partners,

Alliances

Unions

Regulatory

Authorities

proposed view of stakeholder management
Proposed view of Stakeholder management

Governments

SOCIAL POLITICAL ARENA

Private Organizations / NGO’s

Communities / Citizens

INDUSTRY STRUCTURE

Joint Venture Partners and Alliances

Unions

Investors

Employees (including children)

Customers

RESOURCE BASE

Supply Chain / Manufacturing

Nike

Authorities

implementation31
Implementation
  • Keeping stakeholders informed on a regular basis
  • Arms-length relationship  Well-versed, well-informed relationship
  • Top-down support required
  • Recognizing stakeholder management as a core competence
  • Become alert of new stakeholders and their varied needs
implementation32
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
implementation33
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
implementation34
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
implementation35
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
implementation36
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
Nike Bingo

Question 1:

Who did Nike sign its first contract with?

nike bingo38
Nike Bingo

Question 2:

How much did a pair of Penny Hardaway

basketball sneakers cost?

nike bingo39
Nike Bingo

Question 3:

How many years would it take an

Indonesian worker to make the equivalent of

Jordan’s endorsement deal?

nike bingo40
Nike Bingo

Question 4:

How many workers did Nike layoff during its

first loss in 13 years?

nike bingo41
Nike Bingo

Question 5:

How many strikes occurred in Indonesia in

1991?

nike bingo42
Nike Bingo

Question 6:

What was the daily minimum wage of

workers in South Korea in 1991?

nike bingo43
Nike Bingo

Question 7:

In what fiscal year did Nike have its first

loss?