Hitting the Wall: Nike and International Labor Practices

Established in the early 70's Nike, Inc., based in Beaverton, Oregon, USA faced a severe
stream of criticism and experienced growing problems concerning their plants and employee
treatment, mainly in Indonesia and Vietnam in 1988. Rising demand for Nike products, which
almost doubled within a short period of time, led the company and its 350+ subcontractors to
raise the production level. Series of labor problems and abuse such as cheap labor wages, poor
working conditions, health and safety issues and underage workers exploitation, were the main
issues Nike had to deal with. Furthermore, Nike, Inc. had to deal with managing the diversity of
cultures and language barriers had to be overcome, while still be able to produce the high-quality
product Nike is famous for. Throughout the 1990's Phil Knight, CEO of Nike, Inc. and the
company itself lost their superb corporate image in the eye of the world and it became an
international incident.
1. Does Jeff Ballinger have a convincing argument about Nike? Does Nike have a
convincing response?

What is so interesting about a case like this and our main subjects - Nike and Ballinger -
is that there are two completely biased approaches to business. Nike obviously had little regard
for CSR in the beginning and not many would argue they had a pioneering attitude toward CSR.
Ballinger no doubt held motives in a blatant search for a big name firm to make his case of
"Western companies...are exploiting low-wage, politically repressed labor pools".
Regarding his argument, we defined Ballingers thesis statement as such: "any company
has a significant obligation towards even its lowliest workers". We find this to be a convincing
argument both from a moral and financial perspective. These companies are benefiting
financially from the low wages paid to workers in international manufacture plants which is
allowing the company to have large profits. Although exhibit 4 in the case illustrates how the
total wages in relation to the cost of living in the country is not quite as dire as Ballinger and
other activists contend, it does seem Nike can pay higher wages, additional benefits and safe
working conditions to the factory workers in these countries. Although this would present an
additional expense to the country, it seems that with a Net Income of $451.4 million in 1999 the
company can afford to incur in this expense.
On the other hand, Nike's representation of a response is one of the world's greatest PR
blunders ever. Nike would have done better to hire Kathy Lee Gifford to apologize for them - as
she did regarding her own discovery of a clothing line manufacturing plant in Honduras she
reported - then all of the several steps they took. If a single, initial "response" could be defined it
was "without an in-house manufacturing facility, the company simply could not be held
responsible for the actions of independent contractors". This response was echoed in all of the
half-hearted efforts the next few years that Nike took to simply band-aid the issue including the
internal Code of Conduct and Memorandum of Understanding, the Ernst & Young audits,
Apparel Industry Partnership, internal Labor Practices Department, to the Andrew Young audit.
In conclusion, Nike, a company that knows how to achieve goals and growth, could have
easily achieved a convincing response if it desired to do so. The problem with the firm in the
beginning of this struggle was a complete lack of understanding and foresight on the part of Phil
Knight and Nike Management to proactively tackle this issue before it became out-of-hand.

2. How well has Nike handled the publicity surrounding its labor practices? Could or
should the company have done anything differently?
Nikes handling of the publicity was horrendous. Initially, Nike flat out denied any
obligation to rectify the exploitation of their suppliers' workers. When pressures began to mount,
Nike half-heartedly hired an auditor to audit their overseas suppliers. Then when Nike's
exploitation practices hit mainstream, as evidenced by Nike being the subject of the Doonesbury
comic strip, they tried to do damage control by hiring Andrew Young to conduct an evaluation of
its code of conduct. This again was another failure as critics ridiculed Young's report as it strayed
from the accepted convention (format and methodology). Nike failed to respond with sincerity
up until their financial success slowed.
Nike failed to consider one of the key components of the diamond framework used in the
article written by Porter and Kramer; Context for Firm and Strategy and Rivalry. In the
United States it is relatively safe to assume that a subcontractor wont use underage workers or
expose its employees to hazardous working conditions because there are regulatory entities in
place to monitor such activities. However, in the developing world, this is a very dangerous
assumption. The consequences of this mistake were significant. Many journalists and activists
portrayed the company as exploiters of workers in poor countries. American customers
expressed their outrage in the media and with their wallets by boycotting Nike products.
Also, in order to address the complaints made regarding its labor practices, the company
should have proactively mentioned there was a problem with conditions in the factories and
outlined how it was providing additional training for its employees and managers and working
with its partners to ensure all factories were safe. In order to address the perception that the
company paid inadequate wages, Nike should have constantly communicated the findings from
the study conducted by students from the Tuck Business School which found the company paid
adequate wages. Since the study found that "factory workers, after incurring essential
expenditures can generate a significant amount of discretionary income". Finally the company
should continue to look for ways to improve the conditions of its factories and the livelihood of
its workers.

3. What is a fair wage in Vietnam? How should Nike think about it?

One can say that there are several angles to answer this question:
1. Livable Wage Approach A "fair" wage in Vietnam should at the very least be the
minimum wage in Vietnam, whatever that may be.
2. Free Trade Approach A fair wage in any country is the wage in which employees will
work and the company can pay - the balance between supply and demand like any fair3
3. Wage is not the Issue The term fair wage is an unfair term that implies there is a magic
number that all sides will agree is sufficient based upon the type of work being
performed. The problem is that outside of market forces, this magic number is almost
impossible to accurately determine.
4. Total Uses Approach In order to adequately assess what a fair wage would consist of in
Vietnam, Nike should conduct a similar study to the one conducted by Tuck students in
Indonesia to estimate the cost of total uses which is specific to Vietnam. After that study
is conducted, Nike should set wages which at a minimum meet the uses total of the group
with the highest total.