business ethics group assignment case study nike and child labor issue in pakistan

MINISTRY OF EDUCATION AND TRAINING NATIONAL ECONOMICS UNIVERSITY ………o0o……… BUSINESS ETHICS GROUP ASSIGNMENTLecturer: Nguyen Bich Ngoc CASE STUDY: Nike and child labor issue in PakistanPa

MINISTRY OF EDUCATION AND TRAINING

NATIONAL ECONOMICS UNIVERSITY

………o0o………

BUSINESS ETHICS GROUP ASSIGNMENT Lecturer: Nguyen Bich Ngoc CASE STUDY: Nike and child labor issue in Pakistan

Participants: Ngo Viet Cuong

Nguyen Cao Gia Phat Pham Quy Duong Nguyen Van Giang Nguyen Duy Long

- 11211200

- 11214656

- 11218774

- 11219686

- 11213538

Class: International Business Management 63D

School of Advanced Education Programs (AEP)

2

MINISTRY OF EDUCATION AND TRAINING

NATIONAL ECONOMICS UNIVERSITY

………o0o………

BUSINESS ETHICS GROUP ASSIGNMENT Lecturer: Nguyen Bich Ngoc CASE STUDY: Nike and child labor issue in Pakistan

Participants: Ngo Viet Cuong

Nguyen Cao Gia Phat Pham Quy Duong Nguyen Van Giang Nguyen Duy Long

- 11211200

- 11214656

- 11218774

- 11219686

- 11213538

Class: International Business Management 63D

School of Advanced Education Programs (AEP)

Nike, Inc is an American multinational corporation that majors in design, development, manufacturing, and worldwide sales and marketing in activewear, footwear, accessories, and services It is the world’s largest supplier of athletic shoes and apparel in terms of its revenue, recording at US $37,4 billion in its fiscal year 2020 Nike ranked 89 th

in the 2018 Fortune 500 list of the largest United States corporations by total revenue

Nike’s substantial growth over the years has enabled certain financial success and paved ways for Nike to spread its influence on other regions of the world, including Asia and a proportion of Africa At the same time, Nike also strives towards changing up the community, protecting the environment and ensuring adequate working conditions However, along the way, Nike has committed several ethical misconducts, one of which is child labor and poor working conditions in sweatshops These instances have raised doubts and unapproving attitudes from the populace, and in turn, have made Nike loses its trust in the hearts of customers To tackle this issue, Nike has been constantly finding ways to mitigate the impacts on its business and received promising and positive results in return This document discusses the predicament of Nike because of its controversial misconduct, and how it overcame the issue to bounce back from the bad reputation and scandals

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Table of Contents

Abstract …… ……… ……… 3

A Nike introduction 5

B Nike’s ethics issue: Child labor in Pakistan 6

1 How it started 6

2 Tradition of child labor in Pakistan 6

3 Preference to countries in the developing phase 7

4 Other scandals 7

4.1 Low wages in Indonesia 7

4.2 Health and safety problems in Vietnam 8

5 The ignorance 9

6 Consequences 10

7 People’s awareness and Nike’s reactions 10

8 Nike’s positive movements 12

8.1 Responsible sourcing 12

8.2 Protecting the planet 13

C Conclusions 14

References 15

A Nike introduction

In 1964, Oregon runner Phil Knight, who graduated from Stanford, and his former track coach Bill Bowerman started Blue Ribbon Sports, after Phil’s idea: “Can Japanese shoes do to German shoes like what Japanese cameras did to German cameras?”, Phil had seen how Japanese cameras had replaced the dominant German cameras in the American market, and he wondered whether Japanese shoes could do the same with Puma and Adidas They distributed Japanese running shoes which belonged to the company Onitsuka Tiger out of Knight’s car at track meets Bowerman was all about innovation, he always tried to improve the quality of the shoes, by for example adding to the cushion or using more lightweight materials It was one of Bill’s designs that catapulted BRS into the mainstream: The Cortez, became the best-selling shoe in 1968, undoubtedly thanks to the Olympics in 1969 in Mexico In 1971, they made the move from shoe distributor to manufacturing original designs under the name “Nike” and the “Swoosh” design

With his branding now completed, Phil was ready for the Olympics 1972 in Munich This time, instead of locking himself into exclusive agreements, Phil established a network

of subcontractors from Japan From then on, the story of Nike became one of growth They became the largest sportswear company in America in 1989 on the back of brilliant marketing like the “Just do it” campaign and by signing rookie athletes that would eventually become famous across the world, such as Michael Jordan, Tiger Woods, and Lebron James In the ’90s, Nike tapped into the booming cross-training business thanks to the “Bo knows” commercial and became a name in sports apparel by designing the uniforms for the Cup-winning Brazilian National football team In 2012, Nike became the official sponsor of apparel for the NFL In 2014, it’s Nike apparel business that continues

to lead the brand’s growth

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B Nike’s ethics issue: Child labor in Pakistan

1 How it started

In June 1996, issue of Life magazine carried an article about child labor in Pakistan, Nike knew that it was a problem The article’s lead photograph showed 12-year-old Tarig surrounded by the pieces of Nike soccer ball which he spent most of a day stitching together for the grand sum of 60 cents In a matter of weeks, activists across Canada and the United States were standing in front of Nike outlets, holding up Nike’s photo

2 Tradition of child labor in Pakistan

Pakistan has a per-capita income of $1,900 per year - meaning that a typical person survives barely on $5 per day And that is not all, Pakistan has a traditional culture where the earnings of one person go on feeding 10 mouths, and with the high rate of inflation, it becomes difficult for a low-income population to survive Child labor is spread all over Pakistan, but the greatest impact is in Sialkot Pakistan has a population of approximately

1 million and is an important center to produce goods for export to the international market, particularly sporting goods In 1994, exports from Sialkot brought income of almost US$

385 million into the Pakistan economy Sialkot thus is one of the world’s most important centers to produce sporting goods

Child labor exists in Sialkot both in the export and domestic sector This fact has been well documented and reported by the international media for several years, but nothing has been done about it In Pakistan, it is clearly documented that child labor is against the law, but the government carries lacks willingness to act about it Provision for education is very limited, since very low priority is given to education in the national budgets Education receives around 3% of the total gross domestic product when compared

to over ten times this amount spent on the military Gender and other forms of discrimination plus adding to the lack of political will gives a clear picture of the existence

of child labor in Pakistan

Most the world’s soccer balls have, for decades, been produced in Sialkot, Pakistan, with leading international brands (e.g., Nike and Adidas) sourcing almost exclusively for Sialkot Estimates of the number of stitchers employed in Sialkot’s soccer ball manufacturing cluster varied from a low of just over 30,000 (International Monitoring Association for Child Labor 2003) to a high of 65,000 The great majority of children

helped their parents at home, who were in turn paid for the number of soccer balls rather than hours worked Most of these balls were stitched in homes, through an elaborate chain

of subcontractors

3 Preference to countries in the developing phase

As to remain competitive in the market, Nike searched for cheaper resources and markets Nike had shifted its production to lower manufacturing costs-countries such as Japan, Korea, and Taiwan No Nike shoes have been made in the US The first factories, built in the 1960s, were in Japan when that country was still a part of the Third world And for thirty years, Nike has migrated from nation to nation, arriving as other developing countries install the necessary mechanisms for orderly business operations and leaving as living standards become too high to make manufacturing profitable As Japan’s economy started expanding, the manufacturing cost increased Therefore, Nike shifted its contracts

to Vietnam, Pakistan, Indonesia, and China,

Now Nike recently is characterized by making its equipment in countries that are in the developing phase, having cheap labor, authoritarian government and lack of human rights appeal and the union movement has made greater margins on the cost of mere cents

to its workers Therefore, Nike’s story of success is not based on the good name and advertising alone but also attached to it is the tears of tortured workers and child labor

4 Other scandals

4.1 Low wages in Indonesia

In 1991, activist Jeff Ballinger published a report documenting low wages and poor working conditions in Indonesia which led to larger media coverage of Nike's overseas operations

In the next year, Ballinger continued publishing an expose of Nike His article highlights an Indonesian worker who worked for a Nike subcontractor for 14 cents an hour, less than Indonesia's minimum wage, and documented other abuses One of the characters

in Ballinger's article is Sadisah Like Jordan, Sadisah works for Nike But the difference is that she does not appear in such a flashy way, but as a worker who directly makes shoes named Jordan and receives a salary at a factory in Indonesia

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In one survey, Sadisah worked up to 63 hours of overtime in a pay period, with an additional rate of 2 cents per hour The factory where she works specializes in manufacturing only mid-range Nike shoes, and each pair will require about 0.84 labor/working hours to produce Sadisah made an average of 13.9 pairs of shoes per day She worked 6 days a week, more than 10.5 hours a day, and received a salary of 37.46 USD / month - less than half the value of a pair of shoes at that time Overall, the labor cost for each pair of shoes Nike sold in the US at that time (about 80 USD) was about 12 cents - a profit margin to say Compared to Jordan, one of his TV commercials for Nike brought in

$20 million That is to say, Sadisah needs more than 44,000 years of non-stop work to earn that amount

4.2 Health and safety problems in Vietnam

In 1997, an Ernst and Young audit of one of Nike’s Korean subcontractors, the Tae Kwang Vina Company operating in Vietnam, reported serious health and safety problems

at the Tae Kwang Vina plant Toluene concentrations were said to exceed between 6 and

177 times acceptable standards in certain sections of the plant The report also claimed that chemical releases in the plant had caused numerous cases of skin and heart disease, and those respiratory ailments, due to excess dust, were rampant in other areas of the factory According to the report, personal protective equipment was not provided at the factory, and working conditions and work hours at the plant were in violation of Nike’s code of conduct This incident was particularly damaging for Nike since the report came from Ernst and Young, a leading accounting and consulting firm that Nike had hired to audit its suppliers’

factories News of this report appeared in the New York Times and other leading newspapers

These three events created a major public relations problem for Nike Increasingly, labor, and environmental problems at Nike’s suppliers’ factories were becoming a major problem for Nike itself

5 The ignorance

As a good chess player, Nike always thinks ahead of its movement It does not launch its products directly into developing countries, such as Pakistan, but instead, Nike subcontracts it to them by selecting a local firm When doing this, the local firm, in this case, SAGA sports, has to abide by Nike's international rules and regulations when producing its goods And it is the duty of the international firm (NIKE) to monitor its subcontracted production units and hold them to tight scrutiny But this is not what really happens Both Nike and the local production company aim to minimize cost and earn the highest amounts of profit thus involving themselves in illegal practices, such as child labor,

a practice which is not so highlighted by the government of the host developing country

So what happens when you question Nike about its labor practices? An answer comes that

it is not they who are involved in these illegal labor practices but it is the local subcontractor who is doing so This is wrong to say as Nike and SAGA sports both benefits from access

to cheap child labor in Pakistan And if Nike cannot control its subcontracted plants, it means they have not implemented their rules and regulations effectively and are not abiding

by the international standards that they have set for themselves

Nike's entrance into the Pakistan markets was part of its long-term strategic planning It is false to explain that Nike didn't know that child labor is an age-old practice

in Pakistan Nike went into Pakistan, having full knowledge of the favorable conditions prevailing in terms of child labor, and has taken no precautions whatsoever to prevent the use of child labor in the production of its soccer balls Instead, Nike has made a profit from its Pakistani contractors who in turn have used bonded child labor in the production process Critically analyzing the situation, "Why does Nike always land up in places having cheap or bonded labor or in places where it can easily get away with illegal labor practices?" Examples include Vietnam, China, Indonesia, Pakistan, Bangladesh, and India Nike simply bases its operations on finding the lowest-cost labor to make its products

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Phil Knight, the co-founder of Nike, seemed to have shown a little concern over the work-age issue In the documentary film “The big one”, being asked “Twelve-year-olds working in factories?”, Phil just replied: “They’re not 12-year-olds, the minimum age is 14.”

Coming back to the beginning of the 90s, Nike was also involved in another scandal

In 1992, Ballinger published an expose of Nike His article highlights an Indonesian worker who worked for a Nike subcontractor for 14 cents an hour, less than Indonesia's minimum wage and documented other abuses

6 Consequences

Children suffer from psychological and physical harms

They stitch balls as many as seven days a week and for up to 16 hours a day Meanwhile, their working condition is terrible, workplaces are narrow and toxic sweatshops (crowded workplace with very poor, socially unacceptable, or illegal working conditions) Some illegal working conditions include poor ventilation, little to no breaks, inadequate workspace, insufficient lighting, or uncomfortable temperature)

The education of children is denied Increasing the demand for the products produced by child labor means encouraging more child labor, encouraging more birth rates, more slavery, increasing sweatshops, and discouraging education - as parents of the children working in factories would want them to work more and earn more If this happened to be the case, then more and more children will be bought and sold on the black market, leading to no end to this problem By encouraging more child labor, you are not only taking away those innocent years from them but also the right to be educated and the right to be free

7 People’s awareness and Nike’s reactions

After the rise of the child labor scandal, in 1997, college students around the United States began protesting the company The slogan “Just don’t do it” (anti “Just do it” campaign of Nike) became famous