Critical Analysis of Ethical Issues and Dilemmas that Arise from International Business Practices - Ethics Essay Example

PART I: CRITICAL ANALYSIS OF ETHICAL ISSUES AND DILEMMAS ARISING FROM INTERNATIONAL BUSINESS PRACTICES

The media is cracking down on large corporations that exploit workers and call it fair globalization - Critical Analysis of Ethical Issues and Dilemmas that Arise from International Business Practices introduction. Investigative reports on the subject are common. This is not a case of, “any press is good press,” as is the mantra of many publicists. Instead, too much negative media coverage adds up to brand backlash that can no longer be ignored by the average consumer. In fact, in a MORI poll commissioned by the Co-operative Bank suggests that at least one third of consumers are ‘seriously concerned’ with ethical issues. One author (Mason, 2000) elaborates by noting that, “within the past year, over half of us have bought a product or recommend a company on the basis of its reputation” (p. 27). The bottom line is that consumers purchase products that they can feel good about owning.

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If a Nike swoosh conjures up images of underpaid, overworked Indonesian teenagers, a customer is less likely to buy that product. According to Mason (2000), “Product attributes such as quality and value for money still dominate purchasing decisions, but most of the populations says that other factors are important too – particularly how companies treat employees and impact on the environment” (p. 27). Patagonia is one company that promotes and acts on creative environmental strategies. As a result, customers perceive more value in its products. Other companies have found that, if they foster cultures that are more conducive to their employees needs, it not only increases productivity at the workplace but also earns the organization “feel good” press that may draw new customers to their products and services.

Of course, there is no doubt that ethical action and promotion is not high on the list for most large, global corporations like Nike. In fact, this practice of building a brand around higher ethical standards has, in the past, only been used by smaller niche businesses to gain ground with targeted consumers. As Mason (2000) notes, “Freedom Food eggs won an estimated 18% in the UK egg market in just five years and Cafédirect, a Fairtrade product has around 5% of the coffee market” (p. 27). However, studies show that there is much more opportunity to grow within this market. The Co-operative Bank’s report (Mason, 2000) suggests that the potential for ethical products and services in the UK could be as high as 30% of consumer markets (p. 27). It also refers to signs of a new move towards simplicity, a kind of 21st century anti-consumerism, which could act against the big multinational brands.

Some groups are protesting in a big way against unethical international business practices. Students are stepping up to the plate and demanding that university administrations publicly disclose the locations of factories that make the clothes with university logos on them. This Students Against Sweatshops program requires that, if the manufacturers do not pay a living wage and respect workers’ rights, the students do not want the clothing on their campuses. According to one journalist writing for the publication Herizons (2003), “The efforts of ‘Students Against Sweatshops’ are paying off at McMaster University in Hamilton, Ontario, which was the eighth university to adopt a No Sweat policy to ensure that its university apparel is not made under sweatshop conditions” (p. 14). This ‘Students Against Sweatshops’ group is an important contributor to the world’s human rights groups that are pushing for corporate codes of conduct among apparel companies. It targets college students, educating them about the importance of good business practices while they’re young. This demographic is also one of Nike’s primary potential customers, who may think twice about purchasing its products in the future.

Another group takes a similarly creative strategy of pointing out corporate wrongdoings. In 2000, the National Labor Committee for Human Rights (NLC) started handing out “Golden Grinch” awards to companies who stand out in the poor international business practices arena. Timing is key in this case; the group hands out the awards around the two busiest holiday shopping days of the year: the Friday and Saturday after Thanksgiving. As Feitelburg (2000) summarizes, “NLC declared Nike the ‘grand prize winner’ and the recipient of the Golden Grinch award for ‘gouging workers and consumers” (p. 14). At this time, Nike was charging $135 for a pair of men’s sneakers that cost $14.61 per pair to make in factories in China. Also, according to the same article, “It takes a Dominican factory worker 6.6 minutes to produce, inspect and package the sweatshirts, which retail for $23. Each worker earns about 8 cents per garment” (p.14). Because this information was widely promoted in the press that year, Nike saw a small, but certainly negative, impact on its sales.

These anti-sweatshop groups work with limited resources so they must be smart about how they approach their campaigns. Timing and strategy is essential in developing a promotion that will obtain the highest level of frequency and impact. This was the case in Australia, when three of the industry’s prominent labour watch groups, Nikewatch, FairWear and Textile, Clothing and Footwear Union of Australia, charged the company with unfair labour practices with a two-week anti-Nike campaign in Sydney 11-days before to the Summer Olympics. In a demonstration of its so-called “changed ways,” Nike sponsored 1,000 athletes from 68 countries, earning it a high-profile promotion in one of the most watched sporting events in the world. The Nike spokesperson’s response to the groups claims was to say, “We believe we uphold the Olympic ideal of human dignity,” according to Feitelberg (2000, p. 13). Nike also announced that it had no plans to change its independent monitoring or sign individual contracts for specific countries, which were the two main solutions encouraged by the groups. As expected, this fixed attitude did not win any points with its Australian consumer base. The anti-sweatshop campaign was successful in that it helped educate consumers about Nike’s general disregard for labour rights, a move they hope will negatively influence purchasing decisions.

Consumers may voice their opinions with their dollars, but the battles for corporate responsibility and human rights issues are mainly fought behind the scenes. According to Moberg (1999), “The sweatshop issue breaks out, sometimes unpredictably, on many other fronts: shareholder battles, legislative debates, international regulations, lawsuits, purchasing guidelines, the creation of corporate codes of conduct and the monitoring of workplaces. Religious institutions and union-influenced pension funds, for example, now regularly offer stockholder resolutions demanding action against labor rights abuses” (p. 15). Groups like these are the frontline defense against phony promises made by large corporations like Nike. They also voice their opinions in a language that makes Nike stand up and listen: dollars and cents. As Moberg (1999) elaborates, “In January US unions and labor rights groups filed a multimillion-dollar lawsuit against several dozen big retailers and manufacturers on a wide range of labor-law and business-fraud violations, including involuntary servitude and selling as “Made in the USA” garments produced under sweatshop conditions in the Northern Mariana Islands in the Pacific” (p.15). This additional pressure gives Nike the extra incentive necessary to ensure proper international business standards.

This is easier said than done, however, considering that the company also receives pressure from the governments of the countries where Nike has factories. Although basic standards may be in place, Nike must respect the cultural laws and differences of each individual country in order to continue a productive working relationship at that location. For example, the Athletic Footwear Association (AFA) developed Guidelines for Contractors and Nike has been a signatory since 1993. Participation is entirely voluntary and the guidelines do not include monitoring or enforcement provisions because doing so would be stepping on the toes of foreign government guidelines. For years, some Korean and Taiwanese factories have been run by managers who believe in intimidation and corporal punishment to achieve higher productivity from their employees. As Ballinger (1997) notes in his aptly titled article, “Nike does it to Vietnam,” “Fixing this problem could take years because that’s the culture they are working with and it must be respected by Western-based multi-nationals” (p. 21). This underscores the complexity of the issue; Nike may be accountable for the factories that it subcontracts, but ultimately the problem stems from long-term social and cultural issues within the countries where the factories thrive.

With the big picture in mind, it is interesting to note that the answers are not as simple as they may seem. According to Hill (2003), “The company has $10 billion in annual revenues and sells its product in some 140 countries…contracting for [PRODUCT] manufacture from a global network of 600 factories scattered around the globe that employ some 550,000 people.” The anti-sweatshop movement has only begun to chunk off the tip of the iceburg. Moberg (1999) intensifies this argument: “The frustrating truth is that, so far, [THE MOVEMENT] has one only modest, episodic victories for workers in poor countries and sometimes even those are snatched away as contractors shut down and move or corporations find new contractors” (p. 15). The business practices of foreign contractors cannot be entirely monitored, which will work against any advancements in the anti-sweatshop movement.

Some strategists believe that the solution lies in the ability to empower workers through education on their rights. Moberg (1999) notes that, “Generating sympathy with tales of outrageous abuse isn’t enough; if we actively focus on organizing unions and worker empowerment as a reality for these workers, we’ve got an issue with long legs” (p. 15). The article claims that this shift in relation to capital and labor is necessary for long-term change. Cleaning up factories and getting kids out of their doors is only a shortsighted step in the right direction. The motivating forces for organizing labour come from the groups in United States and also within the country itself. The International Textile, Garment and Leather Workers’ Federation has organized drives in Central America. This is quite a challenge, even in civilized countries. Other groups, like UNITE, have tried to accomplish the same thing in American sweatshops only to see that the company moved most of its work to factories in Mexico. Perhaps if large companies like Nike contributed money to these causes, the groups may have more powerful resources from which to draw and the process of positive change would progress at a quicker rate.

PART II: NIKE’S APPROACH TO CORPORATE SOCIAL RESPONSIBILITY

With the help of online resources and consumer reports, consumers are becoming more savvy about the products they buy and the companies that make them. This is an entirely different framework from the days of old, when price points were one of the only driving forces in the purchasing process. To succeed today, businesses must adopt an ethical path that will ultimately give them a competitive advantage. They must simultaneously talk the talk while walking the walk. Nike, in particular, is quite fluent in the former part of that statement with a PR strategy that speaks quite loudly about its new and improved business practices. The company may have been cornered and accused of using child labor and unethical international business practices, but if you believe everything its PR machine said, you might just think otherwise.

If Nike spent as much time, money and energy on improving work standards of its thousands of overseas employees as it does on its marketing campaigns, it would be a much more ethical company. Nike knew it was in trouble when, in 1996, a “48 Hours” report investigated one of the company’s factories in Vietnam. The reporter found the shop’s employees making 20 cents an hour and working over 200 hours of annual overtime to meet Nike’s ambitious quotas for shoe construction. There was no denying that Nike was at fault for taking advantage of a culture of poverty to make a more profitable product. Nike was quick to deny full responsibility, however. Refusing to take full accountability for such basic human rights violations, the company claimed it was working through a Korean contractor and was unaware of any wrongdoing. After Global Exchange and other global human rights groups made similar claims, it declared that it has taken huge steps to improve safety and working conditions for its overseas workers.

One approach Nike took to defend its actions was by hiring a top tier political player, Andrew Young, to travel to subcontractors’ plants around the world and write a report about the working conditions. According to Hill (2003), Young released a mildly critical report of Nike in mid-1997; he claimed he did not see, “Sweatshops or hostile conditions…I saw crowded dorms…but the workers were eating at lest two meals a day on the job and making what I was told were subsistence wages in those cultures.” Due to the fact that Young was reporting on Nike’s dime, human rights groups accused him of not taking his own translators and glossing over details in inspections. In response to these claims, he kept in line with Nike’s defense strategy: deny, deny, deny.

Nike immediately brainstormed a new plan of action, one that actually involved taking a more proactive stand to build better business overseas. Hill (2003) states that, “In early September 1997, Nike tried to show its critics that it was involved in more than just a public relations exercise when it terminated its relationship with four Indonesian subcontractors, stating that they had refused to comply with the company’s standard for wage levels and working conditions. Nike identified one of the subcontractors, Seyon, which manufactured specialty sports gloves for Nike. Nike said that Seyon refused to meet the 10.7 percent increase in the monthly wage, to $70.30, declared by the Indonesian government in April, 1997.” In the same article, Phil Knight is quoted as listing a number of new, more ethical initiatives including a raise in minimum ages limits, new audit/monitoring procedures and higher safety requirements. It’s hard to say whether or not the company would have made these decisions on its own, without pressure from the world’s ethical watchdogs.

It is interesting to note that, in 15 years of business, Nike has transformed from a one-man idea to a huge global entity and this kind of growth does not occur without a few bumps along the road. Zadek (2004) notes that, “Nike has gone from being the epitome of the worst global labour practices (perhaps an unjust mantle) to one of the leaders in addressing global supply chains and their impacts on developing countries” (p. 125). The author deconstructs this transformation into five steps. After all, change does not happen overnight, especially in large corporate organizations that are weighed down by the size and structure of the company’s global reach. In Nike’s case, corporate responsibility was not a founding principle; it was, instead, an objective to work toward as an evolution to ethical behaviour. Companies have recognised that they must change their organisations and respond to changes in societal beliefs and values.

The first step in the change process, according to Zadek (2004), is denial: “In nearly all cases of corporate responsibility attacks, companies will deny or dispute the claims”(p. 125). As noted earlier in this essay, this was the first and foremost tactic for Nike. It was, after all, a company that had built business on great marketing, so great PR was quick to follow. Unfortunately, these efforts only intensified the attacks. Understanding that this would not work, Nike entered the second phase of its change. Zadek (2004) clarifies, “Phase two is complience. In this phase, companies believe they need to ensure that they do not do what they should not do” (p. 125). This is a clear cut case with Nike, who hired not only Andrew Young, but also PricewaterhouseCoopers (PwC) auditors. According to Hill (2003), “An assistant professor at MIT followed the PwC auditors around several factories in China, Korea and Vietnam. He concluded that although the auditors found minor violations of labour laws and codes of condut, they missed major labour practise issues including hazardous working conditions, violations of overtime laws and violation of wage laws because the auditors had limited training and relied on factory managers for data.” Unless Nike could provide its critics with an objective and unsanitized perspective about its international business practices, it would be destined to loose its grasp on any integrity it may have had.

Nike’s unsuccessful attempts at step two of the change game led it to the next level. Zadek (2004) defines step three as, “A managerial phase where the company recognises that its own practices lead to poor behaviour” (p. 125). The philosophy behind this approach is that positive change can only start from within the company. Zadek (2004) notes, “In the case of Nike, it was ultimately poor forecasting of sales, its entrepreneurial brand management culture and its reward programs – especially of procurement teams – that actually led to the poor labour practices” (p. 125). Nike was forced to look in the mirror and examine its ethics from the inside out. The resulting cultural changes shook up the company and created tension among its ranks, but ultimately allowed it to focus on its labour practices. This was a natural progression to the next stage.

In stage four, Zadek (2004) describes a theory where, “corporate responsibility is embedded in the core business strategy and creates the platform to make social responsibility a strategic advantage” (p.125). At this step, the Nike management team begins to open their eyes and look outside the company for winning ethical strategies of other companies. It then attempts to incorporate these approaches into its own recently updated framework in hopes of a smooth segway into the last step, described by Zadek (2004) as, “civil leadership, where the company adopts a position and makes the rest of the industry follow” (p. 125). An example of this phenomenon can be seen in another industry: oil. BP is one company that has made direct and conscious efforts to research and react to its product’s connection to global warming. As Zanek (2004) observes, “the rest of the energy sector has (perhaps reluctantly) followed its lead” (p. 125). Nike’s revised position on international manufacturing and import/export agreements has, in part, changed how the business world works on a global scale. Some up and coming companies may be fearful of the backlash that Nike had experienced, others are just more aware of the ethical responsibilities of doing business. In its failures and resulting successes, Nike has remained a leading force in the industry. Competitors may not strive to follow in its footsteps, but they’ve certainly learned from its mistakes.

Corporate responsibility has resulted in the evolution of a company and the continued process of change within workplace cultures worldwide. Strategists claim that the costs associated with these changes are really the essential costs of doing business on a global scale.  Sometimes they may offer opportunities for competitive advantage, but that advantage may only be short term, as the industry gradually follows the leader. This may be why short-term share price moves do not show any real advantage from doing good. In the beginning, the problems are off analysts’ radars and, once they become more obvious, dealing with them is a cost of business. This is probably reflected in Nike’s continual growth in sales and share price, even when activists were challenging it. Most importantly, it shows that spin and public relations are not the solution: the real answers lie in how a company operates.

BIBLIOGRAPHY

Anon (2003) Take a hike Nike. Herizons, 17(2), 14.

Ballinger, J. (1997) Nike does it to Vietnam. Multinational Monitor, 18(3), 21.

Feitelberg, R. (2000) Australian groups set anti-Nike moves, leveling unfair labor            practices charge. WWD, 13.

Feitelberg, R. (2000) NLC’s Golden Grinch Awards. WWD, 14.

Hill, C. (2003) International Business Competing in the Global Marketplace. McGraw    Hill.

Mason, T. (2000) The importance of being ethical. Marketing, 27.

Moberg, D. (1999) Brining down Niketown: Consumers can help, but only unions and   labor laws will end sweatshops. The Nation, 268(21), 15.

Zadek, S. (2004) The path to corporate responsibility. Harvard Business Review: USA,  125.

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