Nike And International Labor Practices In Nigeria Research Paper

Nike has for long been under scrutiny for exploitation of labor, mistreatment of labor, and participation in illegal practices such as Child Labor. The company has not been doing any of these in its home country, where strict labor laws apply; rather its target has been saving production costs by outsourcing production to Third World countries, the governments of which are eager to attract foreign investments to benefit their yet emerging economies (Wilsey & Lichtig, 2012). This report focuses on the practices followed and the economical and ethical issues faced by Nike in outsourcing production for lower cost. Once these have been discussed the revised corporate objectives of the company will be used to pick out a country for production and recommendations will be made to ensure that while lower production costs are incurred, Nike does not get caught in the web of unethical labor practices, once again.

Background – Nike and Labor Practices

Nike is an American multinational that has become the leader in supplies of athletic shoes, apparel, and sports equipment. It was founded in 1962 and by 1981, Nike led all athletic shoemakers in the market with a share of approximately 50%. Today, the brand has become a major fashion guide for youth around the world. Nike has been using a cost cutting strategy of production from the very beginning – outsourcing. This helped Nike to produce without the hassle of investing in, maintaining, and depreciating any physical assets. Moreover, Nike outsourced to countries where labor costs were low. As a result of globalization, Nike was able to exploit the differences in labor costs between the First World and Third World countries (Millsap, 2012). .
Outsourcing has been identified as a measure of reducing costs. It not only allows the business to focus on its areas of expertise while, entire departments, functions, and processes can be outsourced, but also offers cost flexibility as the business is not bound to in-house fixed costs of production (Kohleick, 2008). In the case of Nike, outsourcing has resulted in enormous cost savings as production usually took place in developing countries such as Vietnam, Indonesia, China, and South Korea. The labor costs in these countries are extremely low due to absence of labor laws and an abundance of manpower. Even if some labor laws do exist in the country, the government is willing to relax these for a business that is bringing foreign investment into the country. The production savings were simultaneously being used to go ‘big’ in marketing. Nike used celebrity endorsements by using athletes such as Tiger Woods to appear in print, online, and television ads. Therefore, the corporate strategy of Nike was designed to include cost cutting through outsourcing and intensive marketing through celebrity endorsements and fashion driven brand identity formation (Millsap, 2012).
The wages being paid to workers in the Third World facilities were spent in the local economy, working as an injection of funds that generated demand, facilitated job creation, and resulted in economic growth. When analyzed from such a perspective, the operations of Nike in the developing countries do not appear to be wrong. However, the conditions in which the laborers were working and the wages being paid for so many continuous hours were unacceptable as per international labor standards. The work sites were unsafe, had toxic fumes and heat, lacked proper ventilation and included improperly placed workstations (Spar, 2002).
Nike has been criticized to shop around the Third World countries for the lowest labor costs. As Vietnam saw a burst of Union activity, Nike forced its suppliers and manufacturers to relocate in another country where labor practices had still not come under scrutiny. The manufacturers who do not want to lose a big customer tend to follow suit and relocated in Indonesia, where minimum daily wages, weekly hours of work and work breaks were not strictly regulated, thus giving the manufacturers a cost advantage. However, within a decade, Indonesia too saw a rise in Union activity and strikes forced the management to improve working conditions and thus resulted in a rise in costs, which still were far below the production cost levels in the US (Spar, 2002).
The manufacturing operations outsourced in Vietnam became the first source of scrutiny for Nike. It included violations of overtime laws and minimum wage rates of workers employed by Nike’s contractors. Since then accusation of exploiting the workforce of Third World countries has plagued Nike’s operations world over. Anti-globalization groups and Human Rights activists have continued to criticize Nike for its ignorance of the mistreatment of workers at its manufacturing contractors (Wilsey & Lichtig, 2012).
Another major blow to the image was the use of child labor in manufacturing in Third World companies. A 12-year old was photographed in Pakistan, stitching a Nike football in poor working conditions (Figure 01). This led to another set of public outrage and media pressure world over.
Jeff Ballinger, a labor activist, played an important role in identifying and brining to light the issues faced by workers at Nike’s contracted production facilities. Ballinger’s primary concern was always the widening gap in the wage rates of workers in the West and those in the developing world. He noticed that this was an important gap that when identified by Western multinationals could result in over-exploitation of low cost labor in the developing countries. Even within the developing countries wage rates and labor laws differed, giving Nike the opportunity to look for the cheapest option. It was Ballinger’s research at Indonesian facilities that resulted in Nike’s labor exploitation becoming big news. The Indonesian government and the US government both identified that the issue was now becoming a global concern (Waller & Connaway, 2011).
Figure 01: Nike’s Child Labor Practices in Pakistan
The Vietnamese and the Indonesian governments both realized that several instances of labor law violation had taken place but as long as Nike’s operations bought in foreign investment and no public reprisal occurred, the governments continued to ignore the violations. Any that were noticed or reported were also eventually dropped without charges through bribery. Nike, therefore, exploited all the loopholes in the governance systems of developing countries. This was a demonstration of highly unethical behavior on the part of the shoemaker (Waller & Connaway, 2011).

Nike’s Response to Accusations Regarding Labor Mistreatment

Nike was understandably concerned as groups began to form and protest against its perceived errors. Public protests against Nike took the form of boycotts and picketing of Nike stores.
At first, Nike’s approach to CSR could be characterized as insufficient and generally lacking in any true forms of regulation and implementation throughout its global supply chain. The first wave of denial on the part of Nike was inappropriate and generally caused greater resentment amongst the public. If in the first place, Nike would have accepted responsibility for the labor exploitation at its contracted plants, the public and the media would not have been so enraged. Nike continued to hold that conditions at its contractors’ factories were not its responsibility. The company urged that the contractors should be viewed as independent facilities. However, later that year Nike understood the severity of the issue and knew that not taking responsibility was no more an option. Code of conduct for all suppliers and contractors were drawn and special attention was lent to issues including safety standards, environmental regulations, and worker insurance (Spar, 2002).
Manufacturers in foreign locations then were simply trying to comply with the minimal contract requirements, while at times overlooking fair labor practices in order to perform as low-cost suppliers. Nike’s initial response to criticism was reputation management rather than wide-scale changes in its practices. However, as more issues have surfaced and been brought to the attention of the corporation and its consumers, Nike has increased its efforts to be more ethical in its manufacturing practices. In fact, it has become something of an industry leader in certain areas (DeWinter-Schmitt, 2007).
The company has spent considerable resources focusing on improving the labor standards in each of its factories. However, the performance and working environment of sub-contracted factories, could not be modified at will by Nike, especially when the workers were all local hires. Nike must take extra measures to ensure that the independent subcontractors used to supply the workforce in their factories do not engage in any illegal activities such as child labor, excessive work hours, hostile work environments, or inappropriate payments. For such measures it is all the more important for Nike to understand that such workplace conditions are not just unethical, but are illegal, and indulging in these could severely tarnish the company’s reputation.
Global Alliance has been inspecting Nike’s factories. In August 1996, Nike Corporation joined the Apparel Industry Partnership (AIP), a coalition of companies and labor and human rights groups assembled by the Clinton administration, to draft an industry-wide code of conduct (Spar, 2002).
Since universities form a core segment of Nike’s market and the company felt the repercussions of its manufacturing practices in the form of several canceled university contracts, Nike sent letters detailing the acceptable conditions in its factories and stressing its commitment to corporate responsibility to universities around the country. Representatives from Nike also visited campuses and spoke to students, assuring them of Nike’s intention to be a responsible corporate citizen (Ferrell, Jackson, & Swayada, 2014).

Nike’s Production Facilities Enter a New Country - Nigeria

Nigeria’s federal government pledged to transform the country into Africa’s preferred outsourcing destination, promising to generate 100,000 jobs annually over the next three years (Lewis, 2013). Outsourcing strategy is at the center of the process of organizational changes and business structure. In this respect, these processes may be preceded by radical changes which lay the ground work for process re-engineering. The trend towards virtual corporations based on the relationship of cooperation among several firms starts with the identification and exploitation of the concept of core competences, in such a way that new advantages are obtained from specialization and that the customer receives added value superior to the levels previously offered. The sudden hit taken by the world economy has had its impact on Nigeria too and the currency has taken a hit. Therefore, measures that ensure increased foreign investment in the country have been encouraged. The development of an unbeatable IT sector, is one major attraction of Nigeria, which will ensure that Nike’s manufacturers are in continuous contact with the company. Further, it is important to realize that outsourcing to a country with abundant natural resources and labor will help the manufacturers to produce at the lowest cost possible, after complying with the company’s best practices. In this case, Nigeria offers to be such an untapped production base (Ugah, 2010).
With these advantages in mind Nike should realize that Nigeria is a country of growing potential, cheap labor and an attractive shoemarket. Nigeria has pledged itself to becoming an outsourcing destination in order to promote economic growth. In terms of transportation expense, Nigeria is closer to the US than the Asian countries. It is a coastal country that offers several modes of transport into and out of the country. Nike can thus aim to save on transport of raw materials into and finished goods out of the country while ensuring that production facilities follow all standards and codes dictated by Nike (Lewis, 2013).
Talented and hard-working labor force is another attraction in Nigeria; compensating them fairly and treating them justly can assure a long lived outsourcing relationship for Nike’s contractors in Nigeria. Given the revised code of conduct required by Nike to be implemented by all its contractors, there will be no instances of labor exploitation in this developing country; however, there will be an abundance of natural resources and of labor itself.

Recommendations

Considering the long and pressurized journey Nike has made from being a successful shoemaker, to being accused world over and losing sales, and finally, to adopting ethical labor practices in its production facilities and contractors all along the supply chain, several improvements in the way business is conducted and labor practices followed have been witnessed. The following is a list of recommendations that have to an extent been, but should completely, become a part of the international practices of Nike. The CEO should review these recommendations and ensure that these are further made a part of the mandatory requirements of labor practices by all contractors.

All recommendations that follow can be categorized into one of the following three:

Working Conditions – Safe working conditions, clean air, and managed temperatures can help to make the workplace pleasant
Labor Laws – regardless of the lenient laws of each country, Nike should have its own laws
Media Relations – Finally, improving public standing and image lies in the precarious hands of the media, therefore, Nike should ensure positive relations and impressions on print, television, and online media
(Millsap, 2012)
Ensure that factories start to pay workers the legal minimum and provide compensation to workers who have been cheated out of their rightful wages (DeWinter-Schmitt, 2007).
Totally eliminate any forced overtime, eliminate all excessive overtime (i.e. overtime that violates the Codes of law) and pay the legal overtime rate (Wilsey & Lichtig, 2012).
Stipulate that all workers must be given pay stubs – this will ensure that no element of the pay will remain unexplained. Employees will know what payments were made, what the deductions were, and what rates have been applied (DeWinter-Schmitt, 2007).
Investigate any allegations of beatings by security guards and other abusive treatment – such mistreatment can again result in big questions being raised on the labor practices of Nike
Cease firing workers who are pregnant and provide them with their legally mandated maternity benefits – again ensuring that labor rights are respected will ensure a long and mutually beneficial relationship with workers

Provide childcare, social security benefits, medical insurance – all employment benefits must be offered to all workers

Eliminate the quota system or reduce it to an amount that can be easily accomplished in an 8-hour day – the quotas set for production per day are outrageously high, leading to 16 hour work days, which is against international labor practices

Continue its adherence to OSHA standards of air quality in its factories to avoid instances of intoxication of workers

Make public a list of accidents and work-related illnesses that have affected workers in the past three years, what measures have been taken to prevent them, and how workers were compensated – this will help in defining the trends in accidents and thus find possible flaws in the production facility resulting in such illnesses or accidents (Wilsey & Lichtig, 2012).
Rehire workers who have been unjustly fired for participating in strikes or for efforts to improve factory conditions, and compensate them for lost back wages.
Eliminate child labor by seeing that any workers under the age of 16 are provided with a stipend to go back to school and are guaranteed their jobs back when they are of legal working age – as defined in Nike’s code of conduct (DeWinter-Schmitt, 2007).

Provide materials and workshops to educate workers about the companies’ Codes of Conduct.

Allow outside groups to provide education and awareness-training to workers about local labor regulations and workers’ rights, and ensure that workers who choose to attend such programs are not penalized

Ensure that all chemicals used in the factories are clearly labeled in the local language (Wilsey & Lichtig, 2012).

Conclusion
Nike has made its share of mistakes regarding international labor practices and has suffered sufficiently for these. It is long out of its denial stage and has made explicit efforts to correct the mistreatment of labor at its contracted production facilities in developing countries. It has now understood that the way its contractors operate across borders has an impact on its global reputation. Therefore, Nike is ensuring that its contractors are well aware of its code of operations and that its products are manufactured ethically.
Nigeria appears to be an attractive destination for outsourcing production for Nike. It is crucial that advantages such as skilled labor force and nearness to the target market are well evaluated by Nike before choosing to outsource its production. Nigeria is a developing country with huge untapped potential, in terms of natural resources, abundant skilled labor, and a well-developing IT base. These features present a good production and growth potential for Nike’s production facilities.

References

DeWinter-Schmitt, R. (2007). Business as Usual? The Mobilization of the Anti-sweatshop Movement. US: ProQuest LLC.
Ferrell, O., Jackson, J., & Swayada, J. (2014). Nike: Managing Ethical Missteps — Sweatshops to Leadership in Employment Practices. Retrieved March 25, 2015 from http://danielsethics.mgt.unm.edu/pdf/nike.pdf Kohleick, H. (2008). Designing Outsourcing Relations in Knowledge Intensive Business Services. Germany: Kölner Wissenschaftsverlag.
Kakouris A.P., Polychronopoulos G. & Binioris S. (2006). Outsourcing decisions and the purchasing process: a system-oriented approach. Mark. Intell., Plan., 24(7): 708-729.
Lewis, A. (2013). Nigeria aims to become Africa’s capital outsourcing destination, pledges 100,000 jobs. Retrieved March 25, 2015 from http://www.sharedserviceslink.com/news/nigeria-aims-to-become-africa-s-capital-outsourcing-destination-pledges-100-000-jobs#sthash.JpDTyRLy.dpuf
Millsap, D. (2012). NIKE'S GLOBAL CORPORATE RESPONSIBILITY. Retrieved March 25, 2015 from http://www.danielmillsap.com/research/nike-global-corporate-responsibility.html#the controversy
Spar, D. (2002). Hitting the Wall: Nike and International Labor Practices. Retrieved March 25, 2015 from http://jupiter.ba.cmu.ac.th/wp-uploads/jupiter.ba.cmu.ac.th/2014/09/Nike-Case-Study.pdf
Ugah, A. (2010). Outsourcing for Effective Resource Management in Nigerian University Libraries. Retrieved March 26, 2015 from http://digitalcommons.unl.edu/cgi/viewcontent.cgi?article=1376&context=libphilprac
Waller, R. & Conaway, R. (2011). Framing and Counter framing the Issue of Corporate Social Responsibility: The Communication Strategies of Nikebiz.com. Journal of Business Communication 2011 48: 83.
Wilsey, M. & Lichtig, S. (2012). The Nike Controversy. Retrieved on March 25, 2015 from https://web.stanford.edu/class/e297c/trade_environment/wheeling/hnike.html