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Nike Inc.’s Outsourcing and International Labor Case Study

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Updated: Jul 21st, 2021

Nike rapidly grew to become one of the most successful firms in sportswear across the world. However, by mid 1990s the company suffered very bad publicity after thriving for about three decades. Nike was exposed as a business that made its profits by exploiting the low-cost laborers in overseas plants, where most of its manufacturing had been outsourced.

Major Problems

Outsourcing comes with both advantages and disadvantages, but Nike seemed to have overlooked the disadvantages. The firm focused so much on cutting the costs (mainly the labor costs) at the expense of the workers. That way, the firm was not required to own equipment, manufacturing plants, machinery or materials for use in production of their Nike shoes. As such, Nike signed a contract with a Japanese firm, but it later shifted to South Korea and Taiwan as Japan became costly (Bartlett, Ghoshal, and Beamish 101).

Nonetheless, South Korea and Taiwan grew their economies fast and their once cheaper labor and lower production costs increased. By 1982, Nike was forced to shift to other markets including China and Indonesia. By 1990, China and Indonesia replaced Taiwan and South Korea as the largest Manufacturers of the Nike shoes and sporting gear.

Labor incidences and public relations problems that began in 1980s hit a new high in 1990s, as Nike was accused of promoting inhuman and rather unethical practices. The examples were allowing underage employees work in Indonesian companies, condoning the forced overtime work in Chinese plants and exposing workers to dangerous work conditions, as it was evident in Vietnamese plants (Spar and Burns 3).

Nike’s corporate responsibility started to tarnish because they intended to cut cost by outsourcing (Bartlett, Ghoshal & Beamish 102). It appeared as though they did not care about the working conditions provided it was making profit.

Fair labor standard act 1938 prohibits use of children for labor, advocates for safe working conditions, sets limitations on the number of work hours. In addition, the corporate America advocates for fair pay to compensate the amount of work done according to US department of labor (1-52).

To make matter worse, Nike’s management refused to take responsibility and thus made public statements terming all the allegations as false and malicious. Occasionally, the firm threatened to shift its business elsewhere when confronted by the governments and labor activist claiming it was not responsible for the manufacturing firms’ work production strategies (Spar and Burns 11). However, Nike failed to understand that it shared responsibility for the actions of its partners since ethical issues were not merely the actions of individual workers but the effects of the factors the organization presents.

Potential Solutions

It was until Nike started making losses that Phil Knight took courage to admit that the company had made mistakes in terms of corporate responsibility, code of conduct, and labor laws. In May 1998, Knight admitted that the brand Nike had come to be identified with child labor, coerced overtime and abusive work conditions (Spar and Burns 12). He then made a seeping declaration to instigate series of reforms to mend the company’s image. These reforms could have worked well if the company had not been waiting for about 18 years to admit its mistakes.

One of the major solutions to help solve Nikes problems would be to ensure that its outsourced partners would have a reasonable minimum wage that can allow workers to make a decent living out of the earnings (Spar and Burns 12). Besides, the minimum age of workers employed in Nike’s factory would be increased from 14 years to 18 years. In order to ensure safer working zones, Nike would also need to enforce the implementation of the OSHA clean air standard for all the plants it works with. Besides, the manufacturing companies could, with help of Nike, offer educational programs to employees, provide them with microfinance loans as well as set up dispute resolution strategies to address labor violation issues (Spar and Burns 12).

Since Washington Based reforms were already initiated by mid 1990s, Nike would get better platform to deal with its problems by enforcing the reforms to address fair labor issues. There is a minimum labor pay, maximum number of working hours per week at 60 hours etc (US department of labor 41).

Nike’s second solution strategy would be marketing audits. Warren (34) describes global marketing audit as a wide-ranging, methodical and intervallic investigation of the firm’s departments, objectives, strategies, mission, policies and activities to determine any problems or risks and opportunities. These activities would greatly help Nike to evaluate its partners and help them improve the company’s international corporate image. The investigation explores the efficiency of the marketing strategies, company operations, policies and processes; vis-à-vis its mission and resources (Warren 34). As such, a firm can be able to exploit opportunities, ethically, with the available resources and still earn the profits it yearns for without infringing on the human rights.

Criteria for Addressing the Problem

There is no shortcut when it comes to addressing matters that affect humanity, especially right to fair pay for equal amount of work, fair work condition and prohibiting child labor. However; going against this in a capitalist economy is a great challenge.

Nike must observe all the legislation that deal with production and manufacturing in order to provide fair conditions. If enforcing these laws in overseas countries would be difficult, Nike would have to look for a local manufacturer in the US. This will mean production higher costs. Second, the firm will have strictly enforce the code of conduct and outsource to firms which meets the criteria.

Recommendations and Conclusion

In the effort to cut costs and maximize profits, most companies tend to ignore important aspects of social responsibility and law. Nike has been one of such firms in the past, but which now realizes that in a world of technology, governed by international laws, and with gusto to fight for humanity as equal people for a company to succeed it must perform its corporate responsibilities. Such actions cannot go unnoticed.

The people, regardless of which country they come from, are informed about business ethics and human rights. Thus; multinationals and integration of world economies requires that any successful firm on international scene such as Nike, must be honest in disclosing corporate responsibility, enforce code of conduct, comply by the manufacturing standards of a product, follow the laws of the country they operate in, and monitor company practices.

For Nike to ever rebuild its brand image and establish a corporate culture consistent with the best work practices including better pay, and to enable it achieve profitability, the firm will have to strictly conduct business in a manner that respects humanity and protects the environment.

Works Cited

Bartlett, Christopher A., Sumantra, Ghoshal, and Paul Beamish. Transnational Management: Text, Cases, and Readings in Cross-Border Management. New-York, NY: McGraw-Hill Irwin, 2008. Print.

Spar, Debora., and Burns, Jennifer. Hitting the Wall: Nike and International Labor Practices. HBS Case no. 9-700-047 Boston, MA: Harvard Business School Publishing, 2002. Print.

U.S. Department Of Labor. “The Fair Labor Standards Act of 1938”. US Department of Labour 2008. Web.

Warren, Keegan. Global Marketing Management. Upper Saddle River, NJ: Prentice Hall, 2002. Print.

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