Hitting the Wall : Nike and International Labor Practices

Kelompok 5 :Titah Giri

Agung MizarIstiyana U Kristanti

Background• In 1997, Nguyen Thi Thu Phuong died while making

sneakers• In 1980s & 1990s the corporation had been plagued by a

series of labor incidents : underage workers in Indonesia, allegations of coerced overtime in China, dangerous working conditions in Vietnam.• Stories of reported had been carried in publications such

as Time and Business Week, boycotts of Nike products by Duke and Brown’s student• Nike was becoming known as the company of labor abuse

Nike, Inc.• Nike had been a corporate success story for more than 3

decades. Nike has inimitable attitude, phenomenal growth, dictate fashion trend

• Corporate strategy by CEO Phil Knight : a. Shave cost by outsourching all manufacturingb. Marketing by using celebrity endorsements (Michael

Jordan and Tiger Woods)• Nike shifted its supply to South Korea and Taiwan, where

cost were lower and production reliable. In 1990, Indonesia had become critical location that supplied Nike and a booming, enthusiastic as footwear industry

Taking care of business• Indonesia seemed an ideal location for Nike : low wages, workforce was docile

and an authoritarian government was yearning for foreign direct investment• In 1991s, daily minimum wage Indonesia was $1, South Korea $24.40 and US

$8. Cost manufactur China and Indonesia 50% less than Taiwan and South Korea

• A rare wave of labor unrest swept across the country. Strikes which had beem virtually nonexistent in the 1980s. The source of these strikes, some claim from Indonesian’s government, some say it come from outside organization

• A series of polemical articles about foreign companies labor abuses also appeared in Indonesia newspaper, triggering unprecedented demand from factory workers and empowering a small but potensi band of labor organizer

• AAFLI published a highly critical report on foreign companies in Indonesia. ITB documenting abusive pratices in Indonesian factories and tracking them to foreing owners.

The Role of Jeff Ballinger• In 1988, Jeff Ballinger is assigned to run the AAFLI office in Indonesia, and was

charged with investigating labor conditions in Indonesian plants and studying min wage compliance

• Ballinger believed that Nike’s policy of competing on the basis of cost fostered and even encouraged contractors to mistreat their workers to achieve production target.

a. 17.000 violations reportes in 1988b. Nike contractor regularly flouting Indonesian labor laws and paying below-

subsistence wages• Ballinger’s goal is draw worldwide attention to the exploitation of third world

factory workers by rich US companies. After publish his report, Balilinger set out to transform Nike’s competitive strength into a strategic vulnerability

• In 1990s, Ballingers arguments coincided with the strikes that swept across Indonesia and the newfound interesy of media groups, and then becomet pay attention

Early Changes• In 1992 Indonesia raised the official min daily wage from IDR 2100 to 2500 (US

$1.24), but still not nearly enough• Nike ask Dusty Kidd, a new member of public relations department, to draft

series of regulations for its contractors. In 1992 these regulations were composed into Code of Conduct and Memorandum of Understanding, attached new contracts sent to Nike contractors.

• Nike addresses seven different aspect of working conditions, including safety standarts, environmental regulation and worker insurance.

• Meanwhile, other shoe companies had been facing similar problems. Reebok sourced heavily from Indonesia and South Korea, but Reebok had moved aggressively into the human rights arena.

Into the spotlight• By 1992, criticsm of Nike’s labor practice had begun to seep outside of

Indonesia. In the August issue of Harper’s magazine, Ballinger published an annotated pay stub from an Indonesian factory, making the soon to be famous comparison between worker’s wages and Michael Jordan’s endorsement contract.

• In 1996, the issue of foreign labor abuse Kathie Lee G. In April, human right activists revealed that aline of clothing endorsed by Gifford had been manufactured by child labor in Honduras. Although Nike was not directly involved in the Gifford scandal, it quickly emerged as a symbol of worker exploitation and a high profile media scapegoat

• Child labor was the first of concern

The View From WashingtonGovernment intervention•Sensing a hot issue, several senators and representatives jumped into the action and began to suggest legislative solutions•President Clinton convinced a presidential task force to study the issue, calling leaders from apparel and footwear industry known as APPAREL INDUSTRY PARTNERSHIP (AIP)•Hiring Earnest & young ,to Conducted formal audits of overseas factories•Established a labor practices department

The HotSeat1997 •Child labour issue raised by life magazine. •Michael Jordan asked to investigate the labour conditions.•Doonesbury ,comics strip highlighted the issue for 15 odd days in newspaper•The wall street journal published ,”Nike had been its own worst enemy”.•Embarrassments for Michael Jordan & Jerry Rice at opening of Nike town.

Damage ControlERNST & YOUNG’S COMPREHENSIVE REPORT REVIEW.

•Nike is doing good but can and should do better.•Should publicise their code more widely •Improves systems for reporting workers grievances.•Implement cultural awareness and language training programs

The Issue of wages

• Too little to compensate for their efforts,• Too little compared to the final price of the

good they produced, • Too little to live on.

Survey of Vietnamese and Indonesian Domestic Expenditure(1997)

The Issue of wages• Tuck Study : The average worker in a Vietnamese Nike

factory made about $1.67 per day. A pair of Penny Hardaway basketball sneakers retailed at $150 (cost worker 1 % from price Retail)

• EY finding uncovered serious health and safety issues in a factory outside of Ho Chi Minh City. According to the Ernst & Young report, a majority of workers suffered from a respiratory ailment caused by poor ventilation and exposure to toxic chemicals. The plant did not have proper safety equipment and training, and workers were forced to work 15 more hours than allowed by law.

Hitting the Wall1998• Produced considerable pain• Weak demand & retail oversupply• Earning fell 69% the first loss in 13 years.• Significant restructuring charges and the layoff of

1,600 workers• Adidas fast replaced Nike’s swoosh among the

teen trendsetter crowd; rival brands New Balance and Airwalk tripled their advertising budgets and saw sales surge.

Hitting the Wall1998• Produced considerable pain• Weak demand & retail oversupply• Earning fell 69% the first loss in 13 years.• significant restructuring charges and the layoff of 1,600

workers• Adidas fast replaced Nike’s swoosh among the teen

trendsetter crowd; rival brands New Balance and Airwalk tripled their advertising budgets and saw sales surge.

• the anti-Nike headlines had trickled down to the nation’s campuses (campus activists rejected Nike’s contracts with their schools and demanded all contracts cease until labor practices were rectified)

Hitting the WallPhil Knight • Admitted that “the Nike product has become synonymous

with slave wages, forced overtime, and arbitrary abuse.”Announced :• Raising the minimum age of all sneaker worker to 18,

apparel worker 16.• Adopting U.S. OSHA clean air standards in all its factories;

expanding its monitoring program; • Expanding educational programs for workers;• and making micro loans available to workers.

Hitting the Wall1999Involved with human right group reform effort :• Apparel Industry Partnership (AIP)• Fair Labor Association (FLA)

Recomendations• Improving condition in foreign manufacturing plants

Consider wages, age requirements and safety issues.• Protect NIKE's image brand through a code of

conduct.• Proactive approach to become socially responsible,

concern NGO.• Ensure transparency and accountability.• Improve public relations.