Question

Nike Becomes a Global Citizen

Craig E. Johnson

In 1962, Stanford University student Phil Knight came up with the idea to create one of the world's first “virtual companies,” a manufacturing firm with no physical assets. According to Knight's business plan, the company would cut costs by outsourcing all manufacturing and then pour the savings into marketing. Knight followed this formula to make Nike into the dominant athletic apparel manufacturer with an internationally recognized brand name.

Key to Nike's growth was the aggressive pursuit of low-cost labor. When labor costs began to rise, Nike urged its suppliers to move to lower-cost regions. The firm's first contracts were with Japanese manufacturers but then migrated to South Korea and Taiwan as production expenses increased. When costs in these nations soared, Nike contracted with facilities in China and Indonesia.

By the early 1990s, critics began to take note of conditions at Nike's suppliers. They documented inadequate pay (sometimes below legal minimums), dangerous working conditions, sexual harassment and physical abuse by supervisors, forced overtime, and the hiring of underage workers. The high-profile company made a tempting target for the Asian-American Free Labor Association and other human rights groups.

At first, Nike denied that it had any responsibility for conditions in its contractors' factories. One Nike manager responded to criticism in 1991 by claiming, “It's not within our scope to investigate …. I don't know that I need to know” (Paine, 2003). Pressure on the firm continued to increase, however. In 1992, Harper's magazine published a pay stub from an Indonesian factory, comparing workers' wages and Michael Jordan's Nike endorsement contract. It would have taken the average Indonesian worker 44,492 years to make what Jordan earned by promoting the company's sneakers. Later, CBS interviewed Indonesian workers who were paid 19 cents an hour and found that female employees could leave the company barracks only on Sunday afternoons with a special letter of permission from management. In 1996, Life magazine published a photo of a 12-year-old Pakistani boy stitching a Nike soccer ball.

Nike abandoned its hands-off policy in response to public criticism and began to address working conditions at its suppliers. The firm drafted a set of standards, hired Ernst & Young to conduct formal audits of overseas factories, sent former ambassador Andrew Young overseas to evaluate its code of conduct, and established a labor practices department. Activists and the public were skeptical about these efforts. In particular, they questioned the validity of the audits, which were sponsored by Nike. These evaluations were poorly designed and ignored key issues like factory wages. The year 1998 was a watershed year for Nike. The company's earnings dropped dramatically due to changing tastes and anti-Nike campaigns. Knight announced a series of reforms, including (1) raising the minimum age of all sneaker workers to 18 and apparel employees to 16, (2) implementing OSHA (Occupational Safety and Health Administration) clean air standards in all of its factories, (3) expanding educational programs for workers, and (4) making micro loans to employees. Nike then helped create an oversight organization with other apparel groups (the Fair Labor Association), and Knight was the only U.S. CEO present at the formation of the U.N. Global Compact. By 2004, Nike had made significant progress in its transition from corporate pariah to a socially responsible industry leader. That year, representatives from the human rights, international labor development, and environmental communities (often highly critical of the “swoosh” brand) gathered at the company's headquarters to discuss issues facing international workers. Nike's 2004 corporate responsibility report contained the names and addresses of 705 contract factories operating in 50 countries, along with audit results. This marked the first time that any major U.S. apparel company had released such details to the public. Nike's experience since 2004 illustrates the difficulties the firm faces as a global citizen. After examining Nike's factory audit data, Richard Locke of MIT's Sloan School of Management found that, despite “significant efforts and investment by Nike … workplace conditions in almost 80% of its suppliers have either remained the same or worsened over time” (Levenson, 2008). The problems seem to be greater in apparel factories than at shoe factories because Nike deals with many more apparel contractors on a short-term basis. At the time of writing, Nike wasn't about to give up its efforts to act responsibly, however. It was trying to convert suppliers from assembly lines to multitasking teams. Such a move would require that subcontractors provide more training and treat skilled workers better in order to retain them. Company managers were also trying to cut down last-minute design modifications and order changes, which result in greater demands for factory overtime. At the same time, Nike was adopting more sustainable manufacturing processes. The firm was considered a leader among top consumer brands in addressing climate change. Current shoe models produced 17% less waste and used 20% more green materials than previous models.

Q: Like all big companies, Nike started from a much smaller scale. When Nike has grown into a large international organization, the company bares different accountabilities in terms of ethics. Please compare Nike’s ethics concerns (what ethical responsibilities a company has, and capabilities of a company to be ethical) when it just started business with Nike in its contemporary stage.