CASE 4-9 Adidas Battles Allegations of Shirking

Our academic experts are ready and waiting to assist with any writing project you may have. From simple essay plans, through to full dissertations, you can guarantee we have a service perfectly matched to your needs.

GET A 40% DISCOUNT ON YOU FIRST ORDER

ORDER NOW DISCOUNT CODE >>>> WELCOME40

CASE 4-9 Adidas Battles Allegations of Shirking
Responsibility to Workers
It was April of 2012 and Professor Sioban Harlow, chairwoman of
the University of Michigan (U-M) President’s Advisory Committee
for Labor Standards and Human Rights (PACLSHR), was preparing
for a committee meeting that would decide the course of action
to recommend to U-M President Mary Sue Coleman related to the
university’s $60-million Adidas contract. It had been more than
a year since an Adidas supplier, PT Kizone’s Indonesian factory,
denied workers some $3.4 million in severance and death benefits
after the factory’s owner fled the country, forcing the factory to
shut down.
Adidas Group, Nike, the Dallas Cowboys, and other sports
apparel producers sourced products from the factory. Adidas
supplied university-licensed sports apparel for U-M, the University
of Wisconsin-Madison (UW-Madison), and the University of
Washington, among others. While Nike and the Dallas Cowboys
worked with Green Textile—the buying agent that briefly
assumed responsibility for PT Kizone’s factory operations until
its closed—to provide part of the severance owed to the workers,
Adidas refused, indicating that it had stopped ordering
products from the factory 10 months before it closed. The company
later recanted after a Worker Rights Consortium (WRC)
investigation found that Adidas was indeed a buyer at the time
of violation, but still denied its responsibility for the workers’
severance. The PACLSHR found Adidas in violation of the
U-M code of conduct in regard to branded goods manufactured
at PT Kizone’s factory. The U-M chapter of United Students
Against Sweatshops (USAS) called for termination of the contract
with Adidas.
Adidas Supply Chain Like other players in the industry,
the Adidas Group outsourced most of its production. Its
vast network included 1,200 independent factories spread across
63 countries that produced its products (see Exhibit 1). Products
fell into two broad categories; those the company designed, developed,
and marketed, and those that it licensed. Adidas resorted
to licensing when it did not have internal capability in a product
category. Examples included baseball uniforms, waterproof
earphones, and apparel for children. There were two main sourcing
models. Under its direct sourcing model, the company maintained
direct contractual relationships with a core group of product suppliers.
The company procured other products through agents under
its indirect sourcing model, a legacy of the Reebok acquisition.
Since the acquisition, however, Adidas had not brought any new
agents on board. Licensed products were classified under the indirect
sourcing model.
The supply chain was complex; direct suppliers could have
sub-contractors, agents would source from suppliers, and licensees
could source either directly or through their agents. (Exhibit 2
provides a schematic of the Adidas supply chain.) While Adidas
had manufacturing agreements with its suppliers, there were no
time parameters in its contracts with suppliers. Manufacturing
agreements specified the business relationship and laid out expectations
in terms of quality, labor, environmental standards, and key
performance indicators. The company gave non-binding forecasts
to the suppliers that specified procurement volumes for the set of
products a supplier was to make. These forecasts were updated on
a rolling basis.
Workplace Standards and Labor Policies
Adidas Group was one of the few brands that published its
global supplier list. The company’s stated organizational values
related to workplace standards were: performance, passion,
integrity, and diversity. Consistent with these values, the
organization expected that its partners, including contractors,
subcontractors, suppliers, and others, would conduct themselves
with the “utmost fairness, honesty and responsibility in
EMEA (13%)
Americas (20%)
Asia (67%)
Adidas Supplier Factories in 2011
(excluding Adidas-owned factories and licensee factories)
Exhibit 1
Adidas Supplier factories
in 2011
(Excluding Adidas-owned
factories and licensee
factories)
Source: Adidas Group Sustainability
Progress Report 2011
cat42162_case4_01-031.indd 25 10/21/15 11:41 AM
Part 6 Supplementary Material
all aspects of their business.” The organization’s employment
standards included:
• No forced labor
•No child labor
•No discrimination
•Provision of legally mandated wages and benefits
•Working hours of no more than 60 hours per week and 24
consecutive hours of rest within a seven-day week
•Freedom of association and collective bargaining
•Respect and dignity for all employees
The company used its social and environmental affairs
(SEA) team to monitor its direct suppliers. SEA comprised of
63 employees, the majority of which worked in field operations.
Standards within the supply chain were expected to align
with the organization’s Fair Labor Association (FLA) accreditation.
Monitoring was primarily through pre-announced visits. If
there was a perceived need, SEA could do an unannounced visit,
but this was rare. The frequency of monitoring was based on a
risk-assessment of the history and geographic location of the supplier.
Suppliers were rated on compliance using key performance
indicators (KPIs), including management commitment, the quality
of management systems in place, worker/ management communication,
training delivered, transparence of reporting, and measurement
of compliance activities. Suppliers received a score of 1-5
within three KPI clusters: self-governance, partnership, and risk
management. To effectively use SEA personnel, the KPI ratings
were applied in creating three tiers. The first tier, self-governance,
was comprised of the top performers capable of managing a program
of strong industrial relations, health and safety standards, and
employee/management communications. These suppliers had an
internal compliance policy and practiced and reported these activities.
The second tier, partnership, was for suppliers that could benefit
from significant training support. Adidas focused on delivering
capacity-building programs in collaboration with other companies
and multi-stakeholder initiatives, such as the FLA and Better
Factories for Work. At the bottom was the risk management tier
for the lowest-performing suppliers. Adidas helped them improve
their performance, and if they responded well they were moved up
to the partnership tier. If not, Adidas would wind down business
and eventually terminate the relationship. All monitoring results
were uploaded into the Fair Factories Clearinghouse, an external
non-profit program that allowed members to share information,
collaborate, and facilitate safe, humane working conditions.
For new products, the company would first identify a factory
that was capable of making the product. Through prototype production,
Adidas would evaluate supplier engineering and innovation
capability as well as quality. Financial due diligence was then
performed on the supplier. Only then was the SEA team asked to
do a factory audit. Some factories did not make the cut, and were
dropped from further consideration. For example, 46 percent of factories
in China failed the initial assessment; half of these suppliers
were given a second chance to fix the problems within 3-6 months;
close to half of these factories still did not improve sufficiently
and hence were not added to the Adidas supplier list. Compliance
issues identified during initial assessments and follow-up in 2011
were lack of valid permits and licenses (13 percent), health and
safety related (31 percent), and labor-related (56 percent).
The SEA team did not monitor indirect suppliers. Instead, it
required agents and licensees who managed the indirect suppliers to
submit a three-year plan to ensure compliance in their supply chains,
while commissioning external audits of the contractors. The company
accredited nine organizations to monitor the indirect supply
chain. The SEA group worked with its agents and licensees to build
and embed the SEA practices in their supply chain operations.
A HISTORY OF LABOR ISSUES
IN ADIDAS
In 2000, Adidas Group was accused by Urban Community Mission
(UCM) of using sweatshop help in its Jakarta, Indonesia, Tuntex
factory where 1,700 workers—mostly women—produced jackets
and socks. UCM claimed that the workers were subjected to forced
overtime, physical abuse, and poverty wages.
In 2006, the company was accused by Oxfam of reneging on
a promise to demand the reinstatement of 33 workers dismissed
from a major Indonesian supplier following a strike. Oxfam
worked to compel the company to uphold the rights of workers,
including a living wage and to organize and collectively bargain.
In November 2006, Indonesian factories PT Spotec and PT Dong
Joe closed, leaving 10,500 workers without jobs. The factories had
produced for Reebok and then for Adidas after Adidas’ Reebok
acquisition. Oxfam claimed that Adidas’ buying practices led
to the factory closures. The Indonesian Footwear Association
reported that Adidas/Reebok had not increased payment to the
Adidas Supply Chain
Supply chain structure
Supplier
Sub-contractor
Agent
Sub-contractor
Supplier
Sub-contractor
Supplier
Licensee
Supplier
Agent
Sub-contractor
Exhibit 2
Adidas Supply Chain
Source: Adidas Group Sustainability
Progress Report 2013
cat42162_case4_01-031.indd 26 10/21/15 11:41 AM
Cases 4 Developing Global Marketing Strategies
suppliers over the past five years, and media outlets reported that
Adidas’ 27 percent profit increase at the time was the result of
the organization’s Reebok purchase, which allowed it to negotiate
cheaper prices with suppliers.
In 2011, workers at a Turkish factory making socks for Adidas
were terminated when they attempted to form a union. Also in
2011, after 18 months of negotiation, Adidas signed the Freedom
of Association Protocol in Indonesia together with national unions
and several supplier factories. Nevertheless, Adidas was accused
of manufacturing gear for the 2012 British Olympic athletes with
sweatshop help. Workers at nine Indonesian factories that produced
Olympic shoes and clothing for Adidas were allegedly working up
to 65- hour weeks and earning as little as 34 Rp (1 USD) an hour.
Adidas denied that clothing manufacturer workers were paid low
wages, indicating that the Indonesian workers received more than
double the 34 Rp an hour they claimed to be getting.
UNIVERSITY OF MICHIGAN APPAREL
The University of Michigan licensed its brand to over 400 licensees
that produced apparel and non-apparel products in about 40 major
categories, each with several sub-categories. For example, men’s/
unisex outerwear was a product category with sub-categories of
jackets, rainwear, polar fleece, and wind shirts. There were about
32 licensees in this category, including Columbia Sportswear,
Cutter & Buck, and Vesi Inc. U-M licensed merchandise was sold
though several channels including department stores, boutiques,
stores on or near the campus, sporting goods/sports specialty, golf
specialty, Internet/TV/catalog, and off-price outlets. On August 1,
2008, the university had signed an eight-year sponsorship agreement
with Adidas for its athletic program, valued at $60 million,
which agreement was now in question over the alleged violations.
UNIVERSITY LICENSING: MONITORING
AND ENFORCEMENT EFFORTS
Many colleges and universities depended on the FLA and the
WRC to monitor and enforce code compliance and to remedy
cases of egregious code violations and the failure of remediation
efforts to counteract harm to workers. The FLA and the WRC
served complementary roles, with the FLA acting as a monitoring
organization and the WRC administering the complaint and
enforcement processes. Students protested to ensure the integrity
of their university logos. U-M was among 180 colleges and universities
that retained the Collegiate Licensing Company (CLC) to
assist them with administration of trademark licensing programs
and to promote consistent and uniform labor code standards.
Fair Labor Association Founded in 1999, FLA was
a collaborative effort, a multi-stakeholder initiative that invited
participation from all organizations committed to promoting fair
labor standards around the world—companies and brands, civil
society organizations, colleges and universities, suppliers and
manufacturers, conscientious retailers, and others.
Members joined FLA as Participating Companies, Participating
Suppliers, or Collegiate Licensees based on size and expressed
level of commitment. As FLA Participating Companies, some of
the world’s largest and best-known brands had committed to instituting
fair labor practices and safe and humane working conditions
throughout their supply chains. Similarly, FLA Participating Suppliers
demonstrated their commitment and effort to buyers (brands)
and other stakeholders who cared about factory conditions in product
supply chains. Collegiate licensees played an essential role in
upholding the commitment their universities had made to protect
workers’ rights worldwide. Licensees were required to register with
the FLA and meet specific obligations based on revenues. By affiliating
with FLA, licensees had access to one-on-one guidance and
tools, resources, and materials to help them develop compliance systems
that respected workers’ rights throughout their supply chain.
Worker Rights Consortium The Washington, D.C.-
based WRC was founded in April 2000 by university administrators,
students, and international labor rights experts. The WRC was
created as an independent labor rights monitoring organization to
assist universities with the enforcement of their labor rights codes
of conduct, which were adopted to protect the rights of workers
producing apparel and other goods bearing university names and
logos. At the time of its founding, the WRC had the support of
44 universities. By 2012, the organization’s total number of college
and university affiliates had reached 180. WRC conducted independent,
in-depth investigations; issued public reports on factories producing
for major brands; and aided factory workers in their efforts
to end labor abuses and defend their workplace rights. The WRC
also maintained a searchable online factory disclosure database that
contained names and locations of factories around the world that
produced goods bearing college and university names and logos.
Collegiate Licensing Company Many universities
retained the Collegiate Licensing Company (CLC)—the nation’s
leading collegiate trademark licensing and marketing company—to
assist them with administering their trademark licensing programs,
including communication of their individual university code provisions
in a contractual agreement, the CLC Special Agreement
Regarding Labor Codes of Conduct. The purpose of the CLC conduct
codes was to promote consistent and uniform labor standards by
providing a framework for bundling the labor code requirements of
various institutions represented by CLC. The labor code standards
established reasonable hours, working conditions, and pay for workers
in factories manufacturing products bearing the marks of collegiate
institutions. The CLC represented approximately 200 colleges,
universities, bowl games, athletic conferences, the Heisman Trophy,
and the NCAA (including the Men’s and Women’s Final Four, the
College World Series, and all other NCAA championships). U-M
consistently ranked among the CLC’s top licensed brands. (See
Exhibit 3 for a listing of top collegiate licensees.)
1 University of Texas at Austin
2 University of Alabama
3 University of Florida
4 Auburn University
5 University of Michigan
6 University of Georgia
7 University of Kentucky
8 University of North Carolina
9 Louisiana State University
10 Pennsylvania State University
Source: The Collegiate Licensing Company
Exhibit 3
Top 2010-2011 Collegiate Licensees
cat42162_case4_01-031.indd 27 10/21/15 11:41 AM
Part 6 Supplementary Material
United Students Against Sweatshops (USAS)
More than 150 chapters of USAS worked with textile worker
unions to single out big-name organizations like Nike and
Adidas to shine a light on the sports apparel industry’s use of
sweatshop labor. Formed in 1997, Washington, D.C.-based
USAS was a grassroots organization of youth that leveraged its
members’ roles as students, consumers, workers, and members
of campus communities to achieve precedent-setting victories in
the struggle for the self-determination of working people around
the world—in particular, workers who made collegiate-licensed
apparel.
As a result of student activism in the late 1990s, a number of
U.S. colleges and universities required companies to follow labor
codes at factories producing licensed goods. Reforms included
a 2011 revision of the FLA’s Workplace Code of Conduct that
resulted in a new minimum-wage standard found in the majority
of individual university codes and CLC special agreements.
Prior to revision of the FLA code, employers were simply required
to pay the legal minimum wage or the prevailing industry wage,
whichever was higher. In 2011, FLA revised the code to include
a worker’s right to a regular wage that met the basic needs of the
employee and two of his or her dependents, and provided some
discretionary income.
Students Organizing for Labor and Economic Equality (SOLE)
was the student organization at the University of Michigan that
had, since 1999, been affiliated with USAS. SOLE advocated
for social and labor justice through direct action, education, and
nationally coordinated campaigns.
U-M President’s Advisory Committee on Labor
Standards and Human Rights (PACLSHR)
In June 1999, then-university President Lee Bollinger responded
to the anti-sweatshop movement of the 1990s by creating an advisory
committee comprised of students, faculty, and staff. The
role of the PACLSHR was to monitor code enforcement; promote
university leadership in corporate citizenship with respect to fair
labor practices, human rights, and sustainability in its licensing
operations; advance the understanding of issues involved in globalization
and labor; and provide advice concerning university
policies and procedures to address labor issues in the production
of items sold with U-M’s name, logo, or other symbols.
U-M had its own code of conduct for its licensees, but found it
challenging to design effective monitoring procedures to enforce
its standards. U-M consequently joined FLA and WRC for monitoring
and enforcement assistance. U-M paid each organization
annual fees at a rate of approximately 1 percent of its gross
licensing revenues up to a maximum of $50,000. FLA provided
assistance with monitoring and improvement of policies and procedures
as well as investigations, while WRC offered investigation
and enforcement services.
Oversight on labor standards and human rights and adherence
to the university code of conduct for licensed goods was accomplished
through the recommendations of the PACLSHR and SOLE
to President Coleman for appropriate action (see Exhibit 4 for an
example).
WORKERS’ RIGHTS AT PT KIZONE
PT Kizone, an apparel factory in Tangerang, Indonesia, was
owned Jin Woo Kim, a South Korean national. The plant produced
collegiate licensed apparel for the Adidas Group and
Nike, as well as non-collegiate apparel for Dallas Cowboys
Merchandising and other brands. According to WRC findings,
PT Kizone violations began September 3, 2010, when the
Indonesian manufacturer ceased paying mandatory terminal
compensation to workers separated from employment. From
September 3 to December 31, 2010, according to WRC, 49 workers
were not paid compensation required by law and the company’s
collective bargaining agreement with the workers’ union. The
situation worsened when, on January 5, 2011, PT Kizone denied
the factory’s workers their pay for the month of December,
WRC found. Kim fled Indonesia the following month. After his
departure, Green Textile—the buying agent for Nike and Adidas
and the direct buyer for the Dallas Cowboys—assumed control
of PT Kizone operations and kept the factory operating for
approximately nine weeks. Workers received their wages during
that time, but at the end of March 2011 the factory ceased
operations, and workers were denied any further compensation.
According to WRC, when Green Textile shut down the factory
on April 1, 2011, the 2,686 workers employed by PT Kizone
were owed $3.4 million—an average of a year’s base income per
worker (see Exhibit 5). Adidas claimed it had no responsibility
Exhibit 4
University of Michigan Students Face Off with Russell Athletic
In 2008, Fruit of the Loom subsidiary Russell Athletic shut down a 1,200-employee factory in Honduras called Jerzees de Honduras
after workers formed a union. Following the closure, investigations were performed by FLA and WRC and the findings were reported
to universities. The PACLSHR deliberated the issue and ultimately recommended non-renewal of the contract. In fact, more than
100 universities decided to sever ties with Russell. It was the largest ever boycott of a single corporation, and it forced Russell to
negotiate with the union.
According to WRC, on November 14, 2009, Russell Athletic/Fruit of the Loom signed an agreement with the union representing
workers at the Honduran factory and the union’s parent federation to address labor rights violations. Russell also separately signed
an agreement with WRC to reinforce the company’s commitment to resolve the violations. The agreements were the culmination
of months of WRC investigation and remediation efforts. As of February 2011, the plant had been reopened and 820 of the 1,200
workers were rehired. As of May 2011, the remaining 380 were to be offered positions at an expanded facility under a collective
bargaining agreement. The contract brought an immediate pay increase, additional hiring to ensure that all of the former workers
who wanted employment at the factory were able to do so, and new investment in the factory, among other benefits.
Source: GlobaLens.com “Russell Athletic Tries to Keep the Shirt on Its Back (A)”
cat42162_case4_01-031.indd 28 10/21/15 11:41 AM
Cases 4 Developing Global Marketing Strategies
for the workers because the company had advised the factory in
June 2010 that it was ceasing production there, and consequently
had no business relationship with PT Kizone at the time of the
closure. Nevertheless, Adidas conceded in December 2011 that
PT Kizone workers were involved in Adidas production until late
November 2010.
As of January 18, 2012, PT Kizone buyers had provided
workers with approximately half of the amount WRC indicated
was owed to them, including $1 million paid by Green Textile
at Nike’s request and a direct contribution of $521,000 by Nike.
Mandated death benefits also still were owed to the families of
several employees who died between September 1 and December
31, 2010.
The WRC findings, which were presented to affiliate colleges
and universities, indicated that severance was owed and a code
violation had occurred. WRC argued that it was the duty of
the licensees to correct this violation by paying the severance. In
the case of non-payment of legally mandated compensation, consistent
with the intent of many university codes of conduct, workers
ought to be paid what they were legally owed.
Each company involved had contributed funds or pledged to
do so, with the exception of Adidas. Adidas indicated that it had
no obligation to provide funds to the affected workers because it
did not own the factory. The company had reported taking what
it called appropriate steps, including convening meetings of
Indonesian and South Korean government and industry officials,
and encouraging other Adidas contract suppliers in the area to
hire former PT Kizone workers. Nevertheless, WRC contended
that even if assistance with employment opportunities was pursued
effectively, it would do nothing to pay workers the money
they were legally owed. It was also highly unlikely that meetings
involving government and industry officials in Indonesia and
South Korea would result in any money being paid to the workers,
WRC claimed. Adidas justified its refusal to pay the workers on
two bases:
1. That it left the factory before the violations occurred
2. That it had no obligation to contribute financially in cases
where its contract suppliers failed to pay workers money
they were legally owed
WRC found that the first justification had no basis. Adidas
admitted that its orders were being produced at the PT Kizone
factory into late November 2010. The violations began in
September 2010. In both its mandatory collegiate disclosure
and through its voluntary web-based disclosure process, Adidas
also reported PT Kizone as a supplier factory in January 2011.
Further, WRC found that the second justification had no more
weight than the first. University codes of conduct required
licensees to not only ensure compliance by factories that were
directly owned, but also for contractors. University codes did not
exempt contractors, since the vast majority of university apparel
production was outsourced.
Adidas did not disclose the violations, denied responsibility,
and refused to pay anything. The WRC continued to recommend
that all licensees take whatever steps were necessary to
ensure that workers were paid all funds legally owed, and that
Adidas reverse its position, accept responsibility, and contribute
to the remediation process. U-M, the University of Washington,
and UW-Madison found Adidas in violation of their codes of
conduct.
Indonesian Regulatory Response Kim, the PT
Kizone owner who fled Indonesia, was also the owner of one of
PT Kizone’s biggest creditors, PT Selarus Kausa Busana, an apparel
factory that claimed PT Kizone had owed it some $8 million.
While Indonesia’s Law on Manpower (Act No. 13 of 2003) granted
some level of priority to workers when their employers entered
bankruptcy, other statutory provisions, specifically the country’s
civil code and its Law on Bankruptcy and Suspension of Obligation
for Payment of Debts (Act No. 37 of 2004), established that
certain other categories of creditors were privileged above workers.
The Book of Civil Code, the basic civil law established by
the Dutch colonial government in 1847, which was retained following
Indonesia’s independence, stated that liens and mortgages
take precedence over any other debts, including those granted a
special status, unless another law specifically stated the contrary
(Article 1134). Consequently, the Indonesian courts typically held
that the law should be interpreted to prioritize secured creditors
above workers.
Following bankruptcy proceedings, the amount that had been
provisionally awarded to PT Kizone workers by the bankruptcy
court amounted to only 21 percent of the $3.4 million they had
claimed they were entitled to and 39 percent of the $1.8 million
still unpaid. On January 19, 2012, the court-appointed receiver
charged with allocating the funds obtained in the sale of PT
Kizone’s assets proposed that the workers receive 3.5 billion
Rp ($385,000) and that the majority of the proceeds of the asset
sale be used to pay back secured creditors (a bank and a venture
capital firm). In addition, a significant portion of the funds would
be allocated toward debt to various government entities. On
February 23, 2012, worker representatives attended a hearing at
the Central Jakarta Commercial Court where the judge supervising
the receiver heard and responded to challenges from the various
creditors. After the hearing, the judge increased the worker allocation
to 6.4 billion Rp ($703,000). If the amount were paid, workers
would still be owed $1.1 million.
Indonesian Rupiah US Dollars
Severance and Reward Pay 26,120,052,816 2,875,720
Compensation Pay 3,918,007,922 431,358
Death Benefits 96,615,144 10,637
Resignation Benefits 611,107,767 67,281
Total Legally Owed Prior to Buyer Payments 30,745,783,649 3,384,996
Paid by Nike and Green Textile 13,815,182,160 1,521,000
Pledged by Dallas Cowboys 499,562,800 55,000
Amount Still Legally Owed 16,431,038,689 1,808,996
Exhibit 5
Details of What Was Legally
Owned at PT Kizone
Source: Worker Rights Consortium.
“Worker Rights Consortium Assessment
PT Kizone (Indonesia) Findings,
Recommendations and Status.” 18 Jan.
2012. Washington, DC.
cat42162_case4_01-031.indd 29 10/21/15 11:41 AM
Part 6 Supplementary Material
Nevertheless, several creditors, including Bank SBI Indonesia
and a government tax office, appealed the bankruptcy judge’s
decision to the Indonesian Supreme Court. SBI Indonesia said it
was owed more than the entire amount raised by the sale of the
company’s assets. If the Supreme Court decided to prioritize the
company’s debt to the bank according to precedent, workers would
receive no funds. The workers also would have to wait for a resolution.
The union had not been informed of a specific timeline for
the Supreme Court’s review of the case. Similar cases had taken
years to resolve.
(See Exhibit 6 for employees’ testimony as to their financial
status).
Adidas Remains Adamant Instead of directly paying
compensation, Adidas had convened meetings of Indonesian and
South Korean government and industry officials and encouraged
other Adidas contract suppliers in the area to consider hiring former
PT Kizone workers, with little effect. Adidas reported that
of the 2,686 workers who lost their jobs, 300 were hired by other
Adidas suppliers. Many of the job opportunities Adidas made
available to the workers were located more than two hours from
their homes. Among the workers who did accept jobs through
Adidas, many were placed in contract positions that lasted only
three months. Adidas indicated that it was investigating if food aid
would be appropriate for unemployed workers, but had provided
no assistance.
Adidas claimed that when it discovered labor rights abuses at
one of its suppliers’ factories, it was not required to take any remedial
action so long as the company did not know of the violations
at the time it placed its order with the supplier and did not place
any orders after it learned of the violations. In a February 27, 2012
e-mail, Gregg Nebel, head of social and environmental affairs for
Adidas Group, said to Professor Harlow, the chair of PACLSHR:
“It is the Adidas Group position not to accept responsibility
for the legal duties and obligations of our business partners.
Where a factory closes, or where workers are to be laid off,
it is the individual factory which is responsible for the
payment of severance and for any other legal benefits owed
to their workers. In exceptional circumstances, however,
SEA (Social and Environmental Affairs) may recommend
that a sourcing entity provide emergency relief, medical
care, or other forms of humanitarian aid to workers and
their families. In such cases, SEA will work with the sourcing
entity and local NGOs to design and deliver such aid.”
Nebel indicated that PT Kizone stopped operating and paying
workers’ salaries in April 2011, when the company entered bankruptcy,
some eight months after Adidas had placed its last purchase
order with the company and five months after its last product
was shipped. Nebel also pointed out that PT Kizone was compliant
with the law when Adidas was purchasing products from its
operations.
Student Reaction SOLE called upon the PACLSHR to
hold Adidas responsible for compensating PT Kizone workers
or to terminate the university’s $60-million sponsorship contract
with the company.
“We have a code of conduct for a reason,” said Monica
Shattuck, a U-M junior, member of the U-M chapter of USAS, and
a member of the committee. “How can we continue to do business
with a company in such blatant violation of our contract? If Adidas
took our labor code seriously and wanted to fix the problem, it
could pay the workers tomorrow. Unfortunately, Adidas thinks it
can get away with violating our code and exploiting sweatshop
labor to profit off Wolverine apparel.”
U-M students met with Nebel of Adidas in March 2012 to
discuss the PT Kizone issue. During the meeting, the two sides
disagreed over how Adidas should compensate workers. Nebel
reiterated that Adidas was not responsible for paying severance to
the workers affected and that Adidas had been able to place some
300 workers in new jobs with other suppliers. Students continued
to push Adidas to make the severance payments.
In the meantime, the former PT Kizone workers struggled to
feed their families, pay rent, and keep their children in school.
In a letter to Ward, former PT Kizone employee and SPSI union
worker Ahmad Supriadi wrote:
“Now as you know, we have been abandoned by the owner
of PT Kizone. Over a year ago, the factory owner disappeared
without paying us . . . (what) we worked hard to
earn. Since then, many of us have struggled to support our
families. Without the severance payments to support us
while we search for new jobs, many of us cannot pay rent.
We cannot afford to eat three meals a day. We cannot keep
Exhibit 6
Excerpts from WRC Conversations with PT Kizone Workers
Budi, a 29-year-old machine operator, reports that the loss of his income has made it impossible for him and his wife to pay their
two daughters’ school fees for the current year. (In Indonesia, public schools charge tuition.) While the tuition for Budi’s two children
combined is less than $10 per month, he and his wife do not have even that amount to spend since the factory closed. Budi’s wife
works, but earns less than minimum wage. The family also faces hunger. “If we could eat (properly) even once a day, we would be very
grateful to God,” Budi told an interviewer.
Iyam, a 32-year-old sewing operator, reports that she has searched unsuccessfully for work since PT Kizone closed. If she received
the rest of her severance payment, Iyam says, she would use the money to put her daughter back into junior high school and to make
badly needed repairs to her home.
Saidah, who worked in the screen printing department and is 55 years old, reports that her son has completed all the coursework
to obtain a high school degree — but now she cannot pay for his final paperwork. Without the high school degree her son has been
working toward, she worries he will not be able to get a decent job to support himself and her as she ages. Even workers in their 30s
are often told that they are too old to be hired in the garment sector; a worker Saidah’s age faces significant challenges.
Source: WRC, PT Kizone assessment.
cat42162_case4_01-031.indd 30 10/21/15 11:41 AM
Cases 4 Developing Global Marketing Strategies
up with school fees, which means that our children are not
allowed to study and are falling behind . . . Adidas reports
that it has been working with factories to ensure that they
follow appropriate procedures for closures and layoffs for
10 years, but yet Adidas did not prevent PT Kizone’s owner
from leaving us with unpaid wages and unpaid severance.
How many times will Adidas let this happen? How can
Adidas say it is protecting workers’ rights when workers are
repeatedly left with nothing when factories close . . . For us
and for our children, we urge you to make sure that Adidas
pays us the money we deserve.”
CONCLUSION
As Harlow prepared for the meeting where her committee
would decide on the recommendation it would send to President
Coleman’s office, she considered the WRC and FLA documents,
Adidas’ response, student comments, and worker testimony.
The committee had already found Adidas in violation of the
university’s code of conduct due to its refusal to provide severance
and death benefits to former PT Kizone workers. The questions
weighing on her mind for the committee were: Are licensees
financially responsible for actions of suppliers upstream? When
multiple licensees use the same supplier, should claims be
apportioned across licensees, and if so, how? What should or
can universities do? Such events do occur in the extended supply
chain— are there any other mechanisms to ensure that workers
are protected? Finally, what should PACLSHR recommend to
President Coleman?
QUESTIONS
1. What are some points and counterpoints in the debate over
“sweatshops?” That is, should manufacturers be forced to
leave factories and countries that violate fair labor standards?
What are the consequences of doing so?
2. If you were a student at the University of Michigan or
another school, how would you feel about wearing Adidas
apparel was manufactured by PT Kizone, or a similar supplier
to Adidas?
3. Should licensees like Adidas be held responsible for what
goes on in the factories in their global supply chain? If so,
what do you recommend Adidas do at this point, if anything?
4. To what degree are universities and other organizations
responsible for the supply chain of companies that provide
apparel and other licensed goods?
5. What would your recommendation be to U-M’s President
Coleman? Terminate the contract with Adidas, or not? Some
other action?
This case is a revision of “PT Kizone, Adidas Battles Allegations of Shirking Responsibility to Workers,” written by Ravi Anupindi, David B. Hermelin, Ross School of Business,
University of Michigan, and Mary Lowe, research associate, William Davidson Institute. Used by permission of the William Davidson Institute. It is intended to be the basis for
class discussion rather than to illustrate either the effective or ineffective handling of a managerial situation.
Sources: Osburn, Andrew. “Adidas Attacked For Asian ‘Sweatshops’ MEPs Told of Dickensian Conditions in Indonesia.” November 22, 2000. The Guardian. http://www.guardian
.co.uk/world/2000/nov/23/andrewosborn; Aglionby, John. “Adidas ‘Fails to Act’ Over Sacked Workers.” July 6, 2006. The Guardian; Oxfam. Adidas. 2012. https://www.oxfam
.org.au/explore/workers-rights/adidas; Oxfam. Inside Adidas’ Indonesian Factories. https://www.oxfam.org.au/explore/workers-rights/adidas/inside-adidasIndonesian-factories;
The Independent. “Adidas Faces Protest Over ‘Sweatshop’ Goods.” July 14, 2012; Ibid; Kline, John M. “Reassuring Collegiate Anti-Sweatshop Efforts: Can University
Licensing Codes Meet Workers’ Basic Needs?” Issue Primer. September 6, 2012. Engaged Ethics Initiative on Complex Moral Problems. Georgetown University; Worker Rights
Consortium. “About Us.” http://www.workersrights.org/about/history.asp; Talbot, Brian, et al. “Russell Athletic Tries to Keep the Shirt on Its Back (A).” 2010. GlobaLens, a
division of the William Davidson Institute at the University of Michigan; WRC, PT Kizone assessment. January 8, 2012; Nova Scott. “WRC PT Kizone (Indonesia).” Update
email to primary contacts at WRC affiliate colleges and universities. June 10, 2011. Web. Accessed August 14, 2014. http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?
article52163&content5globaldocs; WRC, PT Kizone assessment. January 8, 2012; Worker Rights Consortium. “Worker Rights Consortium Report PT Kizone Indonesia Status
Update.” May 15, 2012. WRC PT Kizone update. June 10, 2011.
cat42162_case4_01-031.indd 31 10/21/15 11:41 AM

Our academic experts are ready and waiting to assist with any writing project you may have. From simple essay plans, through to full dissertations, you can guarantee we have a service perfectly matched to your needs.

GET A 40% DISCOUNT ON YOU FIRST ORDER

ORDER NOW DISCOUNT CODE >>>> WELCOME40

 

 

Posted in Uncategorized