Nike Global Business and Challenges
Legal, Cultural, and Ethical Challenges that Nike Faces in Global Business
This hub examines the Nike Sweatshop Debate, and addresses the following:
1) Summarizes Nike's case focusing on key points
2) Describes the legal, cultural, and ethical challenges that confront Nike as a global business.
3) Determines the various roles that the host government played in this particular global business operation.
4) Summarizes the strategic and operational challenges facing global managers illustrated in Nike's case.
Nike - Successful Global Business doesn't come without Challenges.
Once a company, like Nike, decides to become a global entity, it will often experience an increase in profitability. Unfortunately, companies like Nike must overcome some difficult obstacles before establishing a successful business in a foreign country. Some of the issues of concern are child labor laws, wages, and outsourcing’s effect on sales. Because of this, most widely known companies have presented various cases to defend their positions on conducting business in the foreign country. One such example is a Nike sweatshop labor case that stirred up a large amount of controversy over ethical business practices. Even though Nike has attempted to recover from the bad press it received about the sweatshops, it still struggles to defeat the negative feelings from people across the United States. Thus, a summary of the case, the legal, cultural and ethical challenges, an understanding of the roles the host governments play, and the strategic and operational challenges faced are important to gain a thorough understanding of the issues and case.
Most people could easily define Nike and are familiar with the products offered, like the customized options available in the Nike store online, Nike Sportswear, Nike Women, Nike Basketball, and Nike Football. These products, among others, have led Nike to a profit of $15 billion in 2006 and a catchy “Just Do It!” slogan (Hill, 2009). The company outsourced its manufacturing plants to several countries in order to lessen costs and become more efficient in productivity. The outrage and protests that followed were far from what Nike expected; the company was labeled as forcing “children to slave away in hazardous conditions for below-subsistence wages” (Hill, 2009). As a result, protestors of globalization and human rights activists criticized Nike for taking advantage of the workers overseas and placing them in a destructive working environment. Moreover, the fact that Nike was making billions of dollars and still failed to provide a safe working environment only made matters worse. After Nike realized it was the target of several protests and complaints against globalization, it recognized the need for safer work environments and an adherence to certain standards for each of the overseas factories. The factory workers were forced to work exceptionally long hours to fulfill quotas and had to follow strict rules during work for below minimal pay despite having “77 percent of the employees in Vietnam suffer from respiratory problems” (Hill, 2009). Therefore, the legal, ethical, and cultural challenges began to add up for Nike and it was time for the company to confront them.
The majority of challenges Nike had to overcome involved ethical issues and debates. Even though Nike was providing jobs to those who may not otherwise have one, it was paying “a mere $1.60 a day to Vietnam factory workers when the living wage is at least $3 a day” (Hill, 2009). Nike could have avoided this challenge by paying each employee worker the living wage of the country he or she lives in to purchase necessary items. Moreover, the living wage is a cultural expectation which Nike failed to meet that led to protests. Another ethical issue involved “a report that found workers with skin or breathing problems had not been transferred to departments free of chemicals and that more than half the workers who dealt with dangerous chemicals did not wear protective masks or gloves” (Hill, 2009). The debate was over the unsafe conditions Nike was providing its factory workers while it experienced continual increase in profits. Nike was also criticized for failure to follow child labor laws by hiring children who were not allowed to work and forcing them to work overtime for below minimal pay. For example, “according to Global Exchange, in one factory, owned by a Korean subcontractor for Nike, workers as young as 13 earning as little at 10 cents an hour toiled up to 17 hours daily in enforced silence” (Hill, 2009). Exposing workers to harsh and toxic chemicals including carcinogens were also factors that placed the company at odds with human rights activists. The company attempted to redeem itself by stating “it had formulated an action plan to deal with the problems cited in the report, and had slashed overtime, improved safety and ventilation, and reduced the use of toxic chemicals” (Hill, 2009). Even though Nike took steps to improve the accusations in the report, it should have been corrected once it was aware of the conditions and provided each worker with a fair and safe work environment.
Ernst & Young was the accounting firm hired by Nike to conduct an audit of its business practices; however, the discovery became public knowledge instead of remaining confidential. Another host government that played a role is “one-time hired U.S. Ambassador to the United Nations and former Atlanta Mayor and Congressional representative Andrew Young”; his role was to “assess working conditions in subcontractors’ plants around the world” (Hill, 2009). Unfortunately, there were accusations made that stated discrepancies in his report and the method by which the report was conducted. Moreover, “Nike joined a task force called Fair Labor Association to assess whether companies are abiding by the code and banish sweatshops in the shoe and clothing industries” (Hill, 2009). The debate over independent auditors performing audits of overseas factories came from the “United Students Against Sweatshops to ensure a truly independent audit” (Hill, 2009). Nike is a widely recognized brand, which is the reason several other host governments became involved in the sweatshop case.
The strategic and operational challenges Nike faces are vast and will require a large amount of time and effort. This is especially true because the operational practices and strategies Nike previously adhered to was no longer effective; rather, those practices began to hinder its success. One operational challenge Nike faces is the development of a strict monitoring system in its factories overseas. On the other hand, hiring a firm to ensure accurate accounting reports are produced is a strategic challenge. Moreover, determining a country to set up another factory in is both a strategic and operational challenge. Nike faces several challenges; however, it can achieve continual success through an effective operational and strategic plan.
Therefore, the factories and sweatshops established overseas by Nike launched a debate regarding whether Nike was in compliance or violation of ethical guidelines and regulations. Despite several attempts, Nike is still the focus of protests regarding violation of child labor laws and unsafe working environments. Moreover, numerous governmental organizations have worked with Nike to ensure safe and ethical business practices and to monitor the sweatshops Nike established overseas. Consequently, Nike was forced to change its operational and strategic plans drastically in order to remain successful and appease labor and civil rights unions. The case of the Nike sweatshops demonstrated how difficult it can be for a business to become global because of the different rules and regulations established by that country.
Hill, Charles (2009). International business: competing in the global marketplace. New York: McGraw-Hill/Irwin.