Hitting the Wall: Nike and International Labor Practices - An article discussion per Debora Spar case study
Written for Thunderbird School of Global Management - Summer 2011
1. Does Jeff Ballinger have a convincing
argument about Nike? Does Nike have a
convincing response?
What is so interesting about a case like this and our main
subjects - Nike and Ballinger - is that there are two completely biased
approaches to business. Nike obviously had little regard for CSR in the
beginning and not many would argue they had a pioneering attitude toward CSR.
Ballinger no doubt held motives in a blatant search for a big name firm to make
his case of "Western companies...are exploiting low-wage, politically
repressed labor pools". That being said, do these biased parties have a
convincing argument?
Regarding his argument, we defined Ballinger’s thesis
statement as such: "any company has a significant obligation towards even
its lowliest workers". We find this
to be a convincing argument both from a moral and financial perspective. These
companies are benefiting financially from the low wages paid to workers in
international manufacture plants which is allowing the company to have large
profits. Although exhibit 4 in the case illustrates how the total wages in
relation to the cost of living in the country is not quite as dire as Ballinger
and other activists contend, it does seem Nike can pay higher wages, additional
benefits and safe working conditions to the factory workers in these
countries. Although this would present an additional expense to the country, it
seems that with a Net Income of $451.4 million in 1999 the company can afford
to incur in this expense. Although I agree with Ballinger on multiple counts,
it does seem that he personally dislikes Nike and what the company stands for
and wants t make an example of this company by using his "one country-one
company" strategy. When there are countless multinational corporations employing
Indonesian and Vietnamese laborers which are paying lower wages than Nike.
Ballinger did not need to look very hard to find bribery in Indonesia
covering up labor violations including low wages and unhealthy work
environments. The question was really not "did Ballinger have a convincing
argument", but, how was one man going to get the word out about this. Although
it took nearly a decade, from labor strikes lending a spotlight on the issue to
Ballinger's big break publishing the "pay-stub versus Michael Jordan"
article in Harper's Magazine, the message finally hit the mainstream who
obviously deemed the argument "convincing".
Using the Value Chain Model supplied by Porter and
Kramer, we can see how Ballinger makes his case. He attacks both Nike’s Indonesian
Support Activities (Human Resource Management – compensation system) and
its Primary Activities (Operations – sporting apparel and equipment
assembly). However, he does this by making comparisons that are, in my opinion,
only partially objective. Although safety standards and the age at which a
person may start working can be transferred fairly equally across national
boundaries, wages simply cannot. It is entirely reasonable to ask a company not
to expose its employees to poisonous fumes or to have 11-year olds working in
its factories. On the other hand it is totally unreasonable to assert that a
“fair” wage in a developing country should be close to average wages in the
developing world.
On the other hand, Nike's representation of a response is one of the world's
greatest PR blunders ever. Nike would have done better to hire Kathy Lee
Gifford to apologize for them - as she did regarding her own discovery of a
clothing line manufacturing plant in Honduras she reported - then all of
the several steps they took. If a single, initial "response" could be
defined it was "without an in-house manufacturing facility, the company
simply could not be held responsible for the actions of independent
contractors". This response was echoed in all of the half-hearted efforts
the next few years that Nike took to simply band-aid the issue including the
internal Code of Conduct and Memorandum of Understanding, the Ernst & Young
audits, Apparel Industry Partnership, internal Labor Practices Department, to
the Andrew Young audit.
But then, why should Nike have really been concerned with coming up with an
effective, convincing response? It was in the middle of a decade with annual
double-digit growth and a true sense of invincibility. Unfortunately this does
not cleanse them of their sins nor of the fact that their response was
incomparably unconvincing.
In conclusion, Nike, a company that knows how to achieve goals and growth,
could have easily achieved a convincing response if it desired to do so. The
problem with the firm in the beginning of this struggle was a complete lack of
understanding and foresight on the part of Phil Knight and Nike Management to
proactively tackle this issue before it became out-of-hand.
2. How well has Nike handled the publicity
surrounding its labor practices? Could or should the company have done anything
differently?
We found that Nike’s handling of the publicity was
horrendous. Initially, Nike flat out
denied any obligation to rectify the exploitation of their suppliers' workers.
When pressures began to mount, Nike half-heartedly hired an auditor to audit
their overseas suppliers. Then when Nike's exploitation practices hit
mainstream, as evidenced by Nike being the subject of the Doonesbury comic
strip, they tried to do damage control by hiring Andrew Young to conduct an
evaluation of its code of conduct. This again was another failure as critics
ridiculed Young's report as it strayed from the accepted convention (format and
methodology). Nike failed to respond with sincerity up until their financial
success slowed.
Nike failed to consider one of the key components of the
diamond framework used in the article written by Porter and Kramer; Context
for Firm and Strategy and Rivalry. In the United States it is relatively safe
to assume that a subcontractor won’t use underage workers or expose its
employees to hazardous working conditions because there are regulatory entities
in place to monitor such activities. However, in the developing world, this is
a very dangerous assumption. The consequences of this mistake were significant.
Many journalists and activists portrayed the company as exploiters of workers
in poor countries. American customers expressed their outrage in the media and
with their wallets by boycotting Nike products.
An interesting point that this case made was that Kathy Lee
Gifford was linked to a clothing line produced in Honduras by child labor. The case
illustrated that Gifford immediately apologized for the issue, taking full
responsibility. Not only that, but with true sincerity Gifford cried and wept,
basically begging for Americans' forgiveness.
"The public" is generally forgiving when famous people or
corporations are sincere and up-front - they become "real" to us and
it is easier to forgive them. Nike should have taken extreme action as a
corporation. Phil Knight should have been Nike's Gifford and the company should
have enforced manufacturing requirement changes immediately. Nike's problem -
they did not believe at the time that anything could slow them down or harm
them.
Also, in order to address the complaints made regarding its
labor practices, the company should have proactively mentioned there was a
problem with conditions in the factories and outlined how it was providing
additional training for its employees and managers and working with its
partners to ensure all factories were safe. In order to address the perception
that the company paid inadequate wages, Nike should have constantly
communicated the findings from the study conducted by students from the Tuck Business
School which found the
company paid adequate wages. Since the study found that "factory workers,
after incurring essential expenditures can generate a significant amount of
discretionary income". Finally the company should continue to look for
ways to improve the conditions of its factories and the livelihood of its
workers.
3. What is a “fair’ wage in Vietnam? How
should Nike think about it?
Our group found several angles to answer this question:
- Livable
Wage Approach – A "fair" wage in Vietnam
should at the very least be the minimum wage in Vietnam, whatever that may be.
I would contend, however, that Nike should go above the minimum wage to a
livable wage such that a two income family should be able to support
itself. Nike should think of it
from its employee's perspective. What is the wage that they need to make
to afford a decent standard of living? Given that this a profit driven
company, this perspective is likely going to be taken to the extreme so
that the wage paid is minimized. I'd contend that whatever the wage needed
to afford a decent living, Nike should match it and go above it by a
certain percentage so as to give employees a reason to want to work at
Nike.
- Free
Trade Approach – A fair wage in any country is the wage in which employees
will work and the company can pay - the balance between supply and demand
like any fair trade. In a trade, both parties the supplier and buyer are
better off because of the trade or else they would not agree to the trade.
This premise holds the assumption that neither supplier nor buyer are
coerced or forced into the trade. In other words, the trade is completely
free of conditions that both parties do not agree to. Nike should think about wages in Indonesia
as they do when they offer an endorsement deal to Michael Jordan. They
should take into account all factors to set the price of the deal
to have Michael Jordan endorse their brand. With that being said, costs that should
be taken into account in Indonesia to set the wage offer to the working
population might be: total cost of goods sold goal, minimum wage
requirements, and the cost of negative press causing a negative reputation
and image.
- Wage
is not the Issue – The term fair wage is an unfair term that implies there
is a magic number that all sides will agree is sufficient based upon the
type of work being performed. The problem is that outside of market
forces, this magic number is almost impossible to accurately determine.
Rather than hypothesize about a number, I would point to the fact that the
factory is fully staffed. This serves as evidence that the majority of
workers perceive it is worth their time to continue as employees. I think
the wage issue was actually the catalyst for hostilities in other areas to
surface. If the workers in the plants were all adults and the safety
conditions were satisfactory, I think Nike could have pointed to market
forces as a reasonable driver of wage rates. However, when safety was
clearly an issue and “underage” workers were prevalent in subcontractor’s
facilities, the wage issue appeared to be one more ingredient in Nike’s
recipe for better profits at the expense of workers in developing
countries. I think Nike needs to “own” its value chain and not blame
subcontractors when confronted by critics. If the company creates a global
standard for its total value chain (i.e. safety, age of workers, etc.) it
can then, regardless of local conditions, build an organization that
proactively seeks to hold all members of its production processes to a
standard that is more acceptable to the world community.
- Total
Uses Approach – In order to adequately assess what a fair wage would
consist of in Vietnam, Nike should conduct a similar study to the one
conducted by Tuck students in Indonesia to estimate the cost of total uses
which is specific to Vietnam. After that study is conducted, Nike should
set wages which at a minimum meet the uses total of the group with the
highest total. For example, if the uses of married workers living at
home are the highest, the minimum wage for Vietnamese workers should be
that of this group. Nike should
update the uses total every year to meet inflation targets, and conduct a
new study every 3 years in order to ensure the uses total being applied is
accurate. Additionally to avoid backlash abroad, Nike should publish its
wage formula and communicate to its critics that although these totals are
low by US standards they provide adequate living conditions for its
Vietnamese factory workers.
