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Nike Labor Practice

Submitted To: Richard Small Facilitator of College of technology London Marketing project London

Submitted by Muhammad Faizan Akhtar Khan UWL ID # 1002470 CTL ID # 083981-84 MBA Term 2

April, 2011

Contents 1.0 2.0 3.0 4.0 4.1 Research Question .............................................................................................. 3 Research Hypothesis........................................................................................... 3 Organization Background .................................................................................. 4 Literature Review ............................................................................................... 5 Nike Labor Crises ........................................................................................... 5 Nike Child Labor ..................................................................................... 5 Nike Corporate Social Responsibility...................................................... 6 CEO Phillip Knight Promise ................................................................... 7

4.1.1 4.1.2 4.1.3 5.0 6.0 6.1 6.2 7.0 8.0

Analysis of Hypothesis .................................................................................... 8 Nestle Milk for Infant ......................................................................................... 9 Morality and Ethics ...................................................................................... 10 Corporate Citizenship ................................................................................... 11 Conclusion and Recommendation.................................................................... 12 References ......................................................................................................... 13

IF YOU HAVE A BODY, YOU ARE AN ATHELITE Tory Thompson

1.0 Research Question To what extent has the use of child labor permanently damage the reputation of Nike? 2.0 Research Hypothesis To maintain the Organization reputation and its market, Corporate Social Responsibility (CSR) plays a very important role in branding strategy of an organization. By telling the stories or their initiative about their CSR, Company strength their brand because by tell or spreading CSR company brand image improves among the customer and it help in gaining legitimacy for their labor practice (Chun, 2005). However this report is not for the company and their branding but this report is for the ignorance and their effect on company and their legitimacy on the poor or Third World country. Where the company (Nike) bases their factory where they situate their CSR initiative (Lounsbury and Glynn, 2001). In the case of Nike, Inc. a company which was recognize as a benefit and risk intrinsic in global world. However in this report we examine the issue that has faced by the company and try to balance both their performance and good corporate social responsibility. A significant majority of consumer will probably never wear Nike again though a significant majority will. Perhaps awareness is the main issue. Nike practice will only be reversed when a significant majority side with the minority home country action may make.

3.0 Organization Background Nike is a major trade mark sportswear and equipment supplier based in USA. Nike hold the major market share of apparel and athletic shoes. The principle business of Nike is to design, develop and market of high quality footwear, equipment, apparel and other accessories. The product of Nike is manufactured by independent contractor. There are footwear and apparel are manufacture outside the USA, where as equipments are produce in both USA and Abroad (Nike Annual Report, 2010). Bill Bowerman and Phil Knight were the two visionary men who pioneer a revolution and redefine the athletic footwear industry. The company was founded in 1964 with the name of Blue Ribbon Sports later it change the name as Nike in 1978. Before changing the name it starts it launching their product in 1972. After changing the name to Nike, the footwear industry has seen an experience of explosive growth (Nike, 2010). In 1985, alone the customers of US have purchased 250 million pair of shoes and spend $5 billion. In 2001, they had spent $13 billion and purchased 335 million pair of shoes. However industry of footwear is vey segmented in term of price, model and sports. The shoes industry is control by few large organizations like Adidas, Nike and Puma. In fact the 70 % global athletic footwear market is control by the 10 foot wear companies. Below is the chart, which we can easy identify that the end of the 20th century Nike is the leader in athletics foot wear market share (Kochan, A and Schmalensee, L, 2003). Nike has faces several ups and down during their journey of success. Some issues have resolved on the way to success but some issues which have leaved the bad mark on Nike, such as using the Child as labor in their contractor factories. This issue raised in 1996 when CBS aired their documentary at prime time in which it raise the point of using the Child labor in Pakistan.

4.0 Literature Review

4.1 Nike Labor Crises Child Labor in Sialkot, Pakistan In Sialkot, Pakistan, most of the soccer balls of the world have been producing for years. Most of leading international brands like Adidas, Reebok and Nike are outsourcing the soccer ball from Pakistan. According to International Monitoring Association of Child Labor (IMAC, 2003) approximately around 30 to 60 thousand number of people employed in Sialkot, who stitches the soccer ball. Majority of them was under age and majority of these ball were made in at home. Those under age employee try to help their parents at home who get paid in accordance with the number of football rather than per hour rate. 4.1.1 Nike Child Labor

06 April 1995 came with a major blew for Nike. On that day CBS aired a short documentary child at work on the foot ball industry in Sialkot, Pakistan at Prime time. This story bring the disaster for Nike, the report over Nike child labor has published all over the world, in result Nike has to face the legal action and firestorm of international media. In 1990, The New York Time published report about the Pakistani child stitching the Adidas soccer ball but the article did not catch the attention by others. This changed after the 1994 world cup in USA. Investigation in Pakistan and media coverage related to the labor condition of Rebook, Nike as well as Adidas and other brand, with violation of child labor in production of soccer ball (Hond F. et al, 2010). Nike has faced the issue of using Child labor in the production of several areas like the production of soccer ball in Pakistan; they have also faced the issue about their plant as well. Their plant is not safe for their worker in Vietnam and there worker wages is very low.

Whereas Nike has defended their accusation and said that they have learned from their past mistakes and they dont use the child labor. They have briefly specified in their code of conduct about their specification of the ages of their worker. They have set higher ages standard as set by International labor organization, the minimum age for apparel worker is 16 year whereas the 18 year is minimum for footwear worker in factories (Ernst & Young. 1997). They have also said that due to the several factor in many countries the age verification is very difficult, because of that they leave this matter to factory manage who try to determine the employment age from there documentation and identify the correct one. Nike understand the importance of the work thats way they continue to work with their partner and develop the method to find out the documentation of underage worker who use the false document to get the job (Ernst & Young. 1997). Nike has also denied the accusation of low wages of their employee and said that their employees get the fair wage according to their contract factories which is spread worldwide. The wages include different types of allowances like house allowance, transport, healthcare and bonuses. Nike some time set the cash wages for their entry level worker which would set by the local government or trade union. They also defend the issues about their workers are required to work more than the maximum hour (Ernst & Young. 1997).

4.1.2

Nike Corporate Social Responsibility

Corporate Social Responsibility (CSR) is more than charity, the purpose of CSR is to make sure that in the process of business, employees are motivated and respected, the environment is good and the corporate governance are in place with their highest standard (like shares holder, code of conduct, accountability and director remuneration). Many of the organization are not just publishing their financial performance but they also show their environmental and social achievement (Dijken F, 2007). Nike is one of the entrepreneur industries who change the athletics footwear market and Phil Knight is one of the co-founder who recognize as an entrepreneur. But as the issue raise by the media about the child labor, it jeopardizes the image of the company as well

as the image of the founder of Nike. Nike branding itself as a heroic adventurer needed a facelift (Dijken F, 2007). 4.1.3 CEO Phillip Knight Promise After the leaking of the news about child labor practice, on May 12, 1998 at National Press Club in Washington, DC CEO of Nike Phillip Knight gives a speech. In this speech he made some fairly significant Announcement regarding policies of Nike on the working condition of their factories of supplier. In his speech he makes six commitments y The minimum requirement age in Nike shoes factories is eighteen and sixteen is for apparels factories. y All the shoes factories meet the requirement of the U.S Occupational Safety and Health Administration (OSHA) in indoor air quality. y Nike will include non-profit organization to conduct their audit, and the report of the non-profit organization will release to public. y y Nike will start free education program for their footwear factories worker Nike will expand micro-loan for their worker in Third world countries like in Vietnam, Pakistan, Thailand and Indonesia. y Funding universities and open forum for responsible business practices. (Connor, T. 2001).

The CEO of Nike has promised about the Nike polices and the working condition of the worker but the demand which rights group has wished with Nike has deliberately ignored by Nike. Their first demand was to protect their workers who speak about the condition of the factories but the track record of protecting the worker who speaks about the condition of the factories was very poor (Connor, T. 2001). The second demand of rights group was investigating and monitoring of working condition through proper regulation, independent, transparent and confidential procedure. Some activists have asked Nike to allow rights group to educate their worker about their rights and they can confidential compliant to monitoring authority when their right are violate (Connor, T. 2001).

The third demand was increase their wages which have refused by Nike by given the reason that their worker are already paid a full time wage that can support a family with a sufficient housing, food and other living necessities (Connor, T. 2001). Their fourth demand was about their working hour. Some independent researcher indicate that in some of the factories of the Nike worker are being force to do up to seventy hour/week and they being humiliate before their other coworker or threaten them of dismissal if they refuse (Connor, T. 2001). Their fifth demand was healthy and safely work place. Nike has improved in recent year, by minimize the Toxic chemical usage in sports shoes production. But in some occasion in past years when some of the independent health and safety worker have visit some of the Nike factories, they found highly hazard including highly amount of Toxic chemical, insufficient protective equipments (Connor, T. 2001). Their sixth and last demand was workers respect. Nike promised to protect the rights of their worker but they could not fulfill. The large numbers of Nike factories are in china where independent unions are illegal. Nike has rejected to call the Chineses government to allow their worker to organize (Connor, T. 2001). 5.0 Analysis of Hypothesis In Sialkot, Pakistan, most of the soccer balls of the world have been producing for years. Most of leading international brands like Adidas, Reebok and Nike are outsourcing the soccer ball from Pakistan. According to International Monitoring Association of Child Labor (IMAC, 2003) approximately around 30 to 60 thousand number of people employed in Sialkot, who stitches the soccer ball. Majority of them was under age and majority of these ball were made in at home. In this study we will use the quantitative research and use the secondary data. Our main sources of data to support this report are the surveys, documents, international organization reports. However we have use the internet documents, newspapers, surveys which has publish by the organization of the child labor.

About the corporate social responsibilities (CSR), there are several organizations that are not fulfilling their responsibilities and their issues gradually raised by the time. Like in past we have seen the issue of Nestle about their formula for infant, has killed several infant in Third world counties. This report has included few incidents due to negligence of CSR by the organization. 6.0 Nestle Milk for Infant One of the most famous cases has faces by Nestle in marketing history. This situation has caused problem for Nestle for decades. In this particular case the issue is about the world largest food processing company Nestle Alimentana who had been facing the an international boycott for the reason of directly and indirectly responsible for the death of infant in Third World countries. Multinational Corporations very rarely provide the detail of their activities in developing countries. Nestle has faced so much criticism due to their policies and practices in developing countries that it has undertaken to state its own case (George, S, 1978). The primarily focus of the charge is that they discourage breast feeding by their marketing and advertisement in developing countries and led to misuse of the product (Jimenez, G, 2010). For example Nestle launch their product in Peru where water is directly coming from the river which is highly contaminated most of the mother used the water to dilute the formula. As a result those formulas fed babies recurring the attack of vomiting and diarrhea. Or in some case the mother in developing countries filled up the bottle with large amount of the water with small amount of food, in the result extreme undernourishment or in some cases, mothers totally depend upon the formula to feed their children in a large amount of formula for a long amount of time. Nestle support their product by saying that they never support the idea of replacing breast feeding with formula (Jimenez, G, 2010).

6.1

Morality and Ethics

Every society develops standard of morality and standard of conduct. Which draw on the basic concept of what is justified and desirable for the appropriate action for individual and collective. The bases of these concepts are ethics which reflect fundamental views of depravity, equality, virtue, quality, duty and social utility and within the social order (Epstein, 1998). According to Beauchamp & Bowie (2001) morality is define as the sense of behavior that distinguish between good (wrong) and bad (right). Morality is the system of moral code. In general, morality refers to the appointed society or culture whether accepted by the individual (organization) or not. Whereas, ethics is define as the standard of moral that are accepted and also contain believe that go beyond the establish standard of the organization, the individual and the culture or society. Therefore, ethics contain morality. Morality based on religion but do not have to be where as ethics generally based on philosophy but do not have to be. An ethical parable: Two students meet their master for the next lesson. The master gives them a chicken and says that, go and kill the chicken where no one will see. One student come after an hour and show a dead chicken to a master, but second student did not come. After two days, second student return with still alive chicken. When master ask him why chicken is alive what happened he replied wherever I go to kill her, chicken sees. Nestle marketing tactics for promoting infant child in developing countries (Third World Countries) was not moral. Nestle was not acting within the boundaries of moral standard. Every corporation must understand the standard of corporation ethics and responsibilities. The problems of the issues that Nestle hire unqualified sales girls, marketed to people who were incapable to fulfill the minimum requirement for giving formula safely to the baby (Jimenez, G, 2010).

6.2

Corporate Citizenship

The straight forward definition of corporate citizenship is developing mutually beneficial, trusting and interactive relationship between the company and their many stakeholders like employees, suppliers, communities, customers, government, investor and even nongovernmental organization (NGOs) and other activities through the implementation of company operation and strategies practices. According to this definition to be a good corporate citizenship mean treating with respect and dignity with the entire company stakeholders (McIntosh, M. 2003). According to these theories if we compare this with the activities of Nestle and the incident of killing the infant we realize that the Nestle has not shown the ethics and has not accomplish their corporate citizenship responsibility. Nestle did not handle this issue and ignore their responsibility which their customer were aspect from them. The market campaign of Nestle was unclear, which cause the misunderstanding that the product is the good replacement of the breast milk and other form of nutrition is very important for the child growth.

7.0 Conclusion and Recommendation Nike is a one of the leading brand of footwear in all over the world. In developing countries the growth of CSR has been widespread in recent time. The issue of Nike has hurt a lot and their image in market place has down. On the other hand, in my point of view about nestle issue is that in some circumstances they were right but in some they take some wrong decision. I do not think that their intension is to sell these nutrition formulas in developing countries to kill them. However they have not done a good job on explaining how to use this product. At last if nestle has made the product to sell all around the world they have to make sure that it is every customer can use it without any hazard. About the Nike, a significant majority of consumer will probably never wear Nike again though a significant majority will. Perhaps awareness is the main issue. Nike practice will only be reversed when a significant majority side with the minority home country action may make.

8.0 References y Beauchamp, T. L. & Bowie, N. E (2001). Ethical Theory and business. 6th edition, Prentice Hall

Chun, R. (2005), 'Corporate reputation: meaning and measurement', International Journal of Management Reviews, 7, No 2, pp 91-109.

Connor, T. (2001). Still Waiting for Nike to Do it. Available:www.globalexchange.org/campaigns/sweatshops/nike/NikeReport.p df[Last accessed 09th April 2011].

Dijken, F.V. (2007). Corporate social responsibility: market regulation and the evidence. Managerial Law. 49 (4), 141-184.

Ernst & Young. (1997). Nike Shoe Plant in Vietnam Is Called Unsafe for Workers. Available: http://www.mindfully.org/WTO/Nike-Vietnam-Unsafe.htm [Last accessed 19 March 2011].

George, S. (1978). The limit to Public Relation. Available: http://www.jstor.org/pss/4366961 [Last accessed 11 April 2011].

Hond, F; Bakker, F and Haan, P. (2010). Activism in the global sports apparel industry, 1988-2002. The sequential patterning of tactics. 30 (11/12), p655.

Jimenez, G. (2010). Nestle Infant Formula controversy.

Available: http://afterwords.typepad.com/global_marketing/2010/01/nestle-infantformula-controversy.html [Last accessed 08 April 2011]. y Kochan, T.A and Schmalensee, R.L (2003). Management Inventing and Delivering its Future. USA: Sloan school of Management. pp 43-47.

Lounsbury, M. and Glynn, M. (2001), 'Cultural entrepreneurship: stories, legitimacy, and the acquisition of resources', Strategic Management Journal, 22, No 6/7, pp 545-564.

McIntosh, M. (2003). The Ecology of Corporate Citizenship: Raising a Ladder to the Moon. Corporate Citizenship. 9 (2), p28-31.

Nike. (2010). Annual Report 2010. Available: http://media.corporate-ir.net/media_files/IROL/10/100529/nike-ar20100804/docs/NIKE_2010_10-K.pdf[Last accessed 19 March 2011].

Nike. (2010). Company Overview. Available: http://www.nikebiz.com/company_overview[Last accessed 25 March 2010].

STEVEN GREENHOUSE. (1997). Nike Shoe Plant in Vietnam Is Called Unsafe for Workers. Available:www.mindfully.org/WTO/Nike-Vietnam-Unsafe.htm[Last accessed 01 March 2011].