Hitting the Wall: Nike & International Labor Practices

1. Hitting the Wall: Nike & International Labor Practices Presented by: Arif Husain Jerry Croke Josh Quinton Ashley White Organizational Strategy: Business 7000 September 20, 2006

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. Business Strategy – Two Pronged Approach Outsourcing all manufacturing No dedicated manufacturing lines Low cost manufacturing Independent (arms length) contracting factories One of the World’s first “Virtual Corporations” 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. • 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.

12. 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-Carol’s Pyramid

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 • Protecting Nike’s image through a code of conduct • Developing and coordinating very strong linkages with country and factory managers • 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 • Improving public relations • 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 Supply Chain Associates Governments Employees Private Organizations Nike Local Communities and Citizens Investors, Shareholders, Lenders Customers and Users Joint Venture Partners, Alliances Unions Regulatory Authorities

30. Proposed view of Stakeholder management Governments SOCIAL POLITICAL ARENA Private Organizations / NGO’s Communities / Citizens INDUSTRY STRUCTURE Joint Venture Partners and Alliances Unions Investors Employees (including children) Customers RESOURCE BASE Supply Chain / Manufacturing Nike Authorities

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?