International Business

Week One – Case Study:

Nike: The Sweatshop Debate

1- Should Nike be held responsible for foreign subcontractors’ working conditions?

Yes. In a society that avoids taking responsibility for their actions or the consequences of their actions it is important that business takes a stand for ethical implementation of strategic moves such as outsourcing. The factories that own the contracts must also be held to a high standard, in many cases higher than local government requires. This is a policy issue that should be (probably has been) dealt with head on by Nike.

Nike uses low cost production to be successful. With a product that is as labor intensive as apparel, the easiest way to produce them at a low cost is to find the lowest labor rates possible. This strategy also comes with some “hidden” costs. One of these costs is auditing the factories that they award contracts to. This auditing should be independent and according to an ethics standard that can be respected no matter the global location.

2- What labor standards should Nike hold foreign factories to? Local or USA?

I believe the answer is neither US nor local government standards are adequate. Many low labor cost countries have very minimal labor standards that give rise how “frustrated factory workers have become with chronically low wages, poor living conditions and disregard for their rights.” (China Labor Watch). China is actually improving their standards, but along with many other nations are far behind the US. However, if Nike were to pay the same wage as it did at home there would be little reason to go to other countries.

The most beneficial plan would be to follow local guidelines for payment, overtime, and cultural norms but would require working conditions and safety practices to be as close to the US as possible. Because each local is different it would be important for Nike to have a policy of what are absolutes (air quality, chemical protection) and what are negotiable (types of safety equipment required/ optional). It is important to follow the high side of local requirements for compensation because that will attract and retain the highest quality workers, but not put workers at risk of being discriminated against because of extremely high pay comparatively.

3- Should we criticize Nike for “low wage rates” when looked at in context?

It is always important to look at data in context. Analysts can make data say nearly anything they want if it is placed in the right context. Nike paying “double the average income of half the working population” (Hill, p157) does not sound like poor compensation practices. That statement is given in context, but when it is presented without context to an American that sounds terrible. We work in a state that requires a minimum wage of $7.95/hr so when we hear a number like $2.28 a day, we all think “I can’t even but a gallon of milk for that (let alone gas)….Nobody should have to work for so little”. Additionally to see the full picture it would be important for a policy maker (or a critic) to know what the wage rates are for the other half of the country.

4- Could Nike have handled the sweatshop issues better? How regarding Policy, PR?

Nike seems to have eliminated most of the problems that they had with sweatshop critics. I think one key to their success and something they should have done sooner is to have a well established Policy on how they should deal with labor issues. Once the standard is established they should have it published for the public to see (it is now easy to find online nikebiz.com). Then the final act should be to strictly enforce the policy using internal and external agencies for auditing and have clearly established severe repercussions for non-compliance. The second thing that could have been accomplished more gracefully would be to educate the public of the data used to establish the labor standards in each country. These are all added cost, but they could have prevented many of the protests and other costly “black eyes” Nike received from the media and other critics.

5- Should Nike make changes to its policy? What? What if it is detrimental?

If any changes were needed it would be recommending making them more public. According to their “Inside the Lines” code of ethics, they have good general policies as well as reporting methods. Additionally, page 21 gives a great outline of questions to ask yourself if you are dealing with a situation where there may be some ethical “gray area” (Nikebiz.com). It is also important that the policies of any global company be relevant; new situations arise and global laws change and organizations need to be agile enough to change with them.

6- Is FLA an industry tool?

According to the text, there is a wide range of stake holders that are involved with the FLA (Hill, p156). They include industry, lawyers, churches, international labor groups and universities. It would be reasonable to think that much of their funding comes from the industry but how much was not reported in the 175 page, 2007 annual public report (FLA). There may be some control held over the FLA because of this funding, but there are many other influences that should counteract any blatant misreporting. However, it is interesting to note that Mr. Knight withdrew a $30 million donation to UO when they joined a different auditing agency. If there were a few suspicions before this event, this only emphasized them.

7- Is there a global solution to sweatshops?

In a speech at Reinsch Library Auditorium, Arlington, VA then Secretary of Labor, Alexis Herman gave five steps to eradicate sweatshops:

First, to equip every worker with the skills to find and hold a good job; second, to move people from the welfare rolls to payrolls; third, to assure that all workers are economically secure when they retire; fourth, to help workers balance the demands of work and family; and, finally, to guarantee every worker a safe, healthy and fair workplace. (Herman)

Those goals were appropriate for the US and they will be effective throughout the rest of the world. Corporations have a large responsibility to enforce and train people if these are to be met worldwide.

China Labor Watch. Time Asia Magazine: Trouble on the Line. Retrieved May 16, 2008 from: http://www.chinalaborwatch.org/en/web/article.php?article_id=50241

FLA. Fair Labor Association, FLA Annual Public Reports. Retrieved May 17, 2008 from: http://www.fairlabor.org/pubs/reports

Herman, Alexis. Remarks at The Marymount University Academic Search for Sweatshop Solutions. Speech retrieved from: http://www.dol.gov/oasam/programs/history/herman/speeches/sp970603.htm

Hill, Charles (2008). International Business: competing in the global marketplace, e7. New York: McGraw-Hill Irwin.

Nikebiz.com. Code of Ethics: Inside the Lines. Retrieved May17,2008 from: http://invest.nike.com/phoenix.zhtml?c=100529&p=irol-govConduct