Hitting the Wall: Nike

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Hitting the Wall Nike International Labor
Practices

• Presented by
• Arif Husain
• Jerry Croke
• Josh Quinton
• Ashley White

Organizational Strategy Business 7000 September
20, 2006
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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

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Business Strategy Two Pronged Approach

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

Cost Control
Marketing

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

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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

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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.

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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.

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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

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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

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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

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Key issues

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

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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.

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NIKE-Carols Pyramid
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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)

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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.

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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.

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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

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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

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Alternatives

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

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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

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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

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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

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What should Nike do?

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

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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?

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Recommendations

• Protecting Nikes 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

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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

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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

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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

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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.

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Nike and its Stakeholders
Supply Chain Associates
Governments
Employees
Private Organizations
Nike
Investors, Shareholders, Lenders
Local Communities and Citizens
Customers and Users
Joint Venture Partners, Alliances
Unions
Regulatory Authorities
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Proposed view of Stakeholder management
Governments SOCIAL POLITICAL ARENA
Private Organizations / NGOs
Communities / Citizens
INDUSTRY STRUCTURE
Joint Venture Partners and Alliances
Unions
Investors Employees (including children) Customers
RESOURCE BASE
Supply Chain / Manufacturing
Nike
Authorities
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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

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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

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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

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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

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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

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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

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Nike Bingo

• Question 1
• Who did Nike sign its first contract with?

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Nike Bingo

• Question 2
• How much did a pair of Penny Hardaway
• basketball sneakers cost?

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Nike Bingo

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

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Nike Bingo

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

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Nike Bingo

• Question 5
• How many strikes occurred in Indonesia in
• 1991?

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Nike Bingo

• Question 6
• What was the daily minimum wage of
• workers in South Korea in 1991?

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Nike Bingo

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