The purpose and intent of this paper is to describe the legal, cultural, and ethical challenges that face the Nike Corporation in their global business ventures. This paper will also touch on the roles of the host government and countries where Nike manufactures their products and the author will summarize the strategic and operational challenges that Nike managers face in globalization of the Nike product.
Nike is a United States based sports company in Beaverton, Oregon. Nike’s original name was Blue Ribbon Sports and its mission is to be the world’s leading sports and fitness company (Nikebiz, 2010). Nike had two options for the manufacturing of footwear products. The first option is Nike can own and operate the factories and manufacture the product. The second option is to subcontract the manufacturing of the products to outside sources. In either situation, the facilities can be domestic or international and the company can have issues within its systems and processes at either place.
Companies that stay within the domestic territory have a better opportunity to manage the workplace such as the benefit of being able to evaluate and monitor workplace processes, skilled workers, job creation, government stability, and the ability to reinforce labor practices. However, when using this option the company may suffer in paying higher wages to their workers. For companies choosing to operate overseas the effectiveness of monitoring the workplace is less effective but the company would save money by paying lower wages to the workers.
The company still must follow the labor laws of the hosting country (Hill, 2009). Nike decided to create and design the product and use manufacturing companies outside of the United States. Nike has continued to soar in the marketplace and in 2006, Nike’s annual revenue was 15 billion dollars, sold Nike apparel in140 countries and had a global manufacturing network of 600 factories and employed 650,000 people. If someone were looking at the financials of Nike, one would see a company he or she could stand behind and represent. However, Nike found that success could come with a price.
In 1996, there were accusations that Nike was using women and underage workers who work long hours and in unsafe conditions in those sweatshops in foreign factories such as Indonesia, China, and more recently in Vietnam. Factory workers reported being paid 11 cents to 45 cents per hour depending on which country they lived in (Hill, 2009). Challenges for Nike are the legal, cultural, and ethical points of view of this case study. Even though Nike may subcontract its companies overseas, Nike still has a responsibility to make sure the manufacturing sites are ran with integrity.
After the negative press, and investigations that took place to prove Nike was guilty of running sweat shops, Nike had to rethink their position overseas and they had to begin to think about the effect the negative press had on its financial stand as well the effect it had from an ethical point of view. In the 1990’s Nike began to take steps to rectify the implications such as the implementation of a code of social responsibility throughout its supply chain that would make an improvement in the working conditions of 800,000 workers at 700 factories in 52 countries.
Nike’s goal was to make systematic changes for its suppliers and the entire industry this affected (Dutton, 2008). However, suppliers were not so eager to make these changes because the suppliers wanted to see their direct benefits. Nike had to become first partaker in the changes by first leading by example and through education. Nike developed a supplier code of conduct, and assembled an internal team to enforce the codes of conduct, also working with external processes to monitor the policies set into place and developing consistent contact with their stakeholders.
Other challenges for Nike were eliminating excessive overtime for factory workers, putting into practice human resource management systems, educational training tailored to their subcontracted facilities, put in place a freedom of association educational program in 100% of focused factories, and lead the charge in multi brand collaboration on compliance issues in 30% of their supply chain (Nikebiz, 2010). Nike soon realized even though they have attempted to make changes within their subcontracting companies it has not been enough.
Nike realized they have an ongoing obligation to the workers, as well to the different cultures that are involved. Nike implemented a process called The Compliance Generation, which involves increasing their business value by establishing the function, fighting fires, building a global team, and establishing partners. Employee management interaction making the work more systematic, building excellence in management audits, building environment, safety, and health global process, creating transparency, and creating ratings.
Nike wants to have a transformational focus on building excellence in factory remediation, developing a sustainable sourcing strategy, building business integration and accountability, increasing contract factory ownership of corporate responsibility, and building industry conditions (Nikebiz, 2010). Not only does Nike have a responsibility to be in compliance but also the host governments have a responsibility to protect the citizens who live and work in these countries. The enforcement of labor laws and the protection of the employee must be a priority.
In an article written by Bao Doan, the government, in an attempt to alleviate poverty and unemployment, has sometimes opened doors for labor abuses. According to the article international human rights, groups and labor coalitions have tried urging foreign invested factories to improve the living conditions, and Vietnamese laborers have little power to organize boycotts to try to stop the treatment going on in said sweatshops. The Vietnam workers in these factories are protesting more to have a better quality of life and the government of Vietnam has a responsibility to make this happen.
The Vietnam government has the responsibility of ensuring workers when foreign investors enter Vietnam these companies are abiding by the country’s labor laws and if these companies refuse, it is the responsibility of the Vietnam government to enforce the law or force out the company. There are strategic and operational challenges facing global managers in today’s marketplace. In the case of Nike, they have to continue to better their business performance and relationships with its foreign investments.
Nike must continue in its efforts to make a change by continuing the supplier code of conduct that extends the corporation’s values to its suppliers. Nike must continue in its efforts to retain good corporate social responsibility, which can have an influence on their suppliers. Nike must continue in its auditing practices, best practices in education, rewarding compliance and ensuring that variances from the standard are not ignored. Nike must be able clearly to communicate what the company expects when outsourcing their product.
Auditing companies according to Auret van Heerden, president and CEO of the Fair Labor Association, states placing monitors in these factories may be another option to curve the disadvantages these manufacturing sites may have. Checks and balances of the monitors need to be in place. If the monitor is from outside the country, there is a possibility to miss certain discrepancies and the monitor may not be aware of what to look for. The company will have to use a variety on monitoring systems to ensure the process is being effective for the continued protection of the workers.
In conclusion, a company deciding to manufacturer a product in another country should have a corporate social responsibility policy or ethics policy and should extend its values throughout its supply chain. The debate against Nike and their involvement in sweatshops remain to be resolved. My personal belief is that the hosting country as well as the foreign investor has an obligation not only to the betterment of the country but both entities have an obligation to the workers in these factories no matter what the gender, educational background, or social status.
The company should always follow the rules and regulations of the host country but the country with the higher standards should place above all. Individuals should always be treated with respect no matter what their social status is and money seems to be the social status behind Nike, and other foreign governments.
- 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/