CASE STUDY REPORT ON ADDIDAS

Case Study Report on Addidas – Salomon

 

Synopsis

            Addidas – Salomon, formerly called adidas, was founded in 1949 and was named after its founder Adolf Dassler. The company is widely known for its clothing and sports equipment, and mostly about its shoes.

            Contrary to common knowledge, Adidas does not actually manufacture any of its products but instead contracts with around 950 suppliers worldwide. Though it is not case with its contract apparel factories, most of addidas’ footwear suppliers produce almost exclusively for addidas. Thus, this results to the firm greater influence among footwear factories to stipulate compliance with certain standards with regard to labor practices or issues such as safety, health, environment, and a host of many others.

            Moreover, in order for the compliance to be met, most firms created and published codes of conduct and other like statements subsequent to targeted attacks by unions and activists.  Addidas – Salomon had been subject to the same attacks but also had discovered through its own internal mechanisms that some of its supplier operations were not operating at standards equivalent to its own operations.

            With this, in 1998, adidas-Salomon published its Standards of Engagement (SoE) with the aim of ensuring that all of its suppliers’ factories are safe, fair places to work.  Updated in 2001, the SoE are patterned after the ILO conventions and the model code of conduct of the World Federation of Sporting Goods Industries and reflect attention to the following labor, safety, health, and environmental issues.

            Furthermore, the SoE are tools that assist companies and firms alike in selecting and retaining business partners that follow workplace standards and business practices consistent with the policies and values set. As a set of guiding principles, these also help identify potential problems so that the firm can work with its business partners to address issues of concern as they arise.

            The SoE general principle is that business partners shall comply fully with all legal requirements relevant to the conduct of the firm’s business. The standard of adidad-Salomon is that it will only partner with companies that treat their employees fairly and legally with regard to wages, benefits, and working conditions. Among these guidelines are Forced Labor, Child Labor, Discrimination, Wage and benefits, Hours of work, Right of association, Disciplinary practices.

            Moreover, business partners shall provide a safe and healthy working environment, including protection from fire, accidents, and toxic substances. Lighting, heating, and ventilation systems should be adequate and clean. When residential facilities are provided for employees, the same standards should apply. In environmental requirements, business partners shall comply with all applicable environmental laws and regulations therein. And the firm would favor business partners who make efforts to contribute to improving conditions in the countries and communities in which they operate.

            The most widely encountered problems in Asian supplier factories are the payment of recruitment fees, poor age documentation, wages lower than minimum wage, maximum working hours ignored, working rules not published, wages docked as punishment for violating some working rules, confiscation of passports, abuse of migrant workers, and illegal status of unions.

            Moreover, once informed by its sourcing division that adidas-Salomon will be using supplier, adidas-Salomon’s SoE division schedules a first-time audit to determine compliance with the SoE. At the conclusion of this or other annual audits, suppliers are informed about areas needing attention, are given performance ratings for (1) health, safety, and environment; and (2) labor standards, and are ranked using the adidas-Salomon 5-star approach. It was during one of these first time audits that adidas discovered a pervasive problem with child labor in one of its new Asian suppliers.

            Adidas face this particularly challenging dilemma when it performed a first-time audit in a footwear supplier in Vietnam. On the audit, the auditor found documents that did not seem to make sense and confirmed the inconsistencies through worker interests. At the conclusion of the investigation, the auditor identified just under 200 of the factory’s 2000 workers as underage.

            The auditor found both child workers under 16 as well as juveniles (16 – 18 years and both groups were subject to the same responsibilities, pay, hours, and overtime requirements as other workers, in violation of adidas’s SoE. According to the SoE and its Guidelines on Employment Standards, child laborers are not permitted at all: Business partners may not employ children who are less than 15 years old, or who are younger than the age for completing compulsory education in the country of manufacture where such age is higher than 15, Adidas also requires that juvenile workers must be assigned to age-appropriate, safe duties, with a maximum of seven hours per day with no overtime.

            With this information in hand, the adidas auditor realized that the solution was more complicated than simply letting the supplier terminate all of these youths. However, during the time the SoE division was contemplating its response, several dozen child workers were immediately terminated without the knowledge of adidas. Adidas SoE staff now knew that something had to be done – and quickly – to avoid losing contact with other youth workers, which might force these kids into alternatives far worse than the work environment they were forced to leave.

            Addidas senior production staff immediately told the factory manager that no more youths could be encouraged to leave, under any circumstances. Adidas felt incredible pressure to act without delay in establishing some parameters for the situation, even though a more drawn out process might have resulted in greater buy-in and participation from the factory, and a longer consultation period with the youths. Adidas hired a Vietnamese education coordinator through an NGO called Verite. At the same time, adidas drafted some basic notices to the children, on behalf of the factory. The notices explained that the factory would offer a program of educational classes and vocational training to the workers under 18.

            The notice required them to discuss the issue with family members and to give their consent to enter into the program.  It was clear to the adidas SOE team members that most of the student did not have a full understanding of what was going to happen and many of them were naturally suspicious.

            Moreover, working with Verite and the education coordination, adidas was able to develop what later became adidas global policy for managing similar situations. The supplier meets with the worker and tries to persuade them to go back to school. If the worker agrees to return to school, schooling fees and other costs are paid for by the factory until the worker completes compulsory education. Any continued employment is conditional on controlling the workers in a work study program of continued education. The factory continues to pay the average monthly wage for the worker until the worker finishes school. This will make up for any lost income that the worker’s family depends on in order to cover the basic needs of the family. The worker is required to provide the personnel manager proof of enrolment in school in order to continue receiving the monthly salary and school payments.

            And for children up to 16 years of age, in cooperation with teachers from the local government schools, the factory put into place a full-day education program with coverage similar to that covered in local schools. Topics included math, literature, chemistry, physics, biology, and history. Children would arrive and depart from the factory at the same times they originally traveled, but would spend the workday in a large classroom in a space specifically designated for the program by the factory. Preprogram assessments were completed to accurately place each anticipated while the factory paid adidas retrospectively on a monthly basis for work performed. Under these arrangements, the risk was carried in full by adidas, but this arrangements, the risk was carried in full by adidas the leverage it needed in order to ensure compliance by the factory. In the final months of the program, an assessment by another NGO and local Vietnamese researches will be conducted. The assessment will be fully funded by adidas, but the results of, and any recommendations in, the assessment will be available. 

 

Consequences

           

            And should a supplier of adidas is not in compliance with the SoE being set, the effective way for the firm to respond is to send some note sort of a warning to its partner and let them resolve in the most immediate time possible the dilemma that has been found. Adidas must be wary of course from this, and should look into more of the case than what is necessary.

            And it would be necessary only for adidas to terminate its relationship or partnership with the factory should it breach the SoE more than once. Or they can terminate the whole thing should the company did some irreparable damages to the environment or putting people in great jeopardy.

            The dilemma that adidas encountered in one of its partner in Vietnam was a good one. Adidas not only gave a second chance to the company to resolve the anomaly being done, they also pointed out to the company what should be the way as to how to solve.

            Granting these kids and juveniles education was so humanitarian. And it’s a case of a win-win solution. Terminating these kids would not solve the problems, because in the first place, the very victim was them. Giving them education and the chance to still work in the company were a clear-cut case how to give them opportunities and more.

            Moreover, having the partner company shoulder all the expenses was a good one. Not only had it reminded the company that it was there responsibility and obligation but it also serve as warning and learning. That way, having had to spend money over the damages they had created would.

 

Conclusion

           

The Standards of Engagement is necessary as it is important. It ensures that all of adidas and other firms that tapped or outsourced all of their products from another companies are safe, fair places to work. It also gives groundwork for the law of the land being carried out. Not only that, it also ensured that the company will produce the products set by the company.

            The dilemma faced by one of the supplier of adidas in Vietnam is a lesson that should be learned. Having minors inside the workplace is prohibited under the law, and more so, in the SoE. Good thing that the adidas management acted rather objectively in such occasion because still considered fixing it up.

            The stipulations stated therein in the SOE should be taken strongly by suppliers around the world. It should be taken seriously, lest they will be targeted by unions and activists seeking for the right ways and procedures. And if this happens it will cause a lot of money to the suppliers and in way, abrupt operations for adidas.

            Cases like low wages, child labor, discrimination, illicit long hours of work, among others, have proven to be issues that stir not only in the company but outside the company’s premises as well, like the community, or worse, by the media. And when this happens, chances are, sues will be filed against the company. Even more worst when all these issues will be proven.  Not only it abrupt the production of the outputs it will also cause the company millions.  

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