Nike: Sweatshops and Business Ethics (Adapted/summarised from original)
By Charles Hill*, University of Washington

Introduction:

Nike is a global corporation, founded 1972, and now one of the leading marketers of athletic shoes and apparel. It has a turnover of $10bn and operates in some 140 countries. Nike does not manufacture anything. It focuses on design and marketing and contracts out (outsources) its manufacturing to some 600 factories worldwide, employing over half a million people.

For over a decade, Nike has been dogged by bad publicity and persistent accusations that that its products are made in “sweatshops” where workers, many of them children, slave away in hazardous conditions for below subsistence wages. Nike’s wealth, its detractors claim, has been built on the backs of the world’s poor. To many, Nike is a symbol of the evils of globalisation.

Nike has taken many steps to remedy the situation but admits there are still problems in overseas factories, despite laying down minimum standards of working conditions and pay, and having their standards independently audited. But the accusations, protests and bad press continue.

The Case against Nike:

In 1996 a CBS 48 Hours news reported from a factory near Ho Chi Min City (formerly Saigon, Vietnam) … The signs are everywhere of an American invasion in search of cheap labour. Millions of people who are literate, disciplined, are desperate for jobs. This is Niketown near what used to be called Saigon, one of 4 factories Nike doesn’t own but subcontracts to make a million shoes per month. It takes 25,000 workers, mostly young women, to “Just Do It”.

But the workers here don’t share in Nike’s huge profits. They work 6 days a week for only $40 a month, just $0.20 an hour.

After interviewing a young woman at the factory, the reporter continued … Her basic wage, even as a sewing team leader, still doesn’t amount to the minimum wage … she’s down to 85 lbs. Like most of the young women who make shoes, she has little choice but to accept the low wages and long hours. Nike says that it requires all subcontractors to obey local laws; but she already put in more overtime than the annual legal limit of 200 hours. Nor is it possible to leave the factory if you haven’t made enough shoes. You have to meet the quota before you can go home.

The clear implication of the story was that Nike was at fault for allowing such working conditions to persist in the Vietnam factory; (which, incidentally, was owned by a Korean company).

* Extracted from “Strategic Management an Integrated Approach” e10, by Charles Hill & Gareth Jones.

Another example of an attack on Nike’s sub-contracting practices was launched by a USA foundation largely financed by labour unions and domestic apparel manufacturers that oppose free trade with low-wage countries. They claimed that Nike’s “Air Jordans” were put together by 11-year-olds in Indonesia earning $0.14 an hour. Nike claimed this was false and that the workers earned $103 per month, equivalent to $0.45 per hour based on a 54-hour week. Nike also claimed it had staff in each factory ensuring the local minimum wage and child labour laws were being observed.

In the 1970s, most Nike shoes were being made in South Korea and Taiwan. When workers in these countries were given freedom to organise, wages rose and Nike moved production to Indonesia, China and Vietnam. These countries prohibited union membership and set the minimum wage at rock bottom. Indonesia admitted that the daily minimum wage of $2.46 is not sufficient to supply the basic needs of one person, let alone a family, where the estimated basic liveable wage is $4.00 per day. In Vietnam the pay is even less at $1.60 per day while 3 basic meals cost about $2.10 a day and then there is rent, transportation, clothing, health care, etc.

Global Exchange (an international human rights organisation) in the late 1990s claimed that in China, Nike and Reebok subcontractors were employing 13 year-olds at $0.10 per hour and worked 17 hours per day in enforced silence. These practices were in contravention of China’s own minimum wage and working hours laws. The claims were condemned by Nike as erroneous and irresponsible. Global Exchange however later got, and leaked, a confidential Ernst & Young report commissioned by Nike which showed that a Nike Vietnamese contractor employed thousands of young women working a 10.5 hour day, 6 days a week in excessive heat, noise and foul air for slightly more than $10.00 a week. It also found that workers with skin or breathing problems had not been transferred to departments free of chemicals, and that more than half the workers who dealt with dangerous chemicals had not been provided with protective clothing. It claimed workers were exposed to carcinogens that exceeded local legal standards by 177 times in parts of the plant, and that 77% of the employees suffered from respiratory problems.

Nike’s Responses:

As a result, Nike called a news-conference and pointed out that they had commissioned the report and had acted upon it. The company stated it had formulated an action plan to deal with the problems cited in the report, and has slashed overtime, improved safety and ventilation, and reduced the use of toxic chemicals. The company also asserted that the report showed that Nike’s internal monitoring system had performed exactly as it should have. Nike stated …

This shows our system of monitoring works. We have uncovered these issues clearly before anyone else, and we have moved fairly expeditiously to correct them.

Unaccustomed to playing defence, Nike formulated a number of strategies and tactics over the years (late 1990s) to deal with the problems of working conditions and pay in subcontractor facilities.

Nike hired former US Ambassador to the UN, Andrew Young, to assess working conditions in subcontractor plants around the world. In 1997 he visited 15 factories in 3 countries over a 2-week period. His report was “mildly critical” stating …

I did not see sweatshops, or hostile conditions; I saw crowded dorms, but the workers were eating at least 2 meals a day on the job and making what I was told were subsistence wages in those cultures.

Young was widely criticised by human rights and labour groups for not taking his own translators with him and for doing slipshod inspections, an assertion he repeatedly denied.

Nike also joined a presidential task force designed to find a way of banishing sweatshops in the shoe and apparel industries. The task force included representatives from industry, human rights and labour groups. They established an agreement on working conditions abroad that included a maximum 60-hour week and payment of at least the local minimum wage. They established an independent monitoring association, later to become known as the Fair Labour Association (FLA), to assess whether companies were abiding by the code. The FLA now includes among its members the Lawyers Committee for Human Rights, the National Council of Churches, the International Labour Rights Fund, some 135 Universities (because of their licensing agreements with sports apparel companies), and companies such as Nike, Reebok and Levi Strauss.

Nike began to commission independent audits of its subcontractors’ factories (like Ernst & Young), and to show its critics that this was not simply a PR exercise, Nike terminated its relationship with 4 Indonesian subcontractors for not complying with its standards for working conditions.

In a speech made to the National Press Club in 1998, Phil Knight, founder of Nike announced …

We have effectively changed our minimum age limits from the ILO standards of 14 or 15 to 18 in all foot-ware manufacturing and 16 in all other types of manufacturing. Existing workers legally employed under the former limits were grandfathered into the new requirements.

During the past 13 months we have moved to a 100% factory audit scheme, where every Nike contract factory will receive an annual check by PricewaterhouseCoopers teams who are specially trained on our Code of Conduct Owner’s Manual and audit / monitoring procedures. To date they have performed about 300 such monitoring visits. In a few instances in apparel factories they have found workers under our age standards. These factories have been required to raise their standards to 17 years of age, to require 3 documents certifying age, and to redouble their efforts to ensure workers meet these standards through interviews and record checks.

Our goal was to ensure workers around the globe are protected by requiring all factories to have no workers exposed to levels above those mandated by the permissible exposure limits (PELs) for chemicals prescribed in the OSHA indoor air quality standards.

These moves were applauded in the business press, but they were treated with sceptical response from Nike’s long-term adversaries in the debate over the use of foreign labour. While conceding that Nike’s policies were an improvement, one critic writing in the New York Times noted that …

Mr. Knight’s child labour initiative is a smokescreen. Child labour has not been a big problem with Nike, and Philip Knight knows that better than anyone. But public relations is public relations. So he announces that he’s not going to let the factories hire kids, and suddenly that’s the headline.

Mr. Knight is a 3-card (trick) player. You have to keep a close eye on him at all times.

The biggest problem with Nike is that its overseas workers make wretched, below subsistence wages. Most of the workers in Nike factories in China and Vietnam make less than $2.00 a day, well below the subsistence levels in those countries. In Indonesia, the pay is less than $1.00 a day.

The company’s current strategy is to reshape its public image while doing as little as possible for the workers Does anyone think it was an accident that Nike set up shop in human rights sinkholes, where labour organising was seen as a criminal activity and deeply impoverished workers were willing, even eager, to take to their places on assembly lines and work for next to nothing.

Dara O’Rourke an assistant professor at MIT, accompanied PricewaterhouseCooper on their audits of several factories in China, Korea and Vietnam. He concluded that although they found minor violations of labour laws and codes of conduct, they missed major labour-practice issues including hazardous working conditions, violations of overtime and wage laws. O’Rourke claimed the problem was that the auditors had limited training and relied on factory managers for data, setting up interviews with workers, all of which were performed in the factory. He claimed the auditors were getting an incomplete and sanitized view of the working conditions.

Continued Controversy:

A wave of protest against Nike continued into the 2000s, particularly from university students who set up “US Students against Sweatshops” (USAS). They did not believe the Fair Labour Association (FLA) was truly independent and they set up an alternative independent auditing organisation, the Workers Rights Consortium (WRC). The WRC is partly backed by and funded by labour unions, and they refuse to cooperate with companies because they feel it would undermine their integrity. When the University of Oregon joined the WRC instead of the FLA, Phil Knight withdrew a $30m donation to the university.

Nike continued to push forward with their own initiatives, including the release of complete reports of all independent audits of its subcontractors’ plant. Global Exchange continued to criticise the company, arguing in mid-2001 that the company was not living up to Phil Knight’s 1998 promises and that it was intimidating workers from speaking out about abuses.

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