Synopsis of The Situation
Based in Beaverton, Oregon, Nike had been a corporate success story for more than three decades. It was a sneaker company, but one armed with an inimitable attitude, phenomenal growth, and the apparent ability to dictate fashion trends to some of the world’s most influential consumer. Selling a combination of basic footwear and street-smart athleticism, Nike pushed its revenues from a 1972 level of $62,000 to a starting $49 million in just 10 years. In the 1980s and 1990s, Nike had been plagued by a series of labor incidents and public relations nightmares; underage workers in Indonesian plants, allegations of coerced overtime in China, dangerous working conditions in Vietnam. For a while, the stories had been largely confined to labor circles and activist publications, until a young female worker had died in a Nike contracting factory in 1997, the labor conditions at Nike had hit the mainstream. While the marketing of Nike’s products was based on selling a high profile fashion item to affluent Americans, the manufacture of these sneakers was based as an arms-length and often-uneasy relationship with low paid, non-American workers. Key Issues
Nike's strategy of shaving costs caused ethical dilemmas that ultimately damaged its reputation. Nike outsources all of its manufacturing. This approach has provided Nike with huge profits, from a 1972 level of $60,000 to a startling $49 million in just 10 years. Production is now globalised, with different countries concentrating on different parts of the process depending on what they are good at, or what they can do most efficiently or cheaply. Poorer countries get the less lucrative activities such as lowly paid semi-skilled or unskilled production or assembly. This approach also allows Nike to keep an arms-length arrangement with its subcontractors, stating that, it is not they who employ cheap labor, but their contracted suppliers, hence the responsibility lies with the latter.
Define the Problem
Nike has a difficult situation to resolve. Its strategy to use celebrity endorsements to develop a strong brand identity had the result that Nike became by the 1990s one of the world's best known brands, as well as a global symbol of athleticism and urban cool. This situation began to change by 1998, when currency woes in Asia along with the damage to its image resulted in Nike experiencing a loss for the first time in 13 years. This strategy resulted in Nike requiring steep wage concessions from its subcontractors to continue its intense growth patterns. Nike has always paid the lowest possible wages in Indonesia, claiming year after year that it could not afford even to pay the country's minimum wage. Each year, Nike contractors in Indonesia refused to pay minimum wage raises of a few cents a day. Thanks to a corrupt and inefficient government, they usually got away with it. Adding to this problem was the issue of child labor. Nike went into Pakistan, knowing full well that child labor is an ages-old practice there and taking no precautions whatsoever to prevent the use of child labor in the production of its soccer balls. We have to conclude that Nike expected to profit from its Pakistani contractors' known usage of bonded child labor. Nike further tarnished its reputation by attempting to dilute information that had come to the attention of the general public regarding its practices, resulting in a lawsuit. Mike Kasky is suing Nike, Inc. Under California laws regulating unfair competition and false advertising. Kasky claims that when an internal audit was leaked to the press that revealed illegal employment practices in Nike's factories in China, Vietnam, and Indonesia, Nike responded by issuing to the press numerous statements it knew to be false. The California courts ruled last year that Nike's PR effort was meant to bolster its image and improve its sales - so indeed,...