Corporate Social Responsibility and Nike Factories

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CASE 9

Daryl Benson

NIKE: Managing Ethical
Missteps—Sweatshops to Leadership
in Employment Practices

Phil Knight and his University of Oregon track coach Bill Bowerman founded Blue Ribbon Sports, later renamed Nike, in 1964. The idea, born as a result of a paper written by Knight during his Stanford MBA program, was to import athletic shoes from Japan into the U.S. market otherwise dominated by German competitors Puma and Adidas. The company initially operated as a distributor for a Japanese athletic shoe company, Onitsuka Tiger, but also developed its own brand of athletic footwear to promote in the American market. The company’s relationship with Onitsuka Tiger ended in 1971, and the Nike brand was created in 1972 (“Nike” after the Greek goddess of victory). The company was renamed Nike in 1978, and has grown to be the largest worldwide seller of athletic goods, with approximately 19,000 retail accounts in the United States and about 160 countries around the world.

Nike’s main popularity came from celebrity athlete sponsors. As the popularity of the Nike product grew, so did its product demands and the need to produce more apparel to meet the demands of customers. In contrast to its meteoric rise in the 1980s after going public, the late 1990s began a period composed of combating allegations about labor and human rights violations in Third World countries in which manufacturing had been subcontracted. Nike’s response to this issue has been considered by critics to be more of a damage-control stunt than a sincere attempt at labor reform.

This case was prepared by O.C. Ferrell and Jennifer Jackson, based on work by Lisa Kiscaden and Megan Long, the University of New Mexico. We appreciate the editorial assistance of Jennifer Sawayda on this edition of the case, and of Melanie Drever and Alexi Sherrill on the previous edition. This case was prepared for classroom discussion, rather than to illustrate either effective or ineffective handling of an administrative, ethical, or legal decision by management. All sources used for this case were obtained through publicly available material and the Nike website.

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CRITICISMS OF NIKE’S
MANUFACTURING PRACTICES
In order to remain competitive and keep manufacturing costs low, athletic footwear production has moved to areas of the world with low labor costs. Assembly of shoes (as well as low-cost apparel, footwear, radios, TVs, toys, sporting goods equipment, and consumer electronics) began shifting offshore in the 1960s: first to Japan, then to Korea and Taiwan, and starting in the 1980s to Southern China. By the mid 1980s, Taiwan and Korea supplied 45 percent of the world footwear exports, and the trend has continued for production to continually shift to lower-cost Asian nations. Because of its history and experience with Japanese manufacturing and production, Nike was a pioneer in overseas manufacturing as a way to cut costs on sports gear manufacturing. When Japan became too expensive, Nike shifted its contracts to Vietnam, Indonesia, and China. Now, around 700 independent contract factories, most of which are in poor Asian nations, manufacture the majority of Nike’s products. The working conditions for the workers in these factories have been a source of heated debate. Allegations of poor conditions, child labor, widespread harassment, and abuse have all been issues for the company. Because the Asian factories have further subcontracted out the work, it has become increasingly difficult for Nike to keep track of and regulate the working conditions and wages in these factories.

Sweatshop labor is not merely an issue for Nike. It permeates the public consciousness across all manufacturing. Perhaps the incident that brought sweatshop labor to the forefront of American consciousness was the Kathy Lee Gifford debacle in 1996 when the human rights group, the National Labor Committee, uncovered that Gifford’s...
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