Dr. Jitendra K.

Sharma

Case Study
JUST DO IT
Nike is a leader in the sports shoe industry. The company had sales of US $9.5 billion in 1998 with a
40% share of the American Sneaker market. The company also became a lightening rod (target) for
worldwide protests over alleged “Sweat Shop” conditions in factories across South East Asia. Phil
Knight, the founder of Nike and also the CEO admits that “Nike product has become synonymous with
low wages, forced overtime and arbitrary abuse”. In less developed nations, company is paying low
wages and imposing working conditions that are shocking poor by US standards, and yet they operate
well above the standards of local firms. Nike is a well-known company, whose logo is a symbol for the
“Just Do It” spirit, came to be associated strangely with deplorable labour practices.
Phil, an able administrator of the company had a phenomenal success on account of his visionary
strategy, developed from his student days’ vision at Stanford Business School. His strategy at Nike
involves outsourcing all the manufacturing to contractors in low wage countries and pouring the
company’s resources into high profile marketing. One of the vice presidents expressed ‘we do not
know the first thing about manufacturing. We are basically good marketers and designers.’ The central
effort to Nike’s marketing is placing the Nike “Swoosh” logo on the uniforms of collegiate and
professional athletes. Nike enlisted such superstars like Michael Jordan (Basketball champ) and Tiger
Woods (Golf champ).
Nike started the operations in 1964, contracted with manufacturers in Japan when the wages were low
in Japan. Later on, they transferred their operations to Korea and Taiwan in view of the wage rise in
Japan. In 1982, the 80% of the Nike shoes were supplied from Korea and Taiwan. Again the shift was
to South East Asia as wages increased in Korea & Taiwan. By 1990, Nike production was based in
Indonesia, Vietnam and China. The Indonesian wages were so low, their women used to work at 15
cents per hour. Some of the experienced women who were working at Korean owned plants got a
maximum of $2 for an 11-hour day. The Indonesian minimum wage was raised in 1991 from $1.06 for
a 7-hour a day to $1.24.
The Korean managers acted brutal on Indonesian women. Korean scolded those women for failing to
meet quotas and withheld pay to enforce discipline. Indonesian labour laws, lenient to begin with, were
disobeyed by contractors, since the government was eager to attract foreign investment. They worked
in crowded, poorly ventilated factories, surrounded by machinery and toxic chemicals. Union activities
in Indonesia were not in prominence. Labour strikes, if any, were firmly suppressed by the army. The
labour was exploited to maximum.
When Nike was undergoing criticism, it denied any responsibility for the practices of its contractors.
Nike argued that it merely buys shoes from independent companies situated in those countries. Further,
the workers were not the employees of Nike and the salary given to them was above the legal
minimum and the prevailing market rate. Commenting on the labour unrest and poor working
conditions in some factories supplying Nike, the GM of Nike in-charge of Indonesia said that he did
not know the causes. GM defended his company by arguing “Yes, there are low wages. But we have
come in here and given jobs to thousands of people who would be jobless otherwise.” He might have
added that the company had also given additional employment to Michael Jordan whose reported $2
million fee in 1992 was larger than the payroll that year for all Nike production in Indonesia.

Questions:
Q1. Is the company ethically and professionally right to outsource its operations to countries like
Indonesia?
Q2. Do you appreciate Nike’s marketing efforts? Justify.
Q3. As a CEO, what would you do to come out of this situation?

Dr. Jitendra K. Sharma