NIKTUK~2.txt is part 2 of the conference call; part of series; created Friday, June 19, 1998 5:38:17 PM; last modified Saturday, February 14, 1998 2:51:02 PM saved as NikTuck2confcall by D. Boje (file origins).



Part II of Conference Call with Tuck Business School Professors

Dusty Kidd, Nike Inc. is Moderator


J. Manning: Do you know what the average wage there is?


J. Massey: Now, I don't know what the province average wage is. My guess is it wouldn't be too far off the national average, and I doubt-- I think it's very clear that it's not going to be at downtown Ho Chi Minh levels.


J. Manning: OK. The worker interviews-- were they conducted with a translator, and who provided the translator?


J. Massey: In the one instance, one of our two students is bilingual in English and Vietnamese. He's a Vietnamese American. We also employed for the other students interpreters and market research assistants who were Vietnamese.


G. Mihaly: In the Indonesian case, our team went out and found a recent university graduate who did the interpretation for them. She had no connection with Nike.


J. Massey: One of our-- I failed to mention, actually, that we also had as an interpreter a 1996 graduate of Dartmouth, who is a Vietnamese-American woman who was there as program assistant.


D. Kidd: You can see, Jeff, that we're learning as we go, here.


J. Manning: Yeah, it doesn't sound like Andrew Young. Last question -- Vada, since you brought it up, I guess it's fair ground. In requesting that your factories pay the new minimum in April and not accept the exemption-- were similar exemptions granted or asked for in previous years that you've been in Indonesia and what was Nike's policy then?


V. Manager: Jeff, everything is always fair ground, but I'll let Dusty answer that since he has greater history on that.


D. Kidd: I'm the fair ground guy today. Yeah, in previous years, I think the previous two years, Jeff, the exemptions were offered aloud and virtually every contractor in our business applied for and got some level of exemption including probably 80 percent of the Nike contract factories and similar numbers for our competitors. But this year was different, at least for us.


J. Manning: Very good. Thanks.


Operator: If there are any additional questions, please press the one followed by the four at this time.


Naomi Klein from "Toronto Star," please go ahead with your follow-up question.


N. Klein: Yeah, I have a question on another topic for Dusty Kidd. I read in a press release in response to the study released by the Asian Monitoring and Resource Center about labor conditions in China that you referred to your opponents as fringe groups with faxes and modems. And then I read another article where Mr. Knight referred to his opponents as-- he said ``They're certainly not athletes.'' And I'm just won-- there seems to be a process where the people who have been critical of your labor practices are trying to be-- you're trying to marginalize them as fringe groups in some way. And from my experience it seems like they really do span the spectrum of kids in the Bronx to nuns in Canada. So I'm-- and all over the world. So I'm-- I'd just like to get a response to that.


D. Kidd: Yeah, that's a fair question, I think. Both Phil's reference and mine were to a particular group which I think is very fairly described that way. I've probably talked to 30 different NGOs in the last year, most of them in very respectful and interesting exchanges of information. I've learned a lot from them. I think Nike has learned a lot from a whole range of groups including one particular group up in Canada that's had some interesting dialogue with us.


But there-- you have to draw a distinction -- we certainly do -- between people who do have real information based on solid research and those who jump at any anecdotal evidence to attempt to attack us. I think this issue is too important to be left to sort of dueling anecdotes. This is a silly way to go about trying to discuss globalization, the impact of economic growth on people, the jobs, the working conditions. That's precisely why we asked Andrew Young to go out and assess one level of our code of conduct, which was compliance, and precisely why we asked the people with the Tuck group to go out and assess a level that he was criticized for not having looked at, although we didn't ask him to. That was how wages related to spending and so forth.


And again, we will describe people as accurately as we think their operation in this arena deserves. And I do think that there are a couple or three groups out there, certainly in this country, that are totally disrespectful of fact and of quiet dialogue and they deserve that sort of response.


N. Klein: I'm just a bit confused by that, though, because you seem to be referring to Global Exchange but the study was not conducted by Global Exchange. Who are you referring to?


D. Kidd: We did not refer-- I've never referred to the Asia Resource Monitoring Center or the Hong Kong CIC as a fringe group, but I would ask, and we've asked them and have yet to hear a response why, if they were so interested in studying factories where our products were made and wished to bring some new information to the general discussion, at no point in their study, not when they initiated it, not when

they met with Andrew Young at my suggestion, not when they went into areas and interviewed workers and not afterward did they ever contact us or the factories to ask what our point of view was on some of the things that they obviously got absolutely wrong.


N. Klein: OK. Thank you.


G. Mihaly: Can I -- this is Gene Mihaly -- I feel like I'm watching a volleyball match and I don't know the rules, so I'll stay out of it. But I would like to make a comment on one piece of information that was thrown into the public realm and that's the daily expenditure on food in Vietnam, which I think is-- one NGO came up with $2.10. Is that right, Dusty?


D. Kidd: Yeah, that's the commonly accepted figure that we've seen since March or April.


G. Mihaly: I think that it's a fascinating number because the mathematics are crazy. This is a country with a per capital income of about $250 and if you take $2.10 and multiple it by the number of days a year, it suggests that most Vietnamese couldn't conceivably survive. We did look at this--


Man: We did, and we discovered that it was between 40 cents and 43 cents a day.


Man: Again, Naomi, what we're seeking here with Dartmouth's group and hopefully with other groups -- I mean it shouldn't be just Nike that has to go out and look at these things on a systematic basis. But we would like a lot of people to get into the debate. But to come to the table with respectful careful information that's gathered in a way that is open and respects the intellectual process. And I think this is a first step. Hopefully we'll have a lot more people interested, based on what these folks have done, and perhaps we'll get a lot better information going forward, not only about these two countries but the other, you know, 60 or 80 countries where people work in minimum wage jobs producing stuff for export.


N. Klein: Thank you.


V. Manager: Naomi, to speak also to an issue of reports and information, there were-- Global Exchange was widely identified by the media and reported and held news conferences about that particular report in China about the facilities there. But it's important to note, as Dusty bifurcates and makes a distinction between groups that

have legitimate interests in advancing in progressive worker rights and those that do not, that there were other groups that certainly had that same information it was provided to who could have associated themselves with that report or could have issued it who, we understand, declined not to issue it because they had problems with the dubious nature of both the methodology and the work that was done on the report.


Man: Next question, please.


Operator: Bruce Ramsey from "Seattle Post Intelligencer," please go ahead with your follow-up question.


Bruce Ramsey: A couple of housekeeping questions here. One is I wanted to get the spelling of Professor Massey's name because I don't have that on the documents here. And also find out how we can go about getting a copy of the study itself.


J. Massey: Massey is spelled m-a-s-s-e-y. It's Joseph. And it's professor of international business at the Tuck School. And this study came under the auspices of our Center for Asia and the Emerging Economies. You'd have to speak with Dusty, I guess, or Vada about getting a copy of the study. It's still in draft. So far as I'm concerned, because our students-- you have to understand, this is in the context of a Dartmouth Tuck School course and the course ends at the end of December. They will be graded for the course-- and so we have a nearly final version of the paper they are turning in for the project but they still have time to polish it. I don't know if--

Dusty, do you want to talk about releasing it?


D. Kidd: Yeah. Vada can talk about the release mechanism itself, but we would expect to-- we're just looking at it now and we would expect to have the final version in a couple of weeks. I haven't actually had time to read through it from cover to cover, but we got numbers, basic numbers, and got a briefing. And I would expect in a couple of weeks we'll have the final document.


V. Manager: Yes. If I can speak a word to release-- public release. As you know, we have demonstrated of releasing whatever research that we've come up in this area on both spending patterns and wages and factory conditions as we do with the Andrew Young report and as we intend to do with this report. As was mentioned, the final is due to us in the next couple weeks or so. I think that we wanted to give the opportunity for the group to provide a briefing and a more substantive briefing to our senior management before we provided the full document with appendices and annotations and footnotes to put in the public domain and provide it to the media.


We thought, however, it was important that we not wait for the information, that the preliminary findings, at least on the major points of issue, be disclosed to you which you have in some degree of detail by the-- both the news release and other means of which you've received it. So we will be back in touch with everyone about a formal release and mailing mechanisms for getting you the report or other means of communicating the full report to you.


D. Kidd: Next question, please.


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


T. Shorrock: Yeah, my follow up is-- I've got a couple of them. First of all, back to the question on, you know, the so-called, you know, fringe groups and so on, I'm wondering-- this is a question to Nike-- would Phil Knight or, you know, Dusty or, you know, one of your senior people be willing at some point to, you know, have some kind of, you know, public debate with, say, even people from Global Exchange

on some of these issues and, you know, would that be possible in some form, and if so, you know, who would you be willing to, you know, have this kind of public exchange with?


And the second question is, Dusty, you mentioned a couple times President Clinton's task force. As I understand it, there's been a great difficulty in getting other companies to join this task force and I'm wondering if, you know, any progress has been made on those fronts and if no company has joined since it was announced back in April, you know, what the problem is in terms of getting other membership.


D. Kidd: Well, let me take the second one first, and I'll go back to the debate question. I think the apparel industry partnership as a concept probably frightens a lot of companies on two levels. Number one, the agreed upon code that we all [unintelligible] on, and there were seven companies that did along with the two unions and five human rights, labor rights organizations is a pretty tough code. It has caps on hours for the first time for most of us. It requires some fairly strict standards with respect to age and wages and so forth. And there are a lot of companies in the business who quite rightly probably don't have the means to enforce that sort of a code.


And so I think they are-- until they feel they have the resources to do so, would be reluctant to be in a process where they might be held to those standards. That's not to say that they're not good companies and don't care about these things, but some of us have a lot more resources that we can put against this and we are more confident that

we can meet these standards on a daily basis.


A second level, though, I think, is that companies are reluctant to step forward into the arena because of the things that we talked about a little bit today -- this sort of attack of a brand based on anecdotal evidence and often with agendas that have nothing to do with work place issues. And that kind of brings me back to your first question which is, you know, would we be willing to debate-- I mean I don't think this should be about debate. This should be about discussing, exchanging information in forums where the dignity of the topic is honored. And I think the apparel industry partnership, for all the difficulties we have had, has been a great forum for exchange, to sit across the table from people from Unite, the textile and apparel workers union, or to sit across the table from Farris Harvey, the international labor rights fund, has taught us a lot about what they're interested in, what they know, what we can learn from them. That's the sort of forum that I think is best served.


We may be able, through some of our resources, to put some forms together where these topics can be discussed, but they-- I'm sorry; I'm old fashioned. I think these things ought to be done at a lower level and ought to be done with an exchange of information that shows some respect for each other and that's what we're determined to do.


T. Shorrock: So like a group like-- you wouldn't want to have kind of public debate or discussion with Global Exchange?


D. Kidd: Well, it might surprise you to know that I actually have met with them. I met with them for three hours one night in Jakarta. And we talked for about 45 or 50 minutes about-- I talked about Nike and the history of our sourcing because a lot of their Web site posting suggested that they had no concept of our history, and then we discussed any question they had for two hours. The posting on their Web site a couple of days later was that I gave them a 45-minute lecture and left the room. So I'm not sure that they're necessarily the partners we'd want in a discussion, but there are an awful lot of people out there that have some really good information and we could learn a lot from.


T. Shorrock: So who would those groups be? I mean if [unintelligible]. I mean like the labor-- the Hong Kong-- you know, the monitor people in Hong Kong. People like that?


D. Kidd: It's possible. Again, we have never had any contact with them. The only contact that we have had we initiated by suggesting to Andrew Young that he meet with them and they agreed to meet with him. That's been our one contact with them.


But I don't know enough about them or their point of view to know whether or not they could be helpful or not. Based on the study that they presented, I'm a little bit concerned. But, you know, there's always ways we can go upward with some of this stuff.


T. Shorrock: As a follow on the apparel thing, has Nike been out there trying to convince other companies to join this thing? Have you, you know, been discussing this with other competitors, other companies in the industry?


D. Kidd: Absolutely. Brad Figel, our Washington counsel who has been as instrumental in the discussions on this thing as anybody, was, for example, at the Athletic Footwear Association several months ago and made a pitch to our competitors in the business to sign up. The only company that agreed to do that so far in the business has been Reebok. I know Liz Claiborne has been very active in attempting to get some people to join us. But it's tough for the reasons I indicated.


It's interesting, you should know, that these sorts of discussions are also occurring right now in Australia, in Latin American in a sort of a germinating form. Most especially in Europe. In England and on the Continent, there are similar processes under way. So I'm confident that over time we may all have a level playing field with one standard.


T. Shorrock: Thank you.


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


Jeff Manning: I think one of the things that has confused reporters on this is the term `living wage' is bandied about which, as far as I can tell means something different to just about everyone. I was told in Jakarta that it is a sociologist term that basically is-- the definition is that it is what it would take for a single wage earner to support a family with two kids. I don't know if that's true. Other people still have other definitions. But given that definition, could these footwear factory workers support-- a single wage earner support a household, with kids?


Man: Before you answer that, guys, will you also speak to how that would relate to the United States?


G. Mihaly: On the Indonesia side-- it's a very tough question, I agree, with the difficulty of definition. I think it is possible for a person making the mandated minimum wage to support a family of four, but damn difficult. As it is-- as Dusty points out as it is-- less so than it is in this country, I think, for somebody on minimum wage to support three other people.


Most of the people making the minimum wage in Indonesia are young because you don't keep on making the minimum wage very long. Most of the people in these factory jobs are young women, who, as I said, generally go out of these jobs in about three years when they marry. The-- you know, this gets to the whole question of adequacy and that's a really difficult question. I think that the best way that one can really approach it is anecdotally and very subjectively. If you go into villages in Indonesia where people have this kind of a wage, and look at the way they're living, you can make a rough judgment. How are they dressed? How do they appear physically? What does their health look like? What kind of consumer goods do they have? I think the answer is yes, technically, somebody making the minimum wage certainly can do it.


The factory worker is almost by definition part of a household in which more than one person works, or contributes to a household from which he's absent. I'm reasonably comfortable that the picture is not-- you know, is rather good and getting better nationally for that particular country. You know, they're in a transition. They're now up to about $1,000 per capital national income. And it shows. I mean when I first went out there in the countryside, people were in rags and clearly malnourished virtually across the board. And poverty was the rule. Today, I think that there's a consensus that the poverty line is about 16 percent of the population, something like that. And that's certainly-- and those are people-- people living below the poverty line generally are farmers or very marginal new urban arrivals. Most farmers are making a good living. Most people in the cities are doing OK. But it's the people who've gone from one place to the other and are just changing their life circumstances that are really in trouble. I don't think that includes the people that we're looking at here.


Man: Hey, Jeff-- also, in amplification of your question, it's really interesting that-- the living wage discussion because it's never really pointed back at this country. And if you look at that definition in respect to the United States, the poverty level for a family of four in the United States is $16,200. A minimum wage earner at 40 hours a week earns about $11,000 and takes home a little less than $9,000. So in this country, a minimum wage earner is nowhere near a living wage.


And so it seems to me a little strange to turn the debate to whether or not a country that has a per capita income of $250 a person per year or $1,000 should be at a higher level of support at a minimum wage than the most developed country in the world. I just don't think that's-- I find it just kind of a curious way to frame debate, and a lot of people do it. My sense, and I think Nike's sense is the first test is -- do these wages provide a living for the person who's earning the wage?


After all, they are unskilled and on the first step on the ladder. And will they move up as productivity moves up. And the answer to both of those is absolutely yes. Can we do more?


Probably and hopefully over time that happens. But I don't think the test is fair if it's four people.


J. Massey: Can I just add to this? This is Joe Massey speaking about the way the Vietnam study was conducted. Bear in mind, we did studies in the households, so we were looking at family units of several varieties, you know, where there were grandparents and children involved, where in some instances there were parents and children and children who-- a factory worker would have been a young woman who was living at home, et cetera. But we discovered that in the villages where we did the studies, clearly the households were as households and in most cases, they had two income earners, making not only a living wage but a wage that-- or a living income, but an income that provided not simply the bare minimum of food, clothing and shelter, but also such things as telephones, where in one case 38 percent of the households, in another, 22 percent had telephones. Where they had television sets -- 79 and 84 percent television sets. Twenty-seven percent and 46 percent had VCRs.


Man: You saw this in Cu Chi?


J. Massey: Yeah.


Man: We must have been hanging out in different parts of the neighborhood.


J. Massey: Yeah, I guess so. Did you go door to door? Into the houses?


Man: I went to three houses in Cu Chi.


J. Massey: Yeah, well, we went to I guess 80.


Man: I'm sure that things vary.


J. Massey: Oh yeah. I'm not saying that everybody does, but our numbers -- and you'll get these; they'll be available -- on household ownership of these kinds of things are very clear. Motorbikes -- 64 percent in Cu Chi; 60 percent in Gen Rak [sp]. You know, just go through there.


Man: Joe, if I could add to that, too, I'd commend to anybody who's really interested in Vietnam specifically and the kind of living condition question, the World Bank study, 1993, and the really interesting thing to me about the Tuck work was that it was almost correlative to the absolute number, but showing increases in all these indices. Percentage of households with televisions and so forth are very very much in line with what the World Bank had found three years ago.


Man: In fact we tried to take the World Bank study and benchmark our results against it, and with quite good effect, I think, as you'll see when you see the numbers.


Man: It's never been cited by anybody in current reporting that I've seen, but it may be the best study of a living condition in developing in a developing country I've ever seen. It's 300 pages long and can tell you how much they spent a year on shrimp, for example.


Man: Which is $7.60, as I recall. [crosstalk]


Man: But there is good information out there. It just needs to be culled and grabbed, I guess.


Man: Can we have another question, please.


Operator: Naomi Klein with Toronto Star, please go ahead with your follow-up question.


Naomi Klein: Yeah, it's just a clarification about the study. You mentioned that-- you mentioned a few other companies. I'm unclear on this. You mentioned Motorola and CitiBank. Is the study of a number of companies and is Nike going to be releasing the reports of all those companies or just the [crosstalk]


Man: No, no, no, no. The studies were done as quite individual and distinct, separate projects for six different companies. And we did the Nike study on the issue of wages versus expenditures. We did the study for the Walt Disney Company in Asia Pacific on the largest retailer in Vietnam and how it could improve its inventory management and retailing process. We did a study for CitiBank of the private sector in Vietnam, which are the most attractive and most likely to succeed private sector companies as the country goes through the transformation from a Socialist economy to a market economy. For Hewlett Packard we looked for the medical products group at the markets in the two countries for the kinds of medical equipment and products that

Hewlett Packard makes, et cetera. So these were all quite separate and distinct studies--


N. Klein: Nike was the only labor one.


Man: Yes. These other studies had absolutely nothing to do with the Nike study. Each was quite discrete and as types of business problems I can tell you that the were-- the Nike one was unique.


Man: I just-- and correct me if I'm wrong [unintelligible]-- I believe there were other separate students that conducted those [crosstalk]


Man: Oh, yes. Sure. [crosstalk]


Man: Our students are damn good, but couldn't do eight projects at the same time.


Man: It's also important to note that in Vietnam, Joe, you had the benefit of some help from the University of Economics in Saigon which had a study team that supplemented some of your work.


J. Massey: That's right.


Man: And they have been on an ongoing basis doing some independent monitoring for us in focus groups and they're a very fine organization that I think over time we'll be able to use in a lot of this sort of stuff.


N. Klein: OK. Can I ask one more question?


Man: Sure.


N. Klein: OK. This is for Dusty Kidd. It's about reports that we've been hearing about you cutting contracts in Indonesia. One is-- I heard directly from a Nike press release about four garment contractors, I believe. And another I just recently heard about the Corindo Group Eagle factory Nike contractor. I believe it's in

[unintelligible]. And it says that more than 3,500 workers have been fired in anticipation that a Nike contract will be terminated soon. And I'm wondering what you can-- whether you can tell me if that's true, if you are planning to cut that

contract. If so, why? I know why-- your reasons for cutting the garment ones -- you're citing code of conduct violations.


Man: Yeah. I mean there are two distinct things happening in Indonesia right now,


Naomi. The first is the four factories that we stopped doing business with, too, because of basic labor standards that they were not meeting -- health and safety, primarily; overtime in one case. Two more because, although very good factories and good people, they simply could not operate without an exemption from the minimum wage and we wouldn't work with them in that case.


There are a number of the foot ware factories we've worked with over the last year that we brought on board in Indonesia because we had a very high level of forecasted growth for this year. That forecasted growth has dropped, as we reported in our quarterly financial results here recently. We're not going to grow nearly at the level this year that we anticipated and so we've had to cut back orders, and in some cases that means the factories that we were going to do business with we're not going to be able to do business with. That is the ebb and flow of business. It's not nice and it's certainly-- we don't want to-- whenever we can avoid it, move away from a factory because it does affect jobs. But there's not much we can do if our orders are not at the level that we thought they would be.


N. Klein: And that's what's happening to that factory.


Man: That's correct.


N. Klein: Do you believe that your failure to perform as well as you'd anticipated has anything to do with the controversies around labor?


Man: It's very difficult to connect any one thing to a company's performance when

we're so widely spread. Remember, we're selling products in 80 or 90 countries around the world. This is a year, right after the Olympics, when traditionally the sports business sees a bit of a lull, especially in footwear. I think if you look back at '93, you'd see that our business dipped down a little bit then, right after the '92 Olympics.


There are a whole range of issues. I think the whole sporting goods business rightnow is in a bit of a doldrum, probably primarily related to that. And there may be some impact-- I can't sit here and say that there wouldn't be. I think anything that impacts our brand impacts our business, but I would guess that the primary reason why our orders are lower in forecast but growing-- keep in mind we're not dropping our business. We're not growing as fast as we [inaudible] we would. But I think it's primarily due to a lot of other factors.


V. Manager: This is Vada Manager, and several analysts have been asked that question by some of your colleagues in the media, Naomi, have at least in three different news accounts that I have seen have talked about one thing that Dusty alluded to which is the-- just the general lull in the footwear business and in the sporting sector of the industry right now. And, two, they recorded on the record and

I'll be happy off line to share with you some of the analysts who indicated that it was not their belief that the issues relating to labor were having sales impact upon the brand. Our internal research has shown that we are still the brand of choice amongst clearly the 12 to 17 core consumer and also amongst other segments that we've looked at and also some independent research not conducted by our market people have corroborated that information.


N. Klein: What about stock prices dropping [unintelligible]?


V. Manager: Well, that's-- stock prices, as you know, fluctuate wildly under a lot of different circumstances, and as our chairman has indicated a number of times, we are a much misunderstood business because of the [unintelligible] that we have, both not only in athletic and in footwear and [unintelligible] in equipment, new sports watches coming out later, our ever expanding apparel business, that we are a very difficult company to pin down for Wall Street. So therefore, put your seat belt on and welcome to the roller coaster ride because you're going to see wild fluctuations in our stock in some instances, but on the other hand, we still-- I think most people still regard us as a very good, solid long-term investment as was indicated in our last quarterly conference call.


N. Klein: Thank you very much.


Operator: Gentlemen, there are no further questions at this time. Please continue.


V. Manager: Well, if there are no further questions, I think I'd committed because of the late time on the East Coast that we would let the professors go. Professors, thank you all very much for joining us today and sharing your information and results. Dusty, thank you for joining us, and if there are any other follow-up questions, as I indicated at the top of the hour, you can certainly call the public relations office here at Nike -- 503-671-3160 or you can catch a replay of this call, also at this time, which is-- I did have the number. I gave that at the top of hour. But we can certainly provide that to you again by calling that number. It's at 6:00 p.m. Eastern Time today. I believe that number is 800-633-8284 at 6:00 p.m. Easter Time. Thank you all very much and we look forward to talking with you again.


Operator: Ladies and gentlemen, that does conclude our conference for today. You may all disconnect and thank you for participating.
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