Nike Corporation - Case Study Example

1.0 Introduction Nike conjures a phenomenon that is exciting, symbolising speed and manoeuvrability. The invokes the leaping image of Michael Johnson, a formidable name in sports. Its appeal is worldwide in many other sporting events that the company sponsors and in the quality and range of its varied sports products, especially shoes. Nike had a humble beginning with its principal owner and founder selling his wares personally. Fortune favours the brave and Nike is a now multinational and a major in the shoes and sportswear Industry, far above all its rivals. Presently Nike controls roughly 44% of the industry, more than Adidas and Reebok combined. When Nike sets a standard, the industry follows it like a tradition. In the consumer products industry there are two distinct marketing strategies. One is make to sell and the other is make to order. Everyone starts with the make to sell strategy by offering products they think should be bought by consumers. The focus is more on sales than on production. The risk is enormous and the fear of rejection is immense. With passage of time and a better knowledge of preferences manufacturing evolves towards the made to order strategy where the focus shifts to production capability and costs as the demand is now better known and the fear of rejection is almost eliminated. This now opens the avenues of larger markets including globalisation. 2.0 Globalisation To become a Global Player critical mass is a must for any multi-national company. This is the evaluation tool to find a company’s capability to survive both financially as well as exponentially. Global Distribution Network and economies of scale are the two key factors for ensuring success. Continuous availability of the product is a very important factor and this is possible by having a competent retail outlet set-up. Equally important is the supply chain and it must be geared up for local supplies at short notices. Lack of these facilities will result in loss of market and inhibit market penetration and dominance. In addition, achieving economies of scale through minimizing manufacturing costs is necessary for manufacturers to meet their financial goals and to erect a barrier for competition to encroach their markets via prices. The success of a business depends on how effectively a company uses its resources and maximizes production as per the market needs to meet its targets. In order to maximize one’s own production and profitability in business, it is essential that comprehensive planning on location of its production facilities is done to realize the benefits. For Nike this global expansion has another angle, the high cost of its products. Not everyone can afford American and European prices, so the price had to be brought down to acceptable levels for different market segments in different countries. This meant cost cutting which was not possible in US and Europe. They adopted the concept of local manufacturing at local rates for local markets. To get permission was tough in some cases even in the underdeveloped world, and a scheme was cleverly devised in form of manufacturing through partners for overseas markets. This satisfied the dollar starved economies of South Asia and cheap and abundant labour became available for mass production. Above all it improved the bottom line to the great satisfaction of the shareholders, the only stakeholder the company felt the need to please. 3.0 Global Production Strategy Nike followed the offshore outsource manufacturing strategy. The company subcontracted manufacturing through franchise and licensing method to enhance its manufacturing operations. This made exploitation of cheap labour simple. This is a combination of the centralization and specialization strategy. The partners followed the common production pattern but applied their local laws for the hiring process. If these partners were to pay western wages and provide amenities to their workers then they would out-price themselves. This pattern therefore suited both very well. 4.0 The Vigilantes These acts of commission and omission did not go entirely unnoticed. An Australian NGO Educating for Justice highlighted the problems and various Human Right Violations by Nike and its global partners. This was followed by other reports: Worker Rights Consortium report on Nike factory in Thailand (October 2004) Recent Worker Rights Consortium report on Nike factory in China (September 2004), including Educating For Justices Response Gap and Nike: No Sweat? (October 2000) - The BBC looks at a factory in Cambodia producing for Nike and Gap Industrial Embroidery (August 2003) - National Labour Committee reports on factory conditions in Honduras where Nike, Gap, Old Navy and Polo goods are produced La Lucha Sigue (July 2001) - A report by Centro de Apoyo al Trabajador and the Collegiate Apparel Research Initiative giving a collection of interviews on the life, work and struggle of workers at the Kuk Dong Factory, a Reebok and Nike contract factory in Puebla, Mexico. When the plight of workers became known throughout the western world; the public became aware and concerned. Since these partners were typically independent companies located in various Asian countries therefore Nike still claimed that it had nothing to do with exploitation of labour and still enjoy the benefit of lowered production costs. When the voices became more pronounced, Nike either claimed ignorance or shrugged it off as a local problem. Things came to a head in late nineties when several cases were reported and under great public hue and cry Nike was forced to mend its ways. It did so reluctantly and very slowly but it was a beginning. 5.0 The Ethical Dilemma It is becoming evident to business in America that ethical values need to be upheld and become institutionalized (Sims 1991) as this is the desired status by society in general. Normally, ethics is understood to be the underlying values attached to an activity. There may be laws and rules enforceable by a regulatory authority that defines ethics but in some cases it is defined by morally acceptable unwritten customs. The concept is drawn from the basic ideals of what is right or wrong within the meaning of the activity under question. It is commonly understood that laws shape the role of business, but in broader perspective it is the contribution of the business, by virtue of its varying role-play, to shape future laws and forms of regulatory activities. They also help in the evolution of business ethics when they cross the boundaries to set new rules for themselves. It would not be far-fetched to state the contributions by business towards law-making are enormous. It has a tremendous impact on the society in general. In counteraction the society too plays a vital role by accepting, modifying or rejecting these activities and re-defining the role of business ethics. If we work on the premise that business ethics begins where the law ends then under the force of globalization the country of origin’s laws and financial regulations are not applicable and the demand of business ethics increases as the companies are beyond the control of the national governments. (Scholte 2000). Indeed in the absence of International laws and Global Regulations, businesses themselves form regulatory business ethics through self-regulation, global codes of conduct, ethical sourcing etc (Ronit 2001; Cashore 2002). 6.0 Defining Ethics Ethical theories are all about morals. Among the many theories two ethical systems stand out. They are the Utilitarian theory and the Deontological theory. Utilitarianism was first propagated by Jeremy Bentham (1789) and John Stuart Mill (1806-1873) who believed in ethics of consequences meaning that an action is good if it produces the greatest good for the greatest number. This has also been called as the consequential theory. (Boxill). In his book Utilitarianism, Mills states that that happiness is not only desirable, but the only thing desirable, as an end in itself. For all other desirable things, happiness is a means to that end. This is also referred to as the "Greatest Happiness Principle." There are three main events under this theory. First all actions must be judged from the consequence of the actions. Secondly, the judgment is about the quantum of happiness these actions have generated. Lastly, each person’s welfare is equally important and actions must be directed to this objective. There are two sub theories of Utilitarianism. Van Wyck (1990) explains that under Act Utilitarianism theory the view taken is that a right action is one that is also chosen by another individual, and the common intention is to produce at least the same good result. Under this theory an action is taken for the larger good even if it means abandoning or ignoring a rule or set of rules. In other words ends justify the means. The proponents of the other theory called Rule Utilitarianism believe firmly in observing rule and not encroaching on others happiness even if the happiness of a larger group is likely to be affected. This means that rules are meant to be followed to preserve sense and balance in a society. The other group called Deontological theory hold that obligations must be followed irrespective of consequences. Deontologists insist that actions are morally in the wrong not because of their consequences, but because fundamentally these actions are a moral violation (Boxill). Morally right mans approved by God and morally wrong means disapproved by God. The will of God is the arbiter of right or wrong. (Rachels 1986). This ethics is simple and straight forward and right and wrong depend on the Will of God. In 1907 Henry Sidgwick expanded the Greatest Happiness principle to conclude that welfare of the people was more paramount than mere happiness. He felt that utilitarianism could be used to balance the morality of “common sense:” In effect Sidgwick attempted to bring utilitarianism into mainstream thinking of other less philosophical theories on ethics. 7.0 Fair Trade The emphasis on Fair Trade is generally consumer driven.  There is research that 25% people are making their decisions on social and ethical issues rather than price (Otacnet). This percentage is big but not significant enough to change the cmpanies who have larger patronage from people who look for bargains and discounts and have little concern of the source. Unless the consumer feels strongly about it, out of concern or guilt, not much will change. It is futile to expect the retailers and Multinationals to go out of their way and change the situation by adopting ethical habits. They will do so only when compelled by consumer movements. The Multinationals have a larger stake as they are in the eye of the storm both from consumers and governmental regulators, egged on by the NGO’s. They do take confirmative action but the idea is more to appease the noise makers. They care to the extent to which they can get away with the exercise without damage to their bottom lines. 7.0 Conclusions Business is all about making money. The catalyst for capitalism is free trade and profit. The target is the consumer who has a bigger purse ensured by liberal consumer credit available to him. The driver is competition and at the end of the day it is the cost of the product that decides who makes the most profit by exploitation of some worker who will accept any pittance to survive. The Nike case brings ethics and fair trade to the fore. There are so many facets to each of them that it is difficult to say who is wrong. The conclusion drawn from the above discourse is rather confusing if not disturbing. Can it be said that it is wrong for Nike to earn better profits for its shareholders? Under the capitalist society they deserve the best possible return on investments. Can it be said that the consumers should not get the benefit of lower prices? Why should they be denied the benefit of low costs? Can it be said that the third world worker be denied this low wage just because his counterpart elsewhere enjoys a higher wage and better amenities? What is better for him; to starve or to get subsistence level of wages? Ethics indeed makes room for strange bedfellows. 8.0 Bibliography Bentham, Jeremy., (1789), The Principles of Morals and Legislation, London, Oxford Boxill, Jan., (1993),"Coursepack: Phil 034, Bioethics," The University of North Carolina. Cashore, B.: 2002. Legitimacy and the privatization of environmental governance: how non-state market-driven (NSMD) governance systems gain rule-making authority, Governance 15(4), 503-529. Mill, John Stuart., “Utilitarianism” in The Basic Writings of John Stuart Mill, (New York: The Modern Library, reprint 2002 Rachels, James., (1986)."The Elements of Moral Philosophy," Random House,Inc. New York Ronit, K., (2001), Institutions of private authority in global governance, Administration & Society 33(5), 555-578.; Sims, Ronald R. "The Institutionalization of Organizational Ethics”, Journal of Business Ethics, 1991, 10, 493-507 Sidwick, Henry., (1907) The Methods of Ethics, (Indianapolis and Cambridge:Hackett Publishing Company, republished 1981 Scholte,J.A.,(2000), Globalization: A critical introduction (Palgrave, Basingstoke). Van Wyck, Robert., (1990), "Introduction to Ethics," St. Martins Press, Inc. New York, 9.0 World Wide Web Educating for Justice’s EFJ, Global Exchange, OXFAM ,Australia, and Press for Change Otacnet available at: http://www.otacnet.com.au/PageId/pg740476839edoras Read More