Hitting the Wall: Nike and International Labor Practices

1) Which criticisms leveled against Nike do you consider to be "fair"? Explain.

Nike's corporate practices are good indicators that the company is only interested in exploiting low wages in third world countries. This is indicated by investing in these countries through worker training or human resource investment but has continually shifted its operation to the country with a lower wage.

Nike is in control of its subcontractors - They dictate the price of a shoe and the cost of operation to its subcontractors forcing them to set high quotas for their workers and to pay low wages.

Based on the Ernst & Young report to do an "independent" inspection of Nike's factories, Observers found the following:

* 77% of the employees suffered from respiratory problems

* Thousands of females, mostly under the age of 25, worked 10. 5 hours a day, six days a week for $10

* More than half of the workers dealing with chemicals did not wear protective equipment, nor did they understand the nature of the hazards around them.

Ironically, despite these observations, the report concluded that most employees were happy with their pay and working conditions.

The issue of exposing workers to harmful chemicals has also arisen. Observers readily have brought attention to a characteristic smell inside shoe factories. Toluene, a solvent in primers and glues which has been used to bond shoe components, has been identified as one of the culprits. It has also been found to be a cause of brain damage, cancer, head aches, impaired coordination, and lassitude.

2) Which criticisms do you consider to be "unfair"? Explain.

One of the most difficult issues facing companies such as Nike is their willingness to profit from the impoverishment found in third world countries. Most factory workers have little formal education, are poor and come from rural areas where opportunities to earn a leaving are meager. Consequently, the salaries paid by Nike factories may be attractive in comparison to alternative employment options, but when juxtaposed against profits earned from their labor, look quite sparse. However based on the Dartmouth research report, Nike's wages are typically used to augment total household income and raise overall living standards. It was also reported that in both Indonesia and Vietnam contract workers consistently earned wages at or above government-mandated minimum wage levels.

Another issue that has created unrest concerns the long hours workers are expected on the factory floor. We cannot expect underdeveloped countries to maintain the same working standards that exist in more technologically developed ones. For individuals to work themselves out of poverty, they must work more hours than individuals already enjoying a higher standard of living.

While much criticism has been directed at Nike and other companies following their manufacturing model, it has been difficult to determine whether or not the abuses identified by social activists represent widespread patterns or isolated occurrences

Publicized abuses in factories were not as widespread or systemic as some Nike critics had suggested - According to the Young report, conditions in factories were adequate. However, there was still much room for improvement, and that Nike appeared to be headed in the right direction in redressing critics' contentions of worker abuse.

3) What types of companies and industries might be MOST exposed to the kinds of criticisms faced by Nike? What types of companies and industries might be LEAST exposed to the kinds of criticisms faced by Nike? Explain your answers.

Major multinational firms that have operations distributed over various geographical locations usually are exposed to more scrutiny from critics and NGO's, especially if they are very profitable. Firms like these come under the microscope for their production and management policies that may differ in different countries. Following procedures to keep the critics happy is a two edged sword. The host nations may view this as cultural imperialism or an impediment to their economic development. Their cultural and governmental sovereignty can be threatened by multinational companies imposing Western standards on their economies. Because this activity would likely also increase their relative labor costs, these nations may also believe their competitive advantage in the global economy would be reduced or eliminated, especially because they normally suffer from other comparative disadvantages. For companies this approach would create significant risks of their becoming less competitive on costs unless all competitors acted together or there were substantial first-mover advantages.

Localized firms usually do not face such criticisms, since their competition is local and the supply and demand market catered to by these companies is the same. Government intervention is usually not likely unless there is blatant disregard of the working atmosphere or incompetence in production operations.

4) Evaluate Phil Knight's response to Nike's criticism. What would you have done differently to diffuse this criticism early on or to eliminate it completely?

Nike has attempted to respond to criticism by arguing that if alleged abuses actually did occur in their factories, they were not a consequence of company policies which do not condone unfair, illegal, or immoral behavior on the part of factory managers.

Nike's response to the criticisms came