Nike Commodity Chain Analysis

Exploitative business practices can negate the human benefit of trans-national labour outsourcing by visibly benefiting from a powerless workforce. While trans-national corporations have infamously shirked the law, morale responsibility and the well-being of their workers on multiple occasions, human benefits have also arisen from the attention they can inadvertently bring to manufacturing in the Global South. We will be examining Nike’s business practices and how its association with sweatshop manufacturing drew attention to a foreign labour problem - the social ramifications of which forced Nike and others’ hands, leading to some progress being made to improve conditions. The largest difficulty here will be looking past constructed transparency reports that are fundamentally advanced PR and brand image maintenance, to find information on genuine systemic change.

Nike’s business success stemmed from their willingness to outsource the entirety of their production to a network of interactional suppliers and manufacturers. This is now considered a standard, staple practice of most trans-national or even local businesses, but in the 1980’s this was largely unheard of. It is fair to say that Nike has never actually manufactured a single shoe (Baker, 2016), and for a long time they were more than willing to allow this extended commodity chain to immunise them from the social implications of their contractors. “Nike claims that it does not manufacture anything and is, therefore, not responsible for the labor practices of 450 contract firms operating in Asia.” (Boje, 1998) First though, we need to understand the manufacturing advantage that Japan, Korea, China and Indonesia (Van Dusen, 2014) have, and continue, to offer.

Nike’s brand focus has always been social; developing ‘campuses’, clubs and sponsorships as much as product design. This means that internalisation and manufacturing skill were not an advantage Nike possessed; especially given much of the manual labour is unskilled and accessible internationally. With nothing constraining them to traditional manufacturing in America and Europe, the lower wages, supply costs and reduced oversight available in Asia were very appealing. While largely welcomed by the budding economies Nike settled in, this enormous shift did leave employment holes in the manufacturing regions Nike abandoned (Mokhiber, 1994). Nike was now able to produce their shoes cheaper than before, with greater flexibility to shifting consumer demands and preferences and place greater focus on their internal specialities and efficiencies.

The hope was that Nike’s large manufacturing needs would bring international funds to help develop infrastructure and business opportunities for the huge numbers of unemployed people in these regions. Birth rates were still steadily falling, but significant increase in life expectancy worldwide had created an underutilised workforce (WorldBank, 2017). Countries such as China were able to harness this potential scale of production to grow their internal economy drastically (Bird, 2014), leveraging foreign investment to allow for greater governmental agency. Unfortunately growth as a country does not ensure improvement for individuals – particularly those most vulnerable and already being exploited to draw this foreign investment. Even before the Global North took notice of Nike’s manufacturing environment, Nike was already transferring its offshore operations again, moving from Japan and Korea to Indonesia, China and Taiwan – areas even further from the public eye.

Unfortunately for Nike’s bottom line, GDP growth and increased purchasing power in developing countries inevitably leads to more infrastructure and an improved quality of living on average. This means higher wages and increased resource costs assuming unskilled workers are supported in the same manner as other citizens. In order to maintain the status quo then, Nike has a vested interest in suspending workforce in a state of high reliance: unable to make too much economic progress that might provide alternate employment. As you may know, Nike chose to be largely complicit in paying its workers a below living wage and providing poor conditions (Team Sweat, 2011), leading to a climactic exposé. In 1997 Nike showed a video of enthusiastic workers in a Vietnamese factory, “‘Unfortunately for Nike, two days later while the conference was still going on - a story appeared on the front page of The New York Times about conditions in Vietnamese Nike plants where workers were being exposed to carcinogens at 177 times safe levels, and were being paid just $10 for a 65 hour work week’” (Beder, 2002).

This wasn’t the first time public attention had been directed at Nike, but over the next few years Nike would face an ongoing battle to separate its image from sweatshops and worker exploitation, and to prove to consumers that it had reformed and embraced a ‘triple bottom line’ (Nike, 2017). Their website still promotes vague commitments and initiatives, but we will be evaluating two primary criteria:

·         Quality of life progress and development as a result of attention from Global North

·         Areas where Nike refuses to promote employee well-being as a priority

We will focus primarily on Nike’s manufacturing in Indonesia as it is best documented, and follow the commodity chain back to consumers. We will also endeavour to establish the Government’s position on each these issues.

Nike was genuinely concerned about the consumer backlash that had begun; already groups were calling for boycotts, legal action and greater oversight for international manufacturing on whole. Despite a high preference for advertising spending to adjust their public image, Nike would have to leverage their economic power to alter the technological and organisational systems that allowed them to manufacture as they had been. We can define this style of control as a ‘buyer-driven commodity chain’ (Gereffi, 1994) – here Nike is the buyer able to influence third-party exporters in the third world. Unlike a manufacturer-driven chain these exporters are not set up to fulfil a manufacturing need, but are leveraged by international buyers, often to the degree that these buyers are their livelihood. “While Nike does not have technical or legal ownership of these factories, or even direct control of the management, it has enormous leverage - some would argue de facto control” (Boje, 1998).

As stated previously, Nike wished to maintain the social separation between itself and the manufacturing system it relied upon. For some time it tacitly implied that the working conditions were simply what they were, that Nike was also a world away and had no ability to assert significant influence to generate change. Publically this allowed them to adopt a stance against wage manipulation and child labour whilst still benefiting from these abuses (Team Sweat, 2011). Todd McKean, a director for Nike, stated “Our initial attitude was, ‘Hey, we don’t own the factories. We don’t control what goes on there” (Miller, 2010). Given Nike’s level of economic control however, it is ridiculous to think that they were genuinely unable to influence the actions of their contractors. With over 565 factories worldwide (as of 2017) (Nike, 2017) the production requirements vastly outweigh the capabilities of any one factory. As a buyer-driven chain Nike has complete discretion on what manufacturers and suppliers they utilise. In much the same way that employees are incredibly reliant on the few manufacturing jobs available, manufacturing plants rely on lucrative international contracts to grow and sustain themselves. Nike clearly had the influence to generate positive change in manufacturing regions, and Global North consumers were prepared to take a stand against Nike until they would act.

 “The Nike product has become synonymous with slave wages, forced overtime, and arbitrary abuse,” CEO Phil Knight said in a public address in 1998. “I truly believe the American consumer doesn’t want to buy products made under abusive conditions” (Baker, 2016).

Nike revised its code of conduct, released the details of every factory and conducted factory audits with third party groups. Harmful emissions were removed from the manufacturing process and factories (U.S. clean air standards were implemented), child labour was harshly cracked down on, and Nike established the non-profit Fair Labour Association. Organisations such as the Clean Clothes Campaign expressed scepticism over Nike’s sincerity in these initiatives, but begrudgingly earned some respect through continual communications and an appearance of increased transparency (Nike, 2017). The growth of legal bodies such as the AFL-CIO also facilitated greater governmental and legal pressure on Nike and its competitors. While they still were not cooperative with activists and presented them to local governments as destabilisers to the region (Miller, 2014), it was still signposting positive change to improved working conditions – something that did not appear to be a focus for the contacted factories on their own.

Perhaps the peak of this faith came in 2005 when Nike voluntarily recalled every produced World Cup soccer ball produced for the next year following leaked pictures of Pakistani children stitching Nike footballs (Baker, 2016). While Nike was not personally involved in the decision to use child labour, they none-the-less removed that offending contractor, recalled the product and shifted production to another contracted factory at great expense. That contractor soon filed for bankruptcy. Similarly Nike avoided two disasters in Bangladesh, a fire in the Tazreen Fashion factory and collapse at the Rana Plaza building (Nisen, 2013), losing a competitive advantage to customers by avoiding poor working conditions.

Unfortunately not everything was immediately rectified though, the Fair Labour Association was heavily criticised for promoting corporate interests and has been largely ignored for more active or established agencies. Although a number of NGO’s were involved in its formation, several have pulled out accusing the final labour agreements being little more than a public relations ploy. “It allows companies like Nike... to wrap themselves in the UN flag without any binding commitment to change” (Beder, 2002). An internal report published by Andrew Young was criticised “for being a public relations report, not a methodical study of worker abuse” (Boje, 1998). Nike’s dedication to transparency also appears to have waned alongside consumer interest with no transparency or sustainability reports publically available since 2012 (Nike, 2017). While this does not necessarily indicate the death of the initiatives put in place, it may indicate a return towards the ‘out of sight, out of mind’ attitude of previous years.

Nike has also avoided the same scrutiny being applied to its material sourcing, which is also done through contractors. Nike appears to allow local managers (Nike employees) some degree of choice in sourcing local suppliers, and their additional layer of separation from Nike’s core operation may facilitate the same labour abuses manufacturing was found to be using. This is speculation however as little information is available on Nike’s sources beyond their move toward organic and materials (Derrig et al., 2010).

Lastly Nike has been heavily criticised for avoiding commitment to wage increases. They have repeatedly claimed to pay the minimum legal or standard industry wage, however by bidding contractors against each other wages become a race to the bottom (Boje, 1998). Poor wages encourage overtime to make ends meet, providing other opportunities to twist reported numbers. Unfortunately this rubs off on other factories too – AFL-CIO’s Jeff Ballinger says When we started the research we, perhaps naively, thought that Nike would treat its workers better than local firms. In fact, the arrival of Nike and other shoe industry transnational corporations made matters worse, by turning the minimum wage into the maximum available" (Mokhiber, 1994). The sheer scale of these operations means that they dictate pay for the majority of works – establishing a new standard.

With pay that fundamentally does not constitute a living wage there is no opportunity for workers to develop other skills, educate their children or even develop alongside the larger society that benefits from their labour, as previously mentioned. Women in particular are very vulnerable here, making up 80% of the labour force in Indonesia but very few management jobs, and are more prone to abuse while there. Poor pay ensures that living conditions fall into neglect lacking basic infrastructure, and often leading to local environmental damage from burning rubber or other runoff (Team Sweat, 2011). Even now wage remains an issue and local government appears hesitant to forcibly increase minimum wage for fear of losing foreign investment to other developing regions such as Africa.

These financial issues are at odds with a company that can afford to pump millions into marketing. In 1998 Nike paid Michael Jordan $45million for sponsorship, but only $100,000 over the next four years on education programmes for Nike workers (Beder, 2002). Whilst some positive social progress has occurred from these trans-national corporations’ offshore labour operations, it feels begrudging an exploitative. Whilst ensuring clean air for workers or a reduction in child labour may not have independently occurred in this region and time frame, it also might not have occurred had Nike not had the public backlash it did. Indonesia is growing rapidly, and foreign investment has assisted this, but there seems to be little interest in bringing the benefits of this to the labourers that facilitate it. Instead corporations and governments alike are content to hold them in economic slavery to benefit others.



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