Posted by: itm2011 | May 16, 2011

The Rules According to Levi Strauss

Levi Strauss Case Study
By: Jacqueline Solana

Objective:

In 1992 CEO of Levi Strauss & CO., Robert D Hass, gathered a team of specialists to form a group called The China Policy Group (CPG). The groups’ task was to consider whether LS&CO. should continue sourcing and purchasing fabric in China and whether it should make direct investments in marketing and manufacturing ventures there. The CPG would make their decision based on the company’s ethical values and global sourcing guidelines and was to report back to the LS&CO. Executive Management Committee in early 1993.

Levi Strauss Logo

Company Background:

In the 1850’s Bavarian immigrant Levi Strauss moved from New York to California to work for a dry goods business owned by his brother. The business sold the first “jean”, being the sturdy canvas trouser, which was worn by minors during the gold rush. Because of their long hours and rigorous work schedules the minors would wear and tear their canvas pants easily. This is where the Levi’s® was born. After working with a Nevada tailor, Strauss came up with the idea to rivet the pockets for more strength, and in comes its signature sewn pocket. The double-arcuate pattern that is on every pair of Levi’s® jeans is the oldest apparel trademark of the United States. By the late 1900’s the Levi’s® jean was the symbol of a typical “American” style and epitomized “freedom, originality, youthfulness and the spirit of America”, says the VP of Corporate Marketing. Levi Strauss owns both Levi’s and Dockers. In the early 1990’s the company was doing very well, especially with its foreign buyers. The company was expanding its contracting overseas and now had many accounts in Europe and South America. LS&CO. was receiving many complaints from its own managers on its poor business practices in the other countries. One of the most memorable cases was in Saipan, a US territory in the Western Pacific. The media profiled the company for under paying its workers and forcing them to work long hours in a prison like atmosphere. In the middle of all of this, LS&CO. came out with their Global Sourcing guidelines which detailed what the company expected of its contractors worldwide. After this, the Saipan Company used these rules for its company.

Pro’s of working with China:

In the early 1990’s, companies were running to establish a business in China. As an emerging market, many economists felt that China would soon be a huge world power. The U.S. Treasury Department predicted that China would soon be the second biggest economy in the world. Some of the companies that had already set foot in China in 1993 were big name companies like Procter & Gamble, Johnson & Johnson, H.J. Heinz. It’s biggest advantage was that it had the potential market of more than 1 billion people. In 1992 it was reported that US imports from China were a total of $26 billion dollars. Most of this was consumer goods, including clothes and textiles, which was the U.S.’s biggest supplier of these products at the time. In 1992, Levis presence in China was very small. They purchased large quantities of sundries from contractors in China as well as 8 million yards of fabric. They also had a branch of the company’s Asian sourcing organization in Honk Kong which employed 120 people. The company felt that finding contractors for LS&CO. would be very simple. China represented 10% of their total Asian Contracting. If the company decided to pull out of China al together, it would be difficult to find alternative contractors with available quota as well as shifting the production would cost money and add to the complexity of transportation.

Con’s of working with China

Although China was believed to have increasing opportunities for foreign businesses, it still had many challenges that the China Policy Group found might pose a problem when sourcing it’s product from here. The biggest problem that it faced was the government of the time. They learned that the foreign companies experienced increasing pressure to abide by the government-backed communist party. Also, there was the policy of enforcing the one child per family. If forgoing a business in China, the company would have to enforce this law to its workers and possibly fine or dock an employees pay if they had a second child. Managers of LS&CO. saw this as cruel and felt that it would be a huge risk to

Apparel Workers in China

get involved with family planning. The CPG also found that there was a concern with the poor infrastructure of the country at the time and how they would be able to transport the goods from one place to the next. With this, they also saw problems with corruption not only with the common people of China, but as well with the public officials who would at times accept bribes from others. As mentioned above, LS&CO. prides itself on its trademark pocket, but in China the trademark was yet to exist and copyrighting was a huge issue in the 1990’s. It was believed by the US Government that “China was the single largest pirator of U.S. copyrights”. “In 1992, U.S. customs made 104 seizures of counterfeit merchandise worth $4.56 million in China, second only to its seizures of $5.85 million in goods from South Korea.”

Human rights was another issue that the CPG found in China. LS&CO. had already faced issues with this in the past, and they definitely did not want to have another one in the future. The CPG learned that leading human rights organizations considered China’s human rights record among the worst in the world. Human rights groups reported problems in three areas: the legal process, expression and association, and prison labor. However, the State Department did seem to think that China had seen some progress in this area.

The Decision:

After 19 days of deliberation, the CPG gathered information they needed to present to the LS&CO. Executive Management Committee. They worked directly with a wide range of people knowledgeable about the China situation in the early 1990’s. Levi’s enabled the Terms of Engagement in 1991, following the CPG’s findings. The Terms of Engagement provided that all apparel manufacturing workers were treated with the utmost respect and value in the safest environment possible. This was the first apparel company to set such a standard for manufacturers and paved the way for other companies to do the same, including Nike, Patagonia, and Timberland who are all known for being the world’s most ethical companies. In 1998 the Levi Strauss Co. decided to resume production in China stating that “the situation in China had changed in such a way that they were now able to operate there in a socially responsible manner”.  In May 2011 Levi’s sent out a press release saying that they had a new Terms of Engagement which stated that they were “moving beyond compliance to help improve the lives of workers in factories around the world. Under the new approach, LS&Co. will require contract factories to help make employees’ lives better by supporting programs for their workers that align with UN Millennium Development goals”(Levi Strauss website). They will be improving specifically on the following issues: fighting for those with HIV/Aids and other diseases, the improvement of health for women and children, gender equality, and ensuring environmental sustainability. Today Levi Strauss is one of the most successful business in the world with stores in North and South America, Europe and Asia. In the next 20 years, they will continue to work abroad as well as implementing there Terms of Engagement that has sent them apart from all other apparel industries of the world.

“Levi Strauss & Co. Announces New Terms of Engagement for Its Global Supply Chain | Levi Strauss & Co.” Levi Strauss | Levi Strauss & Co. Web. <http://www.levistrauss.com/news/press-releases/levi-strauss-co-announces-new-terms-engagement-its-global-supply-chain&gt;.

“2008 World’s Most Ethical Companies.” Ethisphere.com. Ethisphere. Web.

“YouTube – New Terms of Engagement.” YouTube – Broadcast Yourself. Web. <http://www.youtube.com/watch?v=9jpC7Gb3yG8&gt;.

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