An overview of the labor practices of NIKE and a walk through one of the most successful image turnarounds of the recent decade.

1. OR
Presented By:
Aarathy Krishna PGP05052
Joel K Daniel PGP05072
Praneeth PGP05083
Sonia Mohil FPM08
NIKE : INTERNATIONAL LABOR PRACTICES

2. INTRODUCTION
1964
• Founded in 1964 as "Blue Ribbon Sports” by Bill Bowerman and Phil Knight
• Based in Beaverton, Oregon
1971
• Name changed to Nike Inc.
2012-14
• Annual Revenue (2012) :$24.1 billion
• Brand Value (2014): $19 billion
• Most valuable brand among sports business
Subsidiaries
• Brand Jordan
• Hurley International
• Converse
Brands
• Nike Golf
• Nike Pro
• Nike+
• Air Jordan
• Nike Dunk
• Foamposite

3. THE KEY DIFFERENTIATOR
One of the world’s first
“virtual” corporations- a
manufacturing firm with no
physical assets
PRODUCTION
• No in-house production, no
dedicated manufacturing lines
• Not only outsource but outsource
to low cost parts of the world
MARKETING
• Money saved through outsourcing
pumped into marketing
• Establish an invincible brand
around the Nike name through
celebrity endorsements

4. IRONY WITHIN THE SUCCESS STORY
• The manufacture of Nike products carried out through low paid
underage non-American workers
• Constant hunt for cheaper supply base
• Started with Japan, then moved on to South Korea and Taiwan. In
1982 86% of supplies from these countries.
• By 1990 Indonesia emerged as the critical location for Nike with six
factories and a booming enthusiastic footwear industry
Country Wage Rate
Indonesia $1 per day
South Korea $24.4 per day
USA $8 per hour

5. Major stakeholders
Indonesian
Government
Media
Labor
activists
Factory
Workers
Celebrity
endorsers

6. 1991: unfamiliar turbulence
• In 1991 a rare wave of labor unrest
swept across Indonesia. There
were 112 strikes in 1991 as
compared to 19 in 1989.
• Articles in Indonesian newspapers about abuses by foreign companies
• AAFLI & ITB: Published critical reports on foreign companies in
Indonesia and tracing abusive practices to foreign owners
• Jeff Ballinger
• Nike’s policy of competing on cost fostered and encouraged contractors to
mistreat workers
• Nike’s contractors were constantly flouting labor laws and paying below
subsistence wages
• Transform Nike’s competitive strength into a strategic vulnerability
Sources
Indonesian
Government
Outside
Organizers
Random
eruptions

7. Immediate response
Indonesian Government
•Raised minimum wage from 2100 rupiah to 2500 rupiah
•No impact on training wage
•But this increase was still considered not enough by outside observers
Nike
•Denied responsibility for conditions in contractor’s factories
•“Without an in-house manufacturing facility the company could not be held responsible for the actions of
independent contractors”
•Composed a Code of Conduct and MOU covering different aspects of working conditions and attached it to the new
contracts
Reebok
•Reebok Human Rights award
•Formal Human Right’s Policy
•Specific standards for contractors and audits to ensure compliance

8. Focus of american media on nike
Kathy Lee
Gifford’s Sweat
Shop Scandal and
her reaction
Life Magazine’s
Picture of a 12
year old boy
stitching a Nike
Soccer Ball
Harper’s
Magazine article
by Jeff Ballinger
CBS interview
of Indonesian
worker

9. Response of washington
“No Sweat” campaign by Representative George Miller
Foundation of AIP by President Clinton
Establishment of Labor Practices Department by
former public relations executive Dusty Kidd

10. culmination
• Protests at Nike’s retail stores
• Dragging of Nike’s celebrity endorsers into the ruckus
• Release of The Big One by Michael Moore
• Op Ed by Greg Rushford “Nike Lets Critics Kick It
Around” in The Wall Street Journal
• Doonesbury Comic Strips

11. Damage control
• Drafted a series of
regulation
• composed into code of
conduct and MoU
• Addressing safety
standards, environmental
regulation and worker
insurance
1992: Severity of
Labour issue was
high
• Andrew Young- Good
works International Firm
• Report – not addressing
labour practises
• Merely made suggestions
to improve system and
implement awareness
1996: External
evaluation of
Code of Conduct
• Reebok faced same
problem , subject to
activist pressure and
unflattering media
• But they played
smart- aggressively
moving into human
rights arena
• Failure to address issue
of wages
• Only 10 day interview
• Translator provided by
Nike
• Lapse in accepted
research technique
• format of report
NIKE REFUSING TO ADDRESS THE PRESSING ISSUE OF WAGES PAID, DAMAGED THE SITUATION FURTHER.

12. Issue of wages
INDONESIA
Low wage - $1 /day
S. Korea - $24.4 /day
USA - $8 /hour
(athletic shoe manufacturing)
Nike’s cost competence strategy

Mistreat by contractors to maximise their
profit

Violation of Labour laws
* JAN 1992 : Increase in minimum daily wage
from 2100 Rupiah to 2500 Rupiah
( $1.04 to $1.24 / day)
* Labour condition (Child labour, Slave labour
and Unsafe environment) and wages
continued to be primary issue.
* Initially Nike ignored the issue to diffuse it
* 1997: Amos Tuck School of Business Survey
* Vietnam – discretionary income
* Indonesia: vary with demography
-91% -support individually
-49% only support dependants
-82% contributed to families (all
demography)
But…
* Factory wage – secondary in most
households
* Suggested progress in developing countries
providing jobs and wages, who didn’t
previously have both.
* STILL SOCIAL COMPARISON WAS
UNAVOIDABLE

13. Consequences of being unethical
• Weak demand and retail
oversupply
• Earnings fell 69% and layoff
of 1600 workers
Financial
problems
• Adidas’s logo replaced Nike’s
swoosh among the teen
• New Balance and Airwalk
tripled advertising budgets
Competitors
taking
advantage
• Victim of its own popularity
• Serious image problem
Loss of
goodwill
Denunciation
Symbol of
corporate greed
and exploitation
Rejection of Nike’s
Contracts
Spread of Student
Protests

14. SavingTheSwoosh Admitting the mistake
• Phil Knight accepted the
mistake in May 1998 to the
National press Club and
confessed labor issues .
• Acceptance about the slave
wages, forced overtime and
arbitrary abuse.
Correcting the mistakes
• Raising the age of sneakers workers to
18 and apparel workers to 16.
• Adoption of U.S. OSHA clean air
standards.
• Expansion of monitoring programs and
educational programs and micro loans
for workers.
Independent
Monitoring
Internal
Monitoring
Fair Labor
Association
Adjoining other
manufacturers
FurtherInitiatives
Extensive Training
Programs
Sole focus on CSR
Maintaining Labor
Standards
Continuous
Improvemen

15. Jack welch Model:- types of manager
Phil Knight (Initially) Phil Knight (Later)
Poor High
VALUES
High
Low
Competence

16. ACM Model
ACTORS
MANIFESTATION/S CONSEQUENCE/S
Actors
Internal Actors
Phil Knight-CEO
Jeff Ballinger
Andrew Young
Workers
Labor Association
External Actors
Government
Monitoring Firms
AT School of Business
Competitors
Customers
Media
Celebrities & brand endorsers