HITTING THE WALL: NIKE’S AND

INTERNATIONAL LABOR PRACTICES

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

Cost Control Marketing

Outsourcing all manufacturing Pour all money saved into

No dedicated manufacturing marketing
lines Celebrity endorsements
Low cost manufacturing Brand Identity
Independent (arms length) Differentiation strategy
contracting factories Fashion driven
One of the World’s first “Virtual The swoosh
Corporations”
Behind the curtain…..
• First contract with Japanese firms, but
shifted gradually to South Korea and
Taiwan.
• Later, urged its suppliers to move: China
or Indonesia.
Indonesia: base to bloom
• Very low wages
• Indonesia: $1
• US:$8
• South Korea:$24.40
• Docile Workforce
• Govt. yearning for FDI.
• Far Eastern Economic Review: Shoe cost
50% less in China/Indonesia than Taiwan/
S. Korea
• Jeff Ballinger, the in-charge of AAFLI office in
Indonesia, was charged with:
• Investigating labor conditions
• Studying minimum wage compliance by
overseas companies.
• He found that:
• Out of 17000 violations reported in 1988, 12
prosecutions were ever made.
• Nike contractors regularly flouted Indonesian
labor laws and paid below-subsistence wages.
• Strategy against Nike:
• Published Newsletters against Nike’s practices.
• Published comparison between Michael Jordan
and Indonesian workers.
 The criticism that followed….
• Nike was severely criticized for the
three problems faced by its labor
force:
• Age of workers:
• Working conditions:
• Labor wages:
 Nike’s retaliation….
 Denied the charges.
 Conducted biased audits and revealed parts of the
audit reports.
 Tried to prove itself innocent and victim of false
accusations till the severe damage of its image.
If you were Michael Jordan, how much responsibility would you take for Nike’s
action?

• Will try to make everyone believe that I wouldn’t knew that before else
would have think twice before endorsing Nike.
• Can’t just end the deal because
1. I am in contract with Nike and can’t just end without knowing the details
and
2. Didn’t know whether rumors are correct. or Is Nike is not doing anything
to change the lives of workers.
3. The deal is of millions of dollars so can’t just end it.
• Secondly would talked to Nike’s executives regarding the issue and how
to sort this out.
• Insist that he is not personally responsible for condition but will definitely
try to sort this out.
• Cannot help Nike get rid of its bad publicity unless and until it is proven
innocent against its charges. Tried to make a visit to Indonesian factories
and see the situation and help Nike get out of this situation.
Nike’s Extent of Responsibility

• Initially, Nike did not take any responsibilities

of labor welfare with the point of view that they
were not manufacturers.

• However, decisions taken by Nike could affect

the labor force at suppliers’ end to a great
extent.
• E.g.: when Nike urged its suppliers to move
to lower cost regions, they complied readily
to remain in company’s good graces.
• When its competitor Reebok, who also had
contractors in the same places, acted
readily for labor force, it showed effect.
 Nike’s strategies that influenced
labor conditions….
• Nike had huge profit margins Cost Amount
for itself while its contractors Labor Costs $3.37
had very less margins. Thus,
Nike could be held responsible Manufacturer’s overhead $3.41
for the low wages of workers to Materials $14.60
an extent.
Profit to Factory $1.12
• Nike’s Business Strategy
focused heavily on cost Factory Price To Nike $22.50
minimization and they showed Wholesale Price $45
no concern towards labor Retail Price $90
welfare or human rights
compliance by their
contractors.
Hence, we conclude that Nike was very much responsible for
labor welfare as its contractors complied to Nike’s policies
and strategies to be in their good graces. Hence, Nike had a
major influence on their functioning.
Nike’s Actions
• Despite of the criticism Nike previously responded
that labor conditions in its factory is none of its
concern as Nike is just one link in its subcontracting
chain.
• Due to severity of the labor issue it drafted
 Code of Conduct
 Memorandum of Understanding
• In 1992 when labor practices seeped outside
Indonesia
 Nike hired an accounting firm Ernst & Young to
conduct formal audits of its overseas factories.
• Nike also came into news regarding child labor.
• Nike refused Jeese Jackson to visit one of its
factories in Indonesia in contrast to reebok who
sent an executive to give Jackson a tour to its
factories in Indonesia.
• First one to join Apparel Industry Partnership.
• Nike established Labor Practices department.
Nike’s Intentions
• Having a look at the series of actions that Nike took
we see that it just took actions when conditions
became severe.
• So it just took actions to protect its brand image.
Unlike Reebok that quickly incorporated human
rights practices when there was news about poor
conditions of labor.
• The excerpts leaked from audit reports by Ernst &
Young uncovered:
• Majority of workers suffered from respiratory
ailments.
• Plants did not have proper safety equipment.
• Workers were forced to work 15 hours more
than allowed by law.
• The spokesman denied of charges saying that the
problems no longer existed.
Were Nike’s problems a result or poor management/PR or
something deeper?

• While definitely Nike have poor PR as it was not able to control the situation
and every time come up with a solution ,they more get into the trouble.
• Should have think up first before coming up with any sort of promotion to
save its image because every time doing something cause more protest.
but apart of mismanagement on part of PR they also have many problems
like
• We can believe that before they are not aware of working conditions and
therefore note responsible for it but when they came to know about it they
should have done something to at least raise the working standards and age
limit according to international standards .
• They always tried to hide from the accusation and not accept
it. But if they would have tried to solve it before and same
efforts would have been applied to sort out the allegation as
done to deny it ,things would have been better.
• Should have change its strategy from a totally profit driven
company to companies who also get involve in CSR
activities. Get the overall feel of the environment as how
companies are getting more and more involved in
philanthropic acts .

• Its total revenue increased from $1710 millions in 1989 to

$8776 million in 1999 with one of the expensive brand in its
category and getting 100% profit on its cost while selling to
whole sellers and 200% when selling to retailers. But still no
act of taking care of working conditions of labors .
 CSR
Environment
•Spending money on the environment adds to profitability.
•A company is responsible for the environmental conditions not
only in its own manufacturing plants, but also at the suppliers.
•There are companies that benefit from environmental activism.
DuPont, when it voluntarily stopped making chlorofluorocarbons,
Patagonia, when it makes very expensive, natural garments.
Nike – Responsible for working conditions even in their
contractors’ plants. Working condition at factories needs to be
upgraded
Company also takes responsibility for improving environmental
conditions in its surroundings.
Company is responsible to take care of environment through its
products.
Social Infrastructure
•Developing social infrastructure and enhancing the
quality of life of communities around the locations
where the Company has a presence.
Major roles to be played in-
Education Health 
 Hygiene & Sanitation 
 Community Development 
 Empowerment & Livelihoods

 
Nike: Age bar
Discrimination on gender basis
Public Health:
•Company responsible for its stakeholders as well as public in
general.
•Consideration needs to be given to human resource policies
and procedures, as these are beyond employees’ personal
control, yet have a direct and indirect effect on their working
life and the smooth running of the business they work for.”
•Examples-Cadbury Dairy Milk: worm in chocolate
Soft drinks: high level of pesticide
Nike: athletic sportswear
• Poor working conditions of labors.
• Majority of labor suffered from respiratory ailments.