project

Nike

An Organizational Profile of Supply Chain Abuse

Prepared for Professor Carlene Rose

Lakes Region Community College

Principles of Management

BUS2310L

What is Nike?

When I say “Nike”, what is the first thing that you think of? To the average American,

one who is likely reading this essay, Nike is an American footwear and fashion company, maybe

you think of their shoes, maybe you think of their signature swoosh trademark (one that has

become recognizable around the world in the recent decade), maybe if you’re an athlete, you

think of the relevant brands associated for your sport, maybe if you were a human rights activist,

you’d think of abuse, and in some cases, you might think “employer”. Whatever you associate

with Nike, whether it be its brands, history, or influence, it’s undeniable that it’s easily one of the

most recognizable American companies who have left an indelible mark upon the world. This

multi-faceted company can be seen in many lights, evoking many different emotions and ideas of

what it means to have an international influence, whether it be in terms of responsibility for

behaviors abroad, national pride, being a foreign invader, being a job maker, or even just being a

trend setter. The purpose of the organization profile will be to examine the conditions in which

the Nike Supply Chain exists and has existed, closely observing what abuses have occurred, what

changes have been made to change these issues, and if they have improved.

The History of Nike

Originally founded in 1964 as Blue Ribbon Sports, Nike was a company serving as a

distributor for a Japanese brand (one that would later come to be known as ASICS) in the United

States. The company was originally founded by two men, Phil Knight and Bill Bowerman, who

both came from an athletic background. Eventually, in 1971, the contract with ASICS would

expire, which the two eagerly waited for, as Bowerman had been experimenting with different

styles of shoe. Finally, in that year, he made a major breakthrough. They could shape the tread of

the shoe to resemble that of a waffle. This pattern would be beneficial to athletes when trying to

grip running tracks. With the confidence behind their own model and given their experience in

the field, they found that they were ready to sell their own shoes. However, what would they call

their new brand?

There were many names suggested, Dimension Six (named after a band with a similar

name), Peregrine (a type of falcon), Bengal, and finally, thanks to Jeff Johnson, their first

employee, they would decide to go with Nike, much to the chagrin of everyone involved. None

of the members cared for the other’s suggestions, but decided that Nike was the best sounding,

even if not that great. They decided to give it a test run, a temporary name that they could change

later on. With that name and a logo provided to the company by a Portland State University

student, Carolyn Davidson for $200 (she would later be compensated for much more), Nike was

ready to ship. The first shoe went on sale in June 18, 1971.

As Nike grew, it gained success, however, the slogan “Just Do It” wouldn’t come around

until 1988 when Nike was working with Wieden and Kennedy, an advertising agency. The

slogan was thought of by Dan Wieden, Wieden was inspired by the final words of a convicted

serial killer, Gary Gilmore, whose last words were “Let’s do it” before he was executed by firing

squad in 1977. As time would go on, Nike would begin to gain more and more of the American

shoe market, and eventually go abroad. By 1985, they would sign Michael Jordan in one of the

most profitable endorsements in history.

However, as Nike entered the 1990’s, they received growing criticisms from the public,

demanding that Nike increased their labor standards and treated their supply chain more

equitably. This was nothing new to Nike, as they had had minor criticism prior to this. What was

new was the amount of criticism and negative public attention they received for their use of

sweatshops, something very common in the clothing industry. In face of this controversy, Nike

decided that they would mitigate the damage done to its image and move forward with a

modified behavior. This essay examines how successful they were in this modification and if it

was long lasting.

Stated Ethically

Nike, as a company, has adopted a code of ethics which it sees as a binding document to its

customers, stakeholders, employees, and members of its supply chain. According to the Nike

website:

“At Nike, we hold ourselves to the highest standards and we take our local and global

responsibilities seriously. Nike’s policies are a formal, accepted standard or approach to the way

Nike conducts business, relating to social and environmental issues.”

These very same sustainability policies also include:

“Every supplier factory that makes products for NIKE, Inc. must meet a rigorous set of

compliance requirements. Nike’s Code of Conduct lays out the minimum standards we expect

each factory or facility to meet. Our Code includes standards related to hiring practices, wages,

freedom of association and health and safety.”

And their code of ethics:

“NIKE, Inc. has a Code of Ethics for all employees that defines the standards of conduct we

expect employees to follow and includes a range of topics on employee activity, ethical behavior,

product safety, legal compliance, competition and use of resources.

Each year, all Nike employees are required to verify that they have read and understand the Code

of Ethics.”

Nike, through their history, has had a questionable track record for all of these, most notably in

foreign nations. These are going to be the basis upon which I will judge if Nike has made

significant changes to its supply chain to improve the lives of their workers and their ethical

practices. While Nike did not initially have these policies, these policies should be effective

today, and this will provide a sense of useful duration.

From Japan to Indonesia

Nike has always made a majority of its shoes in East Asia. Originally starting in Japan, when

they sold ASICS brand shoes, the company sought cheap labor sources in order to provide the

customer with a low price and the company with great margins. Many of the factories that were

used at the time had very appalling labor standards, notably in Post-War Japan. However, this

did not bother Knight and Bowerman. They were of the opinion that they were in the business of

selling a brand and creating designs, they had no clue on how to run a shoe factory, how it

should operate, how it should be laid out. They thought it best to leave production issues in the

hands of the people that directly managed it. However, as the Japanese economy improved, Nike

sought out other locations that could afford cheaper labor, during the 70’s and 80’s, Korea,

China, Taiwan, and Vietnam were all prime targets for Nike expansion, along with New

England, which was currently in a recession (though they would only make up 15% of

production). Nike sought out these locations to improve their margins, which had been growing

weaker as Japan’s economy surged.

During this process, Knight and Bowerman would continue to hold the same policy towards

factories and would continue focusing on selling shoes. Many of these East Asian factories

would exceed in quality in comparison to Japan and even New England.

According to Knight:

“But just as in Japan, the factories in Taiwan and Korea that we established back in those early

days were far better, have been far exceeded in terms of their quality of work conditions than the

factories that we had in Taiwan and Korea, and frankly the factories that we had in the United

States in the ‘70s and early ‘80s. We had one other thing as we went into these new factories in

Southeast Asia. We got to build them from scratch. And now Nike, having had quite a bit of

experience, was able to have quite a bit of input into what these factories look like. And we

believe they are the most advanced and best physical facilities in the world.”

With this expansion into Southeast Asia, Nike would begin the process of taking control of their

supply chain, and thus, inheriting the problems associated with operating in these countries.

Though, Knight would also note:

“…26 years later, I can tell you one of the few absolutes of this business. However bad you think

Nike shoe factories are today, they are far, far better than those factories in Japan some 26 years

ago… During the 1990s, all our experiences have caused us to really believe in the benefits of

international trade. The uplifting of impoverished people, the better values for consumers in

industrialized nations, and most of all, the increased understandings between peoples of different

cultures.”

Nike, most notably its CEO, Phil Knight, saw that Nike was improving the lives of their workers,

despite the many low-standards compared to a company with such international reach. However,

despite these benefits of their influence, workers were subjected to many of the following:

 Below minimum-wage earnings

 Forced overtime without legal overtime payment

 Beatings by supervisors or security guards

 Child labor

 Wage deductions

 Unsafe working environments

 Inability to converse or associate with coworkers

However, when one of the world’s largest accounting firms, E&Y was hired by Nike, the internal

reports that were leaked from the company about the status of Nike factories overseas were

rather lackluster, but positive. Andrew Young, in the report, was quoted as saying that: “he

informed Nike it was doing a “good job” in treating its workers, though he allowed it “should do

better.”. This also was shown alongside other poor working conditions, such as dust levels

exceeding limits by eleven times the legal amount in China, and that this was an accident-prone

area.

Despite Nike’s perception of improving employee’s lives, the late 90’s showed that Nike had

failed to provide a safe, sane, and legal working environment. Even with these results, many of

these nations did not press charges against Nike, as a high level of corruption, bribery, and views

on employment were applied to this scenario. Nike was a major employer in these regions, there

was no need to drive them away.

Reactionary Auditing

Nike has since improved their supply chain. For instance, during the early 2000’s, Nike

implemented many audits on its factories, rating them on a typical grade scale. If a factory had

an ‘A’ then it passed in every possible way, C’s were reserved for factories not doing well

enough, D’s for factories that were threatened for closure until conditions were improved, and

F’s for factories to be closed almost immediately. While in many cases, this new auditing system

improved the working conditions within each factory, many factories began failing which

resulted in closure and a decline in the local economy, as many workers were displaced. The

other unintended side-effect of these audits was that they were routine. Given their nature, many

factory owners and managers would improve the factory only for the audit, and would avoid any

long-term improvements, thus only improving conditions for a part-time basis only.

Nike has since gone from this method to another, stating that their newer policies would improve

the revenue of the factory, as sustainability practices provide better productivity and lower

turnover costs. This has apparently shown some improvements in Nike factories, though rather

minimal. Nike now provides a minimal amount of independent inspection of its factories as well.

Return to Form

Despite its great advances in many regards, Nike still has yet to truly improve its situation.

Currently, Nike is yet again under allegations that it is not being transparent enough about its

supply chain and that it is closing factories that choose to unionize or protest the current

improper working conditions. There are some reports that Nike is still actively engaging in wage

theft in the factories as well. However, much of these allegations have been rather muted given

other controversies that have recently plagued Nike, and are still a developing scenario.

Too Little Too Late?

Nike, since its inception, has without a doubt improved on their humans’ rights and worker’s

rights abuses. In fact, one can argue that they are one of the many companies that have played a

large role in the enrichment of East Asia, providing some of the poorest members of society who

are mostly women, to have more economic freedom than generations before them. However,

despite these great advances, Nike still has not made a valiant effort to enrich its employee’s

lives. While Nike does not engage in practices that amount to slave labor anymore, they still

frequently breach many standards and expectation of western consumers. Given that it has failed

to make long-lasting policies that aren’t easily manipulated, and also has half-hearted embraced

the idea of worker empowerment, Nike has shown itself to be one of the companies most need of

managerial overhaul. It is clear that Nike still needs to improve and still needs to become a

reliable employer and a transparent agency, with accountability checks. However, given the

location of their factories being in a region steeped with bribery, corruption, and a lax idea of

what abuse consists of, there is very little chance that international action will occur, as other

industries are at stake if Western nations take a stand, no one nation is willing to bet their

economy on the human rights abuses of a shoe company. Compounding this with other

controversies that have plagued the company in the last year, it seems like Nike, once again, will

be coming under scrutiny as Americans and other Westerners are expecting more from their

companies. Though this will likely damage Nike’s reputation and may cost it market share, Nike

still remains a dominant power in the footwear industry and a major player in the

lifestyle/fashion industry. To suggest that these issues, which are relatively small blips on

American radars, will ruin the company is ridiculous. However, Nike needs to carefully manage

its image, as other competitors may seek to prey on them when they’re vulnerable. However, at

this moment, there is very little cause for concern. Nike is, as it always was, a controversial,

exploitative company, that symbolizes the less appealing side of American economic domination

of the global market.

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