Human Resource Management Issues: a case study of NIKE

Introduction

Generally, firms have a tendency to focus much into profit making process of its business, as
it becomes more important to maintain the growth and development of a company. On the
other hand, many fail to maintain various aspects of firm’s responsibility like human capital
management over its employees (Fei QIN, et.al, 2007) and outsourcing management. This
report illustrates the human resource issues of labour working conditions in the event of
globalization through a case study of NIKE Company. Nike is the largest athletic shoe
company in the world. Even after the merger between Reebok International Ltd and Adidas
AG, Nike still controls more than 36 per cent of the athletic shoe market in the United States
and more than 33 per cent of the global athletic footwear market (Petrecca and Howard,
2005 cited in Fei QIN et.al, 2007). Even though, primarily known as Shoe Company Nike has
moved into apparels and many other sport equipments. From the Nike’s last five fiscal years
(2007-2011) the Compound Annual Growth Rate (CAGR) based on fiscal year 2006 has
moved from US$ 14,955 million to 20,862 million (NIKE,inc. revenue performance 2011)
with a 7% increase in revenue (Nike. inc annual report, 2011).The company involves
outsourcing its HR practices, as all the Nike products were manufactured by more than
800,000 workers in its contracted supply chain around the world (Nikebiz. Com, workers and
factories)
3 the word document on human resource problems
Source of problem
Locke says that, Nike has been able to develop long-term relations with several firms around
the world, even with some of the large suppliers Nike designers create and then rely on
suppliers, who further produce the prototype of the product and then the production takes
place immediately once the specifications about the product are distributed to the rest of the
suppliers around the world. In apparel, given short product cycles and volatile trends, the
situation is completely different, as among its many supplier most of them generally working
for other companies (most often being competitors) and frequent shifts in consumer
preferences or fashion trends could change into very short-term contracts with limited orders
from Nike (2002). Disturbing the relationship between Nike and its supplier that in turn
reduces the Nike’s ability to monitor on a regular basis the production processes and working
conditions of these factories (Locke, 2002)

Outsourcing the route of problems

Nike's global supply chain is a complex network that directly connects and impacts a wide
range of people around the globe: consumers, buyers, suppliers, workers and communities 2.

Debora (2002) says that, Nike from the beginning had the strategy of signing contract with
suppliers in countries like Taiwan and South Korea , where costs were lower and production
reliable. In 1982, 86% of their shoe productions were from these countries and as the
economical state of these countries have developed, Nike moved to new low cost regions of
china and Indonesia that in particularly had six factories that supplied Nike

As Nike for decades being involved in huge outsourcing networks of suppliers, it involves in
outsourcing human resource heavily with an interest to reduce the firms cost over labour,
capital, technology, and resources. And this activity of the firm does appears to be the main
source for all the human resource issues like need for improvement in labour working
conditions and issues regarding child labour. And several of the firm’s labour practices are
based in countries that are in developing phase, were cheap labour along with lack of
effective government rules over human rights prevailed (Locke, 2002). (Debora)As the
company would save costs by outsourcing all manufacturing, there won’t be any in-house
production. Thus all the products are made through many independent contracting factories,
creating Nike as one of the world’s first “virtual” corporations manufacturing firm with no
physical assets. Meanwhile, the company pour the saved money in to marketing by celebrity
endorsements, using high-profile athletes to establish an invincible brand identity around the
Nike name (2002)

International labour problems

For long time Nike has been well known for it habit of sourcing its products in
factories/countries where low wages, poor working conditions and human rights problems
were rampant, as a result, the firm faced some serious issues involving underpaid workers
in Indonesia, child labour in Cambodia and Pakistan, and poor working conditions in China
and Viet Nam, that combined to tarnish Nike’s image (Locke, 2002).

A study of working conditions

Nike in regards with its various problems the firm developed monitoring systems
to gain an insight and to measure the actual workplace of the suppliers factory conditions
effectively, by which all the potential suppliers of the Nike has to undergo the different
audits. That involves a basic environmental audit, health and safety based audit and an in-
depth management and working condition audit called M-audit was designed with periodic
inspection by NGO’s like Fair Labour Associations. An earlier phase analysis of the data
showed that Nike’s suppliers vary tremendously in terms of their working conditions and
labour rights, those factories that are located in regions of high human rights were found to be
with high score in the audits and the others in regions of less human rights and authoritarian
government were found with small score facing problems like poor wages and excessive
work hours (Locke and Romis, 2007). However, On the other hand a critical factor by Locke
(2002) in his comparison between a two Nike plant of same region of Mexico explained that
the over all average of the score of a location was found to be above 50% in general, since it
includes the good scores of other firms that are located mostly in regions of high human
rights and government laws. It further stresses the need for Nike’s development over its code
of conduct.

Issues of wages

Labours in developing countries are generally paid very small wages that are mostly smaller
than the workers effort and final price of the good they produced (Debora, 2002) Nike’s
policy of competing on the basis of cost encouraged contractors to mistreat their workers.
Although Indonesia had worker protection legislation in place, but widespread corruption
made the laws essentially useless.

Child labour
Nike’s involvement towards child labour in Pakistan during 1990 was clearly to reduce the
cost of labour. That happens to be a damaging factor for the brand image. And about half of
the world’s soccer balls of Nike were produced in Pakistan by children underage. While
Pakistan has laws against child labour and slavery, the reason being that the week human
rights and child labour laws. Nike and its local suppliers of developing countries like
Pakistan, aims to minimize cost and earn the highest amounts of profit thus involving
themselves in illegal practices like child labour, a practice which is not so highlighted by the
government of the host developing country (Faraz Azam,1999). and Nike did accept its
practise of being involved in child labour (Steve Boggan,2001),

Nike’s code of conduct

On the other hand, since the employees at the Nike suppliers company were not actually
Nike’s employees, the managers of Nike refused to accept the responsibility over its
supplier’s activity (Locke, 2002). Thereby from 1992 Nike formulated a code of conduct
which is a nongovernmental regulatory systems that are based on voluntary standards,
Specifying the norms and rules by which to evaluate factory performance (Dara O’Rourke,
2003), was adopted by Nike to measure several serious labour problems found between its
suppliers, under which the suppliers are obliged to sign the contract that requires
standardising some basic labour and environmental/health standards. The contract has to be
posted in the factories in appropriate local language in a way of assessable by all employees
in order to make the labour workforce aware of the privileges and labour rights under the
code of conduct (Fei QIN, et.al, 2007).

Under the codes of conduct, Nike after its experience from FY05/06 understands that
monitoring alone cannot solve problems and based on additional research on ins suppliers
factories, it separates both nonperforming (flat-line) factories and factories responding to the
audit as “yo-yo”. Nike continues to monitor its contracted supplier factories around the world
effectively by using its three types of monitoring process that involves monitoring of
managerial, environmental and labour working conditions. And with serious of generations
from FY07-09 it involves analyzing root cause for problems and works together to identify
and implement solutions2.
Nike’s principles of codes of conduct (Hummels and Timmer, 2004)

 Management practices that respect the rights of all employees,

 Minimizing our impact on the environment,
 Providing a safe and healthy work place,
 Promoting the health and well-being of all employees

Limitations of Nike’s codes of conduct

 An increasing debate over the Nike’s codes of conduct is that, information collected
through factory audits are done by Nike’s employees credibility of the data may
become less when accessed by any NGO’s or any other human rights organization.

 Another critic of codes of conduct is that, since the voluntary monitoring of the firm is
done for and under the pressure of developing NGO’s and other human rights
organizations. It creates serious debates stressing that it was not basically developed
to protect labour rights or improve working conditions but instead to limit the legal
liability of global brands and prevent damage to their reputation (Esbenshade, 2004
cited in Fei QIN, 2007)

Recommendations

Based on the studies of Locke (2002) in Mexico on two different suppliers of Nike, it is clear
that Nike under its codes of conduct distributes scores regionally by creating average of the
scores among all the factories of suppliers, which fails to measure in-depth of the factories
behaviour and problems individually and in turn a solution.

As a solution improved Human Resource Management development to increase the

effectiveness of monitoring and problem finding along with solutions over its vast suppliers.
Even increased training of HRM among its suppliers to create social corporate responsibility
over its huge suppliers around the world (in a way of teaching CSR to its suppliers)
Conclusion

Even though increased pressure from labour and human rights groups over outsourcing of HR
practices has motivated a growing number of multinational corporations to adopt codes of
conduct rapidly, the potential ability of the firm to conduct the research and analysis varies
depending on the firm’s human resource management system and also to facilitate corporate
social responsibility by managing its human capital effectively.