Nike in Asia – Just do it!
This case, which is based on published sources, was prepared by John Hendry with the assistance of MBA student Toshiaki
Fujikawa. It draws heavily on two earlier cases: P.M. Rosenzweig, “International sourcing in athletic footwear” (HBS 9394-1489) and T. Wheelen, M.H. Abdelsamad, S.E. Fieber and J.D.Smith, “Reebok International Ltd (1995): The Nike
Challenge” from T.L.Wheelen & J.D. Hunger, Strategic Management. 6th edition. Addison Wesley, 1998. The case is
intended to provide a basis for class discussion and not to illustrate either effective or ineffective handling of an
administrative situation.
Nike Inc. needs little introduction. With revenues of nearly $10 billion in 1998 and a
dominant position in the worldwide athletic shoe and sports leisure wear industries it owns
one of the world’s most famous brands and most instantly recognisable logos. In purely
economic terms, the story of Oregon-based Nike since its creation by Philip Knight in the
1960s has been one of almost continuous success, but since 1991 the corporation has also
attracted attention for another reason. This case reviews some of the criticisms that have been
made of Nike on ethical grounds and the corporation’s responses to them, in the context of
the competitive pressures of the industry in which it operates.
Nike and the athletic footwear industry
When Nike was founded in 1964 the athletic footwear industry was a relatively small,
specialist industry with a pure sports orientation, dominated by the German companies
Adidas and Puma. In the 1980s and 1990s, however, the industry has grown rapidly as,
beginning in the USA and subsequently throughout the world sporting activities have become
increasingly fashionable and sportswear, in particular the ubiquitous “trainer”, has come to
dominate leisurewear fashions even for those not engaged in active sports.
By the early 1990s, Nike had held the number one position in the American athletic footwear
market for over a decade and held over 30% of that market. It was also firmly established as
number one in the global market with a market share of over 20%. Both revenues and profits
were growing steadily at between 20% and 30% per annum (see Exhibits 1 to 4 for financial
and market share data). But while these results were very satisfactory there was no room for
complacency. Nike’s lead over its main competitor, the Anglo-American company Reebok,
was a very narrow one, and both Reebok and a resurgent Adidas were stronger than Nike
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1
outside the USA, and especially in the economies of Western Europe that were expected to be
critical for future market growth. While the public appetite for athletic footwear as leisure
fashion continued to grow there was also the ever-present danger of a dramatic change in
fashions back to the traditional leisure shoe, a change that could also be expected to hit
Nike’s non-footwear products such as baseball caps and sweatshirts.
The primary focus of competition in the modern athletic footwear industry is marketing, with
the leading players spending around 10% of their revues to promote their brands through
advertising and endorsements. Nike, Reebok and Adidas all follow classic differentiation
strategies, seeking to sell their products on quality and image at a premium price rather than
to compete with each other or with their smaller competitors on the basis of low prices. Their
production costs are still significant, however, and minimising these costs has always been
very important. (Exhibit 5 gives a typical cost breakdown.)
Nike’s production strategy
Neither Nike nor its main competitor Reebok manufacture their own shoes, both corporations
relying on Far Eastern subcontractors. In the 1980s, most of the shoes were sourced from
companies in Taiwan and South Korea, but as wages in both these countries rose sharply in
the second half of the decade, rising two and a half times between 1986 and 1990, these
companies came under strong pressure from Nike and Reebok to shift production to lower
wage countries. By tying future, guaranteed orders to significant cost improvements they
encouraged the companies to invest heavily in new plant in China and Indonesia. By 1990,
Nike was already sourcing from six factories in Indonesia, four of which were owned by its
established South Korean suppliers while the other two were locally owned. Together they
employed 24,000 workers and accounted for 8% of Nike’s global volume. Over the next three
years, the number of people employed overall in the South Korean and Taiwanese shoe
industries fell dramatically (from nearly 500,000 to just 120,000 in South Korea). By 1992
the majority of Nike’s shoes (and the majority of Reebok’s too) were being sourced from
South Korean owned factories in Indonesia and Taiwanese owned factories in China.
Thailand, the Philippines and, later in the decade, Vietnam, were the other main sources of
production.
The main attraction of countries like Indonesia and China was their low labour costs, which
were less than 10% of those in Taiwan and South Korea and around 4% of those in the USA
(see Exhibit 6). Indonesia, which was to be the main focus of Nike’s critics, had a population
of 180 million, a rapidly growing workforce and very high unemployment. Employment
legislation was weak and the government, which was desperately keen to encourage foreign
manufacturers, did not appear too worried about enforcing what laws there were. From an
economic point of view, for a company such as Nike, it was heaven.
Criticisms and responses
It was not, however, heaven for the Indonesian people, and from 1991 onwards Nike came
under repeated attack for what, it was claimed, were seriously unethical aspects of its
 John Hendry 2000
2
sourcing policy. The first criticisms came in two 1991 reports, one from the Indonesian
Institut Teknology Bandung and the other from the Asian-American Free Labor Institute,
which accused Nike’s subcontractors of violating child labour laws, failing to respect special
work rules for women, forcing people to work overtime and paying less than the minimum
wage, which at the equivalent of US$1 a day was itself not enough even to feed an individual.
(Even after the minimum wage was raised to the equivalent of US$1.20 in 1992 it was
reported that, at prevailing food prices, this could purchase only 70% of an individual’s
minimum calorific needs.) The AAFLI report claimed that young women employees
complained of an atmosphere of fear, with South Korean managers shouting at and
threatening them.
Nike responded to these criticisms in two ways. Externally, the corporation argued that the
problems lay with its subcontractors, for whom it should not be held responsible. As the Nike
general manager in Jakarta responded: “They are subcontractors: it’s not within our scope to
investigate.” The Nike vice-president for Asia was similarly reported as saying that “we don’t
know the first thing about manufacturing. We are marketers and designers”. Anyway, he
added, regardless of the criticisms Nike was bringing great benefits to Indonesia: “We’ve
come in here and given jobs to thousands of people who wouldn’t be working otherwise.”
Internally, however, Nike drew up a Memorandum of Understanding (Exhibit 7) to act as the
basis for its subcontractor and supplier relationships and protect it from future criticisms. This
required subcontractors not only to comply with local legislation but also to maintain on file
evidence of such compliance. It also required them to adhere to Nike’s own environmental
and equal opportunities practices.
The Memorandum of Understanding was drawn up in 1992 and adopted formally in 1993,
but it did not protect the corporation from further criticism. A CBS report on a Nike
subcontractor’s Indonesian factory in the summer of 1993 drew attention to continuing low
wages and to a system in which women employees lived in on-site company barracks which
they were only allowed to leave on Sundays, and then only with written management
permission. This report sparked off a constant stream of criticism, which had barely subsided
when, three years later in October 1996, another CBS program, this time on a Nike
subcontractor’s factory in Vietnam, reported the use of physical violence on employees. “You
have to meet the quota before you can go home”, said one woman, “[The supervisor] hit all
15 team leaders in turn from the first to the fifteenth.” Another added: “The physical pain
didn’t last long, but the pain I feel in my heart will never disappear.”
The 1996 CBS program led to a barrage of criticisms from the media and human rights
groups, followed by boycott campaigns on college campuses and by consumer activist
groups. The criticisms were applied generally, to all of Nike’s Asian subcontracted
operations, and focused on six points.
Low wages. Although Nike claimed that the median wage paid to employees
in Indonesian factories was over double the legal minimum wage, human
rights groups found that the majority of workers were paid at the minimum
wage. Because of very high unemployment and the absence of a welfare
system, people were prepared, even eager to work at this rate, but the fact
 John Hendry 2000
3
remained that it was insufficient to feed someone adequately, let alone to
support a family or allow for any non-food purchases.
Forced overtime. Researches into working conditions in factories repeatedly
found that employees were forced to work exceptionally long hours (indeed
this appears to have been the main explanation for the discrepancy between
the wage level and the median take-home pay). Nike insisted that overtime
was voluntary, but most employees could not survive without it and reports
also suggested that people refusing to work overtime were punished.
Working conditions. There were numerous reports of accidents and injuries,
including respiratory and skin diseases resulting from the handling of
chemicals, and machine accidents – mainly lost fingers – resulting from overtiredness.
Abuse. One report said that when an inspector from Nike arrived at a factory
to inspect the product he discovered that an incorrect colour was being used on
the outsoles. He reprimanded the South Korean manager, who in turn lined up
six workers, blamed them for the mistake, and hit each one on the head with
an outsole.
Harassment. Media reports suggested that when workers demonstrated
against their wages or conditions they were threatened not only by their
company but by government forces as well.
Child labour. Reports drew attention to the fact that the minimum working
age in Indonesia was only 14, and in some other countries children as young
as 12 were employed in the manufacture of Nike apparel and accessories.
Nike’s reputation was not helped by the leak, in November 1997, of an internal audit report
of a subcontractor’s factory in Vietnam, commissioned by Nike from Ernst & Young. This
disclosed that the factory lacked adequate safety equipment and training; exposed employees
to hazardous chemicals and dangerous levels of noise, heat and dust; and encouraged excess
overtime, with some employees working 700 hours of overtime a year as compared to the
official Vietnamese national limit of 200 hours.
As before, Nike responded to its critics in two ways. At first, it tried to defend its position.
“Why … are we the sole target of all this interest?” asked a company representative in 1993.
“In Portland (Oregon) alone there are no less than four companies subcontracting for athletic
shoes and apparel in Indonesia, China and Korea.” “We don’t pay anybody at the factories”,
complained another representative in 1994, “and we don’t set policy within the factories; it is
their business to run.” A company document from the same year stressed the positive side:
As a player in Indonesia’s economy, Nike is part of a plan that has succeeded
in increasing per capita income ten-fold since 1970 while decreasing those
 John Hendry 2000
4
living in poverty from 60 percent to 15 percent. In 1994 athletic footwear
manufacturing will generate more than US$1,500 million in export sales for
Indonesia, 375 times the sales of 1998.
In 1995 a company representative made the same point in more human terms:
The overwhelming share of workers in our subcontract factories [in Indonesia]
have had a positive experience. … It is clear to them that manufacturing jobs
pay a steady wage, and offer the kinds of benefits that are prized in a country
where half the work force is still earning a subsistence income on a farm, often
with neither running water nor electricity. … In a country where the
population is increasing 2.5 million a year, with 40 percent unemployment, it
is better to work in a shoe factory than not to have a job.
Unfortunately for Nike, not everyone agreed with these assessments. Poverty statistics
depend on how you measure poverty, and when a country is aggressively industrialising and
destroying its natural resources they can be misleading. Is it better to be a subsistence farmer,
with zero recorded economic income (and so officially in poverty) but enough food and
shelter for a family to get by, or to be employed in a city at a wage that comes above the
official poverty level but is still not enough to feed or house a family? Nike, in common with
the rest of corporate America, took one view, but its critics took another, and far from
reassuring them the company’s statements seemed to some to cast increasing doubts on its
honesty and integrity. The criticisms refused to die down and by 1997-98 the company was
being presented (in a Doonesbury cartoon strip, for example) as intentionally misrepresenting
the position and viewpoints of the workers in its subcontractors’ factories.
In May 1998, after almost a decade of constant criticism, Nike finally tried a different
response and announced a six-point plan (Exhibit 8) to significantly improve working
conditions in its suppliers’ Asian factories, together by a new Code of Conduct formulated
the previous year (Exhibit 9). It pledged among other things to raise the minimum age
requirements in the factories to 18 for footwear factories and 16 for other light manufacturing
(the critical difference being that shoe factories use noxious chemicals), and to enforce this
strictly; to significantly improve environmental and health and safety standards and training
requirements; to require subcontractors to offer free after-hours education to employees; and
to work with NGOs towards a system of independent monitoring and certification of labour
practices.
A corporate or industry problem?
One of Nike’s constant complaints was that it was being unfairly singled out for criticism,
and in this context it is worth looking very briefly at the fate of its main competitor Reebok.
As already noted, Reebok’s production strategy was very similar to Nike’s, and as both
corporations’ subcontractors moved into Indonesia at the beginning of the decade Reebok
was exposed to very much the same kinds of criticism as Nike. As the decade wore on,
however, the criticism and consumer boycott attempts focused increasingly on Nike. Reebok,
while not altogether immune from criticism, escaped relatively lightly. In part, this seems to
 John Hendry 2000
5
have reflected different corporate cultures. Whereas the Nike approach was always
aggressively commercial and success-oriented, the Reebok culture was much more relaxed –
in the mid-1990s, indeed, it was too relaxed for its institutional shareholders, who were
demanding that it take a much harder, less tolerant, more Nike-like approach. For Reebok,
economic performance was important but it was not everything, and the company had, in
particular, a longstanding concern with and commitment to human rights. It already had, by
1990, a formal human rights policy, and in response to the criticisms of the following year it
developed this into a set of human rights production standards (Exhibit 10). These were
announced in May 1993, just a couple of months before the damning CBS report on Nike and
they called not only for high standards of employment conditions in its subcontractor
factories but also for the routine auditing of those conditions.
 John Hendry 2000
6
Exhibit 1: Nike Inc financial data (in US$millions)
(Source: 1998 Annual Report)
1998
$
1997
$
1996
$
1995
$
1994
$
1993
$
1992
$
1991
$
1990
$
9,553.1
3,487.6
36.5%
129.9
399.6
1.38
1.35
288.7
295.0
0.46
517.5
9,186.5
3,688.5
40.1%
795.8
2.76
1.88
288.4
297.0
0.38
323.1
6,470.6
2,563.9
39.6%
553.2
1.93
1.36
386.6
293.6
0.29
339.7
4,760.8
1,895.6
39.8%
399.7
1.38
0.99
289.6
294.0
0.24
254.9
3,789.7
1,488.2
39.3%
298.8
1.00
1.18
298.6
301.8
0.20
576.5
3,931.0
1,544.0
39.3%
365.0
1.20
1.07
302.9
308.3
0.19
265.3
3,405.2
1,316.1
38.7%
329.2
1.09
1.07
301.7
306.4
0.15
435.8
3.003.6
1,153.1
38.4%
287.0
0.96
0.94
300.4
304.3
0.13
11.1
2,235.2
851.1
38.1%
243.0
0.81
0.80
299.1
302.7
0.10
127.1
108.6
1,396.6
1,828.8
5,397.4
379.4
0.3
3261.6
46.0
13,201.1
445.4
1,338.6
1,964.0
5,361.2
296.0
0.3
3155.9
57.5
16,633.0
262.1
931.2
1,259.9
3,951.6
9.6
0.3
2431.4
50.2
14,416.8
216.1
629.7
938.4
3,142.7
10.6
0.3
1964.7
19.7
5,635.2
518.8
470.0
1,208.4
2,373.8
12.4
0.3
1740.9
14.8
4,318.8
291.3
593.0
1,165.2
2,186.3
15.0
0.3
1642.8
18.1
5,499.3
260.1
471.2
964.3
1,871.7
69.5
0.3
1328.5
14.5
4,379.6
119.8
586.6
662.6
1,707.2
30.0
0.3
1029.6
9.9
13,201.1
90.4
309.5
561.6
1,093.4
25.9
0.3
781.0
9.8
13,201.1
12.5%
7.4%
4.4
2.1
34.1
28.5%
17.1%
4.8
2.1
21.5
25.2%
15.6%
5.0
1.9
26.6
21.6%
14.5%
5.2
1.8
14.5
17.7%
13.1%
4.3
3.2
14.9
24.5%
18.0%
4.5
3.6
15.3
27.9%
18.4%
3.9
3.3
13.5
31.7%
20.5%
4.1
2.1
10.5
36.3%
25.3%
5.2
3.1
12.2
GEOGRAPHIC REVENUES
United States
5,452.5
5,529.1
3,964.7
2,997.9
2,432.7
2,528.8
2,270.9
2,141.5
1,755.5
Europe
Asia/Pacific
Canada, Latin America and other
Total Revenues
2,143.7
1,255.7
701.2
9,553.1
1,833.7
1,245.2
578.5
9,186.5
1,334.3
735.1
436.5
6,470.6
980.4
515.6
266.9
4,760.8
927.3
283.4
146.3
3,789.7
1,085.7
178.2
138.3
3,931.0
919.8
75.7
138.8
3,405.2
664.7
56.2
141.2
3,003.6
334.3
29.3
116.1
2,235.2
YEAR ENDED MAY 31
Revenue
Gross margin
Gross margin %
Restructuring charge
Net income
Basic earnings per common share
Diluted earnings per common share
Average common shares outstanding
Diluted avg. common shares outstanding
Declared dividends per common share
Cash flow from operations
AT MAY 31
Cash and equivalents
Inventories
Working capital
Total assets
Long-term debt
Redeemable Preferred Stock
Common shareholders’ equity
Year-end stock price
Market capitalization
FINANCIAL RATIOS
Return on equity
Return on assets
Inventory turns
Current ratio at May 31
Price/earnings ratio at May 31 (Diluted)
 John Hendry 2000
7
Exhibit 2: Comparative data on US-based competitors in the
athletic shoe industry
(Source: Value Line, May 26, 1995, as presented in T. Wheelen, M.H. Abdelsamad, S.E. Fieber and J.D.Smith,
“Reebok International Ltd (1995): The Nike Challenge” from T.L.Wheelen & J.D. Hunger, Strategic
Management. 6th edition. Addison Wesley, 1998.)
A. REVENUES (Millions of dollars)
Estimated
Company
1996
1995
Nike
$ 5,000
$4,525
Reebok
3,750
3,500
Stride Rite
600
500
L.A. Gear
460
440
1994
$3,789.7
3,280.4
523.9
416.0
1993
$3,931.0
2,893.9
582.9
398.4
Actual
1992
$3,405.2
3,022.6
585.9
430.2
1991
$3,003.6
2,734.5
574.4
618.1
1990
$2,235.2
2,159.2
516.0
902.2
B. NET PROFITS (Millions of dollars)
Estimated
Company
1996
1995
Nike
$ 420
$ 375
Reebok
255
245
Stride Rite
40
30
L.A. Gear
(0.5)
(5.0)
1994
$ 298.80
254.50
19.80
(22.2)
1993
$ 365.0
230.5
60.3
(32.5)
Actual
1992
$ 329.2
232.3
72.9
(71.9)
1991
$ 287.1
234.7
66.0
(45.0)
1990
$ 243.0
176.6
55.5
31.3
1994
15.3%
13.9
7.7
Loss
1993
17.4%
14.8
17.1
Loss
Actual
1992
17.7%
14.4
20.8
Loss
1991
17.4%
16.3
19.1
Loss
1990
18.5%
15.5
18.1
31.3
1994
1993
Actual
1992
1991
1990
C. OPERATING PROFIT MARGIN (%)
Estimated
Company
Nike
Reebok
Stride Rite
L.A. Gear
D.
1996
16.0%
13.0
12.0
3.0
1995
16.0%
13.0
11.0
2.0
NET PROFIT MARGINS (%)
Estimated
Company
Nike
Reebok
Stride Rite
L.A. Gear
1996
8.4%
6.9
6.5
Loss
 John Hendry 2000
1995
8.3%
7.0
5.4
Loss
7.9%
7.8
3.8
Loss
9.3%
8.0
10.3
Loss
8
9.7%
7.7
12.4
Loss
9.6%
8.6
11.5
Loss
10.9%
8.2
10.8
3.5
Exhibit 3: US and global market shares in the athletic footwear
industry, 1993/94
(Source: K.Labich, “Nike vs. Reebok”, Fortune, September 18, 1995, p.98, reprinted in T. Wheelen, M.H.
Abdelsamad, S.E. Fieber and J.D.Smith, “Reebok International Ltd (1995): The Nike Challenge” from
T.L.Wheelen & J.D. Hunger, Strategic Management. 6th edition. Addison Wesley, 1998.)
Nike
Reebok
Adidas
L.A.Gear
Fila
Keds
Converse
Asics
Puma
Other
 John Hendry 2000
U.S Market Share
1994
Global market
Share 1993
29.7%
21.3%
5.1%
4.8%
4.7%
4.6%
4.6%
3.4%
24.1%
19.1%
10.0%
3.3%
2.6%
3.8%
4.0%
5.1%
5.0%
23.1%
21.8%
9
Exhibit 4: US and European athletic footwear market shares,
1990-94
(Source: Business Week, March 13, 1995, p.71, as presented in P.M. Rosenzweig, “International sourcing in
athletic footwear” (HBS 9-394-1489) and Nike and Reebok annual reports.)
1990
USA
Nike
Reebok
Adidas
L.A.Gear
Fila
Keds
Converse
29%
21
1991
29%
23
1992
30%
24
18
25
12
Nike
Reebok
Adidas
Nike
Reebok
Adidas
 John Hendry 2000
11
12
16
10
1994
27
17
27
1993
14
20
14
1992
Italy
28
21
28
20
13
38
12
19
11
1994
1993
1992
Spain
1994
18
34
11
26
24
27
16
11
40
29.7%
21.3
5.1
4.8
4.7
4.6
4.6
1993
1992
Germany
Nike
Reebok
Adidas
21
30
10
22
19
28
1994
1993
1992
France
Nike
Reebok
Adidas
31.7%
20.6
3.1
4.7
4.0
5.8
4.3
1992
UK
Nike
Reebok
Adidas
1993
1994
17
22
13
1993
14
15
17
1994
18
16
15
Exhibit 5: Typical cost breakdown of a pair of premium athletic
shoes (Nike “Air Pegasus”) in US$
(Source: Washington Post, 1995)
Labour
Materials
Rent, equipment
Supplier’s profit
2.75
9.00
3.00
1.75
Duties and shipping
3.50
Cost to Nike
 John Hendry 2000
20.00
Cost to Nike
R&D
Promotion
Sales, admin.,
distribution
Nike Operating
profit
Cost to retailer
11
20.00
0.25
4.00
5.00
Cost to retailer
Rent
Personnel
Other costs
35.50
9.00
9.50
7.00
6.25
Retailer’s profit
9.00
35.50
Cost to consumer
70.00
Exhibit 6: Hourly labour costs for production workers in textile
and apparel industries, 1993
(Source: P.M. Rosenzweig, “International sourcing in athletic footwear” (HBS 9-394-1489))
Normal Equivalent
Hourly Labour
Days Worked –
Cost – Apparel
Textile
(in U.S. dollars) (per operator per
year)
Country
Hourly Labour
Cost – Textile
(in U.S. dollars)
North America:
United States
Canada
Mexico
11.61
13.44
2.93
8.13
9.14
1.08
241
237
286
Europe:
Denmark
France
Germany
Greece
Ireland
Netherlands
21.32
16.49
20.50
7.13
9.18
20.82
17.29
14.84
17.22
5.85
7.44
15.41
226
233
232
231
243
207
0.36
3.85
0.56
0.43
23.65
3.66
1.18
0.78
3.56
5.76
1.04
0.37
0.25
3.85
0.27
0.28
10.64
2.71
0.77
0.53
3.06
4.61
0.71
0.26
306
294
289
297
261
312
261
288
284
291
341
287
Asia:
China (PRC)
Hong Kong
India
Indonesia
Japan
South Korea
Malaysia
Philippines
Singapore
Taiwan
Thailand
Vietnam
 John Hendry 2000
12
Exhibit 7: Nike Memorandum of Understanding, 1993
(Source: Company document, reproduced in P.M. Rosenzweig, “International sourcing in athletic footwear”
(HBS 9-394-1489))
1. Government Regulation of Business
(Subcontractor/supplier) certifies compliance with all applicable local labor government
regulations regarding minimum wage, overtime, child labor laws, provisions for
pregnancy, menstrual leave, provisions for vacations and holidays, and mandatory
retirement benefits.
2. Safety and Health
(Subcontractor/supplier) certifies compliance with all applicable local government
regulations regarding occupational health and safety.
3. Worker Insurance
(Subcontractor/supplier) certifies compliance with all applicable laws providing health
insurance, life insurance, and worker’s compensation.
4. Forced Labor
(Subcontractor/supplier) certifies that it and its suppliers and contractors do not use any
form of forced labor – prison or otherwise.
5. Environment
(Subcontractor/supplier) certifies compliance with all applicable local environmental
regulations and adheres to Nike’s own broader environmental practices, including the
prohibition of the use of chloro-fluoro-carbons (CFCs), the release of which could
contribute to depletion of the earth’s ozone layer.
6. Equal Opportunity
(Subcontractor/supplier) certifies that it does not discriminate in hiring, salary, benefits,
advancement, termination, or retirement on the basis of gender, race, religion, age, sexual
orientation or ethnic origin.
7. Documentation and Inspection
(Subcontractor/supplier) agrees to maintain on file such documentation as may be needed
to demonstrate compliance with the certifications in this Memorandum of Understanding
and further agrees to make these documents available for Nike’s inspection upon request.
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Exhibit 8: Nike action plan, 1998: Extract from Annual Report
(Source: 1998 Annual Report)
CORPORATE RESPONSIBILITY
We thought now might be a good time to talk about corporate responsibility, here in the back of the
book, last but certainly not least. Some of this information may surprise the most ardent Nike
observer. A good reason to relay a few facts, some big and some small, about what we do off the
field.
Nike has consolidated the efforts of the Community Affairs, Environmental Action Team and Labor
Practices groups into the Corporate Responsibility Division. This combined focus increases Nike’s
effectiveness in the implementation of practices and investment in programs that will bring increased
value to our shareholders, business partners, customers, employees and the communities where we do
business.
At Nike, corporate responsibility is defined by a sense of community, a regard for the environment
and a commitment to integrity and diversity for our employees and the contract workers who make
our product. To enhance the communities where Nike employees live and work, Nike Global
Community Affairs supports programs that promote empowerment through a balance of sports,
education and enterprise. All businesses depend on the earth for resources. At Nike, we are addressing
the challenge of environmental sustainability through comprehensive product design, materials
sourcing and manufacturing initiatives. Nike’s partnership with its employees and contract workers is
critical to our business success. Two fundamental concepts guide Nike’s labor practices: best
practices and continuous improvement.
RESPONSIBLE LABOR PRACTICES
On May 12, 1998, Phil Knight announced six new initiatives to improve factory working conditions
and increase opportunities for people who manufacture Nike products. They are:
Expanding Independent Monitoring: working with NGO (non-governmental organization)
participation, Nike will initially focus on Vietnam, Indonesia and China. The ultimate goal is to
establish a global system of independent certification of the company’s labor practices, much the
same way financial information in this annual report is certified.
Raising Minimum Age Requirements: Nike has increased the minimum age of footwear factory
workers to 18 and the minimum age for all other light manufacturing workers (apparel, accessories,
equipment) to 16. There is no tolerance for exception.
Strengthening Environmental, Health and Safety Standards: Nike launched the Environmental,
Health and Safety Management System (EHSMS) in June of ’98. The program, developed with two
consultant groups (The Guantlett Group and Environmental Resources Management), will provide
every factory where Nike footwear is made the tools and training to effectively manage and ensure
continuous improvement throughout their environmental, health and safety programs. The program
helps each factory develop a fully functioning EHSMS by June 2001.
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KEY ENVIRONMENTAL, HEALTH AND SAFETY INITIATIVES:
a)
b)
Indoor air testing of all footwear factories, and the monitoring of any necessary corrective
measures to bring air quality to OSHA levels.
Accelerated replacement of petroleum-based, organic solvents with safer water-based
compounds. In an average month, nine of ten Nike shoes are made with water-based
adhesives, with parallel substitutions underway for primers, degreasers and cleaners used in
traditional footwear production.
Expanded Worker Education: The Jobs + Education program offers footwear factory workers
educational opportunities, such as middle school and high school equivalency courses. The classes
will be free and scheduled during non-work hours. Factory participation is voluntary, but by 2002
Nike will order only from footwear factories that offer some form of after-hours education.
Increasing Support of the Micro-enterprise Loan Program: The Jobs + Micro-enterprise Program
will provide loans to women to create small businesses. Building on a successful program already
responsible for 1000 loans in Vietnam, Nike will expand the program to reach an equal number of
families in Indonesia, Thailand and Pakistan.
Building understanding: Through the Rising Tides program. Nike is providing research grants and
logistical support to universities and colleges to expand the academic body of knowledge on corporate
responsibility, contract manufacturing and development issues involving Nike and other companies.
Nike will also convene a series of open forums to foster dialogue with factory workers and partners,
academics, NGOs and others interested in these issues.
We are serious about these initiatives. We recognise that there is no finish line. Our goal is
continuous improvement. Based on our new initiatives, we have amended and are enforcing the Nike
Code of Conduct that directs our factory partners accordingly. Nike will sever its business relationship
with any manufacturer refusing to meet these standards or exhibiting a pattern of violations. In the last
year, Nike has terminated business with eight factories in four countries for not meeting our Code of
Conduct requirements.
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Exhibit 9: Nike Code of Conduct, 1997
(Source: Company document)
NIKE Inc. was founded on a handshake. Implicit in that act was the determination that we would
build our business with all of our partners based on trust, teamwork, honesty and mutual respect.
We expect all of our business partners to operate on the same principles. At the core of the NIKE
corporate ethic is the belief that we are a company comprised of many different kinds of people,
appreciating individual diversity, and dedicated to equal opportunity for each individual. NIKE
designs, manufactures and markets products for sports and fitness consumers. At every step in that
process, we are driven to do not only what is required, but what is expected of a leader. We expect our
business partners to do the same. Specifically, NIKE seeks partners that share our commitment to the
promotion of best practices and continuous improvement in:
1. Occupational health and safety, compensation, hours of work and benefits.
2. Minimising our impact on the environment.
3. Management practices that recognise the dignity of the individual, the rights of free association
and collective bargaining, and the right to a workplace free of harassment, abuse or corporal
punishment.
4. The principle that decisions on hiring, salary, benefits, advancement, termination or retirement are
based solely on the ability of an individual to do the job.
Wherever NIKE operates around the globe, we are guided by this Code of Conduct. We bind our
business partners to these principles.
While these principles establish the spirit of our partnerships, we also bind these partners to specific
standards of conduct. These are set forth below:
1. Forced Labour. (Contractor) certifies that it does not use any forced labour – prison, indentured,
bonded or otherwise.
2. Child Labour. (Contractor) certifies it does not employ any person under the minimum age
established by local law, or the age at which compulsory schooling has ended, whichever is
greater, but in no case under the age of 14.
3. Compensation. (Contractor) certifies that it pays at least the minimum total compensation
required by local law, including all mandated wages, allowances and benefits.
4. Benefits. (Contractor) certifies that it complies with all provisions for legally mandated benefits,
including but not limited to housing; meals; transportation and other allowances; health care;
child care; sick leave; emergency leave; pregnancy and menstrual leave; vacation, religious
bereavement and holiday leave; and contributions for social security, life, health, worker’s
compensation and other insurance.
5. Hours of Work/Overtime. (Contractor) certifies that it complies with legally mandated work
hours; uses overtime only when employees are fully compensated according to local law; informs
the employee at the time of hiring if mandatory overtime is a condition of employment; and, on a
regularly scheduled basis, provides one day off in seven, and requires no more than 60 hours of
work per week, or complies with local limits if they are lower.
6. Health and Safety. (Contractor) certifies that it has written health and safety guidelines, including
those applying to employee residential facilities, where applicable; and that it has agreed in
writing to comply with NIKE’s factory/vendor health and safety standards.
7. Environment. (Contractor) certifies that it complies with applicable country environmental
regulations; and that it has agreed in writing to comply with NIKE’s specific vendor/factory
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environmental policies and procedures, which are based on the concept of continuous
improvement in processes and programs to reduce the impact on the environment.
Documentation and Inspection (Contractor) agrees to maintain on file such documentation as may be
needed to demonstrate compliance with this Code of Conduct and further agrees to make these
documents available for NIKE or its designated auditor’s inspection upon request.
Exhibit 10: Reebok Human Rights Production Standards, 1993
(Source: Company document, reproduced in P.M. Rosenzweig, “International sourcing in athletic footwear”
(HBS 9-394-1489))
A Commitment to Human Rights
Reebok’s devotion to human rights worldwide is a hallmark of our corporate culture. As a
corporation in an ever-more global economy we will not be indifferent to the standards of our
business partners around the world.
We believe that the incorporation of internationally recognized human rights standards into our
business practice improves worker morale and results in a higher quality working environment
and
higher quality products.
In developing this policy, we have sought to use standards that are fair, that are appropriate to
diverse cultures and that encourage workers to take pride in their work.
Non-discrimination
Reebok will seek business partners that do not discriminate in hiring and employment practices on
grounds of race, colour, national origin, gender, religion, or political or other opinion.
Working Hours/Overtime
Reebok will seek business partners who do not require more than 60 hour work weeks on a
regularly scheduled basis, except for appropriately compensated overtime in compliance with
local laws, as we will favor business partners who use 48 hour work weeks as their maximum
normal requirements.
Forced or Compulsory Labor
Reebok will not work with business partners that use forced or other compulsory labor, including
labor that is required as a means of political coercion or as a punishment for holding or for
peacefully expressing political views, in the manufacture of its products. Reebok will not
purchase materials that were produced by forced prison or other compulsory labor and will
terminate business relationships with any sources found to utilize such labor.
Fair Wages
Reebok will seek business partners who share our commitment to the betterment of wage and
benefit levels that address the basic needs of workers and their families so far as possible and
appropriate in light of national practices and conditions. Reebok will not select business partners
that pay less than the minimum wage required by local law or that pay less than prevailing local
industry practices (whichever is higher).
Child Labor
Reebok will not work with business partners that use child labor. The term “child” generally
refers to a person who is less than 14 years of age, or younger than the age for completing
compulsory education if that age is higher than 14. In countries where the law defines “child” to
include individuals who are older than 14, Reebok will apply that definition.
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Freedom of Association
Reebok will seek business partners that share its commitment to the right of employees to
establish and join organizations of their own choosing. Reebok will seek to assure that no
employee is penalized because of his or her non-violent exercise of that right. Reebok recognizes
and respects the right of all employees to organize and bargain collectively.
Safe and Healthy Work Environment
Reebok will seek business partners that strive to assure employees a safe and healthy workplace
and that do not expose workers to hazardous conditions.
Application of Standards
Reebok will apply the Reebok Human Rights Production Standards in our selection of business
partners. Reebok will seek compliance with these standards by our contractors, subcontractors,
suppliers, and other business partners. To assure proper implementation of this policy, Reebok
will seek business partners that allow Reebok full knowledge of the production facilities used and
will undertaker affirmative measures, such as on-site inspection of production facilities, to
implement and monitor these standards. Reebok takes strong objection to the use of force to
suppress any of these standards and will take any such actions into account when evaluating
facility compliance with these standards.
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