OR

Presented By:

Aarathy Krishna PGP05052

Joel K Daniel PGP05072

Praneeth PGP05083

Sonia Mohil FPM08

NIKE : INTERNATIONAL LABOR PRACTICES

INTRODUCTION

1964

• Founded in 1964 as "Blue Ribbon Sports” by Bill Bowerman and Phil Knight

• Based in Beaverton, Oregon

1971• Name changed to Nike Inc.

2012-14

• Annual Revenue (2012) :$24.1 billion

• Brand Value (2014): $19 billion

• Most valuable brand among sports business

Subsidiaries

• Brand Jordan

• Hurley International

• Converse

Brands

• Nike Golf

• Nike Pro

• Nike+

• Air Jordan

• Nike Dunk

• Foamposite

THE KEY DIFFERENTIATOR

One of the world’s first “virtual” corporations- a

manufacturing firm with no physical assets

PRODUCTION

• No in-house production, no dedicated manufacturing lines

• Not only outsource but outsource to low cost parts of the world

MARKETING

• Money saved through outsourcing pumped into marketing

• Establish an invincible brand around the Nike name through celebrity endorsements

IRONY WITHIN THE SUCCESS STORY

• The manufacture of Nike products carried out through low paid underage non-American workers

• Constant hunt for cheaper supply base

• Started with Japan, then moved on to South Korea and Taiwan. In 1982 86% of supplies from these countries.

• By 1990 Indonesia emerged as the critical location for Nike with six factories and a booming enthusiastic footwear industry

Country Wage Rate

Indonesia $1 per day

South Korea $24.4 per day

USA $8 per hour

Major stakeholdersIndonesian

Government

Media

Labor activists

Factory Workers

Celebrity endorsers

1991: unfamiliar turbulence• In 1991 a rare wave of labor unrest

swept across Indonesia. There were 112 strikes in 1991 as compared to 19 in 1989.

• Articles in Indonesian newspapers about abuses by foreign companies

• AAFLI & ITB: Published critical reports on foreign companies in Indonesia and tracing abusive practices to foreign owners

• Jeff Ballinger• Nike’s policy of competing on cost fostered and encouraged contractors to

mistreat workers

• Nike’s contractors were constantly flouting labor laws and paying below subsistence wages

• Transform Nike’s competitive strength into a strategic vulnerability

Sources

Indonesian Government

Outside Organizers

Random eruptions

Immediate responseIndonesian Government

• Raised minimum wage from 2100 rupiah to 2500 rupiah

• No impact on training wage

• But this increase was still considered not enough by outside observers

Nike

• Denied responsibility for conditions in contractor’s factories

• “Without an in-house manufacturing facility the company could not be held responsible for the actions of independent contractors”

• Composed a Code of Conduct and MOU covering different aspects of working conditions and attached it to the new contracts

Reebok

• Reebok Human Rights award

• Formal Human Right’s Policy

• Specific standards for contractors and audits to ensure compliance

Focus of american media on nike

Kathy Lee Gifford’s Sweat Shop Scandal and her reaction

Life Magazine’s Picture of a 12 year old boy stitching a Nike Soccer Ball

Harper’s Magazine article by Jeff Ballinger

CBS interview of Indonesian worker

Response of washington

“No Sweat” campaign by Representative George Miller

Foundation of AIP by President Clinton

Establishment of Labor Practices Department by former public relations executive Dusty Kidd

culmination

• Protests at Nike’s retail stores

• Dragging of Nike’s celebrity endorsers into the ruckus

• Release of The Big One by Michael Moore

• Op Ed by Greg Rushford “Nike Lets Critics Kick It Around” in The Wall Street Journal

• Doonesbury Comic Strips

Damage control

• Drafted a series of regulation

• composed into code of conduct and MoU

• Addressing safety standards, environmental regulation and worker insurance

1992: Severity of Labour issue was

high

• Andrew Young- Good works International Firm

• Report – not addressing labour practises

• Merely made suggestions to improve system and implement awareness

1996: External evaluation of

Code of Conduct

• Reebok faced same problem , subject to activist pressure and unflattering media

• But they played smart- aggressively moving into human rights arena

• Failure to address issue of wages

• Only 10 day interview• Translator provided by

Nike• Lapse in accepted

research technique• format of report

NIKE REFUSING TO ADDRESS THE PRESSING ISSUE OF WAGES PAID, DAMAGED THE SITUATION FURTHER.

Issue of wages

INDONESIA

Low wage - $1 /day

S. Korea - $24.4 /day

USA - $8 /hour

(athletic shoe manufacturing)

Nike’s cost competence strategy

Mistreat by contractors to maximise their profit

Violation of Labour laws

* JAN 1992 : Increase in minimum daily wage from 2100 Rupiah to 2500 Rupiah

( $1.04 to $1.24 / day)

* Labour condition (Child labour, Slave labour and Unsafe environment) and wages

continued to be primary issue.

* Initially Nike ignored the issue to diffuse it

* 1997: Amos Tuck School of Business Survey

* Vietnam – discretionary income

* Indonesia: vary with demography

-91% -support individually

-49% only support dependants

-82% contributed to families (all demography)

But…

* Factory wage – secondary in most households

* Suggested progress in developing countries providing jobs and wages, who didn’t

previously have both.

* STILL SOCIAL COMPARISON WAS UNAVOIDABLE

Consequences of being unethical

• Weak demand and retail oversupply

• Earnings fell 69% and layoff of 1600 workers

Financial problems

• Adidas’s logo replaced Nike’s swoosh among the teen

• New Balance and Airwalktripled advertising budgets

Competitors taking

advantage

• Victim of its own popularity

• Serious image problemLoss of

goodwillDenunciation

Symbol of corporate greed and exploitation

Rejection of Nike’s Contracts

Spread of Student Protests

Savi

ng

The

Swo

osh Admitting the mistake

• Phil Knight accepted the mistake in May 1998 to the National press Club and confessed labor issues .

• Acceptance about the slave wages, forced overtime and arbitrary abuse.

Correcting the mistakes

• Raising the age of sneakers workers to 18 and apparel workers to 16.

• Adoption of U.S. OSHA clean air standards.

• Expansion of monitoring programs and educational programs and micro loans for workers.

Independent Monitoring

Internal Monitoring

Fair Labor Association

Adjoining other manufacturers

Furt

he

r In

itia

tive

s

Extensive Training Programs

Sole focus on CSRMaintaining Labor

StandardsContinuous

Improvemen

Jack welch Model:- types of manager

Phil Knight (Initially) Phil Knight (Later)

Poor High

VALUES

High

Low

Competence

ACM Model

ACTORS

MANIFESTATION/S CONSEQUENCE/S

Actors

Internal Actors

Phil Knight-CEO

Jeff Ballinger

Andrew Young

Workers

Labor Association

External Actors

Government

Monitoring Firms

AT School of Business

Competitors

Customers

Media

Celebrities & brand endorsers