Nike Multinational: Ethical Analysis

2908 words (12 pages) Essay

5th Jun 2017 Marketing Reference this

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1.0 Introduction

Nike has undoubtedly made its owners and shareholders richer but its view on social responsibility from a public perspective has always been a doubtful case. Nike is not the only company that has engaged in such marketing practices but due to its status and being the market leader in sports goods and apparel offers an instructive case study on how global companies create and manage its public images (Stabile, 2000).

According to Frisch (2003), the last two decades for Nike have been rough as they have been Nike as they have been criticized for their business ethics. In the early 1990’s Nike were accused of exploiting its factory workers in their manufacturing plant in countries that were used as a source of cheap labour. Such public claims and allegations led everyone to believe that Nike’s ethical practices were contradictory to its image portrayed to consumers.

This report looks on the ethical issues faced by Nike in the early 1990’s and how Nike has responded towards its challenges.

2.0 Nike the company

Nike is a multinational company that produces sports goods and apparel. According to nikebiz.com the company was established in 1964 and traded as Blue Ribbon sports and officially became Nike in 1978. It’s the largest sports retail company in the world. It sells to approximately 19,000 retail accounts in the US, and then in approximately 140 countries around the world. The manufacturing part of Nike is outsourced to independent contractors in developing countries like China, Taiwan, Korea, Mexico, Vietnam, Indonesia, India and Italy.

Nike’s vision statement is to bring inspiration and innovation to every athlete in the world. Nike conveys its image of victory over adversity and hard work resulting in success. Head spokesmen at Nike include Michael Jordan, LeBron James, Kobe Bryant, and Tiger Woods, all of which are racial minorities and dominating figures in their respective sports. Each of these individuals have worked hard to reach the level of success and donated millions to the charities that they support. These men try to what Nike’s trademark “swoosh” means in the minds of consumers (nikebiz.com).

3.0 Unethical issues at Nike highlighted in 1990’s

Apart from being the market leader in sports equipment and athletic apparel, Nike has been the most criticized company in terms of ethical issues. Nike does not have any factories for mass production; instead their goods are manufactured by contracting companies in developing nations. In the 1990s, most of the Nike goods from produced in impoverished nations such as China, Vietnam, Indonesia, and Mexico to keep the manufacturing costs low. Nike increased its profits by paying lower wages in less developed countries (Katz, 1995).

Katz (1995) states that Nike has been accused of using child labour in Pakistan. Most of the soccer balls for Nike in Pakistan have been produced by children between the age of 8 and 16 years. Pakistan has laws against child labour but its government has very rarely taken any steps against it. Child labour in Nike was not just limited to Pakistan but it existed in every country where Nike manufactured its goods.

Paul (2005) mentions that there were reports released in mid 1990s that unearthed the sweatshop labor activities. Soon the media and many human rights groups formed alliances to protest against the inhuman conditions of its employees in their factories overseas.

Nike had been accused of having workers that were under aged and working under hazardous conditions for poor wages. Nike was also accused of ignoring health and safety standards for its workers and practicing forced labour. Nike’s build an empire and wealth, on the backs of the world’s poor. It was hypocritical for Nike to claim to be an ethical company when it ignored its unethical practices in countries overseas (Clancy, 2000).

According to Bell (2005), Nike was still responsible for its workers even if their goods were manufactured by subcontracted companies overseas. Nike still had a liability to make sure that the manufacturing sites ran with integrity. The negative press and court proceedings proved that Nike was guilty of operating sweat shops and was an unethical company (Bell, 2005). In the report published by Connor (2001), Nike’s plant manager in Indonesia was reported to have forced 60 female workers to work long hours without any breaks under sweltering conditions which lead to 12 women being hospitalized.

An article published in Harpers Magazine in 1992 created an enormous public uproar criticizing Nike’s corporate practice. The article compared Michal Jordan to a young Indonesian girl named Sadisah. The article compared Michael’s salary and working conditions with Sadisah. According to John Smith the next couples of years were the darkest days in Nike’s history and gave a birth to a new era of brand management. Nike was not the only corporation guilty of these accusations but it was targeted heaviest for its corporate responsibility (Papson, 1999).

The reports in newspapers and magazines in the 1990’s were full of anti Nike slogans and stories. There were protests held outside Nike stores that forced Nike to rethink its ethical and social responsibilities.

sweatshop

Brand Nike had now been associated by public with slave work, low wages and forced overtime. (Connor, 2001)

4.0 What did Nike do to overcome its unethical issues?

Boatright (2007), states that the huge criticism from the public and the media forced Nike to rethink their global position. It began to have an effect from an ethical point of view and on its financial status as public started to disown Nike goods. In late 1990’s Nike launched a campaign to address its unethical issues and public dissatisfaction with managing their overseas workers (Boatright 2007). Nike launched a campaign to address the allegations against them by including advertisements in newspapers, writing letters to editors and distributing pamphlets to public to express them that Nike is a company that deservers their continued trust and loyalty. Nike also implemented of a code of social responsibility throughout its supply chain that would make an improvement in the working conditions of 800,000 workers at 700 factories in 52 countries. Nike launched an annual ethical audit that would check to see if its ethical principles are being pursued. It also assisted them in establishing actions plan if they were not (LaFeber 2002).

According to White (2007), the biggest challenge Nike faced in resolving its ethical issues were in improving labor condition in factories overseas. Nike had to maintain its low costs in production while still retaining the brand equity they are known for. Nike managed to address this challenge by having fewer suppliers and more strategic relationships with their existing suppliers. Nike also addressed its issue of high worker turnover rate by introducing better human resource management practices. It also ensured better communication channels were created between the factories and management.

5.0 How far has Nike progressed since the claims?

Nike made systematic changes across all factories to overcome its unethical practices (Frisch, 2003). There was an issue with the suppliers as they not ready to accept any changes as they were no direct benefits for them. Nike lead by example and education to develop a supplier code of conduct and established an internal team to enforce the codes of conduct. It also setup policies and had regular contact with their stakeholders to eliminate the challenges they faced. Nike eliminated excessive overtime for factory workers and introduced human resource management system and educational training for subcontracted facilities (Frisch 2003).

Nike School Innovation Fund (NSIF) worth $9-million was setup in January 2006 which was a five-year commitment to help public education in Portland, Beaverton and Hillsboro school districts. NSIF was established to support the community’s major school districts in their pursuit to improve the education of their kids (Nikebiz.com). Nike was voted the “coolest brand” in South Africa in 2004. Nike used its brand power to setup campaign for AIDS awareness. Spokesman at Nike says that after nearly a decade, the company is well an truly on the path of being an ethical company (Nikebiz.com).

6.0 Nike’s corporate social responsibilities.

Ever since Nike’s unethical issues came to light; its corporate responsibility has also been affected. Nike is keen on using its brand power and its passion for its people in scaling its business to create meaningful changes. Nike focuses its efforts on improving conditions in contract factories, designing for a better world, achieving climate neutrality and unleashing potential through sport (Vanderbilt, 1998)

Nike has collaborated with World Wildlife Fund (WWF) to form an alliance called Climate Savers in conjunction with other leading global corporations that support climate change. Nike is further committed in supporting new energy for the world. Nike is committed in building awareness for the impacts of climate change and lending its voice for urgent global action (Nikebiz.com).

Nike Australia’s brand marketing director Carl Grebert mentions in his report that Nike focuses on three key points which are people, the planet and profit. According to the 2001 Taylor Nelson Sofres Social and Environmental Study, Nike had topped the list of companies doing a poor job of fulfilling their corporate responsibilities (Nikeresponsibility.com).

Nike has business plans, goals, action plans, timelines and metrics to meet its social responsibilities. Carl Gerbert stresses that Nike’s main challenge was, and continues to be, addressing its three key points – people, planet, profit while ensuring that Nike not only demonstrates its social responsibilities but also achieves them. Nike has learned from its past mistakes and has set age standards at 16 years for apparel and 18 years in footwear factories. These standards are higher than those set by the International Labour Organization (Nikebiz.com).

In many overseas countries it has been a challenge for Nike to verify the correct age of its potential employees. Nike continues to work with its factory partners in further developing methods to ensure that they do not hire any underage workers that submit false documentation to gain employment. To further commit to its social responsibilities, Nike has improved its manufacturing plant which helps them in eliminating waste and hazardous substances from the manufacturing process. They have also replaced resources that cannot be readily recycled or reabsorbed back into nature (Hollister, 1997).

To address its labour practices, Nike’s partnership with the Global Alliance for Workers and Communities (GA) has provided valuable insight into the lives and aspirations of workers around the world. This has further assisted them in establishing programs to address the issues of its workers. Nike also works with International Youth Foundation, the Fair Labour Association and Opportunity International to establish its status as an ethical company (Hollister, 1997). Nike has also endorsed the United Nations’ Global Compact, which promotes companies to operate around the world in a manner defined by principles drawn from the Universal Declaration on Human Rights (Nikebiz.com).

Stabile (2000), illustrates an example of Nike’s innovative approach where they have designed a t-shirt for long-distance runners that use a new fabric design to keep them cool on warm days. It’s also environmentally friendly as it uses 75% recycled soda bottles, and requires 43% less energy to produce than standard fabrics. Stabile (2000), also stresses that Nike has come a long way in improving its conditions overseas to be considered the fairest and safest working environments.

7.0 Nike not all at fault.

Papson (1999), believes that Nike has a responsibility to be compliance regardless of where it operates from. There is also a responsibility of the host government to protect its citizens who work in their country. Proper labour laws should be enforced so that their workers are protected. He further states that trying to improve poverty and unemployment can sometime give rise to labor abuses.

Frisch (2003) claims that international human rights groups have urged foreign invested factories to improve conditions in which the employees work. Laborers seldom have any power to boycott against their treatment in such sweatshops. The government has the responsibility to ensure that foreign investors abide by its labour laws. If the foreign companies ignore these labour laws then the government needs to ensure that they force the company to operate in an ethical manner or force the company out.

Frisch (2003) further explains that the condition of Nike factory workers in Vietnam was not something new to the government officials. They were aware that cheap labor and low production cost is a major draw for international investors. He argues that government enforcement of labour law has been relaxed. Not even a single foreign company has been forced out for violating the law. The strategic and operational challenges’ facing global managers especially in the case of Nike is to continue to try and try to better its business performance and relationships with its foreign investments.

Hence along with Nike there are the government officials and host country laws that affects the way a company trades.

8.0 Nike can be used as a standard for ethical companies?

Nike has seen the highs and lows ever since it globalised. They have had to face a lot of public wrath in the 1990’s about their unethical behavior in their production factories overseas. It has taken Nike around a decade to turn around their challenges and emerge as an ethical company.

As discussed above Nike has established several foundation to provide better education to kids, restructured their policies to ensure the safety and health of their workers overseas are looked after. It would be even better to feel good about buying their product and not feel as if people are being exploited every time they purchase a Nike product.

The starting point for Nike was to develop a supplier code of conduct that extends the corporation’s values to its suppliers. According to Auret van Heerden, president and CEO of the Fair Labor Association, suppliers can get up to 400 audits annually. It’s also harsh on suppliers at times with the amount of audits that are conducted. He believes that establishing monitors is valuable but like an audit it only lists discrepancies and assists in resolving minor incidents. It doesn’t change anything drastically. To address this perception, Nike introduced a strategic plan of combinig audit results and best practices with root cause analysis. Van Heerden claims that “Only the top 100 or so companies are doing root cause analysis” (Stabille 2000).

Nike has set an example where it has hit rock-bottom with its ethical and social responsibility to being listed among world’s 100 most ethical companies by Ethisphere. Ethisphere is an organisation dedicated to improving corporate behavior. Nike have seen that good corporate social responsibility (CSR) practices can strengthen company image (nikebiz.com). Other companies can learns from Nike’s road to success and adapts is principles and strategies to be an ethical and socially responsible company.

9.0 Conclusion

Nike faced legal and ethical challenges. Nike has been one of the countries that have been heavily criticized for turning a blind eye over its unethical issues in their factories overseas. Nike has done very well to overcome its challenges. Nike believes in fair wages for the work that is being done in the manufacturing factories that produce shoes and apparel. Criticism from the public forced Nike to ensure good conditions exists for its workers and that it stays on the path of being an ethical company. Several issues arise when the discussion about sweat shops come up in companies like Nike when they make the decision to go abroad. In the eye of the reader Nike had become a figure of the evils of globalization. In other words, a wealthy Western corporation exploiting the world’s poor to provide pricey shoes and apparel to the fortunate customers of the developed world.

Nike continues to maintain its standard by regularly updating its supplier code of conduct that extends its corporation’s values to its suppliers. Nike also prides on retaining a good corporate social responsibility, which can have an influence on their suppliers. Nike continues in its auditing practices, best practices in education, rewarding compliance and ensuring that variances from the standard are not ignored.

Other companies can use Nike as a standard for ethical and socially responsible company.

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