Nike Analysis - Case Study Example

?Nike: A Case Analysis number] Nike: A Case Analysis From its humble beginnings as Blue Ribbon in 1964, Nike has grown to become one of the top suppliers of sports apparel in the world today (Ferrell, Fraedrich, & Ferrel, 2011, p. 386). As of 2009, Nike is composed of 600 contracted factories, and has presence in more than 180 countries around the world (Nike Inc., 2009, p.8). As of May 31, 2009, Nike has more than 800, 000 employees in its factories located in 46 countries. Add to this figure the company’s suppliers, shippers, retailers and distributors, the figure rises to more 1 million people. For fiscal year May 31, 2009, the company has reported revenues of more than $19 billion. These figures include sales for affiliate businesses such as Converse, Umbro, Cole Haan and Hurley International. While the company has recorded a 6% drop in its return on investment (ROI), Nike’s performance between 2005 and 2009 is so much better compared to the top 500 S&P companies. Nike’s success may be traced back to capacity to tap into the international market, which accounts for more than half of the company’s sales. Aside from this, Nike has chosen various Asian countries for their contract manufacturing base, allowing them to take advantage of low operational costs and even lower wages. Known best for its “Just Do It” Campaign which started in 1988, Nike has struggled with issues involving violations of human and labor rights, and deficiencies in health and safety conditions (Ferrell et al., 2011, p. 387). Like most companies that had to face human rights allegations, Nike’s response was slow and ineffective. According to an Amnesty International (AI) report, the company’s response may be summarized in four stages: denial, blame others, damage control, reassert control over damaged corporate image, and give appearance of compliance (Avery, 1999). At the beginning, Nike reiterated the efforts the company is making to improve working conditions and raising wages in countries where their factory is located. In a statement, Philip Knight said, “every Nike subcontractor is subject to systematic, unannounced evaluation carried out by Ernst & Young and that our own reviews…have shown that the Code [of conduct] is complied with in all material means” (as cited in Avery, 1999). Unfortunately, the review evaluation carried out by Ernst & Young did not reveal how may factories were actually audited and what tools were used to carry out its evaluation. Moreover, hiring its own evaluators to assess the company’s operational practices was counterproductive, according to the company’s detractors. For one, how can a company release a negative report against the same people who are providing them with business? Moreover, as a growing company, Nike was too busy fulfilling client orders, its hiring and standard operating procedures were not yet a subject of scrutiny – until the Asian employees started their strike, that is. With thousands of people in their employ and hundreds of factory locations around the world, Nike failed to institute an internal auditing system (and an internal auditor) which could have helped them ensure the highly viable working conditions they wanted to provide. Another issue that led to Nike’s failure to address corporate responsibility earlier is the presence of a contract manufacture base denuded the company’s ability to monitor the activities in all its subcontracting plants. In addition, because many of the contracting plants were located in Asian countries, Nike should have installed an in-house representative who is tasked of ensuring that the new manufacturing plant has adopted the Code of Conduct. Transitions should have been made, and regular audit should have been scheduled to monitor the plant’s performance and adherence to the Code. Aside from its labor issues in the Asian territories, Nike has also earned the disagreement of several thousand people who were formerly employees in their U.S.-based plants. While the decision of Nike to outsource its products has good business sense, it failed to involve its stakeholder in its decision making. Note, however that Nike’s outsourcing model has allowed residents of third world countries to earn income, which were mostly higher than the industry standard in the territory. Looking at it in point of view, one may say that Nike’s business model was not entirely counterproductive, if only the right monitoring tools (and people) were in place before outsourcing was rolled out in full force. After losing thousands of dollars due to product boycotts, Nike has decided to make changes in its operations. In the 2010 Corporate Social Responsibility (CSR) report, Nike Inc. CEO said, “It took us a while, but we finally figured out that we could apply [our] core competencies – design and innovation to bring about environmental, labor and social change” (Nike Inc., 2010, p. 4). It redrafted its Code of Conduct and enjoined all suppliers, retailers, distributors and employees to adhere to the Code. Contracts of factories found to be violating (or even suspected of violating) the Code were ended. The company also created various audit tools such as the Management Audit Verification (MAV), the Safety, Health, Attitude of Management, People and Environment (SHAPE) and the Environment Safety and Health (ESH) to determine the various labor issues among the employees and the management. Results of these audits were utilized to draft new standards on wages and benefits and develop a safety standard. The 2010 CSR report summarized some of the changes Nike has done over the years (Nike Inc., 2010). Most of these changes have covered the previous complaints against the company, and if they continue on their new model, Nike is expected to become a world-leader in the industry. (1) It started to involve its stakeholders in creating a new business model, and in the process, reiterated the need for real transparency. (2) It focused on ensuring that their suppliers utilize standard monitoring and policing tools. Through this move, the company ensures that its mandated Code of Conduct is implemented strictly. By collaborating with other businesses in the industry, with members of civil society and the government, Nike hoped to effect systemic change. (3) It utilized raw materials that were environmentally friendly. This has led to the company’s continuous search for sustainable technology. (4) It redesigned its products so that it had less energy demand in its production. This move has enabled the company to minimize their environmental impact through innovation not only in their product development but also in their operations. (5) The company has promoted awareness and commitment to resolving environmental, social and labor-related changes from various sectors of the society. Through this move, Nike hopes to expand the benefits of its new business model to institutions outside of the industry. (6) The company has rebuilt some of its factories to incorporate LEED standards. Through its energy efficient buildings, Nike hopes to help mitigate the effects of climate change. While it seems like Nike has everything covered, from employee concerns to environmental wellness, one issue Nike has failed to resolve is unionization of its employees. Except in Mexico and in some parts of Europe, workers are not represented in the company’s decision-making. Collective bargaining agreements have not been instituted, and are in fact, dissuaded in factories located inside export processing zones (EPZs). With no capacity to bargain, workers cannot demand for increased wages or improved benefits. Workers cannot ask for flexible working schedules and demand for additional incentives. With Nike professing transparency and stakeholder accountability, the lack of unions may lead to issues of representation (or mis-representation) in decision-making. Nike says that unionizing its employees is more difficult than labor-advocates would have the public believe. In its 2010 report, the company said, “There has never been a material interruption of operations due to labor disagreements” (Nike Inc., 2010, p. 10), as if unions and employee representation could only serve to exacerbate labor issues. Without unions, the only possible alternative is the regular implementation of the MAV audit tool, which delved mainly on four core areas: wage and benefits, labor relations, hours of work, and grievance systems. Moreover, the implementation of an open-door policy where employees can go directly to their supervisors to file a complaint can help ensure that concerns are heard and addressed. Operating in a changing world where society and the environment are closely linked, Nike has to ensure that the changes it has instituted in 2005 will continue. Faced with the climate crisis, the company has to continuously innovate and find technologies and solutions that will enable it to thrive in a sustainable economy. With the world on the verge of another economic collapse, creating a real “sustainable economy” has become a top priority for governments, policy makers and industry leaders. Nike’s quest for sustainable economy is more than just about the market and its business. Nike cannot do this change alone. While it has already made its first steps, Nike has to collaborate with other industry leaders to create a wider impact. It has to learn to work hand-in-hand with civil society and the government to institute changes in the world economy. Only through the collaboration of these three spheres of society – business, politics and culture – can a new, sustainable world be born. Having said that, Nike’s new model of transparency, collaboration and co-learning is risky in that it makes itself vulnerable to factors, which may be beyond its control. Its reports may be criticized, which is as it should be. The company must learn not to defend again, but instead, learn to screen this resistance and find the value it offers for the company. References Avery, C. L. (1999). A case in point: Nike. Business and Human Rights in a Time of Change. Amnesty International UK. Ferrell, O. C., Fraedrich, J., & Ferrel, L. (2011). NIKE: Managing ethical missteps- sweatshops to leadership in employment practices. In J. Dauksewicz (Ed.), Business ethics: Ethical decision making and cases (8th ed., pp. 386-396). Boston: South Western Cengage Learning. Nike Inc. (2010). Nike, Inc. corporate responsibility report FY07-09. Retrieved from http://www.nikebiz.com/crreport/content/pdf/documents/en-US/full-report.pdf Read More