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December 14th, 2011 COREY PEIN | Cover Story
 

NikeLeaks

Thanks to Julian Assange, we now know how Oregon’s top company fights corruption, counterfeiting and Croatian smugglers.

lede_nike_3806Illustration by JooHee Yoon
Packed aboard buses and flatbed trucks, the workers rolled through the wide boulevards of the central business district of Indonesia’s capital toward the tall towers of the Jakarta Stock Exchange.

They came by the thousands from the factories, their anger focused on a single company. They carried placards: “Nike Where Is Your Commitment,” and “Nike Is A Blood-Sucking Vampire.”

One protester simply drew a swoosh over the words “Fuck You.”

It was July 2007. A dispute between Nike and one of its largest overseas suppliers threatened to cost the workers their jobs, and the anger boiled over into the streets. As the workers’ convoy snarled traffic around Nike’s high-rise offices, the executives inside feared for their safety. Surrounded, they realized they could not trust the Indonesian police to protect them. 

The Nike executives needed help. They called the U.S. Embassy.


With operations in 170 countries, and factories in 33, Phil Knight’s $21 billion baby has nearly as many outposts as the State Department has embassies and consulates. It’s no surprise that Nike’s overseas employees and the U.S. diplomatic corps often cross paths. What is surprising is just how often their interests converge.

In November 2010, WikiLeaks published its first batch of classified U.S. diplomatic cables—documents allegedly downloaded from a Defense Department computer network and burned onto a blank CD labeled “Lady Gaga.” The initial WikiLeaks releases led to headlines about Asian arms deals, Iran war plans and Moammar Gadhafi’s “voluptuous blonde” nurse.

The full volume of 251,000 cables, spanning a decade of diplomatic correspondence, was released this September. In these once-secret documents, patient readers can find endless detail on the day-to-day workings of the U.S. State Department. 

WW’s review found 184 cables, totaling more than 900 pages, that reference Nike. As the state’s only truly global company, Nike is mentioned more often in the cables than any other business in Oregon. 

The cables excerpted here, and presented in full here, reveal the scope and complexity of Nike’s operations.

Beyond manufacturing, shipping and advertising—the surface of Nike’s business—this enormous enterprise has developed its own intelligence, customs and forensic services.

The cables follow executives and diplomats through the counterfeit markets of Asia, where modern pirates make millions copying—or simply stealing—the famous swoosh. 

They show Nike investigators prowling European warehouses in the dead of night, on the hunt for contraband.

They reveal how corrupt police and politicians try to shake down the company for bribes—and how, in some places, the company pads the budgets of foreign enforcement agencies in return for service.

They show a company that is sometimes robbed by its own subcontractors, and pressured by workers’ demands. And a few cables contain real drama, such as the story of the evacuation of Nike executives from Jakarta following a deal gone bad.

Sheena Blevins, a Nike spokeswoman, said in an email that the company is “not able to participate” in this article and “this is not a story we would comment on.”

It’s understandable. The NikeLeaks reveal challenges that would spell the end of many ventures. But Nike overcomes enormous risks on a daily basis. These cables show how.

Global corporations lose $250 billion a year to knockoffs, according to a study by the Organisation for Economic Co-operation and Development—and that includes only physical goods, not software, movies or music. Nike suffers a good share of those losses. 

The WikiLeaks cables provide new detail into this lucrative illegal trade. One April 2006 cable quotes a Nike manager in China (a capital of counterfeiting) tallying the company’s intellectual property-protection campaign for the prior year: 351 seizures involving 500 factories, and bogus shoes worth $100 million.

Another 2006 cable, from September, recounts an extended tour taken by U.S. trade representatives to three large and fast-growing port cities in the Southeast China coastal provinces of Fuzhou, Shenzhen and Guangzhou. Intellectual property experts call this region “the heart of darkness.”

After visits with provincial authorities and functionaries—most of whom “stuck to Beijing’s talking points” and recounted ineffectual anti-counterfeiting publicity campaigns—a group of American executives followed U.S. Embassy officials into the streets.

In the markets, they found dealers stocking “blatantly” fake Nikes and other American brands, from Levi’s to Snoop Dogg clothing. The scale was far beyond any Asian street market familiar to Lonely Planet-toting tourists. Shoppers here don’t haggle over the price of a single fake Rolex—they buy “tens of thousands” at a time. 

“Some of the vendors were not interested in selling individual items, preferring instead to deal with large, wholesale orders.… In addition, foreign buyers—particularly Africans, Middle Easterners, and South Asians—work in Guangzhou as wholesale purchasers and shippers for enterprises in their home countries.”

Often, fakes are fairly obvious, featuring poor stitching or misshapen swooshes, made in “small-scale, rural ‘workshop’ operations [that are] difficult to track.”

But Nike maintains that its real problem isn’t these rogue mom-and-pop sweatshops. Much of the illicit fare in the markets is the genuine article, made by their own subcontractors.

“Some of the clothing…appeared to be high-quality, genuine products being sold at low prices…. This is likely the result of ‘third-shift’ manufacturing, in which factories produce extras to sell on the side….”

Swooshes and other genuine Nike materials are often obtained from “recyclers, scavengers or from Nike workers who smuggle shoe parts out of the factory in their clothes or literally fling them over the back fences.”

Nike takes such cases to court but, for several reasons, the company can’t simply rely on the authorities to enforce its trademark. 

Bureaucratic dysfunction is one reason. Nike’s brand protection manager in China, Bill Wei, is quoted explaining how trademark cases in China must prove that counterfeiters have made a profit before authorities will act, and how “U.S. companies must sometimes ‘shop around’ for a qualified enforcement body that will investigate a case.”


The WikiLeaks cables also show that demands for graft follow Nike from port to police station.

A March 2007 cable recounts another factory-row tour, this one led by Nike reps, in Putian City, the shoemaking center of Fujian Province. “Putian officials are notoriously corrupt,” the cable notes. Two years earlier, a police official there “allegedly asked the Nike reps for a RMB 100,000 payment”—that’s approximately $13,000—“for each infringer shut down.”

The cable does not say whether Nike paid.


Such corruption may be even worse in Vietnam, where nearly 40 percent of Nike’s wares are now manufactured. The Southeast Asian country of 91 million people—of whom some 90,000 are directly or indirectly employed by Nike—is even more critical to Nike’s business than China. 

Nike has faced so many problems protecting its property in Vietnam that, in June 2007, a cable shows, the company asked the U.S. Embassy to bring a case against Vietnam to the World Trade Organization.

“Last year, law enforcement authorities investigated four cases of counterfeit Nike products, all of which were thrown out, even though Nike believes it had provided clear and convincing evidence of [intellectual property] violations…. Moreover, our contacts told of several instances of counterfeit goods being returned to the violating enterprise, even following administrative fines.”

The stories of raids recounted in the cables suggests Vietnamese indifference to Nike’s losses was a result of high-level corruption.

A September 2002 cable by the U.S. Consulate in Ho Chi Minh City describes a raid Nike made on one counterfeit shoe operation. The haul: 23 truckloads of counterfeit shoe parts, enough material for 15,000 pairs of shoes, from a factory that had produced some 5,000 bogus pairs the previous year. Nike estimated the value of the illegal operation at $164,000—a fortune in a country where the average per capita income was $450 at the time.

“In gathering the evidence for the raid, the police worked closely with Nike’s new in-house investigator, who spent one year gathering evidence from informants and old-fashioned detective work…. Ironically, Nike initiated the investigation after receiving a tip from a competing counterfeit producer....”

The police helped, in this case, only with special incentive.

“Nike praised the cooperation it received from the local police, even though Nike paid for the police overtime and materials (e.g., fuel) to mount the raid, trucks to haul away the material, and the storage costs at a warehouse….

“Although police held approximately two dozen counterfeiters for several hours, no arrests were made since the case is not yet considered criminal…. Authorities are still considering whether to file criminal charges….”

As an aside, the cable notes, “One of the counterfeiters [was] the nephew of the Communist Party chairman of a powerful neighboring province.”


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