Nike Labor Practice

Submitted To:

Richard Small

Facilitator of College of technology London

Marketing project

London

Submitted by

Muhammad Faizan Akhtar Khan

UWL ID # 1002470

CTL ID # 083981-84

MBA Term 2

April, 2011

Contents

1.0 Research Question..................................................................................................3

2.0 Research Hypothesis...............................................................................................3

3.0 Organization Background......................................................................................4

4.0 Literature Review...................................................................................................5

4.1 Nike Labor Crises...............................................................................................5

4.1.1 Nike Child Labor.........................................................................................5

4.1.2 Nike Corporate Social Responsibility........................................................6

4.1.3 CEO Phillip Knight Promise......................................................................7

5.0 Analysis of Hypothesis........................................................................................8

6.0 Nestle Milk for Infant.............................................................................................9

6.1 Morality and Ethics..........................................................................................10

6.2 Corporate Citizenship.......................................................................................11

7.0 Conclusion and Recommendation.......................................................................12

8.0 References..............................................................................................................13

IF YOU HAVE A BODY, YOU ARE AN ATHELITE “Tory Thompson”

1.0 Research Question

To what extent has the use of child labor permanently damage the reputation of Nike?

2.0 Research Hypothesis

To maintain the Organization reputation and its market, Corporate Social Responsibility

(CSR) plays a very important role in branding strategy of an organization. By telling the

stories or their initiative about their CSR, Company strength their brand because by tell

or spreading CSR company brand image improves among the customer and it help in

gaining legitimacy for their labor practice (Chun, 2005). However this report is not for

the company and their branding but this report is for the ignorance and their effect on

company and their legitimacy on the poor or Third World country. Where the company

(Nike) bases their factory where they situate their CSR initiative (Lounsbury and Glynn,

2001).

In the case of Nike, Inc. a company which was recognize as a benefit and risk intrinsic in

global world. However in this report we examine the issue that has faced by the company

and try to balance both their performance and good corporate social responsibility. A

significant majority of consumer will probably never wear Nike again though a

significant majority will. Perhaps awareness is the main issue. Nike practice will only be

reversed when a significant majority side with the minority home country action may

make.

3.0 Organization Background

Nike is a major trade mark sportswear and equipment supplier based in USA. Nike hold

the major market share of apparel and athletic shoes. The principle business of Nike is to

design, develop and market of high quality footwear, equipment, apparel and other

accessories. The product of Nike is manufactured by independent contractor. There are

footwear and apparel are manufacture outside the USA, where as equipments are produce

in both USA and Abroad (Nike Annual Report, 2010).

Bill Bowerman and Phil Knight were the two visionary men who pioneer a revolution

and redefine the athletic footwear industry. The company was founded in 1964 with the

name of Blue Ribbon Sports later it change the name as Nike in 1978. Before changing

the name it starts it launching their product in 1972. After changing the name to Nike, the

footwear industry has seen an experience of explosive growth (Nike, 2010).

In 1985, alone the customers of US have purchased 250 million pair of shoes and spend

$5 billion. In 2001, they had spent $13 billion and purchased 335 million pair of shoes.

However industry of footwear is vey segmented in term of price, model and sports. The

shoes industry is control by few large organizations like Adidas, Nike and Puma. In fact

the 70 % global athletic footwear market is control by the 10 foot wear companies. Below

is the chart, which we can easy identify that the end of the 20th century Nike is the leader

in athletics foot wear market share (Kochan, A and Schmalensee, L, 2003).

Nike has faces several ups and down during their journey of success. Some issues have

resolved on the way to success but some issues which have leaved the bad mark on Nike,

such as using the Child as labor in their contractor factories. This issue raised in 1996

when CBS aired their documentary at prime time in which it raise the point of using the

Child labor in Pakistan.

4.0 Literature Review

4.1 Nike Labor Crises

Child Labor in Sialkot, Pakistan

In Sialkot, Pakistan, most of the soccer balls of the world have been producing for years.

Most of leading international brands like Adidas, Reebok and Nike are outsourcing the

soccer ball from Pakistan. According to International Monitoring Association of Child

Labor (IMAC, 2003) approximately around 30 to 60 thousand number of people

employed in Sialkot, who stitches’ the soccer ball. Majority of them was under age and

majority of these ball were made in at home. Those under age employee try to help their

parents at home who get paid in accordance with the number of football rather than per

hour rate.

4.1.1 Nike Child Labor

06 April 1995 came with a major blew for Nike. On that day CBS aired a short

documentary “child at work” on the foot ball industry in Sialkot, Pakistan at Prime time.

This story bring the disaster for Nike, the report over Nike child labor has published all

over the world, in result Nike has to face the legal action and firestorm of international

media.

In 1990, The New York Time published report about the Pakistani child stitching the

Adidas soccer ball but the article did not catch the attention by others. This changed after

the 1994 world cup in USA. Investigation in Pakistan and media coverage related to the

labor condition of Rebook, Nike as well as Adidas and other brand, with violation of

child labor in production of soccer ball (Hond F. et al, 2010).

Nike has faced the issue of using Child labor in the production of several areas like the

production of soccer ball in Pakistan; they have also faced the issue about their plant as

well. Their plant is not safe for their worker in Vietnam and there worker wages is very

low.

Whereas Nike has defended their accusation and said that they have learned from their

past mistakes and they don’t use the child labor. They have briefly specified in their code

of conduct about their specification of the ages of their worker. They have set higher ages

standard as set by International labor organization, the minimum age for apparel worker

is 16 year whereas the 18 year is minimum for footwear worker in factories (Ernst &

Young. 1997).

They have also said that due to the several factor in many countries the age verification is

very difficult, because of that they leave this matter to factory manage who try to

determine the employment age from there documentation and identify the correct one.

Nike understand the importance of the work that’s way they continue to work with their

partner and develop the method to find out the documentation of underage worker who

use the false document to get the job (Ernst & Young. 1997).

Nike has also denied the accusation of low wages of their employee and said that their

employees get the fair wage according to their contract factories which is spread

worldwide. The wages include different types of allowances like house allowance,

transport, healthcare and bonuses. Nike some time set the cash wages for their entry level

worker which would set by the local government or trade union. They also defend the

issues about their workers are required to work more than the maximum hour (Ernst &

Young. 1997).

4.1.2 Nike Corporate Social Responsibility

Corporate Social Responsibility (CSR) is more than charity, the purpose of CSR is to

make sure that in the process of business, employees are motivated and respected, the

environment is good and the corporate governance are in place with their highest

standard (like shares holder, code of conduct, accountability and director remuneration).

Many of the organization are not just publishing their financial performance but they also

show their environmental and social achievement (Dijken F, 2007).

Nike is one of the entrepreneur industries who change the athletics footwear market and

Phil Knight is one of the co-founder who recognize as an entrepreneur. But as the issue

raise by the media about the child labor, it jeopardizes the image of the company as well

as the image of the founder of Nike. Nike branding itself as a heroic adventurer needed a

facelift (Dijken F, 2007).

4.1.3 CEO Phillip Knight Promise

After the leaking of the news about child labor practice, on May 12, 1998 at National

Press Club in Washington, DC CEO of Nike Phillip Knight gives a speech. In this speech

he made some “fairly significant Announcement” regarding policies of Nike on the

working condition of their factories of supplier. In his speech he makes six commitments

The minimum requirement age in Nike shoes factories is eighteen and sixteen is

for apparels factories.

All the shoes factories meet the requirement of the U.S Occupational Safety and

Health Administration (OSHA) in indoor air quality.

Nike will include non-profit organization to conduct their audit, and the report of

the non-profit organization will release to public.

Nike will start free education program for their footwear factories worker

Nike will expand micro-loan for their worker in Third world countries like in

Vietnam, Pakistan, Thailand and Indonesia.

Funding universities and open forum for responsible business practices.

(Connor, T. 2001). 

The CEO of Nike has promised about the Nike polices and the working condition of the

worker but the demand which rights group has wished with Nike has deliberately ignored

by Nike. Their first demand was to protect their workers who speak about the condition

of the factories but the track record of protecting the worker who speaks about the

condition of the factories was very poor (Connor, T. 2001). 

The second demand of rights group was investigating and monitoring of working

condition through proper regulation, independent, transparent and confidential procedure.

Some activists have asked Nike to allow rights group to educate their worker about their

rights and they can confidential compliant to monitoring authority when their right are

violate (Connor, T. 2001). 

The third demand was increase their wages which have refused by Nike by given the

reason that their worker are already paid a full time wage that can support a family with a

sufficient housing, food and other living necessities (Connor, T. 2001). 

Their fourth demand was about their working hour. Some independent researcher indicate

that in some of the factories of the Nike worker are being force to do up to seventy

hour/week and they being humiliate before their other coworker or threaten them of

dismissal if they refuse (Connor, T. 2001).

Their fifth demand was healthy and safely work place. Nike has improved in recent year,

by minimize the Toxic chemical usage in sports shoes production. But in some occasion

in past years when some of the independent health and safety worker have visit some of

the Nike factories, they found highly hazard including highly amount of Toxic chemical,

insufficient protective equipments (Connor, T. 2001).

Their sixth and last demand was workers respect. Nike promised to protect the rights of

their worker but they could not fulfill. The large numbers of Nike factories are in china

where independent unions are illegal. Nike has rejected to call the Chinese’s government

to allow their worker to organize (Connor, T. 2001).

5.0 Analysis of Hypothesis

In Sialkot, Pakistan, most of the soccer balls of the world have been producing for years.

Most of leading international brands like Adidas, Reebok and Nike are outsourcing the

soccer ball from Pakistan. According to International Monitoring Association of Child

Labor (IMAC, 2003) approximately around 30 to 60 thousand number of people

employed in Sialkot, who stitches’ the soccer ball. Majority of them was under age and

majority of these ball were made in at home.

In this study we will use the quantitative research and use the secondary data. Our main

sources of data to support this report are the surveys, documents, international

organization reports. However we have use the internet documents, newspapers, surveys

which has publish by the organization of the child labor.

About the corporate social responsibilities (CSR), there are several organizations that are

not fulfilling their responsibilities and their issues gradually raised by the time. Like in

past we have seen the issue of Nestle about their formula for infant, has killed several

infant in Third world counties. This report has included few incidents due to negligence

of CSR by the organization.

6.0 Nestle Milk for Infant

One of the most famous cases has faces by Nestle in marketing history. This situation has

caused problem for Nestle for decades. In this particular case the issue is about the world

largest food processing company Nestle Alimentana who had been facing the an

international boycott for the reason of directly and indirectly responsible for the death of

infant in Third World countries.

Multinational Corporations very rarely provide the detail of their activities in developing

countries. Nestle has faced so much criticism due to their policies and practices in

developing countries that it has undertaken to state its own case (George, S, 1978).

The primarily focus of the charge is that they discourage breast feeding by their

marketing and advertisement in developing countries and led to misuse of the product

(Jimenez, G, 2010).

For example Nestle launch their product in Peru where water is directly coming from the

river which is highly contaminated most of the mother used the water to dilute the

formula. As a result those formulas fed babies recurring the attack of vomiting and

diarrhea. Or in some case the mother in developing countries filled up the bottle with

large amount of the water with small amount of food, in the result extreme

undernourishment or in some cases, mothers totally depend upon the formula to feed their

children in a large amount of formula for a long amount of time. Nestle support their

product by saying that they never support the idea of replacing breast feeding with

formula (Jimenez, G, 2010).

6.1 Morality and Ethics

Every society develops standard of morality and standard of conduct. Which draw on the

basic concept of what is justified and desirable for the appropriate action for individual

and collective. The bases of these concepts are ethics which reflect fundamental views of

depravity, equality, virtue, quality, duty and social utility and within the social order

(Epstein, 1998).

According to Beauchamp & Bowie (2001) morality is define as the sense of behavior that

distinguish between good (wrong) and bad (right). Morality is the system of moral code.

In general, morality refers to the appointed society or culture whether accepted by the

individual (organization) or not. Whereas, ethics is define as the standard of moral that

are accepted and also contain believe that go beyond the establish standard of the

organization, the individual and the culture or society. Therefore, ethics contain morality.

Morality based on religion but do not have to be where as ethics generally based on

philosophy but do not have to be.

An ethical parable: Two students meet their master for the next lesson. The master gives

them a chicken and says that, go and kill the chicken where no one will see. One student

come after an hour and show a dead chicken to a master, but second student did not

come. After two days, second student return with still alive chicken. When master ask

him why chicken is alive what happened he replied wherever I go to kill her, chicken

sees.

Nestle marketing tactics for promoting infant child in developing countries (Third World

Countries) was not moral. Nestle was not acting within the boundaries of moral standard.

Every corporation must understand the standard of corporation ethics and responsibilities.

The problems of the issues that Nestle hire unqualified sales girls, marketed to people

who were incapable to fulfill the minimum requirement for giving formula safely to the

baby (Jimenez, G, 2010).

6.2 Corporate Citizenship

The straight forward definition of corporate citizenship is developing mutually beneficial,

trusting and interactive relationship between the company and their many stakeholders

like employees, suppliers, communities, customers, government, investor and even

nongovernmental organization (NGOs) and other activities through the implementation

of company operation and strategies practices. According to this definition to be a good

corporate citizenship mean treating with respect and dignity with the entire company

stakeholders (McIntosh, M. 2003).

According to these theories if we compare this with the activities of Nestle and the

incident of killing the infant we realize that the Nestle has not shown the ethics and has

not accomplish their corporate citizenship responsibility.

Nestle did not handle this issue and ignore their responsibility which their customer were

aspect from them. The market campaign of Nestle was unclear, which cause the

misunderstanding that the product is the good replacement of the breast milk and other

form of nutrition is very important for the child growth.

7.0 Conclusion and Recommendation

Nike is a one of the leading brand of footwear in all over the world. In developing

countries the growth of CSR has been widespread in recent time. The issue of Nike has

hurt a lot and their image in market place has down.

On the other hand, in my point of view about nestle issue is that in some circumstances

they were right but in some they take some wrong decision. I do not think that their

intension is to sell these nutrition formulas in developing countries to kill them. However

they have not done a good job on explaining how to use this product. At last if nestle has

made the product to sell all around the world they have to make sure that it is every

customer can use it without any hazard.

About the Nike, a significant majority of consumer will probably never wear Nike again

though a significant majority will. Perhaps awareness is the main issue. Nike practice will

only be reversed when a significant majority side with the minority home country action

may make.

8.0 References

Beauchamp, T. L. & Bowie, N. E (2001). Ethical Theory and business. 6 th edition,

Prentice Hall

Chun, R. (2005), 'Corporate reputation: meaning and measurement', International

Journal of Management Reviews, 7, No 2, pp 91-109.

Connor, T. (2001). Still Waiting for Nike to Do it. 

Available:www.globalexchange.org/campaigns/sweatshops/nike/

NikeReport.pdf[Last accessed 09th April 2011].

Dijken, F.V. (2007). Corporate social responsibility: market regulation and the

evidence. Managerial Law. 49 (4), 141-184.

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Available: http://www.mindfully.org/WTO/Nike-Vietnam-Unsafe.htm [Last

accessed 19 March 2011].

George, S. (1978). The limit to Public Relation.

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Kochan, T.A and Schmalensee, R.L (2003). Management Inventing and

Delivering its Future. USA: Sloan school of Management. pp 43-47.

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legitimacy, and the acquisition of resources', Strategic Management Journal, 22,

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McIntosh, M. (2003). The Ecology of Corporate Citizenship: Raising a Ladder to

the Moon. Corporate Citizenship. 9 (2), p28-31.

Nike. (2010). Annual Report 2010.

Available: http://media.corporate-ir.net/media_files/IROL/10/100529/nike-ar-

20100804/docs/NIKE_2010_10-K.pdf[Last accessed 19 March 2011].

Nike. (2010). Company Overview. 

Available: http://www.nikebiz.com/company_overview[Last accessed 25 March

2010].

STEVEN GREENHOUSE. (1997). Nike Shoe Plant in Vietnam Is Called Unsafe

for Workers. Available:www.mindfully.org/WTO/Nike-Vietnam-Unsafe.htm[Last

accessed 01 March 2011].