History.
In 1964, Phil Knight, a track athlete founded a running shoe distributor named Blue Ribbon Sports . The company initially operated as a distributor for Japanese shoe maker Onitsuka Tiger, making most sales at track meets out of its founder’s car. In 1966 BRS opened its first retail shop in Oregon, when the relationship with Onitsuka Tiger neared to an end. To continue business, BRS designed the first line of footwear that would contain the soon-to-be-famous swoosh. The name of the shoe would be “Nike” after the Greek goddess of victory. In 1978, BRS, Inc. officially renamed itself to Nike, Inc .
By 1980, Nike had reached a 50% market share in the United States athletic shoe market, and the company went public in December of that year. Nike has been manufacturing throughout the Asian region for over twenty-five years, and there are over 500,000 people today directly engaged in the production of Nike products. The company utilizes an outsourcing strategy, using only subcontractors. Nike has more than 700 locations around the world and offices located in 45 countries outside the United States. Most of the factories are located in Asia, including Indonesia, China, Taiwan, India, Thailand, Vietnam, Pakistan, Philippines, Malaysia, and Republic of Korea. The factories are 100% owned by subcontractors, with the majority of output consisting solely of Nike products. Currently, Nike employs a team of four expatriates in China, Indonesia and Vietnam, focusing on both quality of product and quality of working conditions. Nike’s manufacturing model is based on a minimal cost strategy. This strategy takes direct, short term cost heavily into account when considering a manufacturing location. Nike’s practice of contracting third parties to manufacture the shoes and other apparel made the selection process less complicated because most of the whole supply and manufacturing chain would be managed out-of-house leaving Nike with the only decision to choose the lowest bidder.
It wasn’t until the early 1990 when an activist named Jeff Ballinger focused consumers attention on the conditions under which Nike let its products be manufactured. Ballinger’s argument was that by removing direct responsibility for manufacturing, Nike was encouraging local manufacturers to abuse and mistreat workers to maximize their own margins. Only by offering the lowest possible price could a contract from the Oregon company be obtained. This meant that laborers were paid below minimum wage, factory conditions were often below standard and working hours were long. Ballinger knew exactly how to use Nike’s fame and image against the company when campaigning for better working conditions in Indonesia. As a Country Program Director for the Asian-American Free Labor Institute (now the AFL-CIO's American Center for International Labor Solidarity) he wrote the first expose of Nike’s labor policies, coinciding with Indonesia’s political turmoil and sweeping strikes of the early 1990’s.
In 1992 Indonesia had increased the minimum wage in a response to pressure from the unions and other political factions. Local contractors however largely ignored the legislation or petitioned for exemptions, which would be easy to obtain due to Indonesia’s rampant corruption. Seeing the potential damage that an anti Nike campaign could cause, Nike drafted a series of regulations that each contractor had to adhere to. It refrained from taking any substantial action to directly address the labor issues, leaving responsibility with the local contractors.
Countering Jeff Ballinger’s arguments.
Despite the undeniable facts that Ballinger brought against Nike’s practices, there are a few counter arguments that Nike could have used. In countries where Nike products were made, the wages were earned not to sustain families but to supplement household income. The fact that workers were paid below minimum wage therefore should have led to a shortage of workers, as they left the company for better paying jobs. Comparisons with workers in the West that are paid many times the amount of the average Indonesian worker are often unfair, since local prices are much lower. Even the argument that children as young as 14 years work for Nike ignores the fact that these children would otherwise have to work on the land or in the family business to help sustain the family. This has been a practice for hundreds of years and can’t be changed by the practices of one company.
Nike’s response.
Nike’s response against Ballinger was less than convincing. First it ignored the wage issue. Later it stated that it couldn’t be held responsible because it didn’t control the factories. The workers weren’t on the Nike payroll but were paid by the subcontractors. For consumers and activists these arguments were largely semantic. The contractors for all intents and purposes acted as wholly owned subsidiaries and as such any blame on them would be blame on Nike Inc. To distance the company from the issues would prove to be impossible. With the large difference between the wages paid to make a Nike shoe and the price of the product it would be hard to convince the average Nike consumer that the company can’t influence the way it makes its products. Reports of physical and sexual abuse make the matter even worse.
Nike and the press.
When the issues in Indonesia hit the mainstream, Nike began to realize that a negative image could seriously damage its revenues. Nike had always seen itself foremost as a sports apparel manufacturer but in reality a large portion of Nike’s sales came from fashion conscious teenagers and students. The issues that plagued Nike in Indonesia now became apparent in other countries like Pakistan, Vietnam and China. In April 1997, 10,000 Indonesian workers went on strike over wage violation. In the same month, 1,300 workers in Vietnam went on strike demanding a one cent per hour raise and last year 3,000 workers in China went on strike to protest not only low wages, but hazardous working conditions .
Nike contracted Andrew Young to write a report on Nike’s labor practices. Young was largely positive but concluded that Nike could and should do better. The media however condemned the report for the fact that the writer had been paid by Nike and therefore couldn’t have been impartial. This gave rise to the word “Nike-writing ”
On May 12, 1998, Phillip Knight spoke at the National Press Club in Washington, DC and made what were, in his words, "some fairly significant announcements" regarding Nike's policies on working conditions in its supplier factories.
Knight made six commitments:
1. All Nike shoe factories will meet the U.S. Occupational Safety and Health Administration's (OSHA) standards in indoor air quality.
2. The minimum age for Nike factory workers will be raised to 18 for footwear factories and 16 for apparel factories.
3. Nike will include non-government organizations in its factory monitoring, with summaries of that monitoring released to the public.
4. Nike will expand its worker education program, making free high school equivalency courses available to all workers in Nike footwear factories.
5. Nike will expand its micro-enterprise loan program to benefit four thousand families in Vietnam, Indonesia, Pakistan, and Thailand.
6. Funding university research and open forums on responsible business practices, including programs at four universities in the 1998-99 academic year.
The commitments, although at face value impressive, still failed to appease the ever growing criticism that Nike treated the matter as a public relations rather than a human rights issue. “The promises made by Phillip Knight in his May 1998 speech were an attempt by the company to switch the media focus to issues it was willing to address while avoiding the key problems of subsistence wages, forced overtime and suppression of workers' right to freedom of association. ”
What does Nike do wrong?
Nike failed to realize that the consumers that buy Nike gear are mostly well educated, socially active and outspoken. Instead of immediately going to the heart of the matter, Nike played the issues down, thereby not only underestimating the issue but far worse, underestimating the intelligence of its customers. Reebok and adidas, which had similar issues have responded in force, mainly by improving wages and working conditions but also by taking its critics seriously, providing open and transparent communication. Nike on the other hand is still unwilling to disclose which contractors are responsible for its manufacturing process. Its code of conduct that is now distributed to every factory worker contains a statement that “full and fair compensation” will be paid but does not say how much this would be. Nike also refuses unannounced inspections from outside organizations.
Fair wage in Vietnam.
President Franklin D. Roosevelt declared in 1937, "All but the hopeless reactionary will agree that to conserve our primary resources of manpower, government must have some control over maximum hours, minimum wages, the evil of child labor, and the exploitation of unorganized labor."
In the US, the Fair Labor Standards Act of 1938 established a national minimum wage, guaranteed time and a half for overtime in certain jobs, and prohibited most employment of minors in "oppressive child labor," a term defined in the statute. When a worker puts in 40 hours per week, the worker should be able to pay the minimal bills to survive. That, and health benefits, are the definition of the "living wage."
At the end of 1994, Nike had shifted part of its production from South Korea and Taiwan to Vietnam in an effort to control cost. In Vietnam, minimum salaries for unskilled and manual laborers in FIEs in all three labor zones are $55 USD monthly in urban Hanoi and Ho Chi Minh City, $50 in suburbs of those cities and within many of Vietnam’s major cities and ports, and $45 in all other areas . From the moment contractors started producing; Nike has been accused of paying below minimum wage, thereby circumventing local labor laws. Workers at VN Nike shoe manufacturing plants make on average 20 cents per hour. Team Leaders at VN Nike plants make only $42 per month, below the Vietnam minimum wage. Regular workers make even less.
At the heart of Nike’s predicament lies the fact that workers that make Nike’s expensive running shoes according to consumers are not getting paid enough for the job. To justify spending $150 on a pair of sneakers, the average modern consumer needs to know that his money isn’t going to the pockets of greedy shareholders and overpaid executives but ends up, at least in part, to sustain the man or woman that made the product in the first place. The International Monetary Fund rates Vietnam at number 129 for Purchasing Power Parity per capita, only slightly higher than most African countries. The issue with PPP when considering “fair wage” however is that when workers get paid more, price inevitably go up, lowering PPP again.
Conclusion.
Nike should make its contractors accountable for their wage practices. Instead of a “lowest cost strategy” it should take the long term cost of image damage into account. With a transparent compensation policy the public can see for itself if a fair wage is paid. Most of all, an open dialogue with all stakeholders instead is crucial to understanding the issues. Without it, Nike is just guessing what the best policy would be and will lose out in the end.
