To reduce costs and focus on core competencies, U.S. companies increasingly outsource manufacturing activities to vendors in countries having low labor costs such as China, India, Thailand, Indonesia, and Mexico. Certain activists claim that this practice is socially irresponsible. They claim that numerous factory problems in low-cost countries include excessive work hours, poverty wages, toxic gas releases, and harassment of union organizers (e.g., Connor, 2001; The NikeWatch Campaign). Such conditions have prompted individuals and organizations to reconsider their purchasing habits and policies.

Activist groups sometimes target individual companies to publicize outsourcer working conditions. Since 1995, Nike has been criticized for human rights abuses, labor exploitation, and environmental damage by companies that manufacture its athletic shoes and apparel. Nike outsources manufacturing to approximately 600 factories employing over 800,000 workers in 46 countries (Nike, Inc., Corporate Responsibility Report FY07–09, p. 33). Several groups have recommended that consumers boycott Nike products until its outsource factories meet acceptable standards (Connor, 2001; The NikeWatch Campaign). During 2010, University of Wisconsin-Madison ended a collegiate apparel licensing agreement with Nike over concerns about contractor nonpayment of severance payments to workers of closed factories (Lucas, 2010).

Nike has actively worked to address concerns about worker conditions in its outsource factories.

Its manufacturing code of conduct has been in place since 1992, and its corporate responsibility report includes the following goal:

Bring About Systemic Change for Workers in the Footwear, Apparel and Equipment Industries. The company established a series of programs to improve working conditions and instituted monitoring practices to evaluate factory compliance. In recent years, Nike has paid particular attention to excessive overtime, payment of at least minimum wages, rights of workers to associate freely and bargain collectively, application of lean manufacturing including worker empowerment, contractor human resource management, and workplace health and safety (Nike, Inc., Corporate Responsibility Report FY07–09, Chapter 3).

Yet, controversy remained about whether Nike had done enough to improve worker conditions. Activitists argued that Nike could afford to pay more to its outsource partners to improve worker pay and factory conditions. They hoped that Nike would change its policies, placing greater pressure on other companies to take similar actions (The NikeWatch Campaign, 2004). On the other hand, some people argued that boycotts against companies such as Nike caused more harm than good; workers who were already poor often lost their jobs, and unionization efforts and other improvements were hindered (Connor, 2001). It was also difficult for companies to adequately monitor working conditions at outsource locations. Workers were often afraid to talk with inspectors, and they sometimes provided inaccurate information. For example, they sometimes erroneously said that they were not paid over- time because they did not understand how their pay was calculated (Economist.com, 1999).

Nike’s 2009 Corporate Responsibility Report acknowledged that its practice of monitoring outsource partners is insufficient to achieve its worker-related goals. The company is now trying to understand and address the root causes of contractor noncompliance with accepted practices.

REQUIRED

A. Describe whether and how corporate social responsibility (i.e., business practices related to human rights, labor standards, and the environment) affects your decisions as a consumer.

B. Is it possible for you to know the conditions under which the products you purchase are produced? Why or why not?

C. Is it possible for managers of companies such as Nike to know with certainty that their outsource partners comply with agreed-upon working conditions? Why or why not?

D. Identify and explain four measures that a company such as Nike could use to monitor worker conditions in outsource partners. For each measure, describe how the company might collect reliable data.

E. How should companies such as Nike weigh corporate social responsibility and profits when deciding whether or how to outsource manufacturing? Describe the values you use in drawing your conclusions.