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Multinational Strategy Nike Case

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Submitted By eddie62220
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M ultinational Strategy
«In the current economic climate it is critical that the increased regulation of business should be considered more than ever to protect workers rights»

Table of Contents

Introduction

3
4

The globalisation and its impact on the Labour
Globalisation and the new international division of labour in East Asian countries

4

The regulation of the labour market in the world, which are the actors ?

4
6

The regulation issue for the labour market
Labour law, and government policies

6

Responsive regulation, a solution to the deregulation policy problems ?

7

Conclusion

8

2

Introduction

Globalisation represents a set of elements that have profoundly altered the world

economy, the international trade, and the relations between each country. The globalisation has also changed the labour market and work in all countries, creating a "global work" market. The labour market is divided into two parts around the world: the labour force in developed post-industrial economies, which is a very expensive labour and less productive but provided high quality goods and a labour of works from developing countries, which offered low wage rates and few workers rights. In their search for economy and profits, multinationals have become increasingly interested in the potential offered by developing countries in terms of manpower often less expensive than in their countries of origin. Moreover, the deregulation policies pursued in United States during the '80s, have offered to the multinationals more freedom of action and more opportunities around the world. Asia was the cradle of the first movement led by multinationals offshoring, in their search for productive economy.
However, this labour has often been misused, paid with low wages, often composed of children, and working conditions which violate international labour laws. It therefore appears that the use of labour from developing countries has been increasingly criticised by humanitarian organisations, consumers and governments of developed countries.
The Nike case studies highlights the problems posed by the massive offshoring politics conducted by the multinational since the 80s, particularly in Asia. An important number of errors have been made by the multinational companies in terms of human rights, international rules of labour, but also the respect of the environment, put back into question the policies of deregulation. We can add to this the recent economic crisis, which put back into question the concept of deregulation.
The purpose of this essay is to analyze the reasons that led to such errors. But also to understand why in the current economic context, the regulation is preferred, especially for the safety of the workers in developing countries.

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The globalisation and its impact on the Labour
Globalisation and the new international division of labour in East Asian countries

Globalisation has impacted on all the countries in the world, whether Less Developed Countries or More Developed Countries. The result in most countries is major economic changes due to the growth of international exchange and the economic interdependence between countries. The globalisation has also built an open and borderless world economy, based on an «universalisation» of brands, and the diffusion of a common range of products, values and experiences all around the world.
In the LDCs, changes were made under three different aspects:
- First, some LDCs have developed very rapidly to become Newly Developed Countries
- Second, most of the multinational companies have decided to relocate their production tasks and some types of manufacturing production to LDCs.
- Third , some LDCs have managed to cartelize (Asian dragons) and thus to improve returns from primary production. (Walters M.)
The Asian NICs (Hong-Kong, Singapore, South Korea, Taiwan, joined after by China, Malaysia, and Thailand) have generally used export-oriented measures, with a specific policy initiatives which includes tax incentives to investors, duty-free importation of components and capital goods, wage suppression and depressed currency values (Walters and Blake 1992).
They produce a variety of consumer goods, but also components for new technologies, and without forgetting the traditional labour intensive supplied to make clothes.
Many multinationals companies have thus migrated their production to these countries, mainly due to the labour cost being extremely low. But it quickly became clear that in a globalised world, information about the exploitation of manpower at low cost, or minor in
Asian countries, came to the ears of the MDCs’ consumers and governments. As in the case of Nike, the brand lost its value in the public opinion.

The regulation of the labour market in the world, which are the actors ?

The recent financial crisis has led many countries to reconsider the degree of regulation which should be put in place to prevent further such failures.
But regarding the regulation of the labour market, it appears that the variations are in two main areas:
- The country's wealth. Developed countries are more likely to offer a policy of regulation and protection of workers' rights

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- The internal politics of the country. Under the policy direction of the country, The degree of regulation can vary greatly.
According to Baldwin, Scott and Hood, there are three definitions of regulation which can be identified within the literature.
• Direct Regulation: targeted rules promulgated by the state
• Indirect Regulation: more general state-based regulation of the economy which influences a range of economic and social spheres subject to targeted regulation
• Non-State Regulation: all mechanisms of social control, formal and informal, state-directed or otherwise.
The state appears to be one of the most important actors and decisions makers in the regulation policies and the establishment of labour laws. The government instabilities in some less developed countries and the pressures made by some multinationals companies on these countries, do not help the human rights and the worker protection.
In the case of developing countries, some international agencies are putting pressure on the establishment of international laws to improve living conditions for workers, but also to fight against child labour. This is the case of the International Labour Organisation, which has been created to deal with labour issues in the world. The organisation has to put pressure on some countries which have adopted unethical working practices by deploying a series of international ramifications to the members countries.
The regulation should not only target government policies but also the multinationals companies which act unethically in some developing countries. The Organisation for Economic Cooperation and Development (OECD) plays an important role in the regulation of the actions lead by multinationals companies. In 1976 the OECD adopted the Declaration on International Investment and Multinational Enterprises. In 2000, the document was rewritten to meet current expectations, and annexed by the OECD Guidelines for Multinational Enterprises. According to Gordon K., «The Guidelines help ensure that MNEs act in harmony with the policies of countries in which they operate and with societal expectations». (Gordon K., 2001)
While the scope of this document is limited only to the members of the OECD, it helps to promote the businesses which have a good business conduct in their Foreign Direct Investment and host countries. International institutions are therefore essential elements in the regulation of labour law at international level, involving both governments, but also multinationals companies.

5

The regulation issue for the labour market
Labour law, and government policies

The state is the key element in the regulation within a country. It determines it’s policy by the degree of involvement of the state in the economic sphere will be, and what degree of regulation that will be laid down to the market will be.
It appears important to provide a precise definition of the concept of regulation. The terms
‘regulation’ has a range of uses, from rules promulgated by the state or an international institution, to ‘all mechanisms of social control, by whomsoever exercised’ (Baldwin et al. 1998).
The labour laws allow firms to impose rules, and procedures that can greatly reduce their scope of action. It is also important do define the term labour law. The focus of the labour law is about the problems emerging from employment relationship and the inherent inequality of power between the employer and the employee in that relation (Collins 1989, Mitchell 1995).
According to Cooney S. et al., the East Asian newly industrialising countries, focus may be more directly drawn to a study of the state’s tripartite arrangements for incorporating and controlling labour’s demands; to an examination of laws which have shaped and directed the labour force to take advantage of domestic or international capital; and to a study of policies designed to produce human resource and productivity outcomes, including industrial restructuring. (Cooney S., Lindsey T., Mitchell R. and Zhu Y.). In the Nike case study, the first party to respond to the activists criticism was the Indonesian government by raising the official minimum daily wage. Although the act was of a minor importance compared to the actions lead by multinationals in the country, it is an effort that shows that the country seeks to improve the general living and working by creating labour laws and increasing the degree of regulation.
But in most cases, the East Asian countries are under pressure from the United States but also from members of the European Union who come to demand greater regulation, more protection of workers rights and a greater respect for the human rights. But these countries are mainly to meet the demands and expectations from non-governmental institutions (Kuruvilla and Arudsothy 1995). Moreover, the International Labour Organisation (ILO) is one of the most important external sources of labour laws for most of the East Asian countries. The number of ratifications and law is low compared to the labour law in most of the european countries. But it nevertheless appears that this organism has a strong impact on some developing countries, which does not yet have a very strong legislation in terms of labor law (for example, work of Kent on the influence of ILO in China, Kent, 1999:117-45).

6

Responsive regulation, a solution to the deregulation policy problems ?

The basic idea of responsive regulation is that governments should be responsive to the conduct of those they seek to regulate in deciding whether a more or less interventionist response is needed (Ayres & Braithwaite, 1992).
The concept of responsiveness regulation is based on confidence on the market actors (consumers or businesses). These actors are self-regulated. But in case of errors or failures, regulation measures are undertaken by national institutions.
A model in the form of pyramid was developed by Braithwaite J. which demonstrates the concept of response. According to Braithwaite, «The idea of the pyramid is that our presumption should always be to start at the base of the pyramid first. Then escalate to somewhat punitive approaches only reluctantly and only when dialogue fails. Then escalate to even more punitive approaches only when the more modest forms of punishment fail.» (Braithwaite
J., 2006)
The state has a major role in the management of the pyramid. However, it often appears that the state can be pressured and bribed by the companies, and this risk is even greater in poor countries. Also what would be the interest for developing countries to put pressure on the practices of a multinational company on its territory. The case of Nike, also shows that certain practices lead by companies which are not ethic and sometimes illegal, may be omitted by the states. Their only interest is to attract investors and not scaring them away by a policy of oppressive regulation. Ayres and Braithwaite argue for the central importance of third parties, particularly NGOs, to be directly involved in regulatory enforcement oversight (Ayres & Braithwaite, 1992, chap. 3). The case study underlines one of its non-governmental organisation, the Asian-American Free Labour Association AAFLA, which highlights the labour practices of
Nike in some Asian countries. So it appears that the NGO can be in some developing countries the most effective regulator of corporate abuses of human rights.

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Conclusion
The Nike case highlights the inequities of human exploitation in the developed countries and the differences in the degree of regulation imposed by each country to the multinational companies. The recent financial crisis that affected the entire world population which was caused by excessive deregulation of the market, has revived regulation policies all around the world.
But regulatory policies relating to labour, do not go in the direction of the governments of developing countries which are seeking to attract multinationals companies in their country to create wealth and employment. However, it appears that international institutions can exert pressure and put in place in these countries, legislation which permit to make the human labour acceptable and ethic.

8

Sources:

- Davies G. and Nyland C., Globalization in the Asian Region: Impacts and consequences.
- Walters M., Globalization 2nd edition;
- Walters, R. and D. Blake (1992), The Politics of Global Economic Relations, Englewood Cliffs, NJ: Prentice-Hall
- Ayres, I., & Braithwaite, J. (1992). Responsive regulation: Transcending the deregulation debate. Oxford, UK:
Oxford University Press.
- Braithwaite, J. (2006), Responsive Regulation and Developing Economies, World Development Vol. 34, No. 5, pp. 884-898, 2006
- Cooney S., Lindsey T., Mitchell R. and Zhu Y., Law and Labour Market Regulation in East Asia, Routledge
Studies in the Growth Economies of Asia
- Mitchell, R. (ed) (1995) Redefining Labour Law, Melbourne : Centre for Employment and Labour Relations
Law, The University of Melbourne.
- Collins, Hugh, 1989, Labour Law as a Vocation 105(3) Law Quarterly Review 468–484.
- Kuruvilla, S. and Arudsothy, P. (1995), Economic Development Strategy, Government Labour Policy and FirmLevel Industrial Relations Practices in Malaysia in A. Verma, T.A. Kochan, and R.D. Lansbury, Employment Relations in the Growing Asian Economies, London: Routledge.
- Baldwin, Scott and Hood, above n25, p3
- OECD Guidelines for Multinational Enterprises, 2000
- Gordon K. (2001), The OECD Guidelines and Other Corporate Responsibility Instruments: A Comparison`
- Case studies, Hitting the Wall: Nike and International Labor Practices, Phil Knight, 1998
- Bartlette C et al 2008, Transnational Management , McGraw Hill, London.

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