Griffith University 2705942

Case Study Nike Sweatshops

Presented to Dr. Bernard Bishop.

Date- 9, October, 2009

Name – Aditya Kakatkar

Student Id- 2705942

1
Griffith University 2705942

Executive Summary

From the analysis made from the case study we have come across major issues. Which states that
Nike is a part of sweatshops. The major issues analysed are health and safety issues, where the
working conditions of the people working in factories were not suitable for work. Another issue
we analysed was wages. Nike subcontracted its production of shoes and athletic gear to
developing nations, the reason was clear to minimize the cost of production and increase profits.
In some countries the workers were paid less than 1 dollar a day, the workers worked for six
days a week mostly young women. Another major issue which was analysed was the ethics in
business. Nike clearly lacked in ethics, all the root cause for the sweatshops to prevail were
because of doing business unethically. In increasing the profits and keeping the shareholders
happy Nike forget its basic business ethics. After Intensive investigations our report concludes
that all the un-fair working conditions, health and safety issues, low wages problem have been
caused because of the subcontractors. accessories, another reason for sweatshops to prevail in
underdeveloped countries is because of their government. The government, in an attempt to
improve poverty and unemployment, has sometimes opened doors for labor abuses. After doing
the analysis of the case the main reason behind the sweatshops were un-ethical practice of
business, the root cause of all the sweatshops is Nike being un-ethical in doing business, before
subcontracting the work to subcontractors if Nike had a agreement of working conditions and
labor protection the problem would had not taken place. Following on from our analysis and
conclusions, we recommend that, Nike should develop a standardize format, for labor protection
and work environment. All the subcontractors should enter into a contract with Nike and should
follow the companies’ rules for labor protection and the working environment; the sub
contractors should meet the companies’ format of production to gain a contract. Another
solution that we recommend is Nike should appoint inspection managers in all countries where
the manufacturing takes place. The inspection managers should inspect the factories everyday
and give a weekly report back to home country, if the managers find that the subcontractors are
violating the agreement they can terminate the agreement and take legal actions. As well as
ethics in business are concerned Nike should first incorporate some business ethics like human
rights protection, environmental issues, child labor protection.

2
Griffith University 2705942

Contents

Introduction..................................................................................3
Company Profile........................................................................3
Case over view.............................................................................4
Case Study Analysis-...................................................................4
Case study Issues.......................................................................8
1) Health and Safety Issues....................................................8
2) Wages.................................................................................9
3) Ethics..................................................................................9
4) Child labor........................................................................10
Conclusion-................................................................................11
Recommendation.......................................................................11
Recommendation

Introduction
Company Profile –

3
Griffith University 2705942

Nike, originally known as Blue Ribbon Sports, was founded by University of Oregon track
athlete Philip Knight and his coach Bill Bowerman in January 1964. The company initially
operated as a distributor for Japanese shoe maker Onitsuka Tiger, making most sales at track
meets out of Knight's automobile.

The company's profits grew quickly, and in 1966, BRS opened its first retail store, located on
Pico Boulevard in Santa Monica, California. By 1971, the relationship between BRS and
Onitsuka Tiger was nearing an end. BRS prepared to launch its own line of footwear, which
would bear the newly designed Swoosh

Case over view-

Nike is a worldwide global corporation that has its shoes manufactured on a contract basis in
places like Asia, China, and Vietnam. Although it does not actually own any of the
manufacturing locations, it has long been accused of having its products manufactured in
facilities that exploit workers. Although Nike admits some wrongdoing in the manufacturing
facilities of its contractors, it claims to have started a commitment to improve working
conditions in those facilities.

Nike has suffered attacks from a number of agencies and organizations throughout the world that
claim that the workers who manufacture Nike shoes are denied the basic essentials of living a
fair wage and decent benefits. All that occurs while several sport megastars are reaping in
multimillion dollar contracts to promote Nike shoes. Over the years, Nike formulated tactics to
deal with the problems of working conditions and compensation in subcontractors. It hired a
strong consultant (Andrew Young), commissioned an independent audit of its subcontractors,
and spelled out initiatives to improve those working conditions. Still, Nike’s critics were not
satisfied. They protested on university campuses and accused Nike of continuing to hide the
conditions of workers.

Case Study Analysis-

As a Business consultant and the analysis made from the above case study, following are the
analysis

Work Environment conditions.-

4
Griffith University 2705942

According to me Nike should not be wholly responsible for the working conditions in some of
the Asian countries, because Nike completely do not own the factories. The work and the
manufacturing are subcontracted to a local or domestic company in that particular country.

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. As a world’s biggest
and largest manufacturing company of sports and athletic gear they should have some Moral
responsibilities and Ethics in doing the business. Surely the pay and working conditions that the
workers of subcontractors receive is unpaid 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,
them 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.

Labor standards .-

Nike has the responsibility to hold subcontractors to those conditions that exist only in the
subcontracted countries. Nike has to follow the rules and conditions of the host country and see
to that they do not violate or break any rules in that country. If it insisted on prevailing
conditions in the United States, there would be little reason for Nike to seek contractors from
outside countries. However, through pressure or contractual concessions, it is possible for Nike

5
Griffith University 2705942

to seek ways to improve the conditions of workers in supplying countries. In doing so, Nike may
find that it receives some public relations benefit rather than undergoing the effort and the cost of
developing Brand Image.

Low wages.-

Nike probably should not be held responsible for the pay rates of its Indonesian subcontractors.
The worker pay, and resulting low cost of goods, is a major reason why Nike has contracted with
these subcontractors. The result has been to given jobs to Indonesians who might not otherwise
have them. It is also not clear to what degree Nike can influence the pay that subcontractors pay
to workers. Therefore, it is not fair to be continually critical of Nike in that regard.

Negative Publicity, Question of Image.-

There is certainly major room for Nike to improve on its handling of the negative publicity.
A defensive policy of denial is always more poorly received than an open admission of fault with
constructive strategies for improvement. Part of Nike’s problem was that it didn’t address the
total criticisms, and chose to answer the age issue which was stated by( Mr. Philip Knight) rather
than the issue of total lower working conditions. Its strategy to announce policy change at large
public relations functions appeared insensitive, rather than addressing criticism directly, on the
spot, and with corrective action strategy in hand. From a policy perspective, it would be better to
suggest programs for training of workers, changes in suppliers and a general improvement of the
plight of the worker. The development of advisory boards and the involvement of interested
agencies and outside organizations to achieve a consensus for the improvement of working
conditions might be more effective, both from a PR point and a policy initiative than to continue
to with its own inward looking policies.

Changes in the current policies.-

Nike needs to make changes in its policy, if only because it’s current policy has served it so
poorly.

• Recruit new staff and training- In response to the growing criticisms, Nike should create
several new departments for Eg-(Labor Practice department, environmental issues
department). Nike should appoint people dedicated to labor and environmental compliance,

6
Griffith University 2705942

all located in countries where Nike products are manufactured. These employees should visit
suppliers’ footwear factories on a daily basis Nike managers should conduct on-site
inspections on a weekly or monthly basis, depending upon the size of the firm. By doing so
Nike will have a track on its subcontractors and should overcome the Labor problem and
cross culture differences.
• Increase Monitoring of its suppliers (Subcontractors) – Nike should increase its
monitoring over its suppliers and make a strict company policy for inspection which should
meet the companies standardized rules for labor and health.
• One strategy would be to involve international agencies to assist with policy adjustments that
will help to correct the problem.
• Another change might be abandoning a defensive, “it’s not too broke” strategy and admitting
the problem, while outlining strategies for improvement. But Nike’s major obligation is to
its shareholders and to continuing to operate in an increasingly competitive marketplace. It
does the plight of the worker not good if Nike adopts policies that eventually cause its
business to go under. The question of changes that make the company uncompetitive is a real
one that is addressed by international business managers all the time. Clearly, Nike has to
remain competitive while still causing change to occur to its workers, and that is a challenge
that is formidable.

WRC VS FLA.-
Perhaps not any more than to argue that the WRC is a tool of organized labor. If the FLA is
incapable of conducting independent audits of international sweatshops, then the charge may be
partially true. But the WRC, funded and backed by labor unions, refuses to meet with companies
because it would “put at risk its independence.” With that kind of posturing and intransigence,
both sides appear to be culpable with a highly emotional issue.

Global solution.-

7
Griffith University 2705942

Sweatshops are a global problem. A possible solution I would suggest is to change, or at least
modify, the conditions under which sweatshops continue to function. Universal workers rights,
with minimum age and minimum wages could be a solution. Still, certain countries will always
have the advantage of low cost labor and will exploit that advantage in the international
marketplace.

Another faceable solution would be, to design a standard code of conduct and make the
Sweatshop companies to enter into an agreement for protection of labor exploitation; the
companies should be monitored by external organisation. They must be certified by some of the
organisation to do business overseas, like (ANSI - American National Standards Institute, WHO,
Co-Op America, FTF-Free Trade Federation, ILRF-International Labor Rights Forum)

However, the inequality between the great differences in labor cost can be lessened, but it can
best be done by continuing to promote world free trade and continuing to improve the quality of
life in developing nations, where low cost labor is most abundant.

Case study Issues

From the analysis the major issues which I think Nike should develop to gain back its face value
and implement the strategies for doing business are.

1) Health and Safety Issues – As we seen in the case one of the issues Nike is facing is Health
and safety issues. Reporter Roberta Basin when she visited Nike Factory in Vietnam she
said. The signs are everywhere of an American invasion in search of cheap labor. Millions of
people who are literate, are disciplined, and desperate for job. It takes 25,000 workers,
mostly young women, to “just do it”.
This statement clearly gives a picture of working conditions of the factory, where 25,000
workers work in unfavorable conditions. But contradicting to my statement, we can also see
25,000 jobs, and job opportunities. In a country where half of the adult population do farming
and earns less than 1$ a day. Where as in Nike factory they earn 2.28$ a day which is twice

8
Griffith University 2705942

the income earned by farming. Although it is not Nike’s fully responsibility to take care of
health and safety into consideration it is the work of subcontractors.
But again taking into consideration companies reputation and as a moral responsibility Nike
should take action against the working conditions of the work place and workers

2) Wages – Is the major issue I think Nike is facing. The company is constantly getting
allegations and criticism on this point. In the case it’s mentioned that an 11 year old
Indonesia makes 14 cent per hour, this amount cannot be compared with the minimum wage
in US. But I think it all depends on value of currency of a particular country if a countries
currency is lower than the US dollar at the end of the day the workers are getting paid in US
dollars. That’s what Nike’s spokes a woman, Donna Gibbs argues on. She countered that this
statement was in fact false. According to Gibbs, the average worker makes 240,000 Rupiah
which is 103$ a month working a maximum of 54 hours a week which is pretty much
sufficient for a worker to fulfill his basic needs. According to my analysis and perspective
Nike should follow the basic wage rule of a country, which Nike is following, it is
Impossible to set a minimum wage rule to all the countries, as mentioned above all the value
of currency differ from country to country.

3) Ethics – The main last important Issue I would like to mention is the Ethics in business, as a
business consultant I think Ethics is very important in any business, many of the International
business are rooted in the fact that political systems, law, economic development, and culture
vary significantly from nation to nation. What is considered normal practice in one nation
may be considered unethical in another. Because they work for an institution that transcends
normal borders and cultures, managers in multinational firm need to be particularly to these
differences. In the International business setting, the most common ethical issue involves
employment practice, human rights, environmental regulations, corruptions, and the moral
obligation of multinational corporations. Nike should implement some ethics like
• Employment Practices- If workers in home country are working for 12 hour a day it should
be the same in the host country, it is hard to set up this rule as mentioned before every
countries working environment and work cultural is different. I suggest Nike should
standardize some rules about the working conditions and working environment with their

9
Griffith University 2705942

subcontractors before subcontracting the manufacturing of products, this might change the
working conditions of two nations and bring them together on a single common platform.
• Human Rights- Question of human rights can arise in International business. Basic human
rights still are not respected in many nations. According to me if Nike is doing business a
particular country they should respect and follow the human rights rules they cannot exploit
the workers of that country.
• Environmental and pollution- this is one of the most important ethical issue. This issue arises
when environmental regulations in host nation are inferior to those in the home nation. Many
developed nations have substantial regulations governing the emission of pollutants,
dumping of toxic chemicals and the use of toxic materials in work place and so on. I think if
a company wants to do business internationally they can do so but they do not have the right
to pollute that country even though if the host countries law against environmental issue are
week, environmental issue is not the issue of a particular country it is a global issue.
• Corruption- has been a problem in almost every society in history, and it continues to be one
today. There always have been and always will be corrupt government officials. International
business can and have gained economic advantages by making payment to those officials.
Corruption is mainly seen more in developing countries.
1) Child labor – Child labor is a major global issue, in all underdeveloped countries where
there are no jobs less wages, children have no other option but to work. In some countries
age limit was never considered, but according to international labor organisation Nike
violated the labor law. Employment of child labor is illegal, but in developing nation with
more than 40% of people illiterate and unemployed child labor is in practice, another reason
for child labor to prevail in these nations is because of government not taking any action, for
the development of child labor.
These were the key issues I wanted to highlight from the case because the sign of a good
company reflects the companies ethics and respect to other nations. Nike should work on
these three issues and take these issues as opportunity for future development.

Conclusion- After Intensive investigations our report concludes that all the un-fair working
conditions, health and safety issues, low wages problem have been caused because of the
subcontractors. The subcontractors were very partial and un-ethical towards the employees and
the working conditions that prevailed in outsourced countries. They made the workers to work

10
Griffith University 2705942

on deadline basis, till the assigned deadline was met. The employees were not given their daily
wage until they finished their daily Kota of manufacturing of shoes and accessories, another
reason for sweatshops to prevail in underdeveloped countries is because of their government.
The government, in an attempt to improve poverty and unemployment, has sometimes opened
doors for labor abuses. The fact that the government cannot deal effectively with the problem of
labor abuse under their very own organized programs shows that the people working in the
sweatshops cannot rely on outside forces to clean corrupt labor practices; the industry must be
changed from within. After doing the analysis of the case the main reason behind the sweatshops
were un-ethical practice of business, the root cause of all the sweatshops is Nike being un-ethical
in doing business, before subcontracting the work to subcontractors if Nike had a agreement of
working conditions and labor protection the problem would had not taken place. From our
research and as a business consultant I think that Nike was unethical in doing business
internationally, but again contradicting to my point, I say if it is unethical to do business in a
particular nation it may be considered ethical in other nation.

Recommendation- Following on from our analysis and conclusions, we recommend that, Nike
should develop a standardize format, for labor protection and work environment. All the
subcontractors should enter into a contract with Nike and should follow the companies’ rules for
labor protection and the working environment; the sub contractors should meet the companies’
format of production to gain a contract. Another solution that we recommend is Nike should
appoint inspection managers in all countries where the manufacturing takes place. The inspection
managers should inspect the factories everyday and give a weekly report back to home country,
if the managers find that the subcontractors are violating the agreement they can terminate the
agreement and take legal actions. For the wages issues Nike has to follow the local wage law of
that country, and not of the international standards. Because as mentioned before currency value
and daily wage rate differs from country to country. As well as ethics in business are concerned
Nike should first incorporate some business ethics like human rights protection, environmental
issues, child labor protection. Nike should not do business with any of the companies who do not
meet their acceptation of doing business; Nike should develop a win-win strategy. Instead of
spending millions on sports star for endorsement Nike should spend money on developing a
friendly working environment for workers.

11
Griffith University 2705942

And for last after fulfilling and incorporating all the above recommendations Nike can change
their punch line. If they wish so, from “just do it” to “we just did it”. This says that We just made
a difference in the world of sweatshops.

References

http://business.nmsu.edu/~dboje/nikeworkers.html

CBS News 48 Hours, 10/17/96, www.saigon.com/~nike/48hrfmt.htm.

[CLR9]: Campaign for Labor Rights, 9/18/97, www.compugraph.com/clr/.

[D]: Nike-paid Dartmouth study, www.nikeworkers.com/amos_tuck_school.html.

[ECON]: ECONIT Advisory Group, Jakarta consulting firm.

[E&Y]: New York Times, 11/8/97, citing leaked Ernst and Young report. 5th October.

[GRP]: Grand Rapids Press, 12/15/96.viwed 2nd October.

[ID]: The Independent of Dhaka, 7/14/97. Viewed 30th September.

12
Griffith University 2705942

www.nike.com

13