Ethical Issues at Nike

3646 words (15 pages) Essay in Business Strategy

19/04/19 Business Strategy Reference this

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Business ethics has increasingly becoming one of the most contentious issues in today’s business society. Due to the globalisation of markets and production processes, an increasing number of Multi-National Companies (MNC) are having to deal with ethical issues in the different counties they are operating in (Dunn and Brooks, 2011). According to Archibong-Anyans (2015), a company’s reputation is dependent on its ethical practices which, in turn, helps to define a business model that can flourish over time even in adversity. In today’s business environment, however, every company is on a wild race to acquire a greater level of profit by using ‘shortcut’ means (McFarlin and Sweeny, 2015 pp309). As society wants companies to create better paying jobs and protect the environment, some organisations want to acquire more profit by engaging in activities that are not tolerated by society (Parboteeah and Cullen, 2013). Companies are also facing consumers with a growing desire to buy commodities at a lower price. As a result, most companies are facing the inevitable conflict arising in the concept of business ethics due to differences in the interests of business stake holders, shareholders and consumers (Archibong-Anyans, 2015). One such multinational corporation facing ethical challenges hence the focus of this essay is Nike Inc, a company originally founded in America.

Given the above, the following paper is going to examine the ethical challenges facing Nike Inc. and will critically evaluate the approaches the company has taken to tackle these issues. Furthermore, the paper will also make some recommendations in regard to how Nike should develop its approach to managing these ethical challenges and will evaluate the challenges that Nike faces in implementing the identified recommendations. 

Nike Inc. is a multinational American organisation that is known for its ability to design, manufacture and sell footwear-based products, gym accessories and sporting goods. Thus, Nike is considered as one of the largest shoe retailers worldwide (Sage, 2008), controlling approximately 36% of shoe market (Locke et al., 2007). With a revenue of $30 billion in 2015 alone, Nike was acknowledged as the 18th most valuable brand employing over 600,000 workers worldwide. It is, therefore, this which has given Nike the ability to open stores globally (Locke et al., 2007).

Despite the organisations growing success, Nike has been inundated with criticism since the 1990s regarding the unethical treatment of employees overseas and its impact on the environment (Wazir, 2001). As well as this, there is evidence to suggest that Nike has failed to meet consumer/stakeholder needs in relation to corporate social responsibility; therefore, reducing customer-brand loyalty and consumer trust. Regardless of the effort put in place to overcome these issues, Nike still faces ethical problems on a daily basis, primarily relating to child labour, social injustice, uneducated workers, workplace abuse and poor employment pay levels (Wazir, 2001). Thus, this essay is going to focus on three ethical issues faced by Nike Inc., its stakeholders, and society in general.   

The first ethical issue involves the use of sweatshops – a factory whereby manual workers are employed at very low wages for long working hours and under very poor conditions (Powell and Zwolinski, 2011). Since 1996, Nike has been critiqued for manufacturing its products Indonesian, Mexican, Chinese, Vietnamese-based sweatshops. Many workers were found to have been subdued to minimum wage and long overtime hours; issues which violated laws put in place to protect workers (Greenburg and Knight, 2006). Despite denying such issues, the company continued to be subjected to critical exposure for deprived working conditions and the exploitation of cheap labour. It is only through the establishment of campaigns which has led to organisational changes, strategically and ethically, in both the USA and UK (Powell and Skarbek, 2006).

Following the identification of sweatshop issues in 1996, Nike critically assessed its factories in order to detect the horrific conditions in place, and found that all factories had no drinkable water and had high toxic chemical concentrations – above the permitted levels deemed as ethical. By 2001, Nike had been exposed for its poor treatment of employees who faced poverty, harassment and in some cases, violent intimidation (Wazir, 2001). Further strategic changes to improve these conditions failed, when employees were found to still be subjected to unsanitary conditions and excessive working hours; thus, going against an employee’s living needs.

In a bid to overcome these ethical issues, Nike published a report regarding factories where employees manually manufactured products under horrific conditions (Teather, 2005). The report identified that Asian factories were subjected to the worst cases of physical and verbal abuse, and that many of the employees worked more than 60 hours per week. For those refusing to do so, they were punished (Teather, 2005). While self-publishing this report reduced the branding image for Nike, it also increased the organisations transparency with its customers.

Subsequent to changes put in place, Nike has failed to prevent the physical and mental abuse to its employees in the workplace (Daily Mail, 2011). Unfortunately, supervisors and important stakeholders failed to prevent these issues from occurring and aided in the unethical treatment of workers worldwide; thus, the organisation did little strategically to fix this (Beder, 2002). Interestingly, Nike placed the majority of the blame to suppliers and factory owners overseas, and to help remove the use of sweatshops, the company introduced the Just Don’t Do It campaign (Chu, 2017). Nike’s strategic plan, therefore, now focuses on the ethical treatment of employees worldwide.

What should be noted is that most multinational companies source cheap labour remotely, in developing countries, as a way of reducing costs (Noorbakhsh et al., 1999). By doing so, an organisation has the ability to gain an increased level of profit while maintaining business operation. However, in order to ensure that sourcing goods overseas is beneficial for both the organisation and its consumers, ethical labour rules should be emphasised at all times. For example, as sweatshops commonly subject employees to a hazardous environment, where many are involved in child labour, brands like Nike must ensure to prevent this for profitable gain.

It is clear to see from the above that Nike was involved in poor decision-making. Choosing cheap labour and manufacturing costs over ethical standards, has proved to have a negative impact on the band and its consumers. The criticism has also prevented the organisation from achieving global success, due to the nature of unethical choices (Noorbakhsh et al., 1999). Nike’s decision to continue its business with these countries not only enforced the unfair treatment of employees but led to the prolonged outsourcing of cheap labour. Thus, by not strategically changing its ways, Nike faces the risk of losing sales and supply chain relationships, and should focus on implementing employee contracts with a bill of rights; thereby, obligating Nike to treat employees fairly (Teather, 2005).

The second ethical issue, similar to the use of sweatshops, involves child labour. In business, the minimum working age is depicted as 18 within the footwear industry. With more than 600,000 employees worldwide, there is evidence to suggest that Nike has broken several laws in relation to working age (Boggan, 2001). Away from the footwear industry, Nike produces sporting goods and manufactures sporting accessories worldwide for famous teams. In particular, Nike is known for their production of soccer balls in Pakistan, which are then distributed overseas for use in a vast array of sports (Boggan, 2001).

Following issues with sweatshops, the organisation was furtherly criticised for using employees lower than the ethical legal age. In some cases, children as young as 4 or 5 years old were found working in poor conditions for long periods of time. Interestingly, Pakistan has laws in place to prevent child labour and slavery – all of which are against this unethical act from taking place – however, the government has done little to overcome this issue nationally (Boggan, 2001). As child labour is considered as inhumane and illegal, Nike was negatively impacted in terms of its brand loyalty and consumer trust, and while the organisation acknowledged this issue, CSR-related ethics were not met.

Moreover, as Nike is characterised by focusing overseas manufacturing in developing countries, due to cheap labour, undemocratic governments and a lack in human rights appeal, the brand has been able to improve its profit margin by reducing its costs. However, by using children as the primary workforce, it interferes with the child’s education and health, and increases poverty for the older generation (Wazir, 2001). Despite these issues for children, Nike has claimed that children are paid a lower wage due to laws in Vietnam, which allows for a training wage less than minimum pay. By doing so, training can be given for manual labour in replace of education, and can deny a child their most basic human rights (Wazir, 2001).

In line with Article 4 of the Ethical Trading Initiative (2016), no child should be used in labour nor should any child be recruited for labour purposes. As well as this, companies, such as Nike, should work to contribute to prevention policies allowing for children to attend school until legal age. Lastly, children under 18 should not be employed in hazardous conditions – an environment previously identified as being high in toxic levels and abuse; given Nike’s employment in overseas sweatshops.

The final ethical issue, enforced by Nike Inc., is the organisation’s effect on the environment. As part of corporate social responsibility and meeting the ethical needs of stakeholders, it is imperative that organisations adhere to societal/environmental requirements. However, Nike was unable to do so in 2015 when the company received a poor rating in the Ethical Consumer’s Environmental Report (Nike, 2017). The report identified that its manufacturing factories were responsible for increases in climate, toxic pollution, water use and waste. However, as no mention was given to agriculture, Nike was unable to provide reasoning behind why the effects had occurred. Moreover, additional reports also identified issues in terms of carbon emissions, renewable energy use and the sourcing of certain materials. While Nike did establish strategies to overcome these issues, little was done to combat the high toxic levels occurring within the workplace and in the environment; thus, preventing the organisation from achieving CSR-related ethical goals (Nike, 2017).

Given the above, it is clear to see that Nike has been faced with several ethical issues over the last two decades – all of which have negatively impacted on the organisation and its ability to meet consumer needs. However, Nike has put in place several policies/strategies to address these challenges. For example, regarding the organisation’s effect on the environment, Nike aimed to create a closed loop system whereby the manufacturing process is focused on using recycled consumer waste (Nike, 2017). Following a new relationship with the Sustainable Apparel Coalition, Nike introduced eco-friendly materials, such as organic and recycled cotton, which could be used on their products as a way to reduce both waste and water consumption. Using recycled cotton and polyester, Nike can also reduce the number of off-cuts being produced, thereby furtherly reducing the level of waste created (Nike, 2017). Thus, by developing new low-carbon materials, additional waste can be reused as new materials.

Nike has set targets in line with minimising the organisations environmental footprint; thereby adhering to ethical policies in place protecting the environment. By 2020, the company aims to reduce its environment impact by at least 10%, increase the use of sustainable material for all products, reach 100% renewable energy locally and overseas, eliminate footwear waste during manufacturing, adopt new approaches related to water use reduction within the supply chain and to lower the discharge of hazardous, toxic chemicals (Nike, Inc., 2015). As well as this, by 2025, Nike has also made a public commitment to reduce its carbon emissions by more than 50% (Nike, Inc., 2015).

Despite these positive changes, Nike has yet to commit to eliminating hazardous chemicals fully from its supply chain, which has now been deemed as major issue ethically for the workers exposed on daily basis to them and those wearing the product made by Nike.

Regarding the use of sweatshop and child labour overseas, Nike has advocated that the organisation is working to change the relationships it holds with overseas partners. As well as this, Nike has recognised that having a green, equitable and empowered workplace is more productive and profitable for the business itself; thus, the supply chain has been redesigned with this in mind (Nike, 2017). Every factory now used by Nike undergoes rigorous testing/evaluation in relation to Nike’s newly implemented Code of Conduct – which prevents harassment, workers below the age of 16 and that only a set number of hours can be worked by each person per week (Corzine and Harverson, 1997). This Code of Conduct also enforces that all employment is voluntary, preventing forced labour, and that the workplace is safe and healthy for all. As the minimum standard for what is expected in each factory, Nike aims to evaluate its performance in line with ethical practices on both labour and environmental impacts. Therefore, allowing further improvements and investment into an innovative manufacturing model where employees are the focus (Corzine and Harverson, 1997).

Furthermore, Nike has also focused on innovating the role of the worker. Having a skilled and valuable workforce appears to be of high importance for the organisation, and ensuring performance is compensated, high productivity can be guaranteed at all times (Nike, 2017). For instance, Nike implemented research programs aiming to provide education, healthcare and financial help to those inside and outside of the workplace. While this strategy has proven to be beneficial for the organisation, Nike has yet to only receive a middle Ethical Consumer rating for it ethical/unethical activities (Corzine and Harverson, 1997). As well as this, Nike is still lacking in terms brand loyalty and consumer trust, something which has provided brands like Adidas a competitive advantage. However, continued innovation will prove to be beneficial in this regard.

Lastly, relating to sweatshops and child labour, Nike ensures to continually audit all facilities used in the manufacturing process and publishes all reports for consumers to see; thus, increasing transparency and trust with the brand. By acknowledging this issue, Nike has shown its commitment to overcoming these challenges and has begun outsourcing to supplier with a higher reputation (Sethi et al., 2011).

Given the above, there is evidence to suggest that Nike has implemented strategies to overcome the challenges it faces, however, further recommendations can be given in relation to how the business should develop its approach to managing these ethical issues.

Firstly, the ethical framework should be implemented in all aspects of the organisation and its daily operative activities. It is imperative that Nike considers employee values, principles and moral qualities when making decision and by doing so, it will ensure performance and quality are maintained [while allowing for a safe and healthy environment] (Corzine and Harverson, 1997). As the main ethical issue results around employee work condition and their treatment, it is highly important that Nike continues to provide innovative resources for those working overseas. There are significant opportunities for improving labour/employment practices, but requires a strategic reformation in a number of different areas; something which Nike has yet to complete to date. Following through on this would not only improve consumer trust/loyalty but would benefit the organisation profitably.

Secondly, seeing as Nike has already implemented several changes to its organisational plan, it could be suggested that further monitoring of the supply chain is required on a continual basis (Porteous and Rammohan, 2013). With the majority of the issue coming from suppliers overseas, Nike must ensure it works with its supplier to provide a safe and healthy environment for all. Nike should also consider providing training for all in order to improve managerial capability. Not only would this provide value and support to Nike’s workers, it will help to reduce ethical issues and improve on factory importance.

Lastly, Nike should set targets to help improve on the capacity of their suppliers, thereby dealing with human resources correctly. By doing so, Nike will be able to obtain better management and a stronger two-way communication between the organisation and its employees/consumers; thus, helping to address any concerns they may have (Porteous and Rammohan, 2013).

While the above recommendations have the ability to be beneficial for the organisation, it is important to note that there are several risks/challenges involved in implementing these strategic changes. For example, if Nike were to reduce the number of audits undertaken for maintaining a healthy work environment, then it is possible the use of sweatshops with poor conditions may arise. These horrific conditions primarily occurred when Nike had a lacking communicative relationship with its suppliers, thus it imperative that this two-way communication is maintained at all times (Sethi et al., 2011).

Nike’s poor branding image may also prove to be a challenge for the above recommendations. With limited focus on reducing hazardous waste, Nike may be exploited for unethical effects on both society and the environment. Thus, furtherly reducing the branding image and consumer trust (Kissinger, 2017).

Lastly, one challenge for the recommendations in place is the currently workforce. As noted previously, organisations commonly employee overseas for cheaper labour, however, poor decisions have led to Nike using sweatshops instead of safe and ethical environments. Therefore, it could be suggested that managerially Nike needs to change. By doing so, ethical supervisors can be put in place to ensure that unethical behaviour is prevented and diminished in all aspects of manufacturing (Bernroider, 2002).

In conclusion, for Nike to remain as the prominent global company it is, the organisation is going to need operate from a utilitarian perspective; whereby negative effects are prevented for further positive development. Despite the issues raised above, there is evidence to suggest that Nike has implemented strategies which may prove to be beneficial on a long-term basis, however, there is still the issue of poor branding image fuelled by Nike’s limited focus on its environmental impacts. In turn, Nike should primarily on a sustainable strategic management plan that involves both social and environmental aspects.

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