Nike and Its Strategies Accusations and Nike's Response Corporate Social Responsibility in Nike

1. Erhan Sozen 1
CALIFORNIA STATE UNIVERSITY, LOS ANGELES
DR. MCGUIRE
November 26, 2012
Erhan Sozen
Hitting the Wall: Nike and
International Labor Practices

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Nike and Its Strategies
Nike is a very successful American footwear and sportswear company. With its
distinguished swoosh symbol, it is a popular brand around the world. Thus, its
slogan “Just Do It” is embraced by youth and the company became one who can
dictate fashion trends in many countries.
Nike’ s CEO,Phil Knight, came up with two logical business strategies, which are
reducing costs by outsourcing the whole manufacturing and channeling savings
from outsourcing into marketing. For these reasons, Nike aimed to have their
products manufactured where the labor costs were low such as China, Indonesia,
South Korea and Taiwan. Thus, by outsourcing Nike achieved operating with no
physical assets. Thanks to globalization, Nike was fully utilized outsourcing in
developing countries and increased its profitability, as well. Then, with outsourcing
savings, Nike used celebrities to promote its products. Furthermore, Nike made
agreement with contractors in South Korea and Taiwan. However, the rising cost of
labor in these countries made Nike to shift its suppliers to other developing
countries such as China and Indonesia where low labor cost was available.
In this case, Nike could not be sensitive to the communities in these countries, and
concerns of public and ignored taking responsibility. Also, Nike could not forecast
the consequences of having cheap and irresponsible labor practices abroad earlier.
With the increased media pressure, critics and public protests, Nike’ s huge
reputation and brand image was about to be destroyed by public.
Accusations and Nike’ s Response
Once again,Nike outsourced its production in countries where labor cost was low
and used savings for marketing campaign. A labor organizer, Jeff Ballinger, fought
with Nike in labor practices and published newsletter against Nike. He argued that
Nike forced contractors to meet the production quota, which made labors to be
treated cruel in Indonesia. Although there were laws in favor of labors in Indonesia,
Nike contractors did not comply with the law and no one could argue against due to
corruption in the country. Ballinger succeeded in drawing attention of the U.S and
Indonesian government. Hence, Indonesian government increased the minimum
daily wage to around $1.24. But, most of the people found the increase insufficient. I
think what made Nike’ s situation worse was Nike ‘s reckless and irresponsible
attitude against criticism. In the case, it is stated, “ without an inhouse
manufacturing facility, the company simply could not be held responsible for the
actions of independent contractors. “ In response to criticism, Nike issued Code of
Conduct and Memorandum of Understanding to be applied for contractors in 1992.
Protests were still continuing against Nike. To calm media, Nike also worked with
Ernst&Young , independent accounting firm, to audit Nike’ s plants in foreign
countries. However, labor activists again were not happy with it and did not find it
reliable because Ernst&Young was paid by Nike for the audit. On the other hand, the
U.S. government established the Apparel Industry Partnership to aid better labor
standards for foreign plants. Nike joined in partnership first. In addition to this, Nike
released a Labor Practices Department in 1996. I think Phil Knight assumed that all

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the accusations and protests would end by participating in these establishments.
Nike’ s other strategy was hiring Andrew Young, a respected civil rights leader, in
order to prepare a report for the factories in Asia. After Nike released the results,
the critics got angry again because there was no conclusion about the wages in the
report, which played the key role of all the accusations. Later on, an audit report was
that stated serious health and safety issues in a factory in 1997 leaked by an
employee. In addition to that, Nike announced its first loss in 13 years in 1998.
Finally, instead of denying accusations, “ Phil Knight announced series of sweeping
reforms, including raising the minimum age of workers.” Also, Nike provided better
working conditions in the factories. Then, Nike tried more in governmental reform
efforts, which was Apparel Industry Apparel. Lastly, Nike joined Fair Labor
Association, which requires companies to adapt its certain criteria like minimum
wage and build internal monitor systems to impose. As a result, Nike implemented
serious reforms and programs, however, it has failed to address wages in their
activities. As Ballinger said, “ But on wages, they’ re still lying through their teeth.”
Corporate Social Responsibility in Nike
Every company should have adopted Corporate Social Responsibility (CSR) to do the
right thing for societies they interact. Especially big companies like Nike should have
been more careful when interacting with foreign society. Nike, as an international
company, must have maintained a certain level of social responsibility. It is not only
meeting financial goals to be a successful company, it is also imposing standards for
being ethical and responsible within the company. Nike failed in terms of applying
CSR. Nike denied to be a responsible company and did not try to improve working
conditions in the foreign factories in the first place where their sneakers were
produced. Even after many criticisms, Nike did not care to take the responsibility.
After it started to take Nike’ s reputation and profit down, Nike intended to apply
programs in terms of CSR. However, they were missing the key factor that they
needed to fix it first. It was the low labor wages. I think Nike had to satisfy the
protesting group by increasing the wages to the level where the workers can survive
and help their families, as well. Moreover, instead of ignoring unhealthy working
conditions in the factories, Nike should have applied CSR towards protection of the
environment. For instance, most of the workers got respiratory ailment because of
poor ventilation and exposure to toxic chemicals. Nike should have adopted
environmental protection policies in the very first place in order to protect workers’
health.
According to Steiner&Steiner’ s 8 General Principles of CSR, Nike has failed in the
most of these principles.
1) Profit motive: Nike had a great profit motive. However, Nike failed to
find ways to solve problems in factories.

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2) Follow the law: Actually, Nike followed the law in their operations.
However, their contractors in Indonesia were not following the law
for protecting labor and paying below minimum wage due to
corruption in there.
3) Managers must act ethically: CEO of Nike ignored satisfying society’ s
concerns and expectations in terms of integrity, honesty and justice.
4) Correct mistakes: Nike failed to fix their mistakes for a long time.
However, a few years later, Nike attempted to create solutions.
5) CSR varies with industry and company: In factories that manufactured
footwear and sportswear for Nike, exposure to toxic chemicals by
majority of workers has been found due to poor ventilation.
6) Meet legitimate needs of multiple stakeholders: One can easily
observe that Nike failed to meet needs and concerns of shareholders,
customers, employees and communities by ignoring the
responsibility.
7) Social Contract: Nike broke the social contract with the public because
Nike did not value public opinion. However, later Nike understood the
importance of social contract.
8) Measurement and reporting: Although Nike did not attempt any
measurement and reporting of CSR performance in the first place,
Nike started to hire publicly known people and independent audit
company to analyze conditions after concerns and accusations arose
in the public.
Conclusion
Nike made two mistakes that were not being concerned about working conditions in
the foreign factories and having wrong public relations. For instance, when Nike was
accused for exploiting workers, Nike ignored being part of it. Although public
thought Nike was paying low wages, the results of a survey conducted by the
students at Darthmouth’ s Amos Tuck School of Business showed that the factory
workers could earn fair amount of discretionary income. Despite I found this survey
not reliable, Nike could have this kind of survey conducted earlier in order to satisfy
its customers and critics.

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References
-McGuire, Stephen J.J., Christine Chueh, Tia Mao, and Isela
Mercado. The Grassroots Battle: Wal-Mart Supercenter
Rosemead. Los Angeles: 2008. 21. Print.
-McGuire, Steve, Corporate Social Responsibility and Ethics in
Organizations. Print. 24 November 2012.