Globalization is a tool that could help you nurture your business around the world (Tapper, 2000). When a company decides to go “global”, it will often experience an increase in profitability. However, not every business will benefit from globalization. Some organizations may experience a healthy growth in global market, but some organization will have to overcome many challenges before establishing a successful business in a foreign country (Zboch, 2009). Wages, child labor laws and outsourcing’s effect on sale are salient issues for doing business overseas.
Nike, the world’s premier shoe corporation has been has had a great deal of bad publicity due to its unethical labor practice. Workers in Nike’s factories were forced to work overtime and paid slave wages in an unsafe working environment. Bad publicity related to Nike labor practice has totally ruined its reputation and brand image. The company has become a target for the anti-globalization and anti-sweatshop movements. Anti-Nike campaign has raised the awareness about sweatshop labor in third world countries. Some criticized that Nike did not enforced it code of conduct with the correct procedures.
After receiving many complaint of its unethical practice, Phil Knight, the CEO of Nike realized the seriousness of the matter. He visited Nike’s contract factories and delivered a variety of speeches regarding his upcoming actions to improve the human right situation (Hobbs, 1998). However, many people doubt his sincerity, and fear that he could not deliver on his promises of providing a healthy environment for workers. Even up until now, Nike is still struggling to defeat the negative feeling from the public (Hobbs, 1998). Would Nike be able to solve this problem? Has Nike made an effort to improve the labor conditions in Asia?
The purpose of this paper is provide an understanding of the various difficulties and complexities companies faces in today’s global world. This paper will describe the accusations brought against Nike labor practices and all of the corrections that Nike formulated to effectively produce a healthy and safe working environment. This paper will also provide some recommendation for Nike to improve their performance in future.
I. Globalization and its Challenges
Globalization is commonly understood as the spread of influence of culture, religion language, communication, technology, trade, media, and transportation. That spread of has involved the intertwining of economic and non-economic activity across the borders (Smith & Doyle, 2002). Today, many companies move their business operations to foreign countries by going global (for instance, Apple, Coca-Cola and Dell). They have different reasons for doing business internationally. Some companies choose to expand to new markets, some of them want to diversify their business, and some want to increase market share and brand value. Other reactive or defensive reasons for doing business overseas are: trade barriers, customer demands, globalization of competitors, and regulations and restrictions (Okolo, 2008).Reduction of cost is the major reason for companies going to global. Today, production cost has been increasing tremendously in developed countries. Many companies have outsourced its entire production operation to developing countries or third world, like China, Cambodia, South Africa, India, Vietnam and Indonesia. They believe that production or service offshoring will eventually lower their production, labor and utility costs.
Doing business overseas has its benefits as well as its challenges. Companies may face legal, ethical, and cultural challenges in global business. Every country appears to have its own law and regulation. Companies must understand the standard pay or minimum wage requirement to avoid all conflict of interest. Ethical issues related to environmental protection, and concerning relation between different countries (e.g. industry espionage and hostile take over). When companies operate internationally, most of them are facing great challenges in cultural differences. Cross-cultural issues may arise when people within companies have different culture, language, religion and belief begin working together are not skilled or adept enough to deal with effectively.
II. The Athletic Footwear Industry
Recent economic crisis has affected the athletic footwear industry. However, the athletic footwear market declined lesser in 2009 than it did in 2008. The athletic footwear sales posted a 1.4 percent decline and in 2008 sales were down 3.2 percent (See Appendix A) Footwear is considered to be less cyclical than apparel when consumer spending is under pressure. Analysts are expecting the footwear market will continue to grow over the next few years. (PRlog press release, 2009).
The US is the largest sporting goods market in the world. Most companies are facing increasing raw material prices and labor costs in the US. Many companies have been increasingly looking at moving manufacturing work to Asia. Countries like Vietnam, Indonesia, and China has become a major outsourcing destination for the US apparel and footwear manufacturers.
The retailer market of sporting goods is very competitive and highly fragmented. Intense competition will drive weak companies out of the market in future. Thus, many retailers reducing their presence in underperforming markets or restricting store growth in saturated markets.
Nike and Adidas have dominated the global branded athletic footwear markets. Market leader Nike has a significant lead over Adidas in footwear market. Other competitors like Reebok and New Balance is still lagging behind in the sales. (Locke & Siteman, 2001)
III. The Globalization of Nike
Nike is founded in 1964 by Phil Knight and Bill Bowerman. The company initially was an importer and distributor for Japanese specialty running shoes. The company’s profits grew quickly and it opened its first retail shop in California in 1966s. While other footwear companies still manufacturing their own shoes in high-cost countries such as Germany and the U.S. In order to reduce costs and become more efficient in productivity, Knight decided to outsource its shoe production to lower-cost Japanese producers during the 1970s. By the early 1980s, as costs continued to increase in U.S, Nike closed all its U.S and Japan factories and outsourced its production to Korea and Taiwan. When these two countries began to develop and the wages increase significantly, Nike urged its suppliers to shift their production to even lower-cost countries like Indonesia, China and Vietnam. Nike found that these countries have no protective labor laws and labor union, and they provide huge supplies of cheap labor. By 1992, Nike sourced almost all of its shoe production from Asia and they have placed their employees at their outsourced factories to help monitor production processes and product quality (Locke & Siteman, 2001).
Today, Nike has successfully established an intensive network of footwear factories throughout China and Southeast Asia. Nike’s operations are divided into three product lines: footwear, apparel and equipment. Their products are manufactured by nearly 600 contract factories, employing over 800,000 workers in 46 countries around the world. Nike’s sales have grown over 50% since 2005 to and reaching US$19 billion in 2009. (See Appendix B). Footwear is Nike’s largest product category. 30% of shoes are sourced from China and Vietnam, 22% from Indonesia, and 6% from Thailand. Beside, Nike has manufacturing agreements with independent factories in India and Latin America like Brazil, Mexico and Argentina to produce footwear for sale primarily within those countries (Nike, Inc., 2010). Nike contracted 618 factories to manufacture its products in 2009, only 71 out of its suppliers are producing footwear. Most of these suppliers are located in North Asia. (See Appendix C). In contrast, Nike apparel products are made in 391 factories and the majority of these factories are distributed in Southeast Asia. These differences are due to “both to the rules governing international trade in the industries” (Locke & Siteman, 2001, pg7). In the mid-late 1980s, footwear quotas were eliminated whereas trade in garments is still control by the Multi-fiber Agreement (Locke & Siteman, 2001).
Nike brand, the company also develops and markets footwear and apparel products under the Converse, Umbro Inc., Hurley International, and Cole Haan brand names. The company sells its products through its own retail in over 180 countries worldwide as well as through internet sites (Nike, Inc., 2010). Today, Nike has become the world leader in the design, distribution and marketing of the athletic footwear (Locke & Siteman, 2001). The “swoosh” logo has become one of the most recognized in the world.
IV. Nike’s Challenges
Are you willingly to work 60 or 70 hours every week, or send your young children to work in a factory? Many of us will not do that, but for many “people who want to eat”, the obvious answer is “Yes.”. That’s a reality Nike faced when it first started outsourcing the production of sports apparel and shoes to external companies in the third world. There are many controversies over its labor practices in Asia. In the 1980s, Nike had been accused of exploiting cheap labor and exposing them to destructive working environments. The company is also faced for use of children to make its sport gears in Pakistan factories. As a result, Nike was labeled as forcing “children to slave away in hazardous conditions for below-subsistence wages” (Hill, 2009, pg2). In what follow, the paper will provide an overview of the various abuses of which Nike and its suppliers have been criticized in the past decade and the problems that the company has confronted.
Child Labor in Pakistan
Child labor is spread all over Pakistan. Sialkot, a city in Pakistan, is a centre for the production of export-oriented goods, particularly sporting goods, for instance hand-stitched soccer balls (Locke & Siteman, 2001). About 70% of the world’s soccer balls are made in Sialkot and companies like Nike, Addidas, Reebok and Mitre imports soccer balls from Sialkot. In 1990s, Nike contracted for its soccer ball production with SAGA Sports. Both companies benefited with the access to child labor in Pakistan (Haider, 2007). In 1996, Life magazine published an article about child labor that occurring in Pakistan, which included a photo of a young boy sewing a Nike soccer ball. (See Appendix D). This article drew the national attention to all human rights and fundamental freedom. Various activists groups, trade unions and NGOs have called for boycotts Nike soccer balls.
The Atlanta Agreement has signed by The Sialkot chamber of Commerce with the ILO, UNICEF and several leading sports goods associations to implement a program to stop using child labor in Pakistan (Locke & Siteman, 2001). However, the government carries lack to willingness take action to against it and the same problem still exist. Today, Nike is still importing its soccer balls in million quantities from Pakistan.
Slave Labor in Asia
More than 80% of Nike’s outsourced factories are located in Asia like China, Thailand, Indonesia and Vietnam. The government of these countries prohibited workers from forming independent unions and set the minimum wage at rock bottom. Labor activists criticized that the workers in Nike factories were getting paid below the minimum daily wage. Nike’s subcontractor paid workers in Indonesia less than US$3 a day (Medea, 1998), and the wage did not meet the basic needs of one individual. In 2006, the Worker Rights Consortium calculated that a livable wage in Indonesia is about US$8 per day (Bose, 2008) and the Indonesian government admitted that the minimum wage only covered 70% of the basic needs of one person.
Global Exchange, an international human rights organization published a reports on working conditions in four Nike subcontracted factories in Southern China. According to the report, Children aged 12 to 13 years old who worked in one of the subcontracted factory (owned by a Korean company) earned only 10 cents per hour. They were forced to work up to 17 hours daily and were not allow talking during work. These Chinese workers earned US$1.80 a day which was lower than the Chinese minimum wage of $1.93 for an eight hour day. The report states that Nike labor practices had violated Chinese labor law. However, Nike denied the accusation and claimed that the report incorrectly stated the wages of workers.
Vietnamese and Thai workers earned even less- less than US$1.5 a day. According to Thuyen Nguyen of Vietnam Labor Watch, a livable wage in Vietnam is about US$3 a day whereas the minimum wage in Thailand is US$4.50 a day (Medea, 1998). The Ernst and Young has conducted audit on Nike subcontracted factories in Vietnam since 1994. According to its report (1997), 77% of Vietnamese workers had serious health and safety problems at the Tae Kwang Vina factory. Workers with “skin or breathing problem had not been transferred to departments free of chemicals and more than half the workers who dealt with dangerous chemicals were not provided personal protective equipment such as masks or gloves (Zboch, 2009). The report claimed that workers were exposed to toluene (a chemical solvent can cause permanent damage to brain, nausea, and various eye and skin irritations). Toulene concentration had exceeded 177 times acceptable standards in parts of the plant. This report had tarnished Nike’s image Nike since the report came from Ernst and Young, an accounting company was hired by Nike to audit its suppliers’ factories. In addition, Nike had invited former Ambassador to the United Nation Andrew Young to assess working conditions in the Tae Kwang Vina factory. In Young’s report of Nike suppliers, there is no mention of serious health and safety issues. This reports casts doubt on Nike’s honesty and commitment to labor and environment standards.
Indonesia, China, and Vietnam have minimum wage laws on the books, but the government of these countries was still allowing them to pay wages well below the minimum rate. “Nike further circumvented wage laws by paying new employees an apprentice rate for several months into an employee’s tenure” (Turner, 2008). In April 1997, more than 10,000 workers Indonesia and 1,300 Vietnamese Nike factories workers went on strike to protest low and unpaid, and the workers asked for a raise of one cent per hour. In 2000, 3,000 Chinese workers from Nike’s subcontracted factories protested dangerous working conditions and low wages. “All of these protests took place in spite of the fact that these sorts of worker strikes are illegal in these countries” (Turner, 2008)
As a result, these issues tarnished Nike’s reputation.
V. Nike’s Response
Nike denied all knowledge of human rights violations and blamed its suppliers or local government for its failures of enforcement. The company even blamed the workers themselves for their failure to complain. At first, Nike was unwilling to take any responsibility for the labor, health and environmental problems found in their subcontracted factories. Nike claimed these factories are not owned by them, and the company had no responsibility towards the workers (Avery, 1999).