Hitting the Wall: Nike & International Labor

PracticesPresented 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

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 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 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

Comm

unities /

Citizens

Pri

vate

Org

aniz

atio

ns /

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?