Nike reaches agreement with Indonesian shoe contractors

Nike Inc. agreed Tuesday to extend shoe production at two Indonesian factories by up to two years, ending a dispute that threatened to tarnish the U.S. company's image in the country.

Nike previously said it would stop working with PT Hardaya Aneka Shoes Industry and Nagasakti Paramashoes Industry by the end of the year because their shoes were of poor quality, triggering protests by workers and demands from lawmakers that the government intervene in the dispute.

The two factories have been supplying Nike for 18 years.

Siti Hartati Murdaya, owner of both factories, had been demanding Nike offer the workers jobs at its other contractors in Indonesia or give her more time to pay the workers' severance packages. Under the terms of the deal, which both sides said was to be signed later Tuesday, Siti is responsible for the severance pay of the 14,000 workers at the two factories.

The deal was "an exception" to its standard agreement so the factory owner could develop a business plan "that takes into consideration the well-being of (her) workers," Nike said in a statement.

Under the proposed deal, one of the factories will continue supplying Nike until July 2008 and the other until July 2009, Nike said. Production at both units will also be boosted, it said.

"We are very happy that finally Nike's response is positive," said Sudarsono, a spokesman for owner Siti. Like many Indonesians, Sudarsono goes by a single name. "We will do our best in quality and delivery."

Nike, based in Beaverton, Ore., has said from the start of the dispute that it would continue to source 20 percent of its footwear manufacturing in Indonesia, and hoped to boost that figure over the coming years.

Nevertheless, the company was criticized by nationalist legislators and commentators in the media. Factory workers twice demonstrated outside the company's Indonesian headquarters holding banners accusing the company of lying.