International Business: Nike - Case Study Example

Summary The strategic and operational challenges facing global managers are to decide how to monitor international factories to ensure that they are consistent with the International Labor Organization's outlined recommendations, as well as understand that individual country laws do not always have or reflect a concern for the human rights of its workforce and citizens, and countries that do have laws in place may not be able to enforce them. It then becomes the company's responsibility, as long as the company is paying for and earning from the workers, to ensure that there is an adequate standard of living set in place, and to have a specific policy to address global manufacturing and employees. Nike has changed its course of action in recent years from one of sheer denial and arguments to one of policy and change. The fact that the company responded only to global media pressure and the fact that standards only changed in Indonesia because of workers strikes and consumer pressure leave something to be desired about the ethical standards of Nike. However, it is important to recognize that Nike did change, though the implementation of the 1997 policies, almost ten years later, are not fully in effect. 1. Should Nike be held responsible for working conditions in foreign factories that it does not own, but where subcontractors make products for Nike? Nike should be held ethically responsible for the working conditions in foreign factories of subcontractors. In a business decision, regardless of the international boundaries, it is important to follow a certain level of ethical standards. While it is impossible to judge if Nike absolutely knew of the sub-standard conditions, it is logical to assume that Nike could not have ignored the possibility, regardless of the information from Mr. Young, who said that the conditions were adequate in the factories. Yet, in countries where minimum age and working condition laws are not contusive to an appropriate and healthy lifestyle, Nike, by simple association, should maintain a level of dignity for their products. However, the legalities of the situation become more intricate for Nike, being an American based business, subcontracts to (mainly) Asian factories. In 1992, Nike implemented a Memorandum that "required its subcontractors to comply with local laws regulating wages and working conditions and mandated that documentation of compliance with the Memorandum be maintained for Nike's inspection," and "required subcontractors to adhere to environmentally safe practices and to certify that they did not discriminate on the basis of gender, race, religion, age, ethnic origin, or sexual orientation," yet by 1997 the subcontractors in question were obviously ignoring the Memorandum (Shaw p 6 1999). The fact that Nike created this Memo shows that in early years, the company was knowledgeable of the situation—otherwise, there would not have been a reason to respond (via the Memorandum) to negative media attention. The fact that Nike shows a response based on findings and media attention furthers the idea that they should be held legally, on an international basis, for their business practices—even those that fall under the laws of other countries. 2. What labor standards regarding safety, working conditions, overtime, and the like should Nike hold foreign factories to: those prevailing in that country, or those prevailing in the United States? In 1997, the ILO (International Labor Organizations 268th Session Geneva 1997) at a Geneva Convention outlined the need for international labor laws to prevent the mistreatment of workers and, especially of children: (a) freedom of association and the effective recognition of the right to collective bargaining; (b) the elimination of all forms of forced or compulsory labour; (c) the effective abolition of child labour; and (d) the elimination of discrimination in respect of employment and occupation. On that note, the shoes Nike sells from eighty to one-hundred and fifty dollars costs anywhere from twelve cents to five dollars to manufacture (Shaw 1999). Nike, being a multi billion dollar per year industry, can certainly afford to enhance the living and working conditions of its laborers abroad. Nike must force subcontracted factories and owned factories to the US standards of safety, overtime, health and working conditions. However, in the case of wages, US minimums are significantly higher than most third world countries Nike works in. If Nike were to increase the wages to US standards, they would find their revenue drastically decreased. Therefore, it is necessary for Nike to establish wages in each individual nation that are adequate to meet the cost of living for each nation, while following the working conditions the ILO and US laws state. 3. An income of $2.28 a day, the base pay of Nike factory workers in Indonesia, is double the daily income of about half the working population. Half of all adults in Indonesia are farmers, who receive less than $1 a day. Given this, is it correct to criticize Nike for the low pay rates of its subcontractors in Indonesia? It is correct to criticize Nike for the low pay rates in Indonesia regardless of the daily income of the country, because the workers simply can not afford to live. In 1998, Media Benjamin (p 1) studies fifty of Nike's Indonesian workers with the following results: While workers producing Nike shoes were low paid before their currency, the rupiah, began plummeting in late 1997, the dollar value of their wages has dropped from $2.47/day in 1997 to 80 cents/day in 1998. Meanwhile, the prices of basic goods have sky-rocketed. Workers reported that they had received a 15 percent pay raise earlier this year, meaning that their base salary had increased from about Rp. 175,000 per month (approximately $17) to about Rp. 200,000 per month (approximately $20). However, they estimated that their cost of living had gone up anywhere from 100 to 300 percent. Irregardless of what the average income is, the cost of living increased, and pay did not increase to meet the standard needs of Nike workers. Nike should develop and understanding for the average cost of living increases and pay accordingly, regardless of what wages are across the nation. Also, in regards to farming, a farmer has the ability to grow his own food and generally lives or works on the farm. Factory workers are inner city, and generally tend to pay for rent and food; therefore costs of living are higher. That is not to say that a farmer needs less or does not deserve as much. Furthermore, while the farming is 46% of Indonesia's labor market, and industry is only 11 %, the factory/labor industry is 30% of the countries gross domestic product, and farming/agriculture is only 14 % (Central Intelligence Agency Indonesia 2006). This shows the reason why the average income is so low. Farming has a low impact on gross domestic product, where industry has the highest, regardless of how many workers are in each. Therefore, it is almost illogical to compare factory wages with farm wages, because there is such a wide difference in the ratios of economic impact to workers between farming and industrial. 4. Could Nike have handled the negative publicity over sweatshops better? What might it have done differently, not just from a public relations perspective, but also from a policy perspective? Nike could have handled the negative publicity over sweatshops much differently, with a positive and educational policy and public relationship instead of ignoring, side stepping and denying the issues. Mr. Knight's media relations were adequate and placating, but also called out as being "Nike’s policies were an improvement, one critic writing in the New York Times noted: Mr. Knight’s child labor initiative is . . . a smoke screen," because Nike's problem was not in child labor law, that was Kathy Lee Gifford's problem. Nike's international labor issue was the conditions and sacrifices the workers made for two meals a day. Nike should have addressed the exact issues they were being accused of, point by point. To do otherwise simply created confusion and negative media attention for the shoe company. Secondly, Mr. Knight's withdrawal of millions of dollars to Universities who stood against the abuse of international workers was a terrible decision. If, in fact, Nike had desired positive media attention, the company should have welcomed this approach and not only met with the leaders of adversary organizations, but formulated and publicized a documented plan that (1) Improved the working conditions for all 300,000 international laborers and (2) formulated an educational partnership that focused on ethics and international business conduct. The fact that Nike withdrew their funding showed only that the company was not willing to alter its functions or labor practices, and further showed that the company was not interested in the development of international business students on any ethical or lawful manner. The company was only seeking to further its bottom line, even though it was already one of the sixth most valuable companies in the nation. It is no wonder that in recent years, from the onslaught of negative attention, Nike's stock prices fell from a high of 78$ per share to a low of 45$ per share, all of which could have been avoided has the company maintained a positive, engaging, and honest media and educational commitment to international business and labor conduct. 5. Do you think Nike needs to make any changes to its current policy? If so what? Should Nike make changes even if they hinder the ability of the company to compete? Nike's 1997 policy does not need changes, specifically. Its current publicized policy is outlined by the ILO (International Labor Organization 2002) as having the following traits: 1. Forced Labor (Contractor) certifies that it does not use any forced labor - prison, indentured, bonded or otherwise. 2. Child Labor (Contractor) certifies it does not employ any person under the minimum age established by local law, or the age at which compulsory schooling has ended, whichever is greater, but in no case under the age of 14. 3. Compensation (Contractor) certifies that it pays at least the minimum total compensation required by local law, including all mandated wages, allowances and benefits. 4. Benefits (Contractor) certifies that it complies with all provisions for legally mandated benefits, including but not limited to housing; meals; transportation and other allowances; health care; child care; sick leave; emergency leave; pregnancy and menstrual leave; vacation, religious, bereavement and holiday leave; and contributions for social security, life, health, worker's compensation and other insurance. 5. Hours of Work/Overtime (Contractor) certifies that it complies with legally mandated work hours; uses overtime only when employees are fully compensated according to local law; informs the employee at the time of hiring if mandatory overtime is a condition of employment; and, on a regularly scheduled basis, provides one day off in seven, and requires no more than 60 hours of work per week, or complies with local limits if they are lower. 6. Health and Safety (Contractor) certifies that it has written health and safety guidelines, including those applying to employee residential facilities, where applicable; and that it has agreed in writing to comply with NIKE's factory/vendor health and safety standards. 7. Environment (Contractor) certifies that it complies with applicable country environmental regulations; and that it has agreed in writing to comply with NIKE's specific vendor/factory environmental policies and procedures, which are based on the concept of continuous improvement in processes and programs to reduce the impact on the environment. 8. Documentation and Inspection (Contractor) agrees to maintain on file such documentation as may be needed to demonstrate compliance with this Code of Conduct, and further agrees to make these documents available for NIKE or its designated auditor's inspection upon request. This policy is forthright and in accordance with the ILO's Geneva conventions previously noted. However, Nike still lacks the appropriate implementation of its policy as a global industry. Standards have improved, yes. But are they nearly good enough? Nike has a responsibility to the people it subcontracts to and employs to ensure that the policy is consistently and adequately followed for all of its employees. This policy should be enforced by Nike, regardless of the cost, if simply on an ethical and moral basis, but more so, the policy should be enforced to further the industrialization and growth of the countries where Nike employs so many citizens. Nike, being an international company, has a responsibility to the business communities. Cost in this area is only an excuse, there are many companies, Dell, for instance, that are able to adhere to appropriate human rights policies and compete effectively. This is about a balance in profit and ethics, to ignore one is to defy the other, not enhance it. 6. Is the WRC right to argue that the FLA is a tool of industry? The WRC is correct to argue that the FLA is a tool of industry, because "The FLA represents a multi-stakeholder coalition of companies, universities and NGOs. The FLA accredits monitors to conduct independent external monitoring of facilities used by companies participating in the FLA" (Fair Labor Association 2003). The FLA states in its Codes of Conduct that the monitoring methodology allows children to be employed at the age of 14 or younger as the country of the manufacturer allows; it requires the payment of at least the minimum wage of the country; limits overtime by the laws of the country and overtime pay by the laws of the country. It has been established that the laws of a country are not always profound in growth and human rights, in fact, in many countries, the laws are deplorable and uncaring regarding the plight of the workers (Fair Labor Association 2003). Nike, for example, did not violate the laws of the country it was manufacturing in, but there were still sub standard conditions by any measurement. In contrast, the WRC is "a non-profit organization created by college and university administrations, students and labor rights experts," with the purpose to "assist in the enforcement of manufacturing Codes of Conduct adopted by colleges and universities; these Codes are designed to ensure that factories producing clothing and other goods bearing college and university names respect the basic rights of workers" (Workers Rights Consortium 2006). There is, first off, a large difference between these two organizations. The FLA is based on manufacturers and governments, where the WRC is non-profit and university based. The WRC states that there are many issues with the FLA Codes of Conduct above, that FLA allows "below poverty wages by supporting laws that are deliberately set below subsistence to attract foreign investment;" it allows overtime to be based on inadequate laws and makes a 60 hour work week the norm; overtime compensation is inadequate and only advised at a legal rate—some countries do not have a 'legal' rate for overtime, if any rate of overtime (Global Justice Project, Boston College, 2006) In conclusion, the most disturbing point of the FLA is that it allows: Under the SA8000 and FLA initiatives, companies choose and hire social auditors—private sector firms or NGOs—from those accredited by the program. Companies have the option of choosing NGOs, but it is not required. The FLA allows companies to choose and hire auditors from private sectors or social auditors. There is no definition of the auditors behavior, and this opens the door for bribery, ignorance and flagrant disregard. The fact that FLA's entire Code of Conduct is based on each separate countries laws is indicative that the organization is not interested in global human rights, but adherence to laws that may be non-existent, inadequate, and allow for complete disregard for workers' rights. This also, as noted above, allows countries with poor and substandard conditions to employ children younger than 14, or pay no overtime—simply based on that countries law. Human and worker rights are not about established law, it is about the fundamental right every person in the world has to pursue happiness and live free from bondage. The FLA has sorely missed that mark, and the WRC should call them on those points, argue the Code, until changes are made that benefit the workers. 7. If sweatshops are a global problem, what might be a global solution to this problem? Foremost, education and voicing the problem are the only way to set up any global solution. The education of third world countries and corporate stakeholders on economic viability, human rights and worker conditions can have a tremendous affect on the standards. A country will not alter its laws unless there is a reason too, in this manner, educational and developmental assistance should be given to countries with substandard human rights laws to change those laws and enforce better working conditions. The fact is that as long as the country allows for corporations to treat their citizens as less than human, the corporations will continue to do so. If a country can understand why and how to enforce and alter its laws, for the betterment of its citizens in wages, education and rights, then there will be a huge step in the right direction. The ILO, FLA and WRC have codes of conduct, they have in place regulations to improve the facilitation of international workers, but there is no commitment or pressure from many countries and corporations. Enforcing these codes can not be done by brute strength or by forced cuts of trade. Instead, it must be approached from a holistic view that includes the economic growth and development as well as education, for the goal to better the specific country, and not the corporation. References Benjamin, Media (1998) Wages and Living Expenses for Nike Workers in Indonesia, Clean Clothes Campaign. Retrieved June 16, 2006 from www.cleanclothes.org Central Intelligence Agency (2006) Country Profile: Indonesia. Online Fact Book Retrieved June 16, 2006 from www.cia.gov Hill, Charles WL (2004) Country Factors Case: Nike: The Sweatshop Debate The McGraw−Hill Companies Hill Charles WL (2005) Nike: The Sweatshop Debate Hill: International Business: Competing in the Global Marketplace, Fifth Edition McGraw-Hill Irwin International Labor Organization (2002) NIKE's Code of Conduct. Retrieved June 16, 2006 from www.ilo.org International Labor Organizations (1997) Committee on Sectoral and Technical Meetings and Related Issues 268th Session Geneva Retrieved June 16, 2006 from www.ilo.org Shaw, Randy (1999) Reclaiming America Nike, Clean Air, and the New National Activism The University of California Press, The Regents of the University of California The Global Justice Project (2006) A Comparative Look: FLA vs. WRC. Boston College Student Club Retrieved June 16, 2006 from www.bc.edu Worker's Rights Consortium (2006) Organizations and Projects Addressing Labor Rights Issues Retrieved June 16, 2006 from www. workersrights.org Fair Labor Association (2003) Codes of Conduct. Fair Labor Association - 1505 22nd Street, NW - Washington, DC 20037 Retrieved June 16, 2006 from www.fairlabor.org Read More