Poor working conditions have been present for centuries. Often times little or nothing is done unless a tragedy occurs to persuade the public to rally for worker rights. This was definitely the case in the United States during the Industrial Revolution and even late in the 20th Century. These conditions have for most purposes disappeared in the United States, with the exception of some in the agricultural sector. However, internationally, mainly in poor third world countries, that is far from the truth. Large corporations from the United States have moved a large portion of their factories overseas to circumvent the strict working regulations within the United States.
The third world countries such as Vietnam, China, South Korea, and Taiwan provide access to readily abundant cheap labor. These corporations could now reap the benefit of the United States consumer market, while keeping their costs extremely low in offshore production. The media has awakened the public to this fact and several prominent corporations have come under fire lately for the malpractices. No corporation has come under as much criticism as the culture icon of Nike. It was illustrated that conditions were sub-par in several critical areas of Nike’s factories overseas and minimal standards needed to be reached for all employees.
This report will investigate the Nike example and how it has exploited workers in Asia for financial gain. For several years little was known about Nike’s factories simply because there was little concern. But once news broke, the company was attacked ceaselessly and strict recommendations were made to improve conditions. This paper will look at why Nike moved its factories to begin with, what were the first recommendations, how Nike responded to these needs, and what could be expected for future improvement. Moving Factories:
Before we look at the problems at the overseas sites, we must first understand why Nike moved the majority of its production so far away from its headquarters in Beaverton, Oregon. The untapped markets across the globe presented several benefits.
Of course there was the labor aspect in which cheap labor could produce shoes and other clothing at the fraction of the price it would cost domestically in the United States. As well, an aspect that is less often recognized, expanding into China, the world’s most populous country, opened up a tremendous opportunity as a stepping stone into all of Asia. While Adidas was looking to grow in Eastern Europe and the Soviet Union, Nike wanted to get a leg up in clothing the nearly 2 billion people in China alone. (Swoosh, pg. 405)
This was in 1975 and today that population is even higher and expanding at a blistering pace. All seemed well in the corporation as stockholders and managers were receiving huge dividends and the public was receiving great products. However, starting in 1991, Nike’s offshore practices have been consistently criticized in the press. Labor conditions in Chinese and Indonesian factories were questioned in some of the reports, pay scales of Asian line workers and famous athletes were compared, and Nike was even blamed for abandoning the American shoe manufacturing industry of which it was never a significant part. (Just Do It, pg. 166) On May 12, 1998, Nike Chairman and Chief Executive Officer Phil Knight gave a talk on such allegations and the company’s new labor initiatives to combat them.
In that discussion he touched upon Nike’s reasons for moving factories out of the United States and into mainly third world countries in Asia. The following are excerpts from that lecture. It’s been said that Nike has single-handedly lowered the human rights standards for the sole purpose of maximizing profits. And Nike products have become synonymous with slave wages, forced overtime, and arbitrary abuse. One columnist said, “Nike represents not only everything that’s wrong with sports but everything that’s wrong with the world.”
The company that became Nike began life in 1964 as an importer and distributor of Japanese track shoes made by Onitsuka Company, Ltd., of Kobe, Japan. When we started Nike, we had two other manufacturers in Japan make our shoes for us. One was in Hiroshima, Japan and the other was Kurume, just outside of Fukuoka. In neither case were we 10% of their volume. We actually considered ourselves fortunate that they would make shoes to our design.
It never occurred to us that we should dictate what their factory should look like, which really didn’t matter since we had no idea what a shoe factory should look like anyway. But some 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.
When the Nixon administration cut the yen dollar loose from its exchange rate that had existed since the end of World War II . . . In that process, basically all shoemakers quit making shoes in Japan.
We began making shoes in Taiwan and Korea, and in a bold experiment in 1977 we made up to 15% of our shoe products in two owned facilities in Maine and New Hampshire. The early success we had in making shoes in the United States happened during a severe recession. As New England came out of that recession, we began to lose workers to other industries until in 1984, the two factories became so uneconomical, we closed them. The write-off was about $10 million in a year when our total profit was $15 million. Since that time, the U.S. economy has become by far the most robust in the world, and shoemaking has moved again to Southeast Asia. A lot of people say, “Why don’t you bring shoemaking back to the United States?”
Our studies show that using the same production techniques, the average cost at retail for a pair of Nike shoes if we did that would go up $100. The average retail price for a pair of Nike shoes is between $70 and $75, so therefore it would go up to $170 or $175. The price of a pair of Air Jordans which sell for about $150 would go to $250.
There are only two ways of making shoe production come back to the United States. Either new advances in automation, which from my viewpoint are a ways away, or establishing tariffs and quotas that dictate that shoes have to be made in the United States.
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. 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.
We have about 530,000 workers working on Nike shoes and clothes on a given day. There are going to be incidents. There have been some in the past, and there certainly will be more in the future. There are too many workers, too many interactions daily; and in Vietnam, too much tension based on nationality to avoid any incidents.
Back in 1992, before anybody else in the athletic footwear industry-and I believe that only Levi Strauss had one-Nike instituted a code of conduct for use in factories throughout Asia. In 1994, we took a step that I hadn’t heard of been taken by anybody, and I believe we were the first in any industry, to have that code of conduct audited by the international accounting firm of Ernst & Young.
We’ve been criticized for using a firm that we are paying for this review, and I think this is really pretty funny. The only reason that a CPA firm has for its very existence is its independence. And if in fact it was not independent, we have a much bigger problem than Nike foreign factory relations. The whole New York Stock Exchange is built on a fraud. The thing that we have learned more than anything else in this process is that when Nike has gone into a country with its manufacturing operations, wages have increased and poverty has decreased. (Knight Speech)
These remarks gave crucial insight that an outsider would not know or really understand without some background in the business world. It became more clear why the company had decided to move its production base overseas. However the attacks did not stop and the national media “picked up on the campaign, which included accusations of exploitative wage scales and poor working conditions confronting workers making Nikes abroad.” (Just Do It, pg. 166) Nike continued its rebuttal by “pointing out that, out of the more than 300 American shoe factories that were shut down during a general exodus during the 1970s and 1980s, only two ever made Nikes.” (Just Do It, pg. 167) Nike was not only criticized for treating workers poorly in Asia, but it was also attacked for taking jobs away from the American workforce.
This assault was discredited by Nike officials. “Knight . . . and other Nike officials argued that most of the 6,200 American employees of the company have the kinds of white-collar marketing, design, computer, and other jobs that are valued and desired in an advanced economy.” (Just Do It, pg. 167) The Nike officials were right that most the jobs the workers in China and Vietnam were filling would not suffice for the more skilled American counterparts. A highly advanced economy such as the United States would want more skilled labor, but that was a forgotten point during a lull in the economy at the start of the 1990s. The stage had now been set for what was rapidly becoming a business war of profit and welfare. Past Recommendations:
Nothing Nike said or did could curtail the wave of criticisms. Every person who heard about this debate had an opinion on how the company should right its labor practices. Once the media caught wind of the poor conditions, no matter how few cases there actually were as Knight claims, it spread with tremendous speed. Nike was brutally criticized and it was clear it must make changes in their practices. It was assumed that Nike was willing to change it practices in order to prevent human rights violations. No official would dare disagree that it was essential that all workers be treated with dignity and respect just as any American worker would.
The laws that protect Americans’ rights in their pursuit of life, liberty, and happiness, should also pertain to any human. Those treasured laws within the United States do not stop protecting at the border, but transcendent all nations and people. It was therefore important that a company such as Nike, that has such a profound influence on the cultural, as well as business world, be a pivotal player in improving human rights all over the world. The following were recommendations in 1997 of how the company could go about using its far reaching capabilities to change the way labor practices were upheld throughout the world. The first list deals with the problems that were most evident in China.
• Ensure that factories start to pay workers the legal minimum and provide compensation to workers who have been cheated out of their rightful wages. • Totally eliminate any forced overtime, eliminate all excessive overtime (i.e. overtime that violates the Codes of law) and pay the legal overtime rate. • Stipulate that all workers must be given pay stubs upon receiving their wages so that they can see what they are paid for, at what rate, and what deductions were taken out. • Immediately return all deposits illegally taken from workers upon their hire. • Eliminate regulations that prohibit workers from talking to their coworkers. • Stop making morning calisthenics mandatory.
• Stop the illegal procedure of deducting disciplinary fines out of workers’ paychecks. • Investigate any allegations of beatings by security guards and other abusive treatment. • Cease firing workers who are pregnant and provide them with their legally mandated maternity benefits. • Provide childcare, social security benefits, medical insurance and bereavement leave, as stipulated under Chinese Labor Law. • Eliminate the quota system or reduce it to an amount that can be easily accomplished in an 8-hour day.
• Undertake a health and safety review of factories with regard to dust and noise pollution, heat, fumes and congestion and provide companies with a 6-month plan to improve conditions. • Make public a list of accidents and work-related illnesses that have affected workers in the past three years, what measures have been taken to prevent them, and how workers were compensated. • Rehire workers who have been unjustly fired for participating in strikes or for efforts to improve factory conditions, and compensate them for lost back wages.
• Eliminate child labour by seeing that any workers under the age of 16 are provided with a stipend to go back to school and are guaranteed their jobs back when they are of legal working age. • Provide materials and workshops to educate workers about the companies’ Codes of Conduct. • Allow outside groups to provide education and awareness-training to workers about local labour regulations and workers rights, and ensure that workers who choose to attend such programs are not punished.
• Set up a compensation fund for workers who are injured or killed on the job. • Ensure that all chemicals used in the factories are clearly labeled in the local language. • Pressure the subcontractors and government officials to allow workers the right to freely organize. (Nike China Report, September 1997) The second report delt with the problems from Nike’s innolvement in Vietnam. The following is the list of recommendations that report set out. 1.) Nike should abandon the practice of using training/probationary wages or paying the workers below minimum wage under the guise of providing technical/vocational training. Many Nike factory jobs do not qualify as technical vocations and the current Nike factories cannot be considered vocational schools.
Using this approach to underpay Nike workers is illegal and unethical. Wages in Vietnam are already at rock bottom. There is no need for Nike to pay workers any lower than the $45 monthly minimum wage. 2.) Nike should make the implementation of its Code of Conduct a top priority, putting it above even quality and cost. Once the situation improves, then Nike can shift this priority. Nike should demand that all managers who use corporal punishment or are guilty of sexual harassment be dismissed. Nike should make it the responsibility of the general manager of the factory to run a factory that respects its workers. After three violations of Nike’s Code, the general manager should be dismissed.
The current approach of having no specific punishment for violating the Code of Conduct generates the impression that the Code has no teeth. 3.) Nike should levy a stiff monetary penalty on the contracting company whenever it violates the Code of Conduct. The current practice of not making the subcontracting company responsible for its managers’ treatment of workers will only encourage further violations. Companies tend to respond well to severe monetary fines. With so many repeated violations after only 18 months of operation in Vietnam, this is the only course of action left to demonstrate to outsiders that Nike is serious about enforcing its Code of Conduct. 4.) Nike should immediately enforce the 60 hour work week specified in the Code.
The current practice of excessive, forced overtime (sometimes over 70 hours per month) would be considered abusive by any standards. 5.) Nike should be a good corporate citizen in Vietnam. Nike cannot assume that creating low paying jobs is good enough. Vietnamese workers–and their supporters around the world–will not simply be grateful for the jobs and ignore the deplorable labor practices in the factories. Moreover, it is unjust that Nike shareholders profit handsomely from the low wages paid these Vietnamese workers. Nike should take some of the profits it makes from Vietnamese workers and invest them in projects that help improve the lives of poor Vietnamese. 6.)
Nike should work directly with the Vietnam General Confederation of Labor to hear the complaints from workers and to talk with workers outside the factory environment. We found that as long as the workers remain within the confines of the factory, they are very fearful and are not willing to talk about their conditions to anyone. The Vietnam General Confederation of Labor at both the local and district levels were very helpful to us in arranging meetings with factory workers outside factories. We believe that the Confederation could be an important addition to Nike’s efforts to improve its labor practices. 7.)
Nike should consult with several Vietnamese who are experts in shoe factories and on how to establish better labor practices. Beside Nike factories, we had an opportunity to visit two other shoe factories in Vietnam: Thai Binh and Hiep Hung. Both are Vietnamese companies and both are producing high-quality shoes for Western shoe companies such as Reebok and Fila. The presidents of both of these companies have expressed their willingness to consult with Nike on how to treat its Vietnamese workers. Even though they consider Nike a competitor, both of these managers are willing to help because they want to improve the working conditions of the workers at the Nike factories.
Their desire to help is sincere and generous, and we believe that Nike should take them up on their offer. 8.) Nike should form an independent monitoring board in Vietnam consisting of representatives from neutral parties, including government labor officials, NGOs, and labor unions There are many excellent organizations as well as respected individuals, who would be willing to serve on such a board. 9.) Nike should immediately implement all of the recommendations made by Vietnam’s Health Department to improve the health and safety conditions at Nike factories. 10.) Nike should implement all of the recommendations made by Ho Chi Minh City’s General Confederation of Labor, which include: classes on labor rights for workers, regular medical examination for workers, and establishing a pay scale that is fair and abides by Vietnamese labor law. (Nike Vietnam Report, March 1997)
These were basic recommendations that outlined the crucial areas that needed the most drastic improvements. The most glaring need that the two list demonstrate is that of clean conditions. The workers were forced to work in a situation where the air was extremely polluted and dangerous chemicals were handled without any protection. Even if the workers wanted to complain, they were threatened that they would be severely punished for doing so. That lead to another important point of both lists, the way workers were treated.
Often management forced employees to work overtime with little pay. The final aspect both lists demonstrated was the need for a investigative body. This organization would watch corporations and factories and make sure no poor conditions were allowed to persist. The recommendations were directed at Nike, but was indirectly a call to all corporations all over the world to implement them to improve conditions. In the next section we will look to how these recommendations were incorporated by Nike and other major corporations who operate factories around the world. Nike’s Response (Actions):
When Phil Knight and the rest of the top officials at Nike were given the 1997 reports regarding the human rights and labor violations being committed in their Asian factories, it was very clear that they were going to have to take swift action to remedy the situation. The fact was that “shoes and clothing are only the secondary products of the fashion industry. What [Nike] primarily sells is image. For Nike to have its image associated with sweatshops in Asia was more than an embarrassment; the revelations threatened sales” (Sweatshop Agreement, Part 1).
The shoe and apparel producer could not afford to continue to see its name dragged through the mud. Sales were dropping and Nike was being portrayed in the media as a company who was willing to exploit workers and deprive them of the basic wage needed to sustain themselves in an effort to expand profits. Phil Knight officially responded to his critics on May 18, 1998. His speech was the result of intense internal discussion about what actions needed to be taken to improve conditions in the overseas factories. What they came up with were several new “laws” that Nike factories throughout the world were to be required to obey.
The first initiative was to stop the use of a toxic adhesive called toulene. Toulene has been found to cause harmful effects among workers who are not properly guarded from the poison and the fumes that it emitts. In its place Nike researchers created a water-based adhesive which has no such side effects. While the safe adhesive is not perfect for use in all shoes (especially plastic soled cleated shoes), Knight assured the public that Nike would continue its research and by the end of the 1998 calendar year would have all Nike factories meeting United States Occupational Safety and Health Administration (OSHA) standards in indoor air quality.
To assure this, Nike stated that it will conduct indoor air testing of all footwear factories and follow-up testing where required. These tests will culminate in a final report made by an independent non-government organization (NGO). Each factory will be given three months from the date the final report was made to make corrections to bring the air quality levels to those set forth by the OSHA. The second initiative raised the minimum age of all footwear factories to 18 and raised the minimum age of apparel and equipment factories to 16. Current workers of legal age in countries where the standard is lower than Nike’s new minimums were not to be affected.
Knight was quoted as saying, “Nike has zero tolerance for underage labor. And I really do have to add this: There has never been a time in Nike’s history where child labor has been a problem. And I also say that it really hasn’t been a problem in the shoe industry as a whole” (Knight Speech 5/12/98). In addition, Knight announced an expansion of education programs in the factories, including middle and high school equivalency course availability for all workers in Nike footwear factories. Workers will be offered free classes during non-working hours, and factories will be encouraged to raise the pay of workers who complete the regimen. By 2002, Nike will only be ordering from footwear factories that offer some form of after-hours education to qualified workers.
Finally, Phil Knight added that Nike will increase support of its Micro Enterprise Loan Program to a thousand families each in the nations of Indonesia, Pakistan, Vietnam, and Thailand. This program provides loans to women who wish to create small businesses. Knight’s goal was to provide capital for more than five thousand businesses before June of 1999. Unemployed women who can run small businesses that boost their family’s economic well being as well as contribute to the community’s overall development are the focus of this program.
Human rights organizations trumpeted Nike’s initiatives as “an important victory for workers around the world and consumers who have mobilized in protest of unfair labor practices” (Global Exchange’s Public Response…). However, there are definitely loopholes within the policies that concern many. While human rights groups such as Global Exchange applauded Nike’s initiative to allow non-governmental organizations to inspect the factories and make summaries of the findings public, they question which NGO’s Nike plans to grant accessibility.
Also questioned was exactly how much information Nike is going to release in its “summaries.” The education programs which Nike announced it was expanding also came under fire from Global Exchange. It seems as if Nike’s programs are more geared towards office workers in the factory and not the factory workers themselves. In addition, due to rampant overtime work and family obligations, the low-paid workers have virtually no “non-working hours” in which to attend the classes and study for the exams.
The issue of overtime work must be remedied before these educational programs can be properly implemented. The new Nike initiative concerning child labor regulation also leaves something to be desired. It sets a minimum age of 16 in its factories, but Nike made no restriction for countries where workers are legally able to work at 14. It is felt by many pushing reform that even if it is legal for a child of 14 to work in certain nations, it is still considered improper child labor and should not be condoned and implemented in factories of American corporations. While most of these problems were minor and rather easily remedied, two items left out of Nike’s speech caused serious controversy.
The first of these was the omission of a commitment to pay workers a living wage based on purchasing power. The shoe company stated that it will pay workers the local minimum wage, but often times this wage is set too low by the government in order to attract foreign investors. Human rights organizations are pressuring Nike to follow suit in other U.S. companies like Coca-Cola, Pepsi, Goodyear, and Gilette that pay workers wages that allow them to meet their basic needs, foster company loyalty and increase productivity. The other major omission from Phil Knight’s speech was the right to organize.
In China, Indonesia, and Vietnam (where the majority of Nike shoes are made) workers are denied the basic right to organize independent unions. All three countries have one government sponsored union and efforts to create independent unions are squashed. Human rights groups hope that Nike will work with them to pressure local governments to release jailed labor leaders and change labor laws and practices to reflect internationally recognized labor rights. In addition to Nike’s own corporate initiatives, they became big players in the formation of the Apparel Industry Partnership (AIP).
The AIP was brought together in October of 1996 by the Clinton administration during the tenure of Labor Secretary Robert Reich. It incorporates representatives of the apparel industry, human rights groups, and labor unions, including Nike, Liz Claiborne, Reebok, Phillips Van Heusen, Business for Social Responsibility, the Lawyers Committee for Human Rights, the National Consumers League, the International Labor Rights Fund, and the Robert F. Kennedy Memorial Center for Human Rights. Not directly participating in negotiations but affiliated with the organization are L.L. Bean, Patagonia, Nicole Miller, and Kathie Lee Gifford.
The AIP was formed because of the public uproar from media reports of sweatshops being the core producers of products such as Nike apparel and shoes, The Gap clothing, and Kathie Lee Gifford’s clothing line sold at K-Mart. The Apparel Industry Partnership was quickly put together for two main reasons. First, the apparel industry itself feared that Congress might be driven to legislate corrections without corporate input.
Companies with international production facilities could not be confident of controlling the legislation that might come out of public hearings filled with horror stories of sweatshop abuse in factories of familiar brand names. Second, President Clinton was worried that this controversy would threaten the advancement of the free trade agenda, a centerpiece of his presidency. The public was now wary of assurances that increased international trade would produce an increase in human rights. Clinton feared that this might jeopardize future deals similar to NAFTA, which itself had passed by only a very slim margin.
Both the corporations and the Clinton administration needed an organization that would produce serious damage control in a swift fashion. What resulted, the AIP, is something that opponents say “was formed to protect corporate reputations and to prevent a backlash against free trade, not to protect worker rights” (Sweatshop Agreement, Part 1). In April of 1997 the AIP released two papers for reform, the “Workplace Code of Conduct” and the “Principles of Monitoring.” These documents were criticized on two fronts.
The first was that people questioned whether there was sufficient independence between those monitoring the factories and the corporations themselves. The second was that the pay standard was set at the legal minimum wage and not at the minimum to provide for workers’ basic needs. The AIP went back to the bargaining table with the promise of producing a final agreement in six months.
Eighteen and one half months later the AIP returned with a document that only a subset of the taskforce had agreed upon. Both unions in the Partnership (UNITE and the Retail, Wholesale and Department Store Union) and the Interfaith Center on Corporate Responsibility, a human rights group, refused to sign the “Preliminary Agreement” that had come forth from the subset. These dissenters believed that these documents proved corporations such as Nike were only involved in the AIP for a public relations boost, not to make substantial changes in their behavior.
They felt that “Nike has trumpeted its involvement in the AIP as evidence of its moral leadership, all the while stonewalling on several key issues of its labor practices” (Sweatshop Agreement, Part 1). The first problem that was brought up by UNITE and the other groups not signing the “Preliminary Agreement” regarded the monitoring process set forth by the AIP. They complained that companies are now free to choose the same accounting firms as monitors that they have always employed for that purpose, including firms that perform other services for the company.
They feel that these firms have a serious conflict of interest, and that their reports are easily manipulated by the corporations. In response to this criticism, Phil Knight quipped, “The only reason that a CPA firm has for its existence is its independence. And if in fact it was not independent, we have a much bigger problem than Nike foreign factory relations. The whole New York Stock Exchange is built on a fraud” (Knight Speech 5/12/98). The second argument against the AIP document