Nike Sweatshops and Business Ethics - Case Study Example

Nike Sweatshops and Business Ethics: Case Study Executive summary Nike is a multinational that was started in 1962 by Phil Knight in Oregon in the United States of America and is one of the leading sportswear designers, manufacturers and sellers around the world. It operates most of its units around the world as a franchise where it focuses on the sales is and designing of athlete’s shoes, apparels and other sports materials. Nike has one major common slogan that is quite visible among the sportsmen and women as it acts as a motivating phrase by shouting loudly, ‘just do it’ to the sportspeople. The sells a number of their products per year but the company lacks a production unit and thus contracts other companies to manufacture for them all around the world. It is estimated that over 900,000 million people are employed in these different companies around the world to produce Nike based products alone. A large number of these companies are based in Asian countries like Philippines, Taiwan, Vietnam, Thailand, Pakistan and Indonesia where critics have accused Nike to offer poor working condition for the workers as opposed to the United States’ labor laws. The company has been accused on several occasions for exploiting the sweatshop labors upon which its operations are based to increase their profitability while exploiting the locals and rewarding them poorly. Nike had total revenue of $16 billion in 2007, a slight improvement from what the company posted in the previous years. Introduction This paper provides a detailed case study of Nike sweat shops as they are currently operated and managed across the globe. As part of the analysis, the business model adopted by Nike shall be analyzed in this paper, providing a comparison with other business models that do exist. The core mission, values and visions of the company will also be discussed to ascertain their relevance in the progress of the company. This paper will adopt the five porter analysis technique to describe the strategic plans and approaches adopted by Nike sweatshops. Porter five force analyses is a framework developed to enable consultants conduct critical industry analysis and business strategy development. SWOT analysis of the company will also be conducted to help form a clear basis upon which their success and/or failure will be weighed. Ethical issues in Nike sweatshops have been a major topic both in the United States and in other countries where the company’s goods are manufactured. This case study will also seek to provide a detailed analysis of the ethical conduct and misconduct of Nike sweatshop to ascertain the relevance of the claims. Finally, recommendations based on the results obtained from the analysis will be provided emphasizing on the legal requirements that guide such recommendations. Existing business model Business model provides an in-depth analysis of the practices of the business that seeks to create, deliver and capture value for the products being handled. In this section, the core operational aspects of the business, strategies employed organizational culture and structure and trading policies will be evaluated. The business model adopted by any organization contributed to a larger percentage its ability to succeed and deliver value to its consumers. Nike has a value proposition that translates into nothing is impossible if you put the right effort and practice into whatever you want to achieve. This has been a marketing strategy adopted by the company for long to enable it retain its sport consumers who require motivation in their daily endeavors. The creation of innovation and inspiration to all athletes in the world the company’s core target and this has enabled Nike to maintain its traditional customers in the sporting fraternity (Drago 117). Nike has for long adopted the franchising business model to enable it produce large volumes of products that can meet the demands of its large consumers spread across the world. Franchising is defined as a practice of using other firms’ business production channels to add value to your products before you can avail them to the market using your logos and product branding methods. As a result, Nike enters into contracts with different manufactures across the world specifically in Asia to produce the sportswear on their behalf. This has enabled the company to concentrate on maximizing sales and increasing its presence in the international sportswear market. The companies franchised by Nike produce these sportswear products by employing the local laborers who are paid based on the values of the franchising country. This has led to tremendous reduction in the cost of production for the company and increased ability to maximize profits (Drago 109). This approach adopted by Nike has been a major focus for critics who argue that Nike exploits the low labor costs available in other less developed countries to produce their products which they later sell at values similar to products produced in the United States. As results, critics argue, Nike make high profits from such sales, which demonstrate the company’s disregard to the available labor laws and ethical standards as, required in the United States. The working conditions in most of the companies in Asia that Nike has franchised are poor and deplorable thus making it unethical for Nike to continue using their services and employees in the production of Nike sportswear. Nike has a matrix organizational structure with different centers of power and management authorities increasing the company’s lines of authority. Each department is made up of team managers who are having authority over other employees below him. The team mangers report directly to the departmental heads that are responsible for each brand produced and marketed by Nike. These departmental managers have powers to act independently of the CEO of the company thus increasing autonomy over the management of a specific brand and department. As evident in all organizations, Nike has its vision and mission statements clearly made to help define the core beliefs and desires of the company. The organization also has its values clearly stated to help guide it through the implementation of its goals and strategic programs. “To bring inspiration and innovation to every athlete in the world and if you have a body, you are an athlete” is the mission statement and guiding framework for the company. This mission statement means that the company was established to supply every individual in the world with quality shoes, equipment and apparels. It does not confine the products of the company to practicing athletes only but to every individual with a body that makes him/her a potential athlete. This mission acts as a driving force for the company especially in its quests to be the world’s number one footwear distributer. The mission statement also provides a framework for handling the conflicting desires and interest of stakeholders to enable the organization harmoniously achieve its short and long term goals (“NIKE, Inc, SWOT analysis” 231). “To help Nike, incorporate and our consumers thrive in a sustainable economy where people, profit, and the planet are in balance” is the organizations vision statement. The vision emphasizes Nikes tradition of integrating inputs from different sources and stakeholders to enable it correct past mistakes and process. This has allowed Nike to progress towards the implementation of sustainable principles, which guides it, operations and management. The vision statement also encourages the processes that identify challenges, brainstorm on solution and make decisions and evaluation steps that can enable the expectation of the consumers to be met (Drago 114). Nike’s values also agitate for collective responsibilities in the creation of vision, strategy, factories, environment and one people for the success of every individual. The company also values the inputs of all its stakeholders to enable the company move towards the realization of its goals. Nike believes in creation of partnerships that is values the inputs of other stakeholders in the apparel industry and to share best practices. It has thus built stronger relationships with governments in Europe and Asia which has contributed to the organization’s increased sales (“NIKE, Inc, SWOT analysis” 50). Porter’s five force analysis In this section, porter’s five force analysis will be used to evaluate the business’ ability to compete favorably in the international market. Based on this analysis, porter’s first 3 parameters will provide an analysis of the competition from external source and the last two to provide the internal threats that Nike sweatshop faces. It enables an organization analyze their performance and position in the market and helps an organization develop the ability to uncover new opportunities to exploit. This section provides an in-depth analysis of the strengths, weaknesses; opportunities and threats of Nike Company and how these features can be exploited to enable the company improve its general performance in the world market. The paper will provide the external opportunities and threats that the organization faces and how it has so far devised means on exploiting or correcting them to improve its market position. The internal strengths and weaknesses of Nike Company will also be critically evaluated in this analysis and how it has impacted on the organization’s general performance (Drago, 110). External analysis Nike has a number of opportunities that remain unexplored and which carries potential benefits to the company in the end. The company currently focuses in the production of athlete’s wears, apparels and equipments, a sector in which it has continued to thrive and commands considerable influence. The success of its products in this sector demonstrates its internal abilities to develop and successfully market a product, which has the potential to grow into a major brand. This means that the company can still enter new areas of fashion and human wear with great success despite the tight competition currently available in the sector. Nike should therefore consider the diversification of its products to include not only sportswear but also fashion products, which are in high demand across the globe. Sports sunglasses and jewelry are also emerging areas of sports fashion wears that the company has the potential of exploring with great success based on their current levels of success. Nike sneakers are currently used extensively across the world not only by athletes but also by household individuals who see them as fashionable wears. This demonstrates the opportunity that Nike has should it opt to produce fashion wears together with their sportswear and equipments (Hanrahan 12). Nike also has the opportunity of reducing the global controversy that has surrounded its production channels by adopting safer production measures that abides and respects labor laws. This will increase the number of traditional consumers as the unethical issues that touch on its franchised production systems stop most people. Global approval is an important step for any multinational that cares about is international image and reputation and Nike should capitalize on this chance (Hanrahan 14). However, Nike continues to meet strong competition from other sportswear designers and manufacturers around the world like Adidas and Reebok. This threat has on several occasions, resulted into increased advertising and promotion expenditure in order to increase the company’s consumer base. This leads to losses because of currency value fluctuations, a condition that requires currency hedging by the company to shield itself from fluctuations and such losses (Drago 114). The accusation that has been leveled against the company on its labor laws has ruined the international reputation of the organization and reduced the global respects that it once had. This makes it necessary for Nike to change its labor practices and work conditions to tally with international labor requirements and laws applicable in the United States. Counterfeits have also reduced the sale and reputation of the company, as they are products of poor quality that does not meet the international standards. Such products are designed and manufactured bearing the logo of Nike but are counterfeit goods, which are manufactured from substandard materials and procedures. Operations in the international market also require in-depth knowledge of a country’s economic situation, cultural arrangement and organizational behavior. Nike operates in unfamiliar territories and this has resulted into the company making uncommon and poorly researched decisions, which has resulted into reduction of profits (Hanrahan 14). Internal analysis Nike has worked extra hard to create a trade name that is known all over the world in the sports sector. This international presence has made it easy for the company to introduce new products into the market with considerable success and profitability. This great show and presence globally has been due to the hard work of the advertising and promotion department that has ensured that the company’s brand is a household name everywhere. It also has a strong international presence and sales, which has contributed to its overall success as a multinational. Celebrity endorsement of Nike’s products has also contributed to the success of the company in the global sphere as most people who are funs of the sports icons such as Lebron James and Michael Jordan (Hanrahan 16). Lack of ownership of physical factories where the firm produces its goods has worked to the advantage of the company. This is because Nike has the ability to move its production centers and franchise at any time without any loss or inconveniences caused to the manufacturing processes. The operation of chain stores around the world has also made it easy for the company to reach its worldwide consumers with ease. These chain stores such as Nike town has increased the sales made by the company as more of its products are brought closer to the consumers. The presence of a strong and efficient and development departments have made it possible for Nike to evaluate the market dynamics and factors that affects the sales of their products. This has been attributed to the continuous success of its products every time they are introduced into the market. The company also has a great brand loyalty among the prominent sports personality and this has also increased its international presence and sales (Drago 116). Diversification is one of the major strengths of most companies that keep them afloat and relevant in the market for an extended period. Nike lacks diversification, as its products are majorly concentrated in the sporting sector where they produce sportswear, apparel and equipments. This exposes the company to losses that may arise from low sales due to off seasons or even competition from other producers of sportswear. In their quest for reduced cost of production and increased profitability, Nike has established contracts with other companies especially in Asia. These companies have been accused of using child labors to produce Nike products at a lower cost which is ethical incorrect. This has led to increased boycott of Nike products by people who feel that the company exploits the miserable conditions of people in the developing nations (Drago 113). Despite low costs of production in the Asian countries, Nike products have continued to sell at a very high rate as compared to other products like Adidas and Reebok. This has led to a reduction in sales and brand loyalties as consumers shift their allegiance to other cost effective products and substitutes. Uncoordinated and unnecessary for expansion of Nike into markets that do not see the value of their products is another weakness of the company. Most of these markets are not the best markets for Nike’s products and this has resulted into significant losses for the company. Nike Strategic choice The strategies that have been adopted by Nike have contributed to immense success and development to become one of the major sportswear distributors around the world. Some of the approaches that the company has employed as part of its strategies have been the focal point of criticism and attack by global human rights groups. This section provides a critical evaluation of the strategic measures adopted by the company that has contributed to its immense growth. One of the major strategic advantages of Nike is its establishment of a department to evaluate its standard and market potentials. This enables the companies evaluate its strengths and weaknesses in comparison to other competitors, the ethics used by Nike include return on investments, assets among others. The continuous evaluation of the performance standards of the organization provides a better platform for the company to make any corrections to deviations that may arise from the productions processes. This strategy has enabled Nike to continue producing high quality products, which meet the expectations of the consumers (Harrison and Scorse 9). Nike’s marketing and promotional strategies have also enabled the company to continue maintain its consumer base especially in the united states as compared to its competitors. As a major marketing and sales tools, Nike adopted the use of technology in its distribution and sales in 1999 long before its competitors could see the opportunity. This resulted into the creation of e-commerce website which enables it interact with its consumers from across the world directly. The company also increased its internet presence as part of its internet marketing strategy when it’s launched the NIKEiD online platform that enables its consumers to design key elements of the shows they purchase. This strategy allowed the company to incorporate the views of its consumers on the design and nature of their products thus leading to the production of customized products that meet specific demands of the consumers (“NIKE, Inc, SWOT analysis” 48). The use of franchises in its production chains is also another strategy that is employed by Nike to help it eliminate any cost that it may accrue during the production process. As a result, the company has geographically dispersed production points, which enables the organization, achieve its mission statement which strives towards the provision of quality sportswear globally. These production facilities are located in areas, which are closer to the sources of raw materials which enables the organization reduce costs associated with transport of materials to the production centers. Nike business strategy is summed in the statement of its management team, which seeks “to distribute low cost, high quality Japanese athletic shoes to American consumers in an attempt to break Germany dominance of the domestic industry”. This the company achieves through production of quality products, constant innovation and production of new ideas which can be patented and aggressive marketing to increase the company’s presence in the international market (Harrison and Scorse 6). The company has also adopted a sound branding strategy that has enabled Nike maintain its international presence even in the presence of increased competition. The slogans include phrases, which act as a source of motivation to the athletes and other sports person around the world. The famous ‘just do it’ phrase is known and associated with Nike all over the world together with a ‘tick’ like logo. New slogans that the company has used in different situations include ‘you don’t win silver, you lose gold’ to motivate athletes to aim for the ultimate prices and give their bests (“NIKE accelerates sustainable…”). As earlier mentioned, Nike also has strong selling strategies that has contributed to the success of its products and increased sale volume in a year. Nike products are available all over the world in their flagship store Nike town shops, Naked and big retail discount stores. This distribution strategy has contributed to the increased international presence of the products manufactured by the company (“NIKE, Inc, SWOT analysis” 48). The human resource management strategy of Nike has been famously referred to as the sweatshop labor system, a strategy that created increased public outcry and assassination of the organizations public image. This strategy has been criticized due to the belief that it results into the use of cheap labor for goods whose value are quite high. This strategy has been made possible due to the geographical diversification manufacturing strategy adopted by the company. Nike has also adopted a sustainability strategy in its global business operation to enable it compete favorably for the scarce natural resources and inputs. This program is also meant to cushion the organization against the negative effects of the rising energy costs and impacts of green house gas emission to the environment. In line with this, the company seeks to establish a sustainable business that creates value for Nike and its stakeholders to increase profitability and competition for the scarce natural resources. This strategy is based on the organization’s trend of continual assessment of trends and materiality for the company and the changes that impacts on the business (Harrison and Scorse 6). Nike has low corporate level strategies due to lack of diversification of its products into other areas of fashion that may increase the revenues of the company. Nike’s major sources of income are the shoes and the sports apparels that the company produces and this forces the company to employ its distribution channels, technological advancement and other resources in its corporate level strategies. The current global and financial crisis has increased the need for diversification for Nike should it intends to remain afloat and profitable in the industry (“NIKE, Inc, SWOT analysis” 233). Nike’s business level strategies are based on segmentation of its products in different ways that remain appealing and relevant to the consumers. These segments are done with special and significant considerations given for each group through emphasis on the capabilities, sociological needs and design preferences. Strategic recommendations One of the major causes of concern that has impacted negatively on the company’s performance has been Nike’s adoption of sweatshops for the production of its services. Despite the low cost of production that this strategy provides Nike with, it has led to significant loss of reputation in the international arena. Sweatshops are known to abuse labor laws and use cheap child labor despite that being against the international labor requirements. Any organization that is associated with increased labor gross misconduct receives negative international recognition that affects it sales and reputation. As a company that relies on brand loyalty, reputation is of essence especially if the organization will require the input of international and respected celebrities to endorse their products (Harrison and Scorse 6). As a way increasing sales and improving on its corporate level business strategy, Nike should seek to diversify its products and enter into other areas of productions. Opportunities are currently available in production of fashion sportswear, sport ornaments and accessories. This will be beneficial especially with increasing global economic meltdown that could affect the company’s profitability. Competition with other organizations like Reebok and Adidas for the sports market also reduces the company’s control of the market thus reducing its sales considerably. This further strengthens the need for diversification and manufacturing other products apart from sportswear and equipments (Drago 113). Conclusions In the face of ethical accusation and the use of sweatshops to produce its products, Nike argued that it had no control over the companies it had franchised to produce its products. Furthermore, these companies were operating in other countries where Nike could not directly control the working conditions and payment levels for the employees. This not satisfies the rights groups who continued to portray the image of the company in bad light. This showed that Nike should have power and control over companies that produces its products to help reduce any cases of violation of labor laws, which can interfere with its image internationally. Despite the geographical distribution of its production centers being a sound idea, the company must ensure that it adopts policies and revise is contractual engagement with these companies to improve the working conditions of their employees. Nike has however made steps that have enabled it to remain of the market leaders in the sportswear industry. Works cited Hanrahan, William. Business environment audit critically assess the strategic direction of the Nike brand. 2004. Web. 18 August 2013 Harrison, Ann and Scorse, Jason. The Nike effect: anti-sweatshop activities and labor market outcomes in Indonesia. 2004. Web. 18 August 2013 Drago, Jason. Nike Inc. St. john’s university equity research and investment. 2004. Web. 18 August 2013 http://www.stjohns.edu/media/3/8b8c77f043ab4fd1aeb26873f5f006c8.pdf “NIKE, Inc, SWOT analysis”. Research and markets Web. 2013. 18 August 2013 “NIKE accelerates sustainable textile commitment by pertaining with Bluesign technologies”. Business wire. 2013. Web. 18 August 2013 Read More