Established in the early 70’s Nike, Inc., based in Beaverton, Oregon, USA faced a severe stream of criticism and experienced growing problems concerning their plants and employee treatment, mainly in Indonesia and Vietnam in 1988. Rising demand for Nike products, which almost doubled within a short period of time, led the company and its 350+ subcontractors to raise the production level. Series of labor problems and abuse such as cheap labor wages, poor working conditions, health and safety issues and underage workers exploitation, were the main issues Nike had to deal with. Furthermore, Nike, Inc. had to deal with managing the diversity of cultures and language barriers had to be overcome, while still be able to produce the high-quality product Nike is famous for. Throughout the 1990’s Phil Knight, CEO of Nike, Inc. and the company itself lost their superb corporate image in the eye of the world and it became an international incident.
Causes of Problem
After establishing a name in the world, Phil Knight, decided to manufacture Nike’s apparel in South Korea and Taiwan, and by 1982 already 86% of Nike’s sneakers came from these two countries. Realizing that Asian countries like Indonesia, Vietnam and China provide cheaper labor cost, better government support and higher profit, Nike moved their production lines there, with Indonesia becoming an important location. In 1991, the daily minimum wage was barely $1 in Indonesia, compared to a typical daily wage of $24.40 in South Korea and a US hourly wage of about $8 in athletic shoe manufacturing. Even that the Indonesian government raised the minimum wage from 2,100 Rupiah ($1.00/day) to 2,500 Rupiah ($1.25/day), the new wage was still underneath the workers’ living expenses. In 1992, these issues went outside of Indonesia and even hit Washington D.C., when President Clinton introduced the task force Apparel Industry Partnership (AIP) to develop and control labor standards for foreign factories.
Although Nike was the first one to join, they had trouble convincing people that everything went right in their plants in Asia. Ernst & Young was being hired to control and audit the factories, but soon voices became loud, that there was not a really objective view at the problems, since Nike was paying them. It hit the peak in 1997/ 1998, when TV shows, newspapers and even a movie (The Big One) were talking about the bad conditions within Nike’s factories in Asia and publicly challenged Phil Knight to change the way workers were treated, compensated and how underage workers were employed. Adidas, Reebok and New Balance took advantage of Nike’s down slope and gained in competitive advantage. This led to diminishing sales number, earnings fell 69%, and for the first time in 13 years Nike, Inc. had a loss at the end of the year 1998.
1.Government regulation of Nike
a)Local Government would have a closer look onto what is happening in its own country and with their people
b)US Government could also have a closer look onto what Nike is doing abroad and would be able to intervene any illegal activity from the motherland
c)Both governments would work closer together and it would open doors for other US companies to invest in the foreign country
a)As indicated in the case, some governments just see the money that is brought into the country, regardless what is happening within the company, or better said to its people.
b)Ties between the US government and the foreign country might not be the best, due to political tensions, and makes it therefore tougher to work together.
2.Improve employee’s working and living standards
a)”A happy employee is a better worker” – improve the employees living standard by raising his wage, giving him more benefits (health insurance, vacation time), lessen his working hours, etc.
b)Equal Opportunity – give chances to workers to move up the company ladder, and not only bring outside people in. Furthermore, adjust worker’s compensation, working hours and labor conditions to human standards.
c)Extensive training and development for managers – All managers should learn foreign country’s language, living habits and adapt to culture. Training the workers on the job will also help to overcome workforce diversity and make the workplace a better place to be.
a)The changes will take time and will be cost effective.
b)Adapt to western working habits, might be a huge change for Asian workforce and might not be adapted well
3.Documentation and Inspection
a)Factories will be supervised, by either the local government or organizations
b)Inspections will lead to better working conditions
c)Workers will have someone to talk to and will not be left alone
a)Again, organizations might be paid by Nike and not report the whole truth
b)Reports from workers might be left alone and not brought up to people in charge
The best alternative for Nike, Inc. is to undertake all three alternatives simultaneously. In order to gain back the market share and competitive advantage, their global view has to strengthen. They started off very well by implementing some of the above-mentioned ideas. These alternatives will just help them to become a stronger player in this fast growing and very competitive business world.
The actions, that Nike, Inc. should take are as followed: First they should work on getting their name back into the right spotlight, by implementing the alternatives. The governments will be more than willing to help them and since Nike is recognized all over the world, even the local governments/ countries are keen on keeping them in their country and employ their citizens. This might even bring countries like the USA and Indonesia closer together and more companies from the US will be ready to go to Indonesia and produce there. Secondly, the workers’ benefits, life standard and work habits are the most important of all of the alternatives.
Nike, Inc. should invest most of their research and development in this field, since the wages are still not as they should be. An idea would be to start raising the wages to at least the country’s standard, so that people can live off their earnings a normal life. Nike started successfully the implementation of programs that involved increasing the workers’ living standard in the developing world, but still the compensation of the worker is the main problem that needs to be taken on right away. Secure working places, no lay-offs and safe working environments should be steps that must be taken immediately, only then we can see the difference and make a worker a happy and productive employee.
Last but not least, Nike should be watched, inspected and documented upon. It will not only help the factories in Vietnam or Indonesia, but also the company itself. Once outside organizations tell Nike where they need to improve on and do it after being told, then the company will also get into the positive spotlight, which will resume in higher sales and more profit. Nike will then be again the strongest contender in supporting and sponsoring universities, pro athletes and teams and most important a company that everybody wants to work for, regardless where.
Courtney from Study Moose
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