International Operations
Professor James Stodder
June 5, 2007
The NIKE Case
 Nike, Business Overview.
NIKE was co-founded by Philip H. Knight in 1964 and is headquartered in
Beaverton, Oregon. NIKE, Inc., through its subsidiaries, engages in the design,
development, and marketing of footwear, apparel, equipment, and accessory products
worldwide. It designs athletic, casual, and leisure footwear for men, women, and
children. The footwear products include running, cross-training, basketball, soccer, and
sport-inspired urban shoes designed for tennis, golf, baseball, football, walking, hiking,
outdoor activities, skateboarding, bicycling, volleyball, wrestling, cheerleading, aquatic
activities, and other athletic and recreational uses.
The company sells sports apparel and accessories, athletic bags, and accessory
items; and offers licensed college and professional team and league logos. It offers a line
of performance equipment under the NIKE name, including golf clubs and balls, sport
balls, eyewear, timepieces, electronic devices, bats, gloves, protective equipment, and
other equipment designed for sports activities. The company provides licenses to produce
and sell NIKE brand swimwear, cycling apparel, children’s clothing, school supplies,
electronic devices, eyewear, golf accessories, and belts. NIKE manufactures and
distributes ices skates, skate blades, protective gear, hockey sticks, licensed apparel, and
accessories.
The company sells its products to retail accounts, through its owned retail stores,
and through a mix of independent distributors and licensees. As of May 31, 2006, it
operated 12 retail stores in the United States and 206 retail stores internationally. NIKE
was co-founded by Philip H. Knight in 1964 and is headquartered in Beaverton, Oregon.
 Nike, The Case
This is a case about a Western company producing its product in a global
marketplace. In its pursuit of enhancing shareholder value, driving down the cost of
production, Nike owns few “brick and mortar” assets. No production facilities, no
factories, no machines. Instead it has outsourced its designs to sub-contractors. As Asia
opened up, Nike took advantage of the abundant, and cheap, labor, overseas. There
workers were as productive as those in the United States, but not nearly as expensive. No
unions to deal with, no federal regulations to abide by, they simply put out the bid and the
best contractor is chosen and Nike reaps the increased profits. Production costs may have
decreased, but the retail price does not.
The case highlights some of the transgressions that Nike has been accused of.
One, in 1996, in a 48 Hours story, where it was documented that young Vietnamese
women were working for 20 cents USD an hour producing sneakers. In another example,
an Ernst and Young audit, performed for Nike and then leaked, discovered that
Vietnamese factory of a Nike sub-contractor was fraught with health hazards. In this
factory, 9,000 workers, mostly young women, labored for 10.5 hours a day, six days a
week, and produced some 400,000 pairs of sneakers. The quick math will tell you wages
equal .16 cents (USD) an hour. For the right to earn this sum, the report also noted that
some of the workers were exposed to “carcinogens that exceeded local limit by 177
times”. An overwhelming majority of the workers also suffered from respiratory issues.
Using the numbers provided by the case, we can see that while it costs only
slightly more than $1 in labor to produce, by having such labor in suck economic scale,
with “only” a $50 retail price, this factory turns out $20 million in product, each month. I
say “only” $50 as the retail price point to highlight the fact that Nike’s sells it shoes for as
low at $74.99 and as high as $159.99. This informal study was conducted while walking
in the Holyoke Mall one weekend and comparing prices in four different locations.
Dicks Sporting Goods lists 51 different pairs of Nike shoes on their website, all falling
within this same price rangei. Having worked retail, the “$50 price point” takes into
account, albeit liberally, cost of waste, shrink, over stocks, and damage in transit.
In his 2003 documentary The Corporation, Chris Belmonte, director of the
National Labor Committee shows what he says are Nike's internal pricing documents.
The documents show the time it takes the workers in a factory in the Dominican Republic
to make a shirt in ten thousandths of seconds, with each shirt taking 6.6141 minutes to
make, 9 shirts an hour.
Nike has been criticized for contracting with factories that allegedly use
sweatshop labor in countries such as China, Vietnam, Indonesia, and Mexico. Vietnam
Labor Watch, an activist group, has documented that Nike has violated minimum wage
and overtime laws in Vietnam as late as 1996, although Nike claims that this practice has
been halted.ii The company has been subject to much critical coverage of the often poor
working conditions and exploitation of cheap overseas labor employed in the free trade
zones where their goods are typically manufactured. Sources of this criticism include
Naomi Klein’s book “No Logo” and Michael Moore’s documentaries.
Nike was criticized about ads which referred to empowering women in the U.S.
while engaging in practices in East Asian factories which some felt disempowered
women.iii In the 1990's, Nike faced criticism for its use of child labor in Cambodia and
Pakistan in its production of soccer balls. Although Nike took action to curb or at least
reduce the practice of child labor, they continue to contract their production to companies
that operate in areas where inadequate regulation and monitoring make it hard to ensure
that child labor is not being used.iv The forced labor camp like conditions in some
overseas production plants led to several unsuccessful boycottsv, together with coining
the alternative name "swooshtika" (a portmanteau of swoosh and swastika) for the
company's swoosh logo.vi
These campaigns have been taken up by many college and universities, especially
anti-globalization groups as well as several anti-sweatshop groups such as the United
Students Against Sweatshops. Despite these campaigns, however, Nike's annual revenues
have increased from $6.4 billion in 1996 to $15 billion in 2006.
Being the subject of such exposes caused Nike to re-examine its practices in subcontractor labor. While it had broken no laws, Nike understood that they may have been
“perceived” as acting unethically. The company took a number of steps to resolves these
issues, including requiring all workers be at least 18 years of age, and that exposure to
hazardous materials be within the OSHA limits in place for workers in the United States.
About 800,000 employees -- mostly women between 18 and 24 -- work in Nike's
700-plus contract factories, Nike said. Audits in the past two years show that despite a
decade of efforts, several factories continue to show violations of Nike's "code of
conduct," which could include falsified records, excessive workweeks, underage workers
and physical or sexual abuse.
As recently as May 31, 2007, it has been reported that Nike is continuing its
monitoring. “But the company also is trying to identify root causes of those violations.
For example, Nike is considering its own actions -- such as last-minute changes to orders
and overly complex designs -- that may lead to excessive overtime. Excessive overtime
is defined as working more than 60 hours in a week or in excess of local law, whichever
is less. Nike also said it would work with factories and unions to create a freedom-ofassociation and collective-bargaining training for most factories by 2011.”vii
Nike is not alone in labor issues. Here in the United States retail giant Wal*Mart
has been hit with illegal alien violations in its sub-contracted cleaning crews, as well as
violations of child labor laws which resulted in a $135,540 fine. Taco Bell has had
violations to labor laws, and Apple is investigated complaints about labor practices in its
Chinese factories. While no “forced” labor was found, it was noted that workers were
exceeding the mandated number of hours a day and days a week worked. Coca-Cola
recently had to investigate its India operations, amid concerns over the amount of water it
was using, and toxins being put back into the farm lands.
The question is not why this happening, but rather what can be done. Or, more
importantly, what should be done. The why is a simple one to answer. It might not be
human nature but it is the motivation by greed and plausible deniability. “We contract
with company XYZ, we don’t have any control over how they produce the goods!” This
did not do Kathy Lee Gifford any good. Gifford was at the center of a “sweatshop”
scandal in 1995.
According to Human Rights Watch, The International Labour Organization (ILO)
has estimated that 218 million children between the ages of five and seventeen work in
developing countries. Of these, 122.3 million children work in the Asia-Pacific region,
49.3 million work in Sub-Saharan Africa, and 5.7 million work in Latin America and the
Caribbean. Child labor ranges from four-year-olds tied to rug looms to keep them from
running away, to seventeen-year-olds helping out on the family farm. In some cases, a
child's work can be helpful to him or her and to the family; working and earning can be a
positive experience in a child's growing up.
The Children's Rights Division at Human Rights Watch has focused its efforts on
the worst forms of child labor, those prohibited by the ILO’s Worst Forms of Child
Labour Convention,. Children who work long hours, often in dangerous and unhealthy
conditions, are exposed to lasting physical and psychological harm.
These children are denied an education and a normal childhood, while some
children are confined and beaten, reduced quite literally to slavery. Some are denied
freedom of movement—the right to leave the workplace and go home to their families.
The human rights abuses in these practices are clear and acute. We have found similar
problems in Asia, the Middle East, Latin America, and the United States: children who
work for too many hours and too many days, for too little, or sometimes no pay, subject
often to physical abuse, exposed to dangerous pesticides, and made to work with too
dangerous tools.
While Child Labor violations we can all agree are uncivilized, it should also be
noted that is not the crux of this case. Working conditions are. What can be done? As
the globalization of the markets continue, and the speed at which distances can be
traveled reduced, the world is becoming a much smaller place. As a world leader (some
will argue, THE world leader), the United States should set the standard. Every person
deserves some level of decency.
While it is naive to think all problems could be solved, it is not naive to think that
the level of safety demanded in the United States is a privilege we have. It is not a
privilege, but rather a right. Corporations by their nature and mission try to cut costs (and
corners). Government has to act as a check on this behavior. And here in the United
States, the people are the Government.
Issue one is working conditions, followed by compensation. In the United States
we pride ourselves on our Bill of Rights, our adherence to Human Rights, and our sense
of Fair Play. We have OSHA to look out for our workers. I can remember the new
requirement handed out from OSHA in the late 1980s or early 1990’s. MSDS’s, or
Material Safety Data Sheets, which basically detailed what exactly was in the cleaning
product or solution, and the proper use of it and the dangers of exposure.
At Pratt and Whitney, in an office building where I work, there is regularly air
quality checks done (asbestos in the ceiling). We have been given through training on
what to do in the event a “ceiling tile” falls, as well as have been briefed on the status of
repairs. Given Pratt and Whitney’s history with the environment, I am skeptical if these
steps would be taken if it were not for the Government regulations.
As our production moves over seas, we should enforce the same standards as we
have here concerning worker protection. Our government should apply pressure on
companies sub-contracting out production. Companies in turn should be more vigourous
in inspecting work sites. If some one is non-compliant, and unwilling to become
compliant, another production site should be found. Just as there is plenty of “cheap
labor”, in some areas of the world there is plenty of production sites. If China refuses to
comply, there is always Mylasia, or Vietnam.
As the world become smaller, safe working conditions, as well as care with the
environment, is crucial. Toxic exposure anywhere in the world, whether it be in the
ground, air, or sea, has lasting effects ‘downstream’. As the leader of the developed
world, we need to set the pace in this arena. If applied uniformily, profit margins for
each competitor takes the same hit, and based on the cost of labor, those margins have
some cushion for this kind of overhead expense.
On the second issue, comepensation, should we hold our corporations to a higher
standard, and if so, how? While markets should be allowed to set the price, this includes
not only the retail sticker price, but the compensation one receives from ones labor, there
has to be a floor limit. In the United States we have a minimum wage, for which an hour
of someone’s time, whether it be emptying trash cans or cleaning dishes, is worth.
It is the unskilled labor market which needs the most protection. CEO’s make so
much in compensation because, quite frankly, not everyone can be a successful CEO.
However, anyone can do menial labor, as unpleasant as it might be. I am not advocating
a US minimum wage, but rather a minimum that makes sense for the country. With so
many people who need a job, to feed their families and so on, and only a few jobs, there
is always someone who will do the work cheaper. ($.01 an hour is better than nothing!)
In Nike’s case, it seems to highlight the great disparity in earnings world wide.
Using the numbers again from the case, a single worker will produce 10 pairs of sneakers
a week, at a cost of approximately $10.25. This, in the worst case scenario, will net $500
in retail dollars. Factoring in 60% (a high number I know) for such items as shipping,
transport, factory over head, raw materials, factory owners profit, etc. We are still looking
at $200 profit, per week, per worker. Paying the worker even $4 a day would reduce this
figure to $186 ($4 times six work days is $24, minus the $10 the worker is currently
paid).
As seen in the time line, a great deal of cash is invested into professional athletes
by Nike. They view them as “spokes people/endorsers”. This strategy has paid off
handsomely for the company and the athlete. People who already make a great deal of
money for the skill in a chosen profession, be it soccer, baseball or basketball. Because
we all would like to “be like Mike” (Jordan), or indeed “Bo Knows” (Bo Jackson),
people will buy a product that is related to a star athlete. But should the people who work
the least hardest earn the most? LeBron James is now leading his basketball team into
the NBA Finals, but four years ago, before he officially signed to play with the Cav’s, he
had inked a $90 million endorsement deal. A not yet graduated High School senior, and
he has a contract for $90 million. While LeBron claimed at the time Nike is the right fit
for him, it in the end came down to dollars, as Reebok’s bid for the young star to be was
$75 million.
 Nike, a company timeline.
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1964: Nike's predecessor, Blue Ribbon Sports, is incorporated in Oregon.
1971: The Swoosh first appears on Nike shoes
The first line of Nike footwear is introduced, including the so-called
"Moon Shoe" that features a waffle sole, which is distributed to athletes
competing in the US Olympic Track & Field Trials in Eugene, Oregon
Romanian tennis star Ilie Nastase becomes the first athlete to sign an
endorsement contract with Blue Ribbon Sports to wear its Nike tennis shoes.
1975: The Waffle Trainer is introduced, quickly becoming the best-selling
training shoe in the U.S.
Nike print ad with the tag "There is no finish line" is introduced.
1978: Tennis "bad boy" John McEnroe is signed by Nike to an endorsement
contract.
1979: Nike's Air technology patented by inventor M. Frank Rudy is introduced in
the Tailwind running shoe. Gas-filled plastic membranes are inserted into the sole
of running shoes to provide cushioning.
1980: Nike completes an initial public offering of 2,377,000 shares of Class B
common stock on December 2.
Nike hires the first industrial designers into the footwear industry to work
out of their Exeter, NH R&D facility.
1981: BRS, Inc. merges into Nike, Inc. on December 31, and the company
officially becomes known as Nike, Inc.
1984: Nike signs Michael Jordon to an endorsement contract. The first model of
his signature shoe, the Air Jordan, originally is banned by the NBA, drawing a
tremendous amount of publicity.
1986: Corporate revenues surpass $1 billion for the first time.
1988: The famous tagline, "Just do it", is introduced.
1989: Bo Jackson appears in Nike's “Bo Knows” ad campaign to support the
launch of its cross-training shoe.
1990: The first Niketown store opens in downtown Portland.
Nike opens its world headquarters in unincorporated Washington County,
just west of Portland, on 74 acres of land.
1994: Nike wins Advertiser of the Year at the Cannes Advertising Festival.
1995: Nike signs long-term partnerships with the Brazilian and United States
soccer teams, and moves into English football, signing a kit (uniform/apparel)
deal with Arsenal.
1996: Nike signs Tiger Woods soon after he gives up his amateur golf status.
Niketown Los Angeles opens in Beverly Hills.
Phil Knight commits Nike to standards for its affiliated manufacturing
facilities, including: minimum age; air quality; education programs; expansion of
micro-loan program; factory monitoring; and enhanced transparency of Nike's
corporate social responsibility practices.
1999: Bill Bowerman, co-founder of Nike, dies on Dec. 24 at age 88.
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2002: Nike purchases Hurley International, an action sports clothing company,
for an undisclosed amount.
NikeGO launches, a grassroots initiative to increase physical activity
among youths aged 9-15.
Nike becomes the kit sponsor of Manchester United until 2010.
Nike SB, Nike's Skateboarding line is introduced.
2003: Nike acquires once-bankrupt rival Converse for $305 million on July 9.
For the first time in the company's history, international sales exceed USA
sales.
Nike is again (also in 1994) named "Advertiser of the Year" by the Cannes
Advertising Festival.
Nike signs NBA player LeBron “King” James with an unprecedented $87
million shoe contract.
2004: Annual revenues exceed $ 12.25 billion
2005: Nike reports annual revenue for fiscal year 2005 (ending May 31) of
$13.74 billion, a 12% increase over the previous fiscal year.
2006: Nike and Apple release the Nike+iPod sports kit, enabling runners to log
and monitor their runs via iTunes and the Nike Website.
Nike reports annual revenue for fiscal year 2006 (ending May 31) of $15
billion.
i
http://www.dickssportinggoods.com/search/index.jsp?cp=2367454.766034.766039&fbn=Brand%7CNIKE
&f=Brand%2F1000997%2F&fbc=1&categoryId=1333120&view=all
ii
http://www.saigon.com/nike/reports/report1.html
http://cbae.nmsu.edu/~dboje/Whattodoaboutnike.html
iv
http://web.mit.edu/ipc/publications/pdf/02-007.pdf
v
http://www.saigon.com/nike
vi
http://www.owlnet.rice.edu/~ling215/NewWords/page3.html
iii
vii
ttp://www.oregonlive.com/business/oregonian/index.ssf?/base/business/1180581929300110.xml&coll=7