Hitting The Wall: Nike & International Labor Practices Presentation.

1. Hitting the Wall: Nike &
International Labor
Practices
Presented by:
Shradha Bhutra
Prerna Sharma
Sayan Mitra Thakur
Sunny Singh

2. 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

3.  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

4. 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

5. 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.

6. 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.

7. 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

8. 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

9. 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

10. Key issues
 Lack of understanding, regarding
stakeholder management
 Disconnection between company, brand
awareness, and manufacturing plants
 Public relations failure
 Poor labor standards

11. 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.

12. NIKE-Carol’s Pyramid
Philanthropic
Can take information and use it
positively.
Ethical
Although it is legal, it was not received
ethically
Legal
They are not breaking any laws, with any
alternatives
Economic
It is in the best interest to use the information to develop new
contracts in new environments

13. 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)

14. 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.

15. 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.

16. 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

17. How Well Has Nike Handled The Publicity
Surrounding Its Labor Practices?
 Kept an arms length distance with their
stakeholders
 Research findings were flawed
 Proper access to Nike facilities was
denied
 Failed to respond to media claims
 As a result, major contracts were lost

18. Alternatives
 Leave countries with low wages and poor
working conditions
 Evade the criticism through denial or
deflection
 Change its business practices

19. 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

20. 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

21. 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

22. What should Nike do?
 Leave countries with low wages and poor
working conditions
 Evade the criticism through denial or
deflection
 Change its business practices

23. 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?

24. 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

25. 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

26. 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

27. 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

28. 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.

29. 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

30. Proposed view of Stakeholder
management
Governments
SOCIAL POLITICAL ARENA
INDUSTRY STRUCTURE
Investors
Employees (including children)
Customers
RESOURCE BASE
Nike
Com
m
unities/
Citizens
PrivateOrg
SupplyChain/
Manufacturing Unions
Authorities
Joint Venture
Partners and
Alliances

31. Implementation
 Keeping stakeholders informed on a
regular basis
 Arms-length relationship  Well-versed,
well-informed relationship
 Top-down support required
 Recognizing stakeholder management as
a core competence
 Become alert of new stakeholders and
their varied needs

32. 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

33. 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

34. 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

35. 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

36. 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

37. Nike Bingo
Question 1:
Who did Nike sign its first contract with?

38. Nike Bingo
Question 2:
How much did a pair of Penny Hardaway
basketball sneakers cost?

39. Nike Bingo
Question 3:
How many years would it take an
Indonesian worker to make the equivalent
of
Jordan’s endorsement deal?

40. Nike Bingo
Question 4:
How many workers did Nike layoff during
its
first loss in 13 years?

41. Nike Bingo
Question 5:
How many strikes occurred in Indonesia in
1991?

42. Nike Bingo
Question 6:
What was the daily minimum wage of
workers in South Korea in 1991?

43. Nike Bingo
Question 7:
In what fiscal year did Nike have its first
loss?