Nike: Strategic Management Analysis

Introduction

Nike is one of the world’s largest shoe manufacturers. It has received a great deal of criticism regarding its manufacturing policies in less developed countries, such as Indonesia. Although Nike is a United States (U.S.) company, virtually all of its manufacturing is done overseas in countries with low wages. Nike has been accused of manufacturing shoes and apparel in “sweatshop” conditions. The allegations center on the notion that young workers are paid low wages to work long hours in unpleasant and unhealthy conditions. This essay tries to ascertain what the responsibilities Nike had ignored in the past are and the responsibilities that it promises to keep in the future. We conclude by putting up a question to Nike’s politically correct stance to carry forward CSR activities.

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Main body

Nike has a huge market for athletic shoes and it sources all its shoes from contracted manufacturing plants in countries like China, Indonesia, Taiwan, etc. The company has been heavily criticized for not being socially responsible. It has been accused of contracting plants that use inhuman conditions for its employees which has given them the name “sweatshops” and child labor in its factories abroad. These are definite social concerns.

The company has a responsibility of knowing the conditions of the contractor’s factories with whom they are collaborating and effectively taking action against any malpractice. Further Nike should have the knowledge that its contractors are employing children to make their shoes and that they are underpaid. Critics say that the workers in the Nike factories abroad are grossly underpaid. But Nike does not feel that the under-aged workers are any hazard to the society and breaking any social code.

It also feels that the wages it pays are higher than the minimum wage of the land. True, that the wages that Nike gives to its workers abroad are almost double that of the country’s minimum wage and definitely is not doing any illegal. It is also true that the wages that they provide is far better than the average farmers earnings in that country, but the company should think of this issue from the ethical point of view and find their shortfalls. Nike Is not doing anything legally wrong, but from their ethical sense the company should realize that hiring 14 year old children in their factories is wrong, paying wages which does not provide the worker the advantage of subsistence living.

Further the ethical issues that the case discusses are Nike’s usage of heftily expensive celebrity endorsements while paying less than minimum wages to its employees. The other ethical setbacks of Nike that the case discusses are in its handling of the university funding to divert the student’s “sweatshop” campaigns against the company. Critics also believe that the company had used its financial power to influence Andrew Young’s report on Nike’s contracted factory conditions.

Moreover, when Nike began using traditional advertising methods to broadcast its production practices in response to activist criticism, it began to tread an ethically challenging path. Traditional advertising ethics are insufficient when applied to corporate social responsibility disclosure because the role of “company” intertwines with the role of “citizen,” which is held to a higher ethical standard.

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According to the stakeholder theory of corporate responsibility, a company has its responsibility towards all its stakeholders which includes its employees, along with the shareholders, environment, society, etc. (Carroll & Bucholtz 2006). A stakeholder is “any group or individual who can affect or is affected by the achievement of the organization’s objectives” (Freeman, 1984, p. 46). Nike’s principal stakeholders are consumers, stockholders, Asian workers, American workers, nongovernmental organizations (NGOs), competitors, and the media. As in case of Nike, the workers in its contractor’s firms are not their direct employees.

As Nike had earlier set forth their defense against the ‘sweatshop’ movement that they could not be blamed for what was happening in the factories of the contractors they worked with. Again legally Nike cannot be blamed for what was happening in the contractor’s factories. But ethically is it not the company’s responsibility to look into the matter. Ethical duties overcome the limitations of legal duties.

They entail being moral, doing what is right, just, and fair; respecting peoples’’ moral rights; and avoiding harm or social injury as well as preventing harm caused by others (Smith and Quelch, 1993). Ethical responsibilities those policies, institutions, decisions, or practices that are either expected (positive duties) or prohibited (negative duties) by members of society, although they are not necessarily codified into law (Carroll, 2001).

So as a responsible organization Nike should not turn a blind eye towards deplorably low ‘minimum wage’ law that the countries has and should try to provide the basic humanitarian needs for a healthy living to is employees. This is both a “capability” responsibility as well as “humanitarian” responsibility of the company (Goodpaster and Matthews, 2001). Labor compensation, conditions, or practices that are illegal under a particular nation’s laws cannot be morally justified in that nation. Such practices normally would be prohibited by an independent contractor’s agreement with its customer.

Beyond the minimum legal standards, labor practices or conditions that demonstrably threaten workers with serious physical or emotional harm violate basic tenets of human rights. It is completely unethical to tolerate the aforesaid practices because they are allowed economically and legally in some host nations, when they have long been condemned legally or morally in parent nation.. Such practices would also violate Kant’s categorical and practical imperative principles, as well as the Golden Rule. So Nike should pay “living wages” to its employees, for the concept is not at all impractical and will provide a better living to its employees.

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Nike’s sourcing strategy, like many other companies, has been Asian procurement (Kable et al. 2000). Kable et al. argue that the wage differential in Nike’s plants abroad is basically due to the low-cost of production in Asian countries: “Asian sourcing has allowed low manufacturing costs relative to the quality of the products. Thus, Asian sourcing has always been nearly as central to Nike strategy as using famous athletes to attest to the virtues of Nike equipment in athletic performances.” (2000, p.43)

Nike and its subcontractors are apparently not violating any laws regarding wages. That fact probably meets the Enlightened Self-Interest standard. Consumers and stockholders benefit when wages are low. Two of the stakeholders are happy. Then what about the workers? The question that still lingers is that is it ethical on Nike’s part to pay high fees to celebrity endorsers when it pays bare minimum wages to its employees? Following the utilitarian rule of ethics, which states that in its core form asserts that one should do the greatest good for the greatest number of people, Nike can be charged of unethical conduct.

Nike’s decision to monitor its contractors in order to keep an audit of the working conditions, employment practices, and wages of workers under vigilance is a social responsibility of the company. From the four components corporate social responsibility model, which defines social responsibility of a business as encompassing the economic, legal, ethical and discretionary (philanthropic) expectations that society has of organizations at a given point in time, we find this decision of the company to be completely responsible. Nike has the legal right to know the contractor’s factory conditions and control the wages that are to be paid to the workers.

It can control the working environment and the labor practices of the contractors. Its economic justification lies in its being fair and thus attracting less anti-publicity of lawsuit which takes a toll on the company’s reputation and thus its sales. Ethically Nike has an obligation to monitor and pledge for good working conditions at the plants. It is not a discretionary obligation of the company to monitor its contractor’s factories.

15 years ago Nike was a company which did not bother to look into the matters of its contractors and was happy getting their shoes made at a cheap rate. They did not bother about their social responsibility to look into the working conditions and labor wages of the plants run by the contractors. But the scenario changes with the sweatshop movement, the labor union oppositions and unfair practice lawsuit against the company. Today Nike is a much more responsible organization. Nike is trying to correct problems because of the negative publicity it has received. For example, Nike has pioneered the use of less toxic water-based solvents and bonding agents (Kable et al. 2000).

It conducts both internal and external audit of the factories of its contractors and monitors the working condition in the factories. It has increased the minimum working age to 18 years from 16. It provides time off to workers who have to give school examinations. Today Nike has moved corporate social responsibility to the core of its business strategy and strives to be a more socially responsible organization.

The difficulties Nike has encountered have been experienced by many other companies that were caught in a reactive-defense posture to public moral challenges. Nike originally responded to critics by explaining that its manufacturers were foreign companies with which it merely contracted for the production of finished products (Katz 1994). Recapturing the moral high ground in the public perception becomes a difficult long-term process.

What Nike should have done was to do proactive stakeholder analysis prior to making decisions to identify the likely social responsibility issues embedded in the decision, the power of the stakeholder proponents, and the ethics of their position would reduce the risks of making decisions subject to strong moral challenges. This is “good business” on Nike’s part. This is so because Nike will satiate its stakeholders, i.e. society and workers, by being more socially responsible.

Though this may take an economic toll on its shareholders, but good publicity due to the company’s good social conduct will boost shareholder confidence and hence the prices of the company stock will soar up. Further it will boost sales as the anti-Nike campaigns will take a backseat. This implies “good business” for the company.

AFL-CIO (American Federation of Labor and Congress of Industrial Organizations), the largest federation of unions in the United States, has the following goals, as stated in their mission statement:

  • They intend to organize American unions.
  • They aim to stir a strong political voice for workers in our nation.
  • They intend to train the American unions to provide a new voice to workers in a less developed economy.
  • They want bring in new voice for workers in America and create a labor movement.

The campus anti-sweatshop movement helps the goal of AFL-CIO. As the labor organization has been an active opposer of Nike in the debate of Nike’s ethical/unethical stances in its contract factories, it had found support with the student unions providing support to their cause. As the case highlights, the student’s union, USAS was formed by interns at AFL-CIO and UNITE. They brought together a student’s union who supported the causes of the labor unions.

They heavily funded by AFL-CIO and derived their ideologies from the organization. A Harvard University lawyer pointed out, that the students at USAS spoke what was the agenda of the AFL-CIO with no singular opinion that they themselves had. So we may deduce that the students were being used by AFL-CIO.

Conclusion

The ethics of corporate social responsibility disclosure have historically been some of the most difficult to reconcile with shareholder expectations and activist demands. Every company must put its best foot forward at all times in advertisements and reports to remain competitive in the marketplace, but the jagged line between optimism and deceit is often difficult to distinguish. Maintaining integrity becomes more challenging when a company must report less attractive details or respond to criticism.

The problem that faces many companies engaging in public dialogue is how to ethically, legally, and effectively disclose information while maintaining a positive image. So when Nike tried to defend itself by pledging ignorance of ill-workplace conditions in its Asian contractual factories, it had been highly criticized. Nike accepted a few allegations and tried to gain confidence by stating that the company will try to improve these conditions at the factories. This, critics believe, is a commercially correct stance.

Such a stance will gain positive publicity help Nike regain its past business image. Such speeches are an easy tool for organizations to adopt when they are caught in the midst of their social wrong doing. Most business to day adopts this commercial approach to avoid activist wrath and anti-public image. They believe that creating an image of being socially responsible and doing philanthropic work will create an image of a socially responsible organization and hence will not mar their corporate image. Ultimately organizations today are going towards the CSR as stated by Milton Friedman negating the stakeholder approach. Thus, firms will consider this to be a strategy and will employ it in order to enhance their business and gain distinction from its competitors.

Reference

Carroll, A. B. (2001), “Ethical Challenges for business in the new millennium: corporate social responsibility and models of management morality,” in Business Ethics 01/02, Richardson, J.E. (Ed)., Dushkin/McGraw-Hill, Guilford, CT, pp.198-203.

Goodpaster, K.E. (1996), “Business ethics and stakeholder analysis,” in Rae, S. B., and Wong, K.L. (Eds), Beyond Integrity: A Judeo-Christian Approach, ZondervanPublishingHouse, Grand Rapids, MI, pp. 246-254.

Smith, N.C., and Quelch, J.A. (1993), Ethics in Marketing, Irwin, Homewood, IL.

Freeman, R. E. (1984). Strategic management: A stakeholder approach. Boston: Pitman.

Lynn R. Kahle, David M. Boush, and Mark Phelps, (2000) “Good Morning, Vietnam: An Ethical Analysis of Nike Activities in Southeast Asia”, Sport Marketing Quarterly Vol.

Katz, D. (1994). Just do it: The Nike spirit in the corporate world. New York: Random House. ume 9, Number 1, pp. 43-53.

AFL-CIO (2008) What We Stand for: Mission and Goals of the AFL-CIO. Web.

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