NIKTUC~1.txt is a Nike Inc. file in the series; created Friday, June 19, 1998 5:38:17 PM; last modified Saturday, February 14, 1998 2:50:16 PM; saved by D. Boje as NikTuck1confcall (file origins).



Moderator: Dusty Kidd

October 17, 1997

11:00 a.m. MT



Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Nike labor practices conference call. At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session. At that time, if you have a question you will need to press the one, followed by the four, on your push button phone. As a reminder, this conference is being recorded Friday, October 17th, 1997.


Your speaker for today is Vada Manager, senior manager for public relations, Nike. I would now like to turn the conference over to Mr. Manager. Please go ahead.


Vada Manager: Well, good afternoon and good morning to some. Thank you for joining us for the conference call today. Before we get started, I wanted to do a couple pieces of housekeeping and give you just a little bit of overview, and then we will be joined in sequence by Dusty Kidd, who is the director of Nike's labor practices department globally for the company. And then we'll be subsequently joined to talk about the Dartmouth College results in terms of the spending and wage study

by First Professor Gene Mihaly, who is an adjunct professor at the International School of Business at the Dartmouth Amos Tuck School of Business as well as with Professor Joseph Massey, who co-supervised the Tuck project, who is also with Dartmouth College and is with the Center for Asia and Emerging Economies.


I also wanted to add here as well that as always, as is customary when we have conducted conference calls both on financial matters as well as on issues of corporate matters, we've always recorded the phone calls and we also make a transcript for this available on replay for a period of time. And for those interested in either communicating this to other colleagues for replay or for hearing this replay of this conference call for themselves, it will be replayed at 6:00 p.m. Eastern Time today, and the telephone number to access that replay is 800-633-8284. And if anyone has any questions, they can call the Nike public relations office at 503-671-2875 or 3160 to clarify that.


And as always, if you decide to ask a question it'll be included in any future recording of this, and any recording of this conference call or other use of the transmission of the text or audio is not permitted without the express consent of Nike.


So with that brief introduction and housekeeping, why don't we just kind of begin the overview. I think it's pretty well known and we appreciate everyone being here, that Nike is the leader in developing high performance footwear and apparel. It's pretty well known around the world that we've garnered a reputation for [unintelligible]

programs and multi-million dollar commitments with the boys and girls club and our advocacy for gender and racial equality in the workplace. But what is not as well known is our leadership in the overall global manufacturing arena where we've created some 500,000 jobs in our 25-year history and in developing economies around the world.


Nike, since 1992, has had a Code of Conduct-- was one of the first companies in this industry to develop one. We also have some 1,000 production personnel on the floor every day to both monitor not only the quality of products that come off the assembly lines but also to insure that our factory conditions are really second to none. And in

1996 we developed the labor practice department, which Dusty will talk about a little bit later.


We also have retained the services of Ernst and Young and Price Waterhouse as our auditors, who, since 1994, have, on a periodic basis and in some cases a monthly basis, tested factory compliance against our code of conduct by interviewing workers and monitoring factory conditions. And they kind of serve as kind of ongoing, rigorous external monitors and third-party monitors for the progress that we're making in the factories and checking on wages and overtime and the other issues that make our factories, we believe, superior to others in the business.


We were one of the first companies, many people may have known, in August of 1996 to join President Clinton's pro-industry partnership. We certainly during that particular period of time [unintelligible] our code of conduct after their initial work to confirm to the work that they were doing, which as everyone knows is to develop some uniform rules to eradicate sweatshops in the United States as well as across the world.


With that, we have taken a number of initiatives that Dusty will talk about and probably at this time it probably would be good to have Dusty Kidd kind of talk about some of the specific initiatives that Nike's engaged in with regard to former ambassador Andrew Young and his report will relegate the Dartmouth study to after some of the other specific initiatives that Dusty will discuss. And so Dusty, at this particular point, why don't you go ahead and make your presentation, please.


Dusty Kidd: Thanks, Vada, and welcome, everybody, to the call. I'll be brief. Just let me give you a quick snapshot of what labor practices does at Nike. It's a department which has a number of different functions that are all really focused on the worker in the contract arenas and understanding that we have 32 countries around the world where Nike products are made by contract manufacturers. So at this point, probably about 350 factories-- it's no small task to kind of keep an eye on that and make sure that they have the best working environment.


We have basically an internal component to start with. We have managers, full time, working in labor practices for us in four of our most important source countries. That is, China, Vietnam, Indonesia and the Philippines. They also have inspectors and other people that work for them on the ground in those four countries. Their essential job is to oversee our-- the relationship between Nike, the factory management and the workers, and to assure that the workers are getting the best deals in terms of their work environment as well as to be sure that they're getting paid what they're supposed to be paid and so forth.


One of the programs that those people implement and continue on an ongoing basis is a monthly inspection of the factories. It has about 100 points to it and whenever they discover anything that they think needs to be corrected or improved we work with the management of the factories and our own production department to be sure that action plans are put in place to make those improvements. So it's a very systematic approach to increasing the level of factory workplace standards every month.


A second is training. We have a full-time training manager who has 14 years of experience in human resource training. She is an Asian-American who will go periodically out to Asia to work with our contractors, primarily on topics like culture

and how do you manage, for example, in Vietnam if you're a Taiwanese, or in Indonesia if you're Korean. So that's something that I think is unique to the industry and we think over the long haul will have a real impact on management capabilities.


A third is we oversee our external monitoring functions which, as Vada mentioned before, include some Price Waterhouse, Ernst and Young type auditing. But we also have a list of pilot projects we've initiated this year and last year where we've asked

NGOs and universities to come in and assess worker attitude toward their jobs and give us feedback so that we can go back to management. And those sorts of assessments are done in a totally confidential manner so that we don't have any sort of taint or concern on the part of the worker that anything they say might be used in any way to harm them.


Finally, we work with NGOs. I do a lot of conversations with NGOs around the world, non-governmental organizations, to get a sense of how they feel about these issues and what we can learn from them and it's been a really interesting process for us because Nike is a company-- this is probably the first year or two that we've actually done a lot of that, and we've learned a lot from it.


The one thing I wanted to speak a little bit about today and have our two guests speak about is an outside project which we initiated at the end of the spring with Dartmouth College and their Amos Tuck School of Business. They had study teams who were going to Indonesia and Vietnam and asked if we had any work that they could do for us. And we asked them, yes, if they could, to take a look at wages, take a look at spending, and give us a sense of-- in a more systematic and more academic way, how wages relate to need.


We've had a lot of anecdotal information, both from our own gathering of information, but also a lot of other people who are interested in this topic. I don't think that it particularly serves the topic well to sort of battle in the press with anecdotes. I think we need to get a much more systematic way of looking at these questions and the Dartmouth folks have done what we think is a really good job of laying out some interesting information for us.


So I thought it would be helpful for you to hear from Eugene Mihaly and from Joe Massey and they can talk a little bit about the two countries that they looked at and some of the things they found and some of the areas, perhaps, where further study might be warranted.


So, I'll turn it back over to you, Vada.


V. Manager: Gentlemen, professors-- if you'd like to begin to give some brief overviews, now would be the appropriate time.


Gene Mihaly: OK. This is Gene Mihaly. Hello, everybody. I'm speaking first, I think, because Indonesia comes before Vietnam in alphabetical order and I was in Indonesia and Joe Massey was in Vietnam.


Let me just give a word of background. We worked for six companies in the two countries doing eight projects this summer. The students involved are between their first-- or were between their first and second years of their MBA-- that is, they'll be getting their MBAs in the spring of '98.


The projects were of a variety of types. This one, as Dusty said, was to take a look at what people could actually buy with what they were paid in the contract factories.


In the Indonesian instance, the finding was very intriguing. After much interviewing at factories, a number of factories, some non-Nike, most Nike, we found that a typical worker was able to save about on average 20 percent of his or her income. By the way, they were about 85 percent women, which is the typical profile in Indonesia.


These are people, most of them, in their first jobs. We concentrated on people who had not been working for terribly long because we wanted to really look at minimum wage situations.


The market basket-- we assessed what it cost to buy rice and noodles and the sort of basic-- meat-- basic market food basket and then looked at transportation costs and so on. The study has a lot of detail which those of you who wish it can, I'm sure, get from Nike. We felt that we came away with a rather good photograph of what people working in these factories at the minimum wage actually do spend their money on.

And it is an interesting cluster of basic needs -- that is, food, housing -- and then goes on to discretionary spending and to savings.


Virtually everybody sends money home to his or her family. The amount sent home varies. I mean in some cases, the factories offer people free room and free board, and obviously they have more money to save. Many people come from the neighborhoods around the factories and commute, you know, to their family house and contribute a large percentage of their earnings to the family. But in all cases, there was contributions to the support of the family and a capacity to save.


I think that's the photograph of what we've got in Indonesia, and I'd ask Joe to pick up the story on the Vietnam side.


Joseph Massey: Thank you, Gene. And hello everybody. What you've heard from Professor Mihaly about Indonesia is very similar to what we found in Vietnam. In Vietnam, we had a team of Tuck students conduct interviews at 160 households in two villages in close proximity to two of the sub-contractors for Nike in southern Vietnam, the Sam Yang and Chang Shin factories. We plotted expenditures by essential category of food, clothing, shelter, transportation, et cetera, as well as

discretionary expenditures and income.


The finding was that in Vietnam, the monthly mean wages at the two factories of -- and they are roughly $47 and $56 U.S. respectively -- more than covered the essentials which amounted to about $27 in the one case and $29 in the other, leaving a significant amount of discretionary monthly income which was either saved or sent home. Most of the workers were young women. We also looked at the annual

incomes and compared those with annual per capital wages that have been sited in other income research by the World Bank and others, and found that the Nike contract factory workers at these two facilities is well above the estimated per capita annual wages.


So we came away feeling that we had gotten, as Gene said, a good snapshot of living conditions in Vietnam from the point of view of household expenditures and income are. And we did this in a very intensive way. The students were in the villages virtually every day talking one on one to the householders, the factory workers, their spouses and parents and children, and have come up with what we think is a quite systematic study. It's a small-scale study. It's only 160 households, but it is a systematic one. The households were randomly chosen. The results are as Nike has announced them in their press release. And by the way, we were subject to no pressure from Nike with respect to how we would conduct the survey or how the data would be interpreted.


We wouldn't have accepted any such pressure. A study that was done by students at a Tuck School MBA course and done in a professional and academic way.


We're satisfied that the results we've gotten are within the parameters of the study we did, accurate as a description, as Gene said, a snapshot-- a photograph of where things stand in the villages and factories around the sub-contractors of Nike in Southern Vietnam.


Why don't I stop there, and happy to take questions.


G. Mihaly: Could I just add a word? This is Gene Mihaly. Both Joe Massey and I are gray beards and we were not-- we didn't do these surveys. The students-- the teams did them. We were there to help them in case they ran into major governmental obstacles or logistics obstacles. We-- in other words, we were there to make it possible for them to do their work, and the results are theirs-- not the school's, not ours.


J. Massey: That's right. That's exactly right. And we are quite pleased with the results. We think that the results that were produced by the student teams-- not only the Nike team but the Disney team, the Hewlett Packard team, the Motorola team, the Air Products team, the CitiBank team were all highly professional. We think that the companies that commissioned them and got objective analysis of the issues that the students were asked to analyze and a high quality one.


V. Manager: This is Vada Manager. I'll add that the study results are very consistent with other past research by the World Bank, particularly in the wage areas and spending areas that we have seen in other bodies of research they conducted in other places around the country.


We promised that we would have plenty of time for questions, so at this time, why don't we begin the process of having questions. We'd like to ask every news organization to identify themselves, please, by name of news organization and follow the procedures outlined by the operator for answering your question, I believe by pressing the one button on your phone. So why don't we have the first question, please?


Operator: Ladies and gentlemen, we will now begin the question-and-answer session. If you have a question, you will need to press the one, followed by the four, on your push button phone. You will hear a three-tone prompt acknowledging your request, and your questions will be polled in the order they are received. If your question has been answered and you would like to withdraw your polling request, you

may do so by pressing the one, followed by the three, on your push-button phone. If you are using a speaker phone, please pick up your handset before pressing the numbers. One moment, please, for the first question.


Naomi Klein from Toronto Star, please go ahead with your question.


Naomi Klein: My question is for the researchers, for the professors. I'm wondering if the wages that you cited included overtime. If so, how much overtime were these workers working? Also, I'm wondering-- were most of the workers single? You said that they were young women for the most part. So when you talked about their basic needs, were those basic needs for one or were those basic needs for a family or two people?


The other question related to that is you said that there was money to send home, particularly, I believe, when workers were living at the factory and getting food as they do at Nicomassen, Indonesia. And I'm just wondering whether in their opinion that seems to them to be a fair life style for a factory worker to live in an armed, guarded factory in rooms with 12 or 8 to 12 other people.


G. Mihaly: Joe, do you want to-- we've got two situations here, so I guess we both have to answer. Joe, do you want to go first?


J. Massey: Why don't I take the overtime and single questions, Gene, and let you add whatever you wish with respect to Indonesia. But with respect to Vietnam there was no overtime included in those wages. The understanding, and Dusty, you may want to chime in, is that neither of the factories was working in an overtime situation, at least while we were there. So the wages that are reported are the wages without any overtime, nor was there overtime ongoing at that time.


Secondly, with respect to were most of the workers single-- yes, they were mostly single workers but the Vietnam study, in any event, was conducted in households. We went to-- or the-- we-- I should say the student teams went to 160 households in the two villages and interviewed not only workers but spouses, mothers, children, et cetera. The average size was slightly larger than four people in each of the households and the household expenditure requirements were analyzed.


G. Mihaly: Let's see if I can address the questions from the Indonesian perspective. Again, the overtime amount was trivial. This is not that banner a year, I gather, so a 40-hour week was pretty typical.


In the Indonesian case, the huge percentage of the young women was single. Remember, again, we were talking to the minimum wage people, which means people who've only been there about six months. And the typical pattern in Indonesia is that a young woman will come to work in one of these factories for about three years and then get married and leave the job.


As to the dormitory situation, you know, people are coming from all over the country to get these jobs. And some factories can get all the workers that they need from the immediate surrounding area. Others are in places with less population. So there is the dormitory set up. It's obviously voluntary. People can live wherever they want to. This is a very nice deal because it's free, with meals.


We looked through those dormitories. They're-- you know, they are dormitories. The conditions are, I think, nice by any standards, but certainly in terms of what's possible in Indonesian housing in the lower-income levels, quite good. People seem to be content with them. I don't know about guards outside. I suspect that's to prevent theft. People come and go as they want. There's no feeling of coercion at all-- I mean-- which is what I thought the question might be looking for.


D. Kidd: Yeah, Gene-- I can add-- this is Dusty Kidd. With respect to overtime now-- I mean in March when we modified our code of conduct to conform with the new agreement of the apparel industry partnership, we put a cap of no more than 60 hours of mandatory work in countries where mandatory work is part of law. And that, combined with a lower growth rate-- I'm not so sure I would agree it's not a banner year, Gene, but it's certainly lower growth this year than last year. Overtime is just not a factor in income. In fact, it's a real concern on the part of a lot of our factory managers that some of their best workers may be moving to other factories because there are no caps in the other factories. In some cases, they're working at 20 hours or more a week above the level of the contract manufacturers that we work with now.


G. Mihaly: There was another point which the reporter asked about which was given that these people were single, they weren't supporting a family. That's a very interesting issue. We have five categories in the Indonesian case -- single, living at home; single, living in an apartment nearby; single, living in a dormitory; married; et cetera. The wage-- people used their income in all these cases, as anybody would anywhere in the world, to meet the needs that they had. Single people generally contributed to their families-- I mean their parents' houses-- households. Married people to the family context. You know, a typical case-- a household of four -- mother, father, two kids. One of them is working in the factory. Probably means two wage earners. And basically that's the case with young married couples as well, except that it's a household of two instead of four.


J. Massey: Once again, Gene, that aptly describes the situation not only in Indonesia but in Vietnam as well.


V. Manager: Next question, please.


Operator: Bruce Ramsey with the "Seattle Post Intelligencer," please go ahead with your question.


Bruce Ramsey: Yes, do you have any information or collect any information on how the wages had changed over time, as to whether these people are better off today than their predecessors were five or ten years ago?


G. Mihaly: Oh, yes. In the Indonesian case, there's been a very striking increase in the minimum wage. Industry in general has been nervous about this, because the rate of increase of wages has been higher than the rate of increase in productivity, meaning that Indonesia as a country is losing, slowly, its capacity to attract new labor-intensive industries. I-- Dusty can give the exact number, but my sense is in the last six or seven years there's been about a trebling of minimum wage while the rate of inflation has been running a little under 10. Dusty, am I right?


D. Kidd: Yeah, you're close. We have a bit of an apples-and-orange comparison because in 1992 when the minimum wage in Indonesia was 2,200 rupiah a day, that was equivalent to about $1.00 U.S. Now, if you use the same way to calculate that is per day as opposed to the new minimum wage which is a 30-day month, although they only work 25 days, it's actually equivalent to about 6,500 or 6,600 rupiah a month-- or a day. And it's a real concern for everybody. Obviously we don't want to see jobs go away because of too high a cost for labor, but I don't think there's any question that the worker today is far better off. In 1992, the Ministry of Manpower in Indonesia was concerned that the minimum wage that they had to set to attract-- I think to attract jobs-- was lower than what they thought was a minimum physical need by a-- I don't know-- 3,200 rupiah is what they cited then. Now, the wages have tripled; inflation has definitely not tripled. And my guess is that certainly based on what your study shows, that they're well above need.


J. Massey: In Vietnam, too, by the way, the World Bank did a study, announced in February, 1995, which gave annual income levels and talked about levels of poverty in Vietnam, and the student study shows that in the period since then, through 1997, there's been substantial increase in income and that the-- as well as a substantial increase in expenditures-- expenditures for things like electricity, for instance. Utility expenses are now a substantially higher proportion for our respondents in the two villages than was the case when the World Bank did the study three years ago, indicating that electricity has come to the villages. A great preponderance of the households of the villages now have motorbikes; they have television sets; they have bicycles. So it's very clear that there's been a substantial enhancement of living standards in Vietnam.


V. Manager: It's like in Indonesia, it's important to add that because of this rapid increase in the wages there, even the government, I think, recognized that in April of

1997, in which at the same time that they enacted a 10.7 percent increase in the minimum wage, they also allowed certain contractors and certain industries to simultaneously apply for an exemption from the 172,500 rupiah minimum wage which obviously lowers labor costs for some contractors. But it's important to note here-- we often get the question of how is Nike different from other companies, other contractors that do business in this market. We are the only company in Indonesia that we believe that has directed its contractors that they cannot apply for that government exemption to pay less than the legally stated 172,500 wage. All of our contractors that have to pay that at a minimum or more.


I think we're ready for the next question, please.


Operator: Tim Shorrock from "The Journal of Commerce," please go ahead with your question.


Tim Shorrock: OK. I've got a couple of questions which I want to ask in order and I'll just state them. First of all, in determining wages, I want to know how you, you know, did you use the workers' wage stub or was this from the factory. I know-- I

did a story a few months ago how the Sam Yang factory had apologized to workers for violating Vietnamese law about overtime work and I'm wondering, you know, how you made your judgments on which, you know, wage figures were accurate.


Question one.


Number two, is Nike going to use this report to conclude that there should be no increase of wages for workers in Indonesia and Vietnam and, you know, a sort of side question to that is, you know, what conclusions does Nike gain from this report.


And question three is did the Dartmouth researchers look into at all the issue of freedom of association in Vietnam and Indonesia and how the lack of labor rights, particularly in Indonesia, has effected, you know, either minimum wage or, you know, it just affected workers' conditions in general.


G. Mihaly: Joe, do you want to start and then I'll go on?


J. Massey: Sure. The-- we did not look at wage stubs. We took average wages as reported to us by the factories. So, I mean we have no reason off the-- you know, a priori, to assume that they would give to an academic research team fraudulent data. So we accepted both the information that we received from the factories about what the factory minimum wage, the factory average wages were.


G. Mihaly: In the Indonesian case, we had two sources of information-- three actually. The first was computer printouts provided by the factories as to who was paid what. Secondly, we had confirmation from the government labor people who monitor that factories do, in fact, pay the minimum wage. And they are very serious about this. This is a potential hot political potato and to my knowledge in Indonesia -- and I've been going there for close to 30 years -- there isn't any screwing around. Which is not to say that there isn't some crook somewhere running a factory where he's trying to pay less. You know, every country has its crooks, and certainly Indonesia.


And the third source that we used was the workers themselves. We back checked. That is, we asked them to take their wage, which they wrote down, and then show how they spent it. So with that combination, we were very confident that we were getting a clear, accurate and unbiased wage number. As to Nike intentions, that's nothing I can speak to.


Freedom of association and labor rights in Indonesia-- the questioner is correct in that the Indonesian government has been-- has an official union which sometimes gets up on its hind legs and really stands up for its members, but more often than not is passive. And there is a quiet struggle going on to have an AF of L kind of structure in Indonesia. That being said, as an observer of that scene for a long time, I'd say that in foreign factories, conditions are very good because they're under special scrutiny. The pressure to have better representation tends to be far lower, which is a way of saying, bottom line, it ain't ideal, but it's pretty good.


I didn't sense-- the teams didn't sense any tension in the factories we looked at, and a very high level of satisfaction with circumstance-- with working conditions. There obviously-- there must have been exceptions. There always are. And, you know, 10 years from now the country will have undoubtedly moved further down the road towards a more liberal labor rights regime. You know, that's, I think, one of the things that happens in the development process. As national incomes rise, labor rights do firm up and improve.


D. Kidd: This is Dusty. Let me speak to the question about conclusions that Nike might or might not draw and what sort of actions we might take on the basis. This is a first step in a lot of new information that needs to be gathered on all these countries in the developing world that rely largely on contract manufacturing and exports to build their economies. We make no pretense that this is the end-all and be-all of any sort of investigation of this sort, but we do think, as one conclusion, that it supports what our gathering of information on a less academic level has been telling us for several years through Ernst and Young auditing which always includes interviews with 50 workers

or more and an assessment of their own sense of how they save their money or don't.


True, our own anecdotal, ongoing gathering of information with our labor people in the factories every day who are perfectly bilingual-- this lines up very closely with the things that we've been thinking are true, based on that sort of an accumulation of knowledge.


As to how it would change our point of view on wages and whether they should rise or fall-- I mean there are essentially two things that I think dictate that. Number one is-- what's the minimum wage? It should never fall below the minimum wage and we won't allow that. Number two is to what extent does increase in productivity allow labor to be paid more money. And if you think of Indonesia again where it's tripled in five years, Vietnam almost certainly will follow a path, if not at that level, certainly in that direction. They are, in two years time, more productive and probably more skilled than any other work force that it's been my experience to encounter in the seven or eight countries that we operate in out there on the footwear side.


V. Manager: I should also add on the collective bargaining side that the Vietnam Investment Review, which is a pretty prominent business publication in Vietnam, reported in early July as a result of one of our contractors there, the Tai Kwon Zena Company, which is a subcontractor in Dong Nai province of Vietnam, actually initiated what is being considered there and what was reported as a fairly watershed collective bargaining agreement with the factory trade union. Now, obviously Vietnam still, where the concept of organized labor is still underdeveloped obviously being a Communist country, but at the same time our contractors are, on an individual basis, reaching out and working with factory trade unions to sign collective bargaining contracts in order to provide some degree of worker representation.


Again, as the professor pointed out earlier, it's not a perfect concept, but in countries where this concept is just developing, we are taking some steps on an individual basis and pioneering some programs to improve employee-employer relations at those factories.


Next question, please.


Operator: Jeff Manning from "Oregonian" newspaper, please go ahead with your question.


Jeff Manning: Hi, guys. I was wondering about the comparison of the wages at the shoe factories in Vietnam to the national average wage. Is that national average wage-- is that also the average in Cu Chi and Dong Nai or is the-- are the wages in general higher in the south?


J. Massey: The wages are somewhat higher in the south, but that's heavily driven by Ho Chi Minh, the city, and wage levels paid in Ho Chi Minh, which are higher than in the rural countryside. Cu Chi, where Sam Yang is located and Vinh Cuu, where Chang Shin is located, both in Dong Nai province outside Ho Chi Minh are really quite rural areas, and my guess is--