February 4 - 11, 1999
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New Balance, Inc., the athletic-shoe manufacturer headquartered in Brighton, has a reputation as a company that does things right in a business where few supposedly do. Long known for its unflashy, utilitarian running shoes in dark, muted colors, New Balance makes a large percentage of its products here in the US -- a rarity at a time when most companies make almost all of their shoes in Asia, where labor is cheap and plentiful. New Balance operates five domestic factories, all of them in New England. There are plans to announce a sixth factory soon. The company's homegrown image is a point of pride among its customers, who are considered some of the most loyal in the business. Off balance
Boston-based New Balance built an image as the anti-Nike. Now America's feel-good shoe company finds itself in the midst of an ugly labor dispute.
by Jason Gay
In recent years, however, a lot has changed for New Balance. The company has bumped up its manufacturing, increased its once-frugal advertising budget, and started making hipper, more stylish-looking shoes. At the same time, a consumer backlash has developed against larger competitors such as Nike, the world's biggest athletic-shoe manufacturer, which continues to be dogged by charges that its overseas work force is mistreated, and by the perception that its products-- and, especially, its "Swoosh" logo -- are repellingly ubiquitous. To many customers, New Balance represents the anti-Nike: smaller, lower-key, and friendlier to the US worker.
As a result, New Balance is doing better business than ever. The company's revenues, less than $100 million in 1991, topped $630 million in 1998 and are projected at $750 million for 1999. New Balance is now the fourth-largest athletic-shoe maker in the country, and the fifth-largest in the world.
This success has come with some costs, however. New Balance's surging business has strained the company's domestic factories, which cannot come close to meeting demand. The company's overseas manufacturing has been expanded, especially in China, where New Balance has made parts of its shoes for more than 20 years.
New Balance's increased reliance on overseas production has not gone unnoticed -- or uncriticized. Recently, the Union of Needletrades, Industrial, and Textile Employees (UNITE) began accusing New Balance of exploiting both its international and its domestic work forces. Among other claims, UNITE organizers say that employees in the Chinese sneaker factories from which New Balance subcontracts are paid as little as 19 cents per hour. UNITE also charges that New Balance shortchanges its stateside employees: at its new $15 million distribution center in the city of Lawrence -- a facility for which UNITE is currently trying to negotiate a contract -- union officials say that nearly 50 percent of the work force is made up of "low-wage, no-benefit temporary workers."
"It's shameful that New Balance, a company right here in our backyard, is profiting on the backs of workers suffering sweatshop conditions in China and low-wage, no-benefit temporary workers in Massachusetts," said Kathleen Casavant, secretary-treasurer of the state AFL-CIO and a former UNITE official, in a December statement. "It's time for New Balance to realize that nobody wants to buy products made with exploitation, and that growing public outrage at its exploitative practices won't end until New Balance cleans up its act."
But New Balance calls UNITE's charges patently false, defending its international labor practices and saying it pays better-than-average wages in China. The company maintains that the union's claims are simply a hardball tactic to force an agreement at the Lawrence distribution center, which officials point out employs just a fraction of New Balance's 1600 US workers. "We've got nothing to hide," says New Balance chief executive officer Jim Davis. "If people want to believe what the union says, there's nothing we can do about it. I'm not going to go down to their level." He adds: "We're going to continue to run our business the way we have been, [and] we're going to continue to do what we think is right. It's that simple."
Union disputes, of course, are often ugly. But at first glance, the brewing New Balance controversy seems deeply ironic. New Balance's business increased, at least in part, because people thought it wasn't like its competitors -- but once sales rose, it found itself confronting the same kind of criticism its competitors faced. Given the realities of today's global marketplace, it's not surprising that the company is in this kind of predicament. But it raises a troubling question: if New Balance can't do it right anymore, can anyone?
The Lawrence Elks lodge is located just a couple hundred yards down the road from New Balance's new distribution center, which lies just off Interstate 93 North. The distribution center, opened two years ago, is a long corrugated-metal structure where shoes are packaged for shipping to retailers. After a long day of working at the "DC," as it is called, the Elks lodge is a good place to grab a drink.
The bar inside the Elks lodge looks like, well, the bar inside an Elks lodge -- wood paneling, brass plaques, and a dozen or so customers, mostly men, propped on stools, drinking draft beers from plastic cups and watching sports on television. On a recent afternoon, five New Balance workers are seated around a table: Brian Bradley, Lilly Ramos, Julio Adames, Sixto Fortuna, and Porfirio Rodriguez. All five are members of UNITE's new union at the distribution center.
Rodriguez, a compact man with black hair and a mustache who wears a baseball cap with a UNITE! emblem, says that workers at the distribution center wanted to unionize because they were feeling overwhelmed by longer hours and an increasing workload, and wanted a stronger voice inside the company. But after much deliberation among the employees, he says, last spring's vote to unionize was close -- 37 to 34. Rodriguez says some workers voted no because a rumor had begun spreading that if the union was ratified, the distribution center would be shut down.
"People were worried that if a union went in, they'd move the company," he says. "Especially the much older people, who were afraid of losing their jobs."
But the union passed and the DC has remained in Lawrence. And today, the concerns these union representatives express are fairly standard. They want assurances that they will not have to work mandatory overtime shifts, as they say was commonplace earlier in the year. They want better wages (the average manufacturing wage at the DC is $10.15 an hour; the state average for apparel manufacturing is $8.70). They also want more of the distribution center's 90 workers to become permanent (UNITE says that nearly half the workers at the DC are temps, but it's closer to one-third).
Most of all, however, these workers want a stronger sense of place within the company. Though they seem mostly satisfied with their workplace conditions -- the distribution-center employees don't claim to be working in a sweatshop, or anything close -- they want a bigger piece of New Balance's expanding pie. A few are miffed that, despite the company's booming sales, there were no holiday bonuses -- "just some pizza and Chinese food," says Lilly Ramos.
"They have forgotten about the workers," says Julio Adames. "They only think about how much money the owner spent on the [distribution center], and they want to take it out on us."
More than anything else, the union reps are frustrated because negotiations with New Balance management, which began this spring, continue to drag. Only minor concerns have been addressed, they say -- major issues, such as wages, haven't been seriously discussed. "We haven't even gotten to the big stuff yet," says Brian Bradley, a tall, bearlike man with a gray ponytail who has worked at New Balance for five years, the longest of any of the reps.
Bradley says that with negotiations at a virtual standstill, he and the other reps were pleased when UNITE started rapping the company for its overseas labor practices. "It seems that it's the only alternative to let people know what's really happening at New Balance," says Bradley. "Because everyone assumes that New Balance is a good American company."
But these union reps may not have expected UNITE's attacks to lead to a full-blown controversy. Widening the focus from the Lawrence distribution-center union to the issue of international labor exploitation -- whether or not it was a negotiating strategy -- changed the tenor of the entire debate. What was once a union argument, the Lawrence workers now know, is a much bigger deal.
Founded in 1906 as the New Balance Arch Company, New Balance was making 30 pairs of running shoes a day when it was purchased on Patriots Day 1972 (appropriately, the day the Boston Marathon is run) by Jim Davis, a 29-year-old electronics salesman. The day Davis took the reins, the company had six full-time employees. Sales were barely $100,000 a year.
Davis's timing was excellent. By the mid-1970s, America was in the midst of an unprecedented running boom, and New Balance grew in stature as a serious runner's shoe company. New Balance's shoes were well-cushioned, width-sized (running shoes are usually sized according to length only), and exceptionally durable. One model, the 320, received Runner's World magazine's highest rating in 1976. Though the no-frills design kept teenagers and trendsetters from embracing the brand, many customers liked the fact that New Balance shoes were understated and no-nonsense -- most New Balance shoes were colored navy or cinder-block gray, with few stylistic details other than a large N across the middle.
By the mid-'80s, the athletic-shoe industry was experiencing unparalleled growth, and New Balance found itself trailing far behind its biggest competitors. Nike and Reebok, in particular, had ferociously expanded operations; they spent tens of millions on advertising and introduced dozens of new models each year. Both companies met the increasing demand largely by turning to an international labor force, especially in Asia, that was large, proficient, and -- most of all -- inexpensive.
New Balance, a smaller company in every sense, didn't try to keep pace. It spent relatively little on advertising. Save for a brief period when Los Angeles Laker James Worthy wore New Balance, the company didn't turn to high-profile athletes to promote its products. And, flouting industry convention, New Balance continued to build shoes in America, stitching the tongues with a MADE IN USA label. The idea, Jim Davis would tell his employees, wasn't to catch Nike or Reebok, but to offer customers an alternative.
By the early 1990s, however, New Balance was in a sales rut, and the company began taking steps to prop up its image. Davis grudgingly agreed to spend more on advertising (though he continued to shun endorsements). The company solicited positive news articles from the trade and business press. It launched a high-profile campaign to promote American marathoning, offering $1 million to any US runner who broke the national record for the 26.2-mile race. It even began to update its shoe styles, producing models that were bright, colorful, and hip.
Around this time, New Balance also found itself in a dispute with the US government over the Federal Trade Commission's "Made in USA" labeling standards. For years, New Balance had been making some of its shoes entirely in the US. But for most of its models, New Balance had been importing rubber outsoles from China and assembling the rest of the shoes stateside. By the company's estimation, these shoes were roughly 75 percent American-made. But according to the FTC regulations, which required products to be "all, or virtually all" US-manufactured in order to qualify as "Made in USA," New Balance shoes couldn't wear the label.
Davis argued that the FTC's standard was antiquated in a globalized marketplace where certain products, such as rubber outsoles, were simply no longer made in large amounts in this country. Moreover, he charged that the standard actually jeopardized American jobs, because it forced some companies with sizable domestic work forces to consider moving their entire operations overseas. After all, if it was impossible to get a "Made in USA" with a 75 percent American-built product, why not save money and make the entire product in China?
For a while, it looked as though Davis and New Balance might win the battle. The FTC agreed that its standard was out of date, and prepared to reduce the percentage of a product that had to be made domestically in order to qualify as "Made in USA." But an 11th-hour push in late 1997 by labor leaders and a bipartisan group of politicians torpedoed the FTC change, holding manufacturers to the old "all, or virtually all" standard and telling New Balance to use the "Assembled in USA" label. (Shortly before the decision was made, Davis told a trade magazine, Sporting Goods Business, that if he were forced to label his shoes "Assembled in USA," he might "think twice" about domestic manufacturing. "Our position is going to be: why should we make the upper here when we can make it abroad, import all the components, and still put 'Assembled in USA' on it?" he said.)
But today, Davis say that it's increased sales, not a labeling disagreement, that is prompting New Balance to increase its overseas manufacturing. In order to meet demand -- a demand stimulated, in part, by New Balance's image as a virtuous alternative to the competition -- the company had to expand its operations quickly. That pushed almost half its manufacturing overseas. And that's what caught the attention of UNITE.
New Balance is not the first major US company that UNITE has accused of labor abuses. In recent years, the union has targeted apparel behemoths such as Guess and the May department-store chain, as well as Nike. It was UNITE that embarrassed talk-show host Kathie Lee Gifford by revealing that her retail clothing line had been stitched in sweatshops. Locally, the union even knocked former attorney general Scott Harshbarger, announcing that exploited workers had made the gubernatorial candidate's campaign T-shirts.
At first glance, New Balance would not seem to be the kind of company for UNITE to target. After all, aside from Maine-based Hyde (the makers of Saucony), no other major athletic-shoe company makes as much of its product stateside. No company has spent more on its domestic manufacturing this decade. And though New Balance's campaign to revise the FTC's "Made in USA" standards was decried by organized labor as an attempt to "dilute" the meaning of the label, the company argued that it was protective of domestic jobs.
As far as UNITE is concerned, though, that was then. Right now, says Michael Zucker, director of UNITE's Office of Corporate and Financial Affairs, New Balance is busier than ever overseas. In the past two years, UNITE says, the company has imported from countries including Vietnam, Indonesia, Bangladesh, the Philippines, the Dominican Republic, and Mexico -- all of which have histories of labor and human-rights problems. (New Balance responds that it has not imported anything from Indonesia, Bangladesh, or the Philippines in the past two years.)
But the biggest source of the company's imports is clearly China. Citing trade reports, UNITE says that New Balance imports from China increased more than 36 percent over the first nine months of 1998, compared to the same period the previous year. Though domestic manufacturing has continued, the union says, chances are better than ever that instead of being "Made in USA," your New Balance shoe is being made in China.
Anecdotal evidence, while imperfect, supports this claim. Workers at the Lawrence distribution center say they are seeing more and more Chinese shoes. UNITE did its own survey at several retailers and found that of 119 styles, 56 percent were made in China, versus only 6 percent made domestically. I also did my own unscientific survey at a Foot Locker in a Boston suburb. Of the 17 New Balance styles I saw -- a group that included running shoes, walking shoes, basketball shoes, cross-trainers, and hiking shoes -- 15 were labeled "Made in China." Two were labeled "Made in USA."
The growing role of Chinese manufacturing is troubling to labor leaders, given that country's past problems with worker exploitation. "China is absolutely the worst country for sweatshop abuses and human-rights violations," says Kathleen Casavant, the state AFL-CIO official.
But it's not so much the fact that New Balance is making shoes in China as the company's pro-America image that seems to irritate labor leaders most. "We feel that New Balance is exploiting workers in China and they are still going around saying 'Made in the USA,' " says Casavant.
"They are not the first to move a substantial part of their company offshore," says Zucker. "But they promote themselves as better, and we have found that they are not."
Zucker dismisses the notion that the union's decision to challenge New Balance's overseas labor practices was related to the stalled negotiations at the Lawrence distribution center. "Reforming companies where we represent workers isn't a negotiating tactic," says Zucker. "It's what we do every day."
Indeed, UNITE's modus operandi is to protest international labor inequities in order to promote domestic manufacturing -- and, by extension, the union's own ranks. UNITE's "No Sweat" campaign, which melds populist labor solidarity with anti-corporate attitudes, hits some pretty enticing targets (e.g., Kathie Lee) and has been one of the more successful activist efforts of the 1990s.
And these days, New Balance can't afford this kind of publicity, Zucker believes. "I think that image is vital to this business," he says. "Most of the shoes are pretty much the same. What athletic-shoe manufacturers are learning is that the public does care about how its products [are made]."
Jim Davis is angry. It's a cold afternoon in early January, and the New Balance president is seated in a conference room on the second floor of the company's Brighton headquarters, answering UNITE's charges. The story has been getting some play in the local media -- the Boston Globe, the Lawrence Eagle-Tribune -- and the New Balance CEO says he's been unjustly accused.
"I take great issue with what the union is doing," Davis says, rapping his knuckles on the conference-room table. "I've been doing this for a long time. And it really upsets me a great deal to have these people come out and lie in the paper, and for the Globe to misrepresent what we're doing. We are firmly committed to manufacturing in this country. Nobody else is doing what we're doing. I can go abroad and make shoes for a lot less dough than we are here."
Davis stares straight ahead, his brow furrowed. The New Balance CEO is a man of medium height and a lean, athletic build; his black hair, which is starting to gray, is neatly combed. Today, he is wearing his usual corporate-casual ensemble of a denim New Balance dress shirt and a pair of corduroys.
Despite his success, Davis is not among Boston's best-known business figures. He mostly avoids the local political and cocktail circuit. "Jim doesn't schmooze," says New Balance spokesperson Katherine Shepard. Davis's distaste for attention makes New Balance's current labor troubles particularly hard for him. (Not to mention delicate: when I arrive for our interview, Davis is flanked by Shepard and Michael Klein, a vice president with the Regan Group, a local public-relations firm.)
Davis wants to talk about UNITE's charges of low wages first. "The 19 cents an hour -- we don't pay 19 cents an hour," he says flatly. "We pay double that. And that does not include the housing and the board and the food that these folks get as well, plus the benefits of medical care."
Taken out of context, that quote could be a manufacturing CEO's nightmare. But Davis continues. "The average wage in China is about 19, 20 cents an hour. But that's not just in shoe factories. That's in any factory," he says. "We've done research on that, and we've confirmed that with the Chinese embassy in Washington, so these aren't figures we've pulled out of the air."
(Later, with some prodding by Klein, Davis expands: "The workers are actually paid the equivalent of 40 cents per hour. But you must look at this through a filter. This is a country where the average annual income is $660 in urban areas like Shanghai and Beijing and Guangzhou, and in rural areas it's $260. The state minimum wage is 20 cents an hour and we're basically double that, and again, it doesn't include room and board, because [our] folks do get room and board along with the wage.")
Davis adds that New Balance is taking new steps to ensure that its overseas production meets wage and human-rights standards. The company has hired an independent monitoring company to watch its practices and has created a new staff position to address Asian labor concerns, he says.
"We're hiring a social-responsibility manager -- I believe that's the person's title -- and this person will be a person who clearly understands the business and is respected by the plant manager," Davis says. "So if you're the plant manager and I'm the social-responsibility person representing New Balance, and I come into the plant, you can't bullshit me and tell me this, this, this, because I know, because I've done it myself. And no one else has done this."
Davis believes that UNITE's charges are fueled by the slow negotiations in Lawrence and, specifically, by New Balance's refusal to allow a "closed shop" -- the company says it doesn't want to require all its employees to join a union. And it's obvious that Davis isn't thrilled about having any union in his company.
"We might be a little naive because we really haven't dealt with unions before," Davis says. "Frankly, we had nothing to hide . . . so we figured, let them [the union] do what they want to do. What bothers me is when they lie. That's my concern. If we were paying 19 cents an hour and they said we were paying 19 cents an hour, that's fine. But we're not. They don't know what the hell they're talking about."
The more Davis goes on, the more irritated he seems to get. The CEO, after all, has spent more than 25 years building a company and cultivating an image -- and the image appears, at the very least, threatened.
"I'm pissed, because we have made a major effort to . . . to . . . to. . . . " Davis's voice trails off. "My father was a Greek immigrant, okay? He worked hard, and he believed in his country. We're trying to give something back. He never went to college, but I went to college, my brothers went to college. [There's] great opportunity here. We want to do the same thing for other people.
"I can close the [US] plants tomorrow and make more money and let 1600 people go home. Is that nice? Is that nice? It's not nice. Not nice."
As with most disputes, the truth of the New Balance labor controversy lies somewhere between the extremes. Although UNITE's work on behalf of international labor rights is laudable, there's little doubt that the union is challenging New Balance's overseas practices at least in part to bring the company to the negotiating table in Lawrence. And while New Balance touts its commitment to the US work force, its increased reliance on overseas manufacturing has inevitably made it vulnerable to charges of exploitation, whether the charges are legitimate or not.
Such controversies have become more commonplace as worldwide markets have expanded, according to Peter Petri, dean of the Graduate School of International Economics and Finance at Brandeis University. Although overseas manufacturing is not new, Petri says, the competition is more ferocious than ever. "What's new," says Petri, "is that the volume of international trade has really picked up over the past couple of decades, and the pressure on companies to compete in the global market -- and produce at the lowest possible cost -- has picked up."
Petri believes that the pressure is mostly positive. Though companies -- especially in the garment industry -- continue to scour other countries in order to find the lowest possible manufacturing costs, he says, the freeing of global markets has clearly helped profitability -- and, in turn, consumers. Petri warns against restraining companies from taking their manufacturing operations overseas. "So much of our success depends upon forcing global markets to be open," he says.
Of course, maintaining a domestic work force can also make sense, even in a globalized economy. "It's not impossible to manufacture domestically and compete in the market, but you have to manufacture differently," says Jay Kim, an associate professor of operations management at Boston University's School of Management. What they lack in productivity, Kim says, domestic workers can make up for in quality control and responsiveness. "It's not how many shoes you can assemble per hour; it's what kind of quality, and how flexible."
New Balance, it seems, is content to keep a foot in both hemispheres. No matter how loudly UNITE protests, the company is unlikely to divest itself from overseas manufacturing, even as it pledges to add to its domestic work force. "In our work force, we need flexibility," says Davis. He adds: "If that flexibility is diminished at all, our productivity and our competitiveness go away."
It remains to be seen how the political community will react to New Balance's labor troubles. When UNITE has staged local protests of out-of-state manufacturers -- the union campaigned against Los Angeles-based Guess at its store on Newbury Street, for example -- there has been no shortage of pols waiting to grab a megaphone and talk tough about organized labor. New Balance, however, is well-liked and provides local jobs -- last year, the city and state lobbied hard to keep the company's headquarters (and 400 jobs) in Brighton.
"It will be interesting to see [what politicians] come out against the company," says the AFL-CIO's Casavant.
For now, it appears unlikely that all sides in this controversy will be satisfied. The dispute is likely to grow more tempestuous; UNITE recently protested at a New Balance-sponsored high-school track meet in New York City. Consumers will have questions. And given the demands of the global and domestic economies, New Balance will still be trying to find the proper, well, balance.
Jason Gay can be reached at jgay@phx.com.
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