The Real Costs of Nike Air Max. Why Companies Outsource Their Production

Table of Contents

Register of illustrations

1 Introduction

2 Concepts of men
Thomas Hobbes
Karl Marx

3 Where does Nike produce its products and why?

4 What exactly are the consequences of cheap production in Asia?
4.1 Disadvantages
4.2 Do advantages exist about the production in third world countries?

5 Solution

6 Conclusion

7 Bibliography

Executive summary

The following script deals with the topic of backgrounds of outsourced production in Asian countries at the example of Nike.

According to philosophers like Thomas Hobbes and Karl Marx, humans have a self-interested nature because they first think about their own advantages without thinking about consequences of their behaviour when they save costs. Companies like Nike save costs by outsourcing their production into Asian countries and consumers save costs by spending as little money as possible.

The negative consequences about that are the employer’s bad working conditions which include a poor place of work with too little space, too many working hours per day despite low salaries and the risk of health problems due to work with glue. Moreover, this causes a bad reputation for Nike itself.

A more general disadvantage is the widening gap between rich and poor which leads to inequality and a lack of motivation of the poorer people.

Nevertheless, there are advantages for the Asian countries. Companies and factories are created and by that, places of employment are created which means a regular income and the possibility of exportation of products. Furthermore, the factories have to pay taxes which can be invested into a social system and the infrastructure.

In spite of these advantages, there is the need of improving the conditions of outsourcing the production.

Register of illustrations

Illustration 1: https://de.statista.com/statistik/daten/studie/250150/umfrage/verteilung-der-standorte-der-nike-zulieferer-nach-laendern/

1 Introduction

Globalization is a basis for many companies to increase their profits regardless of disadvantages for many other people who are involved.

This statement seems hard but I will explain what it is intended to be meant. On account of globalization, companies can outsource their production into third world countries to save costs. The reason why companies outsource their production and the consequences of company’s production in third world countries will be discussed in the following report using the example of Nike’s production of clothes in Asia.

Giving that topic, I already assume that the production in Asia is attributed to self-interested behaviour and a self-interested concept of men. Do companies act in accordance with that picture of humans? Why do companies act like this? There are many open question according to selfish concepts of men and the opinions differ in how far that picture is true. I am going to explain a philosophical approach to the question and elaborate my point of view on the subject.

Consequences of outsourcing production can be wide ranged. I will focus on the employers in third world countries, their working conditions and the more extensive consequence of a widening gap between rich and poor.

But one has to take both sides into consideration. I will examine if there are positive aspects about moving the production into Asia for both the factory workers in Asia and the Asian economy.

2 Concepts of men

Thomas Hobbes

One concept of men comes from the English philosopher Thomas Hobbes. According to him, every human being is evil by nature. All men fight against each other because they all pursue the aim of self-preservation, which is a self-interested aim. The causes why they use violence are competition to reach profit and power, mutual mistrust to reach safety and thirst for glory to reach a good reputation.¹

Even though this approach to concepts of men is not the most modern one, it can easily be transferred to economy. Every entrepreneur has the aim to preserve his own existence and the existence of his company. But the principle of economy exceeds the idea of existence, it extends to bringing profit. Nevertheless, bringing profit can be attributed to Hobbes’ idea of competition and thirst for glory. Companies have to survive among a lot of different companies and to be striking, they need more profit, more power and a better reputation than others. Moreover, they enter agreements before spending money or selling products to have the security to receive what they are entitled to without losing money, so their mistrust leads to securities based on agreements.

Karl Marx

A different concept of men is presented by the German philosopher and economist Karl Marx. He had the thesis that there exist “two types of human drives […]: the constant or fixed ones, such as hunger […] and the "relative" appetites […which] owe their origin to […] certain conditions of production".² The latter, the need for money, is “produced by the capitalistic structure of society”.³ “The science of capitalistic economy […] is a truly moral science. Its principal thesis is the renunciation of life and of human needs. The less you are, the less you express your life⁴, the more you have⁵ ” ⁶.

What does it mean for the economy that people are supposed to have the basic needs but additionally the need for capital and that they both are conflicting? According to that theory, it is necessary to find an equilibrium between fulfilling basic needs as well as social interacting and the wish of making money because having enough money is the precondition of many basic needs nowadays, e.g. buying food or participating at the cultural life. But as it is not easy to always find the right equilibrium, there are people to whom it is more important to make money than to attend to emotions or social interacting. In economy, entrepreneurs can be found, trying to gain as much profit as possible without thinking about consequences because they only have one aim. This aim is the need for money. Of course it is clear that not all entrepreneurs act straight towards that aim without thinking about consequences. Additionally, many consumers only think about the cheapest price of products without thinking about the real costs with the background of the worker’s circumstances.

To sum up, there are concepts of man which describe the origin of the self-orientated behaviour of entrepreneurs as well as consumers. Outsourcing products into third world countries happens for the reason of human nature without thinking about the consequences of their behaviour because they safe costs which means profit and advantages towards competitors because by having more money, products can be sold cheaper than before which leads to a higher demand for the product.

3 Where does Nike produce its products and why?

Abbildung in dieser Leseprobe nicht enthalten

Illustration 1

The statistics “Global distribution of locations of Nike’s suppliers of trainers according to parts of production in fiscal year 2017/2018” is published by Nike on the website “statista” in 2018 and shows in which countries Nike lets produce its trainers mostly. 47% of the outsourced production takes place in Vietnam, 26% in China and 21% in Indonesia. All presented countries are Asian countries.

Why does Nike produce its trainers and other products in Asia? The costs for production are very cheap in Asia so they produce there to save their own money.

4 What exactly are the consequences of cheap production in Asia?

4.1 Disadvantages

First of all, the working conditions of the employers in Asia need to be clarified to have an idea what is the problem about it. We all know Nike stores with a big logo to attract customers. But in the “factories in the industrial zone”⁷ of Manila, the capital of the Philippines, no logos can be seen. Over there, it is not about recognizing the brand, the bad working conditions at the Philippines or in different Asian countries are rather meant to be hidden. The employers have to work in “windowless workshops made of cheap plastic and aluminium […] [with] open doors [as] the ventilation system”. But not only the working place is capable of improvement. The workers are wanted to work as much as possible, “the maximum number of working hours [is] extracted from each day. Nevertheless, they are paid rarely. ⁸

One 40 year old woman has been interviewed by reporters of “Stiftung Warentest”. She left her family to work for Nike to finance her children’s education. Her maximum salary is 70€ per month and for herself there are only about 10€ left per month. The consequence is that she can neither buy clothes for herself nor visit her family. A different woman has health problems because she has to work with glue. The glue causes problems in breathing, skin diseases and infertility. To solve their problems, usually it is possible to go on strike but this is prohibited and will be punished by a dismissal. ⁹ Moreover, even a lot of children have to work in Asia, in numbers there are 114 million child workers in Asia and the Pacific, which means every eighth child has to work. ¹⁰

So the factory workers are exploited because they simply have no different opportunities than being unemployed or accepting the working conditions I described. Being unemployed means they cannot finance their lives so they decide to accept the working conditions in order to earn any money. This is not fair because they have no chance to be paid in accordance to their performance.

Beside poor living conditions of the workers, because they have a minimum free time and a rare salary, there are more disadvantages of multinational corporations. The exploitation of workers in Asia while entrepreneurs in Europe save even more money because of low production costs, results in a widening gap between rich and poor. The inequality is a problem from a moral point of view because all men are free and equal born with human dignity and rights according to the human rights. Furthermore, it is an economic problem because inequality can delay economic growth.

Poorer people have less prospects of promotion and this damages the motivation. If those people lose their perspectives further, they could be so desperate that they come to Europe. But that is neither a solution for us nor for them. Considered from the other hand, the rich people have more and more money, but this money has to be taken from somewhere so it will be missing somewhere.

But there are not only disadvantages for the workers in developing countries but also for the companies itself. Outsourcing the production into developing countries entails the risk of a bad reputation for the company or the branch. If there are scandals of Nike’s production in Asia, it raises ethical doubts which can lead to extricating of customers.

[...]

¹ (Hobbes, 1651)

² (Marx, 1844, p. 141)

³ (Marx, 1844, p. 141)

⁴ nutrition, cultural life, buying products, thinking, emotions, social behaviour or creativity etc.

⁵ capital

⁶ (Marx, 1844, pp. 144 - 145)

⁷ (Klein, 2000)

⁸ (Spiegel Online)

⁹ (Stiftung Warentest)

¹⁰ (Bundeszentrale für politische Bildung)