Levi’s In China
Major Issues– Economic, competitive– Ethical, moral– Reputational
Levi’s Ethical Values
Compassion Promise-keeping Honesty Fairness Respect for others Integrity
How do these relate to Levi’s strategy and entry choices??
Attractiveness of China
Pros Large potential market Cheap labor High quality labor
Cons Lack of infrastructure Restrictions on imports and
currency Intrusive government Actual market only fraction of
potential Underdeveloped legal system Lack of civil/human rights
Social Influence on Strategy and Entry
Levi StraussLevi StraussHQ in U.S.
WOS inEurope
JV in Honduras
Contract Suppliers Contract Suppliers in Chinain China
Social Drivers of Entry Mode Decision
Mindset Country-market opportunity/cost analysis
– Stand-alone Attractiveness
– Strategic Importance Resources-Control-Risk tradeoff
Levi’s Options for Entry and Strategy Withdraw and postpone further involvement Remain and expand presence Intermediate option:
– level of engagement linked with “progress”on an issue by issue basis (i.e., “constructive engagement”)
– active coordination among other industry players– transmit values via JV partners other than SOEs
What are economic and ethical
consequences of each?
China Policy Group’s Recommendation
Ranking countries according to “pervasive” human rights violations
CPC Recommendations/Voting:– 5-year phase out, stop FDI (2 members)– Constructive engagement (10 members) with:
» more monitoring of all existing relationships,
» no relationships with SOEs
» no new relationships that jeopardized corporate reputation
Levi’s Actual Decision
CPC and EMC both split on what to do CEO Haas asserted his values in tie-
breaker:– “because of pervasive violations of human
rights, Levi’s will defer future FDI and begin a three-year withdrawal from all sourcing relationships with contractors in China.”
Implementation of Decision Cease all relationships with SOEs Cease search for new contractors Develop production contracts in Hong
Kong, Philippines, and Indonesia commensurate with pace of orderly withdrawal
Your Reactions
What do YOU think of this decision?
What do YOU think about the decision process?
Others’ Reactions Levi’s Sr. Mgr.: “I just came back from China and am
pleasantly surprised by this decision.” Levis’ Jr. Mgr.: “I’m impressed by Levi’s willingness
to put so much effort into this decision. Only history will tell us if it’s the right one.”
Levi’s Hong Kong Mgr.: “The cost of developing new production capabilities will not be a trivial one.”
Nike Mgr.: “I can’t figure out what Levi’s is doing ... everyone else is moving forward in China.”
Am. C of C in HK: “This is just an isolated incident... that will have little impact on what other companies do in China.”
Mickey Cantor: “We applaud Levi’s and encourage other U.S. companies to be leaders in protecting workers rights wherever they operate.”
Chinese Govt.: “Tens of thousands of companies will invest in China. They’re all quite free to move in and out ... they don’t need to make excuses.”
Ad Exec.: “It strengthens the brand ... one that thinks for itself.”
Others’ Reactions
Advantages to Ethical Guidelines To ensure consistency between Levi’s values
and practices To protect Levi’s brand image (against
“vigilante customers” -- those interested in the company’s behavior as well as its products)
To avoid penalties for breaking extraterritorial application of U.S. employment laws
Difficult to apply and monitor How far up supply chain should they go? Too rigid, may be applied universally to situations
warranting further engagement Levi’s going beyond its responsibility -- downside
of “moral imperialism” Withdrawal now may make engagement later
more difficult Chinese government espouses “take-it-or-leave-
it” attitude.
Disadvantages to Ethical Guidelines