Thesis on "Nike Has Come Under Considerable Fire"

Thesis 6 pages (1674 words) Sources: 0 Style: APA

[EXCERPT] . . . .

Nike has come under considerable fire for their perceived use of sweatshop labor. While the motivations of the accusers have come under some scrutiny, the allegations had a considerable impact on Nike's reputation, such that Nike became "the poster boy for everything bad in manufacturing" (p.851). The issue, however, was far more complex than either side presented. One complicating factor was that Nike owns no factories -- it merely contracts out production. Thus, the company did not always know the conditions of those factories. Conversely, many of Nike's accusers did not know the conditions of the factories, they merely made assumptions, some of which were patently incorrect. Nevertheless, the optics of the issue became a strong consideration for Nike. Regardless of the facts, Nike was forced to deal with the issue simply because of the optics. The intent of this paper is to examine the issues surrounding Nike's overseas manufacturing contractors and assess the actions that Nike took. Nike did not deal with the situation well, and allowed a potentially minor problem to become a major image issue that threatened revenues.

Relevant Facts

Nike does not own any manufacturing facilities. Ever since they were forced to close a pair of U.S.-based plants in the late 1970's, Nike has contracted out production of its goods to other countries. This is standard practice in the industry. However, the company has come under fire for the practices of its manufacturing facilities. Based primarily on anecdotal evidence, activists have targeted Nike for protest.

The activists are backed by union groups, whose motivation is to protect their own revenue streams (union dues). As such, these groups are opposed to U.S. companies contracting labor out of the country. These groups do not have any stake in the profitability of the companies. The union groups are involved in the training, coaching and financing of protest groups. These protest groups are often comprised of students, since students are both vocal and are generally given better treatment in the press than union groups with respect to protesting (p.850).

Nike's response to the protests was multifold. The first step they took was to refute the erroneous claims with facts. The second step was to make incremental improvements in the labor conditions of their contractors, with respect to wages, hours of labor and age limits. Over time, Nike was able to improve its reputation somewhat with regards to its labor practices.

There are other complicating factors in the case as well. For example, Nike did not own the factories in question. They were independently-owned contractors, many of who also manufacturer other lines of athletic wear besides Nike. While Nike can be reasonably expected to be one of the larger customers for these factories, they are not the only one. Another factor to consider is that while the wages and working conditions in these factories may have bad optics in North America, they actually exceeded the standards in those countries.

Root Problem

The root problem for Nike, however, was not with respect to whether or not they were right, but whether or not they were perceived as right. Thus, it was a question of optics. Nike's main problem was that they did not take control of the situation. They allowed protestors to dictate the discourse in the debate. The result of this was that erroneous claims were met with more publicity than the facts. Nike came out of the situation looking worse than they should have.

Compounding the problem was the fact that Nike often seemed like they had little concern for the ethical standpoint of their opposition. It seems reasonable that if Nike had shown more concern for the claims of the protestors, rather than the motivations of the protestors, they may have given the protestors much less fuel with which to work. Instead, Nike not only allowed the protestors to set the discourse in the debate, they failed to deal with the questions that were allowed to be placed on the table.

Problem Components

There are several components to this problem. One component was Nike's corporate culture. The company was self-described as "a bunch of shoe geeks" (p.851). The company had not paid much attention to ethical issues. It appears as though they did not have a code of ethics, or at least not a strong one, as it pertains to their suppliers. The company did seem to be aware of the situation facing the workers, but did not have an action plan in place to mitigate the unethical activities of managers. Nor did Nike have an action plan to ensure that their suppliers upheld Nike's own ethical standards.

Another component to the problem is that Nike grossly underestimated the strength of their opposition. The company failed to realize that the protestors were well-financed and well-organized. Nike unwittingly became a lightning rod for the labor movement's grievances about moving work offshore, despite the fact that they and other textile firms had been offshore for 15-20 years at that point. The company was unprepared for the onslaught of criticism, which is why they not only did not have plans in place but executives like Phil Knight were caught doing interviews that further worsened the company's reputation (p.847-848).

Further, Nike had a poor understanding of public sentiment on the issue. The company did not consider public sentiment with respect to this ethical issue. Nike appealed to rationality, dispensing facts and counterstatements. With ethical issues, however, the damage is done to reputation, and often reputation is staked to emotional reactions. Such reactions cannot be easily refuted, even by facts. Nike had little concept of how to deal with ethical issues in the public sphere.

Generating Alternatives

Nike is now faced with several alternatives. One is to move production back to the U.S. Or other Western firm. Another is to keep production abroad but move to more developed, ethical countries. A third option is to draw up a strict code of ethics for suppliers and install a means to enforce this code. Lastly, Nike could ignore the problem entirely and focus their efforts on public relations.

Evaluate Alternatives

Moving production back the U.S. increases costs. While Nike has healthy margins at present, the textile industry is generally uncompetitive in developed countries. While New Balance has incorporated American production into their business strategy, such a move would require a complete strategic overhaul for Nike. A compromise would be to move production out of the poorest countries, such as Indonesia, to more developed nations with better working standards. This may appease idealist students, but not their labor backers. Additionally, these countries also have high costs that would make labor-intensive shoe production prohibitively expensive. Nike's fiduciary duty to the shareholders must be considered here. Also, workers in textiles in developed countries earn substandard wages, whereas in the poorer countries their wages are far above average. So while the optics are better, the outcomes are not.

A strict code of ethics for suppliers would assuage criticism back home, although labor would not necessarily be assuaged. The lack of concern for facts among Nike's critics hints that such a tactic would not meet with much success. However, it would give Nike the moral higher ground, contrary to their position during the worst of their troubles. Ignoring the problem may be the most cost effective. People serious about ethical issues have probably been lost as potential customers at this point, but the remainder do not seem too concerned. In doing nothing the company probably saves money, and there is enough leverage to question the motives of labor-backed protestors that a PR campaign may well be sufficient to retain customer loyalty.

Chosen Alternative

It is recommended that Nike institute a code of ethics for its suppliers. A significant contributor to the problem was that Nike neither had a code of ethics,… READ MORE

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