Nike: Ethics and Globalization

            Nike’s past through the 1980s and 1990s is rife with human rights abuses and sweatshop scandals as their rapid expansion had them moving into less developed countries in Southeast Asia.  Nike, which currently holds around 60% market share of its market, was founded in 1964 as Blue Ribbon Sports, rebranded to Nike, and went public in 1980 (McFadden, 2019).  Shoes were produced in factories in Korea and Taiwan as Nike manufactured overseas for reduced costs.

            Due to rising labor costs in Korea, Nike’s factories moved to Indonesia and other Asian countries in the late 1980s and hired child labor, paid fifteen cents an hour, and were made to work in deplorable conditions for eleven hours a day (Indonesia serves as Nike manufacturing capital, 1992).  Jeff Ballinger, from Press for Change, wrote a report in 1991 outlining the poor wages and working conditions at Nike factories in Indonesia.  In 1992, he published an exposé of Nike in Harper’s magazine.  This started a string of strikes and boycotts and activism against Nike, including bad press that continued for the following decade (Nisen, 2013).

            In addition to Indonesia, Nike produced shoes and sports equipment in 124 plants in China, 73 plants in Thailand, 34 plants in Vietnam, 35 plants in South Korea, and an unknown number of plants in Cambodia, South America, Pakistan, Mexico, Australia, Turkey, Italy, Canada, and the United States (Nike reveals overseas factory names, locations, 2005).  Nike’s corporate responsibility report outlined that between 25-50% of factories restricted drinking water and bathrooms to workers and were physically or verbally abusive.  Over 25% of the factories, workers worked over 60 hours per week (Nike reveals overseas factory names, locations, 2005).  In Pakistan, children sold and bonded as slaves to work in the Nike factories, and other children working for as little as six cents an hour were the stories in the news (Schanberg, 1996).

Nike’s reputation as a result of its expansion strategy

            In his memoir Shoe Dog, Phil Knight said “Life is growth. You grow or you die” (Working at Nike: A Culture of Just Do It, 2019).  At its very beginning, Nike had a global mindset, while they partnered with Onitsuka Tiger/Asics (McFadden, 2019).  Although this partnership was short-lived, Nike continued to think globally, and began production of their shoes in South Korea.  Nike’s aggressive expansion and intensive growth strategy, as well as seeking lowest cost to manufacture, had them pushing production to less-developed countries in order to take advantage of lower production costs.

            Nike’s aggressive expansion to factories with little concern regarding human rights, acceptable wage, child labor, drinking water, and clean air for workers in the factories led to them being considered a highly unethical company.  As a result of Nike’s push to growth and profits through lowest-cost production and sweatshop tactics, Nike faced a bad reputation for a decade, including bad press, strikes, and boycotts.  “The Nike product has become synonymous with slave wages, forced overtime, and arbitrary abuse,” Knight said in a public address (Lutz, 2015).

Positive and negative impacts of Nike’s aggressive expansion strategy

            Nike’s strategy led to investigative reports and bad press from Jeff Ballinger/Press for Change, Knight Ridder wire reports, CBS television, The Economist and Harper’s Magazine, Los Angeles Times, Chicago Tribune, and more.  It led to protests and labor strikes at Tae Hwa, Hardaya Aneka, Pratama Abadi, Sung Hwa, Pou Chen.  It led to deaths at factories.  Nike’s decisions led to actions by the U.S.A.I.D., U.S. State Department, Amnesty International, and other activist groups.  (Nike Chronology, Center for Communication & Civic Engagement).  Consumers in the United States and in Germany boycotted Nike, and even protested globally during the Barcelona Olympics.  The image shared by consumers was that Nike “has become synonymous with slave wages, forced overtime, and arbitrary abuse” (Lutz, 2015).

            The positive impacts of Nike’s aggressive expansion strategy were growth in manufacturing, distribution, and customer-base.  Nike’s sales grew from $8M to $70M between 1980 and 1983 (Nike Pins Hopes for Growth on Foreign Sales and Apparel, 1983).  At the end of the decade in 1990, Nike’s revenue from the United States markets was $1.8B (Abhijeet, 2018).  During this aggressive expansion, Nike’s revenue grew by 219 times.

Nike’s response to scrutiny

            Nike initially denied the claims made by investigative journalism and Nike lawyers respond with libel action threats, but in 1992 created a ‘Code of Conduct and Memorandum of Understanding’ for contractors (Nike Chronology. Center for Communication & Civic Engagement).  All through the 1990s, Nike executives denied the claims, lashed out at critics, and fire-fought the claims (Bernstein, 2004).  Nike’s main actual action, although slow, was to begin monitoring working conditions in factories and calling their code of conduct “SHAPE,” meaning safety, health, attitude, people, and environment, which guides contracting factories to adhere to safety regulations, air quality, overtime limits, and wages.

Alternative responses that Nike could have chosen

            Nike could have responded two different ways which would have had better outcomes.  First, the path of responsibility and immediate response:

  1. Nike could have taken responsibility for the issue and take immediate corrective action.  Ideally, they would have put in their SHAPE Code of Conduct immediately, refactored contracts with factories if necessary, and made sure that their workers were not abused through monitoring and controlling actions.  Having monitoring representatives that were Nike employees onsite would have been wise, as well as controls in their contracts to give penalties if the code of conduct was violated regarding worker rights and abuses.
  2. Another path that Nike could have taken is a path of change:  Nike could have changed their manufacturing model to use factories that they manage and directly control rather than sub-contracting the work to the cheapest Indonesian factories.

Nike’s consequences if they had taken a higher path

            If Nike had taken the path of responsibility and immediate corrective action, they would have circumvented all of the bad public relations, strikes, boycotts, and investigative journalism.  They would have had no dip in sales, happier workers, and no PR nightmares.  Even if monitoring and fair wages cost an additional $10M every year, it is a drop in the bucket compared to their realized revenues.  This would have been the most favorable route that Nike should have taken.

            If Nike had taken the path of changing their manufacturing model to Nike-owned-and-operated factories, Nike’s profit would have diminished for several years during the build-out, giving shareholders less return on investment in the short term.  However, Nike would fully control the safety, wages, environment, and quality of their factories, their workers, and their final product.

Conclusion

            In conclusion, Nike made some missteps that were catastrophic to their PR and consumers’ view of the company.  Nike now has a reputation of being an aggressive global manufacturer with questionable ethics and a past full of abuses.  The key lesson from Nike is that it is important to take responsibility for the production of products, take care of workers, and not to abuse third-world countries, their environments, their resources, or their people.

References

Bernstein, Aaron. (2004). Nike’s New Game Plan for Sweatshops.  Retrieved from https://www.bloomberg.com/news/articles/2004-09-19/online-extra-nikes-new-game-plan-for-sweatshops

Lutz, Ashley. (2015). How Nike shed its sweatshop image to dominate the shoe industry. Retrieved from https://www.businessinsider.com/how-nike-fixed-its-sweatshop-image-2015-6

McFadden, Christopher. (2019). The Extraordinary History of Nike. Retrieved from https://interestingengineering.com/the-extraordinary-history-of-nike

Missing Author. (1983). Nike Pins Hopes for Growth on Foreign Sales and Apparel. Retrieved from https://www.nytimes.com/1983/03/24/business/nike-pins-hopes-for-growth-on-foreign-sales-and-apparel.html

Missing Author. (1992). Indonesia serves as Nike manufacturing capital. Post Bulletin, sourced from Knight-Ridder Newspapers/AP Wire.  Retrieved from https://www.postbulletin.com/indonesia-serves-as-nike-manufacturing-capital/article_b324a7ec-5886-5d36-bdf3-4e6ed32a6115.html

Missing Author. (2005). Nike reveals overseas factory names, locations. NBC News, sources from AP Wire.  Retrieved from http://www.nbcnews.com/id/7480688/ns/business-us_business/t/nike-reveals-overseas-factory-names-locations/

Missing Author. (2019). Working at Nike: A Culture of Just Do It. Retrieved from https://thedailycoach.substack.com/p/working-at-nike

Missing Author. (n.d.). Nike Chronology. Center for Communication & Civic Engagement. Retrieved from https://depts.washington.edu/ccce/polcommcampaigns/NikeChronology.htm

Nisen, Matt. (2013). How Nike Solved Its Sweatshop Problem. Retrieved from https://www.businessinsider.com/how-nike-solved-its-sweatshop-problem-2013-5

Pratap, Abhijeet. (2018). Nike Revenue from United States. Retrieved from https://notesmatic.com/2018/12/nike-revenue-from-united-states/

Schanberg, Sydney. (1996). Six Cents an Hour. Life Magazine. Retrieved from https://laborrights.org/in-the-news/six-cents-hour-1996-life-article

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