Nike: The Sweatshop Debate

Synopsis:

Beneath all the hoopla and controversy about Nike being a successful company in the
United States in which its earnings in 2009 according to Hoovers Inc., 2009, Nike’s revenue for
2009 was $19, 176.1 million and their gross profit was $8,604.4 million, made possible by the
hands of women and underage workers who work long hours and in unsafe conditions in those
sweatshops in foreign factories located in foreign countries as Indonesia, China, and more
recently in Vietnam.

Nike is a US sports company based in Beaverton, Oregon, Nike’s original name was Blue
Ribbon Sports and its mission was and is today to be the world’s leading sports and fitness
company (International Directory of Companies History). Nike has continued to soar in its
market, being ahead of Reebok, Adidas, Fila, Converse, and New Balance however they are also
ahead in the limelight with negative views on how their manufacturing companies are failing in
their workplace ethics. There are two basic options for footwear companies in the manufacturing
of their products, the first option is that the company can own and operate the factories in which
their product is being made and the second option is to subcontract their products out to
secondary manufactures. In either case the facilities can be located domestically or
internationally and the company can have an innumerable amount of issues within its systems
and processes.

On May 12, 1998, Nike’s CEO and founder Mr. Phillip Knight spoke at the National Press
Club in Washington, DC and made what were, in his words, “some fairly significant
announcements” regarding Nike’s policies on working conditions in its supplier factories. The
announcements received favorable treatment from the press, with a New York Times editorial
suggesting that Nike’s new reforms “set a standard that other companies should match.” Nike’s
critics were more cautious, expressing concern that Knight’s promises represented an attempt to
sideline their demands for decent wages and rigorous factory monitoring and replace them with a
significantly weaker reform agenda. This report represents a comprehensive examination of
Nikes responsibility on the issue named “Sweatshop”.

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Question 1: Should Nike be held responsible for working conditions in foreign factories
that it does not own, but where subcontractor make product for Nike?

Answer to question No.1

First of all we would like to judge this question under theoretical perspective. As per
theoretical concern Nike should not be responsible due to two perspectives:
• Cultural relativism and
• Friedman doctrine

Based on the traditional straw men arguments, it is easy to argue that Nike should not be held
responsible. The cultural relativism argument posits that ethics and working conditions is a
product of culture. Subcontractors are thus entitled to establish working conditions of their own
and Nike, a foreign entity, cannot be responsible for different standards in another country.

Another such argument, the Friedman doctrine, posits that a firm’s only social responsibility
is to increase profits and stay within the law. If Nike’s subcontractors stay within the law, Nike
should only look for the most cost-effective subcontractor.

However, we can consider Nike responsible as per following two philosophies

• Utilitarian framework
• Principles of justice

These arguments will make Nike liable as Nike vets and approves subcontractors based on
their overall ability to provide a service, the working conditions of the factories should be a
component in their assessment of the subcontractor. As a multinational corporation, it possesses
the power to control resources and move its production facilities from country to country,
affecting thousands of jobs and lives. According to the utilitarian framework, it therefore has a
moral obligation to be socially responsible to the society it operates in because of the sheer

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 Nike: The Sweatshop Debate

number of workers it affects even when balanced against a potential increase in prices spread
across consumers of its products.

Moreover, Nike could follow valid principles of justice impartially using the “veil of
ignorance,” a concept brought up by John Rawls. According to this theory, Nike should
distribute economic goods (its vast resources and profits) more equitably with the workers of its
foreign subcontractors by demanding better working conditions, even if it means greater costs to
the company.

Apart from the theoretical discussion let determine Nike’s situation in this aspect by
general discussion. Nike may argue that Companies that stay within the domestic territory have a
better opportunity to manage the workplace such as the benefit of being able to evaluate and
monitor workplace processes, skilled workers, job creation, government stability, and the ability
to reinforce well understood labor practices. However, when using this option the company may
suffer in paying higher wages to their workers. For companies choosing to operate overseas the
process of monitoring the workplace has a lesser chance of being effective and the workplace
may just as well be monitored but for the wrong reasons.

This is one of those debates that could go on forever; however at the end of the day
someone should be responsible enough to admit and correct the wrong if indeed a wrong is being
committed. We believe in fair wages for the work that is being done in the manufacturing
factories that produce shoes and apparel. We do not believe in the rich getting richer at the hands
of the less privileged, unskilled, or less fortunate. Several issues arise when the discussion about
sweat shops come up in companies like Nike make the decision to go abroad. For more than a
decade Nike has been accused of having workers who were under aged, and who slaved away
under hazardous conditions for below subsistence wages, Nike’s wealth, according to their
detractors claim has been on the backs of the worlds poor. In the eye of the protester Nike had
become a figure of the evils of globalization. In other words, a wealthy Western corporation
exploiting the world’s poor to provide pricey shoes and apparel to the fortunate customers of the
developed world.

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Challenges for Nike are the legal, cultural, and ethical points of view of this case study.
Even though Nike may subcontract its companies overseas, Nike still has a responsibility to
make sure the manufacturing sites are ran with integrity. After the negative press, and
investigations that took place to prove Nike was guilty of running sweat shops, Nike had to
rethink their position overseas and they had to begin to think about the effect the negative press
had on its financial stand as well the effect it had from an ethical point of view. In the 90’s Nike
began to take steps to rectify the implications such as the implementation of a code of social
responsibility throughout its supply chain that would make an improvement in the working
conditions of 800,000 workers at 700 factories in 52 countries. Nike’s goal was to make
systematic changes for its suppliers and the entire industry this affected (Gail Dutton). However,
suppliers were not so eager to make these changes because the suppliers wanted to see their
direct benefits. Nike had to become first partaker in the changes by first leading by example and
secondly through education.

Nike developed a supplier code of conduct and assembled an internal team to enforce the
codes of conduct, also working with external processes to monitor the policies set into place and
having consistent contact with their stakeholders. Other challenges for Nike were eliminating
excessive overtime for factory workers; putting into practice human resource management
systems, and educational training would be tailored to their subcontracted facilities, put in place
a freedom of association educational program in 100% of focused factories, and lead the charge
in multi brand collaboration on compliance issues in 30% of their supply chain. Nike has
realized that even though they have made an attempt to make changes within their subcontracting
Companies this has not been enough and Nike realizes they have an ongoing obligation to the
workers, as well to the different cultures that are involved. Nike has a process called the
Compliance Generation which involves;
1 (1986-2000). Presence -increasing their business value by establishing the function, fighting
fires, building a global team, and establishing partners.

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2 (2001-2006). Interaction – making the work more systematic, building excellence in

management audits, building environment, safety, and health global process, creating
transparency, and creating ratings.
3 (2006-2010). Transformation – Focus on building excellence in factory remediation,
developing a sustainable sourcing strategy, building business integration and accountability,
increasing contract factory ownership of corporate responsibility, and building industry
conditions (Nikebiz).

Not only does Nike have a responsibility to be in compliance, but also the host
governments have a responsibility to protect the citizens who live and work in these countries.
Labor laws must be enforced, and workers should be protected. In an article written by Bao Doan
the government, in an attempt to alleviate poverty and unemployment, has sometimes opened
doors for labor abuses. According to the article international human rights groups and labor
coalitions have tried urging foreign invested factories to improve the living conditions, and
Vietnamese laborers have little power to organize boycotts to try to stop the treatment going on
in said sweatshops. The Vietnam workers in these factories are protesting more to have a better
quality of life and the government of Vietnam has a responsibility to make this happen. The
Vietnam government has the responsibility of ensuring workers when foreign investors enter
Vietnam these companies are abiding by the country’s labor laws and if these companies refuse
it is the responsibility of the Vietnam government to enforce the law or force out the company.

Labor analysts say government officials are well aware that cheap labor and low
production costs is a major draw for international investors in Vietnam, and some factory owners
are affected by labor unrest and increased pay have threatened to leave for China, where
infrastructure costs are lower and the government is more liable to crack down on labor strikes.
Critics say government enforcement of labor law has been lax and not one foreign company has
been expelled for violating the law (Aaron Glantz, Ngoc Nguyen, 2006).

The strategic and operational challenges’ facing global managers especially in the case of
Nike is to continue to try and try to better its business performance and relationships with its

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foreign investments. Nike must continue in its efforts to make a change by continuing the
supplier code of conduct that extends the corporation’s values to its suppliers. Nike must
continue in its efforts to retain good corporate social responsibility (CSR), which can have an
influence on their suppliers. Nike must continue in its auditing practices, best practices in
education, rewarding compliance and ensuring that variances from the standard are not ignored.
Nike must be able clearly to communicate what the company expects when outsourcing their
product. Auditing companies according to Auret van Heerden, president and CEO of the Fair
Labor Association, states placing monitors in these factories may be another option to curve the
disadvantages these manufacturing sites may have. Monitors however must be monitored, if
monitors are from outside the country they may overlook certain discrepancies or may not be
aware of exactly what to look for. However when monitors are from the same culture they
oftentimes will know exactly what to look for and in any case monitors must be again
strategically placed to assure the process is being effectively done to continue the protection of
the workers in the shops. Developing a realistic corporate social responsibility policy or ethics
policy is one of the first and most important steps a company can do to extend its values
throughout its supply chain (Alexandra Wrage, president of TRACE). The debate against Nike
and their involvement in sweatshops still remain to be resolved.

So in conclusion we can say that Although Nike may be technically removed from responsibility
in some areas, it clearly has the obligation to be certain that exploitation by subcontractors do not
occur. Certainly the pay and working conditions that the workers of subcontractors receive is due
in large part to the contract that has been negotiated by Nike. If Nike had chosen to make
improved working conditions a part of the arrangement, then those benefits may have been
passed on to the workers. Still, Nike is a publicly owned firm whose goal is to improve the
wealth of its shareholders. The workers in these Asian countries were happy, even eager, to
accept the conditions that were provided as a manufacturer of Nike. The reason is that those
wages were probably equal or superior to wages available from other sources. If Nike were to
leave the country because of the pressures placed upon it, the workers would undoubtedly suffer
greatly. Our personal belief is that the hosting country as well as the foreign investor has an
obligation not only to the betterment of the country but both entities have an obligation to the

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workers in these factories no matter what the gender, educational background, or social status.
Rules and regulations of governments should be obeyed whether it is from foreign investors
coming into a country or whether it is those making the rules. Individuals should be treated with
respect no matter what their social status is and money seems to be the social status behind Nike,
and host countries’ government.

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Question 2: An income of $2.28 a day, the base pay of Nike factory workers in Indonesia, is
double the daily income of about half the working population. Half of all adults in
Indonesia are farmers, who receive less than $1 a day. Given this, is it correct to criticize
Nike for the low pay rates of its subcontractors in Indonesia?

Answer to question No.2

The advantages of established First World industries are still formidable. The only reason
developing countries have been able to compete with those industries is their ability to offer
employers cheap labor. Deny them that ability, and you might well deny them the prospect of
continuing industrial growth, even reverse the growth that has been achieved. And since export-
oriented growth, for all its injustice, has been a huge boon for the workers in those nations,
anything that curtails that growth is very much against their interests. A policy of good jobs in
principle, but no jobs in practice, might assuage our consciences, but it is no favor to its alleged
beneficiaries.
Paul Krugman, Slate, 3/20/97

While caution is clearly needed in setting minimum decent standards for workplace conditions,
workers rights, and wage levels, there is still no reason to assume that a country or region that
sets reasonable standards must experience job losses. Additional policy measures will also be
crucial for enhancing any region’s overall employment opportunities and competitiveness. Such
initiatives include: measures to expand the overall number of relatively high quality jobs; relief
from excessive foreign debt payments; raising worker job satisfaction and productivity and the
quality of goods they produce; and improving the capacity to bring final products to retail
markets. Moreover, as long as consumers in wealthier countries are willing to pay somewhat
higher retail prices to ensure that garments are produced under non-sweatshop conditions—as
recent polling data for the U.S. suggests is the case—the higher revenues within the industry
could be used to improve workplace conditions and wages for production-level workers, without
creating pressures for manufacturers to reduce their number of employees.
Scholars Against Sweatshop Labor

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The above two statements depicts the MNC and anti sweatshop scholars stand point.
Before answering the question let discuss the background of anti sweatshop movement and their
relevance with LDC countries economy from general perspective the in conclusion we will try to
identify whether Nike will be liable for this issue.

The anti-sweatshop movement in the U.S. and other industrialized economies has, in
recent years, attempted to use consumer boycotts to eliminate sweatshop working conditions and
child labor in less developed economies. Unions and college student groups have been leading
the drive for sweatshop boycotts.

The anti-sweatshop movement received a great deal of popular attention when it was
discovered that Kathie Lee Gifford's clothing company had employed Honduran sweatshop
workers to produce her line of clothing for Walmart. Approximately 10% of the workers
employed in this task were between the ages of 13 and 15. A 75-hour workweek was the norm in
these factories. When this became publicized, Kathie Lee Gifford denounced these sweatshops
and stated that she was unaware of the working conditions in these factories.

In response to the anti-sweatshop movement, several organizations have been created or

have expanded their roles to monitor working conditions in less developed countries. Among the
major organizations serving this function are the Workers Rights Consortium (WRC), the Fair
Labor Association (FLA), Verité, and Social Accountability International (SAI).

Advocates of boycotts of items produced in sweatshop working conditions argue that

these boycotts will force foreign companies to improve pay and working conditions. This
argument is sometimes based on a belief that firms operating sweatshops are receiving positive
economic profits as a result of the exploitation of their workers. In this case, improvement in
working conditions could be made without a substantial reduction in employment.

Those in the anti-sweatshop movement also cite surveys that indicate that consumers in
industrialized economies are willing to pay higher prices for products produced under better

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working conditions. This suggests that the adherence by firms to "codes of conduct" may allow
firms in low-wage economies to pay higher wages to their workers without losing profits.

Opponents of boycotts argue that workers choose to work in sweatshops only if the utility
associated with the pay and working conditions exceed that of their next-best alternative use of
time. They suggest that a boycott that reduces demand for output produced in these factories will
reduce the demand for labor in these economies, resulting in lower average wages for workers.

Much of the public attention in the anti-sweatshop movement has been focused on
multinational businesses. When operating their own factories in less developed countries, these
firms generally offer higher wages and better working conditions than are the norm in these
countries. These companies also, however, subcontract much of the work to local businesses.
These subcontracting firms account for a substantial share of documented sweatshop working
conditions. One of the divisive issues in the anti-sweatshop movement is whether multinational
firms should be a part of the regulating and monitoring process.

Unions tend to be among the strongest advocates of boycotts of products produced in

sweatshops. This may be due to legitimate concerns over the wellbeing of foreign workers.
Domestic union workers, however, may benefit from a boycott of products produced by foreign
sweatshop workers. The demand for domestic union workers will rise (and become more
inelastic) if the goods produced by low-wage sweatshop workers are no longer perceived as
being close substitutes to the goods produced by union workers. Therefore, a boycott of this sort
will be expected to increase the wage and employment levels for union workers.

While much of the anti-sweatshop movement is directed at foreign sweatshops, activists

note that sweatshops still exist in the U.S. Studies suggest that a substantial proportion of plants
in the domestic textile industry are in violation of laws concerning the minimum wage, overtime
pay. Illegal aliens are especially likely to be the victims of sweatshop working conditions in the
U.S. since they are unlikely to initiate legal action against their employers.

A recent article in The Economist states the position of establishmentarians concerning

political economy and sweatshops. Briefly, the article admits that there are indeed more

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sweatshops in the developing world with globalization, but argues that this creates long-term
efficiency gains for workers and consumers alike. In traditional neo-classical fashion,
establishmentarians hold that consumers will purchase the cheaper products from sweatshop
establishments and that productivity and wages will increase among sweatshop workers. Over
time, increasing wages will lead to more substantial economic and demographic shifts in
developing market countries that will allow for increases in country living standards and will
"give governments more to spend on welfare, education and other public services." Accordingly
the (largely) unaided invisible hand of the economy will eventually do away with sweatshops
through an allegedly natural economic process.

So in conclusion we can say that each country should has their own policy which is
regulated by the labor laws of that country. Daily rates are different according to the skill of
workers, type of city the worker lives and works in and the prices of essential commodities in the
city and state. For example, the daily wage of workers in factories manufacturing Nike shoes
may be higher than farmers in the same city and or state. If Nike’s contractors are not abiding by
the minimum wage regulations for the type of skill and working conditions in which these
workers work in, then Nike should be reprimanded and fined. Yet, should Nike’s contractors
obey the minimum wage regulations set by the government according to a workers skills and
working conditions, then Nike cannot be condemned or criticized and comparing wages of one
set of workers with another set of workers would be irrelevant. End of the day the government
should be skilled enough to exploit FDI in favor of local economy. On the other hand a MNC
like Nike may not find a strong Government in many countries; then the question is though they
will not be legally acquiesced but as good corporate citizen should Nike take advantage of such
situation. Our answer is no, Nike should follow their own set standard for labor dealing. In such
situation they may not higher the salary rather they may invest in work condition improvement
and other nonfinancial benefit which will end of the day motivate the workers to contribute in
much committed manner. Thus we can be assured that both Nike and the employees will be at
win – win situation.

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Anti-Sweatshop Movement At the Crossroads

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