The issues within the nike manufacturing practices
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Published: Mon, 5 Dec 2016
To be competitive in the market as well as keep the manufacturing costs low, therefore, Nike had shifted its contract to low labour cost countries such as China, Vietnam Indonesia, Pakistan and etc. There were issues arising and deeply impact on Nike reputation especially the accusations on human and labour rights violations by labour rights activists and the mainstream media. The accusations were deficiencies in working environment, health and safety conditions and low wages and indiscriminate in hiring and firing practices in the factories. Roberta Baskin’s CBS had reported about the conditions in Nike’s manufacturing factories in Indonesia. Even though subcontracted work to poor nations had created employment, the pay was “merely $1.60 a day to Vietnam factory workers when the living wage is around $3 per day” (Hill, 2009). In this situation, whether it is ethical for Nike to treat its labors in this way?
We might evaluate the practices by using those principles:
Utilitarianism is a moral theory that we should act in ways that produce the most pleasure or happiness for the greatest number of people affected by our actions. By using utilitarian reasoning, the following are the good and bad sequences:
Increase profitability of the company.
Labours welfare are ignored.
Shareholders wealth is maximised.
Company reputation has been affected badly by those practices.
Customers’ loyalty towards the company becomes a doubt.
From the overall consequences even it is found that by increasing profit of the company can ensure the shareholders’ wealth, it is more important to take care of their employees’ welfare and gain trust and profitable relationship between its customers. This is because employees and customers are the primary stakeholders of the company who have ability to influence the business of the company and they are those whose continues association is necessary for a firm’s survival. Therefore, if in long term, we will found that the unethical practices of Nike will damage stakeholders and changed the perception even of the shareholders to toward the company.
Principle of Rights
The basic human rights under Kantian are the rights that are the result of particular roles, special relationships or specific circumstances. Nike as an employer should consider the rights of its employees to have a safe working environment and a competitive wage instead of being sweatshop labour. Although currently (is it? U think? If nt currently then just delete this word) Nike is doing a much better job with foreign labor relations compared to other corporations, Nike should not be comparing itself to other companies, rather it should be holding itself to the absolute highest ethical standards it can attain.
Principle of Duty
Based on this principle, rightness of our actions depends on whether we perform our duties. If we fail to carry out our duties in society, our acts are considered as unethical or wrong. In our opinion, we felt that all the contractual factories in developing countries or any further subcontracted out work of Nike has a moral duty to ensure the healthy and financial well-being of all the people who work for it.
Principle of universalizability said that we should treat others the way we want to be treated. Nike’s management team should put themselves into the labourer’s shoes and therefore they will find out they would not want their employers to violate their right to have safe working conditions and fair wages. As a result, Nike’s practice on sweatshop labour is wrong. Therefore, it has to work on corporate responsibilities to make sure its practices have improved.
Besides that, principle of ends means that we must respect humanity and never exploit others to achieve our own benefit or purpose. Nike’s act of exploitating other human beings such as the sweatshop practice is to serve its own interest where to keep the low manufacturing cost.
Principle of Equal Liberty
Each person has an equal right to be treated equally under principle of equal liberty. Obviously, Rawls would disagree with Nike’s labour and business practices as it is unethical for Nike to overwork its employees or perhaps pay them meager wages, just so it can supply shoes to America. Beside, In order to fulfill the expectation as an employer, it was necessary to appreciate individual diversity and become more dedicated to offering equal opportunity for each individual.
Issue 2: Nike’s Manufacturing Practices on Child Labors
In this issue, Nike’s contracted factories hire children to work overtime and below minimum pay as the children are not capable to make right decisions and unable to differentiate pros and cons of certain matters. Hence, children have been exploited to work for the subcontracted factories. The issue being is: whether it is ethical for Nike to hire child labors in reducing manufacturing cost?
Based on utilitarianism, below is the comparison of good and bad consequences of this issue:
Nike gets cheap labour and low cost facilities and therefore, low cost of production allows Nike to set lower price on its product to attract more consumers.
Children suffer psychological and physical harms.
Bring in foreign investments and job opportunities and therefore, alleviate poverty level for the countries that Nike are operating in.
Denied opportunities for children’s education.
Extremely low pay still cannot alleviate poverty of the countries.
From the overall consequences to the entire society, Nike had violated the theory of utilitarianism As one of the largest multinational companies, Nike should have carefully evaluated the outcome of using low cost labors. From the analysis, hire child labours to serve its own interest to keep low labour cost is unethical.
Principle of Rights
Children have their right to get their education instead of working as they are under age according to the law of the country. Therefore, Nike should not hire child labor which violated their right to be stay in school by the time.
Under the principle of universalizability, Nike should put itself into the situation of the child labor and therefore it will realize that it also do not want to work under such working condition with the low pay at that range of ages.
Nike also should not exploit the children to serve its own interest to keep the low labor cost where the act is unethical according to principle of means.
Principle of Equal Liberty
Children in those Nike’s contracted factories’ countries shall be given an equal opportunity and treated as the children in other country as they are under the age to work and suppose to have their education.
Issue 3: Contract between Nike and University of North Carolina
In order to work on CSR after happen those negative issues which deeply affected the company’s reputation, Nike has entered into social contract with University of North Carolina. Nike contract requires all UNC athletes to wear its equipment. In this issue, whether it is ethical to bind all UNC athletes under the contract?
Based on this concept, there are some benefits get from the contract, such as, Nike has pump in money which bringing pleasure to the athletic department and the student athletes by virtue of wearing Nike equipment, improving Nike reputation and rebuild confidence in public. However, university should consider how the contract would affect the academic integrity and goals of the institution. It is more important to look at the issue from the perspective of athletes and institution which will bring more consequences to the firm.
Rawl’s theory of individual liberty
Under this theory, it will disagree with the contract for the lone reason being the athletes have lost their individual rights to chose whether or not to wear Nike’s equipment. Even if the institution has maximizes pleasure for itself, but at the same time infringes on the choice of its athletes. There is no right for the social institution to take away a basic individual right. Besides, Nike also should not restrict the individual right to have their own choice to wear other company’s equipments.
Principle of Duty
According to this principle, the University also has a moral responsibility to itself and Nike. It is morally obligated to use its position of power to encourage Nike to work harder to improve its business practices. Besides, it also has a moral obligation to back out of a contract with any corporation that lacks ethical business integrity.
Issue 4: Enhancing Nike’s images by using endorser
In this issue, Nike has signed with some well-known athletes as its endorsers to project a better athletic image for itself. For example. Nike has signed an endorser contract with famous basketball legend, Micheal Jordan. Accordance to the contract, Nike has created more revenue from his fans with launching more new series of product. In return, Nike paid 20 million per year to Micheal Jordan as its endorser according to their contract. At the mean while, labors of its contract factories have paid the low wages which just above the minimum standard. In this issue, whether Nike is ethical to pay its labors and endorses unfairly?
Based on this principle, there are only benefits the company and the endorser solely. While the labors are suffer from the low wages to continue their live (better word). That is more beneficial to more parties if Nike can use the money paid to endorser wo spend on employees’ welfare. Therefore, we think that Nike is unethical to pay endorser such a large amount of money instead of taking care its employees’ welfare.
Principe of Right
Under this issue, the employees have right to get a fair wages and deserve to get a better treatment.
Principle of Universalizability
That is unethical for Nike to treat its employees as end in themselves and never only as means to its own ends.
Principle of Justice
Employees should have a fair wages and deserve to get their welfare where Nike should treat them equally with the endorsers. It is unfair to pay the endorser so high but without taking care its emplyees’ welfare.
From the case study we know that the corporate culture in Nike did not have a strong ethical focus which was to encourage its employees of the factories in many other countries to practice the ethical behaviours in the past. However, Nike then implements some efforts to instil ethical behaviours and practices and later became an ethical corporate in the industry after going through some critical period with negative issues on its business practices.
In our opinion, we feel that Nike has used the integrity-based approach which is a value-driven approach with emphasis on employee responsibility for ethical conduct. It is a better approach which the employees are instructed to act with integrity and conduct business dealings honestly. Besides that, Nike may set goals of an integrity-based approach as it is a broader and more expansive application to the firm. For example, maintaining brands and reputation by ensuring the good quality of products and honesty to its consumers, and creating a better working environment for employees whereby the safety of employees is emphasized.
Furthermore, we think that currently Nike focuses on the stakeholder theory instead of shareholder theory in its firm. All the stakeholders groups and their well being should be taken into account whenever the company wishes to take any significant managerial decision but not merely focus on financial and economic relationships with owners.
In the past decade, Nike has taken CSR as its social contract. For example, University of North Carolina had entered into a corporate sponsorship agreement with Nike. On the other hand, Nike also undertook CSR because of its enlightened self-interest where CSR activities bring commercial returns to the firm. Especially after the damage by the media to the company’s reputation, Nike started to undertake CSR activities in order to enhance its reputation and rebuild its good image. However, Nike now meets its standard for being a good corporate citizen after making progress for years.
Corporate Social Responsibility
It is a reactive concept where businesses try to do the minimum to fulfil the expectation of stakeholders. In the article, there are some discussions on Nike’s CSR practices:
Nike had developed ReUse-A-Shoe Program and then expanded it by partnering with the National Recycling Coalition to promote environmental-friendly practices and encourage consumer about this issue.
Code of Conduct
This is the first step taken by Nike to improve the working conditions in its factories. It complies with the principle of justice, fulfils the duties as an employer to reach the desired level of employer responsibility. Other than comply with the laws and regulations, the company also strives to satisfy the expectation as a leader.
This is the corporate social responsiveness undertaken by Nike as it is the proactive actions where the firm anticipate the needs of stakeholders and try to fulfil those needs before the stakeholders demand them to do so. Nike had publicly disclosed its supply chain as it believes that can be more successful in monitoring and making changes as once issues have been uncovered, not only in its own factories but in an industry-wide basis. Furthermore, implementation of Balanced Scorecard for its suppliers helps the firm better assess factory compliance with the code of conduct.
Corporate Responsibility Board
Nike developed a Corporate Responsibility Board in 2001 to review policies and activities and make recommendations to the board of directors regarding certain important fields. Through the effort of the CR board, there were significant improvements in its business practices whereby the employees are now aware of their rights and have the opportunity to be educated and well-trained.
Each year, Nike proactively donates product and contribution in cash to non-profit organizations and NGOs creating social changes through sports disaster relief efforts around the world.
Nowadays, Nike has focused on innovation, collaboration, transparency and advocacy to prepare the company to thrive in a sustainable economy. There are some important initiatives for the company that are included in the CR report which includes Considered Design, GreenXchange (GX), Lean and Human Resource Management (HRM), Sport for Social Change, Energy and Climate Change Strategy.
In 2008, Nike launched a footwear energy efficiency program with five contract manufacturers. Nike’s commitment to collaboration on this project has shown excellent early results where the contract factories absolute CO2 footprint was down 6 percent despite a 9 percent increase in production.
Due to the ethical issues discussed in the Nike case, we have come up with several recommendations on how to solve the problems occurred throughout the case. We hope that this can also serve as a guideline to other companies as well.
First of all, the company management should be stricter on the rules and standards set by themselves. This will make sure that they follow or obey the rules of the company. In this case, the top management of Nike in the US should ensure that all the other retail outlets or factories all around the world follow a standard procedure in everything that they do. This will help them in monitoring all the other outlets around the world. This can also help avoid the issue of poor conditions, child labour, widespread harassment and abuse that has happened in some countries. When other manufacturers all over the world know the standard and code of ethics that they should follow, they will not do what they have done that caused all the issues to arise. This is because they have a guideline to follow and they know that whatever procedure that they are doing will be monitored by the top management. The top management should make sure that they provide a healthy and safe workplace for all its employees. This is because their employees have the right to be in a healthy and safe workplace. A poor condition of the workplace is wrong and is one of the main allegations that Nike had to deal with.
Next, the management team and employees should also be sent for training once in awhile. This is important as it helps to establish a better corporate culture. This culture shapes the people who are members of the organization as it is a blend of ideas, beliefs, customs, traditional practices, company values, and shared meanings that help define and guide normal behaviour for everyone who work in a company. It is important to continuously train its employees so that the employees become more disciplined and responsible. They will always think of the best interest of the company and not be easily influenced by other factors that might bring the company down. This will help them have a sense of accountability and responsibility towards the company.
One of the main issues that Nike was facing was child labour. Therefore, we have come up with an idea that might help solve this problem. Nike began to offshore its production of footwear and other sporting equipment because it wanted to remain competitive and keep manufacturing cost at a low. To solve this, instead of using child labour, Nike can actually install and use machines in it production. At the beginning it might be a little costly but in the long run, it will help the company save a lot of money. It is not only faster, but it also helps Nike save money in the long run and the management does not have to worry about any child labour allegations or poor working conditions.
Besides that, the top management of Nike can also perform employee monitoring. The kind of employee monitoring meant over here is checking out the work done by the employees. They could perhaps send some spies or third parties to see how the employees perform their work but at the same time not let the employees know that they are being watched.
Lastly, the ethics and compliance system should also be improved. Currently, there is only one person in charge of ten factories and inspection is only done for about 25 percent of the factories. The top management should make sure that it inspects every factory. This can be done by setting up a chart or timeline whereby they have already discussed and come to an agreement on when and which factory should be inspected throughout the year. This is a more systematic approach and the management must make sure that they follow what they have drawn up.
Running a company as big as Nike is definitely not an easy job as the management has to satisfy not only the shareholders of the company, but the stakeholders too. No matter what has happened in the past, Nike has learned its lesson. Remaining competitive and keeping manufacturing costs at a low should not be the only objective of the company. Due to its negligence in certain areas, Nike’s allegations of poor conditions and child labour has become a global issue. This is not only bad for Nike’s image but it has permanently tarnished its reputation. However, Nike never gave up and has continued to win back the hearts of its stakeholders by carrying out a lot of CSR. Even though it may still have a long way to go in the area of corporate responsibility, it can be seen that it is slowly receiving good responses from the industry. Nike will always continue to be a major brand throughout the whole world.
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