This post involves a fictional company called Acme Motors. Acme manufactures automotive engines in Mexico and ships them to Detroit for inclusion in their automobiles.
Nike, Inc. is one of the world’s top manufacturers of footwear. Nike realized early in its history that it could not possibly handle the manufacture of shoes on its own, and so it has outsourced that function since the 1960s. In the early 1990s, Nice came under fire for its apparent abuse of low-wage workers in developing countries in Southeast Asia (Boatright, 2007). Acme Motors, with its engine manufacturing plant in Nuevo Laredo, can take Nike’s reaction to this situation as a lesson.
Nike has fully embraced globalization. Although Nike is based in the United States, it contracts over 500 manufacturing facilities in 45 countries (Nike, 1999), including 180,000 works in 37 Asian countries (New York Times, 1998). Nike has always operated a strong presence overseas. When Nike co-founder Phil Knight was a student at the Stanford Business School, he realized that the key to success was to outsource all manufacturing to contractors in developing countries. Nike originally contracted with manufacturers in Japan, but has since shifted its business to other Southeast Asian countries such as Indonesia, Vietnam, and China (Boatright, 2007).
Nike wouldn’t outsource the production of its product line if it were not advantageous. Since Nike does not have the technical skill necessary to run a manufacturing plant, it has little choice but to outsource production to a specialist. The developing countries that Nike does business with enjoy the benefit of a low-wage labor force. This allows Nike to effectively “buy” its footwear at very low cost. This also has the benefit of allowing Nike to focus on the skills it is good at, namely marketing and shoe design (Boatright, 2007).
The production of footwear in these developing countries did not come without a price for the host country. Many of chemicals used in the production of shoes include petroleum-based solvents that include volatile organic compounds. Volatile organic compounds are an air pollutant that has been found to be a major contributor ozone. Ozone has an adverse affect on the lungs and can lead to pulmonary disease. Additionally, some studies have found that prolonged exposure to ozone can affect the normal functioning of the human immune system (Parish, n.d.).
The overwhelming evidence of health risks associated with volatile organic compounds was a source of concern for Nike. Since the petroleum-based solvents used in their adhesives and primers are responsible for the volatile organic compounds, Nike decided that it must switch over to water-based solvents as quickly as possible. By 1999, Nike had successfully phased out many of its petroleum-based solvents. In order to protect workers from vapors released by the solvents not yet converted, Nike worked with manufacturing contractors to install advanced ventilation systems in their facilities. The goal was to reach the permissible exposure limits set by the Occupational and Safety Health Administration (OSHA). By the end of 1999, Nike had successfully reached this goal in 37 footwear factories in Southeast Asia (Nike, 1999).
The short run cost of these changes was quite burdensome for Nike. One of the 37 affected factories in Southeast Asia incurred costs up to $500,000 in efforts to install adequate ventilation (Nike, 1999). These short run costs are far outmatched by the long run benefits of the clean up efforts. Since the early 1990s, Nike has been battling an image that it employs “sweatshops” to produce its footwear. Although Nike initially tried to pass the blame to the contract manufacturers truly responsible for the poor working conditions, it eventually decided to change course and use its clout to force manufacturers to comply with its standards (Boatright, 2007). In the long run, the benefits of improved working conditions in developing countries have helped clean up Nike’s image.
The lessons learned by Nike can be applied to Acme Motors’ operation in Nuevo Laredo. The manufacture of automobile engines is not a pollutant-free process, and Acme must take that into consideration as soon as possible. Although Nike was able to utilize low-wage workers for nearly 30 years without worrying about the conditions those workers were toiling under, they eventually were forced to make drastic changes when they came under fire in the early 1990s. Acme would do well to take conditions in and around its Nuevo Laredo plant into consideration long before a public relations disaster occurs.
Boatright, J. (2007). Ethics and the conduct of business, 5th ed. Upper Saddle River, NJ: Pearson Prentice Hall.
New York Times. (1998). Nike reports use of safer solvents. Retrieved September 12, 2008.
Nike, Inc. (1999). Corporate Responsibility. Fiscal year 1999 annual report. Retrieved September 12, 2008.
Parish Maintenance Supply Corp. (n.d.). Volatile organic compounds. Retrieved September 12, 2008.