May 3 (Bloomberg) -- Nike Inc., the world’s largest sporting-goods maker, is putting its contract manufacturers on notice: adhere to new labor and sustainability standards or risk losing Nike’s business.
The Beaverton, Oregon-based maker of Air Jordan sneakers is giving more importance to worker benefits and safety in its grading system for factories, the company said in a statement. Nike, which makes more than 90 percent of its shoes in Vietnam, China and Indonesia, wants all factories it uses to meet the increased standards by 2020.
“We will be moving away from companies that are not committed to putting workers and sustainability at the heart of their growth agendas,” said Hannah Jones, vice president of sustainable business and innovation at Nike, in a telephone interview. “There are new rules of engagement.”
The shoemaker increased its standards as labor practices in Asia have come under increasing scrutiny. Technology company Apple Inc. opened up its suppliers’ factories to inspections by an outside group after worker suicides and injuries in China drew complaints by human rights organizations.
Nike has its own history of being criticized for worker conditions at the factories that makes its shoes and apparel. In the 1990s, the company began addressing the issue.
The company’s initial approach was to monitor factories. That didn’t work because factories would improve conditions for the monitoring and then regress afterward, Jones said. Nike is now trying to persuade contract manufacturers that better labor practices and sustainability improves productivity with lower worker turnover and reduced costs, she said.
The move is part of a company-wide focus on using its prowess as an innovator to drive sustainability, said Jones. “Our young consumers expect this,” she said.
The new standards were introduced as part of Nike’s latest report on sustainability and worker issues. Nike gave “A” ratings to 4 percent of its factories in the fiscal year ended May 31, 2011, compared to 6 percent in 2010. Factories with “B” grades increased to 45 percent from 33 percent.
Under the new rating system, “A” and “B” grades will be a bronze rating with silver and gold above that. Nike has the goal of all its contracted factories reaching the bronze level by 2020.
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