The Sweatshop Scandal Involving Nike in the Discussion of Impropriety in Overseas Factories - Coursework Example

Nike Corporation and the Sweatshop Scandal Introduction Increased cost of operations especially with regard to labour has led to many companies outsourcing some processes to third party contractors. Outsourcing has enable businesses to concentrate on areas they have competitive advantage in therefore preventing waste of resources on production of goods and services that can be made available from other organizations at a lower expense (Miller, 2009). One of the areas in which global corporations such as Nike has taken advantage is in manufacturing where these companies concentrate on designing and marketing of their products but involves third party contractors in manufacturing sportswear and apparel. Strict regulation of the labour industry in the USA and other developed countries means companies will have to incur increased cost of production. Therefore, developing countries in regions such as Asia has provided the necessary conditions for businesses to increase their production capacity while reducing cost of production. This has also provided global corporations with an avenue where they enjoy markets in developed countries but avoid the stringent rules and regulations in home countries. While corporations have succeeded in the cost of labour, there has been significant media spotlight on the operations of factories contracted to provide various services with evidence indicating widespread irregularities in labour practices. This report will focus on sweatshop scandal involving Nike in discussion of impropriety in overseas factories while also examining the situation from different stakeholders’ point of view. The ethical problem in this situation is also highlighted based on the argument that Nike concentrated on making profits while neglecting what was right for the workers in the factories. Suggestions are also presented on why attempts to remedy the situation were not effective while also noting how Nike should have reacted to the scandal. Background to the Problem The sweatshop scandal involving Nike involves perceived wrongdoings in the organization’s labour practices for a period between 1991 and 2005. The scandal went public tarnishing Nike’s image build on offering high quality products in the sportswear and apparel industry. As an organization that aims to be the best in the industry, Nike’s strategy involves outsourcing various functions and manufacturing capabilities in order to reduce cost and focus on effective marketing strategy for organizational products (Vogel, 2006). Therefore, their outsourcing strategy led to the sweatshop scandal as a number of contractors in countries such as Bangladesh, China, Indonesia and Vietnam. The sweatshop scandal started when the company, reacting to increased costs of operations in countries such as Taiwan and Korea, which had seen an increasing in agitation by labour union, recommended contractors to explore further opportunities in countries such as Vietnam, Indonesia and China. In early 1991, media reports emerged on the treatment of employees in many of the factories in Indonesia with the main whistle blower, Ballinger reporting about low wages earned by workers. It was alleged that apart from workers receiving only 19 cents per hour, female employees were locked inside their dormitories until Sunday with permission from management (Verbeke, 2013). The management of these factories have also been accused of encouraging abusing of workers through calling them names, slapping and kicking them (Huffington Post, 2011). Apart from the working conditions in these factories, there were also issues related to child labour with many of the factories breaking regulations on acceptable age for employment. When these allegations become public, various groups become concerned with the abuse taking place in the factories. Civil society organizations and consumer groups sought to pressure Nike into forcing contractors to change their labour practices with organizations such as the Workers Rights Consortium (WRC) and Oxfram Community Aid Abroad leading these efforts. Student groups and universities also took part in initiatives to bring change especially since universities were important consumer segment in bulk purchases. To increase pressure on Nike, these groups were involved in awareness activities such as protests in front of Nike town stores, distribute flyers, and advocating for boycott of Nike sportswear and apparel. Bulk purchasers such as universities demanded products with their logos to be produced in factories that adhere to labour requirements. These efforts were undertaken to raise public awareness about the conditions of workers in contractor factories and to encourage mass boycott of products until effective measures were put in place to correct the situation (Nisen, 2013). Introduction of Measures to End the Sweatshop Scandal When the sweatshop scandal became public, Nike introduced a raft of measures to curb the widespread abuse in contractor factories. Initially, the organization increased promotional activities aimed at improving its image. Such efforts included expansion of Nike town retail stores and increased media presence of spokespersons. However, this did not prove effective as protestors camped outside the stores while spokespersons such as Michael Jordan were put to task by media houses to explain what Nike was doing to tackle the issue. Further, these efforts were not effective in dealing with the situation as there were still further reports of abuse where for instance a Vietnamese sub-contractor was accused of ran women outside until they fell because of not wearing regulation shoes (Nisen, 2013). Additional efforts to end the scandal included the use of an independent evaluation to provide an assessment of extend of the problem in the noted factories. Andrew Young, a career diplomat and activist was tasked with completing the evaluation processes which was to report on the labour practices of contractors from abroad factories. This effort also failed to produce desired outcomes due to a number of shortcomings in procedure used to collect information. Nike undertook to popularize the results of the Young’s report especially since its findings did not implicate Nike in the abuse of labour practices but largely blamed the contractors. Other stakeholders were however not satisfied with the manner in which the evaluation was conducted citing a number of areas that rendered its finding lacking in accuracy. Firstly, the report failed to tackle key areas such as low wages as well as visiting factories whilst accompanied by officials from Nike (Wagner, 2009). Therefore, these interventions demonstrated a lack of commitment by the organization in tackling the problem facing workers in different countries where it had sub-contracted various manufacturing operations. The result of this is that Nike was faced with a decline in volume of sales due to the increased criticism with the organization being forced to introduce cost-cutting measures such as retrenching workers to stay afloat. It is this ramification that indicated the reality facing Nike with the CEO Phil Knight acknowledging the company had failed to deal with the scandal in a decisive manner noting their products were associated with “slave wages, forced overtime, and arbitrary abuse” (Wagner 2009, p. 80) Among the areas in which Nike failed in its corporate strategy is focusing on cost rather than best practices in operations related to the organization. The corporate strategy was focused on cost-cutting positioning within organizational supply chain system with a focus on outsourcing. Therefore, Suppliers were selected based on their capability to provide required services using the lowest budget. Therefore, suppliers were encouraged to quote low prices for their bid to be accepted which then translated to their practices which had to conform to the budget for them to earn significant profit from the signed contract. Additionally, the result of this approach in supply chain is that suppliers become liable for shortcomings in areas such as late delivery or defects detected in products (Verbeke, 2013). However, continued highlights about the wrongdoings in contractor’s factories led to a number of changed in organizational corporate responsibility. Nike introduced more stringent measure in monitoring the contractors, which involve invoking the compliance Rating Criteria used in assessment of factory compliance with best practices related to provision of globally accepted standards for workers. Additionally, Nike introduced a more integrated supply chain strategy, which sought to improve relations with contractors. The contracts were lengthened to create more time for the company to establish an understanding with manufacturers and for the company to influence. Initially, it was easy for contactors not to comply with best practices due to short period of engagement with Nike, which meant a deep assessment was not conducted. Nike also adopted a lean manufacturing to ensure greater control over contractors through provision of on the job training. This was seen as an effective measure to encourage contractors maintains skilled employees through establishment of improved working conditions (Verbeke, 2013). Reasons for Nike’s Failure to Adequately Address the Issues The main reason for Nike’s failure to tackle the sweatshop scandal decisively is the approach taken by management in solving the situation. Nike failed to classify different aspects of the challenges faced in labour practices by the factories especially in relation to legal, ethical and economic assessment of the situation in different countries. For instance while the issue of child labour was largely an ethical problem, the company took a legal approach in solving it. Consequently, the organization chose to stick to general requirements in different countries with Nike setting the minimum age for factory workers at sixteen years (Wagner, 2009). However, Nike failed to impose restrictions for contractors in countries where it was legal for children of fourteen years to work in the factories. This was therefore perceived as a lack of commitment to improve ethical practices as many felt this still constituted child labour therefore unacceptable for factories of American corporations. Further, the minimum wage set for workers also reflects lack of commitment to improve the living standards of the workers. The company cited compliance with Fair Labor Association (FLA) to indicate compliance with the set guidelines on safeguarding working conditions in factories contracted to American companies (Nike, 2005). However, the formation of FLA was surrounded with controversies with some unions and the Interfaith Centre on Corporate Responsibility dissenting due to preserved lack of openness and fairness that made FLA a public rations ploy. The guidelines provided under FLA includes a requirement that companies must adhere to the minimum wage in countries where factories are present, however, this is still not satisfactory as it does not provide for wages that workers can live on. Most of the countries where these factories are located have suppressed their minimum wage in order to attract international investments. The result is that workers are legally paid wages that are far below what is enough for their subsistence. Therefore, while executive and shareholders of Nike enjoy high salaries and dividends, workers in factories making the sportswear and apparel can barely survive on their income (Beder, 2002). Further, while the code of conduct under FLA sought to limit forced overtime by insisting on below sixty hours per week as the acceptable standard, this still provided room for abuse by managers in the factories. The guidelines does not indicate a limit for voluntary overtime especially since workers can be coerced into accepting excessive working hours while indicating it was voluntary. The low wages also puts pressure on workers who need to significantly increase their working hours for them to earn sustainable income (Beder, 2002). Suggestion and Conclusion Therefore I perceive the failure of Nike to effectively deal with the sweatshop scandal in factories subcontracted to operators in overseas countries as being a result of neglecting ethical responsibilities of the company towards the workers. The management was only concerned with attaining the minimal legal requirements for labour practice in these countries without appreciating the importance of improved standards in the workplace. Nike’s corporate strategy was based on gaining the highest financial returns for executives and shareholders while neglecting the status of workers in subcontracted factories. It is my opinion that a shift to ethical considerations in Nike’s corporate social responsibility would have been an effective approach in dealing with the issue. From the analysis of this situation, it is evident that Nike is motivated by a quest to increase its profits for the company to remain competitive business environment where there are other global companies such as Adidas and Puma seeking to increase market share. Therefore increasing profits through cost-cutting initiatives such as relocating production to low cost countries become an essential undertaking by the organization. However, in looking for ways to cut costs the company should seek to strike a “balance between what is right and what is profitable” in order to propagate ethical practices in all aspects of organisational practices (Hill and Jones, 2012). Additionally, while making profits for shareholders, Nike should also be aware of its corporate social responsibly that should recognize the importance of communities in which it operates. Such recognition is important since will lay the foundation for improved labour practices. References Beder, S. Putting the Boot In. The Ecologist, 32(3), 24-28. Hill, C., & Jones, G., 2012. Strategic management: An integrated approach. Stamford, CT: Cengage Learning. Huffington Post, 2011. Nike Faces New Worker Abuse Claims In Indonesia. Available at: http://www.huffingtonpost.com/2011/07/13/nike-faces-new-worker-abuse-indonesia_n_896816.html [Accessed 05 Sept. 2014]. Miller, N., 2009. Outsourcing Through Rentacoder. Raleigh, North Carolina: Lulu.com Nike, 2005. Fair Labor Association accredits Nike compliance program. Available from: http://nikeinc.com/news/fair-labor-association-accredits-nike-compliance-program [Accessed 05 Sept. 2014]. Nisen, M., 2013. How Nike Solved Its Sweatshop Problem. Business Insider [Online], 9 May 2013. Available at: http://www.businessinsider.com/how-nike-solved-its-sweatshop-problem-2013-5 [Accessed 05 Sept. 2014]. Verbeke, A., 2013. International business strategy. Cambridge: Cambridge University Press. Vogel, D., 2006. The market for virtue: The potential and limits of corporate social responsibility. Washington, D.C.: Brookings Institution Press. Wagner, C. S., 2009. The new invisible college: Science for development. Washington, D.C.: Brookings Institution Press. Read More