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Nike Shoes and Child Labor in Pakistan

Nike has been accused of using child labor in the production of its soccer balls in Pakistan. This case study will examine the claims and describe the industry and its impact on laborers and their working conditions. While Pakistan has laws against child labor and slavery, the government has taken very little action to combat it. Only a boycott by the United States and other nations will have any impact on slavery and child-based industries. Futhermore the U.S constitution states that child labor is an illegal and inhumane practice and any U.S. company found guilty practicing and encouraging it will be prosecuted. GATT and WTO prohibits member nations, like the United States, from discriminating against the importation of goods made by children. Are dolphins becoming more important than children? A question making WTO to reconsider the children's appeal of the third world.

Brief about the tradition of child labor in Pakistan

Pakistan has a per-capita income of $1,900 per year -meaning that a typical person survives barely on $5 per day. And that's nonot all, Pakistan has a traditional culture where earning of one person goes on feeding 10 mouths; and with the high rate of inflation it becomes difficult for a low income population to survive. Child labor is spread all over Pakistan but has the greatest impact in the north-west of punjab province, that is Sialkot. Pakistan has a population of approximately 1 million and is an important centre for the production of goods for export to international markets, particularly sporting goods. In 1994, exports from Sialkot brought income of almost US$ 385 million into the Pakistan economy. Sialkot is thus one of the world’s most important centres for production of sporting goods.

Child labor exists in Sialkot both in the export sector and the domestic sector. This fact has been well documented and reported by the international media for several years but nothing has been done about it. In Pakistan it is clearly documented that child labor is against the law, but the government carries lack of willingness to do anything about it. Provision for education is very limited, due to the fact that very low priority is given to education in the national budgets. Education receives around 3% of the total gross domestic product when compared to over ten times of this amount spent on military. Gender and other forms of discrmination plus adding to the lack of political will, gives the clear picture of the existence of child labor in Pakistan.

Nike as a helper or exploiter to 3rd World

Recently if you go to a shop to buy your child a new soccer ball. There is a good possibility that the ball has been made by someone your child's age or even younger. About half of the world's soccer ball are made in Pakistan, and each one of them passes through a process of production where child labor is involved. This problem not only pertains to Pakistan but is worldwide. More than 200 children, some as young as 4 and 5 years of age, are involved in the production line. Majority of these children work in Asia, e.g in the nations of India, Pakistan, Bangladesh and Indonesia.

Nike is characterized of making its equipments in countries which are in the developing phase, having very cheap labor, authoritarian government and lack of human rights appeal and union movement. In doing this it has made greater margins on the cost of mere cents to its workers. So Nike success story is not based on good name and advertising alone but also attached to it is the tears of tortured workers and child labor.

A columnist 'Stephen Chapman' from Libertarian newspaper argues that "But why is it unconscionable for a poor country to allow child labor? Pakistan has a per-capita income of $1,900 per year - meaning that the typical person subsists on barely $5 per day. Is it a a revelation - or a crime - that some parents willingly send their children off to work in a factory to survive? Is it cruel for Nike to give them the chance?" (source) Stephen argues that the best way to end child-labor is to buy more of the products that children produce. This would increase their demand, and as they will produce more, they will earn more, hence giving themselves chane to rise above poverty level and thus also benefiting the families of the children and as well as the nation.

However, the issue is not that simple. Increasing the demand of the products produced by child labor means encouraging more child labor, encouraging more birth rates, more slavery, increasing sweatshops and discouraging education - as parents of the children working in factories would want them to work more and earn more. If this happened to be the case, then more and more children will be bought and sold on the black market, leading no end to this problem. By encouraging more child labor, you are not only taking away those innocent years from them but also the right to be educated and the right to be free.

Nike - a good chess player

As a good chess player Nike always thinks ahead of its movement. It does not launch its production directly in to the developing country, such as Pakistan, but instead it subcontracts it to them by selecting a local firm. When doing this, the local firm, in this case SAGA sports, has to abide by the Nike's international rules and regulations when producing its goods. And it is the duty of the international firm (NIKE) to monitor its subcontracted production units and hold it to tight scrutuny. But this is not what really happens. Both Nike and the local production company aims to minimize cost and earn the highest amounts of profit thus involving themselves in illegal practices, such as child labor, a practice which is not so highlighted by the government of the host developing country. So what happens when you question Nike about its labor practices? An answer comes that it is not they who are involved in this illegal labor practices but it is the local subcontracter who is doing so. This is wrong to say as Nike and SAGA sports both benefits with access to cheap child labor in Pakistan. And if Nike cannot control its subcontracted plants, it means they have not implemented their rules and regulations effectively and is not abiding by the international standards which they have set for themselves.

Nike's entrance in to the Pakistani markets was the part of its long term strategic planning. It is false to explain that Nike didn't knew that child labor is an ages-old practice in Pakistan. Nike went into Pakistan, having full knowledge of the favorable conditions prevailing in terms of child labor and has taken no precautions whatsoever to prevent the use of child labor in the production of its soccer balls. Instead Nike has made a profit from its Pakistani contractors who inturn has used bonded child labor in the production process. Critically analyzing the situation, "Why Nike always land up in places having cheap or bonded labors or in places where it can easily get away with illegal labor practices?" Examples incude: Vietnam, China, Indonesia, Pakistan, Bangladesh and India. Nike simply bases its operations on finding the lowest-cost labor to make its products.Twelve-year-old girls work in Indonesian sweatshops 70 hours a week making Nike shoes in unhealthy plants.

According to a Foulball campaign report, Nike has refused twice to have a check in their Saga-managed center in Pakistan while on the other hand Nike's rival Reebok readily granted access to its Moltex-managed center in Pakistan.

Nike has the habit of hiding behind its good public image and its effective means of promotions and advertising. Nike attempts to create a good public image by offering charity, donating equipments and never passing an opportunity to remind the public that it has set up stitching centers in places such as Sialkot, Pakistan.

How it all started - Consumer awareness 1996

When the June, 1996 issue of Life magazine carried an article about child labor in Pakistan, Nike knew that it was in trouble. The article's lead photograph showed 12-year-old Tariq surrounded by the pieces of a Nike soccer ball which he would spend most of a day stitching together for the grand sum of 60 cents. In a matter of weeks, activists all across Canada and the United States were standing in front of Nike outlets, holding up Tariq's photo.

And yet, Nike has not done an especially good job of scrutinizing the subcontractors with which it's working. Nor has it been open about its labor practices in the way public companies should be expected to be. Cameramen have been pushed out of factory floors. Supervisors at a plant in Vietnam apparently beat workers being paid 20 cents an hour and refused to allow them to leave their work posts. Indonesian labor organizers has been put behind bars. And, most troubling, nearly all the soccer balls made in Pakistan have been revealed to be made by young children getting paid just cents a day.

Nike chairman Phil Knight also acknowledThis is the first time that Nike has had to face real questions about its labor practices abroad, the first time that it has felt a public-relations impact. At this point, that impact does not seem at all devastating. While in the short run Americans are generally horrified by the issue of child labor and has expressed concern over the working conditions in foreign factories, Nike should take immediate actions in order to provide remedy to all the activism it faces, otherwise it can prove devastating for the company's image in the long run. The basic truth about Nike is that its only real strength is its good name. Nike rules because of all the good things people associate with the company: sharp ads, Michael Jordan, Tiger Woods, little Penny, and Michael Jordan again. If "beaten workers" and "child labor" get added to that list, then Nike's greatest asset will be lost. ged that a shipment of soccer balls Nike purchased in Pakistan in the year 1996 was made by a subcontractor using child labor in "horrible conditions." Although 1996 was the first year in which real public attention was focused on Nike's labor practices abroad, it's important to recognize that manufacturing shoes in low-wage countries was, from the start, a crucial part of Phil Knight's plan for his company. In other words, American jobs have not been shipped abroad. On the contrary, Nike has never made shoes in the United States. Its first factories, built in the 1960s, were in Japan, when that country was still a part of the Third World. And since thirty years Nike have migrating from nation to nation, arriving as countries install the necessary mechanisms for orderly business operations and leaving as living standards become too high to make manufacturing profitable.

Nike, not "Just do it" but "Do it right"

This is the first time that Nike has had to face real questions about its labor practices abroad, the first time that it has felt a public-relations impact. At this point, that impact does not seem at all devastating. While in the short run Americans are generally horrified by the issue of child labor and has expressed concern over the working conditions in foreign factories, Nike should take immediate actions in order to provide remedy to all the activism it faces, otherwise it can prove devastating for the company's image in the long run. The basic truth about Nike is that its only real strength is its good name. Nike rules because of all the good things people associate with the company: sharp ads, Michael Jordan, Tiger Woods, little Penny, and Michael Jordan again. If "beaten workers" and "child labor" get added to that list, then Nike's greatest asset will be lost.

Now the burden is on the company both to do a better job of implementing company-wide global standards of conduct and also to improve its openness to the media. The more you hide, after all, the more people think you have something to hide. Every hand that goes up, hurts Nike in the public eye. And when you're a consumer company, that's the only eye that matters.

Consumers - "Just don't do it"

When a person states that he/she is working for Nike, it gives a very good status symbol. But what if the person is a 9 - year old child? What image will it give you as a consumer when you buy ththose products or brands that employ child labor?

Consumers should take an immediate action in order to eradicate child labor practices discharged by these multinational U.S corporations. This can only be done by not buying their products which are produced in the third world and which have suspicion of a child being involved in the process. Child labor is a human rights issue. What is more of a human right than growing up as a free person, attending school without being held in bondage?

Nike workers 'kicked, slapped and verbally abused' at factories making Converse

New allegations follow years of outrage over child labour and sweatshops. Sports brand giant claims there is very little they can do to stop it.

They're one of the world's top sports clothing brands, but for years Nike have been dogged by allegations of sweatshops and child labour.

Now workers making Nike's Converse shoes at a factory in Indonesia say they are being physically and mentally abused.

Workers at the Sukabumi plant, about 60 miles from Jakarta, say supervisors frequently throw shoes at them, slap them in the face, kick them and call them dogs and pigs.

Nike admits that such abuse has occurred among the contractors that make its hip high-tops but says there was little it could do to stop it.

Dozens of interviews by The Associated Press, and a document released by Nike, show the company has a long way to go to meet the standards it set for itself a decade ago to end its reliance on sweatshop labour.

One worker at the Taiwanese-operated Pou Chen plant in Sukabumi said she was kicked by a supervisor last year after making a mistake while cutting rubber for soles.

'We're powerless,' said the woman, who like several others interviewed spoke on condition of anonymity out of fear of reprisals.

'Our only choice is to stay and suffer, or speak out and be fired.'

The 10,000 mostly female workers at the Taiwanese-operated Pou Chen plant make around 50 cents an hour. That's enough, for food and bunkhouse-type lodging, but little else.

Some workers interviewed by the AP in March and April described being hit or scratched in the arm – one man until he bled.

Others said they were fired after filing complaints.

'They throw shoes and other things at us,' said a 23-year-old woman in the embroidery division.

'They growl and slap us when they get angry.

'It's part of our daily bread.'

Mira Agustina, 30, said she was fired in 2009 for taking sick leave, even though she produced a doctor's note.

'It was a horrible job,' she said. 'Our bosses pointed their feet at us, calling us names like dog, pig or monkey.'

All are major insults to Muslims. Indonesia is the world's most populous Muslim nation.

At the PT Amara Footwear factory located just outside Jakarta, where another Taiwanese contractor makes Converse shoes, a supervisor ordered six female workers to stand in the blazing sun after they failed to meet their target of completing 60 dozen pairs of shoes on time.

'They were crying and allowed to continue their job only after two hours under the sun," said Ujang Suhendi, 47, a worker at a warehouse in the factory.

The women's supervisor received a warning letter for the May incident after complaints from unionized workers.

Nike's own inquiries found workers at the two factories were subjected to 'serious and egregious' physical and verbal abuse, including the punishment of forcing workers to stand in the sun, said Hannah Jones, a Nike executive who oversees the company's efforts to improve working conditions.

She said: 'We do see other issues of that similar nature coming up across the supply chain but not on a frequent level.

'We see issues of working conditions on a less egregious nature across the board.'

Nike, which came under heavy criticism a decade ago for its use of sweatshops and child labour, has taken steps since then to improve conditions at its 1,000 overseas factories.

But the progress it has made at factories producing gear with its premier 'swoosh' logo is not reflected in those making Converse products, which Nike took over four years ago.

An internal report Nike released to the AP shows that nearly two-thirds of 168 factories making Converse products worldwide fail to meet Nike's own standards for contract manufacturers.

Twelve are in the most serious category, indicating problems that could range from illegally long work hours to denying access to Nike inspectors.

Another 97 are in a category defined as making no progress in improving problems ranging from isolated verbal harassment to paying less than minimum wage.

A further six factories had not been audited by Nike.

Nike blames problems on pre-existing licenses to produce Converse goods that it says prevent the parent company from inspecting factories or introducing its own code of conduct.

It says the situation is further complicated because the license holders themselves usually farm out the production work to a subcontractor.

Some corporate experts question whether Nike is doing all it can.

Prakash Sethi, a corporate strategy professor at Baruch College at the City University of New York, said: 'I simply find it impossible that a company of the size and market power of Nike is impotent in persuading a local factory in Indonesia or anywhere else in meeting its code of conduct.

Critics of outsourcing manufacturing to the lowest-cost countries say it keeps prices down but allows apparel, electronics and toy companies to reduce their accountability for the conditions in such factories.

Even as concern about sweatshop labuor has grown, some contractors have simply moved operations to more remote areas, farther from the prying eyes of international and local watchdogs.

Indonesia is Nike's third-largest manufacturing base, after China and Vietnam, with 140,000 workers at 14 contract factories.

Of those, 17,000 produce its Converse line at four factories.

After years of criticism over its labor practices at factories abroad, Nike in 2005 became the first major apparel company to disclose the names and locations of hundreds of plants that produce its sneakers, clothes and other products.

It admitted finding 'abusive treatment,' either physical or verbal, in many of the Nike plants.

The complaints ranged from workweeks that exceeded 60 hours to being forbidden to go to the bathroom.

The Beaverton, Oregon-based company has since invested heavily in training managers and more closely monitoring their activities.

Nike has not published the locations of all factories making products for affiliate companies, which includes Converse, but plans to by the end of the year.

Still Waiting For Nike To Do It

On May 12, 1998, Nike's CEO and founder Mr. Phillip Knight spoke at the National Press Club in Washington, DC and made what were, in his words, "some fairly significant announcements" regarding Nike's policies on working conditions in its supplier factories.

Knight's May 12 Promises: What Have They Meant for Workers?

Knight made six commitments:

1st Promise: All Nike shoe factories will meet the U.S. Occupational Safety and Health Administration's (OSHA) standards in indoor air quality.

Nike was the subject of considerable scandal in 1997 when it was revealed that workers in one of its contract factories were being exposed to toxic fumes at up to 177 times the Vietnamese legal limit. Although Nike claims that its factories now meet OSHA standards, it gives factory managers advance notice of testing, giving them considerable scope to change chemical use to minimize emissions on the day the test is conducted. Nike is also not yet willing to regularly make the results of those tests available to the interested public. Rights groups have challenged Nike to put in place a transparent system of monitoring factory safety standards involving unannounced monitoring visits by trained industrial hygienists.

2nd Promise: The minimum age for Nike factory workers will be raised to 18 for footwear factories and 16 for apparel factories.

Nike was severely embarrassed on the child labor issue in 1996 when a major story in Life magazine featured a photograph of a very young Pakistani boy sewing a Nike soccer ball. Evidence continues to emerge of young persons under the age of 16 employed in Nike contract factories. In the absence of economic development in their communities, however, excluding children from factories may force them into even more dangerous and degrading work. Global Exchange believes that payment of a living wage to adult workers would be by far the most effective means of benefiting children in areas in which Nike's goods are made.

3rd Promise: Nike will include non-government organizations in its factory monitoring, with summaries of that monitoring released to the public.

As far as rights groups are concerned, this was the most important of Knight's promises. Three years after it was made, Nike has contracted one non-profit organization to conduct one audit of one factory and is able to list a number of other NGOs with which it has held discussions which it claims will improve its monitoring program. What the company is still unable to say is which NGOs, if any, will be allowed to regularly monitor factory conditions and when summary statements of that monitoring will be released.

4th Promise: Nike will expand its worker education program, making free high school equivalency courses available to all workers in Nike footwear factories.

The education program has expanded, but wages paid in Nike factories are so low that the great majority of workers cannot afford to give up overtime income in order to take one of the courses. Payment of a living wage would give Nike workers with an interest in achieving a high school education the time and the means to do so.

5th Promise: Nike will expand its micro-enterprise loan program to benefit four thousand families in Vietnam, Indonesia, Pakistan, and Thailand.

It is much cheaper for Nike to give micro-loans to several thousand individuals outside Nike factories than to ensure that the 530,000 workers producing the company's product are paid a wage that would allow them to live with dignity. Nike's first responsibility is to the workers in its production chain. The company should commit to a living wage before it seeks public relations kudos by funding charitable programs like this.

6th Promise: Funding university research and open forums on responsible business practices, including programs at four universities in the 1998-99 academic year.

The company has refused reputable academics access to Nike factories to conduct research, and that research it has funded seems geared to providing private information to Nike rather than stimulating academic debate and increasing knowledge. If Nike is genuinely interested in investing in credible academic research into responsible business practices, the company should establish an independent committee made up of reputable and independent academics to determine which research should be funded.

Sins of Omission: What Labor Rights Groups Wish Knight Had Promised

The demands which rights groups have made of Nike but which Nike has deliberately ignored can also be grouped into six categories:

1st Demand: Protect workers who speak honestly about factory conditions.

Nike's track record in protecting workers who blow the whistle on sweatshop conditions is very poor. The company has turned its back on individual workers who have been victimized for speaking to journalists, and has cut and run from other factories after labor abuses have been publicized. Until this changes, Nike workers will have good reason to keep silent about factory conditions for fear that speaking honestly may result in them and their fellow workers losing their jobs.

2nd Demand: Regular, Transparent, Independent and Confidential Procedures for Monitoring Factories and Investigating Worker Complaints.

Activists have repeatedly asked Nike to allow rights groups to educate workers about their rights and to ensure workers can make confidential complaints to independent monitors when those rights are infringed.

Instead, Nike has made it the responsibility of each factory to educate workers about Nike's code of conduct and to establish a complaint mechanism. This deliberately ignores the interest factory owners have in keeping workers ignorant of their rights. All independent research indicates that the overwhelming majority of Nike workers do not understand their rights under Nike's code and do not believe factory owners can be trusted to resolve worker grievances.

Rights groups have also called for a factory monitoring program which is independent and rigorous. In response Nike has set up an elaborate array of different schemes for monitoring and factory assessment. While this variety of programs looks impressive in a public relations sense, Nike has deliberately set up each of these programs so that they fail two or more of the key tests of effective monitoring: independence, transparency, regularity and a relationship of trust with workers.

The quarterly program of S.A.F.E. (Safety, Health, Attitude, People, Environment) assessments, conducted by Nike staff, is obviously the least independent. There is no evidence that Nike staff actually interview workers as part of these assessments let alone attempts to establish a relationship of trust with them.

Nike's program of annual factory monitoring by PricewaterhouseCoopers also lacks independence. PwC was selected by Nike, reports to Nike and conducts a monitoring program designed by Nike. To the extent that independent observation of PwC's monitoring practice has been allowed, it indicates that PwC auditors fail to establish a relationship of trust with workers and that the quality of their monitoring can be extremely poor. Dara O'Rourke (an assistant professor at MIT) recently observed several PwC factory audits first hand and concluded that they had "significant and seemingly systematic biases" in favor of factory owners and against the interests of workers (O'Rourke 2000).

While there are elements of the Fair Labor Association's (FLA) proposed monitoring program that represent important improvements on Nike's current very poor system, the Association's ability to ensure that workers' rights are respected will be significantly undermined both by the questionable independence of its external monitors and by the long delays between factory monitoring visits--which will on average occur in each factory only once every ten years. The Global Alliance for Workers and Communities is an attempt by Nike to shift focus away from the human rights agenda promoted by the company's critics. The Alliance deliberately avoids investigating key human rights issues and its research methodology does not allow time for researchers to create a relationship of trust with workers.

Nike has vigorously opposed the Workers' Rights Consortium, a factory monitoring program that is independent, transparent and makes it a priority to build relationships of trust with workers. In contrast, Nike's monitoring and factory assessment programs are not independent, lack full transparency and have so far made very little effort to win workers' trust so that they can speak honestly about factory conditions without fear of reprisal.

3rd Demand: Decent Wages

Nike has rejected demands that it ensures that Nike workers are paid a living wage--that is, a full time wage that would provide a small family with an adequate diet and housing and other basic necessities. Instead, the company has used statistics selectively and in a misleading fashion to give the false impression that wages currently paid to Nike workers are fair and adequate. Meanwhile those workers struggle to survive on wages that are barely enough to cover their individual needs, let alone those of their children.

4th Demand: Reasonable Working Hours

Independent research indicates that in many factories Nike workers are still being coerced into working up to 70 hours per week and are being humiliated in front of other workers or threatened with dismissal if they refuse. Nike workers also frequently report that it is extremely difficult to obtain sick leave and that the annual leave to which they are legally entitled is often refused, reduced or replaced with cash without the worker having any choice in the matter.

5th Demand: Safe and Healthy Workplaces

Nike has made important progress in reducing the use of toxic chemicals in sportshoe production. Unfortunately, on the few occasions in recent years that genuinely independent health and safety experts have been allowed access to Nike contract factories, they have found serious hazards including still dangerously high levels of exposure to toxic chemicals, inadequate personal protective equipment, and lack of appropriate guards to protect workers from dangerous machinery. There is also considerable evidence of workers suffering stress from spending large amounts of time in high pressure and frequently abusive work environments.

6th Demand: Respect for Workers' Right to Freedom of Association

So far Nike's promise to protect this right has been largely empty. A considerable proportion of Nike's goods are made in countries like China where independent unions are illegal. Nike has refused to call on the Chinese government to allow workers to organize and has actively opposed calls for trade pressure to be put on the Chinese government to encourage it to improve its record in this area.

Nike has abjectly failed to prevent the suppression of unions in a number of its contract factories, including the PT Nikomas Gemilang and PT ADF factories in Indonesia, the Sewon and Wei Li Textile factories in China, the Formosa factory in El Salvador, the Natural Garment factory in Cambodia, the Savina factory in Bulgaria and factories owned by the Saha Union group and the Bangkok Rubber group as well as the Nice Apparel, De-Luxe, Lian Thai and Par Garment factories in Thailand.

On those few occasions when Nike has taken any steps to advance this right in specific factories, it has done so grudgingly and after considerable public pressure. While elements of Nike's eventual response to the current dispute in the Kuk Dong factory in Mexico have been positive, Nike's actions on the issue been characterized by unnecessary delays, lack of follow through and failure to actively promote the urgent need for a free and fair union election.

Conclusion

Thus far Nike has treated sweatshop allegations as an issue of public relations rather than human rights. The promises made by Phillip Knight in his May 1998 speech were an attempt by the company to switch the media focus to issues it was willing to address while avoiding the key problems of subsistence wages, forced overtime and suppression of workers' right to freedom of association.

The projects Knight announced have been of little benefit to Nike workers. Some have helped only a tiny minority, or else have no relevance to Nike factories at all. The most significant promise, to allow NGOs to monitor its factories and release summary statements of that monitoring, has simply not been fulfilled.

Health and safety is the one area where some improvement has occurred. But even here the company is not willing to put in place a transparent monitoring system involving unannounced factory visits. On the few occasions when independent safety experts have been allowed to visit Nike factories, they invariably have found very serious hazards.

The inaction of the last three years shows that rights groups are justified in treating the company with suspicion and demanding that factory monitoring be both genuinely independent from Nike's control and publicly reported in full. While Nike touts itself as an "industry leader" in corporate responsibility, Nike workers are still forced to work excessive hours in high pressure work environments, are not paid enough to meet the most basic needs of their children, and are subject to harassment, dismissal and violent intimidation if they try to form unions or tell journalists about labor abuses in their factories. The time has come for the company to adopt the reforms which rights groups have advocated. It is indefensible that activists, consumers and most importantly Nike factory workers are still waiting for Nike to do it.

Nike Pledges to End Child Labor And Apply U.S. Rules Abroad

Bowing to pressure from critics who have tried to turn its famous shoe brand into a synonym for exploitation, Nike Inc. promised today to root out underage workers and require overseas manufacturers of its wares to meet strict United States health and safety standards.

Philip H. Knight, Nike's chairman and chief executive, also agreed to a demand that the company has long resisted, pledging to allow outsiders from labor and human rights groups to join the independent auditors who inspect the factories in Asia, interviewing workers and assessing working conditions.

"We believe that these are practices which the conscientious, good companies will follow in the 21st century,'' he said in a speech here at the National Press Club. "These moves do more than just set industry standards. They reflect who we are as a company."

Nike said it would raise the minimum age for hiring new workers at shoe factories to 18 and the minimum for new workers at other plants to 16, in countries where it is common for 14-year-olds to hold such jobs. It will not require the dismissal of underage workers already in place.

Footwear factories have heavier machinery and use more dangerous raw material, including solvents that cause toxic air pollution. At overseas factories that produce Nike shoes, the company said, it would tighten air-quality controls to insure that the air breathed by workers meets the same standards enforced by the United States Occupational Safety and Health Administration at home.

Mr. Knight's pledges did not include increased wage, a major complaint of critics who say that Nike and other American companies pay workers in China and Vietnam less than $2 a day and workers in Indonesia less than $1 a day. (A 1996 World Bank report concluded that more than one-fifth of the world's population lives on less than $1 a day.) Still, even with much lower prices in these countries, critics say workers need to make at least $3 a day to achieve adequate living standards.

Nike, in a statement today, cited a report it commissioned in 1997, which said that its factories in Indonesia and Vietnam pay legal minimum wages and more.

In his speech today, Mr. Knight defended Nike's record of creating jobs and improving factory conditions abroad, but seemed to acknowledge that it was time for drastic action. "The Nike product has become synonymous with slave wages, forced overtime and arbitrary abuse," he said. "I truly believe that the American consumer does not want to buy products made in abusive conditions."

The initiatives announced today address the types of issues, like air quality, that were raised by an inspection report prepared for the company by Ernst & Young, the accounting and consulting firm. The report, which found many unsafe conditions at a plant in Vietnam, gained force when it was made public by the Transnational Resource and Action Center, a nonprofit group that often criticizes conditions at American factories overseas.

Critics of Nike responded favorably to many elements of the plan released today, while noting that Mr. Knight had not promised to increase pay. They cautioned that he had not detailed which groups would be allowed to take part in the monitoring of factories or provided other details on that part of his commitment.

"Independent monitoring is a critical element of an overall system of improving labor practices,'' Mr. Knight said. ''Nike's goal is to reach a point where labor practices can be tested and verified in much the same manner that financial audits determine a company's compliance with generally accepted accounting principles."

Monitoring labor standards abroad has divided industry members of a committee established by the White House to consider such standards of American corporations, preventing it for the past year from coming up with recommendations.

Jeffrey D. Ballinger, director of Press for Change, a group that has been critical of Nike, called the company's plan a major retreat and a sign of the critics' growing strength.

"I think on the health and safety question, it is a very significant statement," he said. "There is not a lot of wiggle room. They either fix it or they don't. I really, really believe they are going to get after that problem."

The company has been hurt by falling stock prices and weak sales even as it has been pummeled in the public relations arena, including ridicule in the comic strip Doonesbury and an encounter between Mr. Knight and the gadfly film maker Michael Moore in his new documentary, "The Big One."

Mr. Knight said the main causes of the company's falling sales were the financial crisis in Asia, where the company had been expanding sales aggressively, and its failure to recognize a shifting consumer preference for hiking shoes.

"I truthfully don't think that there has been a material impact on Nike sales by the human rights attacks," he said, citing the company's marketing studies.

But for months, the company, which spends huge sums for advertising and endorsements by big-name athletes, has responded increasingly forcefully to complaints about its employment practices, as student groups have demanded that universities doing business with Nike hold it to higher standards. In January, it hired a former Microsoft executive to be vice president for corporate and social responsibility.

Other critics, such as Thuyen Nguyen, director of Vietnam Labor Watch, were critical when the civil rights figure Andrew Young reported favorably last year on the company's efforts to improve conditions in its Asian factories, saying that he had glossed over problems.

Mr. Knight emphasized today that using objective observers to monitor working conditions would serve not just Nike, but eventually American industry in general, by "giving the American consumer an assurance that those products are made under good conditions."

Some critics, though, stressed that the company could not reassure consumers without improving wages in its factories.

"We see one big gap," said Medea Benjamin, director of the San Francisco-based human rights group Global Exchange. "A sweatshop is a sweatshop is a sweatshop unless you start paying a living wage. That would be $3 a day."

Nike, Inc. - Labor

With a total footprint of more than 2.5 million people across our value chain and 1 million people in the contract factories we source from directly, labor remains among our greatest areas of human impact and opportunities to help bring about real change.

At the end of FY13, just more than 1 million people – with an average age of 32 – worked in the 785 factories that we source from directly. We believe another half million people work in the factories that make the materials used in our products, and more than 1 million people work in raw material production. (Some factories are vertically integrated, and play more than one of these roles.)

We believe that a successful contract factory can achieve even more success though more active engagement with workers as a source of innovation and quality, which also presents an opportunity for workers to benefit. This approach is part of the way we seek to do business through the progression of lean as a component of our “manufacturing revolution” (see Manufacturing Revolution).

Contract factory performance

For years, we have been sourcing from factories that seek to meet our minimum standards for good labor performance. In FY11, we converted our contract factory evaluation and scoring system from a letter-based system to a new medal-based one in line with our Sourcing & Manufacturing Sustainability Index (SMSI). The SMSI is one component of the overall Manufacturing Index, which also assesses contract factory performance on quality, on-time delivery and costing in equal measure. At the end of FY11, 49% of contract factories scored bronze on the SMSI. By the end of FY13, 68% had reached that score.

Our transition to the SMSI is part of a strategic shift away from a compliance-based “auditing and checking” relationship with our contract manufacturers and toward cooperation around lean manufacturing as a means to achieve greater efficiency, built on a stable, agile, engaged and motivated workforce. Because an engaged workforce is an empowered workforce. We’re spending more time with, and have processes in place to direct more business to high-performing factories (i.e., bronze or better). At the same time, we are requiring lower-performing factories to pay for their own audits and to remediate any issues found. Factories that fail to achieve bronze level performance within a defined timeframe are reviewed by senior leadership and are assessed penalties, such as a reduction in orders and are even considered for removal from our contract factory base.

Audits and compliance

While our focus has become more strategic, audits and monitoring remain an important component of how we know that our Code of Conduct is enforced, and helps get factories to bronze status. We assess contracted factories to review their ability to meet our high standards of social and environmental performance both before and during their work with us. These assessments take the form of audit visits by both internal and external parties, who gather information on the Code Leadership Standards that amplify our Code of Conduct.

In FY13, 94% of factories went through a full assessment of labor, health, safety and environmental compliance. The remainder reflect the ongoing shift of factories that were in the process of moving out of our supply chain during the year. In FY13, violations were recorded in 16% of factories, a drop from 29% in FY12, due in part to our decision to reduce our contract factory base. The top issues found in FY13 were hours and wages. Among the top violations were issues with paperwork or documentation, as well as overtime (considered hours between 60 and 72 per week). Incidents of excessive overtime dropped from 116 in FY12 to 55 in FY13, due in part to our reduced contract factory base. The percentage of factories reporting no incidents also improved, increasing from 87% to 93%.

Three areas in our supply chain that remain a priority for our industry are freedom of association, excessive overtime and wages. We continue to work with experienced organizations on these important issues. NIKE is a participating brand in the Play Fair Freedom of Association Protocol in Indonesia where training of factory management and workers is providing the platform for greater engagement in this area. As a member of the business caucus of the Fair Labor Association (FLA), NIKE has a seat on the organization’s Compensation Code Element Working Group that will provide recommendations to the FLA on how to move forward with a standard for its members.

We continue our work with contract factories to address and eliminate excessive overtime from the supply chain. Although this is an industry-wide issue, we believe that lean manufacturing provides an approach that will not only unlock greater value for NIKE and the factories we work with, but when implemented effectively will significantly reduce excessive working hours. See further discussion online with deeper background on these and other issues.

Worker voice and lean

We continued to work with factories to help them enhance their capacity around human resources management (HRM). Through the end of FY12, we provided training to management at contract factories producing 91% of NIKE Brand footwear product and 44% of NIKE Brand apparel product by volume, covering 531,000 workers (61% of total workers in the supply chain). This included surveying contract factory workers. This training was integral to our lean manufacturing approach in which we work with contract factory management to engage employees in problem solving and continuous improvement and is now incorporated with our lean approach overall.

One worker protection requirement is that contract factories establish grievance systems. At the end of FY13, 82% of contract factories had such systems in place and were in compliance with NIKE standards. Of those in compliance, 70% of factories reported use of their systems, which is comparable to the rate in FY12. We recognize that having and using systems alone is not enough to secure workers’ capability to communicate with factory management. We continue to include training and approaches to raising worker voices as part of the lean manufacturing approach we encourage factories to take.

NIKE believes lean can empower workers and teams. The company’s journey with contract factories toward lean manufacturing has helped reinforce the need for factory owners to have a deeper understanding of the cultural differences between management and workers’ priorities and perceptions, as well as the need to enhance communication and engagement with workers directly on problem solving.

The success of the lean approach depends on three things:

The lean approach also seeks to engage the minds of those closest to the work to solve the problems that prevent them from delivering quality product on time, every time.

We require a commitment to lean as part of being accepted into our source base, and a minimum commitment and progression for positive ratings including measures in our Sourcing and Manufacturing Sustainability Index. Some of the standard metrics we use to assess adoption include productivity, HRM assessments, turnover, absenteeism and factory implementation of and results from worker engagement and well-being surveys.

Valued workers

We believe that a valued contract factory workforce means better business for the factories and for NIKE, and better well-being for individual workers. Factories that value their workers – investing in their skill building, listening to their ideas on how to improve factory processes, communicating about issues that matter to them, facilitating aspects of their lives that help them show up every day at the factory healthy and on time – can build a skilled, productive and engaged workforce.

As part of this approach, we designed two pilot programs in Indonesia and learned that to enable engagement of the contract factory workforce, we needed contract factories to first stabilize production lines. Within these pilots we worked with factories to improve data quality, and to study and assess absenteeism, worker engagement and well-being, factory management and supervisor skills. Each of these areas has shown to contribute to worker well-being and to individual and factory productivity. Though early, results of well-being surveys in both footwear and apparel pilot factories show that production pilot lines addressing these areas outperform the control lines on both measures of production efficiency and worker engagement.

Although we are still piloting this work, we want to be sure that success in production efficiency and enhancements in contract factory performance does not come at the cost of worker engagement and well-being, as some lean studies at other contract factories have shown in the past.

Taken alone, these areas do not tell the whole story of worker well-being. We also know that many workers want to improve their earnings, and compensation systems can incentivize increased performance. We are working with contract factories to explore and test such systems as part of this work.

In addition, many factors outside the factory affect workers’ ability to show up on time and in good health every day. As part of our efforts, we are exploring how we can catalyze third-party investment in products and services that could support workers’ daily needs. Many of the factories in our supply base invest in providing support to their workers through on-site health clinics or financial literacy training, though these efforts are not consistently aimed at addressing worker needs. We are developing a scalable and systemic approach to address these and other issues through commercially viable ecosystems of services and products to support worker needs.

We anticipate sharing more of our journey of exploring, testing, assessing and scaling as we learn more through this work.

Taken alone, these areas do not tell the whole story of worker well-being. We also know that many workers want to improve their earnings, and compensation systems can incentivize increased performance without reliance on excessive overtime. We are working with contract factories to explore and test such systems as part of this work.

In addition, many factors outside the factory affect workers’ ability to show up on time and in good health every day. As part of our efforts, we are exploring how we can catalyze third-party investment in products and services that could support workers’ daily needs. Many of the factories in our supply base invest in providing support to their workers through on-site health clinics or financial literacy training, though these efforts are not consistently aimed at addressing worker needs. We are developing a scalable and systemic approach to address these and other issues through commercially viable ecosystems of services and products to support worker needs.

We anticipate sharing more of our journey of exploring, testing, assessing and scaling as we learn more through this work.

Health and safety

We also score contract factories on 35 health and safety factors. In FY12 and FY13, the average contract factory score was 72% on our scorecard, which measures compliance, performance and risk mitigation. The average score improved from 69% in FY11.

During FY13 we worked with the Fair Labor Association to launch an accredited fire safety train-the-trainer program. The program began with national trainers from Sri Lanka, Bangladesh, Indonesia and India, with a target to cascade globally.

Looking at the systems

Through our systems innovation lens we are also further exploring the labor system to better understand our points of leverage and opportunities for innovation. We are developing a deeper understanding of all the elements that affect labor, at every point in the process from governments to brands, factory owners to unions to workers. We will review this work with external stakeholders and then apply it to specific geographies.

This work has helped us focus more on opportunities to influence worker well-being outside the contract factory. Some elements outside the factories include lack of access to affordable and effective ways to manage money. As a result workers employed by our contract factories may pay more than necessary for basic goods and services such as energy, water and credit. Health care and child care are also concerns for workers. We are looking at how we can collaborate with other organizations and factory owners to support workers in their lives outside the contract factory.

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