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Essay: Nike’s Billion Dollar Challenge: Corporate Social Responsibility Issues

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  • Published: 1 April 2019*
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Nike, Inc. is a publicly traded (NYSE: NKE) international athletic footwear and apparel company that is based in Beaverton Oregon. Over the past years, Nike has acquired other apparel and footwear brands such as Cole Haan, Converse and Hurley to expand its portfolio from sports related apparel. With that being said, in recent years the trend for more casual athletic clothing has began to grow which can be connected to Nike’s massive revenue spike which resulted in global sales reaching over $28 billion dollars during 2014.1 Today it is estimated that Nike employees over 74 thousand employees in more than 850 retail stores worldwide has produced company net worth of almost $16 billion making it the most valuable sports brand in the world by Forbes.2

Nike, originally named Blue Ribbon Sports, was started during January 1964 by former track athlete Phil Knight at the University of Oregon. The mobile business focused solely on producing and selling sneakers for track and field athletes who competed.3 In only two years, Knight ditched his mobile operations and opened his first retail location in Santa Monica, California which allowed for more room for inventory. By 1971, Blue Ribbon Sports had ditched their distributor Onitsuka Tiger (now ASICS), and began creating their own line of sneakers which would launch featuring their new name and logo, ‘the Swoosh’. Throughout the next decade, Nike continued to innovate new products and expand its line to include apparel for different sports and regions throughout the world. As revenues began to grow, Nike decided to invest in their brand image by creating a tagline for the brand that would cut across all psycho/socio/demographic lines. “Just do it” now belongs to an era when brands were brave enough to run with their visions and invite consumers to dream along with them.4 After years of success building customer trust and capturing the majority of the market share, Nike had finally encountered their first obstacle: neglecting management of their global operations.

Challenges and Problem Areas

Due to the scale of its operations, Nike has faced a number of problem areas in terms of its application to corporate social responsibilities. Reports of issues began to arise in the early 90’s after the protests surrounding the Barcelona Olympics and CBS’ interview with factory workers. Since then, Nike has been criticized for issues surrounding the workplace, marketplace, environment and the communities that it operates in. Explained here are some of the known issues that Nike has encountered over the past 20 years in a CSR context:

Underpaid Workers – Reports claim that Nike’s has continued to violate its code of conduct by allowing contracted Indonesian factories to pay their workers less than the federally mandated minimum wage. Workers have been coerced into signing petitions to support the factory’s decision to be exempt from the regulation.5 The wages provided leave Indonesian workers with only enough to feed themselves once per day after their expenses like rent and transportation are paid. Activists criticize highly-paid executives and even the founder of Nike, Phil Knight, because of their greed and unwillingness to ration out part of their salary to help subsidize factories labor costs.
Child Labor – In 1996, Life magazine published an article containing a photo of a Pakistani child sewing together soccer balls with the Nike logo displayed.6 Due to their lack of supervision and regulation, Nike has allowed sub-contracted factories in Pakistan to allow child labor become the driving force behind their manufacturing operations. Nike bases its own operations on finding the lowest cost labor to help drive up profits by employing factories in not only Pakistan, but countries like China, India, and Vietnam. Although Nike tries to maintain a good public image by offering donations, this philanthropy does not cover up the cruel public image that Nike has been acquired.

Poor Working Conditions – At one point in time, Nike factories became the main connotation to the definition of ‘sweatshops’. Forced overtime, and unhealthy surroundings are only some of the many accusations that have been made against Nike and their reputation. “An internal report Nike released to the Associated Press shows that nearly two-thirds of their contracted factories failed to meet Nike’s own standards.”7 The report found factories denying access to Nike inspectors, deviating from standard operating procedures, and stopping its progress in improving conditions. When interviewed, Taiwanese workers said that they would be physically and mentally abused for not meeting deadlines or even calling out sick.

Pollution and Waste Management – It’s fair to say that Nike has a humongous implant on the the environment. Shoes in particular, require a large supply of rubber and other materials that when manipulated cause harmful fumes and hazardous waste. In China, the waste is moved to a local dumping ground that shares the area with a river. Alkylphenols and perfluorinated chemicals (PFCs), which are heavily restricted in Europe and the US, become exposed to the rivers which transform into hormone-disruptors and infect local fish.8 Greenpeace’s 115-page report ‘Dirty Laundry’ shined a light on Nike due to the lack of evidence that the brand implements measures to restrict the release of these hazardous substances into the local water supply. Further that suggested that Nike should begin to publish a chemical management policy containing a list of chemicals that are prohibited during the manufacturing process.9

Resource Conservation – As climate change becomes an increasingly more important issue, non-government organizations have began investigating brands such as Nike to obtain information about their water usage programs. In 2012, more than one-third of Nike’s contracted factories did not comply with their quality guidelines.10 With such a heavy reliance on water, and the size and power of the company, natural disasters and flooding have bigger impacts on the communities surrounding factories which are main located in regions under high water stress. Besides water, use and sale of other resources such as cotton have increased exponentially since 2001 along with Nike’s success. With an increase in the reliance of cotton, market reports claim that a recession is eminent due to amount of consumption.11

Societal Consideration – Multi-national corporations like Nike, typically only have an interest to gain maximum return on their investments, and drive to claim majority of the market share. This leads to conflict of interests between Nike and societies on issues like partitioning of profits, patents, and major operational decisions. Other countries would want Nike to work in a way that is harmonious with the social and political needs of their societies and local communities, whereas the standard corporation would make their decisions based purely on economic empowerment. This conflict of interests leads to conflict within societies and lack of regards for others. It can be said that this lack of transparency with local communities has single-handedly created this environment where local factories blatantly disregard any code of conduct that Nike puts forward. Although not obligated to, Nike refuses to invest in local employee welfare which excuses standards falling below the US’.

Controversial Marketing & Public Relations – Although Nike has been targeted by multiple human right NGOs, they continue to be profitable through sharp advertising and investment in endorsement with superstars throughout the world. Nike prides itself on its company’s image and good name which has helped them continue to grow their business in the long term. However, in the short term when faced with a crisis, Nike has been able to throw money at the issue by getting another athlete to endorse and promote their product. During the protests in the mid 90’s Nike penned a deal with Tiger Woods in which he was expected to earn $80-$90 million over five years.12 In 2015, Nike spent just under $1 billion in endorsements alone to athletes. Many argue that ethically, it would have been more beneficial to engage a part of that money in management and employee enrichment. Due to not addressing the issue directly and trying to provide a temporary solution, the truth of the matter can become manipulated through word of mouth and harm Nike’s brand name. 

Current CSR Practices and Accomplishments

Since receiving pushback from NGOs and consumers, Nike has been able to use the criticism it received to create a plan that not sets sustainability goals by provides a clear outline on how to achieve them. Their current strategy revolves around three main aims: minimizing environmental footprints, transforming manufacturing and unleashing human potential. Nike’s latest Sustainable Business Report breaks down these aims into specific goals and provides metrics that showcase their willingness to be as transparent as possible in their operations. These are the most important issues that Nike is tackling today:

Energy and Resource Conservation – The Nike supply chain is notorious for impacting carbon, energy and water at each stage. However, since 1999 Nike has set standards to drive energy efficiency in their supply chain and advance renewable energy in their owned or operated facilities. Since then, the have reduced absolutes carbon emissions while simultaneously increasing revenues.13 Nike has been so successful in eliminating energy and carbon use during the manufacturing process, that today it takes about half the energy and half the emissions to make a pair of shoes than it did eight years ago. In addition to the products themselves, Nike has also pursued Leadership in Energy and Environmental Design (LEED) certification for the majority of it’s new retail stores with major investments in efficient lighting and energy management systems; Nike claims that a typical LEED-certified store uses 40% less energy overall.13

Due to the World Economic Forum flagging water quantity and quality as the biggest threat facing the planet, Nike has recognized their impact and is becoming more focused than ever on understanding, reducing and improving water use. In China alone, Nike has been able to report that 99% of factories were not only compliant with local regulations, but kept up to par with Nike’s Water Programs standards. As of 2015, Nike has been able to reduce water consumption by 30% during the manufacturing process and plans to reduce total consumption of all stages of the supply chain by 20% by 2020.13

Sustainable Innovation – Nike is currently at the forefront of innovation for the apparel and footwear industries by way of their proprietary technologies Nike GRIND, Flyknit and ColorDry. Nike GRIND is a premium materials palette created from a regeneration process of original materials and products which turns limited resources into limitless potential. Today, GRIND materials are used in 71% of Nike footwear and apparel products, in everything from yarns and trims, to some of their most premium jerseys and shoes.14 Nike has even gone as far as including GRIND materials in surfaces made for track and field and basketball courts. With the growing success of GRIND on the rise, Nike wanted to take their efforts and step further and created Flyknit, a polyester-type material made up of strong yet lightweight strands of yarn made from recycled material

such as plastic and glass. Since the launch of their original shoe, the Flyknit Racer in 2012, Flyknit technology has been incorporated into 30 models of shoes saving almost 3.5 million pounds of waste.13 Mentioned before, Nike has invested million into research and design for creating new methods to conserve during the manufacturing process. During 2013, Nike pioneered a new type of dyeing technique that requires no water. ColorDry technology eliminates the use of water by using heat and pressure to convert colored liquid carbon to a supercritical fluid which permeates the fabric. This breakthrough has resulted in four different important benefits: potential to save trillions of liters of water each year, reduce energy consumption by 60%, 100% use of the actual dye, removing the potential for wastewater pollution, and finally reduce dyeing time by over 40%.15

Community Involvement – With such a large presence throughout the world, Nike has worked hard on making sure that every country, and local community becomes integrated with the Nike culture. Outreach programs were designed to create a lasting relationship with local people and give them a chance to understand what Nike is all about. Between 2010 and 2014, Nike joined more than 70 expert organizations to develop, launch and lead Designed to Move, a framework that highlights the growing epidemics of physical inactivity and outlines a call for action to help end the crisis by creating positive experiences for children through sports and

physical activity.13 In addition to spearheading the operation, Nike has also allocated 1.5% of its pre-tax income to drive strategic programs that: make a sustained impact on local communities, deliver early positive experiences and inspire the world. Programs such as the Nike Community Ambassador launched in 2014 with a goal to select 500 retail employees across the world who partner with local athletes and create events for local kids to experience a variety of sports. Those who were not selected were given to give cash contributions, that Nike matched dollar for dollar, which raised a grand total of $6.2 million dollars during 2015.13

Governance and Public Policy – After pushback from activists claiming Nike endorsed ‘sweatshop labor’, Nike took a stand by releasing a statement stating: “To achieve our vision, we need everyone to understand and deliver on our goals, from our leaders to product designers, to the employees in our store, to the workers in the contract factories who make our products.”13 Through harnessing the power of the brand, Nike has been able to mobilize policymakers and promote initiatives that align with their business strategy, corporate values and objectives across different policy areas such as fair trade, non-discrimination, and climate change. Since then, Nike has incorporated sustainability targets into each scorecard and employee evaluation so that supervisors and leaders can have more oversight and accountability throughout operations. In addition to Nike modifying their own business indices, they have also embraced collaborations with competitors, governments, academia, NGOs and industries to develop a shared understanding of the challenges and opportunities we face.13 For example, Nike has partnered with RE100, a global initiative led by The Climate Group to reach 100% renewable energy in each own and operated facility by 2025 through engaging, supporting and showcasing influential businesses who are making similar commitments.

Recommendations and Conclusion

Nike is one of the few companies who have been swarmed with scandals and continued to preserve and alter their brand to adapt to changing world around them. Although the company originally took a defensive approach to the protests and pushback by insisting they had no control over third-party factories, Nike embraced challenge and change and within two decades, transformed into a company that was associated with sweatshops to an established sustainability leader. Until today, Nike continues to invest in new ways to keep their legacy alive. Based upon the previous challenges and accomplishments stated, here are a few recommendations that I would personally make to Nike to help contribute to their future success:

Product Line Focused on Low-Income Population – Nike has been criticized for having high profit margins and expensive products. It encourages consumerism in countries like the United States, where some economists argue that this type of behavior hurts the economy and middle class rather than stimulate it. Nike combats these claims by not shying away from philanthropy, especially in low-income areas; these charity and donations usually on help on a short-term basis. In countries like China and India, these high priced products actually price consumers out of the market who are actually in the market for footwear and apparel. Nike should create a line of products specifically targeting bottom-of-pyramid/low-income areas that could allow consumers to enter the market. Stimulating the marketplace would help long-run growth in any economy by creating a positive shift in demand. Additionally, as demands for product increase, supplies would have minimal need for importing due to the majority of the product being made in the same regions.

Shift Marketing from Celebrities to Consumers – One of the main concerns consumers and human rights activists currently have is the amount of capital spent on endorsements with celebrities and athletes. Nike has increased spending on marketing 10% year after year which has resulted in budgets hovering around $1 billion.16 My recommendation is to decrease the marketing budget and use some of the capital to increase spending on product innovation. The reduced marketing budget could be used to begin a campaign that focuses on the consumers and Nike’s impact on sustainability by documenting the stories behind Nike’s journey throughout the past decade and interviewing customers. Not only will this draw the attention away from the massive endorsements, but allow Nike to shift the focus of their brand away from ‘only for the best’ to ‘Nike brings out the best in you’. It will help boost sales for lower end products as well as assist public relations and increase brand awareness among lower-income areas.

By shifting their strategy which includes a commitment to transparency, engaging all stakeholders in the company, and driving innovation thru sustainability, Nike have been able to overcome all its obstacles and adversity it has faced since its inception. Nike has also acknowledged its power and used to help respond to societal problems across the world. When First Lady Michelle Obama created the Lets Move! Initiative to help combat obesity in the U.S., Nike was the first brand to donate and committed $50 million to support her efforts.17 Nike is a prime example of how sustainability and business can both work to compliment each other and discredit rumors about how sustainability is a cost to businesses. It is easy to see how Nike has become not only the most powerful, but most influential sports brand in the world and emerged as one of the most sustainable brands among all sectors and industries. And the company still wants to do more – as Mark Parker, current CEO, says, “At Nike, there is no finish line.”17

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