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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
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