Hitting the Wall :
Nike and International Labor Practices
Kelompok 5 :
Titah Giri
Agung Mizar
Istiyana U Kristanti
Background
• In 1997, Nguyen Thi Thu Phuong died while making
sneakers
• In 1980s & 1990s the corporation had been plagued by a
series of labor incidents : underage workers in Indonesia,
allegations of coerced overtime in China, dangerous
working conditions in Vietnam.
• Stories of reported had been carried in publications such
as Time and Business Week, boycotts of Nike products by
Duke and Brown’s student
• Nike was becoming known as the company of labor abuse
Nike, Inc.
• Nike had been a corporate success story for more than 3
decades. Nike has inimitable attitude, phenomenal
growth, dictate fashion trend
• Corporate strategy by CEO Phil Knight :
a. Shave cost by outsourching all manufacturing
b. Marketing by using celebrity endorsements (Michael
Jordan and Tiger Woods)
• Nike shifted its supply to South Korea and Taiwan, where
cost were lower and production reliable. In 1990,
Indonesia had become critical location that supplied Nike
and a booming, enthusiastic as footwear industry
Taking care of business
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Indonesia seemed an ideal location for Nike : low wages, workforce was
docile and an authoritarian government was yearning for foreign direct
investment
In 1991s, daily minimum wage Indonesia was $1, South Korea $24.40 and US
$8. Cost manufactur China and Indonesia 50% less than Taiwan and South
Korea
A rare wave of labor unrest swept across the country. Strikes which had
beem virtually nonexistent in the 1980s. The source of these strikes, some
claim from Indonesian’s government, some say it come from outside
organization
A series of polemical articles about foreign companies labor abuses also
appeared in Indonesia newspaper, triggering unprecedented demand from
factory workers and empowering a small but potensi band of labor organizer
AAFLI published a highly critical report on foreign companies in Indonesia.
ITB documenting abusive pratices in Indonesian factories and tracking them
to foreing owners.
The Role of Jeff Ballinger
• In 1988, Jeff Ballinger is assigned to run the AAFLI office in Indonesia, and
was charged with investigating labor conditions in Indonesian plants and
studying min wage compliance
• Ballinger believed that Nike’s policy of competing on the basis of cost
fostered and even encouraged contractors to mistreat their workers to
achieve production target.
a. 17.000 violations reportes in 1988
b. Nike contractor regularly flouting Indonesian labor laws and paying
below-subsistence wages
• Ballinger’s goal is draw worldwide attention to the exploitation of third
world factory workers by rich US companies. After publish his report,
Balilinger set out to transform Nike’s competitive strength into a strategic
vulnerability
• In 1990s, Ballingers arguments coincided with the strikes that swept across
Indonesia and the newfound interesy of media groups, and then becomet
pay attention
Early Changes
• In 1992 Indonesia raised the official min daily wage from IDR 2100 to 2500
(US $1.24), but still not nearly enough
• Nike ask Dusty Kidd, a new member of public relations department, to draft
series of regulations for its contractors. In 1992 these regulations were
composed into Code of Conduct and Memorandum of Understanding,
attached new contracts sent to Nike contractors.
• Nike addresses seven different aspect of working conditions, including safety
standarts, environmental regulation and worker insurance.
• Meanwhile, other shoe companies had been facing similar problems. Reebok
sourced heavily from Indonesia and South Korea, but Reebok had moved
aggressively into the human rights arena.
Into the spotlight
• By 1992, criticsm of Nike’s labor practice had begun to seep outside of
Indonesia. In the August issue of Harper’s magazine, Ballinger published an
annotated pay stub from an Indonesian factory, making the soon to be
famous comparison between worker’s wages and Michael Jordan’s
endorsement contract.
• In 1996, the issue of foreign labor abuse Kathie Lee G. In April, human right
activists revealed that aline of clothing endorsed by Gifford had been
manufactured by child labor in Honduras. Although Nike was not directly
involved in the Gifford scandal, it quickly emerged as a symbol of worker
exploitation and a high profile media scapegoat
• Child labor was the first of concern
The View From Washington
Government intervention
• Sensing a hot issue, several senators and representatives
jumped into the action and began to suggest legislative
solutions
• President Clinton convinced a presidential task force to study
the issue, calling leaders from apparel and footwear industry
known as APPAREL INDUSTRY PARTNERSHIP (AIP)
• Hiring Earnest & young ,to Conducted formal audits of
overseas factories
• Established a labor practices department
The HotSeat
1997
• Child labour issue raised by life magazine.
• Michael Jordan asked to investigate the labour conditions.
• Doonesbury ,comics strip highlighted the issue for 15 odd
days in newspaper
• The wall street journal published ,”Nike had been its own
worst enemy”.
• Embarrassments for Michael Jordan & Jerry Rice at opening
of Nike town.
Damage Control
ERNST & YOUNG’S COMPREHENSIVE REPORT REVIEW.
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Nike is doing good but can and should do better.
Should publicise their code more widely
Improves systems for reporting workers grievances.
Implement cultural awareness and language training
programs
The Issue of wages
• Too little to compensate for their efforts,
• Too little compared to the final price of the
good they produced,
• Too little to live on.
Survey of Vietnamese and Indonesian Domestic
Expenditure(1997)
The Issue of wages
• Tuck Study : The average worker in a Vietnamese Nike
factory made about $1.67 per day. A pair of Penny
Hardaway basketball sneakers retailed at $150 (cost
worker 1 % from price Retail)
• EY finding uncovered serious health and safety issues
in a factory outside of Ho Chi Minh City. According to
the Ernst & Young report, a majority of workers
suffered from a respiratory ailment caused by poor
ventilation and exposure to toxic chemicals. The plant
did not have proper safety equipment and training, and
workers were forced to work 15 more hours than
allowed by law.
Hitting the Wall
1998
• Produced considerable pain
• Weak demand & retail oversupply
• Earning fell 69% the first loss in 13 years.
• Significant restructuring charges and the layoff of
1,600 workers
• Adidas fast replaced Nike’s swoosh among the
teen trendsetter crowd; rival brands New Balance
and Airwalk tripled their advertising budgets and
saw sales surge.
Hitting the Wall
1998
• Produced considerable pain
• Weak demand & retail oversupply
• Earning fell 69% the first loss in 13 years.
• significant restructuring charges and the layoff of 1,600
workers
• Adidas fast replaced Nike’s swoosh among the teen
trendsetter crowd; rival brands New Balance and
Airwalk tripled their advertising budgets and saw sales
surge.
• the anti-Nike headlines had trickled down to the
nation’s campuses (campus activists rejected Nike’s
contracts with their schools and demanded all
contracts cease until labor practices were rectified)
Hitting the Wall
Phil Knight
• Admitted that “the Nike product has become synonymous
with slave wages, forced overtime, and arbitrary abuse.”
Announced :
• Raising the minimum age of all sneaker worker to 18,
apparel worker 16.
• Adopting U.S. OSHA clean air standards in all its factories;
expanding its monitoring program;
• Expanding educational programs for workers;
• and making micro loans available to workers.
Hitting the Wall
1999
Involved with human right group reform effort :
• Apparel Industry Partnership (AIP)
• Fair Labor Association (FLA)
Recomendations
• Improving condition in foreign manufacturing plants
Consider wages, age requirements and safety issues.
• Protect NIKE's image brand through a code of
conduct.
• Proactive approach to become socially responsible,
concern NGO.
• Ensure transparency and accountability.
• Improve public relations.