NikeLeaks

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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A 2009 cable from the U.S. Embassy in Mexico City relates the case of a notorious pirate, Leonardo Cruz Hernandez, who was arrested in March of that year by Mexican police after a three-year investigation.

"Following his arrest, Nike Mexico's general manager received enormous pressure from Nike's wholesalers to pardon Cruz, including from a brother of a senior PRI politician."

(The PRI was Mexico's ruling party for seven decades.)

After some initial hesitation, Nike moved forward with charges.

"However, on March 26, the judge of the 11th Federal Court of the Reclusorio Oriente [Prison], where Cruz was being held, dismissed the charges against him and allowed Cruz to go free. The judge's clerk found fault with the paperwork in which [the Mexico attorney general] outlined the case against him, and the case was dismissed on a technicality."

Nike not only tries to pursue counterfeiters in the countries where the fake goods are manufactured, it tracks smugglers' shipments from the factories of Asia to the ports of Europe.

Nike's private copyright-protection force is like a scale-model justice system focused on the interests of one client, employing private security, detectives, lawyers, local guides and lobbyists.

In a December 2008 cable, representatives of the U.S. Embassy describe a meeting with "Nike's brand protection manager for Croatia" in Zagreb, that Eastern European country's capital. The cable gives a sense of the sheer scope of the smugglers' operations and how overseas laws make it hard to prosecute such cases—and how, when foreign authorities are unwilling or unable to act, Nike takes the job of enforcement into its own hands.

The cable says Croatia is not a major producer of knockoffs. Rather, “its geographic position makes it a desirable entry point” for smugglers targeting markets in the United Kingdom and Western Europe. 

Fortunately for Nike, it has one advantage in Europe that it can't count on everywhere: the cooperation of authorities. 

"Nike has established relationships with police and customs officials throughout Croatia, who alert Nike when they intercept a suspicious shipment…. The Nike rep then goes, sometimes in the middle of the night, to inspect the merchandise and tell Croatian officials whether the goods are fake…"

After a seizure, Nike's forensics unit takes over.

"[T]his identification is not always easy and sometimes requires him to send a sample for closer examination by Nike headquarters.… Once identified as fakes, the shoes are held in a warehouse while he arranges for their destruction…” 

A November 2008 bust by Croatian customs officials, at the Adriatic Sea port of Rijeka, nabbed "20 shipping containers filled with thousands of pairs of counterfeit Nike shoes destined for markets throughout Europe."

Not all such operations, although successful from Nike's perspective, are strictly legal, according to the cable. 

"Our contact admitted that his seizures are only quasi-legal since the designs being counterfeited are only rarely covered by Croatian patent law. This is because of the lengthy procedure to register individual designs with Croatian authorities (often taking over a year). He explained it is impossible for an international apparel manufacturer, issuing hundreds of new products over four seasons, to comply with the letter of Croatian law on registration of designs."

In many ways, Croatian law enforcement is outmatched by organized crime, the Nike rep explained.

"[T]he smugglers adapt quickly to avoid his interference. There have been recent cases of shipments of 'blank' shoes, with a courier bringing in suitcases full of the famous Nike 'swoosh' later on.…

"Croatia also struggles with a legal and law-enforcement capacity that is often lacking or outmatched. This is especially true along the Bosnian border, where understaffed Croatian units face smugglers with years of experience in trafficking of goods; experience in many cases honed during the Yugoslav wars, when smuggling was a matter of life or death."

Apart from piracy, the cables show that Nike faces continued problems with its overseas business partners and workforce.

A December 2007 cable from Vietnam describes a worsening labor situation, with 700 strikes in the previous two years, most of them "technically illegal."

One of the largest strikes that year involved some 14,000 workers at a Korean-owned factory in Southern Vietnam's Dong Nai Province.

The factory, one of 40 of Nike's Vietnamese subcontractors, made shoes for export. Most of the workers were young women, and nearly all joined the strike, the cable says.

Their demands included seniority pay, transportation allowances and lump-sum holiday bonuses amounting to $30 apiece. 

From Nike's perspective, the workers already had a good deal. Their average pay—$62.50 a month—was higher than the local minimum wage and conditions "exceed[ed] local standards."

"Despite these pluses, workers told factory managers that the nearly 10 percent annual inflation rate means that the price of commodities, food and other necessities have risen faster than the buying power of their wages…."

Nike's rep blamed the unrest on workers' misunderstanding of labor law.

"When asked about the strike by [Embassy economic officials] in Hanoi…Nike's general manager said that the strike had started when two employees raised a grievance but then quickly escalated as others joined in to make the wage and other demands as noted above. She also characterized the labor action as a 'wildcat' strike because it was illegal, but explained there is still a communications problem with the workers in understanding labor law and procedures…"

Rather than negotiate terms or put demands on its subcontractors, Nike told U.S. officials the company “put itself in a neutral position,” encouraging both workers and factory owners to “calm down.” 

"Nike and other foreign investors in Vietnam remain concerned that wage pressure resulting from inflation means that labor unrest is likely to get worse toward Tet—the biggest holiday of the year and the time when Vietnamese need extra money for family gatherings."

The cables contain a handful of child labor accusations, but it's impossible to determine their veracity. A 2009 cable describes a former employee's claim that child labor had been employed over a period of four years in a factory that made soccer balls for Nike in China's Jiangsu Province (which Portland Mayor Sam Adams happened to visit earlier this year). 

The U.S. Embassy seemed satisfied with Nike's internal investigation of the claims, and the company's assertion that "its process for hand-sewn soccer balls in China is currently such that there is 'no chance' of child labor making its way into the supply chain."

The most dramatic incident in the cables involving Nike's foreign partners—described at the beginning of this story—took place in Indonesia, where one in four Nike shoes are currently made.

Nike moved into Indonesia, a Pacific archipelago home to 237 million people, in the late 1980s. At the time, the country was midway through the three-decade rule of Suharto, one of the more corrupt Western-backed dictators. By 1998, when Suharto resigned, Nike's purchasing practices were coming under intense scrutiny from labor and human-rights groups.

In response, Nike pioneered the branch of public relations known as “corporate social responsibility.” Rather than attack its critics or dismiss the allegations, Nike admitted problems and pledged do better. 

Today, sweatshop complaints rarely make the news. 

But labor disputes continue. In June 2007, thousands of angry factory workers threatened to storm Nike's offices in the Jakarta Stock Exchange complex. The protests, described in a series of State Department cables that summer, led Nike executives to briefly flee the country. U.S. and Indonesian government officials quickly stepped in as proxy negotiators for Nike and its estranged subcontractor.

The background: Nike had a longtime business partner in Indonesia, Central Cipta Murdaya, which is owned by a powerful family that had been close to Suharto. 

On June 6, 2007, Nike told CCM it would end their relationship at the end of the year because of CCM's failure to meet quality standards.

According to the cable, "CCM responded by ceasing all Nike factory production and directing disgruntled employees to Nike's downtown offices.…

"Business contacts tell us that the Murdaya family 'plays hard ball' and has been known to use their money and influence to harass foreign investors, even having them arrested in some cases.

"The ensuing protest alarmed Nike executives. Ultimately, the crowd dispersed peacefully and Nike executives were able to leave their offices. Nike executives, accompanied by the [U.S. Foreign Service] Investigators, were then taken to Soekarno-Hatta airport via police escort where they departed the country."

Indonesian President Susilo Bambang Yudhoyono wanted Nike to return, and assigned a member of his government, Muhammad Lufti, to negotiate with the company and the U.S. government. Lufti approached U.S. Ambassador Cameron Hume, who said Nike officials feared arrest or a lawsuit if they returned.

Lufti promised that the government would provide security "for all [Nike] employees and gave his personal guarantee that Nike executives would not be detained by authorities even in the event of civil litigation," promising "to escort them to the airport and put them on a plane myself before allowing that to happen."

After four-hour negotiations at the Ritz-Carlton Jakarta (in rooms provided by the Indonesian government), and last-minute concessions by Nike, the parties reached an agreement with CCM that allowed Nike's return to Indonesia.

"Lutfi thanked Ambassador Hume for facilitating Nike's willingness to negotiate and for the Embassy's presence at the July 24 negotiations. Lutfi expressed surprise at Nike's generosity in the terms of the phaseout and harshly criticized Hartati Murdaya, owner of CCM, for her ‘nasty intentions.’” 

Earlier in the negotiations, Hume and Lufti “agreed on the need to handle disputes quietly and not in the press or the streets.” 

The plan worked pretty well, until WikiLeaks came along. 

WWeek 2015