Hitting the Wall: Nike & International Labor Practices

Presented by: Arif Husain Jerry Croke Josh Quinton Ashley White

Organizational Strategy: Business 7000 September 20, 2006

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

Business Strategy Two Pronged Approach Cost Control

Outsourcing all manufacturing No dedicated manufacturing lines Low cost manufacturing Independent (arms length) contracting factories One of the Worlds first Virtual Corporations

Marketing
Pour all money saved into marketing Celebrity endorsements Brand Identity Differentiation strategy Fashion driven The swoosh

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 Nikes part, what is the best strategy Nike must implement to reposition itself as a champion in the global sports and apparel industry

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-workers machine broke, spraying metal parts across the factory floor and into her heart. She died instantly.

Problems
Three major problems:
Labor Conditions Ages of Workers Wages

Nike is criticized on all three issues, and their response (if any) has been Were not responsible, because we dont manufacture the shoes. They believe that since they outsource all of their shoes, they are not responsible.

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

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

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

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

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? The Light of Day Test - What if your actions appeared on TV? Would you be proud? The Benefit Cost Test - This test employs the Utilitarian perspective of the greatest good for the greatest number.

2)

3)

NIKE-Carols 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

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)

Does Jeff Ballinger Have A Convincing Argument About Nike?

Ballinger believed that Nikes policy of competing on the basis of cost fostered and even encouraged contractors to mistreat their workers in pursuit of unrealistic production quotas.

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 90s, his arguments coincided with strikes that swept across Indonesia and the newfound interest of media groups.

Nikes Response:
We dont make shoes..... Nike is just one link in its subcontracting chain
Nike contracts out the production of its shoes The subcontractors also contracted out their work

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

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

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

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 Nikes image

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

What should Nike do?

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

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?

Recommendations
1. Protecting Nikes 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

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

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

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

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.

Nike and its Stakeholders

Supply Chain Associates Private Organizations Governments Employees

Local Communities and Citizens

Nike

Investors, Shareholders, Lenders

Joint Venture Partners, Alliances Regulatory Authorities Unions

Customers and Users

Proposed view of Stakeholder management

Governments Joint Venture Partners and Alliances
/ es iti un ns m ze m iti Co C

Unions

Supply Chain / Manufacturing

Investors Employees (including children) Customers

Nike
RESOURCE BASE INDUSTRY STRUCTURE SOCIAL POLITICAL ARENA
Authorities

g rO ea t v ir P

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

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

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

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

Implementation
Improving Nikes image through public relations and marketing campaigns
Communicate the success of Nike Engage in public relations campaign to showcase the strengths of Nikes image, through:
Speaking events Annual reports Photos showcasing Nikes support in the communities they serve Web site

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

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

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

Nike Bingo
Question 3: How many years would it take an Indonesian worker to make the equivalent of Jordans endorsement deal?

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

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

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

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