Nike’s expansion strategy was to find lower-cost producers. They eventually moved to lower-cost countries, predominantly in Southeast Asia. This expansion meant having many vendors, including those with short contracts, giving Nike little control over the activities in the factories in terms of processes and the working conditions that affected employees.
Nike Accused of Unethical Practices: The What and The How
The expansion of Nike’s manufacturing processes to low-cost countries came with accusations of unethical practices. The allegations concerned labor laws, health and safety, and working conditions. This news made the rounds in the 1990s as significant publications spread NGOs, and articles investigated their factories each time. While there were quite a few, some of which made substantial rounds include:
1. The Issue of Child Labor in Pakistan
Sialkot, Pakistan, is famous for being the home of the production of high-quality soccer balls. Nike, alongside many of the leading athletic brands, sourced their soccer balls from factories there. An article on child labor was published in Life magazine in June 1996. That article struck Nike’s brand image quite severely. Partly, this was because the photo accompanying the article was that of a young boy hand-stitching a Nike soccer ball. As child labor is firmly against international labor practices, there was a lot of criticism from stakeholders and the public in general.
2. Health and Safety Issues in Vietnam
Ernst and Young commissioned an audit by Nike on one of their subcontractors, the Tae Kwang Vina factory, in Vietnam. This factory was one of Nike’s largest factories, with a monthly production capacity of more than 400,000 pairs of shoes. The audit report was leaked to an NGO in November 1997 and made public. It showed that there were serious health risks posed to workers in the factory. That resulted from the presence of the carcinogenic chemical Toluene, which was present at high levels. The chemical was known to cause several ailments. Indeed, there were already reports of cases of respiratory illness, skin, and heart disease among some employees. Further, they reported that workers were not given the necessary personal protective equipment, putting them at risk of safety hazards.
3. Below the Daily Minimum Wage in Indonesia
The use of media by several NGOs exposed the situation in Nike’s supplier’s factories, particularly those with Korean managers. There were reports about the poor working conditions alongside pay below the daily minimum wage of roughly $1. The shoe manufacturing companies in Indonesia would appeal to the government to waive them by paying the legal minimum wage.
These three cases summarize and fully represent the practices and accusations against Nike.
Positive Impacts of Nike’s Expansion Strategy
Nike’s expansion strategy has positively impacted its growth, market reach, and brand recognition worldwide. By leveraging a low-cost production model, primarily through outsourcing manufacturing to regions with lower labor costs, Nike has redirected significant resources toward product innovation, cutting-edge design, and impactful marketing campaigns. This strategic allocation of funds has enabled Nike to create a strong and memorable brand identity, making its iconic “swoosh” logo and slogan “Just Do It” universally recognizable symbols of athleticism and motivation.
Furthermore, Nike’s aggressive entry into international markets, including emerging economies, has not only increased its revenue but also established the company as a global leader in athletic footwear and apparel. Nike’s marketing campaigns have extended beyond products to advocate for inclusivity, diversity, and social issues, which has strengthened customer loyalty and solidified its brand reputation.
Nike’s focus on collaboration with athletes and celebrities has also boosted its appeal, as high-profile endorsements enhance the brand’s aspirational image. This strategy has allowed Nike to resonate with a broad demographic, reaching consumers from varied cultural and economic backgrounds. Overall, Nike’s expansion strategy has transformed it from a domestic brand into a global powerhouse, revolutionizing the athletic wear industry and setting new standards for branding and customer engagement worldwide.
The Negative Impact of Nike’s Expansion Strategy
Particularly in the 1990s, due to their expansion to many low-cost countries in Southeast Asia, Nike got involved in accusations of some unethical practices. These corrupt practices included child labor, health and safety issues, inhumane working conditions, and low wages. When these investigations came to light, Nike faced harsh criticism from consumer bodies, trade unions, and human rights activists.
The public outcry deeply impacted Nike’s reputation, casting a shadow over its brand and business. As reports of these unethical practices surfaced, consumer trust eroded, and many viewed Nike’s commitment to social responsibility skeptically. This backlash compelled Nike to reassess its approach to labor practices, ultimately leading to reforms and greater transparency within its supply chain. However, the controversy remains a cautionary chapter in Nike’s history, highlighting global companies’ complex challenges in balancing cost-effective production with ethical responsibility.
As a result, this hurt Nike and its brand and business:
- Negative articles about Nike appeared in several leading newspapers and websites created solely to spread the news about the practices.
- Some universities were forced by their student body to cancel orders they made for athletic products.
- There were organized boycotts of Nike goods by consumer and labor groups.
- There was a reduction in sales and the creation of a negative brand image.
What Was Nike’s Response to The Situation?
Initially, Nike’s response to labor law breaches and poor conditions in its supplier factories was defensive. The company denied responsibility, claiming limited influence over factory operations and emphasizing that Nike did not directly employ the affected workers. However, in 1992, Nike shifted its stance and introduced a code of conduct. This document, which all suppliers were required to sign and display, established mandatory standards for labor laws and working conditions in supplier factories.
In 1998, Nike took further action by increasing the minimum working age for its factory workers, reflecting a more profound commitment to ethical practices. Additionally, Nike established specialized departments and trained staff to monitor labor and environmental compliance across its global supply chain. The company also forged partnerships with organizations that ensure fair labor practices in developing nations.
To enforce these standards, Nike implemented the SHAPE inspection program. This comprehensive initiative included preliminary factory inspections to assess adherence to safe working conditions and rigorous internal and external audits to verify ongoing compliance with labor standards.
In summary, they have since:
- Created new departments and trained staff to oversee labor and environmental compliance in all supplier factories.
- Founded or partnered with organizations that ensure standard working practices in developing countries.
- Carried out SHAPE inspection, which involves preliminary inspection of factories to ensure they meet the standard for good working conditions and another internal and external audit to ensure they uphold labor practices.
Critical Feedback
While people have praised Nike’s response to the accusations, and now, years later, several articles about it exist, there have also been criticisms.
To improve public relations, Nike asked and paid former UN Ambassador Andrew Young to visit some of its supplier’s factories in Asia for inspection. Young gave a favorable report, but human rights activists criticized the report as inaccurate and biased.
Mr O’Rourke, an environmental consultant of the United Nations Industrial Development Organization and a research associate at the Transnational Centre, criticized Nike’s response concerning their Vietnam factory’s health and safety issues. He said in his visit to the factory, months after Nike claimed to have worked on the situation, that the working condition of the workers was still wrong. Also, he said that he believed the external audit by Ernst and Young went easy on Nike and could not be trusted. Moreover, he suggested the use of noncommercial groups like human rights groups to inspect factories instead to get more accurate reports.
Check the following reference articles to learn more about the Positive And Negative Impacts of Nike’s Expansion Strategy:
- The Promise and Perils of Globalization: The Case of Nike. [ebook] Cambridge: IPC Working Paper Series, Massachusetts Institute of Technology, pp.1-24.
- Nike and Reputation Management. (URL)
- Nike Shoe Plant in Vietnam Is Called Unsafe for Workers (Published 1997). (URL)
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