The case study

Nike and Sweatshop Labor Nike, a company headquartered in Beaverton, Oregon, is a major force in the sports footwear and fashion industry, with annual sales exceeding $12 billion, more than half of which now come from outside the United States. The company was co-founded in 1964 by Phil Knight, a CPA at Price Waterhouse, and Bill Bowerman, college track coach, each investing $500 to start. The company, initially called Blue Ribbon Sports, changed its name to Nike in 1971 and adopted the "Swoosh" logo-recognizable around the world-originally designed by a college student for $35. Nike became highly successful in designing and marketing mass-appealing products such as the Air Jordan, the best-selling athletic shoe of all time. Nike has no production facilities in the United States. Rather, the company manufactures athletic shoes and garments in such Asian countries as China, Indonesia, and Vietnam using subcontractors, and sells the products in the U.S. and international markets.

In each of those Asian countries where Nike has production facilities, the rates of unemployment and under-employment are quite high. The wage rate is very low in those countries by U.S. standards-the hourly wage rate in the manufacturing sector is less than $1 in each of those countries, coxmpared with about $20 in the United States. In addition, workers in those countries often operate in poor and unhealthy environments and their rights are not particularly well protected. Understandably, host countries are eager to attract foreign investments like Nike's to develop their economies and raise the living standards of their citizens. Recently, however, Nike came under worldwide criticism for its practice of hiring workers for such a low rate of pay-"next to nothing" in the words of critics-and condoning poor working conditions in host countries. Initially, Nike denied the sweatshop charges and lashed out at critics. But later, the company began monitoring the labor practices at its overseas factories and grading the factories in order to improve labor standards. Nike also agreed to random factory inspections by disinterested parties.

Discussion points :

1. Three major dimensions distinguish international finance from domestic finance; state the major dimensions this case explains

2. Does Nike's action support International financial management goal of shareholder wealth maximization? Discuss.

3. Why is international trade more risky from the exporter's perspective?