Case Study "Nike: The Sweatshop Debate"
Sarah Martin
MGT 448
July 27, 2011
Kenneth Peter

Case Study "Nike: The Sweatshop Debate"
“We’ve run the course – from establishing codes of conduct and pulling together an internal team to enforce it, to working external bodies to monitor factories and engaging with stakeholders” (Nikebiz, para. 2). The creation of this code of conduct came after serious allegations of using sweatshops with women and children working in hazardous conditions for less than minimum wage in overseas factories scattered across the globe to make their product. This paper uses the case study entitled, “Nike: The Sweatshop Debate,” to describe the legal, cultural, and ethical challenges that confront Nike’s global business. This paper will also determine the various roles that host governments have played as well as summarize the strategic and operational challenges that face global management for the Nike Corporation.
Bill Bowerman, a track and field coach at the University of Oregon, and Phil Knight, a talented middle-distance runner from Portland, “shook hands to form Blue Ribbon Sports, pledged $500 each, and placed their first order of 300 pairs of shoes in January 1964” (Nikebiz, para. 1). In 1965, they hired their first employee, Jeff Johnson, to manage the growing requirements. In 1971, he conjured up the name Nike.
According to the case study, the profits and success that the Nike Corporation has gained has affected hundreds of thousands of workers in other countries that have worked in harsh conditions for very little pay. The case study states that, “Nike is now one of the leading marketers of athletic shoes and apparel on the planet. Nike does not do any manufacturing. Rather, it designs and markets its products, while contracting for their manufacture from a global network of 600 factories scattered around the globe that employ some 650,000 people” (Hill, p. 154). Nike subcontracts its manufacturing to countries such as China, Indonesia, Taiwan, and a Vietnam factory owned by a Korean company. When companies subcontract to overseas companies, they are putting themselves at risk because they are not able to fully manage the workplace by evaluating and monitoring labor practices. These companies save money on wages. “The majority of Nike shoes are made in Indonesia and China, countries with governments that prohibit independent unions and set the minimum wage at rock bottom. The Indonesian government admits that the minimum wage there does not provide enough to supply the basic needs of one person, let alone a family” (Hill, p. 155).
In regard to this case study, Nike faces many challenges to legal, ethical, and cultural points of view. Nike has the responsibility to act in an ethical way, both in the United States and overseas. Nike states, “Our code of ethics for employees is called Inside the Lines; it defines the standards of conduct we expect of all our employees. Every year, employees are required to verify that they have read and understand Inside the Lines. We expect our suppliers to share our standards and to operate in a legal and ethical manner. While Inside the Lines covers the behavior of Nike employees, our Nike Code of Conduct covers contractors who manufacture Nike-branded products. It directs them to respect the rights of their employees, and to provide them with a safe and healthy work environment” (Nikebiz, para. 3 & 5). It is unfortunate that Nike chose not to see what was happing in overseas factories they subcontract. Factory workers in Vietnam making $40 a month, 11-year-olds in Indonesia making 14 cents per hour, violating Chinese labor laws by employing workers as young as 13 earning as little as 10 cents an hour for 17 hours a day are unacceptable condition to most people in the United States. These conditions are what started the action against Nike. With the press running stories regarding Nike’s sweatshops overseas, they stood to lose a great deal of money if they did not show some effort to ratify these claims. They had an ethical obligation alleviate the sweatshop accusations.
“Unaccustomed to playing defense, over the years Nike formulated a number of strategies and tactics to deal with the problem of subcontractors’ working conditions and pay. In 1996, Nike hired Congressional Representative Andrew Young to assess working conditions in their factories around the world. He did not use his own translators and did a slipshod inspection. In 1996, Nike joined a presidential task force designed to find a way of banishing sweatshops in the shoe and clothing industries. In early 1997, Nike also commissioned Ernest & Young, an independent audit firm, to audit hired an independent contractor to audit its subcontractors’ factories. In September of 1997, Nike tried to show its critics that it was involved in more than just a public relations exercise when it terminated four Indonesian subcontractors, stating that they refused to comply with the company’s standard for wage levels and working conditions” (Hill, p. 156).
Any company operating overseas must follow not only U.S. laws but the laws of the host county as well. The host countries must do the same. Labor laws need to be followed and employees need to be protected. The case study tells of an assistant professor at MIT, Dara O’Rourke, following auditors around several factories. “He concluded that although the auditors found minor violations of labor laws and codes of conduct, they missed major labor practice issues including hazardous working conditions, violations of overtime laws, and violation of wage laws. The problem, according to O’Rourke, was that the auditors had limited training, and relied on factory managers for data and to set up interviews with workers, all of which were performed in the factories. The auditors, in other words, were getting an incomplete and somewhat sanitized view of conditions in the factory” (Hill, p. 157).
The debate against Nike and their sweatshops across the globe remains to be an issue. If Nike continues to be involved on a global level, they must obey the laws of the host countries. Another approach to maintaining good standing in corporate social standing would be creating a code of ethics policy that is capable of applying in every workplace of Nike. As long as Nike continues to show that they are serious about eliminating all sweatshops and abide by the laws of host countries, they stand to reap many more benefits in the future.

References
Hill, C. (2009). International Business: Competing in a Global Marketplace (7th ed.). New York City, NY: McGraw-Hill/Irwin.
Nikebiz. (2011). History & Heritage: Founded on a handshake, $500 and mutual trust. Retrieved from http://www.nikebiz.com/company_overview/history/1960s.html
Nikebiz. (2011). Nike Responsibility Governance: Nike was founded on a handshake.. Retrieved from http://www.nikebiz.com/responsibility/cr_governance.html
Nikebiz. (2011). Workers & Factories: Improving conditions in our contract factories.. Retrieved from http://www.nikebiz.com/responsibility/workers_and_factories.html#code_of_conduct