The objective of this paper is to outline the legal, cultural, and ethical obstacles that the Nike Corporation encounters when conducting business globally. It will also discuss the roles of host governments and countries where Nike manufactures their products. Additionally, the author will summarize the strategic and operational challenges that Nike managers confront in the global expansion of their product.
Nike, headquartered in Beaverton, Oregon, is an American sports company. It was originally known as Blue Ribbon Sports and its objective is to become the leading global sports and fitness company (Nikebiz, 2010). In terms of manufacturing footwear, Nike has two choices: either to own and manage the factories themselves or to delegate the production to external entities. These facilities can be situated either domestically or internationally, and both locations can present challenges for the company’s systems and processes.
Companies that operate within their own country have a greater chance to effectively manage the workplace. This includes benefits such as the ability to assess and oversee workplace procedures, access to skilled employees, job generation, stability in the government, and the opportunity to reinforce labor practices. However, selecting this option may result in higher wages for workers. Conversely, companies that opt to operate overseas may find it more challenging to monitor the workplace effectively but can save funds by offering lower wages to their employees.
According to Hill (2009), the company is still required to abide by the labor laws of the country it operates in. Nike made the decision to outsource the creation and design of their products to manufacturing companies located outside of the United States. Despite this, Nike has experienced tremendous success in the market. In 2006, they generated $15 billion in annual revenue, sold their apparel in 140 countries, and had a global manufacturing network consisting of 600 factories employing 650,000 individuals. Analyzing Nike’s financials, one would find a company that is trustworthy and worthy of support. However, Nike also learned that achieving such success could come at a cost.
In 1996, Nike faced accusations of exploiting women and underage workers in sweatshops in foreign factories like Indonesia, China, and Vietnam. Workers reported low wages ranging from 11 to 45 cents per hour depending on the country (Hill, 2009). The challenges for Nike in this case study include legal, cultural, and ethical aspects. Despite subcontracting, Nike bears the responsibility of ensuring integrity in its manufacturing sites.
Following negative press and investigations regarding Nike’s involvement in running sweatshops, the company was compelled to reconsider its overseas operations. This required not only addressing the financial consequences resulting from the negative press, but also considering the ethical implications of such actions. In response, Nike initiated measures in the 1990s to rectify the situation. One such measure was the introduction of a code of social responsibility that was implemented across its supply chain. This code aimed to enhance working conditions for 800,000 employees across 700 factories in 52 countries.
Nike aimed to bring about systematic changes for its suppliers and the wider industry (Dutton, 2008). Yet, suppliers were not initially enthusiastic about these changes as they wanted to observe their own direct benefits. In order to drive the transformation, Nike had to assume a proactive role by setting the example and providing education. The company formulated a supplier code of conduct and established an internal team to ensure compliance with these standards. Additionally, Nike collaborated with external entities to monitor the implementation of these policies and maintained regular communication with their stakeholders.
Nike faced various challenges, including the need to eliminate excessive overtime for factory workers, implement human resource management systems, provide tailored educational training for subcontracted facilities, establish a freedom of association educational program in all focused factories, and take the lead in multi-brand collaboration on compliance issues in 30% of their supply chain (Nikebiz, 2010). However, Nike realized that despite their efforts to bring about changes within their subcontracting companies, it has not been sufficient.
Nike recognized their continued responsibility to both workers and the diverse cultures they engage with. To fulfill this obligation, Nike implemented a strategy known as The Compliance Generation. This approach focuses on enhancing their business value through various methods, such as establishing the function, addressing challenges, nurturing a global team, and forming partnerships. It also emphasizes streamlining employee management interactions, improving management audit proficiency, promoting global standards for environmental safety and health, fostering transparency, and implementing rating systems.
Nike’s objectives include enhancing factory remediation, establishing a sustainable sourcing strategy, promoting business integration and accountability, encouraging contract factory ownership of corporate responsibility, and improving industry conditions (Nikebiz, 2010). It is the duty of both Nike and host governments to ensure compliance with regulations and protect the well-being of workers in these countries. Prioritizing enforcement of labor laws and employee protection is crucial.
According to Bao Doan, the government has at times permitted labor abuses while addressing poverty and unemployment. International human rights organizations and labor coalitions have been working to convince foreign factories to improve living conditions. However, Vietnamese workers face challenges in organizing boycotts against mistreatment in sweatshops. The primary goal of protests by Vietnam workers is to attain a better standard of living, which falls under the jurisdiction of the Vietnamese government.
The government in Vietnam has the responsibility of ensuring that labor laws are followed by foreign investors. If these companies decide not to comply with the laws, the government is obligated to enforce them or require them to leave. In today’s business world, global managers encounter strategic and operational obstacles. Nike, for example, must constantly enhance their business performance and foster solid relationships with their international investments.
Nike needs to maintain its commitment to implementing and enforcing a supplier code of conduct that aligns with the company’s values. This will allow Nike to uphold its corporate social responsibility and also influence its suppliers. Additionally, Nike should continue its auditing practices, educational initiatives, and rewards for compliance to ensure that deviations from the standard are addressed. Effective communication is crucial for Nike when outsourcing its products in order to convey the company’s expectations.
Auret van Heerden, the president and CEO of the Fair Labor Association, suggests addressing the limitations of manufacturing sites by deploying monitors within factories. However, it is important to establish safeguards for these monitors. If the monitor is from a different country, they may overlook inconsistencies and be unaware of what to watch out for. Therefore, implementing multiple monitoring systems is necessary to ensure both efficient processes and ongoing worker protection.
When a company chooses to manufacture a product in a different country, it is vital for them to establish an ethics or corporate social responsibility policy. This policy should apply throughout the entire supply chain. The ongoing controversy surrounding Nike’s connection with sweatshops remains unresolved. Personally, I believe that both the nation where production occurs and the foreign investor hold a responsibility to enhance working conditions in these factories, regardless of gender, education level, or social status.
The company should comply with regulations and guidelines of the host country, giving priority to countries with higher standards. Demonstrating respect for all individuals, regardless of their social status, is crucial. Nike and other foreign governments seem to consider wealth as a significant indicator of social status.
- Charles W. L. Hill (2009), International Business, Competing in the Global Marketplace, Seventh Edition, Retrieved from Charles W. L. Hill, MGT/448 – GLOBAL BUSINESS STRATEGIES website
- Gail Dutton, (2008) How Nike is changing the World One Factory at a Time, retrieved May 29, 2010 from http://ethisphere. com/how-nike-is-changing-the-world-one-factory-at-a-time/