1

NIKE & ITS INTERNATIONAL LABOR PRACTICES

NIKE & ITS INTERNATIONAL LABOR PRACTICES LH 2 SECTION B

GROUP MEMBERS 1.ANKITA DUTTA 2.JAYASHREE GAVIT 3.POORVA THAKUR 4.PRATHAMESH PRIYOLKER 5.RUCHI SINHA 6.SAMIHA PURKAYASTHA 7.SWAPNALI RANE 8.TANYA GEORGE 9.VEER GUPTE

ACKNOWLEDGEMENT

Nike And Its International Labor Practices is a very sensitive subject to both Nike & its customers. We are grateful to Mr. James Keady and Ms. Leslie Kretzu for exposing and bringing light to the bad and unacceptable labor practices followed by Nike.

We would like to acknowledge Nike for sharing the improvements in its Labor Practices and also Phil Knight for accepting the woes the labor faced in the past.

Nike Inc. has certainly worked its way to success. However the urge to grow big in business has only now, seen the employees earn their wage and lead a better life in the future.

TABLE OF CONTENTS Sr No. 01 1.1 1.2 1.3 02 03 3.1 3.2 04 05 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 Introduction Origin Founders Products Brand Ambassadors of Nike Nike Around The Globe Global Aspects Of The Nike Overview of Nikes Factories SWOT Analysis Labor Nike Code of Conduct in Late 1990s Nikes Changed Approach Lessons Nike Inc. Have Learned Global Contract Factory Worker Profile Wages Excessive Overtime Freedom of Association Human Resources Management Program Implementation Health, Safety & Environment Expanding our Impact 32 34 Chapter Page no. 6 7 9 10 13 14 17 18 19 21 21 23 24 25 28 29 30 31

Sr No. 5.11 5.12 06 6.1 Looking Ahead

Chapter

Page no. 34 35 36 37

Nike Monitoring Letter Grade Assessment Criteria Summary Conclusion

References

38

1.

INTRODUCTION

Nike, Inc. the most valuable brand among sports businesses today has fascinated youth since its very inception. Its catchy tagline and indulgence in a variety of products has made it even more desirable among youth. Nike Inc.is an American multinational corporation. It was founded on January 25, 1964 as Blue Ribbon Sports, by Bill Bowerman and Phil Knight. It officially became Nike, Inc. on May 30, 1978. With revenue of US$24.1 billion in its fiscal year 2012, Nike is one of the world's largest suppliers of athletic shoes and apparel and a major manufacturer of sports equipment, actively engaged in the design, development and worldwide marketing and selling of footwear, apparel, equipment, accessories and services. The company is headquartered near Beaverton, Oregon, in Portland. It employs more than 44,000 people worldwide and the brand alone is valued at $10.7 billion. Nike markets its products under its own brand, as well as Nike Golf, Nike Pro, Nike+, Nike Skateboarding, Air Jordan and other subsidiaries including Cole Haan, Hurley International, Converse and Umbro. In addition to manufacturing sportswear and equipment, the company operates retail stores under the Niketown name. Nike sponsors many high profile athletes and sports teams around the world, with the highly recognized trademarks of "Just Do It" and the Swoosh logo.

ORIGIN

1.1

Nike was originally known as Blue Ribbon Sports or the BRS. As stated earlier it was founded by track athlete Philip Knight and his coach Bill Bowerman (University of Oregon) in January 1964. The company initially operated as a distributor for Japanese shoe maker Onitsuka Tiger (now ASICS), making most sales at track meets out of Knight's automobile. In 1964, in its first year of business, BRS sold 1300 pairs of Japanese running shoes worth $8,000. By 1965 the company had acquired a full time employee and its sales had reached $20,000. In 1966, BRS opened its first retail store, located at 3107 Pico Boulevard in Santa Monica, California, so that its employees no longer would have to sell inventory from the back of their cars. In 1967, due to rapidly increasing sales, BRS expanded retail and distribution operations on the East Coast, in Wellesley, Massachusetts. By 1971, the relationship between BRS and Onitsuka Tiger was nearing an end. It was at that time that BRS prepared to launch its own line of footwear, which would bear the Swoosh logo newly designed by Carolyn Davidson. The Swoosh was first used by Nike on June 18, 1971, and was registered with the U.S. Patent and Trademark Office on January 22, 1974. In 1976, the company hired John Brown and Partners, based in Seattle, as its first advertising agency. The following year, the agency created the first "brand ad" for Nike with a tagline of "There is no finish line" in which no Nike product was shown. By 1980, Nike had attained a 50% market share in the U.S. athletic shoe market, and the company went public in December of the same year. Together, Nike and Wieden Kennedy have created many print and television advertisements, and Wieden Kennedy still remains Nike's primary ad agency. It was agency co founder Dan Wieden who coined the now famous slogan "Just Do It" for a 1988 Nike ad campaign, which was chosen by Advertising Age as one of the top five ad slogans of the 20th century and enshrined in the Smithsonian Institution. Wieden credits the inspiration for the slogan of "Lets do it," to the last words spoken by Gary Gilmore before he was executed. Throughout the 1980s, Nike expanded its product line to encompass many sports and regions throughout the world. In 1990, Nike moved into its eight building World Headquarters campus in Beaverton, Oregon.

FOUNDERS

1.2

Philip Hampson "Phil" Knight was born in February 24, 1938, is an American business magnate and philanthropist. He is the co founder and chairman of Nike, Inc., and previously served as the chief executive officer of Nike. By 2011, Knight's stake in Nike gave him an estimated net worth of US$14.4 billion, making him the 19th richest American and the 47th richest person in the world. Phil Knight was born to the lawyer turned newspaper publisher, William W. Knight, and Lota Hatfield Knight. Growing up in the Portland neighborhood of Eastmoreland, he attended Cleveland High School in Portland. Knight continued his education at the University of Oregon in Eugene, where he was a sports reporter for the Oregon Daily Emerald and got a degree in journalism in 1959. As a middle distance runner at the school, his personal best was 4:10 mile, winning varsity letters for track in 1957, 1958, and 1959. Immediately after graduating from Oregon, Knight enlisted in the Army and served one year on active duty and seven years in the Army Reserve. After years of Army duty, he enrolled at Stanford Graduate School of Business. Knight went on a trip around the world after completing his graduation, during which he made a stop in Japan, in the month of November in the year 1962, where he discovered the Tiger brand running shoes, manufactured in Kobe by the Onitsuka Co. Knight was so impressed with the quality and low cost, that he made a cold call on Mr. Onitsuka, who agreed to meet him. By the end of the meeting, Knight had convinced Mr.Onitsuka to give him Tiger distribution rights for the western United States. The first Tiger samples took more than a year to be shipped to Knight, during this time he found a job as an accountant in Portland. When Knight finally received the shoe samples, he mailed two pairs to Bill Bowerman at the University of Oregon hoping to gain a sale and an influential endorsement. To Knight's surprise, Bowerman not only ordered the Tiger shoes but also offered to become a partner with Knight and provided great design ideas for better running shoes. The two men shook hands on a partnership on January 25, 1964, which was the birth date of Blue Ribbon Sports, forerunner to Nike.

William Jay "Bill Bowerman (February 19, 1911 December 24, 1999) was an American track and field coach and co founder of Nike, Inc. Over his career, he trained 31 Olympic athletes, 51 All Americans, 12 American record holders, 24 NCAA champions and 16 sub 4 minute milers. During his 24 years as coach at the University of Oregon, the Ducks track and field team had a winning season every season but one, attained 4 NCAA titles, and finished in the top 10 in the nation 16 times. He is the recipient of the Oxford Cup, Beta Theta Pi's greatest honor.

PRODUCTS

1.3

Nike produces a wide range of sports equipment. Their first product was track running shoes. They currently make shoes, jerseys, shorts, base layers, etc along with the track running shoes for a wide range of sports, including track and field, baseball, ice hockey, tennis, association soccer, lacrosse, basketball, and cricket. Nike Air Max is a line of shoes first released by Nike, Inc. in 1987. The most recent additions to their line are the Nike 6.0, Nike NYX, and Nike SB shoes, designed for skateboarding. Nike has recently introduced cricket shoes called Air Zoom Yorker, designed to be 30% lighter than their competitors. In 2008, Nike introduced the Air Jordan XX3, a high performance basketball shoe designed with the environment in mind.

10

Nike sells an assortment of products, including shoes and apparel for sports activities like association football, basketball, running, combat sports, tennis, American football, athletics, golf, and cross training for men, women, and children. Nike also sells shoes for outdoor activities such as tennis, golf, skateboarding, association football, baseball, American football, cycling, volleyball, wrestling, cheerleading, aquatic activities, auto racing, and other athletic and recreational uses. Nike is well known and popular in youth culture, chav culture and hip hop culture for their supplying of urban fashion clothing. Nike recently teamed up with Apple Inc. to produce the Nike+ product that monitors a runner's performance via a radio device in the shoe that links to the iPod nano. While the product generates useful statistics, it has been criticized by researchers who were able to identify users' RFID devices from 60 feet (18 m) away using small, concealable intelligence motes in a wireless sensor network. In 2004, Nike launched the SPARQ Training Program/Division. Some of Nike's newest shoes contain Flywire and Lunarlite Foam to reduce weight. On July 15, 2009, the Nike+ Sports Band was released in stores. The product records distance run and calories expended, keeps time, and also gives runners new programs online they could try running.

11

The 2010 Nike Pro Combat jersey collection were worn by teams from many universities like Miami, Alabama, Boise State University, Florida, Ohio State, Oregon State University, Texas Christian University, Virginia Tech, West Virginia, and Pittsburgh. Teams wear these jerseys in key matchups as well as any time the athletic department deems it necessary.

12

2.

BRAND AMBASSADORS OF NIKE

Brand Ambassador is a term used for a person employed by a company to promote its products or services (Also known as branding). The key factor of a brand ambassador is his/her ability to use strategies that will strengthen the customer product relationship and tempt the audience to buy more. A brand ambassador is appointed as a spokesperson to increase awareness and improve sales of the product they are associated with. The brand image that Nike was building initially was a pure American icon, high performance, innovative aggressive brand, associated with athletes and winners. Nike always considered performance as its foremost priority and hence designed shoes lightweight and durable for runners.

The brand associated with the top athletes of U.S who are determined and achievers through this they conveyed seriousness and masculinity of the brand similar to the athletes it is associated with. The brand association of Nike is based on 3 points: 1 how attractive the celebrity is 2 how credible the celebrity is 3 the match between celebrity and brand. Michel Johnson the famous American sprinter and Ronaldinho the famous Brazilian soccer player, basketball legend Michel Jordan, McEnroe the famous tennis player are some of the very famous Nikes Brand ambassador. After U.S Nike wanted to increase its relevance in Europe and hence they associated with European soccer players like Eric Cantona and Robert Mandeni. In addition to this Nike also sponsored local soccer teams like Paris saint Germaine and borussia Dortmund which was an excellent marketing strategy. When Nike wanted to enter the golf arena they chose Tiger Woods to be their ambassador and to reach out to the female audience they used Maria Sharapova and Serena Williams. Nike also associated with Lance Armstrong and Steve Nash. Nike tried making a local appeal with Sergei Bubka and Noureddine Morceli as well. These associations turned out to be very successful for Nike. .

13

The current new ambassador of Nike as of 14th January 2013 is Rory Mcllroy of Northern Ireland.

14

3.

NIKE AROUND THE GLOBE:

Nikes headquarters are surrounded in the city Beaverton and are within Unincorporated Washington Country. The city Beaverton tried to occupy Nikes headquarters forcibly, which lead to a court case by Nike and ended ultimately in Oregon Senate Bill 887 of 2005. Under this bills terms, Beaverton is exclusively barred from forcibly taking possession of land that Nike and Columbia Sportswear occupy for 35 years. Following image shows Nikes corporate overview:

15

16

GLOBAL ASPECTS OF THE NIKE:

3.1

Nike has over 700 factories worldwide, in 41 countries with 363 retail stores in USA and 393 internationally. In 2011, Nikes sales in United States made up 36% of its revenue while 51% came from international business and 13 % from other business. Nike has contracted with more than 700 shops around the world and has offices located in 45 countries outside the United States. Most of the factories are located in Asia, including Indonesia, China, Taiwan, India, Thailand, Vietnam, Pakistan, Philippines, and Malaysia.

NIKES KEY TARGET:

The formula had 2 main parts 1. Shave costs by outsourcing all Manufacturing 2. All money saved would go to the marketing sector.

17

Overview of Nikes factories: factories

LOCATION ARGENTINA AUSTRALIA BANGLADESH BELGIUM BOSNIA BRAZIL BULGARIA CAMBODIA CANADA CHILE CHINA DOMINICAN REPUBLIC ECUADOR EGYPT EL SALVADOR HOLLAND HONDURAS HONG KONG INDIA INDONESIA ISRAEL ITALY JAPAN KOREA MACAU MALAYSIA MEXICO MOLDOVA PAKISTAN ROMANIA SINGAPORE SOUTH AFRICA SPAIN SRI LANKA TAIWAN THAILAND TURKEY UNITED KINGDOM VIETNAM

3.2

NO. OF FACTORIES 11 3 6 1 1 11 1 3 6 1 CHINA MANUFACTURES 33% OF THE NIKE BRANDS FOOTWEAR AND IS ALSO ONE OF THE LARGEST SUPPLIERS OF N IKE 'S AIRS OLE CUSHIONING COMPONENTS USED IN THEIR FOOTWEAR . 2 1 4 3 3 7 3 15 NIKE FACTORIES THAT MANUFACTURE 2% OF THE NIKE BRANDS FOOTWEAR 27 NIKE FACTORIES THAT MANUFACTURE 24% OF THE NIKE BRANDS FOOTWEAR. 3 4 FOR THE 2011 YEAR SPECIFICALLY N IKE'S FACTORIES AND EARNING WERE "SIGNIFICANTLY ERODED " BY THE EARTHQUAKE THAT OCCURRED IN M ARCH . 11 1 1 1 4 7 1 1 6 2 18 19 NIKE FACTORIES. TAIWAN IS ALSO ONE OF THE LARGEST SUPPLIERS OF NIKE 'S AIRSOLE CUSHIONING COMPONENTS USED IN THEIR FOOTWEAR . 1 9 2 VIETNAM MANUFACTURES 39% OF NIKE BRANDS FOOTWEAR.

18

4.
STRENGTHS: STRENGTHS:
Professionally competitive company No physical factories Well branded World wide offerings Strong marketing campaign Chains of retail stores Ventured rebranding opportunities Incorporating Lunarlite foam material

SWOT ANALYSIS

WEAKNESSES:
Highly depended on foot wears History of violations of over time laws and minimum wage rates in Vietnam Accused of poor conditions in the work place. Accused of exploiting workforce that will work for cheap in overseas countries. Constant focal point for negative criticism by anti globalization groups

19

OPPORTUNITIES:
Creating sportswear item by incorporating the waste from regular manufacturing Stepping into the line of economy boosting projects that will encourage recycling Expansion into sports sun glasses and jewellery lines Expansion in the global markets to create larger brand recognition Reducing controversy surrounding their trade and production practices.

THREATS:
Currency value fluctuations Competitors are becoming more aggressive and creating high quality products that are taking from the profits of NIKE Sensitivity to price among consumers lead them to purchase he most cost effective pair of sports shoes Maintaining the reputation of being eco friendly Managing the financial conditions in the volatile economy of todays time.

20

5.
Introduction

LABOR

NIKE, Inc. has worked to improve labor conditions in our footwear, apparel and equipment supply chains for more than 15 years. Key issues which we have discussed here includes the health and safety of the workers who make the product, also excessive overtime, ability of workers to freely associate as well as the child labor and forced labor.

NIKE Code of Conduct in late 1990s

Nike, Inc. was founded on a handshake.

5.1

Implicit in that act was the determination that built their business with all of the partners. This relationship was based on trust, teamwork, honesty and mutual respect. We expect that all business partners should operate on the same principles. At the core of the NIKE corporate ethic, it is believed that we are a company comprised of

many different kinds of people, appreciating individual diversity, and dedicated to equal opportunity for each individual.
NIKE designs, manufactures and markets products for sports and fitness consumers. At every step in that process, they are driven to do not only what is required, but also what is expected of a leader. They expect their business partners to do the same. Specifically, NIKE seeks partners that share their commitment to the promotion of best practices and continuous improvement in: 1. Occupational health and safety, compensation, hours of work and benefits. 2. Minimizing the impact on the environment. 3. Management practices that recognize the dignity of the individual, the rights of free association and collective bargaining, and the right to a workplace free of harassment, abuse or corporal punishment. 4. The principal that decisions on hiring, salary, benefits, advancement, termination or retirement are based solely on the ability of an individual to do the job. Wherever NIKE operates around the globe, we are guided by this Code of Conduct. Nike binds business partners to these principles as well. While these principles establish the spirit of partnerships, they also bind these partners to specific standards of conduct. These are set forth below:

21

1. Forced Labor. (Contractor) certifies that it does not use any forced labor indentured, bonded or otherwise.

prison,

2. Child Labor. (Contractor) certifies it does not employ any person under the age of 15 (or 14 where the law of the country of manufacturing allows), or the age at which compulsory schooling has ended, whichever is greater. 3. Compensation. (Contractor) certifies that it pays at least the minimum wage, or the prevailing industry wage, whichever is higher. 4. Benefits. (Contractor) certifies that it complies with all provisions for legally mandated benefits, including but not limited to housing; meals; transportation and other allowances; health care; child care; sick leave; emergency leave; pregnancy and menstrual leave; vacation, religious, bereavement and holiday leave; and contributions for social security, life, health, worker's compensation and other insurance. 5. Hours of Work/Overtime. (Contractor) certifies that it complies with legally mandated work hours; uses overtime only when employees are fully compensated according to local law; informs the employee at the time of hiring if mandatory overtime is a condition of employment; and, on a regularly scheduled basis, provides one day off in seven, and requires no more than 60 hours of work per week, or complies with local limits if they are lower. 6. Health and Safety. (Contractor) certifies that it has written health and safety guidelines, including those applying to employee residential facilities, where applicable; and that it has agreed in writing to comply with NIKE's factory/vendor health and safety standards. 7. Environment. (Contractor) certifies that it complies with applicable country environmental regulations; and that it has agreed in writing to comply with NIKE's specific vendor/factory environmental policies and procedures, which are based on the concept of continuous improvement in processes and programs to reduce the impact on the environment. 8. Documentation and Inspection. (Contractor) agrees to maintain on file such documentation as may be needed to demonstrate compliance with this Code of Conduct, and further agrees to make these documents available for NIKE or its designated auditor's inspection upon request.

22

Nikes Changed Approach

5.2

During FY10, Nike rewired its approach to managing risks and opportunities within its supply chain. Nike launched new sourcing and manufacturing tools that were embedded within product creation and created an integrated, multi disciplinary team to support sourcing selection and performance. Nike also created a new organizational structure within the company that brought together labor compliance, health, safety and environment, lean manufacturing, human resources management, climate and energy, waste and water management. More recently, Nike identified the creation of a sustainable supply chain i.e., one that includes sustainability on equal footing with cost, on time delivery and quality as one of the pillars of their sustainable business strategy and developed a vision of what success looks like. The vision and steps Nike is taking to achieve this strategy going forward are described in the Manufacturing section of this report. In this section, we take a look back and report on key indicators and our progress toward the targets Nike has set for the FY07 to FY11 period. Nike has been working with contract factories to build their human resources management skills and help them reach even higher levels of economic, social and environmental performance. The work is centered on three fronts: Working conditions in factories: environment, safety and health Labor rights, freedoms and protections Workers lives outside of the factory, and living conditions in their communities

Nikes approach employs three main tools: audits, human resources management (HRM) training and lean manufacturing. In addition, Nike has established collaborative efforts with other brands and civil society organizations to develop common approaches for raising and sustaining standards in footwear, apparel and equipment manufacturing. A centerpiece of Nikes work in the past few years is its HRM program, which combines multi stakeholder workshops, training for factory managers and the surveying of workers. Nike has found that factory managers aiming for full and consistent compliance with labor requirements sometimes lack the systems and skills to achieve it. By building the capabilities of contract factory management, it strive to create a sustainable framework for improving working conditions overall. In addition, the training supports the transition to lean manufacturing powered by a skilled, empowered workforce. Nike piloted the first wave of this program in FY09 with contract factories in Vietnam. During FY10, HRM evolved into Sustainable Manufacturing Training, which takes an integrated approach to sustainability capability building. Sustainable Manufacturing Training has an expanded focus (beyond just HRM), including modules on health, safety

23

and the environment (HSE), environmental sustainability and energy/greenhouse gas management. The training also covers how to protect workers freedom to associate. Where appropriate and possible, government officials, trade union representatives, representatives from the International Labor Organization and other key local stakeholders participate in the training program. Following an initial workshop, there is a six month follow up process in which the factories implement an action plan under the supervision of Nike compliance staff and the factorys lean production lead (or sensei). The factories are then expected to participate in learning communities, in which they continue to share best practices on a regular basis.

Lessons Nike.inc Have Learned

5.3

Today, when a company suddenly receives intense public scrutiny for practices in its value chain, comparisons are often drawn to Nike. In the late 1990s Nike was one of the first companies to deal with the challenges of a global supply chain. Because they were among the first companies and industries to experience such scrutiny, did not have the benefit of an established roadmap. Instead, Nike had to learn a great deal through taking action based instincts, evaluating the results of those actions, and then modifying their course based on what Nike learned through those experiences. Consequently, Nike have moved through several distinct phases in how they have engaged, both when it comes to the specific issue of responsible labor practices within their supply chain, as well as in the broader overall issue of sustainability. Nikes track record of learning and changing is an almost textbook example of how sustainability experts describe the transformative steps organizations must take to evolve from reputation management toward real change. In the early years of Nikes evolution, Nike took the approach of risk mitigation, viewing the situation as a reputational problem that we needed to manage through compliance and better communication. Nike quickly learned that the issues were indeed genuine and substantial, and that they needed to go further. Nike dedicated significant resources and created new programs focused on monitoring and environmental improvements. Those efforts produced real benefits, but their impact was relatively limited because they did not really address the deeper, systemic causes of the issues. And despite the fact that Nike was a large company by most standards, they simply did not, on our own, possessed the scale or influence required to exert meaningful impact on the market forces driving the dynamics of their supply chain. To go beyond merely addressing the symptoms of the problems, they realized that Nike had to actively collaborate with others, including governments, NGOs, activists and, yes, their long time competitors.

24

That required them to become far more open. Nike realized that transparency and collaboration are competitive advantages. They are enablers of long term growth. Opening up and collaborating has significantly accelerated their learning, and today Nike operates with a great deal more insight into what consumers expect of them and what will be required for Nike to thrive in a world of increasingly constrained resources. This insight and awareness is something that has changed the way we think about sustainability. It has quietly but purposefully shifted from a peripheral concern to a deeply integrated component of our business strategy, designed into the way we think about what we produce and how we produce it. In fact, today we assume that our ability to consistently create sustainability breakthroughs through innovation will be a key factor in our long term growth. Innovation is at the very heart of our culture at Nike. One of the cornerstones of innovation is a willingness and desire to learn. And, while Nike have learned much from their past and others have learned much from their experience, Nike believed that the next era in the evolution from an industrial economy toward a sustainable economy will teach greater lessons than lessons learned before.

Global Contract Factory Worker Profile

5.4

The factories that supply the brands of NIKE, Inc. employ more than 1 million people. The workforce is 67 percent female, with an average age of 31. Progress and Performance Nike collects and analyzes substantial amounts of data on the contract factory base. Below we provide some key performance data, with a focus on summarizing long term trends. As described in the Manufacturing section, Nikes approach to ratings and scoring have changed in FY12 and beyond with the introduction and implementation of new tools and indexes. In particular, a new Risk Index will help us identify, at the outset of a sourcing relationship, whether with a new factory or with one already in the supply chain, the potential for low performance. The Risk Index, which is being rolled out in FY12 and will evolve over time, assesses areas such as political risk, social/ compliance risk, economic risk and infrastructure and climate risk. The ultimate goal is to significantly reduce the amount of time required on the front end to assess a potential factory for a new work order. Factory Ratings Nike audit factories in the supply chain and evaluate their compliance across a range of labor and HSE factors. During the period covered by this report, findings were rolled up into overall ratings on a scale of A through E, where A is the best and E represents unrated.

25

Key trends have included the following: The number of audits showing serious, repeated violations has remained low, at 4 percent or fewer over the past three years The proportion of the most severe issues has decreased The number of factories with unknown conditions (i.e., E rated on the chart above) has decreased from 48 percent in FY09 to 8 percent in FY11, as transparency has expanded. As the transition to the new Sourcing & Manufacturing Sustainability Index, all factories rated at the A and B level will typically convert to Bronze standing, setting a high bar for performance.

Beyond the breakdown of factory ratings, Nike also looks at trends in the types and severity of violations found through our auditing processes. Nike have made a significant shift with

26

the incorporation of NIKE, Inc. Affiliate brands in the auditing and reporting. They moved from 68 percent non rated factories in FY07 to 89 percent rated in FY11. By comparing the percentage of C (serious) and D (critical) rated incidents found during factory audits, over time we can see where changes are taking place. Over the five years from FY07 through FY11, the most common issues were those related to hours worked and wages. In FY11, 41 percent of overall noncompliance incidents were related to hours, down from 52 percent in FY07. Hours issues entail the serious (C rated) incidents of contract factories with workers putting in between 60 and 72 hours per week or not providing one day off in seven. Other issues in the general category of hours include critical (D rated) issues of no verifiable timekeeping systems, exceeding daily work hour limits, working more than 72 hours per week, or not providing one day off in 14. Wages represented 17 percent of noncompliance incidents in FY07, when assessing NIKE Brand only, compared with 36 percent of incidents found in FY11 with inclusion of all brands across NIKE, Inc. Most wage related incidents were miscalculations of wages or benefits, rather than an overall failure to pay workers the agreed wage for work performed. These kinds of incidents are systemic within factories across the industry, as understanding and correctly paying social security type benefits can mean navigating confusing and complex laws and standards. Nike recognized the complexity of and interest around the broad issue of wages, and Nike address the efforts in this area and in the Manufacturing section. Other categories tracked have remained relatively steady over the five year period and the inclusion of Affiliate brands. Age related incidents remained steady at 1 percent. Freedom of Association remained relatively low, from 0 percent to 2 percent of incidents. Harassment decreased from 7 percent to 3 percent of noncompliance incidents, which we believe to be partly due to the HRM training. The category of other which includes issues of dishonesty, such as coaching workers to lie about conditions, denial of auditor access, falsifying statements and unwillingness to comply with standards has decreased from 20 percent to 13 percent of incidents over five years. We believe this indicates increased transparency in the supply chain. Nike has continued to analyze the root causes of noncompliance. The three main causes Nike saw in FY10 and FY11 are broadly consistent with previous years: lack of systems, lack of commitment and lack of knowledge.

27

Wages

5.5

Nike have undertaken research and continue their engagement with stakeholders including non governmental organizations, academics and factories to better understand the impact of wages on overall quality of life for workers and our role in wages. While Nike neither own contract factories nor employ their workers, they can influence their business practices including wages through their own sourcing and assessment processes. Wages are complex, affected by a market economy of global supply and demand, including trade and social stability. But complex issues sometimes call for complex responses. Nike continues to take positive steps and we recognize theres more to be done. Over the past 10 years, wages paid to workers in factories contracted by Nike have been increasing at a rate higher than inflation. These changes mostly align to growth in minimum wage standards, changes in pay structures and increased demand for labor. And as a component of the total cost of finished footwear goods in China, Vietnam and Indonesia, wages have increased. The Fair Labor Association is to develop a new fair wage standard that identified 12 dimensions to fair wages. The dimensions span areas covering systems, comparability (e.g. to other industries, to inflation, to minimum standards, to cost of living), overtime, tying wages to skills, protecting the factorys financial health and communication. The FLA sets out the dimensions and provides a gradual way of addressing each one, some based on information not readily available. They have begun addressing these dimensions through their Code and work with factories, but other areas will take considerable time and study. As a leader in Sportswear industry, in FY11 Nike incorporated updates into their Code of Conduct and Code Leadership Standards to tackle some of the more pervasive wage problems, such as full funding and payment of statutory severance by factories and confirming that overtime is consensual and paid at a premium rate of at least 125 percent. These changes are backed by updated Code Leadership Standards on factory closures and retrenchment (downsizing), which provides full detail of the expectations regarding pay, benefits and factory responsibilities. The Standards call for detailed actions in the case of factory closure or retrenchment in addition to what is required by country law or collective bargaining agreement, and factory management is encouraged to work directly or in coordination with governmental, nongovernmental or other third parties.

28

In addition, Nike have begun to define the actions they expect for contract factories to make progress toward better wage systems that is, wages that meet the FLA definition of fair wage. Examples of these actions include: consistent payment of wages and benefits; standardized pay systems, policies and procedures; communication and dialogue around wages, training and development; monitoring and remediation; and wage self assessments. The systems call for methods to track legally required minimum wages as well as different levels of worker education, skill, training and experience; monitoring against inflation and consumer prices; and equal pay policies. These changes are being introduced in 2012. Nike is also beginning to test with factories how they can increase workers wages while maintaining a financially competitive business. The theory is that when factories invest in their workforce, they will see higher productivity and returns that can be shared across Nike, contract factories and their workers. Nike are further studying wages and working with contract factories to explain the expectations and source from factories that make progress toward the FLA definition of fair wages using the assessments in Nikes Sourcing & Manufacturing Sustainability Index and Manufacturing Index to factor this issue more directly into the sourcing decisions.

Excessive Overtime

5.6

Nike continues to evaluate why excessive overtime is a persistent issue in contract factories. During FY11, more than two thirds (68 percent) of the excessive overtime incidents were identified and analyzed through audits of 128 factories were attributable to factors within Nikes control, primarily forecasting or capacity planning issues, shortened production timelines and seasonal spikes. However, it is unclear how often these factors have been directly linked to one of their brands, as some factories also produce products for many other brands. In factories for which multiple brands place orders, it is very difficult to isolate the root cause of production capacity planning bottlenecks. As a result, Nike has begun to explore ways to create internal systems that allow us to isolate Nike caused capacity spikes and imbalances that can contribute to a factorys inability to effectively manage production planning. Nike recognized that excessive overtime is a serious issue in terms of both hours worked and days on the job without a break. Variability is one of those root causes. Some of the key variables we have assessed include: seasonality in styles, the lack of predictability in consumer or product demand, and the impact of global economic challenges. Nike is working to develop their abilities to successfully respond to these real variables without negatively impacting factories or workers.

29

Nike are addressing these issues throughout their product creation process, including via improved forecasting alignment, which involves coordination across geographies, categories and product engines to get the right information and decisions made at the right time. Nike is also optimizing the sourcing base in footwear and apparel to handle fluctuations in capacity and to adopt and implement the technologies needed to respond to the demand for emerging styles and products. Nike recognizes that excessive overtime is not sustainable from a worker or business point of view, as the costs are high for both. Nike are working with factories to build an understanding of these costs in terms of workers health and safety, productivity and quality of life, and as a contributing factor to labor turnover. Nike will continue to track the impact on excessive overtime at factories and believe that the inclusion of excessive overtime in Sourcing & Manufacturing Sustainability Index will elevate the issue and help them to recognize where and when these issues arise and to factor this aspect of factory performance into the sourcing decisions.

Freedom of Association

5.7

While factory noncompliance on issues of freedom of association (FOA) and collective bargaining have remained steady at a low rate of about 1 percent of all noncompliance issues, these issues are serious and important. Nikes Code states that both FOA and collective bargaining are to be respected and, to the extent permitted by the laws of the manufacturing country, that a contracted factory respects the rights of its workers, including the right to form and join trade unions and other worker organizations of their own choosing without harassment, interference or retaliation. In countries where law restricts free association, Nike calls upon factories to facilitate alternative means to individually and collectively engage with workers and to enable workers to express their grievances and protect their rights regarding working conditions and terms of employment. Nike have included further information on expectations for factories in our Code Leadership Standards, and Nike address FOA training in their HRM training at factories. A powerful example of how Nike have encouraged freedom of association can be seen in the work Nike and other brands have done over the past two years with the Play Fair Alliance (local union representatives and factory owners) to create the Indonesia Freedom of Association Protocol. This historic agreement, endorsed by the Indonesian government, has created a platform for the advancement of free association rights in Indonesia.

30

Nike is also including FOA in the assessment of risk in our sourcing selection process. Nike includes country based assessments, including the likelihood of violations based on FOA and other core International Labor Association standards.

Human Resources Management Management Program Implementation 5.8

As an extension and elevation of lean manufacturing, the development and delivery of the HRM program has, through the end of FY11, been delivered in 76 factories in countries like Vietnam, China, Indonesia, Sri Lanka, India and Thailand, representing more than 422,000 workers, 94 percent of total footwear volume and 43 percent of total apparel volume. Some results of the training have included the following: Factory groups developed short and long term HR strategies Factory groups recruited and hired better qualified HR directors and managers Factory groups allocated budget resources to HR and worker development 408 factory leaders completed advanced level training on lean, HRM, HSE, environmental sustainability and energy issues Nikes HRM training builds from on, and from the investments in lean manufacturing, training at the factory level. Lean is a journey that begins with technical skills, reorganization and training, and then advances to changing workplace behaviors and mindsets. The empowerment of workers is a critical part of the implementation of lean manufacturing principles in a factory. In Nikes HRM program, a key feature is a survey of factory workers that further helps to establish a focus on building dialogue and skills. The survey helps establish a feedback loop between workers and management and provides factory leaders with valuable data to improve retention and productivity.

In advance of the HRM training, factories conduct a survey among workers that asks 70 questions about workers perception of pay and benefits, health and safety, management culture, hours worked, their empowerment as workers and general job satisfaction. Nike developed this survey in FY08, built on topics that were considered core to workers and were validated by factories. A third party provider administers the survey through an anonymous on site questionnaire, worker interviews and by conducting factory tours. Results are reported confidentially to factory management and in aggregate to Nike. Through FY11, 25,468 factory workers participated in worker satisfaction surveys; the workers selected represented a statistically relevant sampling. The results of these surveys

31

are used in HRM capacity building workshops, where factory HR, corporate responsibility and lean leaders work together to prioritize and identify issues to address. Each factory defines gaps in its current HRM systems and creates action plans to address them. In FY10 and FY11, all participating factories had completed the survey and implemented HRM system improvements. In FY11, factories participating in the HRM initiative began conducting follow up worker satisfaction surveys using the same questions and methodology as the original survey. A comparison of pre and post HRM workshop responses from 16 factories in Vietnam showed increases of 9 to 15 percent in each of six key areas of satisfaction, including perceptions of management and morale (e.g., I am very satisfied with my job, and I am treated with respect.) An area with less improvement was worker perceptions of performance appraisals. This area improved only 3 to 4 percent (e.g., I think performance appraisals are fair, and I think performance appraisals motivate employees.)

Health, Safety and Environment Environment

5.9

Nike audits and reviews of health, safety and environmental performance assess 35 different factors. The audit tool used for this area differs from the labor tool, and global totals are assessed as an overall score rather than number of incidents of noncompliance. Results from HSE assessments help to inform training areas and the approach to working with contract factories and addressing issues. In FY11, contract factories scored 68 percent on average, globally, across all areas of HSE performance. The top issues of concern to Nike are those areas of noncompliance associated with the highest risk to workers. Hazardous materials and electrical safety are high risk, especially within footwear manufacturing, due to the number of manufacturing machines and chemicals involved in the processes. On average across all HSE factors, each region has similar average performance, ranging from 67 percent in our Europe, Middle East and Africa region and 69 percent in our South Asia region. In FY11 there were no areas that scored below 60 percent on any single element. Across Nike globally, the HSE team includes 31 employees who conduct audits and provide training. This staff provides technical assistance through workshops and helps to teach factories how to chart their own safety risk activities and use case studies to focus on the highest risk noncompliance issues.

32

33

Expanding Our Impact

5.10

In FY07 Nike set a target to promote collaboration by using other companies audit results. Nike discovered, however, that this is labor intensive in practice, because the information systems are not set up to handle them. The work, and that of other leading companies, has helped to spur the development of platforms that Nike beliefs are more effective for industry collaboration, such as the Fair Factories Clearinghouse (FFC).

Looking Ahead

5.11

Nike is continuing to expand their Sustainability, Manufacturing Training. In FY12, Nike presented the first workshops in Brazil and Mexico. Nike is also evolving the training model in Asia, where factories are now choosing to enroll and fund their own participation. Nike will continue to conduct workshops in Indonesia, China, Sri Lanka and Vietnam. Nike is also rolling out new systems and tools for evaluating factory performance and influencing sourcing decisions, as discussed in the Manufacturing section. Nike, which makes more than 90 percent of its shoes in Vietnam, China and Indonesia desires that all its factories meet the increased standards by 2020.

34

Nike Monitoring Letter Grade Assessment Criteria Criteria 5.12

35

6.

SUMMARY

Taking all the above mentioned factors into account, we find that the main motive of Nike was the expansion into new markets which started in the early 1980s across the Asian countries. With Vietnam taking up about 39 per cent of the manufacturing followed by a 33% of manufacturing by China, 27% by Indonesia and 15% by India, and with a strong marketing campaign, the brand managed to generate a massive growth in revenues from $60,000 to $49 million in a matter of ten years. With the help of the new strategies introduced by its CEO, Phil Knight, Nike has managed to beat its competitors like Reebok and Adidas. Nike mainly targeted areas of production where costs were minimal. The initial contracts for outsourcing started with Japan which then shifted to South Korea, Taiwan and Indonesia. In 1992 when minimum wages rose from 2100 rupiah to 2900 rupiah in Indonesia, Nike shifted its production to Beaverton. Gradually Nike was hit by a serious of allegations pertaining to its poor conditions in the work place. It was accused of exploiting the work force and making the workers slog at very low wages in overseas countries. The women employed were under aged and had to work for nearly 12 hours every day. They were exposed to severe physical and verbal abuse. The Vietnamese workers earned just $1.6 dollars per day. The glue used for manufacturing contained benzene which caused leukemia in the women and children employed in the factories manufacturing Nike products. The workers had to survive under torturous living conditions where sewage drains surrounded their 9x9 rooms. The workers had to work for long hours under low wages and they were deprived of their freedom of association. Nike decided to come up with a new approach in order to get its reputation back on track. Initially, the companys main focus was its factories. But the conditions in the factories could not improve until and unless the company receives full support of its workers. Nike created its own grading system in order to monitor the improvement of the standards of the company. Nike decided to adhere to strict laws. It was severely against forced labor and child labor, both of which are punishable by law. The company decided to give adequate compensation to its workers along with certain benefits which they could enjoy. According to the

36

international labor laws, a work of more than 60 hours per week is not permitted. Nike decided to adhere to this. It also decided to pay its workers for overtime duties. The health and safety issues of the workers were also taken into consideration. Their living and working conditions were improved and the women and children were provided with health benefits. Even though there were certain drawbacks, Nike proved itself to be the largest producer of sports equipment. It managed to stand up to its reputation over the years. Today its Nike. Tomorrow it may be any other organization going through similar situations. If the workers of the company are not happy, then the success of the company could not be achieved fully. So as someone long ago had rightly said it, With great power come great responsibilities!

6.1

Conclusion

It is our sincere belief that Nike is doing a good job. But Nike can and should do better." and that 3rd party monitoring is necessary.

37

References
http://www.bloomberg.com/news/2012 05 03/nike raises factory labor and sustainability standards.html http://web1.calbaptist.edu/dskubik/nike_app.htm https://sites.google.com/site/americanlaborcrises/labor crises/nike sweatshop action http://business.nmsu.edu/~dboje/NIKcodeconduct.html http://www.saigon.com/nike/reports/report1.html http://www.teamsweat.org/tag/jim keady/ http://en.wikipedia.org/wiki/Nike_sweatshops http://genpulse.bc.edu/en/content/explore/pages/globalization/jim keady tells nike dont sweat it http://www.fairlabor.org/affiliate/nike inc http://www.nikeresponsibility.com/report/content/chapter/labor

38