International Business: Competing in the Global Marketplace
Fourth Edition
Cases
NIKE: THE SWEATSHOP DEBATE
SYNOPSIS
Nike is a worldwide global corporation that has its shoes manufactured on a contract basis in places like
Asia, China, and Vietnam. Although it does not actually own any of the manufacturing locations, it has long
been accused of having its products manufactured in facilities that exploit workers. Although Nike admits
some wrongdoing in the manufacturing facilities of its contractors, it claims to have started a commitment to
improve working conditions in those facilities.
Nike has suffered attacks from a number of agencies and organizations throughout the world that claim that
the workers who manufacture Nike shoes are denied the basic essentials of living—a fair wage and decent
benefits. All that occurs while several sport megastars are reaping in multimillion dollar contracts to
promote Nike shoes. Over the years, Nike formulated tactics to deal with the problems of working
conditions and compensation in subcontractors. It hired a strong consultant (Andrew Young), commissioned
an independent audit of its subcontractors, and spelled out initiatives to improve those working conditions.
Still, Nike’s critics were not satisfied. They protested on university campuses and accused Nike of
continuing to hide the conditions of workers.
TEACHING OBJECTIVES
The main teaching objectives of the case are:
1.
2.
3.
Provide an understanding of pressures that can affect an international company accused of worker
exploitation.
Indicate how a firm must be responsible for its subcontractors, even though they appear to be
acting lawfully in a foreign country.
Show that aggressive public relations campaigns may still be ineffective when the actions of
contractors receive widespread attention and intensive media coverage. .
This case can be most effective when used after Chapter 4, describing the issues and debates involved in
international business.
STRATEGIC ISSUES AND DISCUSSION QUESTIONS
1. Should Nike be held responsible for working conditions in foreign factories that it does not won, but
where sub-contractors make products for Nike?
Although Nike may be technically removed from responsibility in some areas, it clearly has the obligation
to be certain that exploitation by subcontractors do not occur. Certainly the pay and working conditions that
the workers of subcontractors receive is due in large part to the contract that has been negotiated by Nike. If
Nike had chosen to make improved working conditions a part of the arrangement, them those benefits may
have been passed on to the workers. Still, Nike is a publicly owned firm whose goal is to improve the
wealth of its shareholders. The workers in these Asian countries were happy, even eager, to accept the
conditions that were provided as a manufacturer of Nike. The reason is that those wages were probably
equal or superior to wages available from other sources. If Nike were to leave the country because of the
pressures placed upon it, the workers would undoubtedly suffer greatly.
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International Business: Competing in the Global Marketplace
2.
Fourth Edition
Cases
What labor standards regarding safety, working conditions, overtime, and the like, should Nike
hold foreign factories to: those prevailing in that country, or those prevailing in the United States.
Clearly, Nike has the responsibility to hold suppliers to those conditions that prevail only in the supplying
country. If it insisted on prevailing conditions in the United States, there would be little reason for Nike to
seek contractors from outside countries. However, through pressure or contractual concessions, it is
possible for Nike to seek ways to improve the conditions of workers in supplying countries. In doing so,
Nike may find that it receives some public relations benefit rather than undergoing the effort and the cost of
developing defensive PR strategies.
3.
An income of $2.28 a day, the base pay of Nike factory workers in Indonesia, is double the daily
income of about half the working population. Half of all adults in Indonesia are farmers, who receive less
than $1 a day. Given this, is it correct to criticize Nike for low pay rates for its subcontractors in Indonesia?
Although student answers will vary according to their sensitivity on this issue, Nike probably should not be
held responsible for the pay rates of its Indonesian subcontractors. The worker pay, and resulting low cost
of goods, is a major reason why Nike has contracted with these subcontractors. The result has been to given
jobs to Indonesians who might not other wise have them. It is also not clear to what degree Nike can
influence the pay that subcontractors pay to workers. Therefore, it is not fair to be continually critical of
Nike in that regard.
4.
Could Nike have handled the negative publicity over sweatshops better? What might have been
done differently, not just from the public relations perspective, but also from a policy perspective?
There is certainly major room for Nike to improve on its handling of the negative publicity. A defensive
policy of denial is always more poorly received than an open admission of fault with constructive strategies
for improvement. Part of Nike’s problem was that it didn’t address the total criticisms, and chose to answer
the age issue rather than the issue of total inferior working conditions. Its strategy to announce policy
change at large public relations functions appeared insensitive, rather than addressing criticism directly, on
the spot, and with corrective action strategy in hand. From a policy perspective, it would be better to
suggest programs for training of workers, changes in suppliers and a general improvement of the plight of
the worker. The development of advisory boards and the involvement of interested agencies and outside
organizations to achieve a consensus for the improvement of working conditions might be more effective,
both from a PR point and a policy initiative than to continue to with its own inward looking policies.
5.
Do you think Nike needs to make any changes to its current policy? Is so, what? Should Nike make
changes even if they hinder the ability of the company to compete in the market place?
Clearly Nike needs to make changes in its policy, if only because its current policy has served it so poorly.
One strategy would be to involve international agencies to assist with policy adjustments that will help to
correct the problem. Another change might be abandoning a defensive, “it’s not too broke” strategy and
admitting the problem, while outlining strategies for improvement. But Nike’s major obligation is to its
shareholders and to continuing to operate in an increasingly competitive marketplace. It does the plight of
the worker not good if Nike adopts policies that eventually cause its business to go under. The question of
changes that make the company uncompetitive is a real one—one that is addressed by international business
managers all the time. Clearly, Nike has to remain competitive while still causing change to occur to its
workers, and that is a challenge that is formidable.
6.
Is the WRC right to argue that the FLA is a tool of industry?
Perhaps not any more than to argue that the WRC is a tool of organized labor. If the FLA is incapable of
conducting independent audits of international sweatshops, then the charge may be partially true. But the
WRC, funded and backed by labor unions, refuses to meet with companies because it would “jeopardize its
independence.” With that kind of posturing and intransigence, both sides appear to be culpable with a
highly emotional issue.
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7.
Fourth Edition
Cases
If sweatshops are a global problem, what might be a global solution to this problem?
Sweatshops are a global problem in that companies the world over can seek low cost manufacturers in every
corner of the globe. When those low costs occur as a result of inferior, and even illegal, working conditions,
then sweatshops are a major global problem. A possible solution would be to change, or at least modify, the
conditions under which sweatshops continue to function. Universal workers rights, with minimum age and
minimum wages could be a solution. Still, certain countries will always have the advantage of low cost
labor and will exploit that advantage in the international marketplace. However, the disparity between the
great differences in labor cost can be lessened, but it can best be done by continuing to promote world free
trade and continuing to improve the quality of life in developing nations, where low cost labor is most
abundant.
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