NIKE: A Case of Unethical Business

Practice in East & South East Asia

Harihar Panigrahi

Roll No. U211029 In this assignment, attempt has been made as to How Nike

used to exploit cheap labour to earn more profit in Pakistan,

Indonesia, Cambodia, Thailand and Vietnam and how MNCs

exploit human resources in Host country.

ExPGP 2011-2014 Xavier Institute of Management, Bhubaneswar

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Introduction:

How should global corporations behave in the new international world order? What constitutes good corporate

citizenship in a world where the stakeholders are diverse and dispersed around the globe and where no clear

or consensual rules and standards exist?

These questions shape the behaviour of most multinational corporations (MNCs) today. Although

multinationals are eager to pursue the opportunities of increased global integration, they are increasingly

aware of the reactions which their strategies induce – both at home and abroad. Thus, they tread warily,

lacking clear and agreed-upon definitions of good corporate citizenship.

Through a case study of Nike, Inc. – a company that has come to symbolize both the benefits and the risks

inherent in globalization – this paper examines the various difficulties and complexities companies face as they

seek to balance both company performance and good corporate citizenship in today’s global world.

The Athletic Footwear Industry

The athletic footwear industry experienced an explosive growth in the last two decades. In 1985, consumers in

the United States alone spent $5 billion and purchased 250 million pair of shoes. In 2001, they spent over $13

billion and bought over 335 million pair of shoes. Although the industry is highly segmented – by different

sports, models and price – the branded shoe segment is dominated by a few large companies (e.g., Nike,

Reebok, Adidas). In fact, the top 10 footwear companies control over 70% of the global athletic footwear

market. (See Table 1). Since displacing Adidas in the early 1980s and Reebok in the early 1990s, Nike has

become the largest and most important athletic shoe company in the world. (See Figure 1).

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Nike – The Company – Just Do It:

Nike, Inc. is a major publicly traded clothing, footwear, sportswear, and equipment supplier based in the

United States. The company is headquartered near Beaverton Oregon, in the Portland metropolitan area. 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 employed

more than 44,000 people worldwide. The brand alone is valued at $10.7 Billion making it the most valuable

brand among sports businesses. 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 also owned Bauer Hockey (later renamed Nike Bauer) between 1995

and 2008. In addition to manufacturing sportswear and equipment, the company operates retail stores under

the Niketown name. Nike sponsors many high-profile athletes and sports teams around the world, with the

highly recognized trademarks of "Just Do It" and the Swoosh logo.

Present Nike at a Glance :

Category Details

Type Public

Traded as NYSE: NKE; S&P 500 Component

Industry Apparels, Accessories

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Founded in 1964 (As Blue Ribbon Sports) & 1978 (As Nike Inc)

Founders Bill Bowerman and Phil Knight

Head Quarters Washington County, Oregon, USA (Near Beaverton, Oregon)

Area Served World Wide

Key People Phil Knight (Chairman), Mark Parker (President & CEO)

Products Athletic footwear and apparel, sport equipments and other athletic and recreational

products

Revenue US$ 24.128 billion (FY 2012)

Operating Income US$ 3.040 billion (FY 2012)

Net Income US$ 2.223 billion (FY 2012)

Total Assets US$ 2.223 billion (FY 2012)

Total Equity US$ 9.843 billion (FY 2011)

Total Employees 44,000 (May 31,2012)

Origins and history

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.

Throughout the 1980s, Nike expanded its product line to encompass many sports and regions throughout the

world.

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Products

A Nike brand athletic shoe A pair of Nike Air Jordan I basketball shoes

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.

Headquarters

Nike's world headquarters are surrounded by the city of Beaverton, but are within unincorporated Washington

County. The city attempted to forcibly annex Nike's headquarters, which led to a lawsuit by Nike, and lobbying

by the company that ultimately ended in Oregon Senate Bill 887 of 2005. Under that bill's terms, Beaverton is

specifically barred from forcibly annexing the land that Nike and Columbia Sportswear occupy in Washington

County for 35 years, while Electro Scientific Industries and Tektronix receive the same protection for 30 years.

Manufacturing

Nike has contracted with more than 700 shops 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 CorpWatch,

Nike has disclosed information about its contract factories in its Corporate Governance Report.

SHOE PRODUCTION

Since its inception, 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 labour costs were thus essential to producing shoes

competitively. (See below the cost chain for average footwear production.)

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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.

When Nike started, they had two other manufacturers in Japan make their shoes for them. One was in

Hiroshima, Japan and the other was Kurume, just outside of Fukuoka. In neither case were Nike was 10% of

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their volume. Nike actually considered themselves fortunate that they would make shoes to their design. It

never occurred to Nike that Nike should dictate what their factory should look like, which really didn't matter

since they had no idea what a shoe factory should look like anyway.

Nike’s business model in 1964 is essentially the same as on today: Nike grew by investing our money in

design, development, marketing and sales and then contract with other companies to manufacture their

products. 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. As sales increased to almost $2 million in the early

1970s, BLS parted ways with Onitsuka and began to design and subcontract its own line of shoes.

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 i.e. since the end of World War II

(due to a combination of a tighter labour market, the impact of the first Oil Crisis on Japan’s economy, and a

shift in the dollar/yen exchange rate as a result of the so-called “Nixon shock”),Nike began to search for

alternative, lower-cost producers.

During these same years, Nike opened up its own shoe factories in Maine and New Hampshire to make up

15% of their shoe products, hoping to develop a reliable and high-quality source to supply its growing domestic

market. At the same time, the company also began to cultivate potential suppliers in Korea, Thailand, China

and Taiwan.

By the early 1980s, as costs continued to increase in both Japan and the United States, and as the Korean

government created a number of incentives to develop Korea’s footwear industry, Nike closed its US factories

and sourced almost all of its production from Asia. In 1982, 86% of Nike’s athletic footwear came from Korea

and Taiwan.

Over time, as Korea and Taiwan also began to develop, costs began to rise in these countries as well. As a

result, Nike began to urge its suppliers to re-locate their operations to other, lower-cost countries. The

company worked with its lead suppliers to open up manufacturing plants in Indonesia, China and Vietnam. By

guaranteeing a significant number of orders and by placing Nike employees at these new factories to help

monitor product quality and production processes, Nike was able to help its lead vendors establish an

extensive network of footwear factories throughout Southeast Asia.

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Nike’s strategy of sourcing shoes from low-wage countries in Asia had been one of the fundamentals of the

company’s strategy. The below summary shows the wages of people engaged in making shoes in various

countries.

Nike Child Labor Issues in Pakistan

The Issue

Nike has been accused of using child labour in the production of its soccer

balls in Pakistan. This case study will examine the claims and describe the

industry and its impact on labourers and their working conditions. While

Pakistan has laws against child labour and slavery, the government has taken

very little action to combat it. Only a boycott by the United States and other

nations will have any impact on slavery and child-based industries. Further

more the U.S constitution states that child labour is an illegal and inhumane

practice and any U.S. company found guilty practicing and encouraging it will

be prosecuted. GATT and WTO prohibits member nations, like the United States, from discriminating against

the importation of goods made by children.

Description

Brief about the tradition of child labour in Pakistan

Pakistan has a per-capita income of $1,900 per year -meaning that a typical person

survives barely on $5 per day. And that's no not all, Pakistan has a traditional

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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.

Pakistan has a population of approximately 1 million and is an important centre for the production of goods for

export to international markets, particularly sporting goods. In 1994,

exports from Sialkot brought income of almost US$ 385 million into the Pakistan economy. Sialkot is thus one

of the world’s most important centres for production of sporting goods.

Child labour exists in Sialkot both in the export sector and the domestic sector. This fact has been well

documented and reported by the international media for several years but nothing has been done about it. 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. Education receives around 3% of the total gross domestic

product when compared to over ten times of this amount spent on military. Gender and other forms of

discrimination plus adding to the lack of political will, gives the clear picture of the existence of child labour in

Pakistan.

Nike as a helper or exploiter to IIIrd World

Recently if you go to a shop to buy your child a new soccer ball, there is a good possibility that the ball has

been made by someone your child's age or even younger. 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. This

problem not only pertains to Pakistan but is worldwide. 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.

Nike - a good chess player

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, the local firm, in this case SAGA sports, has to abide by the Nike's international rules and

regulations when producing its goods. And it is the duty of the international firm (NIKE) to monitor its

subcontracted production units and hold it to tight scrutiny. But this is not what really happens.

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. So what happens when you question Nike about its labour

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practices? An answer comes that it is not they who are involved in this illegal labour practices but it is the local

sub-contractor who is doing so. This is wrong to say as Nike and SAGA sports both benefits with access to

cheap child labour in Pakistan. And if Nike cannot control its subcontracted plants, it means they have not

implemented their rules and regulations effectively and is not abiding by the international standards which they

have set for themselves.

Nike's entrance in to the Pakistani markets was the part of its long term strategic planning. It is false to explain

that Nike didn't knew that child labour is an ages-old practice in Pakistan. Nike went into Pakistan, having full

knowledge of the favourable conditions prevailing in terms of child labour and has taken no precautions

whatsoever to prevent the use of child labour in the production of its soccer balls. Instead Nike has made a

profit from its Pakistani contractors who in turn has used bonded child labour in the production process.

According to a Foulball campaign report, Nike has refused twice to have a check in their Saga-managed

center in Pakistan while on the other hand Nike's rival Reebok readily granted access to its Moltex-managed

center in Pakistan.

Nike has the habit of hiding behind its good public image and its effective means of promotions and

advertising. Nike attempts to create a good public image by offering charity, donating equipments and never

passing an opportunity to remind the public that it has set up stitching centers in places such as Sialkot,

Pakistan.

How it all started - Consumer awareness 1996

When the June, 1996 issue of Life magazine carried an article about child labour in Pakistan, Nike knew that it

was in trouble. The article's lead photograph showed 12-year-old Tariq surrounded by the pieces of a Nike

soccer ball which he would spend most of a day stitching together for the grand sum of 60 cents. In a matter of

weeks, activists all across Canada and the United States were standing in front of Nike outlets, holding up

Tariq's photo.

And yet, Nike has not done an especially good job of scrutinizing the subcontractors with which it's working.

Nor has it been open about its labour practices in the way public companies should be expected to be.

Cameramen have been pushed out of factory floors. And, most troubling, nearly all the soccer balls made in

Pakistan have been revealed to be made by young children getting paid just cents a day.

This is the first time that Nike has had to face real questions about its labour practices abroad, the first time

that it has felt a public-relations impact. At this point, that impact does not seem at all devastating. While in the

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short run Americans are generally horrified by the issue of child labour and has expressed concern over the

working conditions in foreign factories, Nike should take immediate actions in order to provide remedy to all

the activism it faces, otherwise it can prove devastating for the company's image in the long run. The basic

truth about Nike is that its only real strength is its good name. Nike rules because of all the good things people

associate with the company: sharp ads, Michael Jordan, Tiger Woods, little Penny, and Michael Jordan again.

If "beaten workers" and "child labour" get added to that list, then Nike's greatest asset will be lost.

When a person states that he/she is working for Nike, it gives a very good status symbol. But what if the

person is a 9 - year old child? What image will it give you as a consumer when you buy those products or

brands that employ child labour?

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. What is more of a human right than growing up as a free person, attending school without being held in

bondage?

Health and Safety Problems in Vietnam

Background

Nike started its venture in Vietnam in 1995 and its share in the country’s Gross Domestic Product reached 5

percent by 1999. Despite Nike’s contribution to the Vietnamese economy, the corporate giant failed to prevent

the violation of the labour code in the Vietnamese sweatshops during the mid- and late-1990s.

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. The Tae Kwang Vina

Factory (VT), a Nike sweatshop in an industrial estate in Dong Nai province, employed around 10,000 people

(over 85 percent of whom were women). Most workers were immigrants from northern and central Vietnam

who left their homes, families and work in rice fields for a better city life. VT became operational in 1995 and

soon achieved the reputation of a bad place to work. The workers were forced to work over the legal overtime

limits almost every day. Their monthly salaries (around $40) were insufficient for survival. Besides unhygienic

work conditions, the workers were subject to verbal and physical abuse by managers. The local people usually

avoided working at VT, and thus the large number of migrants served as VT’s labour pool.

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. Since the factory was located in the middle of an industrial zone, no one officially lived near it and

there was no local community that could complain about the problems. The Tae Kwang Vina company

controlled the workers’ union through representatives chosen by the management. The residents of the

surrounding area had little connection with VT workers, as the workers, mostly immigrants, usually stayed less

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than two years. Moreover, the surrounding community had little capacity or cohesion, and few linkages to

external actors. Thus, initiating protest at the local level was unlikely.

Following are the main issues involved in Nikes’ Vietnam :-

(1) Labour law violations: Nike subcontractors violated many critical Vietnamese labour regulations, covering

overtime wages, night shift wages, and Sunday wages. Evidences were found that pay stubs with such

irregularities in compensation that they suggest a systematic form of wage cheating. Many workers who

received below minimum wage during the first three months of employment, which is another violation of

Vietnamese law. In 1996, many workers worked over the legal maximum of 200 hours of overtime per year.

In 1997, it was found that several workers working such long hours of overtime that they were reaching the

yearly limit within the first two months of 1997.

Nike factories violate many labour laws in Vietnam, including the provisions regarding minimum wage

(Article 3 of Decree 198-CP of December 31, 1994, Section II. (1.) of Circular 11/LDTBXH-TT of May 03

1996), provisions regarding probationary period (Article 28 of the Labor Code and Article 5 (4.) of Decree

198-CP), in addition to the above-cited provision regarding the overtime limit.

(2) 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. The women literally

have to make a daily choice between eating a balanced meal or paying rent for the single rooms that most

of them rent out. 90% of the workers received extra help in terms of finance, food, or housing from their

families to make ends meet. Most of the women are from the countryside, and they cannot afford to save

money to send back home to their families.

(3) 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.

Drinking water and using the toilet facility is controlled by a card or hat system. In order to use the facility,

the supervisor must first assign a card or a hat to a worker. Wearing the hat or carrying the card, the worker

is allowed to go. However, the number of cards or hats are limited per assembly line to 3 cards for 78-

person line, 4 cards for a 300-person line.

The treatment of workers by the factory managers is a constant source of humiliation. Verbal abuse and

sexual harassment are frequent, and corporal punishment is often used. During a two week survey

conducted, 56 women workers at a Nike factory were forced to run around the factories premise because

they were not wearing regulation shoes. Twelve of them suffered shock symptoms, fainted during the run

and were taken to the hospital. This deplorable event occurred on International Women’s Day, an important

holiday when Vietnam honours its women. This abuse of workers reflects Nikes inability to enforce its Code

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of Conduct. It took place during a period when Nike knew that Vietnam Labour Watch was in Vietnam

investigating Nike labour practices

Forced and excessive overtime to meet high quotas is currently the norm at Nike factories. During January

1997, workers who worked over 80 hours of overtime, and in February, which was a short month due to the

national four-day holiday for Lunar New Year, they were forced to work over 70 hours of overtime

(4) Health and safety practices: Many health and safety standards in Vietnam are ignored by Nike factories.

In March 1997, it was found that a Nike factory had not even implemented a single health and safety

recommendation from a list of many made in September 1996 by the Ho Chi Minh City Health Department.

It is a common occurrence to have several workers faint from exhaustion, heat and poor nutrition during

their shifts. We were told that several workers even coughed up blood before fainting. The medical facilities

at the factories were inadequate. The Sam Yangs medical facility is only staffed with two nurses for

approximately 6000 employees. There is only one doctor who works for two hours a day, even though this

factory operates 20 hours per day.

(5) Sexual harassment: Nike factory women workers in Vietnam usually face frequent sexual harassment

from foreign supervisors while working on the assembly line. In broad daylight, in front of other workers,

these supervisors would try to touch, rub or grab the buttocks or chest areas of these women. Those

women who are considered particularly good looking are frequent targets of sexual harassment. One

supervisor even told a female factory worker that it is a common custom for Korean men to greet women

they like by grabbing their behinds.

Nike claimed to have little control over VT under the subcontracting arrangement, and due to the Vietnamese

government’s willingness to attract foreign capital, regulation of companies like VT had become even more

difficult. However, human rights and labour activists in cities like Portland, San Francisco, and New York, were

beginning to organize campaigns against labour conditions in “sweatshops”. In October 1997, groups in over

10 countries organized protests, pickets, and informational campaigns regarding Nike’s production practices.

By April 1998, protests and pickets expanded to more cities and countries across the US and Europe.

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International NGOs, such as Global Exchange, along with individual activists, pressured Nike to force its

subcontractors in Asia to improve their labour conditions.

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. By 2001, water based adhesives were used in

manufacturing 95 percent of Nike shoes. To enhance its sustainability, Nike has set a goal of creating “zero

waste” in the production of Nike footwear by the year 2020.

By December 1998, workplace health and safety conditions were much improved at VT. According to the

Dong Nai Health Department, the nose and throat diseases among VT workers decreased from 86 percent in

1997 to 18 percent of workers in 1998, suggesting a significant reduction in air pollution and workplace

hazards. During the same period, VT’s yearly clinic data report showed a 7 percent increase in clinic visits,

indicating improved health awareness among the workers. A survey of Nike factories in Vietnam done by

Global Alliance in 1999 indicated that 85 percent of workers considered the work conditions as safe.

In 1999, Nike introduced its own “Code of Conduct” in Vietnam, modeled after several ILO (International Labor

Organization) conventions, to establish and protect workers’ rights and strengthen accountability and

transparency in Nike operations in Vietnam.

The workers are now aware of their rights, such as the right to minimum wages, and other entitlements, like

food at subsidized rates. The workers also have access to basic education. By 2001, 85 percent of the Nike

factories offered education and training programs and the remaining factories had similar programs in the

pipeline. Nike committed itself to stop dealing with factories lacking basic education facilities for workers by the

end of 2001. Nike also planned to benefit a target number of about 1,000 families in Vietnam through its

microenterprise loan program, and extended the program to residents of communities in which Nike factories

were operational.

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. Both Nike’s South Korean and Taiwanese manufacturing partners had come to Indonesia to take

advantage of the low labour costs, but their approach had been different.

While the Taiwanese companies invested in a number of production facilities in Indonesia, the Korean

companies were prohibited from investing directly in manufacturing facilities, and instead offered technical

assistance to local companies setting up footwear factories. These factories later went into local Indonesian

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control, and the Koreans had to leave. Some Korean nationals, however, ventured on their own into Indonesia

and set up production facilities. These factories were still under Korean management.

Most of the factories were located in the industrial regions around the capital Jakarta, where they employed

labourers who poured in from the countryside looking for jobs.

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. A 1992 Minneapolis Star Tribune report from the

Hardaya Aneka Shoes Industry factory (PT HASI) in Tangerang outside Jakarta talked about barefoot workers

struggling in temperatures near 100 degrees Fahrenheit, amid glue and paint fumes that made heads pound

and eyes bum within 10 minutes. A room in the slums, shared with several other workers, was all the workers

could afford to live in.

Some later accounts of physical conditions in the factories were less negative, such as a 1996 Washington

Post report on the Nikomas Gemilang plant in Serang, 50 miles west of Jakarta. The Nikomas plant, owned by

the Taiwanese firm Pao Chen, employed 18,000 people and produced 1.2 million pairs of shoes every month.

Ninety percent of the workers in Serang were women, most about 19 or 20 years old.

At least 10,000 workers lived at the factory compound in Serang, where they were given three meals each day

in a huge hangar-like cafeteria. There was a mosque, a chapel, and a convenience store. The dormitory rooms

were small; no one was forced to live in them, but most chose to do so to save money. The factories were

relatively clean, the ceilings high, and open side windows in most of them provided ventilation. In areas where

there was more dust or odours, surgical masks were provided. Many of the women still preferred to work

barefoot or had no shoes to wear.

Several sources reported about long working hours in the factories. Community Aid Abroad researchers wrote

that standard shifts at the PT HASI factory were 12 hours a day, six days a week in several sections. Workers

at the Nikomas factory said that during peak periods they were expected to work from 7am until 10 pm—

around 6 hours overtime per day. Another report from Business Week talked of workers who regularly fainted

from overwork at the Nikomas plant. Compulsory overtime was illegal in Indonesia, but enforcement was lax.

Most workers had limited education, and it took time for them to get to know their rights.

Management: Factories owned by foreign companies were considered more productive than the locally

owned factories, but they also produced more complaints. 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.

Nike insisted that managers who were found to be abusive were transferred or removed. Employees and

union activists confirmed that Nike’s audits had been effective; at the Nikomas plant, for example, a security

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guard who hit a worker was quickly fired by the owners. Workers sometimes complained at the lack of

advancement in foreign-owned factories.

Although the Taiwanese companies were generally in favour of promoting local management talent, this had

worked less well in Indonesia than in other countries.

Wages: Underpayment of wages had led to several cases of unrest at the Nike’s Indonesian contract

factories. In April 1997, workers at the PT HASI staged a mass strike and protest. They demanded being paid

the new basic minimum monthly wage of 172,500 Rupia ($71.37), excluding allowances, that went into effect

on April 1. A representative of the workers said that the company had included their “attendance” allowance in

their basic wage, which meant that their minimum wage had actually stayed at last year’s levels. The Jakarta

Post quoted the personnel manager of the company, who said the company had been given permission by the

manpower ministry to delay paying the 1997 minimum wage because of its financial situation.

After 10,000 of the 13,000 workers at the factory had marched to the district parliament to demand the

increase, the company agreed to pay the minimum wage, not including allowances for attendance, overtime,

transport, holiday pay, and meals. A Nike spokesman, Jim Small, was quoted as saying that wages in

Indonesia had increased threefold in the last two years, and that “Indonesia could be reaching a point where

it’s pricing itself out of the market.”

The question if the minimum wage was enough to live on was disputed. According to the San Fransisco-based

human-rights organization Global Exchange, the minimum wage in Indonesia of $2.46 a day covered only 90%

of basic subsistence needs for one person. Nike, on the other hand, claimed that their contract factories paid

more than what most labourers would earn in other jobs. “We turn away more prospective employees than we

could hire,” Knight commented. “It sounds like a low wage and it is. But it’s a wage that’s greater than they

used to make.

Nike Child Labor / Harassment Issues in Cambodia

The issues involved in Cambodia is more or less similar to Pakistan, Indonesia and Vietnam. However, the

following are the main issues involved in Nikes’ Cambodia :-

Child Labour: According to the documentary, Sun Thyda was 12 years old at the time of the interview and

claimed to have indicated that she was 18 years of age in order to obtain a job in the factory. The second girl’s

name is Chan Sita who was 14 years old. Cambodian law states that it is illegal to employ children under the

age of 15. Clearly, Nike is not only violating its own code of conduct, but also violating local law.

During the interview, the girls explained they were sometimes forced to work from 6:15 a.m. until 10:15 p.m.

They are required to stand during their entire shift and could only rest during meal breaks. Each girl receives

$40 a month in wages. This is just enough to cover food and rent in a one-room shanty dwelling, which is

shared by several other children. These children have not seen their parents in several months and do not

have access to a phone. In fact, the parents are at least a one-day ride away from their children. In one case,

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the parents actually borrowed $80 to pay an agent representing the factory so that their daughter could get the

job. Now that their daughter has the job, her wages are not enough to allow her to send money back home to

her family.

Harassment: In September 1999 the Cambodian Labor Organization (CLO) released a report on the Natural

Garment Factory in Phnom Penh. It described how, during a period when the factory was producing for Nike

(April to July 1999), the president of the factory union, Miss Ken Chheng Lhang, suffered extensive

harassment for trying to defend workers’ right to have one day off in every seven. Miss Lhang was refused a

time card, preventing her from working for several days. The factory criticized her for constantly making

complaints to the labor ministry and put pressure on her to resign. The report also documented how on July 6,

1999 factory supervisors manufactured a problem with the work of the union treasurer, Chab Kunthea, as a

pretext for firing her. The report concluded that “the case of Natural Garment demonstrates once again that the

US footwear and apparel giant, Nike, is failing to take any pro-active steps to monitor or enforce compliance

with its much-touted code of conduct, which provides that workers have the right to freely associate.

In October 2000, the BBC’s flagship documentary program Panorama screened an investigation into the

operation of Nike’s code of conduct. The report focused on the June Textiles factory in Cambodia. The

journalists interviewed workers from the factory who told of being forced to work seven days per week and one

worker described how she had been sworn at and had her hair pulled by a supervisor when she refused

overtime. The workers reported that their full-time wages were barely adequate to cover rent and food.

Several weeks before the documentary was screened it announced that it was ending its relationship with

June Textiles, citing failure to meet the standards in the company’s code. Nike’s withdrawal from the factory

had the potential to cause significant job loss at June Textiles, and to anti-sweatshop activists it looked very

much like an opportunistic attempt to minimize negative publicity associated with the BBC story.

Anti-sweatshop groups urged Nike to instead stay at June Textiles and work with the factory to improve

conditions.

Nike responded by claiming that its monitoring program had already discovered labour abuses at the factory

and it had been on probation at the time that the BBC journalists conducted their interviews. Labour rights

groups have asked Nike to release the factory monitoring reports for June Textiles so that the company’s

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claims can be verified, but this request has been ignored. Nike’s reluctance to provide evidence to back up its

story raises suspicion that the company’s primary motive in leaving June Textiles was to protect its image.

Nike Issues in Thailand

The issues involved in Thailand is more or less similar to Pakistan, Indonesia and Vietnam. However, the

following are the main issues involved in Nikes’ Thailand :-

Labour Wage: Nike workers at the Lian Thai factory in Bangkok in Thailand only receive the minimum wage of

162 Baht for working an 8 hour day and say they need about 200 Baht just to cover the basics needs of one

person. Factories owned by Nike supplier Bangkok Rubber located in Ayuttaya Province, just outside of

Bangkok, need only pay a regional minimum wage of 130 baht (US$ 3.50) per day. This is significantly lower

than the Bangkok minimum even though living costs are similar in the two areas. Although living costs in

Thailand have risen dramatically in the last several years, legal minimum wage levels have remained static.

Union Issue: Two business conglomerates own Nike contract factories in Thailand—the Saha Union Group

(which owns Union Footwear, Union Shoes, and Unisole) and the Sahapathanapibul Group (which owns the

Bangkok Rubber Group and Pan Asia Footwear). According to researchers, there are no unions in the entire

Thai sportshoe sector because factory owners have crushed all attempts by workers to organize. Many

workers in the footwear industry become terribly frightened when asked about union activities.

There is also considerable repression of union rights by Nike clothing contractors in Thailand, although unions

do exist in some of these factories.

Exploitation of Human Resources by MNCs in the Host Country :

Modern day globalization has been imminent since the early days of industrial revolution. Massive growth of

production of goods eventually outpace the demands in their localities , and thus companies needed wider

markets and explored nationwide and in no time overseas . But save for issues on nationalism , the

preservation of culture of individual countries , and complaints from local companies of unfair market

competition , this aspect of globalization - the importation of goods by less developed countries - hadn't have

encountered fierce criticism or opposition as much as the other aspect had - the expansion of production base

of corporations to other nations

As soon as corporations started exploring wider markets and spurred demand, the idea of conducting their

production operations from other countries has been looming. Aside from more production capacity, the

prospect of operating in a country with less stringent environmental laws and lower wage standards is just

irresistible for multinational companies

Governments of host nations, on their part, would almost always want to welcome any multinational

companies interested in establishing production operations in their country. With the economic benefits they

would provide through taxes and employment, the skills they would impart to its populace, and the transfer of

technology they will bring in with them, multinational companies will certainly help improve the image of

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governments to their citizens. If not for the opposition of some sectors of society - citing possible exploitation of

the environment and human resources - governments, especially of least developed countries, would

automatically allow any multinational company interested to operate.

Globalization has given multinational corporations power beyond nation-states, and has considerably

weakened a country's control over corporate practices and inflows and outflows of capital, setting of

regulations, balance of trade and exchange rates, or local economic policies. In addition, some multinational

companies have budgets that far exceed those of developing countries they can cultivate a deep influence in

international affairs and domestic economies.

It is wrong to prescribe that MNCs are bad for the host country. There are positives as well as negatives.

When MNCs enter host societies, there are some benefits, which are outlined below:

The Positive Impact

Financial and Technological Resources and Expertise: MNCs provide immense resources and

investments, technology, innovation and expertise to the host societies. A culture of research and

development is encouraged and human resources are developed, at least within the organization. MNCs also

contribute significantly to the national exchequer by paying taxes.

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.

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. People have more access to the comforts of life with a large

variety of choices.

Infrastructure Improvement: Many MNCs help in improving the infrastructure and provision of basic needs in

their specific areas of operation. They either do so directly or provide funds for this purpose to civil society

organizations. This also improves business conditions within and in the vicinity of the areas where they are

operating.

Pluralism: MNCs help boost cross-boundary interaction among people. Even education, particularly, business

education, has taken on a global perspective. The global perspectives and opportunities for cross-cultural

understanding increase the adaptability of students to alien environments. This leads to the mixing of cultures

and practices and encourages pluralism as well as competition.

The Negative Impact

Nevertheless, MNCs can also pose problems for host societies in the spheres of social and economic

development and cultural diversity. How this happens is outlined below.

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Conflicts of Interest: MNCs are commercial organizations and their only interest is to gain maximum return

on their invested capital, occupy market shares and ensure their long-term competitiveness. This leads to

conflict of interests between the MNCs and host societies on issues like repatriation of profits, patents, and

major operational decisions. Host countries would want MNCs to work in a manner that is harmonious with the

social and political needs of their societies and communities, whereas the MNCs make their choices based

purely on economic criteria. This conflict of interests leads to conflict within societies.

Increasing Materialism and Consumerism: MNCs promote a culture of conspicuous consumption, in which

presentation and cosmetic changes matter the most. The product models change very fast and the older ones

lose relevance in a short span of time. Consumerism has an overwhelming impact on societies.

Contrary to the conventional view, taking loans is now considered a status symbol. The availability of easy

credit, consumer financing, credit cards and personal loans by the banks to the middle class is promoting a

culture of people living beyond their means.

Simplicity is losing currency and people strive to live in luxury. This trend makes the disparity of resources

among people, groups and even regions look wider. Previously, education was aimed at developing a

balanced personality and ethical and social values and character building were emphasized. Now, however,

materialism has taken over.

Corruption and Crime: In the race for maximum profit, the MNCs deem their ends to sometimes justify the

means: they use their considerable buying power to corrupt people to capture markets.

Healthcare Attitudes: Healthcare attitudes are changing and people expect better health services. The job is

made easier by the new norm of “third party cashless payments,” where payment is made via credit cards or

health insurance. The focus has now increased on preventive healthcare. Although it is good for those who

can afford these facilities - and they are the targets of MNCs - yet it is extremely frustrating for those who

cannot afford them. Hectic routines, targets and deadlines are resulting in stresses and pressures. A

destructive lifestyle has led to a host of medical crises: sexual problems from over-performance at work,

stress, mid-life crisis, ulcers, nervous disorders, hypertension, obesity, cardiac disease, diabetes, etc., are all

lifestyle-related ailments that are on the rise.

Cultural Changes: MNCs use, develop and continually refine their marketing tactics to create consumers’

need for their products. They use social marketing and stars from the worlds of sports and show business to

project their products, especially affecting the youth, women and children as they are generally attracted to

glamour. Special events, festivals and campaigns are organized to create hype. In this atmosphere, ethical

and moral considerations have no place, and corporate interests start determining what is to be celebrated

and how.

With the spread of MNCs’ operations in a society, the importance of foreign languages increases because

these firms mostly operate among the classes equipped with foreign language skills and hire and promote the

people from the same groups.

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Promotion of Non-Issues: Importantly, poor people are not the target of MNCs. They target the middle

classes, who have the buying powers, and trying to change their priorities in everyday life, spending and

consumption. MNCs establish close linkages with intellectuals, legislators, media and some non-government

organizations (NGOs) to highlight specific issues that suit their business interests.

Negative marketing: When introducing their products, MNCs exaggerate the qualities to the level of cheating

and lying. Aggressive campaigns with false claims are launched. Local products are ridiculed. Children and

youth are special targets, while women are treated as commodities to project the products, affecting the

existing value framework of the societies.

Business Promotion through Charity: Some MNCs are involved in charitable and welfare work in the host

societies as well. However, the amount given by them in charity is not comparable to their profits. Moreover,

the charitable work revolves around activities that directly or indirectly result in various kinds of gains for the

corporations. Charity is given where the economies best suit their corporate interests.

Stresses on the Family: MNCs affect the host society’s family fabric in many ways. The new cultures and

lifestyles introduced by MNCs are proving harmful to the family fabric in host societies. Over spending and

living beyond means eventually creates economic pressures and develops tensions and stresses within

families. Various indicators also prove that women working with MNCs and other big corporations undergo

extra stress when entering into marriages and bearing children. Parents have little time for their families,

particularly children. One out of six women in the world opts out of natural birth, according to the World Health

Organization (WHO). Earlier, this trend was specific to the developed countries but it now prevails in the least

developed world too.

Pushing Local Producers Out: MNCs either buy out the local companies of the host countries or push them

out of the markets by offering cheaper and better quality goods for some time. Where aggressive marketing is

needed, MNCs can, in the initial phase, even provide their products free of cost to coax the public into

developing appropriate consumption habits.

Inducing Buyers and Capturing the Market: MNCs capture the market using a variety of strategies and

tools, including social and market research, opinion building, developing interest groups, lobbying,

sponsorship, etc. The media plays an important role in this campaign.

The role of MNCs in developing countries has been subject to severe criticism as far as exploitation of

human resources is concerned. Some points of criticism are cited below:

1. MNCs exploit local labour and resources by paying relatively lower prices and lower taxes than local firms

while obtaining high profits that are largely repatriated.

2. MNCs exploit by use of child labour permitted against the labour law of the host country or by employing

forced labour.

3. Excess working hour permitted beyond labour laws of the host country is another way of exploitation of

human resources by the MNCs.

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4. Duration of number of working days in a week compared to the parent country. Example: while 5 working

days in a week is allowed in European countries, it is 6 working days in a week in Indian sub-continent

when the same European MNCs does business in Indian continent.

5. Brain Drain: The term “brain drain” is commonly used for the situation when talent goes out to other

countries. The MNCs are involved in another kind of brain drain. Their lucrative salaries attract talent that

might have contributed to the host society to work for their ‘multinational’ interests without leaving the

country.

6. Another form of human exploitation by MNC in the host country is in the form of pushing labourer to work

in non conducive working environment. Most workers are exposed to hazardous and inhuman conditions,

overexertion and financial abuse.

Conclusion:

In order to secure the future of their operations in the host country, MNCs must successfully establish ethical

practices in the host country. MNCs should up hold integrity and should adhere to the moral principles of

honesty. The principle of personal virtue spells out that as the companies strive to meet their goals they also

benefit the community at large. The multinational corporations should follow the utilitarian principle

which says that the companies should more good than harm to the host country. Since the MNCs use the

resources of the host country, the MNCs should improve the interests of its stakeholders, respect the existing

rights and conduct their activities in accordance with the bound of justice. There are no standards to measure

the morality of a particular culture; therefore, MNCs should follow the normative ethical relativism which says

that; people can have different cultures and conflicting views and both be termed as right. MNCs should

prioritize the local norms, practices and laws of the host country. MNCs should adopt international code of

business ethics. These companies should respect human rights of their employees and contribute to the

development activities of the host country. MNCs should pay their taxes and avoid exploiting the host

countries.

Multinational corporations have a moral code of conduct which guides behaviours at workplace. These

organizations expect their employees to abide by the moral code of conduct.

References :

1. Hitting the Wall: Nike and International Labour Practices – Harvard Business School 9-700-047 dtd.

6.9.2002

2. Research Paper: Nike and Child Labour By Tanya Tucker and Ethical Issues in Business and Society –

MGT 560OL By Dr. Arthur Meiners November 20, 2003

3. Nike: Managing The Non-Market Environment – Stanford Graduate School of Business CASE NUMBER:

S-IB-14B REV.A 5/1/1998

4. The Promise and Perils of Globalization: The Case of Nike By Richard M. Locke - MIT Working Paper

IPC-02-007 July 2002

5. Still Waiting For Nike To Do It - Published by Global Exchange ISBN 0-9711443-0-3 May 2001

6. Contents from Wikipidia