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Nike Reports Persistent Problems at China Factories

By Reuters -  |  Posted 2008-03-14 Print this article Print

Nike's difficulties with China highlight the deep roots of some of the problems businesses face in manufacturing there, particularly at a time of sharply rising costs and a stiffening legal environment.

HONG KONG (Reuters) - Nike Inc (NKE.N: Quote, Profile, Research), the world's biggest sneaker and sportswear maker, said falsified documents, underage workers and unpaid wages were problems encountered at suppliers in China, despite what experts say is one of the top social compliance regimes in the industry.

The Oregon-based company's difficulties highlight the deep roots of some of the problems businesses face in manufacturing in China, particularly at a time of sharply rising costs and a stiffening legal environment.

In its first country-specific supply chain report, which it said focused on China because of the upcoming Beijing Olympics, Nike detailed the efforts it has been making to get suppliers to comply with its code of conduct and Chinese law, including a scheme to monitor Olympics-related suppliers this year.

"As China continues to develop we see progress and best practices emerging. But like our partners in any other country, the factories we contract with in China continue to face challenges as well," said the report, which was released earlier this month on Nike's Web site.

It listed several labor-related challenges, including falsification of factory documents, like payroll records, lack of effective grievance systems for disgruntled workers and hiring practices that did not ensure minimum age standards are met.

The report said China is Nike's largest single sourcing country, with some 180 manufacturers and about 210,000 employees.

Last year, Nike rolled out a scheme to check the identity of some 150,000 of its workers in China, and found 167 cases of people who were below minimum age standards when they were hired but were now 18 or older. Two people were found to be underage.

Wages in some places were not tracking government mandated raises, the report said.

"As multiple factors drive up the cost of business, we find that some contract factories try to avoid making changes to wages in a timely manner," it said.

In 2005 and 2006, Nike "secured" over 6.53 million yuan ($921,300) in back wages owed to workers in China. Last year, it said it recovered more than 500,000 yuan in back pay.

Experts say Nike has been an industry leader in corporate social responsibility. In 2005 it made public for the first time its entire supply chain.

But the problems the Nike report said it was trying to tackle were widespread in China.

Last year, a rights group reported that it had found children working at factories making Olympics bags, caps and stationary.

About one third of Nike shoes are made in China, as is much of the apparel and equipment it sells worldwide.

($1=7.088 Yuan)

(Reporting by John Ruwitch; editing by Kim Coghill)

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