Hitting the Wall: Nike and International Labor Practices

Topics: Human rights, International Labour Organization, Minimum wage Pages: 17 (4307 words) Published: April 2, 2004
Case Study

"Hitting the Wall: Nike and International Labor Practices"

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 ten years" (Bartlett, Ghosal, & Birinshaw, 2004). "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" (Ballinger & Olsson, 1997). 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" (Ballinger & Olsson, 1997).

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" (Global Exchange, 1998). 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" (White, M., 1997). 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" (Truthout Forum). "The California courts ruled last year that Nike's PR effort was meant to bolster its image and improve its sales - so indeed, it did amount to advertising, and, as such, it needed to be truthful" (Hightower, J., 2003).

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" (Bartlett et all, 2004). 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. Nike must make serious changes if it is to repair its image and hopefully regain its market in the future.

One alternative for Nike is to enforce its own Code of Conduct with its subcontractors. This Code has been amended several times, but had been very general in its listing of business practices. Its current version stipulates many requirements that we take for granted, one of which is that a subcontractor "certifies that it pays at least the minimum total compensation required by local law, including all mandated wages, allowances and benefits" (Instituto per Il Lavoro). An immediate benefit of this decision would be the good press it would generate that Nike would be willing to put pressure on its suppliers so that the people who produce its goods are treated fairly. Another benefit would be to align Nike's suppliers' actions with Nike's vision as listed on its web site www.nike.com,"to bring inspiration...

References: "Research into Nike 's Global Alliance Assessment Study". (2000). Clean Clothes Org.
"Top Cambodian Garment Union Leader Shot Dead". (2004). Reuters web site. Retrieved
1/29/2004 from www.reuters.com/newsArticle.jhtml?type=topNews&storyID=4181868
"Wages and Living Expenses for Nike Workers in Indonesia". (1998). Global Exchange.
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