Nike Case Analysis 1

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Nike Case

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Nike Case Analysis 2

Introduction:

This case focuses and explains the low labor wages problems faced by Nike Inc. after 30 years of

its foundation. Nike Inc. was alleged continuously for its lower minimum labor age and the

lower rates of wages being offered to the labors in the developing countries. The cause of the

death of a female worker caused the world to raise questions on the morality of employing lower

age labors for its manufacturing of shoes. Many university students also started to boycott the

use of Nike Products. This scenario was responded by Nike Inc. at various stages with various

responses. The case asks for the analysis of the scenarios faced by the Nike Inc. and its

responses.

1. Write a brief synopsis of the Nike case

Nike Inc is an American company founded in 1964 by the two different persons. One was

Phil Knight and the second person was Bill Bowerman. The Nike Inc deals in footwear, sneakers

from its beginning and now became a great name of this industry. In this particular case, the

topic of discussion is Nike and international labor practices. Nike was working in many countries

with different small crises, but the main incident was the death of a female worker in 1997 while

making a sneaker. At the time of crisis, most of the students from major universities did boycott

the shoes and sneaker of Nike. The success of the Nike was a prominent factor in early years.

This success can be credited to the low labor costs that it was enjoying from the factories in the

Asian markets. The Asian markets offered the lowest of the minimum wages i.e. 3920.00 in the

world and with higher number of working hours 48.6 hours per week per labor with earning

revenues substantially from the European and the American markets, which offer higher sale

price. The story of the crisis had begun from Indonesia and extended in different regions for
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Nike. Jeff Ballinger was the name that is well known for his activities for the help and protection

of labor rights. He worked in Indonesia and researched on different issues and low wages

problem of labors from under developing countries. In 1992, the first opposition statement came

against the thoughts of Jeff Ballinger and that was from the government itself. In the same year,

the criticism was getting at the large scope in Indonesia and outside the Indonesia against Nike’s

labor practices. The same time, the Washington city “head office of Nike” started responding

against the labor abuse in different regions as well. In the end, the Nike Company tried to control

the damage and reviewed the wages system in different regions of the world. According to

researchers, they did not succeed completely until now.

2. What charges have Jeff Ballinger and others levied against Nike? What is the

evidence

Jeff Ballinger was the person who was running the movement against the labor abuse and

he was not convinced with the policies of Nike in the country of Indonesia. He claimed that

contractors were not paying the right amount to the people of Indonesia who were working for

the formation of sneakers for Nike Company. According to the different sources and statics, the

wages for per hour were not satisfying in Indonesia and other additional benefits for labors were

not transferring efficiently as well. It is depicted from the figures presented along with the case,

which shows that the Asian Countries are having the lowest of the minimum wages i.e. 3920.00

in the world with putting in the highest of the working hours per week i.e. 48.6 hours. Moreover,

the manufacturing companies also tend to move into the markets i.e. Asian Markets only because

of this sole reason i.e. lower labor cost, which is 3363 for Asian countries, as compared to the

13000 approximately per worker labor cost for the other continents. Therefore, the issue was all

about the protection of labor rights. Jeff Ballinger was an activist from high school and he
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noticed the humiliation of human rights while working in Indonesia. On the other hand, one

other issue was the child labor and it was against the international labor rights. One can see the

life magazine of July, the magazine updated a picture from the country of Pakistan, a child of

almost 12 years making or stitching the shoe of Nike. It was a shocking and rare moment for the

Nike Company. According to reports, the environment for labors was not satisfactory in some

regions. Therefore, most of the human rights activists were writing against the Nike Company.

3. How well has Nike responded?

The Nike Company had to respond well in order to maintain a good reputation as a

sneaker company all over the world. The Nike Company initially did not accept the claims

against the company. Then, the company realized the genuine labor issues mostly in the

industries working in the region of Asia. The co-founder of Nike had to respond to the critics in

those dangerous situations. Anyhow, he and other strategists’ had decided to take the little

initiative to control this situation. They had to take steps for the safety of labors and protection

of labor rights in order to assure the great exercise of the company over the year. Firstly, they

introduced a factor to reduce the danger from factories and working area. They provided a safe

environment to workers for getting safety for workers and better performance after research.

Secondly, the Nike Company introduced a standard of age in workers and factories. The

company set the rule for working in Footwear Company and age for the minimum worker was 18

years. In other industry of equipment, the age set was 16 years. The Nike Company and

strategists decided to offer loan programs for the labors working in under developing countries of

Asia. These were the great initiatives taken by the company of Nike.

4. If you are Phil Knight, how should you respond

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The Phil Knight is the co-founder of the Nike Company. He had seen all the

period of the company over the year. He responded well to the critics. At the time of

crisis, he responded to the public and stakeholders and announced, “He will work for

better reforms in the company in order to decrease and diminish the labor abuse. In

other words, one can say that he admitted the issues and problems in specific regions

of Asia. In my opinion, the reputation of the company should not spoil at all. For this

purpose, the company and authorities should take some bold steps in order to tackle

the issues. The announcement should come to media that company was not

responsible for the labor and child abuse because the company had authorized

contractors at different places for decisions related to labors. Anyhow, the company

will take necessary steps against the bad practices of the contractors in those regions.

Therefore, the issue will diminish completely and people can give a good example of

the company in future. As a co-founder of the company, I would try to fix the issue of

wages totally and announce the handsome amount of bonuses monthly on a

performance basis. Therefore, the employee and labor satisfaction level will improve

and company would raise the profit ratio in the income statement.

5. What do you recommend to Nike going forward?

Nike has introduced itself as a top rank sneaker company all over the world. It is the fact

that company has the bad impact due to the bad strategies of the contractors in the under develop

countries. The countries from Asia are specifically described by the reporters and researchers in

those bad practices. The best thing for them to continue as a well-known sneaker company, the
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company does not require viewing the dark period. Anyhow, the Nike Company has to make

sure that the labor abuse or child abuse should not come in a way of success. The Nike Company

should make solid policies and regulations in order to stop the child abuse and labor abuse in

different regions with the help of different governments and states. The wages system needs to

change positively by year, therefore, the requirement of wages by that period could meet

according to the time. The loan system is quite great for the families of labors and it should

continue for the betterment of the labors and their life standards. The company should focus on

the medical rights of the labors as well. One can hope for the best future of Nike after these

strong steps.

Conclusion:

The labor abusive strategy and policies followed by the company Nike Inc. has been

questioned in the past and were being criticized by the world, specifically in the Asian

Manufacturing units of Nike Inc. The case showcases the response of the Nike Inc. in order to

not only acknowledge the problems aroused by the liberty offered by the Nike Inc. to its

contractors in terms of labor policies, but also made strong policies to stop the possibility of any

future labor abuse under their company umbrella.

Appendix:

Exhibit 4 Summary Revenue and Expense Profile of Minimum Wage Workers by Demographic Type (in
Indonesian Rupiah)

Total Percentage
(weighted) of Uses of
SH SO Dorm MH MO Wages
Number of 67 161 33 21 32 314
respondents
Nike Case Analysis 7

Base wages 172,812 172,071 172,197 173,905 172,650 172,424

Total wages 225,378 238,656 239,071 248,794 244,458 236,893

Rent 14,677 40,955 12,121a 24,775 56,050 32,838 14%

Food 84,774 95,744 90,455 103,421 128,793 103,020 42%
Transportation 48,984 24,189 7,219 17,471 38,200 28,560
12%
Savings 38,369 41,783 70,303 29,412 49,185 44,154 18%
Contribution to 22,175 37,594 57,644 25,222 25,089 34,441
home
14%

Total uses 208,980 240,266 237,741 200,301 297,318 243,013

100%

Exhibit 7 Wages and Productivity in Industrialized and Developing Nations (figures in $ per year)

Average
Hours Labor Cost Per Value Added Per
Worked Per Yearly Minimum Worker in Worker in
Week Wage Manufacturing Manufacturing
1980 1990- 1980-84 1990-94 1980-84 1990-94 1980-84 1990-94
-84 94
North
America
United 35 34 6,006 8,056b 19,103 32,013b 47,276 81,353
States
Canada 32 33 4,974 7,897b 17,710 28,346 b 36,903 60,712
Mexico -- 34 1,002 843 3,772 6,138 17,448 25,991
Average
Per
Continent 33.5 33.67 3,994.00 843.00 13,528.33 6,138.00 33,875.67 56,018.67
Europe
Denmark -- 37 9,170 19,933 b 16,169 35,615 27,919 49,273
France 39 39 10,815 22,955 b 16,060 38,900 26,751 61,019 e
Germany 41 40 a a 21,846 d 63,956 -- --
Greece -- 41 -- 5,246 6,461 15,899 14,561 30,429
Ireland 41c 41c -- -- 10,190 25,414 26,510 86,036
Netherlan 40 39 9,074 15,170 b 18,891 39,865 27,491 56,801
ds
Average
Per 9686.3333
Continent 40 39.20 33 5,246.00 13554.2 36,608.17 24646.4 55,634.75
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Asia
China -- -- -- -- 472 434 d 3,061 2,885
(PRC)
Hong 48 46 -- -- 4,127 13,539 b 7,886 19,533
Kong
India 48 48 -- 408 1,035 1,192 2,108 3,118
Indonesia -- -- -- 241 898 1,008 3,807 5,139
Japan 47 46 3,920 8,327 b 12,306 40,104 b 34,456 92,582
South 52 48 -- 3,903 b 3,153 15,819 b 11,617 40,916
Korea
Malaysia -- -- -- a 2,519 3,429 8,454 12,661
Philippine -- 43 -- 1,067 1,240 2,459 5,266 9,339
s
Singapore -- 46 -- -- 5,576 21,534 b 16,442 40,674

Thailand 48 -- -- 1,083 2,305 2,705 11,072 19,946

Average
Per
Continent 48.6 46.17 3920 699.75 3363.1 2,158.60 10416.9 24,679.30