Executive Summary This report was written in order to examine Nike and its questionable ethics reg arding

unacceptable working conditions in warehouses that Nike outsourced to in order to manufacture their products. Through the research conducted, insight was provided into the highly competitive industry in which Nike operates. Though consistently maintaining its majority m arket share since the 1980s , it came to light that Nike did not make it all the way to the top without partaking in unethical practices. As early as the late 19 70s up to the 1990s Nike has been on the firing end of countless allegations of ou tsourcing to sweatshops, with zero attempts to better or even monitor the situat ion. However, with the growing criticism and loss of sponsors, contracts and cu stomers, Nike was required to act. It was from this that SHAPE was born. Standi ng for Safety, Health, Attitude, People, and Environment, SHAPE was and still is the standard in which Nike monitors their warehouses. While Nike has taken effective and costly steps to improve working conditions, a s well as their image, there is still a lot of negative publicity regarding thei r manufacturing processes. This however is a problem not easily remedied, especi ally in the apparel and footwear industry, where large scale production is done primarily in developing countries, which have vastly different labour laws then those that exist in the developed world. Considering Nikes existing monitoring s ystem, Nike should now switch their focus towards Corporate Social Responsibilit y. Nike needs to focus on giving back to the communities in which their product ion practices effect. Monitoring the warehouses is not enough in the eyes of th e public; there needs to be tangible proof that Nike is making positive impacts in the world. With that in mind, the following recommendations are suggested: 1. Nike should dedicate a product line to charitable purposes, with the pur chase of a pair of shoes resulting in Nike matching the purchase and donating a pair of shoes to a person in need. 2. Nike should implement an education fund, helping to educate children af fected by sweatshops. 3. To minimize its carbon footprint, Nike should begin to recycling scrap r ubber to be reused, rather than burning it, which is common practice. Define the Industry and the Organization The sports apparel and footwear market is a highly lucrative industry, seeing pr ofits of $132 billion for apparel and $69 billion for footwear globally. These m arkets are led by Nike, Adidas, and Puma respectively. Within this industry ther e is significant use of sweatshops, where factories are located in developing coun tries and appropriate labour standards are not being met. It is Nike and Adidas which are the greatest offenders, which regularly contract to factories around t he world to manufacture as cheaply as possible and reap the financial benefits. It is largely due to the highly competitive nature of this industry, which encou rages manufacturers to constantly look for ways to lower costs. Within the sports apparel and footwear industry, Nike is the largest manufacture r of sports apparel and footwear, employing 34,400 people globally. Nike brought in revenue of $9.87 billion in 2011 for the Nike Brand alone. When taking into account the other products Nike sells under subsidiaries, such as Nike Golf, Con verse, Cole Haan, Umbro and Hurley overall revenue for Nike Inc. rose to $22.8 b illion. Within the United States Nike sells its products through 690 Nike owned retail outlets, and holds 23,000 retail accounts. There is no doubt that Nike was the instigator of rapid growth in athletic appar el and footwear industry, as well as the consumerization of these products. Howe ver, the multinational conglomerate had quite humble beginnings. It was on Janua ry 25, 1964, a University of Oregon track star, Phillip Knight and his coach, Bi ll Bowerman, founded Blue Ribbon Sports (BRS). They initially were distributers of ASICS athletic footwear, selling directly from their van at track meets; how ever, the partnership eventually came to an end as BRS began manufacturing its o wn shoes. It was in 1971 the first pair of shoes displayed the iconic swoosh, whic h Knight and Bowerman patented 3 years later. One of the footwear lines produced

was called the Nike, named after the Goddess of Victory; however in 1978 BRS of ficially changed their brand name to Nike. By 1980, Nike controlled 50% of the athletic footwear market and opted to go public with their stock. Since then Ni ke has expanded the company globally, as well as grown its product line to inclu de apparel, equipment and represents countless sports. Define the ethical issue/problem Since the 1970s, Nike Inc. has been accused of using sweatshops in China, Indone sia, and Vietnam. Nike initially had their products made in South Korea and Taiw an, although when these countries developed better economies, Nike found cheaper labour opportunities. By the 1990s, some troubling stories from the several fa ctories regarding the working conditions, such as child labour, wages below the poverty level, forced over time, exposure to dangerous chemicals, poor air quali ty, and physical abuse from the factory supervisors. The ethical issue at hand is that sweatshop labour is considered to be an immora l way of producing products. Workers are employed at low wages, long hours, and in a hazardous and unhealthy environment. For example, the workers in Indonesia get yelled at if they dont work fast enough and would make as little as $2.00 a d ay, which is not enough for families to live on. The workers also have extremel y poor living conditions. They live in a small cement room with their whole fami ly and all of their possessions. The workers want to stand up for their rights but live in fear for their children and their lives. There are also some rubbe r shoe scraps from the Nike sweat shop factories that were dumped in a local chi ldrens park, where in the end the rubber is burned, which released toxic chemical s into the air and are exposed to the children. Nike has received some negative publicity from the use of the sweatshops, although, Nike does not actually own t he factories where the shoes are produced, but instead just contracts the work t o a variety of factory owners. On the one hand, Nike is such an established company that is very profitable and sells their products at such high prices that they would be able to afford to p ay the factory workers high wages without increasing the retail prices. On the other hand, like most businesses, Nike wants to maximize their revenues with the minimum amount of costs. It is also argued that the workers are accepting a job with a Nike contractor, showing up for work every day then they are accepting a paycheque based on mutually agreed-upon terms and therefore showing how exploite d they are by continuing to do this. Also, the workers are able to terminate the ir employment at any time if they prefer another job, self-employment, or leisur e. In Vietnam, most of the workers thought that the factory was a good place to work and were planning on working there for at least three years, 85% of the work ers also felt safe at the factory. Overall, the arguments are that the use of sweatshops is seen as an unethical wa y of manufacturing due to the poor working conditions; however the workers like to work and want to work but they dont want to be exploited and live in fear for their lives and their children. Key Stakeholders A number of important stakeholders have been affected by Nikes use of sweatshops to manufacture their shoes. The employees are the most affected with the poor li ving and working conditions and not making enough money to live off of. The loca l communities in especially Indonesia are also greatly affected by the Nike swea tshops from living with little to no room surrounded by sewage and toxic chemica ls from burning rubber from the show scraps. The end consumers have also been ef fect. A number of people have stopped buying Nike shoes because of this ethical issue. One customer specifically said that he bought Nike shoes because they wer e comfortable but since he learned about how the shoes were manufactured he is n ow looking for shoes that are made by a company that does not use sweatshop labo ur. A man names Jim Keady lived as an Indonesian Nike sweatshop worker for a su mmer and now goes to different schools and tries to spread the word of the use o f sweatshops. Many students have joins Jims group, Team Sweat, in order to fight

this cause. There are many similar activist groups, which spread information ab out the conditions in Nike warehouses. It is through these activists that the p ublic is aware of the situation. The shareholders were also affected by the cons umer reactions to the sweatshops which resulted in a drop from $38 per share in 1996 to $19 in mid-1997. Some universities also stopped using Nike products for their athletic teams because the students were boycotting the use of Nike produ cts. Aftermath Nike started to monitor the working condition in their factories during the 1990s with a code of conduct called SHAPE. Costing roughly 10 million dollars a year, SHAPE stood for: Safety, Health, Attitude, People, and Environment. This ensure d Nike regulated air quality, minimum wages, overtime limits, and even fire safe ty. Progressions through Nikes efforts were recognised first in 1998 when they re placed deadly solvents with water based ones and have since been growing their c ompany image even stronger. Programs have also been implemented to deal with claims of unfair practice and N ike hired staff to randomly inspect their many warehouses each year. The Fair La bor Association (FLA) is also allowed to randomly inspect any Nike factory at an y given time. These improvements led to the creation of a non-governmental organ ization called the Global Alliance for Workers and Communities by Nike. This org anization grouped with the International Youth Foundation and releases reports a bout Nike and improvements to working conditions. In 2001, this company was ridi culed when strikes and terminations of employees were left out of the Nike repor t. In 2002 Nike had already audited its factories 600 times based on a scale of 1 t o 100 and then receiving a letter grade. Most of the factories received Bs and Cs enab ling production to continue. If a score of D occurred Nike would stop production a t that location until all of the issues were fixed. This monitoring system is fr owned upon by the authorities due to the process of the auditing process. They b elieved unbiased individuals should be hired to audit the factories, not someone who was hired by Nike itself. Greater involvement from higher level Nike employ ees would be encouraged to aid in this ethical labour issue. Protests, boycotting, and hunger strikes have occurred from the general public a nd even some educational facilities. Universities did not wish to use Nike produ cts for athletic gear and even feminist groups boycotted the product after heari ng of the unfair conditions for female workers. These feminist groups went as fa r as creating their own campaign Just Dont Do It to inform other women of these poo r conditions in the factories. This information has rapidly spread over the year s due to the increase in social media use especially on Facebook and Twitter. No w anti-Nike groups can connect and express opinions on a global level. Something could happen in a Vietnam factory and have made trip around the world in less t han 3 days. Qualitative Analysis Recommendations After analyzing the current situation at Nike, it appears that the company has t aken major steps in improving the visibility of the supply chain and working tow ards improving the working conditions within their warehouses. In the beginning of Nike, they could have opted to produce their products in North America, thou gh that would have been much more costly and they would not have been competitiv e within the industry. Sweatshops are a major part of the apparel and footwear i ndustry, and for a company on the rise, Nike would not have reached its level of success without utilizing inexpensive labour. Nike has implemented a code of conduct to protect the employees within the wareh ouses, and as long as they continue to follow their regulations there should not

be a relapse into the excessive use of sweatshops, as was seen through the 1990s . As Nike continually monitors their warehouses to check for compliance with the ir code of conduct, there is no current need to re-evaluate their practices. Due to the previous backlash, Nike has a large legal department with dedicated indi viduals ensuring the compliance of ethical standards set out in Nikes code of con duct. Prior to Nikes resolve to improve their warehouse conditions, the company was gui ded by egoism. Profit was the most important factor, and those that were being n egatively affected by their greed had no bearing. Now that Nike is more concerne d with labour conditions, they are following more of a rights theory. While prof it is at the forefront of Nikes objectives, there is concern for those involved w ith the manufacturing process. As Nike outsources to foreign countries, Canadian law does not come into play. T his is largely a part of the ethical dilemma that Nike faces. They are not break ing the laws of the countries that they are in, as their labour laws are much mo re lax, however the conditions are not considered acceptable by the developed wo rld. With this in mind, Nike may be willing to work to improve the conditions, yet will never stop using developing world labour. Due to this the most importa nt thing for Nike to do is focus on giving back to the communities that they are effecting. This is where corporate social responsibility comes into play. In or der to continue to improve their image, Nike most show that they are trying to m ake the world a better place and want to help the people who their industry is a ffecting. The following recommendations reflect this ideal: 1. Following a similar model as Toms Shoes, Nike should have a product line which represents a charitable cause. When a pair of shoes are purchased, Nike sh ould donate a pair to someone in a developing country, preferably in one of the communities effected by Nikes manufacturing 2. As Nike is a large sponsor and provider of athletic apparel, footwear an d equipment for many professional athletic leagues, they have the resources to r aise money through charity auctions. By having major athletes donate things suc h as practice jerseys, skates, baseball bats, etc. in order to auction off to su pport charity. Nike could implement an education program with the funds raised t o help get children out of the sweatshops and armed with the knowledge to have c areers. 3. In the past Nike has also had some issues with disposal of the rubber sh oe scraps from the factories. In Indonesia they burn their scrap rubber in a par k which releases toxic chemicals into the air. Nike should implement a new susta inable system of recycling the materials rather than burning them. This would re sult the company being more environmentally friendly and would improve the livin g conditions in the communities affected.

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