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Written Case Analysis: Hitting the Wall: Nike and International Labor Practices
Stephanie HodgeBUSA 488 Creating and Managing Transnational Organizations
Professor Thad BarnoweSpring 2009
February 18, 2009
Written Analysis
Many companies today, in this growing world market, cannot be successful with
out considering the benefits that could be gained by expanding their business, or part of
their business, to other countries. As Bartlett, Ghoshal, and Beamish mention in the text
there are three macro forces that drive, constrain, and shape the industries in which
companies will compete globally. (2008). Companies must prepare for these three macro
forces in advance before entering into new countries to do business. If they don’t prepare
they will not be very successful in conducting business in another country and will not
gain the competitive advantage they strived for when deciding to conduct business
globally. Also, if a company does not enter the global market prepared they could run
into problems that they did not foresee, which could result in damage to the company
name and image, not only affecting international business but domestic business as well.
This in turn could create the company to sustain profit losses and gain a tarnished
reputation that they would have to fix to regain their competitive advantage and above
average returns.
In order to be a successful in operating in another country multinational
enterprises must have a manager or a set of mangers to deal with three very complex
external demands, cross-market integration, national responsiveness, and worldwide
learning. (Bartlett et al, 2008). No matter what aspect attracts a company to another
country whether it is, economies of scale, economies of scope, factor costs, or
liberalization of world trade, the company must come into that global market aware of all
the differences pertaining to the eight-facet model for analyzing country environments.
The company needs to be aware of the differences between the home country and the
host country, looking at the model these differences can include, physical, economic,
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Written Analysis
legal, political, sociocultural, labor, financial, and competitive. Nike is a prime example
of a company that expanded their operations into a global market to gain a competitive
advantage, and like some other companies did not fully understand the scope of the
environment that they were moving into beforehand. Therefore, they did not fully
anticipate the negative worldwide response that would be generated in reaction to the
way they were conducting business in these developing countries. Along with this
negative response came a decrease in sales, protesting from many consumers and
organizations, and bad publicity from the media. Even though Nike is a large successful
company with a sought after brand image, this error on their part of not moving into a
country fully prepared equaled a recipe for disaster, and nearly cost the company their
good reputation.
Diagnosis
In this case we are presented with a multitude of problems relating to Nike and its
choice to outsource all it’s manufacturing to developing countries, which they did to save
on labor costs. Relating back to the text Nike made this move because of factor costs,
which is a powerful driver of globalization. (Bartlett et al, 2008). With the innovation of
technology and communication Nike is able to outsource a large part of their company,
the manufacturing portion, out of their home country, and still get all the products
shipped successfully to customers and retailers all around the world. However, in doing
so Nike experienced some of the problems that the text mentioned might happen to
companies outsourcing labor. One problem they ran into was that some of the developing
countries that they were doing business in became richer causing the labor costs to rise,
which the text said could happen as often as every five year. (Bartlett et al, 2008). This
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Written Analysis
led Nike to have to move their manufacturing from South Korea and Taiwan to more
inexpensive plants in China and Indonesia. According to Bartlett et al, this can lead to
greater costs, which can in turn outweigh the costs that the company was saving to begin
with. (2008). The main reason Nike decided to outsource their manufacturing was
because with the money that they saved in labor they could dedicate more funds into their
marketing campaigns. In addition, to saving on labor costs Nike was hoping to increase
their competitive advantage and competitive positioning, by using independent
contracting factories to manufacture their products. This great idea of outsourcing was
one that Nike’s CEO Phil Knight had come up with, however, it did not materialize into
the success story that he thought it would.
Nike chose to outsource to not only developing countries but to countries with
very low costs. This meant that the average worker was making next to nothing to
produce Nike’s products compared to what it would cost Nike to produce their products
in other areas of the world, let alone in their home country the U.S... As the case states
they were mainly outsourcing to Indonesia, where wages were vary low and workers
were docile. (Bartlett et al, 2008). Even though there were unions present and some
protests, the Indonesian government was happy to host Nike. In this country the daily
worker wage rate was between one and two dollars, compared to other developing
countries Indonesia wages were about 50% less. Some organizations and consumers were
outraged by Nike’s labor practices, with media reporting on very low wages, child labor,
unsafe working conditions, and extremely long working hours; Nike was faced with a
public relations nightmare. Nike is a very successful company based on such a high brand
image that one would think that they were doing everything right, but now they were
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Written Analysis
facing allegations of labor abuse. Instead of taking responsibility for wrong doing, and
doing everything in the company’s power to make the situation right and prove to the
public that everything was fine, Nike denied all accusations and insisted that the company
could not be held responsible for the actions of the independent contractors. As the case
states Nike at this point was its own worst enemy.
Problems only got worse for Nike as a labor activist named Jeff Ballinger set out
on a mission with Nike as his main target. He was determined to prove Nike was in the
wrong and make them do something about it. With all the added negative media that was
generated in response to these issues, Nike issued and employee Dusty Kidd to fix the
problem by drafting up some regulations and a Code of Conduct for the companies
contractors to operate by. However, after many failed attempts to patch things together
and make things right with the media and the public, Nike was still seen as a company
that did not care about their workers or their rights. This led to the company’s first loss in
13 years and Nike was forced to issue a large layoff, in addition to profit losses Nike’s
brand image took a huge hit. Towards the end of the case Nike had come to terms and
resolved some of the impeding problems, but they still never addressed the issue of the
low wages and many critics did not believe that telling the full truth. In addition to this
issue there could be future issues that could arise because of their questionable business
practices, they could have a hard time obtaining celebrity spokespeople and/or sponsored
sporting events, many college universities could not want to buy their sporting goods
from them anymore, consumers could buy other brands like Reebok or Adidas, and
stakeholders could not support the company. The main problem here is Nike needs to
find a way to fix the current problem at hand, and learn what they can do in the future so
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Written Analysis
not to make the same mistake twice. Nike also needs to decide if they are going to
continue to outsource their manufacturing to developing countries like Indonesia or if
they are going to move manufacturing to their home country.
Solution Generation
There is nothing Nike can do at this point to go back and fix what has already
happened. They need to address the wage issue and educate the public, as well as
themselves, more about the countries that they are manufacturing in and how they differ
from their own, from there they need to look ahead to the future and figure out a course
of action so this type of incident never happens again. One of the biggest mistakes that
Nike made when dealing with the labor abuse situation, is in the instance when this issue
was publicly brought to their attention and they were questioned about the overall
manufacturing situation. Instead of addressing the problem that the pubic was so
concerned about they decided the best thing to do was ignore the situation, or simply say
that the issue was beyond their control. However, if they had done more company
research on the countries that they were thinking about doing business in before they
entered into them, they might have known some facts that they could have educated the
public about, for example how the host country differs from the company’s home
country, as well as, other countries. They could have become more educated about the
host country by appointing a team to conduct the eight-facet model for analyzing country
environments as mentioned earlier. This would have given them more of an idea about
Indonesia’s resources, income distribution, population, laws, government stability,
attitudes, beliefs, religion, education, societal structure, composition of labor force,
mobility, labor unions, and diversity. By conducting this research Nike might have been
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Written Analysis
able to find out the data that the Dartmouth students found, showing that “economically
companies like Nike were actually furthering progress in the developing countries,
providing jobs and wages to people who formerly had neither.” (Bartlett et al, 2008). Its
facts like these that they could have used to formulate a data supported argument against
the allegations that were made about the company.
Another solution was one that was mentioned in the text, if a company plans to
play the “global chess” game like Nike was trying to do, then they needed to make sure
that they were managing their worldwide operations as independent units, which they
were somewhat, but they also needed to make sure that they implemented a coordinated
global strategy. (Bartlett et al, 2008). It seemed like Nike just wanted to outsource the
manufacturing and not have to worry about it, they did not appoint a team to really
oversee the manufacturing process and left it up to the contractor to oversee the operation
and how it functioned. This method of operation left Nike in the dark to what was really
going on in the manufacturing plants and how they are treating their workers. This shows
that Nike is not really functioning as a multinational corporation when it comes to their
manufacturing operations; they need to employ a multinational management team that
can work on meshing corporate strategy with the host country policies and practices,
working closely with global operations instead of being more of a contractual based
operation that never checks in on its operations. To become a multinational industry Nike
needs to develop a more effective multinational strategy, which means that they need to
be sensitive to the local markets and build strong resourceful national subsidiaries that
will ultimately help generate the business to flourish. (Bartlett et al, 2008). From there
they can strive to develop an international strategy, which I think that they have obtained
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Written Analysis
through their product sales, but they need to concentrate more on the way they run their
business. In relation to Nike’s manufacturing operations I kind of see their company as
one that has moved from the more international perspective to a multinational
perspective, but one that needs to move more into the global and transnational
perspective. I do not think that their sales operation is in the same realm as their
manufacturing operations, I think this is more of an area that is overlooked, but they need
to consider how they are going to achieve sales with the public viewing their company as
one that is not operating under ethical and fair labor standards. However, if Nike worked
under more of a global perspective with their manufacturing operations they would
operate globally more as a single unit, instead of individual branches that are not
overseen by the company itself.
Nike needs to become better at managing their global operations they
seem to be focusing too much on some aspects of the company while ignoring more of
the important and key branches of their operations. Without a product Nike is not a
company and no matter what type of marketing campaign they can not generate sales
with a product that is tied to non-ethical labor practices. To insure that they have a good
quality product Nike needs to make sure that the people making their products are well
taken care off and are seen as important stakeholders in the company. To do this Nike
needs to focus on developing more of a basic classic internationalization process
approach, this is kind of going back to the basics but it insures that the company is in the
process of increasing their commitment and understanding of the foreign markets that
they do business in. They also need to focus on such underlying aspects as organizational
complexity and diversity; they need to realize the issues that may arise when doing
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Written Analysis
business in another country and the sometimes complex demands across barriers of
distance, time, language, and culture. (Bartlett et al, 2008). If they concentrate on these
things in the beginning they are more prepared to deal with issues like bad publicity
because they know the foreign environment and can develop an argument that shows
facts that appose the accusations. Nike has a lot of work to do pertaining to their
manufacturing operations, but they are a large successful company that will continue to
prosper once these issues are addressed.
Solution Choice and Implementation
I do think that Nike should continue to do business in developing countries like
Indonesia and use them as a resource for cheaper labor, but to do this successfully the
company needs to develop more global awareness of their operations abroad. The
solution that I would say would be the best one at this point is to admit their entire
wrongdoing in that they were not aware of their manufacturing operations problems, and
they will do all they can to fix the problems. In addition, they need to go on to work with
Indonesia to improve their economy and make working conditions better for all workers
in the country. Nike started to take this route towards the end of the case but unlike
Reebok they did not really act on the situation in a timely manner. However, the more
involved Nike becomes in improving all working conditions around the world through
direct investment and also involvement and donations to organizations, the better off
Nike will be in regaining their brand image and good global corporate citizenship title.
These actions in turn will lead to increased sales and profits that can be used to support
the programs they are sponsoring. As a company they seemed to ignore the fact that good
marketing can only go so far, and spending extra money in that department was maybe
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Written Analysis
not needed. They needed to become more of a company that is moving toward the
transnational perspective and one that is educated about all foreign environments that
they do business in. As well as, a company that works closely with their contactors to
make sure that the Nike Company upholds its commitment to all its stakeholders, and in
doing this shows a high value and regard for their entire workforce. Overall, Nike needs
to increase their global awareness beyond the cheap labor, to become a more committed
company that understands and oversees all their operations domestically and globally,
and by doing this they will move toward becoming a more successful global operation
and will be viewed positively by consumers and the public alike.
Nike needs to take many steps to implement this solution, but they are all
steps that they company is very capable of doing. As mentioned above the first step is
admitting that they were wrong and issuing a public apology. From this they need to
announce that they plan on using a portion of their profits to develop a campaign that will
be aimed at improving working conditions for the entire globe. They can develop their
own organization to help this cause, and in addition to this they can support other
organizations that support the cause. As they were starting to do in the case they need to
become a company that supports laws and regulations that support fair treatment of
workers. By doing this they are increasing the public’s awareness that they are a
company that cares about all mankind.
In addition to these changes Nike needs to evaluate their current manufacturing
operations, and improve on the situation. They have a few options here and all the
options must be looked at and evaluated before they decide the best course of action.
Before they can do all this Nike needs to appoint a team of employees and managers that
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Written Analysis
are combined to create a global public relations/management team, instead of relying on
one person like Dusty Kidd to deal with all the problems. This team needs to do all that it
can in increase its global awareness of all the countries that Nike does business in, as well
as oversee all the operations that take place globally. To do this the group needs to work
on one of the important strategic tasks that the text mentioned is important in
multinational enterprises. The task consists of all employees in this group being able to
sense, respond, and even exploit the differences in the environments of the many
different countries in which their company operates. (Bartlett et al, 2008). At the same
time they can not become too intertwined in the global markets, they also need to re-
connect with their local environments to insure good business practices, it is like a really
big juggling act but the markets involved must be kept informed and happy. Overall, the
team needs to become aware of all the cultural differences between countries to
successfully deal with its customers as well as its workforce. After the team feels like it
has a good grasp on the foreign countries it plans to do business in it needs to present to
the heads of the company the pros and cons of outsourcing the manufacturing to
contractors versus doing more of a direct investment approach, where Nike built
manufacturing plants in developing countries to manufacture their products. I think that if
they had done this in the beginning they would have gone into the situation more
prepared, and would have been able to address the labor abuse situation and how to deal
with it before it even happened. In my opinion Nike has two options right now, they need
to either make sure that they are overseeing global contracting operations and make sure
that they develop a standard of working conditions that are followed in all plants as well
as offer incentives to workers that increase company moral, or they need to build and
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Written Analysis
manage their own plants in a developing country of their choice. To be more cost
efficient they should try to simply manage and oversee the outsourced operations, they
could even do this by appointing an expatriate to move to the county that they are doing
the manufacturing in to be the ears, eyes, and voice of the company and the values it
upholds.
Another step in the implementation of fixing these issues is to make sure that the
company is working closely with the governmental demands of all the countries that it is
working in. As the book mentioned this can be a sort of love hate relationship, but
without managing these ties it can constrain the strategies of the company and take away
from the company’s competitive advantage. Nike needs to work with the Indonesian
government to create a set of country wide working condition standards and then help
them uphold these commitments to its workforce. At the same time they need to invest in
the country in other ways to improve on their economy and overall state. By doing this
they are evaluating the potential benefits that they can provide to the developing country
by doing business in it, and from this they can try to improve the country gaining the
respect from its people and all their consumers.
All these decisions and plans for the future will be generated by this global task
force department that is created, from here this group of people can help other
departments like marketing and sales and public relations to insure their understanding of
the other countries cultural differences and likes, dislikes, values and beliefs are known.
This could in turn help these other departments improve on their marketing campaign by
knowing what the global market wants, and the public relations department in regards to
being able to defend the company and show detailed reports when accused of
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Written Analysis
wrongdoing. If Nike concentrates on becoming a more of a transnational company for
the future it will bring together the company globally to work as a whole eliminating the
possibility of Nike getting left in the dark about portions of their operations. As Bartlett
et al mentioned in the text, “The winners in the emerging global competitive game are the
companies that can most effectually harness their access to worldwide information and
gain the expertise to develop and diffuse innovative products and processes on a
worldwide basis.” (2008, p.97). Nike needs to move towards this style of thinking to
improve upon the current situation as well as ensure a bright future for the company.
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