Human Resource Management Issues: a case study of NIKE Introduction

Generally, firms have a tendency to focus much into profit making process of its business, as it becomes more important to maintain the growth and development of a company. On the other hand, many fail to maintain various aspects of firms responsibility like human capital management over its employees (Fei QIN, et.al, 2007) and outsourcing management. This report illustrates the human resource issues of labour working conditions in the event of globalization through a case study of NIKE Company. Nike is the largest athletic shoe company in the world. Even after the merger between Reebok International Ltd and Adidas AG, Nike still controls more than 36 per cent of the athletic shoe market in the United States and more than 33 per cent of the global athletic footwear market (Petrecca and Howard, 2005 cited in Fei QIN et.al, 2007). Even though, primarily known as Shoe Company Nike has moved into apparels and many other sport equipments. From the Nikes last five fiscal years (2007-2011) the Compound Annual Growth Rate (CAGR) based on fiscal year 2006 has moved from US$ 14,955 million to 20,862 million (NIKE,inc. revenue performance 2011) with a 7% increase in revenue (Nike. inc annual report, 2011).The company involves outsourcing its HR practices, as all the Nike products were manufactured by more than 800,000 workers in its contracted supply chain around the world (Nikebiz. Com, workers and factories) 3 the word document on human resource problems

Source of problem
Locke says that, Nike has been able to develop long-term relations with several firms around the world, even with some of the large suppliers Nike designers create and then rely on suppliers, who further produce the prototype of the product and then the production takes place immediately once the specifications about the product are distributed to the rest of the suppliers around the world. In apparel, given short product cycles and volatile trends, the situation is completely different, as among its many supplier most of them generally working for other companies (most often being competitors) and frequent shifts in consumer preferences or fashion trends could change into very short-term contracts with limited orders from Nike (2002). Disturbing the relationship between Nike and its supplier that in turn

reduces the Nikes ability to monitor on a regular basis the production processes and working conditions of these factories (Locke, 2002)

Outsourcing the route of problems

Nike's global supply chain is a complex network that directly connects and impacts a wide range of people around the globe: consumers, buyers, suppliers, workers and communities 2.

Debora (2002) says that, Nike from the beginning had the strategy of signing contract with suppliers in countries like Taiwan and South Korea , where costs were lower and production reliable. In 1982, 86% of their shoe productions were from these countries and as the economical state of these countries have developed, Nike moved to new low cost regions of china and Indonesia that in particularly had six factories that supplied Nike

As Nike for decades being involved in huge outsourcing networks of suppliers, it involves in outsourcing human resource heavily with an interest to reduce the firms cost over labour, capital, technology, and resources. And this activity of the firm does appears to be the main source for all the human resource issues like need for improvement in labour working conditions and issues regarding child labour. And several of the firms labour practices are based in countries that are in developing phase, were cheap labour along with lack of effective government rules over human rights prevailed (Locke, 2002). (Debora)As the company would save costs by outsourcing all manufacturing, there wont be any in-house production. Thus all the products are made through many independent contracting factories, creating Nike as one of the worlds first virtual corporations manufacturing firm with no physical assets. Meanwhile, the company pour the saved money in to marketing by celebrity endorsements, using high-profile athletes to establish an invincible brand identity around the Nike name (2002)

International labour problems

For long time Nike has been well known for it habit of sourcing its products in factories/countries where low wages, poor working conditions and human rights problems

were rampant, as a result, the firm faced some serious issues involving underpaid workers in Indonesia, child labour in Cambodia and Pakistan, and poor working conditions in China and Viet Nam, that combined to tarnish Nikes image (Locke, 2002).

A study of working conditions

Nike in regards with its various problems the firm developed monitoring systems to gain an insight and to measure the actual workplace of the suppliers factory conditions effectively, by which all the potential suppliers of the Nike has to undergo the different audits. That involves a basic environmental audit, health and safety based audit and an indepth management and working condition audit called M-audit was designed with periodic inspection by NGOs like Fair Labour Associations. An earlier phase analysis of the data showed that Nikes suppliers vary tremendously in terms of their working conditions and labour rights, those factories that are located in regions of high human rights were found to be with high score in the audits and the others in regions of less human rights and authoritarian government were found with small score facing problems like poor wages and excessive work hours (Locke and Romis, 2007). However, On the other hand a critical factor by Locke (2002) in his comparison between a two Nike plant of same region of Mexico explained that the over all average of the score of a location was found to be above 50% in general, since it includes the good scores of other firms that are located mostly in regions of high human rights and government laws. It further stresses the need for Nikes development over its code of conduct.

Issues of wages

Labours in developing countries are generally paid very small wages that are mostly smaller than the workers effort and final price of the good they produced (Debora, 2002) Nikes policy of competing on the basis of cost encouraged contractors to mistreat their workers. Although Indonesia had worker protection legislation in place, but widespread corruption made the laws essentially useless.

Child labour

Nikes involvement towards child labour in Pakistan during 1990 was clearly to reduce the cost of labour. That happens to be a damaging factor for the brand image. And about half of the worlds soccer balls of Nike were produced in Pakistan by children underage. While Pakistan has laws against child labour and slavery, the reason being that the week human rights and child labour laws. Nike and its local suppliers of developing countries like Pakistan, aims to minimize cost and earn the highest amounts of profit thus involving themselves in illegal practices like child labour, a practice which is not so highlighted by the government of the host developing country (Faraz Azam,1999). and Nike did accept its practise of being involved in child labour (Steve Boggan,2001),

Nikes code of conduct

On the other hand, since the employees at the Nike suppliers company were not actually Nikes employees, the managers of Nike refused to accept the responsibility over its suppliers activity (Locke, 2002). Thereby from 1992 Nike formulated a code of conduct which is a nongovernmental regulatory systems that are based on voluntary standards, Specifying the norms and rules by which to evaluate factory performance (Dara ORourke, 2003), was adopted by Nike to measure several serious labour problems found between its suppliers, under which the suppliers are obliged to sign the contract that requires standardising some basic labour and environmental/health standards. The contract has to be posted in the factories in appropriate local language in a way of assessable by all employees in order to make the labour workforce aware of the privileges and labour rights under the code of conduct (Fei QIN, et.al, 2007).

Under the codes of conduct, Nike after its experience from FY05/06 understands that monitoring alone cannot solve problems and based on additional research on ins suppliers factories, it separates both nonperforming (flat-line) factories and factories responding to the audit as yo-yo. Nike continues to monitor its contracted supplier factories around the world effectively by using its three types of monitoring process that involves monitoring of managerial, environmental and labour working conditions. And with serious of generations from FY07-09 it involves analyzing root cause for problems and works together to identify and implement solutions2.

Nikes principles of codes of conduct (Hummels and Timmer, 2004)

Management practices that respect the rights of all employees, Minimizing our impact on the environment, Providing a safe and healthy work place, Promoting the health and well-being of all employees

Limitations of Nikes codes of conduct

An increasing debate over the Nikes codes of conduct is that, information collected through factory audits are done by Nikes employees credibility of the data may become less when accessed by any NGOs or any other human rights organization.

Another critic of codes of conduct is that, since the voluntary monitoring of the firm is done for and under the pressure of developing NGOs and other human rights organizations. It creates serious debates stressing that it was not basically developed to protect labour rights or improve working conditions but instead to limit the legal liability of global brands and prevent damage to their reputation (Esbenshade, 2004 cited in Fei QIN, 2007)

Recommendations
Based on the studies of Locke (2002) in Mexico on two different suppliers of Nike, it is clear that Nike under its codes of conduct distributes scores regionally by creating average of the scores among all the factories of suppliers, which fails to measure in-depth of the factories behaviour and problems individually and in turn a solution.

As a solution improved Human Resource Management development to increase the effectiveness of monitoring and problem finding along with solutions over its vast suppliers. Even increased training of HRM among its suppliers to create social corporate responsibility over its huge suppliers around the world (in a way of teaching CSR to its suppliers)

Conclusion

Even though increased pressure from labour and human rights groups over outsourcing of HR practices has motivated a growing number of multinational corporations to adopt codes of conduct rapidly, the potential ability of the firm to conduct the research and analysis varies depending on the firms human resource management system and also to facilitate corporate social responsibility by managing its human capital effectively.

Bibliography
Qin, Fei et al. (2007) Beyond corporate codes of conduct: Work organization and labour standards at Nike's suppliers. International Labour Review 146 (1-2): 21. Hummels, H. and Timmer, D. (2004) Investors in Need of Social, Ethical, and Environmental Information. Journal of Business Ethics 52 (1): 73 84. Debora L .spar . (2002) Hitting the Wall: Nike and International Labour Practices, Havard business school, source [Online] : http://www.jvi.org/uploads/tx_abaeasydownloads/Nike%20Thursday.pdf Richard Locke and Monica Romis, (2007) , Improving working conditions in a global supply chain, MIT Sloan management review vol 48, source [Online]: http://www.wcfia.harvard.edu/sites/default/files/privategovernance_ws_lockeromis.pdf Dara ORourke,(2003), Outsourcing Regulation: Analyzing NongovernmentalSystems of Labor Standards and Monitoring, Wiley online library The Policy Studies Journal, Vol. 31,source [Online]: http://onlinelibrary.wiley.com/doi/10.1111/15410072.00001/abstract;jsessionid=63C88C5A6F67BC6699FF966E7A5A1D51.d02t03?system Message=Wiley+Online+Library+will+be+disrupted+24+March+from+1014+GMT+%280610+EDT%29+for+essential+maintenance&userIsAuthenticated=false&deniedAccessCustomi sedMessage= Richard M. Locke, (2007), The Promise and Perils of Globalization: The Case of Nike, Massachusetts institute of technology- industrial performance centre, source [Online]: http://scholar.google.co.uk/scholar?q=The+Promise+and+Perils+of+Globalization:&hl=en&a

s_sdt=0&as_vis=1&oi=scholart&sa=X&ei=xnFqT7GBJ8Sq0QWSlo3GBg&ved=0CBwQgQ MwAA Faraz Azam, (1999), Nike shoe and child labour in Pakistan, American edu ted case study, Source [Online] : http://www1.american.edu/ted/nike.htm Steve Boggan, (2001), Nike Admits to Mistakes Over Child Labor, common dreams.org, source [Online]: http://www.commondreams.org/headlines01/1020-01.htm Nike,inc.(2011) corporate social responsibility report, workers and factories, source [Online]: http://www.nikebiz.com/crreport/content/workers-and-factories/3-1-4-our-strategyevolving-approach.php?cat=overview Nike, inc. (2011), Revenue performance, Annual report 2011, source [Online]: http://investors.nikeinc.com/Theme/Nike/files/doc_financials/AnnualReports/2011/index.htm l#select_financials