NIKE CASE STUDY

A Case of Unethical Business Practice in East & South East Asia

Introduction:
 Nike, Inc. is a major publicly traded clothing, footwear, sportswear, and equipment supplier
based in the United States. It is the world's leading supplier of athletic shoes and apparel
and a major manufacturer of sports equipment, with revenue in excess of US$24.1 billion
in its fiscal year 2012 (ending May 31, 2012). As of 2012, it employee more than 44,000
people worldwide. The brand alone is valued at $10.7 Billion making it the most valuable
brand among sports businesses.
 The company is headquartered near Beaverton Oregon, in the Portland metropolitan area.
Nike and Precision Cast parts are the only Fortune 500 companies headquartered in the state
of Oregon, according to The Oregonian.
 The company was founded on January 25, 1964 as Blue Ribbon Sports by Bill Bowerman
and Phil Knight, and officially became Nike, Inc. on May 30, 1978. The company takes its
name from Nike (Greek Νίκη, pronounced [nǐːkɛː]), the Greek goddess of victory.
 Nike markets its products under its own brand, as well as Nike Golf, Nike Pro, Nike+, Air
Jordan, Nike Skateboarding, and subsidiaries including Cole Haan, Hurley International,
Umbro and Converse.
 Nike, originally known as Blue Ribbon Sports (BRS), was founded by University of Oregon
track athlete Philip Knight and his coach Bill Bowerman in January 1964. The company
initially operated as a distributor for Japanese shoe maker Onitsuka Tiger (now ASICS),
making most sales at track meets out of Knight's automobile.
 In 1966, BRS opened its first retail store, located at 3107 Pico Boulevard in Santa Monica,
California.
 By 1971, the relationship between BRS and Onitsuka Tiger was nearing an end. BRS
prepared to launch its own line of footwear, which would bear the Swoosh newly designed
by Carolyn Davidson. The Swoosh was first used by Nike on June 18, 1971, and was
registered with the U.S. Patent and Trademark Office on January 22, 1974.
 In 1976, the company hired John Brown and Partners, based in Seattle, as its first advertising
agency. The following year, the agency created the first "brand ad" for Nike, called "There
Is no finish line," in which no Nike product was shown. By 1980, Nike had attained a 50%
market share in the U.S. athletic shoe market, and the company went public in December
of that year.
 Together, Nike and Wieden+Kennedy have created many print and television
advertisements, and Wieden+Kennedy remains Nike's primary ad agency. It was agency
co-founder Dan Wieden who coined the now-famous slogan "Just Do It" for a 1988 Nike
ad campaign, which was chosen by Advertising Age as one of the top five ad slogans of
the 20th century and enshrined in the Smithsonian Institution. Walt Stack was featured in
Nike's first "Just Do It" advertisement, which debuted on July 1, 1988. Wieden credits the
inspiration for the slogan to "Let’s do it," the last words spoken by Gary Gilmore before he
was executed
Product:
 Nike produces a wide range of sports equipment. Their first products were track running
shoes.
 They currently also make shoes, jerseys, shorts, base layers, etc. for a wide range of sports,
including track and field, baseball, ice hockey, tennis, association football (soccer),
lacrosse, basketball, and cricket.
 Nike Air Max is a line of shoes first released by Nike, Inc. in 1987. The most recent
additions to their line are the Nike 6.0, Nike NYX, and Nike SB shoes, designed for
skateboarding.
 Nike has recently introduced cricket shoes called Air Zoom Yorker, designed to be 30%
lighter than their competitor’s. In 2008, Nike introduced the Air Jordan XX3, a high-
performance basketball shoe designed with the environment in mind.
Manufacturing
 Nike has contracted with more than 700 factories around the world and has offices located
in 45 countries outside the United States.
 Most of the factories are located in Asia, including Indonesia, China, Taiwan, India,
Thailand, Vietnam, Pakistan, Philippines, and Malaysia. Nike is hesitant to disclose
information about the contract companies it works with.
 However, due to harsh criticism from some organizations like Corp Watch, Nike has
disclosed information about its contract factories in its Corporate Governance Report.
 Nike had looked to Asia to find the cheapest sources of production for its shoes. The
manufacture of an athletic shoe consisted of a number of steps: designing, model and pattern
making, molding of soles, material cutting, stitching, lasting, finishing, final inspection, and
packaging. These basic steps in practice fragmented into several hundred operations, which
were performed manually and required little skill. Access to a large unskilled workforce
and low labor costs were thus essential to producing shoes competitively.
 Nike never owned a factory in Asia, instead the company found subcontractors with whom
they contracted production. Thus the shoes and apparel were manufactured in independently
owned and operated factories, and Nike took ownership of the product only when it left the
factory. This meant that Nike could focus on design, marketing, and distribution of its
products.
 To oversee production, Nike had expatriate staff that was stationed at the contract factories.
The Nike staff acted as a liaison between Beaverton headquarters and R&D to help ensure
a smooth product development process and maintain quality control. Nike even encouraged
its partners to participate in joint product development activities, such as searching for new
materials and improving production processes
NIKE Controversy:
 Founded in 1964 through an investment of $500 each by Phil Knight and Bill Bowerman,
the company (then called Blue Ribbon Sports--BLS) has evolved from being an importer
and distributor of Japanese specialty track shoes made by Onitsuka Company, Ltd., of Kobe,
Japan, to becoming the world leader in the design, distribution and marketing of athletic
footwear
 According to company legend, Nike’s business model was developed by Knight while
attending Stanford Business School in the early 1960s. Knight realized that while lower-
cost, high-quality Japanese producers were beginning to take over the US consumer
appliance and electronic markets, most leading footwear companies (e.g. Adidas) were still
manufacturing their own shoes in higher-cost countries like the United States and Germany.
 By outsourcing shoe production to lower-cost Japanese producers, Knight believed that
Blue Ribbon Sports could undersell its competitors and break into this market. As a result,
Blue Ribbon Sports began to import high-tech sports shoes from Onitsuka Tiger of Japan.
 The Nike brand was launched in 1972, and the company officially changed its name to Nike,
Inc. in 1978. Nike developed a strong working relationship with two Japanese shoe
manufacturers, Nippon Rubber and Nihon Koyo, but as costs/prices increased in Japan over
the course of the 1970s (the first Oil Crisis on Japan’s economy,) Nike began to search
for alternative, lower-cost producers.
 By the early 1980s, as costs continued to increase in both Japan and the United States and
Nike closed its US factories and sourced almost all of its production from Asia.
 Nike’s strategy of sourcing shoes from low-wage countries in Asia had been one of the
fundamentals of the company’s strategy

Nike Child Labor Issues in Pakistan;

 Nike has been accused of using child labour in the production of its soccer balls in Pakistan.
 While Pakistan has laws against child labour and slavery, the government has taken very
little action to combat it.
 Pakistan has a traditional culture where earning of one person goes on feeding 10 mouths;
and with the high rate of inflation it becomes difficult for a low income population to
survive. Child labour is spread all over Pakistan but has the greatest impact in the north-
west of Punjab province, that is Sialkot
 Child labour exists in Sialkot both in the export sector and the domestic sector.
 In Pakistan it is clearly documented that child labor is against the law, but the government
carries lack of willingness to do anything about it.
 Provision for education is very limited, due to the fact that very low priority is given to
education in the national budgets.
 About half of the world's soccer balls are made in Pakistan, and each one of them passes
through a process of production where child labour is involved.
 More than 200 children, some as young as 4 and 5 years of age, are involved in the
production line. Majority of these children work in Asia, e.g in the nations of India,
Pakistan, Bangladesh and Indonesia.
 Nike is characterized of making its equipments in countries which are in the developing
phase, having very cheap labour, authoritarian government and lack of human rights appeal
and union movement. In doing this it has made greater margins on the cost of mere cents to
its workers. So Nike success story is not based on good name and advertising alone but also
attached to it is the tears of tortured workers and child labour.
 As a good chess player Nike always thinks ahead of its movement. It does not launch its
production directly in to the developing country, such as Pakistan, but instead it
subcontracts it to them by selecting a local firm. When doing this has to abide by the Nike's
international rules and regulations when producing its goods.
 Both Nike and the local production company aims to minimize cost and earn the highest
amounts of profit thus involving themselves in illegal practices, such as child labour, a
practice which is not so highlighted by the government of the host developing country
 Consumers should take an immediate action in order to eradicate child labour practices
discharged by these multinational U.S corporations. This can only be done by not buying
their products which are produced in the third world and which have suspicion of a child
being involved in the process. Child labour is a human rights issue.

Health and Safety Problems in Vietnam;

 Nike started its venture in Vietnam in 1995 and its share in the country’s Gross Domestic
Product reached 5 percent by 1999.
 The five Nike factories in Vietnam, owned by Korean and Taiwanese subcontractors,
employed over 35,000 people, predominantly young women, who left village farms to earn
better wages.
 a Nike sweatshop in an industrial estate in Dong Nai province, employed around 10,000
people
 Their monthly salaries (around $40) were insufficient for survival.
 A 1997 audit carried out by Ernst & Young showed that 104 workers at VT were below 18
years of age, which clearly violates the national labour code. The factory also avoided
complying with the country’s environmental regulations.
Following are the main issues involved in Nikes’ Vietnam;
Labour law violations:
Nike subcontractors violated many critical Vietnamese labour regulations, covering overtime
wages, night shift wages, and Sunday wages.
Wage:
Over 90 percent of the Nike workers in Vietnam are women, and most of them are between the
ages of 15 and 28. A uniform complaint among the women that they were not being paid a liveable
wage. The daily wage is approximately $1.60 and the cost of three simple meals is $2.10 per day.
Working conditions:
Several factory rules in place violate sensibilities and indeed, human dignity. Workers cannot go
to the bathroom more than once per 8-hour shift and they cannot drink water more than twice
per shift. If they violate this rule, they are given a warning and after 3 warnings, they can be
dismissed.
Health and safety practices:
Many health and safety standards in Vietnam are ignored by Nike factories. The medical facilities
at the factories were inadequate.
Sexual harassment:
Nike factory women workers in Vietnam usually face frequent sexual harassment from foreign
supervisors

Impact/Results;
 Activist campaigns demanding improved labour conditions in Nike plants gained
worldwide media attention and considerably affected the company sales during late 1990s.
 In May 1998, Nike announced a major initiative to eliminate the use of toxic solvent based
cleaners and glues, pledging to comply with US workplace laws in all its factories.

Low Wages & Poor Woorking Condition Issues in Indonesia:

The Factories: Nike had contracts with a dozen factories in Indonesia in 1997, employing around
120,000 people.
Working Conditions: In the early 1990s, reports of poor working conditions in the Indonesian
factories producing for Nike started appearing in the U.S. media.
Management: In Nike audits, several problems with Korean and Taiwanese plant managers were
reported. The workers considered some managers too strict; some were even abusive, shouting at
or striking workers, or issuing punishments considered excessive for bad work or tardiness. In one
story, a worker had to run laps around the factory because the shoes she assembled had defects
It is wrong to prescribe that MNCs are bad for the host country. There are positives as well
as negatives.
The Positive Impact:
1. Financial and Technological Resources and Expertise:
MNCs provide immense resources and investments, technology, innovation and expertise
to the host societies
2. Good Business Practices:
Good governance, organizational transparency, clear command structures, and
performance-based evaluation and incentives programs for employees encourage the merit
system. MNCs introduce a professional working environment and culture for local
organizations to emulate, thereby promoting sound management and business education.
3. Comforts of Life: In some cases, large-scale economies, quality control and a healthy
competition lead to price cuts and other benefits for the end-user.
4. Infrastructure Improvement: Many MNCs help in improving the infrastructure and
provision of basic needs in their specific areas of operation.
5. Pluralism: MNCs help boost cross-boundary interaction among people. Even education,
particularly, business education, has taken on a global perspective
The Negative Impact:
1. Conflicts of Interest
2. Increasing Materialism and Consumerism
3. Corruption and Crime
4. Healthcare Attitudes
5. Negative marketing
6. Inducing Buyers and Capturing the Market
7. Pushing Local Producers Out