Nike Case Notes PDF

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Kreft Nike Case notes from in-class debrief...

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Nike Case Debrief 

How were Nike’s operations different from other sports apparel producers? Why were Nike’s practices under criticism? What were the major concerns of the labor activists? o Nike outsourced 100% of manufacturing  one of the first virtual corporations o Goal was to save as much money as possible, and invest that money into advertising (this is how they could afford massive contracts with big name athletes)  Nike loved to go to countries where the work force was repressed, unions weren’t allowed, and labor wasn’t treated well o Low wages  not enough money to support a family o Low age  a lot of workers were under 16 o Poor Working Conditions  faulty equipment, chemicals in the air, not enough training o Unfair Profits  Nike is paying so little to workforce, but then charging a HUGE premium to the consumer (they don’t reinvest this money into the supply chain)  It would take an Indonesian worker almost 45,000 years to earn the salary that Nike pays Michael Jordan

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Did any of the labor activist's criticisms apply directly to Nike’s operations? What made Nike a strategic target for the activist (were there other viable targets)? Was it fair to target Nike for labor abuses, given its unique business model? o Government sets minimum wage, working age, and factory standards  Nike deflects the issues by saying that these problems are the problems of the governments and the factories o Activist Standpoint  Nike is a part of the problem because they made an ACTIVE choice to move to these countries where conditions were so horrible  They moved to Indonesia from countries with better standards, ages, wages, etc.  they consciously moved away from the raising standard of living in Vietnam  An increase in conditions, pay, working conditions  Nike PUNISHES this, by no longer contracting with this  Nike actively seeks out the worst conditions to keep costs as low as possible  They punish the GOOD, and reward the BAD o Was it fair to target Nike for labor abuses?  Doesn’t matter. The fact is, Nike was targeted o Why was Nike picked as a target?  super recognizable brand, industry leader  One of the first companies to 100% outsource (low costs, but massive consumer prices makes its brand vulnerable)

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Super downstream (even more so than Adidas at the time of the case)  Nike was one of the first athletic apparel producers to open up their own storefronts

What was Nike’s initial public relations response and was it adequate? Did Nike eventually do any internal or external monitoring of its business practices during the controversy? If yes, explain the steps that were taken. o How did the activist campaign against Nike launch?  Activists put their initial leverage on the endorsers of Nike (Jordan was bombarded about Nike’s overseas operations, Jerry Rice same thing)  Smart, because these guys all definitely talk to Phil Knight  They get frustrated with activists, and talk to Knight about it  Activists also targeted student athletes at Nike sponsored schools  Activists knew this was a huge source of profit for Nike  The athletes also have potential to become future celebrity athlete endorsers of Nike, the future face of Nike o Nike’s initial response  “It’s not my problem” // denied all accountability and then poured more money into advertising  They acted as if activists couldn’t lay a finger on the brand o This fueled the activists  athletes refused to play, coaches wouldn’t coach, athletic directors resigned if they had to wear Nike o Nike’s Internal Monitoring  Bring someone from the outside in, give them the details to produce a report, but keep the report INTERNAL  This was Nike’s 1st step  They had Dusty Kidd (compliance officer of Nike) work with EY internally, who took over after Kidd’s initial first steps  No one has been allowed to read this report, wasn’t for public consumption  But, an activist snuck into Nike and leaked bits and pieces of this report (Nike factories had terrible conditions, and health was deteriorating – in an extreme case, a woman was killed by metal piercing her heart from an exploding machine) o This revved up the boycott of Nike  finally decided to do some external monitoring after this o Nike’s External Monitoring  Bring someone from the outside in, give them the details to produce a report, but keep the report EXTERNAL  Brought in both Andrew Young and the Dartmouth Business School  Andrew Young was the former mayor of Atlanta, turned into notable human rights, civil rights activist (one of the best reputations for going out on fact-finding missions at the time of the case  lots of solid data, w/o emotion)

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o He produced a report to go to the public, public saw it, punchline read “Nike’s doing well, they could do better” o After this, Andrew Young also became a target (he appeared as another celebrity endorser of Nike – he spent 10 days in total with Nike // used Nike’s translators) o His report had big headlines, pictures, and not a lot of substance o Said he couldn’t study wages, because he’s not an economist Dartmouth Business School Students  Their job was to study wages o Their punchline: “Most Nike workers were supplemental workers to family income”  Respondents said this supplemental income was used in buy luxury items, and increase standard of living of households

Did Nike ever admit labor violations? What changes did Nike implement in response to the controversy? Did they satisfy all the labor activists demands? o Phil Knight came out and gave a speech  HE NEVER ADMITTED LABOR VIOLATIONS  Key word in the speech: “Nike has become synonymous with slave labor, poor working conditions, low working age, unfair profits, etc.”  This says, “you THINK we did these things, but we’re not admitting it” o Knight’s action plan:  Low Age  now moved up to 16 for apparel, and 18 for sneakers (US conditions)  Poor Working Conditions  Implemented US OSHA (US standards brought overseas)  Also said a max of 60 hours could be worked a week  Improved manager training  Unfair Profits  Nike started giving out microloans to employees  Leadership in the AIP (coalition of industry, government, and activists – Apparel Industry Partnership, under Clinton administration)  Nike quickly understood the AIP had too many perspectives, it was destined for failure o They shut down the AIP and moved on to the FLA (Fair Labor Association)  kicked the government out, realized gov’t was severely slowing down the process

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Looking at the case as a whole, could Nike have gotten away with doing less? Or do you think Nike should have done more? Are there any changes you could see in Nike’s strategic response to the labor accusations that would have improved Nike’s position in the scandal? o Nike could have been much more proactive  Starbucks brought in Global Exchange proactively  Suncor proactively brought in lobbying group to tell government they need to move first  Theme of these cases, PROACTIVE  NIKE WAS REACTIVE  gave a lot of room for boycott, and brand degradation

UPDATE ON SLIDES ONLINE  Nike’s CSO – Chief Sustainability Officer, who works directly with Nike’s COO, and asses social risk of Nike’s over 740 factories worldwide (one of the first companies to have such a position) o From 2010 forward, Bangladesh established itself as one of the largest clothing hubs in the world due to its low costs o Nike’s COO wanted to follow the market to Bangladesh, to lower op costs, but the CSO resisted because of social risks o Nike only contracted with 4 factories in Bangladesh on a limited production basis, while choosing only those partners with the highest standards 

In 2013, the Rana Plaza collapsed in Bangladesh, and is considered the deadliest garmentfactory accident in history, killing approx. 1100 and injuring 2500 o In the aftermath, a group of over 200 apparel brands signed the Accord on Factory and Building Safety in Bangladesh  The accord members had to pledge $1 billion into the Bangladesh industry in the next 5 years to improve factory safety and working conditions

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Only having 4 Bangladesh factories (out of 740 nationwide), Nike did not participate in the Accord, thus, only its rivals’ costs were raised. o Nike’s rivals had to raise prices, thus non-brand loyal consumers switched to Nike, gaining market share for the swoosh o Proactive sustainability strategy gave Nike a competitive advantage

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How were Nike’s operations different from other sports apparel producers? Why were Nike’s practices under criticism? What were the major concerns of the labor activists? o Nike pushed its revenues from $60,000 in 1972 to $49 million by 1982. It went public in 1980 and then astounded Wall Street in the mid 1990s as annual growth stayed resolutely in the double digits and revenues soared to over $9 billion. By 1998, Nike controlled over 40% of the $14.7 billion U.S. athletic footwear market. o It was Nike’s strategy that differentiated the company from competitors.  Two main parts of this strategy:  The company would decrease costs by outsourcing all manufacturing to low cost parts of the world a virtual corporation; a manufacturing firm with no physical assets  The money saved by outsourcing would be poured into marketing. In particular, Knight focused on celebrity endorsements.

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Did any of the labor activist's criticisms apply directly to Nike’s operations? What made Nike a strategic target for the activist (were there other viable targets)? Was it fair to target Nike for labor abuses, given its unique business model? o Nike emerged as a key target for Jeff Ballinger, as Ballinger believed that Nike’s policy of competing on the basis of cost fostered and even encouraged contractors to mistreat their workers in pursuit of unrealistic production quotas. He believed Nike’s contractors were regularly flouting Indonesian labor laws and paying below-subsistence wages that did not enable workers to meet their daily necessities. On top of everything, he found Nike’s attitude in the face of their labor practices galling. o ***Ballinger knew that his work would only be effective if it was carefully focused. It was his goal to draw worldwide attention to the exploitation of third-world factory workers by rich U.S. companies, and Nike made the ideal target. The same marketing and branding power that drove Nike’s bottom line could also be used to drive moral outrage against the exploitation of Asian workers.

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What was Nike’s initial public relations response and was it adequate? Did Nike eventually do any internal or external monitoring of its business practices during the controversy? If yes, explain the steps that were taken. o Initially. Nike insisted that labor conditions in its contractors’ factories were not – could not – be Nike’s concern or its responsibility. And even if labor violations did exist in Nike’s contracting factories, stated the company’s general manager

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in Jakarta, “I don’t know that I need to know”. Nike insisted that without an inhouse manufacturing facility, the company could not be held responsible for the actions of independent contractors. ***Realizing the severity of the labor issue, Nike did ask Dusty Kidd, a newlyhired member of its public relations department, to draft a series of regulations for its contractors (internal regulating). Nike responded somewhat more forcefully to the next round of allegations, hiring EY to conduct formal audits of its overseas factories. However, because EY was paid by Nike to perform these audits, activists questioned their objectivity from the start. Public criticism of Nike’s labor practices continued to mount. In order to supplement its hiring of EY, in October 1996 Nike also established a Labor Practices Department, headed by former public relations executive Dusty Kidd. Nike was also the first to join President Clinton’s Apparel Industry Partnership. Initially, Nike sought to defuse the wage issue simply by ignoring it, or by reiterating the argument that this piece of the labor situation was too far beyond its control. When a report came out detailing a former Nike employee’s comments about the lack of training and safety in Nike factories, Nike continued to deny. The denial only made the criticism worse.

Did Nike ever admit labor violations? What changes did Nike implement in response to the controversy? Did they satisfy all the labor activists demands? o After a terrible 1998 (loss of profit and reputation), a humbled Knight admitted that “the Nike product has become synonymous with slave wages, forced overtime, and arbitrary abuse”. Knight announced a series of sweeping reforms, including raising the minimum age of all sneaker workers to 18 and apparel workers to 16; adopting US OSHA clean air standards in all its factories; expanding its monitoring program; expanding educational programs for workers; and making micro loans available to workers. o This confession marked a turning point in Nike’s stance towards its critics. For the first time, he and his company appeared ready to shed their defensive stance, admit labor violations did occur in Nike’s factories, and refashion themselves as leaders in the effort to reform third world working conditions. o The remaining members of the AIP were able to cobble together a more definitive agreement, complete with an oversight organization known as the Fair Labor Association (FLA). The FLA was to be a private entity controlled evenly by corporate members and human rights or labor representatives. It would support a code of conduct with wage reform and working hour reform. Companies that joined the association would be required to comply with these guidelines and to establish internal monitoring systems to enforce them; they

would then be audited by certified independent inspectors, such as accounting firms. o By 1999 Nike was running extensive training programs for its contractors’ factory managers. o Although Nike’s various concessions and new programs were welcomed as a victory by several human rights groups, other observers argued that Nike still failed to deal with the biggest problem, wages. 

Looking at the case as a whole, could Nike have gotten away with doing less? Or do you think Nike should have done more? Are there any changes you could see in Nike’s strategic response to the labor accusations that would have improved Nike’s position in the scandal? o...