Nike

Nike

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Case Study: Nike, Inc. International Business and Trade Unit II (Prof. Sosland)
Vera Tillmanns

1. Company Ethics: Nike Inc. in Cooperation with its suppliers
Many global companies like Nike, Inc. are seen as role models both in the market place as well as in society in large. That is why they are expected to act responsibly in their dealings with humanity and the natural world. Nike benefits from the global sourcing opportunities, therefore areas such as production and logistics have been outsourced to partner companies in low-wage countries like China, Vietnam, Indonesia and Thailand. As a result the company is limited nowadays to its core competencies of Design and Marketing.
Nike does not merely sell products these days. They spend billions of dollars for advertising contracts with famous athletes like Tiger Woods to increase the value of the brand by associating the factor of lifestyle to their products. The company's image has been damaged many times by press releases as well as a variety of NGOs who have long pointed out the inhumane working conditions in the production facilities of sporting goods manufacturers. This leads to the question whether should Nike orientate the regulations of the suppliers to the labor standards in their respective countries or those in the United States? The labor conditions are so inhumane that Nike at least should try to converse to the US standard to improve the situation. The following analysis of an abstract of Nikes’ Responsibility Concept, including SHAPE and their Code of Conduct, should give an insight into the difficulties of the Sweatshops.
1.1 Nike Responsibility Concept: Explanation and Critical Analysis
Since the pressure of the NGOs on the company has been growing, Nike developed a concept that promises to improve the monitoring of social and environmental standards for their contractors. According to Nike’s principle “Nike was founded on a handshake” , the company wants to work together and bind their business partners on the Responsibility Concept. Nike presents a symbiotic relationship of all parties based on their stated values of “trust, teamwork, honesty and mutual respect.” SHAPE stands for Safety, Health, Attitude, People and Environment and is combined with the Code of Conduct. The Responsibility Concept has been distributed to the manufactures since 1992. Nike introduced a new version of the Code of Conduct in 1997 which is oriented on the basis of human rights. According to article 23, a person has a right to work, which will remunerate him/her to such a degree that he/she will be able to live humanely.

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In addition this person has other rights as well such as protection from discrimination, the right to a free time and permission to form unions. In many low-wage countries, however, these laws are not valid. A reason is that the Basic Human Rights are not legally binding. The main focus of the following analysis is on Safety and Health, Working Hours, Remuneration and Free Association.
1.1.1 Safety and Health
The first aspect on which Nike has to work is the deficits in Safety and Health standards. In many of the production facilities, the working conditions cause a hazard to workers’ health. Although Nike demands the observance of Safety and Health Guidelines in its Code of Conduct, every day, workers come into contact with chemicals, some of which are known to trigger allergies. Audits by Ernst and Young confirm that “77% of employees suffer from respiratory problems.” While the companies do make protective gear available, these cannot be used due to the enormous time pressure in the production chain. Special attention should also be paid to the factor of stress. The workers have to deal with two different forms of stress. On the one hand they suffer under the high pressure and frequently abusive work environments and on the other hand the stress which is forced by their supervisors if they do not for example manage to produce the expected quality standards.
1.1.2 Working Hours
The offense against the observance of working hours points out another example of the inhumane labor conditions at Nikes manufactures. The Code of Conduct foresees a weekly work load of 60 hours. In addition all workers have the right to one day off a week. Further conditions are set down in local employment laws. Overtime hours should only be disposed if necessary and workers have to be remunerated for that. Many suppliers have thus reduced the number of overtime hours so that they confirm to the Code of Conduct. However, workers must now complete the required number of units in a shorter amount of time in order to satisfy the sporting goods manufacturers’ production schedule. “Workers complained about increased stress caused by tightened production schedules and new production system introduced by management to offset the reduction in working hours.” The reduction of working hours which at first appeared advantageous has apparently turned into a detriment for workers.
1.1.3 Remuneration
Another example of the inhumane conditions in the Nike factories is the low wages. A worker of Nike receives $ 2.28 a day. “This minimum daily wage only covers 78% of the basic need of one individual.” In its Code of Conduct Nike demands that remuneration be sufficient to cover the basic needs of employees. Remuneration, however, is not oriented on the cost of living. The companies have defended themselves by making the following statement: “Pay is oriented on the minimum wage for the respective country.” This leads to the question whether it is allowed to criticize Nike for the low pay rates of its subcontractors for example in Indonesia? Nike can be criticized for that. In their introduction of the responsibility concept, the company points out that they are “not only doing what law wants, but what is expected by the leader.” Paying only the minimum wage is not what the consumer expects from a global player.

Only 0.4 percent of a $100 Nike Shoe is estimated for the wages. The majority goes to the retail industry and brand profit. One reason why they can keep it so low is that the company benefits from the competition among the low-wage countries. As a result Nike has strong purchasing practices, which place an enormous amount of pressure on suppliers. If they cannot cope with the price policies of the global player, Nike regularly moves their production and lets their products be manufactured cheaper somewhere else. The prices and performances that they demand are reflected in wages as well as working conditions.
1.1.4 Freedom of Association
A solution would be the possibility to form unions to give employees the chance to negotiate with the management to improve wages and working conditions. According to the Code of Conduct, Nike guarantees its workers the right to collective bargaining. The problem is that Nike mainly receives its wares from countries like China in which formation of unions is limited or even banned.
1.1.5 Conclusion
The analysis shows that Nike has to improve the labor conditions in the production facilities. Otherwise the media and NGOs will continue pointing out the situation there and this can cause effects on the company’s image. As a result Nike could lose their position as the leader of the sporting goods industry.

Bibliography

Anon. Clean Clothes: Clearing the Hurdles 2008, http://www.playfair2008.org/index.php?option=com_content&task=view&id=104&Itemid=61

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Anon. Oxfam Australia: NikeWatch, http://www.oxfam.org.au/campaigns/labour-rights/nikewatch/

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Nike, Inc. (2008) Homepage, Workers at factories, Beaverton, Nike, Inc.: http://www.nikeresponsibility.com/#workers-factories/active_factories

Nike, Inc. (2008) Homepage, Responsibility Governance, Beaverton, Nike, Inc.: http://www.nikebiz.com/responsibility/cr_governance.html

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Nike, Inc. (2008) Homepage, Code of Conduct, Beaverton, Nike, Inc.: http://www.nikeresponsibility.com/tools/Nike_Code_of_Conduct.pdf
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