SEAM (Socio Economic Analysis of Management) of Nike
Homeworkers' Strategy in Australia
December 3, 2000,
Paper for Dr. Boje's Mgt 503 Seminar http://business.nmsu.edu/~dboje/teaching/503Fall2000.html
ABSTRACT
Henri Sevall designed Socio Economic Analysis of
Management (SEAM) in
order to implement large system change by providing a micro and macro level
analysis of several inter-related areas. It combines economic, accounting and
sociological approaches in its organizational analysis, the main effect of
which is to diagnose deficiencies in both the realm of economic efficiency and
profitability and in the social arena of the organization. SEAM treats both
areas as relevant and interpenetrating, such that one cannot be examined
without the other, and that the relationship between the two determines the
extent to which change in one area or in both should be exacted. As it is
implemented in organizations, SEAM is a long-term project, the duration of
which can extend beyond five years. Extensive observation and interviews
comprise the qualitative analysis while accounting and economic methodology
provides the data for strategy.
The SEAM model identifies six areas of social performance: Working
Conditions, Work Organization, Communication- Coordination- Cooperation, Time
Sharing, In-House Training and Strategic Implementation. Deficiencies in any
of these areas can result in hidden costs: Mismatched Compensation, Downtime,
Rework, Waste and Opportunity Cost, which in turn manifest themselves in six
ways, through Absenteeism, Industrial Injuries, Personal Rotation/Turnover,
Product Quality Problems, Direct Productivity Problems. Hidden costs are
significant because they represent costs to the company that are not
traditionally tallied. In
addition to identifying the effect of social performance on concurrent
organizational costs, SEAM examines the influence of certain structural
elements, including those physical, technological, organizational, demographic
and mental, of an organization on the behavior of its employees, not only at
the individual level, but at the group activity level, sectorial or
departmental level, group pressure level, and at the collective level as well.
Although a SEAM analysis
normally takes years to incomplete, it is possible to apply the general
framework of this analysis to projects under much more stringent time
restrictions. This project is designed to serve as a contribution to the
ongoing research of Dr. Boje in his investigation of Nike employment practices
abroad. Nike has received much attention lately for its endorsement (through
purchase of labor) of “sweatshops”, factories in which large numbers of
children, women and men toil in deplorable conditions for meager wages. No
longer a secret, the spotlight is on and shining brightly towards geographical
areas where the exploitation of children and of adults serves the economic
gains of this mega-corporation. Areas that have received much attention from
scholars, philanthropists, and even limited media attention include Indonesia,
Vietnam, and China, El Salvador, India and Pakistan. However, labor
exploitation occurs in areas of the world more closely associated with Western
civilization. Australia serves as just such an example.
In Australia, factory conditions are arguably regulated to a greater
extent than in East Asian countries. Workers in these factories generally paid
a higher wage, and work under better conditions than in countries where the
economy is weak, where jobs are extremely scarce, and where regulatory
commissions, codes of conduct and workers rights are foreign concepts.
However, clothing factories are also less popular in Australia where 93% of
workers in the garment industry are homeworkers (APEC Panel, 5), laborers who
work from home or from a designated location, doing the same work that is done
in factories elsewhere. They are contracted by clothing labels to make
garments, and are awarded a certain sum of money for each piece made. Although
Nike continues to deny that it has ever retained the services of homeworkers
in Australia this claim is widely rejected by the international human rights
community, who continue in their attempts to get Nike and all corporations
with production processes in Australia to endorse certain standards for labor
and employee rights.
A SEAM analysis
of Nike global production processes was beneficial in order to point to unique
deficiencies in the structural and social elements of Nike operations that can
lead to significant costs.
The four-leaf clover model of SEAM identifies various “Hypertrophied
Dysfunctions” in the top leaf of the diagram. For the purposes of this
paper, “Working Conditions” will be used to describe the physical,
emotional, and industry environment in which the employee labors. The physical
environment is the home in which the worker labors. Homeworkers work at home
for a variety of reasons, including lack of transportation, lack of
alternative work, poor English language skills, qualifications that do not
comply with Australian standards, lack of suitable childcare, the closing of
factories, and other familial and cultural pressures including adherence to
religious values that women’s work must take place within the home (ILO
Convention on Outworkers, FairWear, Business Line). These employees commonly
work twelve-sixteen hour days, seven days per week. Their wages can be as low
as $1 to $2 dollars per hour, and it is also common for homeworkers not to be
paid for the work that they do (FairWear).
A 1994 survey of Australian homeworkers revealed that less than one
percent were receiving the minimum wages and benefits that they were entitled
to under law (Weston, 5). In addition, the physical labor of stitching
garments is hard on the body: it is highly repetitious, and there is no time
to rest. Often machines are used, but the monotony of the job, and the posture
of the body while using the machine are dangerous to health as well (Ng, Wong,
& Choi, 1). Because there are no paid benefits for sick leave, workers are
required to work even when they are sick. In factories, physical exhaustion
has resulted in workers coughing up or vomiting blood as they work (Bissel et
al, 2). Because research shows that working conditions for homeworkers are
comparable to or worse than those for factory workers (APEC, 5), it follows
that these individuals suffer similar effects of overwork. Indeed, research
demonstrates that long hours coupled with job characteristics of high demand,
low control and low social support creates high levels of stress in workers (Nishiyama,
Johnson, 8). Stress is the most
common health problem linked to long work hours, and stress that persists for
long periods of time is associated with cardiovascular disease, asthma,
migraines; gastrointestinal problems, and hypertension. (Health Effects, 1).
Aside from
biological effects on the body of the physical environment, emotional trauma
is often the case with overworked, underpaid homeworkers. The social isolation
resulting from a combination of long hours and a work environment in which no
one else is present, can lead to emotional effects including stress, chronic
fatigue, depression, anxiety, and feelings of hopelessness (1).
A look at the
industry environment sheds some light on the rising use of home based labor,
as well as the exploitative labor practices associated with it. The
globalization of the clothing industry is heralded by some as the chief factor
in the growing use of home based labor by clothing labels. “Its phenomenal
rise over the last two decades can be traced to the competition between
companies on a global scale. Work formerly performed by formal sector workers
is increasingly being decentralized and parceled out to home-based workers in
the cheapest spots under the sun” (Business Line, 2). The clear effects of
gender and race discrimination are apparent in this industry where the
composition of home-based labor force in Australia is 95 percent female (2),
and the majority from non-English speaking backgrounds. Most often the ethnic
groups involved are those of recently arrived immigrant and refugee groups (FairWear,
4). Business Line states “…in Northern Europe, many homeworkers are from
black and migrant communities where women race racism in the labour market”
(3).
“Work
Organization” refers the overall structure of the corporation in
question. It refers to issues of power and control, and seeks to define the
structural conditions under which the organization operates. For the purposes
of this research, the focus will lie with the effect of this organization upon
the outworkers. The system is largely beurocratic, with levels of power
extending from the greatest to the least in a vertical order. The homeworker
is at the bottom of this hierarchy, with the least income, no benefits, and
the greatest workload of all. The practice of using homeworkers in this
fashion is an approach derived from modern industry, with its roots firmly
entrenched in Taylorism. Prominent economists Smith and Marx both described,
with varying degrees of disapproval, the use of humans in a fashion that was
more closely suited with machinery, in an attempt to squeeze out the maximum
potential for physical labor, with the absolute minimum rest, or leisure time
that could be afforded without actually causing death to the employee. The
deprivation of basic human rights for the sake of profit was denounced in the
1800s in America, but this American corporation has revived the old modernist
principles in search of absolute profit, and at the expense of workers who are
not of American descent.
“Communication”,
“Coordination” and “Cooperation” will be conceptualized
along four different dimensions for the purposes of this analysis. Ideally,
the “Three C’s” could flow back and forth between outworkers, between
outworkers and subcontractors, between subcontractors and Nike, and between
outworkers and Nike (see Figure 2). The communication flow between outworkers
could serve to unite them into unions, or into other forms of organizations
designed to protect the worker against hegemonic forces of the employer.
However, these lines of communication are largely absent. The primary reason
for this is the geographical separation of homeworkers. Although they exist in
large numbers, the physical isolation that comes with the job secures the
silence of homeworkers, and ensures that they neither know nor see each other.
Currently, the flow of the meaningful communication between outworker and
subcontractor is one-way: from top to bottom. The homeworker settles for
starvation wages and overwork because there seems to be no alternative. The
subcontractor is not a person to whom concerns may be voiced, or requests
made. There is a great fear among homeworkers that such “complaints” will
only result in the loss of their job, and these fears are reinforced by the
one-way communication from the subcontractor in the form of threats, and
verbal aggressiveness. It should be obvious then, that lines of communication
between homeworkers and Nike are closed as well. The international human
rights community has attempted to force open informal lines of communication
by publicizing case studies of homeworkers (Appendix A) and in the case of
factory workers, by funding international travel for a selected few, so that
they can tell their stories first hand. But maintaining the status quo in
globalized production is dependent on these lines of communication staying
closed, so that Nike can claim no-fault to the allegations that it supports
abusive working conditions.
In support of
this contention, author David Korten describes the world of top executives,
including Nike executives, as a “Cloud Minders” world, an analogy borrowed
from a Star trek episode in which the world depicted was divided into two
distinct spheres, a beautiful and enlightened one, figuratively and physically
above the planet surface, where the other half of the population toiled in
ugly, dangerous conditions to supply the “Cloud Minders” with their
wealth. According to Korten, Nike executives prefer not to communicate with
people outside their Cloud Minder world, ensuring that they can remain
blissfully ignorant of the pain and suffering that their exploitist economic
practices cause. In example, when John Woodman, Nike’s GM in Indonesia was
asked about the conditions in Indonesian factories, he stated “`I don’t
know that I need to know. It’s not within our scope to investigate’”
(111). Writes Korten, “It is little wonder that many managers, like the Nike
manager who avoided contact with the Indonesian workers, prefer to avoid
talking to too many people outside their elite circles” (111). The illusions
that dominate the lives of the privileged leaders could potentially crumble if
the alternate world were explored.
“Cooperation”
is thought to exist between the two top levels of the beurocracy. Nike and its
subcontractors cooperate to maintain operations as they currently stand. Both
Nike and subcontractors profit from the low cost production process.
Cooperation does not exist at any other level, although again it is vitally
necessary between homeworkers in order to organize. Finally, “Coordination”
is conceptualized here in reference to efforts to maintain operations as they
currently stand. In the case of homeworkers, Nike has consistently claimed
that it does not allow its contractors in Australia to employ homeworkers
(Kidd, 3). However, this claim is largely disputed by the international human
rights community, representatives of which stated, in a response to Nike
within on ongoing dialogue concerning its overseas labor practices: “…we
have repeatedly found that labour practices in Nike’s production chain are
radically different from Nike’s stated policies, and hence telling us you
have a policy not to use homeworkers does nothing to alleviate our concern. We
believe that there is a very real possibility that some of the production of
Nike garments in Australia is being sub-contracted out to homeworkers…”
(Bissell et al, 10). Adding to the suspicions of many, Nike is the only
clothing manufacturer operating in Australia that has refused to sign the
Homeworkers Code of Practice (Bissell et al, 10; Fairwear, 1-3).
Some of the
effects of “Time Management” have already been mentioned. To
reiterate briefly, the low piece wages requires that enormous volumes of
material be produced in order to sustain oneself at the bare minimum of
existence. The time required by the production process leaves little for the
leisure and rest that are necessary in order to maintain good health. In
addition, mothers often require their small children to labor with them, in
order to keep up with high quotas (Reid, 1). While not recognized publicly,
child labor in this fashion is widespread among homeworkers.
Excessive forced overtime is an area that has received attention from
critics of factory conditions, but deserves mention here as well.
Unfortunately, it will be necessary to dignify the loophole that
homeworkers can set their own hours in order to refute the illogic of assuming
that these laborers would prefer to starve than to sleep. Award wages so low
that it is impossible to sustain a single person unless the hours
worked exceed the legal limit consistently, day after day, should be
considered violation of the legal statutes.
“In House Training” does not seem to be an extensive process
if it occurs at all. Resources were not located in which training was
discussed in direct relation to homeworkers, however in factories training is
largely absent, even in cases where dangerous chemicals are being handled
(Morey, 2). In other articles, there is an implication that training may
consist largely of instruction by use of written diagrams and some initial
verbal instructions (Fair Wear’s Campaign, 3).
Nike is, as are
many corporations, engaged in a strategy designed to maximize profits. The
motivation to exploit laborers in foreign countries for a production process
the low expense of which is unrivaled in first world countries is derived from
the desire for profit. While the outcome is desirable, the means are not.
Havers (1999) discusses several reasons why the interconnectedness of business
and ethics is more important now than ever, and his number one reason is that
the public demands it. Western society has proven to be highly sensitive to
ethical deviations on the part of large corporations. Havers reports that
engaging in ethical business can help corporations gain an edge by helping
them establish a track record of ethical behavior, which can then be
contrasted with unethical corporations as they surface. He cites the power of
activist groups and consumers to force changes in corporate behavior, and
mentions the costs involved in such a process (1999). Others echo these
sentiments. “Capitalism at its best encourages morality. It encourages the
rule of law…We believe that business, which provides three fourths of the
worlds employment and possesses enormous resources, must play a key role in
solving the problems that impede the development of a global society that is
more prosperous, sustainable and equitable” (MacGregor, 6). Nike is
frequently cited as an example of a corporation whose stranglehold on foreign
production markets is slipping, and who is incurring great costs as a result
of their refusal to address and correct their unethical business practices.
The hidden
costs to Nike are not conventional, nor are the indicators. SEAM identifies
several markers that hidden costs are being incurred (Absenteeism, Work
Injuries, Staff Turnover, Quality Defects, and Lower Direct Productivity) but
they may have more applicability to organizations that are not intentionally
engaged in exploitive practices. Nonetheless, each will be examined in
reference to this specific case.
Absenteeism
is not an option for employees, even those who are ill. Because homeworkers
have not organized into unions, or have engaged in strikes and protests,
absenteeism has not traditionally presented a cost to Australian production.
This is not to say that it couldn’t occur, and it will likely occur in the
future if organizations such as Fair Wear continue their outreach efforts to
homeworkers. Severely ill or fatigued workers who simply cannot work represent
a cost here, but are likely to go un-noticed in terms of production.
The potential
for work injuries runs high for homeworkers. The highly repetitive
nature of operating of a sewing machine in addition to the attention to detail
that the job requires results most often in variations of “repetitive strain
syndrome”. In one study, the greatest number of workers complained of back
pain, followed by shoulder pain, neck pain, numbness in arms, hands and
fingers, and strains to the eye (Ng, Wong & Choi, 1). In two previous
studies, back strain was a major concern as well as allergic reactions. (Ng,
Wong & Choi, 1). The dust produced by the fabric is significant, and can
result in serious allergies, the symptoms of which include rashes, itchiness
and congestion. Another concern is the use of toxic substances. In Nike
factories elsewhere in the world, workers are frequently exposed to hazardous
substances in the course of production, and are required to work in confined
spaces where air quality is highly questionable, and are using toxic chemicals
in the production process that have yet to be tested, such as Tributyltin, or
TBT. At least one researcher warns that excessive exposure to TBT can lead to
neurological deficiencies, and liver and heart problems as well (Bissell et
al, 10). Laborers using toxic substances in their production often are not
issued enough gloves to protect their hands against the handling of dangerous
chemicals. Masks, if issued, are of poor quality and do not protect against
the inhalation of toxic fumes (10). Because homeworkers toil in small,
confined spaces, using many of the same substances as workers in factories,
the potential for the same dangers to be present is high.
Staff turnover represents another indicator of hidden costs.
Again, it should be noted that in conventional organizations, dissatisfaction
with the work experience will often lead to turnover, as employees seek work
elsewhere. But in the case of Nike homeworkers, there is no other work. As
noted before, homeworkers typically experience institutional racism or
genderism, have few or no credentials with which to seek work elsewhere,
cannot afford daycare for their children even in the case that they could
secure a different job, and often do not speak the English. The fear of losing
what little income their job provides is incentive not to leave, not to
organize, and not to complain.
Tayloristic principles of production seem to predominate that
environment in which overseas Nike employees labor. It is a highly controlled
atmosphere, in which employees have no rights, no voice, and where they are
highly replaceable. While at first the production line model of workplace
behavior would seem to be highly profitable in terms of the large number of
hours worked, the high volume of product assembled, and the low cost of
employing a worker, decades of research have shown precisely the opposite.
What would seem to be common sense instead had to be quantified by
philosophers, philanthropists, scholars and academics: that the human is not
a mere machine, and that attempts to make them perform as such in the end
result in lower productivity than can be achieved by other methods, and
in deficiencies in product quality as well. Marx described the maximum limit
of workday as being restricted by physical and moral limitations, the latter
described in terms of social and intellectual needs important for the
sustainability of the human mind and body. Recent research has corroborated
these early ideas concerning overwork. A 1999 study showed that productivity
decreased by half after the eighth hour of work, mistakes and errors rose
approximately 10% after an eight hours of works, and 28% after a ten hours
(Winning, 2). Other research concurs that high levels of stress resulting from
overwork and long hours results in lower level of performance (Health Effects,
2). Says Nishiyama in a 1997 analysis of overwork syndrome, “[T]he legacy of
F.W. Taylor, the founder of ‘scientific management’ has been the creation
of an essentially inhuman workplace…[m]any of the adverse exposure
characteristics that have become accepted psychosocial risk factors—low work
control, high demands, repetitive and monotonous work, are direct and natural
consequences of the managerial principles of Taylorism” (1).
The hidden
costs pointed to by the factors already discussed, include Mismatched
Compensation, Down Time, Rework, Waste, Opportunity Cost, and Risk.
Conceptualized in terms of the homeworker, these categories are highly
applicable. Although according to Sevall, mismatched compensation
traditionally refers to the cost of assigning a worker to a task that is below
his ability and wage level, here it will refer to the end cost of assigning a
wage that is below the workers ability and task level. This uneven
distribution of resources has already been discussed. On another level, it can
be identified as assigning someone a wage that is extraordinarily higher than
his relative contribution would ever warrant. As identified by factory workers
already, this form of mismatched compensation can be found in the discrepancy
between the exravagant salary paid to Tiger Woods as compared to the meager
starvation wages paid to the workers who make the products that he endorses.
The same principle may be applied to the salaries paid to Nike executives as
compared with the worker wages. The only justification offered by any Nike
supporter seems to be that profit maximization has always been an ideal
strategy for a company to pursue, and that Nike is merely exploiting
opportunities to lower production costs. However, others present an
alternative view. “The Nike case is a striking example of the distortion of
an economic system that shifts rewards away from those who produce real value
to those…who create marketing illusion to convince consumers to buy products
they do not need at inflated prices” (Korten, 111).
Downtime
typically refers to the quantity and value of time required to control the
effects of a dysfunction. Clearly it can be demonstrated in reference to the
time Nike has spent in lawsuits, such as the one it recently lost in Australia
to TCFUA, and time and energy devoted to maintaining its public image, and
responding to allegations in the form of letters, and press releases.
Material
recompense as well as a restructuring of relationships would ideally be
required for Rework, if Nike responds to demands from workers and
concerned welfare groups by altering the nature of its cooperation with
subcontractors. Certainly this would constitute a major cost for Nike, in
terms of time, money, and effort not just initially in the process, but in an
ongoing fashion to ensure the continued compliance with new codes of conduct.
However, reworking the relationship between Nike and subcontractors to make
both parties more accountable in the long run can ensure profitability. If
Nike does not take the first steps towards this relationship soon, it is
entirely likely that welfare organizations will succeed in mobilizing
workforces to the point where lawsuits such as the one recently won by workers
in Australia, will begin to be realized from many different locations.
According to Business Line, the growth of such unionizing forces is on the
rise. “The Fair Wear campaign launched in Australia in 1996 has proved to be
a model for organizing homeworkers in the clothing sector worldwide” (5).
The Fair Wear campaign is comprised coalitions between religious groups,
student unions, social justice groups, women’s organizations and trade
unions as well. The goal behind the campaign is to get homeworkers organized
and recognized as having worker status, and efforts continue on both of these
fronts. Additionally, HomeNet has created a global network connecting the
efforts of homeworkers to organize at the international, national and regional
level, and links homeworkers and factory workers in efforts to solidify
feelings of solidarity between the two groups. Other barriers to the
organization of homeworkers were removed when the ILO adopted the Home Work
Convention in 1996, which set minimum standards for pay and conditions to
which national and domestic labor practices would have to adhere (5). Noting
also that the win against Nike in Australia was hailed as a landmark event in
the struggle to make this corporation accountable for its labor practices, it
is likely that other lawsuits could arise. In this event, the monetary costs
to Nike could be extraordinary, as well as further detriments to public image
as a result of the giant spotlight under which the trials would take place. At
some point in this process, Nike will be required to amend its relationships
with subcontractors and with its foreign workforce. By stalling in the face of
this initiative, Nike is opening the doors for a wider variety of costs in the
future than it would incur by taking a proactive position now.
The loss of
efficiency mentioned through out this research due to dysfunctions in the work
environment, time management, and the nature of the organization in which the
homeworker labors all contribute to waste, the quantity and value of
the lost production or work activity due to dysfunctions. Similarly, opportunity
costs include the underutilization of productive capacity as a result of
dysfunctions in the chain of operation. As was shown previously, the mere
phenomenon of overwork causes drastic decreases in productivity and quality of
work. Coupled with fatigue, chronic stress, physical ailments, and
psychological trauma the effect on production is tremendous (Maskay; Atkinson,
116-117).
David Korten
writes:
The global
economic system is rewarding corporations and their executives with generous
profits and benefits packages for contracting out their production to
sweatshops paying substandard wages…and for shaping political agendas to
advance corporate interests over human interests. The consequence of delinking
benefits from their costs is that the system is telling the world’s most
powerful decision makers that their decisions are creating new benefits, when
in fact they are simply shifting more of the available wealth to themselves at
the expense of people and the planet (114).
Issues such as
these are at the heart of the overseas labor controversy. Common
sense tells us that issues of
power cannot be delinked from corporations, arguably the most powerful
entities operating in Western culture today. What is occurring now will set a
precedent governing the accountability of corporations to domestic and
overseas communities, but most importantly, to their most helpless
constituents: the women, children and men who toil day and night without rest
so that ever more profit may rush to the wrong pockets.
Unfortunately
for Nike, their refusal to comply early on with developing standards for
overseas labor has ensured them their role as the archetype of unprincipled
corporations. They will serve as the textbook example of the “unethical
firm” and their case will illustrate, for generations of students, the
adverse effects for an organization that chooses to ignore public demand, and
that values profit over people.
Appendix 1:
Mai has been working as an outworker for five years. When
she began working for this company, she was told by this company “this is
the rate of pay and you will be paid in cash”. In 1995 she was promised
$3.50 per garment and completed 1757 pieces of work over two months. She
worked from 9am to 2am daily seven days a week with a total of one hour break,
averaging 16 working hours a day. Her husband assisted her after work for 4
hours on week nights and 20 hours over the weekend. Mai estimated the shirts
took 2 hours each to make given they required extra care being vinyl. She
estimates she worked for an hourly rate of $1.75. It was calculated that she
had worked approximately 112 hours per week for 8 weeks.
She was given a hand written document by the company
which gave her work. It contained the deductions the company made for zips,
washing, cutting threads, size labels, hangers and swing tickets. These are
all items usually supplied by the contractor and not charged to outworkers.
For a second batch of shirts she was promised $1.00 per
shirt which she estimated took her one hour to complete. Mai went to the
factory many times to get the money she was owed for these garments. She was
paid with two cheques that both bounced.
The company was closed and/or relocated and the manager
has not been contactable. The company who contracted the work to the
subcontractor who gave Mai the work, Westco, was approached by the union on
behalf of Mai. The company offered to pay $1.20 per shirt to the outworker in
order to get the shirts back, as Mai had refused to return the shirts to the
contractor in the hope of getting her money. Mai has still not received any
money for this work she completed.
Copied from FairWear, Case Study One
http://www.awatw.org.au/fairwear/outworkers/study1.html