Nike in Southeast Asia
Abstract Nike is the world leader in the manufacturing of sports wear and gear. So at first, Nike didn’t pay attention to the criticism it was receiving because it was coming from a small group of activists, although later on, the social pressure became very high that Nike was forced to take some measures to quiet down the public who wanted to know what was going on. In this paper we will examine the various difficulties Nike faced as they tried to balance both, the company performance and good corporate citizenship.
We will also discuss what I would have done if I was in that position.
Summary Nike, was founded in 1964 by Phil Knight, Nike’s business model was developed by Knight while attending Stanford Business School in the early 1960’s. In 1998, Nike was the leader in the sports shoe industry, with annual sales of $9. 5 billion and a 40% share of the American sneaker market. It became a lightning rod for protest when alleged “sweatshop” conditions where happening in Southeast Asia. May 1998 is when Phil Knight, the founder and CEO, admitted that “the Nike product has became synonymous with slave wages, forced overtime, and arbitrary abuse. What people couldn’t understand was how Nike could get associated with deplorable labor practices. The strategy that Knight developed involved outsourcing all manufacturing to contractors in low wage countries and pouring the companies resources in high profile marketing. They where trying to take the blame off by saying that “We don’t know the first thing of manufacturing. We are marketers and designers. ” They did manage to be marketing a lot by placing the Nike “swoosh” on the uniforms of athletes such as Michael Jordan and Tiger Woods.
When manufacturing started it was done in Japan, but as wages rose, they transferred production to Korea and Taiwan. Later on, in 1982 more than 80% of Nike shoes where made in those two countries. But once again as wages went up they moved to Southeast Asia, by 1990 most production was based in Indonesia, Vietnam, and China. Young Indonesian woman who were working in Korean-owned plants under contract with Nike started at 15 cents an hour. Mandatory overtime was often imposed, and workers with experience might make $2 for an 11-hour day.
In 1991 Indonesian wage went up from $1. 06 to $1. 24, only two cents above what the government calculated as necessary “minimum physical needs. ” Workers often toiled in crowed, poorly ventilated factories, surrounded by machinery and toxic chemical all because the government was eager to attract foreign investment. Nike’s initial response was to deny any responsibility for the practices of its contractors. They said that these were depended contractors from which Nike merely buys shoes from.
That the workers are not Nike employees, and that their wages are above legal minimum and the prevailing market rate. When asked about labor strife in some factories supplying Nike, John Woodman, the Company’s general manager for Indonesia said “ I don’t know that I need to know. ” he defended Nike by saying that yes they are low wages, but they have given jobs to thousands of people who wouldn’t be working otherwise. At the end of the case it says he might have added giving employment to Michael Jordan, whose reported $2 million fee in 1992 was larger than the payroll for that year in Indonesia.
I don’t agree with the way Nike handled this case, there where other ways of taking care of the situation not just by saying that they didn’t know and trying to wash their hands from the ongoing dilemma. If I was to be in their shoes I would have been looking into what was going on in the factories since they are handling our product. Yes they did save some money but at what cost, their name was tarnished for a while and having people that supposedly didn’t know what was going on didn’t help them at all.
One of the few things that I would have done was gave the workers some sort of incentive since, I supposedly didn’t know what was going on in the factory. Yes you want to save money but you don’t want to lose your consumers for such a reason like this. That is where ethics comes in and they have to create a meeting and figure out a way to look like the good guys once again by helping solve the problem and prevent it from happening again, like setting up certain laws that their subcontractors should go by.
Through reading this case study I became aware that many things go on with a product, behind the consumers eyes that sometimes aren’t very ethical of the company that is selling to the consumer. It also teaches that no matter what, when a company is trying to cut expenses and they push the envelope a little to much a big chaotic scene can happen. Which if not handled right away can lead to the falling of the company that might have taken many years to build up.