Less developed countries can sometimes have lax regulations in terms of working conditions. This can encourage multinationals to exploit employees and provide bad working environments and unsafe working conditions. Workers are also paid extremely low wages as there are limited minimum wage requirements. This is because some laws are designed to encourage businesses rather than protect employees. However although wages are low compared to wages in other countries, the wages multinational corporations provide for employees are significantly higher than the wages provided by domestic firms.
There are also environmental trade offs from multinational investment in developing counties. Multinationals will take advantage of limited regulation in developing countries to protect the environment, which can be a cost for the host country.
Analysis of Nike
Although Nike is regarded, as one of the biggest sportswear producers in the world Nike only owns approximately nine factories as the firm mainly outsources production of their products to factories owned and operated by contractors in other countries. The countries Nike outsources to are largely developing countries. These include; Vietnam which produces a million pairs of Nikes every month, China and Indonesia which together account for 70% of Nikes shoe production. In addition to this Nike outsource production to Korea, Cambodia as well as countries in South East Asia such as Thailand, Malaysia and Singapore. Nikes multinational operations in the countries outlined above have had a big impact on those countries, which will be examined below.
A possible impact that was identified earlier was that multinational operations would bring foreign investment into the economy, which would rapidly increase economic growth. This is evident with Nikes operations in developing countries by looking at the rate of economic growth these countries have experienced in recent years since Nikes investment. Official statistics show that Cambodia GDP (real growth rate) has grown significantly since Nike have operated in its economy as GDP grew at 5% in 2000, 6.3% in 2001 and 5.2% in 2002. In china GDP has been quadrupling since 1978 when the economy was opened to increase foreign investment.5 It could be argued that Nike’s operations have contributed to this as Nike operates in China and provides foreign investment to stimulate China’s economy. Nevertheless although Nike may have contributed to the increase in GDP it is doubtful whether or not it has been the most significant contributing factor. Thailand has also experienced an economic growth rate of 5.3%5 and Korea currently has GDP at 6.3%.5 Therefore it could be suggested that Nike has help increase economic growth as the countries Nike currently operates in have experienced significant growth since Nike have outsourced to that country. Evidence to support this also comes from looking Taiwan’s Economy which has an economic growth rate of 3.5% and is regarded as a “dynamic capitalist economy” If you compare Taiwan’s economic growth to Kenya, which was equally poor as Taiwan fifty years ago but didn’t allow Nike to operate in Kenya, Taiwan is twenty times richer than Kenya and Nike’s multinational operations may have contributed to this. It also has to be considered that the increase in wealth Taiwan has recently experienced may not be exclusive to Nike’s operations, as other areas of foreign investment may have contributed more to the nations growth in income and economic growth.
However it could be argued that Nike’s multinational operations could actually limit economic growth in the host countries as it discourages local business activity, as domestic companies may feel challenged by multinational firms. It may also be the case that that the economic growth experienced by host countries is due to investment by firms in other industries including domestic firms that has stimulated economic growth rather than Nike’s operations. It has been suggested Nike doesn’t stimulate local economies as developing countries such as China have to compete to gain Nikes contracts by offering nearly tax-exempt status, meaning Nike pays nothing for infrastructure and makes them into a free trade zone to become immune from local laws and can therefore refuse to pay workers a decent wage to cover expenses. In which case workers wages go directly to travel and living expenses, which results in nothing being left over to stimulate the local economy. This reduces the impact of the multiplier effect to boost the host nations economy. A multiplier effect occurs when money from businesses operations is invested in the local economy creating more employment, which will lead to people having more money to spend leading t an increase in demand. This in itself will create more employment leading to more money circulating the economy and so on. This shows how an increase in spending can have a greater impact in the economy. It could be argued that Nike doesn’t help create the multiplier effect in host nations because employee’s wages only barely cover the cost of living meaning there is less money for people to spend in the local economy. This argument suggests that Nike doesn’t impact Host nations economies. However Nikes code of conduct has been put in place to protect workers so they benefit from Nikes operations by providing minimum wage requirements and training opportunities.
Another possible impact of Nikes multinationals operations identified above is providing the government with revenue such as tax. However Nike has chosen to locate in countries that have strategies to encourage businesses to locate in their country that includes a reduction in tax, which could mean that Nike doesn’t contribute much to corporate tax. Nike has also minimised tax contributions by switching productions from countries that require a higher tax contribution such as Taiwan to countries with lower tax’s such as Vietnam.
Another possible impact that Nikes operations could have on host countries is lowering the level of unemployment. It could be argued Nike significantly reduces the unemployment rate of the countries it operates in because outsourcing production provides the population with jobs that wouldn’t exist without Nikes presence. Evidence to support this is the fact that employs over 3000 people in the Asia pacific region. Without Nikes operations it is possible these people may be unemployed. However it could be the case that low unemployment is due more to the development of other industries such as iron and coal, and chemicals. For example, In Thailand more people are employed in services (49%) than industry (40%).
In addition to positive impacts Nike could have on host nations, it could be reasoned that Nike also has a negative impact in the way that they treat workers in the sweatshops the contract out to. It needs to be considered that Nike outsources mainly to less developed countries that lack regulations to protect employees, which may encourage Nike to exploit workers. There is evidence to suggest that conditions in Nikes factories are appalling. For example, there is evidence of abuse to workers in factories Located in Vietnam which has originated from local newspapers, which found a Nike contractor’s supervisor guilty of beating 15 employees about the head with a shoe upper and another supervisor was charged with sexual molestation. Nike factory workers are also subject to other labour rights violations such as 12-16hour shifts with only a thirty-minute shift. The workers describe conditions as “very tense, with constant pressure from management to reach productivity levels” Workers also have to work in the unbearable heat that reaches over 100 degrees. Nike contract employees have no right to freedom of association and employers do not accept trade unions. An audit of a Nike factory in Vietnam further demonstrate the unacceptable condition workers face as the audit noted, “workers were exposed to toxic chemicals without protection or safety training and were made to work illegal overtime”. Another argument that Nike has a negative impact directly to workers is that they exploit workers in the host nations by paying extremely low wages. For example, Nike plays employees in Vietnam no ore than $42 a month.
Alternatively it could be argued Nike still has a positive impact on the workers in the host nation because although spectators in developed world may regard the wages as low they are considerably higher than the wages they would get if domestic firms employed them. It could also be argued that workers in host countries aren’t treated really badly by Nike because there are the laws of the host nation to protect them, such as minimum wages, and maximum hours employees have to work. On the other hand it also needs to be considered the nations Nike operates in want to encourage businesses to invest and may therefore design laws in favour of businesses rather than workers. This is the case in China where Nike operates where there is only recognised trade union called the all China Federation of Trade Unions (ACFTU). The government in theory to protect workers runs the ACFTU, however it rarely confronts management to uphold workers rights, as union officers tend to favour management. There is also the problem of Nike breaking the law. This is shown to be the case in China where Nike workers work eleven hours a day, which is a violation of Chinese law. The overtime of 2-4 hours also violates Chinese labour, which allows for only 36 hours overtime a month.12 If we consider the above evidence it demonstrates that Nike still has a negative impact on the host nation even if laws are in place to prevent this as workers are still exploited. On the other hand it need to be contemplated that Nike is outsourcing its production to another nation which limits the control Nike has on enforcing the law on factories. It is also possible Nike choose to ignore things that go on.
Conversely it could be argued that Nike is constantly improving their employees working conditions in the countries they outsource to. An example of this is Nikes new code of conduct that was introduced in 1997. The code of conduct included a requirement that workers work no more than sixty hours a week or less if that’s required by local law. Forced labour in any form is not allowed. The code of conduct also states that Nike will not employ anyone under the minimum age established by local law, or at the age at which compulsory schooling has ended. The code requires all employees to be paid at least the minimum compensation required by local law, and that the contractor complies with legally mandated working hours. In addition to this Nike agrees to have written health and safety guidelines (see Appendix ). This shows that Nike is constantly trying to improve the conditions and working experience of employees, which could benefit the host nation, as the population will be content. In which case it seems evident that Nike isn’t having a negative impact as they are doing more to improve workers rights than domestic firms and possibly the government.
However there are many flaws that have been identified with the code of conduct. Firstly it has to be considered that although Nikes code of conduct limits forced overtime, the workers aren’t paid enough in their standard working week to meet their needs, they will have to work more than sixty hours a week to earn enough to survive. The code of conduct also failed to require that workers have the right to organise and bargain collectively. Nikes codes of conduct states “ Nike seeks partners that share our commitment to the promotion of best practices…” However they only “seek” to find contractors who respect workers but will still continue working with contractors who don’t. Nike also fails to improve the issue of corporal punishment and verbal abuse that workers often suffer from supervisory staff in Nike’s factories. Consequently it could be argued that the code is just a public relations exercise and doesn’t protect and improve the rights of workers, It is simply used to give the impression that Nike are making an effort to improve. There have been cases identified where Nikes code of conduct has been violated. Research conducted by Corp-watch showed in Nike factories all categories of their code of conduct such as overtime, compensation, harassment, health and safety and child labour are being violated.12 The report showed that when workers in China were hired they were unaware that they would be forced to work overtime of 2-4 hours when they were hired. This violates Nikes code of conduct, as it clearly states that coerced labour is not acceptable. Other sections of the code are not enforced. For example, Nikes code of conduct states that employers should provide a safe working environment whereas there is heat, congestion and fumes from glues used. The factories also employs children age 13-14 when Nikes code of conduct states it will not employ children under 15. 15 In addition to this workers seemed unaware that there was even a code of conduct in place.
However in contrast auditors Andrew Young carried out an assessment of Nikes multinational operations showed Nikes operations in a positive light. After inspecting 12 Asian suppliers of Nike his overall finding was that He concluded that “Nike is doing a good job in the application of its code of conduct”. factories were “clean, organised, adequately ventilated and well lit, with no mistreatment of workers”.15 This assessment demonstrates that Nike could be operating in the interest of employees. On the other hand we have to consider that management often inform workers that visitors are coming and make sure the place is safe and clean and workers behave which reduces the validity of the report. It is also necessary to question the validity of Andrew young’s report. We need to consider the reasons behind Young conducting the assessment of Nike, as there may be a vented interest to him to promote Nike’s activities as ethical, which could lead to his report being biased in favour of Nike. For example, auditors Andrew Young could be accepting money for Nike to use the report as a pubic relations exercise.
Nike is also part of the Athletic Footwear Association guidelines for contractors. However this may have a limited impact on the host nation because the guidelines do not include monitoring or enforcement, as they are voluntary guidelines for Nike to follow. Thus Nike is not pressured into following the guidelines outlined in the athletic association.
There is further evidence of Nike supporting the workers and benefiting the communities of host nations as Nike are involved in a number of initiatives to benefit the countries they operate in. An example of this is the Nike’s micro enterprise programme, which involves Nike giving business loans to poor people in the countries they outsource to, to attack the main causes of poverty. Nike funds micro institutions in China, Indonesia and Vietnam, and has distributed over One million dollars so far to these countries. Nike is also a member of Global Alliance for workers and communities, which focuses on improving the working environments and communities of manufacturing employees around the world. Nikes involvement in these initiatives illustrate how Nike is helping the host nations they operate in as they are providing capital for businesses in the nations which can contribute to the economy and alleviate poverty in the country, and Nike have also joined an alliance to improve the working conditions of Employees in the host nations. In addition to this Nike invest in the local community of the host countries by targeting 3% of their prior years pre tax profits to charities, non-profit organisations and global community partners to benefit developing countries. In which case it could be argued Nike has a positive impact on their host economies as they are investing in developing these countries.
Another possible way Nike’s multinational operations could have a positive impact on the Host countries is by providing education and training. Nike has helped increase education and training of employees by providing opportunities for contract workers to receive a higher education. 16 As part of Nikes enterprise scheme in China where they outsource to, Nike will provide education and vocational training to loan participants such as, purchasing and negotiation and marketing.16 From Nikes participation in these initiatives it could be suggested that Nike are improving the education and training of the Host Nations population. This can create an increasingly skilled workforce, which will raise standards of living and increase the value of the host country perceived by other firms, which can increase investment in the country.
Skills may also be increased through Nike providing jobs in factories, which can be transferred to other areas. However it could be suggested that Nike’s outsourcing doesn’t increase skills of the workforce because the jobs Nike provides are menial and low skilled.
It is also possible Nike could widen the income gap between the rich and poor. This is a possible result of Nikes outsourcing strategy because incomes generated are kept within a small group of contractors and managers with the majority of Nikes factory workers being really low paid. This is evident in Cambodia where Nike outsource to because the poorest ten percent of the population accounted for 2.9% of overall income of the country, compared to the Richest ten percent which accounted for 33.8% of income. This is also evident in other countries Nike operates in such as China where the poorest ten percent accounted for only 2.4% of household income, whereas the highest ten percent accounted for 30.4% of income18. These figures show that there is inequality in the distribution of income, which may have influenced by Nike. Alternatively it could be argued the widening gap of income is independent of any influence of Nikes operations and would occur anyway. In which case Nike is actually increasing the income of the poor by providing jobs, which pay higher than domestic firms.
Conclusion
In answering the title question it needs to be taken into account that it is difficult to assess the impact of Nikes multinational operations on host economies because it is impossible to be sure how host nations would have developed without Nikes investment into the economy. There is also the difficulty of trying to quantify how much development Nike has actually contributed to in the host nations because other factors would have also played a part in aiding development of the countries Nike operates in. It is possible that Nike may not be having a significant impact on the host nations because places such as rural China are receiving multilateral aid through groups such as the World Bank Group. The loans given through the World Bank group such as rural parts of china can help build a better infrastructure to encourage investment and development into the economy. It could be argued this has a greater impact on the host nation.
It is evident Nike has had a positive impact in some aspects of the nations in which it operates in. Nike has invested foreign capital into the economy by operating in these countries, which has enabled economic growth. Nike has also created over 3,000 jobs in these host nations, which significantly lowers levels of unemployment. Although it could be argued that the wages they pay the people employed in factories are extremely low, compared to wages offered by domestic firms the wages Nike offers are much higher. Creating more money for people to spend enabling the multiplier effect. In addition to this Nikes operations contribute tax payments, which can be used by the government to improve infrastructure leading to rising standards of living. Nikes implementation of the code of conduct also shows Nike is making a conscious effort to improve standards of living for workers. Nike are also improving the economy through micro enterprise scheme helping to start up local businesses and providing training for employees to create a more skilled workforce. This will increase standards of living in the host nations.
On the other hand it is possible to link Nikes multinationals operations to negative impacts on the host nation. This is because of the conditions that employees in the host nations have to work under. There has been evidence of abuse of workers and workers have to work in terrible conditions of heat while being exposed to toxic chemicals in the glues used. This could have a detrimental effect on the health of the employees The distribution of benefits is also likely to be unequal as people working in Nike factories may find themselves in a different world compared to less developed areas of the host nation, leading to a dual economy existing between the industrial and agricultural areas of certain countries.
After looking at the effects that Nike have been likely to contribute to in the nations that it outsources to it seems apparent that Nike will have a positive impact on the host nations in the long term. From looking at the development of Taiwan which used to host Nikes operations it is possible to identify three stages of development that developing countries pass through to become dynamic industrial nations, these are; Textile, manufacturing and the service sector. Foreign direct investment from companies such as Nike into the Taiwan economy enabled the economy to develop. This development was maintained through sweatshops, which were necessary at the time to provide economic growth. The economic growth allowed Taiwan to raise wages and tax levels improving with it working conditions, leading to the spread of industry as Taiwan continued to develop from increasing investment. In which case if we compare the development of Taiwan to the host nations Nike currently operates in exploitation of the workforce and low tax rates can be seen as a necessary evil to allow the host nations to grow into dynamic economies in the long term. Therefore the short-term negative impacts of Nike outsourcing into these countries will eventually benefit the countries in the long term.
Nuffields, Economics and Business student book
Multinational Monitor, Jeff Ballinger
Multinational Monitor, Jeff /Ballinger
“Industrial Embroidery” (see appendix)