Case Analysis:

Hitting the Wall: Nike and International Labor Practices

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". That being said, do these
biased parties have a convincing argument?

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. Although I agree with Ballinger on multiple counts,
it does seem that he personally dislikes Nike and what the company stands for and wants t make
an example of this company by using his "one country-one company" strategy. When there are
countless multinational corporations employing Indonesian and Vietnamese laborers which are
paying lower wages than Nike.

Ballinger did not need to look very hard to find bribery in Indonesia covering up labor violations
including low wages and unhealthy work environments. The question was really not "did
Ballinger have a convincing argument", but, how was one man going to get the word out about
this. Although it took nearly a decade, from labor strikes lending a spotlight on the issue to
Ballinger's big break publishing the "pay-stub versus Michael Jordan" article in Harper's
Magazine, the message finally hit the mainstream who obviously deemed the argument
"convincing".

Using the Value Chain Model supplied by Porter and Kramer, we can see how Ballinger makes
his case. He attacks both Nikes Indonesian Support Activities (Human Resource Management
compensation system) and its Primary Activities (Operations sporting apparel and
equipment assembly). However, he does this by making comparisons that are, in my opinion,
only partially objective. Although safety standards and the age at which a person may start
working can be transferred fairly equally across national boundaries, wages simply cannot. It is
entirely reasonable to ask a company not to expose its employees to poisonous fumes or to have
11-year olds working in its factories. On the other hand it is totally unreasonable to assert that a
fair wage in a developing country should be close to average wages in the developing world.
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.

But then, why should Nike have really been concerned with coming up with an effective,
convincing response? It was in the middle of a decade with annual double-digit growth and a true
sense of invincibility. Unfortunately this does not cleanse them of their sins nor of the fact that
their response was incomparably unconvincing.

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.
(see also for response: http://www.slideshare.net/ErhanSozen/nike-case-analysis )

Accusation and Nikes response:

Nike outsourced its production in other countries where labor cost was low and used savings for
marketing campaigning. A labor organizer Jeff Ballinger fought with Nike in labor practices and
published newsletter against Nike. He argued that Nike forced contractor to meet the production
quota which made labor to be treated in Indonesia. Although there were laws in favor of labors in
Indonesia, Nike contractor did not comply with law and no one could argue against due to
corruption in the country. Ballinger succeeded in drawing attention in the US and the Indonesian
Government. Hence the Indonesian Government increased the wage to around $1.24.But most of
the people found it to be insufficient. I think what made Nikes situation worse is that its
reckless and irresponsible attitude against criticism. In the case it is stated without an in house
manufacturing facility, the company simply could not be held responsible for the actions of
independent contractors. In response to the criticism Nike issued Code of Conduct and
Memorandum of Understanding to be applied for contractor in 1992.Protestors were still
continuing against Nike. To calm media Nike also worked with Ernst & Young, independent
Accounting Firm to Audit Nikes plan in foreign countries. However labor activities again were
not happy with it and did not find it reliable because Ernst & Young was paid by Nike for audit.
On the other hand The US government established Apparel Industry partnership to aid better
labor standard for foreign plants. Nike joined the partnership first.In addition to this Nike
released a Labor Practices Department in 1996.I think Phill Knight assumed that all the
accusations and protests would end by participating in these establishments. Nikes other
strategies was hiring Andrew Young a respected Civil Rights leader in order to prepare a report
for the factories in Asia. After Nike released the result the critics go angry again because there
was no conclusion about the wages in the report. Which played a key role of all the accusions.
Later on an audit report stated serious health and safety issue in a factory in 1997 leaked by an
employee. In addition to that Nike announced its first loss in 13 years in 1998.Finally instead
denying accusations Phil Knight announced a series of reforms including minimum age of
workers.Also Knight provided better working condition in factories. Then Nike tried more in
Governmental reform efforts, which was in Apparel industry.Lastly Nike joined Fair Labor
Association, which requires companies to adapt its certain criteria like minimum wage and build
internal monitoring systems to impose. As a result Nike implemented serious reforms and
programs; however it has failed to address wages in their activities. As Ballinger said, but on
wages they are still lying through their teeth.

According to Steiner & Steiners 8 General Principals of CSR Nike has failed in the most of
these Principles:
1. Profit motive: Nike has a great profit motive. However Nike has failed to find ways to
solve problems in factories.
2. Follow the laws: Actually Nike followed the laws in their operation.However their
contractors of Indonesia were not following the law for protecting labor and paying
below minimum wage due to corruption over there.
3. Managers must act ethically: CEO of Nike ignored satisfying societys concerns and
expectations in terms of integrity, honesty and justice.
4. Correct mistakes: Nike failed to fix their mistakes for a long tme.However,a few years
latter Nike attempted to create solutions.
5. CSR varies with industry and company: In factories that manufactured footwear and
sport ware for Nike exposure to toxic chemicals by majority of workers has been found
due to poor ventilation.
6. Meet legitimate needs of multiple stakeholders: One can easily observe that Nike fail
to meet needs and concern of shareholders, customer, employees and communities by
ignoring the responsibility.
7. Social contract: Nike broke the social contract with the public because Nike did not
value public opinion. However, Nike understood the importance of social contract later
on.
8. Measurement and reporting: Although Nike did not attempt any measurement and
reporting of CSR performance in the first place, Nike started to hire publicly known
people and independent audit company to analyze condition after concerns and
accusations arose in the public.

Conclusion:
Nike made two mistakes those were not being concerned about working conditions in foregn
factories and having wrong public relations. For instance, when Nike was accused for exploiting
workers, it ignored it being part of it. Although public thought Nike was paying low wages the
result of the survey conducted by the students of Darthmouths Amos Tuck school of Business
showed that the factory workers could earn fair amount of discretionary income. Despite I found
this survey not reliable, Nike could have this type of survey conducted earlier to satisfy its
customer and critics.
Study mood: http://www.studymode.com/essays/Hitting-The-Wall-Nike-And-International-
710897.html

It is ironic to see how an organization like Nike would response to its negative labor practices in quite an
immature way, especially when it carries a big brand image in the industry and has a lot on stake to lose;
with respect to its loyal clientele and future growth opportunities. In my opinion, Nikes approach was
almost prohibitive, specifically for the initial few years. I agree, later on in May, 1998 Knight announced
a series of sweeping reforms however; what is shocking to me, it took Nike roughly 18 years to realize
that some serious steps are needed to address the allegations and their future steps must go beyond
and over than what they had committed themselves to. Nike was pressed by the circumstances to think
this way as their bottom line had truly started to suffer. Evidently, since 1980s the corporation had
been plagued by a series of labor incidents and public relations nightmares but what has astounded me
is despite the criticism; they insisted that labor conditions in its contractors factories were not could
not be Nikes concern or its responsibility. Initially, Nike was moving quite fast from one country to
another just to accomplish their low cost manufacturing agendas. It is quite relevant, applicable and fair
for any organization to outsource where they can save cost but it should not be on someone else
expense where the organization is violating human rights and/or the labor is not even making enough to
meet their bare minimum necessities. All these bad business practices of Nike got them in mainstream
where they were not able to come up with innovative ideas to be in command of this bad publicity. As
the matter was heating up Nike did try to address many issues which are surely commendable but the
major issue of workers minimum wage was never resolved up until 1998. This is exactly where Nike was
getting benefited from (low-wages). In response to the entire kiosk, Nike did..

2. How well has Nike handled the publicity surrounding its labor practices? Could or
should the company have done anything differently?

We found that 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.

An interesting point that this case made was that Kathy Lee Gifford was linked to a clothing line
produced in Honduras by child labor. The case illustrated that Gifford immediately apologized
for the issue, taking full responsibility. Not only that, but with true sincerity Gifford cried and
wept, basically begging for Americans' forgiveness.

"The public" is generally forgiving when famous people or corporations are sincere and up-front
- they become "real" to us and it is easier to forgive them. Nike should have taken extreme action
as a corporation. Phil Knight should have been Nike's Gifford and the company should have
enforced manufacturing requirement changes immediately. Nike's problem - they did not believe
at the time that anything could slow them down or harm them.

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.