Levi Strauss & Co:Global Sourcing

GROUP 2Mahardhika

SusiantoArif Budiman

Abstract• In 1993, senior managers at Levi Strauss & Co., the world's largest brand-name apparel

manufacturer, were deciding whether the company should have a business presence in China, given the human rights and other problems there. The China Policy Group has been asked to use the company's "principled reasoning approach" to make a recommendation based on the company's ethical values and newly-adopted global sourcing guidelines. The China Policy Group made two recommendations to the Levi Strauss executive management committee. The recommendations were based on the principled reasoning approach and 2000 man-hours of careful research. The majority of the committee members recommended retaining the status quo. However, a minority citing the pervasive violations of basic human rights, suggested total withdrawal from China. As the executive management committee could not reach a consensus after numerous debates, Haas, Chairman and CEO, took the responsibility of recommending a decision to the board of directors. Haas found that only two out of the 12 board members suggested a five-year phase out plan from China. However, Haas was successful in securing the boardÂ’s approval for a planned withdrawal of fabric and sundry sourcing from China. Reactions to the announcement were mixed. While the US hailed Levi StraussÂ’ withdrawal, China shrugged it off. Some thought that Levi StraussÂ’ withdrawal did not make business sense as China had begun to make improvements with regard to its human rightsÂ’ record. Others lauded Levi StraussÂ’ commitment for its ethical business conduct.

Case Facts

• Founded in 1853 by Bavarian immigrant Levi Strauss, Levi Strauss & Co. is one of the world's largest brand-name apparel marketers with sales in more than 110 countries. There is no other company with a comparable global presence in the jeans and casual pants markets. Its market-leading apparel products are sold under the Levi's®, Dockers® and Levi Strauss Signature® brands.

• Levi Strauss & Co. is privately held by descendants of the family of Levi Strauss. Shares of company stock are not publicly traded. Shares of Levi Strauss Japan K.K., our Japanese affiliate, are publicly traded in Japan.

• Levi Strauss & Co. employs a staff of approximately 10,000 people worldwide, including approximately 1,010 people at its San Francisco, California headquarters.

• Levi Strauss & Co. is a worldwide corporation organized into three geographic divisions:

• Levi Strauss Americas (LSA), based in the San Francisco headquarters.

• Levi Strauss Europe, Middle East and North Africa (LSEMA), based in Brussels.

• Asia Pacific Division (APD), based in Singapore.

Case Facts1. During 100 years, LS&CO was private company. In 1971 go public2. In 1980s caused of declining in the US Jeans, LS&CO closed 58 plants and laid off

more than a third of its work force.3. In 1984 Robert D. Haas was promoted to be President & CEO4. In 1985 LS&CO repurchased publicy held shares for $50 a share a 42% premium over

the Market Price (total cost of $1.6 billion)5. In 1988, LS&CO Manufacture changed to be a Marketer (reducing layers of

management & consolidating personnel, finance, & operations)6. Production & distribution more than 20 countries. Market area more than 60

countries.7. Employees in USA 25,000 people. Employees overseas 9,000 people.8. Value of th company $5.5 billion9. Levi’s was the market leader in every country where the company sold jeans.

RANKING OF HUMAN RIGHTS

PROBLEM

Pervasive (China)

Serious

Modest

Minimal

Moderate

CPG (THE CHINA POLICY GROUP, FOUNDING LATE

1992)

Whether Continue Sourcing & Purchasing Fabric in China ?

Whether Direct Invesment in Marketing & Manufacturing Ventures ?

RECOMMENDATION USED PRA

(PRINCIPLED REASONING APPROACH

Based on the Company’s Ethical Values

Global Sourcing Guidelines

SOURCING

Special Care in Selecting Business Partner

Selecting countries whose practices are not incompatible with LS&Co values

DECISION

Majority Continue Sourcing

Determined by Haas Approved by BOD(defer any invest and begin a years phaseout from China)

Minority Withdrawal

PRO DECISION

Employee (the level of care shown to employees)

Consumers (happy to buy the product that do not exploit people)

US Trade Representative Mickey (encourage all American companies to be the leader in protecting worker rights)

CONTRA DECISION

Frank Martin (The President of the American Chamber of Commerce in HK isolated incident … that will have virtually no impact whatsoever on what other companies do in china)

Neal Lauridsen (Vice President for Nike Inc in Aspac I can’t figure it out. I reall have no idea what Levi is doing … Every body I talk to seems to be going forward)

French Business Person (opening fast food restaurant will do more for democracy in China than Levi Strauss’s withdrawal)The Sales Director of a Silk-Manufacturing Company (China was making positive changes, moving to a market economy & improving working conditions)

Problem

How LS&CO take a good positioning in China

market that gave great potential by low ethic

enforcement

Analysis Of Continuing Sourcing In China

Strength:1.Strong brand & company image2.Good business ethic3.Good management (implement CSR and increase profit)4.Focus on four core values (integrity,courage,emphaty,originality5.Strong financial performance6.Strong bargaining power of sourcing7.The mature company

Weakness:1.Raising cost as impact of implement good business ethic2.Moving production to other part of Asia over 3 years period woud raise cost between 4% and 10% depending on the country

Opportunity1.Increase efficiency2.China as a biggest potential market

SO:Offering good reputation to develop market & low cost sourcing

WO:1.Selecting contractors who had previously been chosen in the basis of price, quality, and delivery time from the pool of firms with available quota2.

Threat1. Contractors resistency2. Damaging the brand image

and threateningcommercial success

3. Threat of political instability4. Corruption&Bribery5. Intervention of China

Government6. Use false country of origin

label avoid US Quotas7. Protection of intellectual

property8. The difference of culture and

value

ST:1.By the value of emphaty, considering the needs of contractors2.Approaching the local government to protect from “grey market”

WT:Doing the right thing may cost in the short run, but in the long run it brings intagible benefit: trust,creativity,and innovation

Potential Problem AnalysisPotential Problems Consequences Possible Causes Preventive Actions Contingency Plan

Weakness from Internal

Implement CSR may increase high cost

1. Good reputation in long term

2. High cost in short term

CSR need much money&didn’t expect profit in short term

High selection contractors and countries

Selected and review CSR program

Damages brand imagesDecrease in sales,market share, and profit

Low Law enforcementApproaching local government and tight distribution channel

To protect its brand name, the copany registered its trademark

Contractor uncontinued sourcing&relationsgip with Levis

Lack of sourcing and supply

Too strict implement the agreement & negelct win-win solution in business philosphy

More flexible and meet the needs of sourcing

Improve the agreement better

Moving production may increase high cost and decrease profit margin

High cost may increase high price and decrease market share

Moving production Selective in choosing partnership and country

Expanding the new feasibility sourcing

POTENTIAL PROBLEM ANALYSIS

Recommendations1. The government of China should be reviewing about

its policy in trading with foreign country so that the capital flow entering China will be more increasing.For example: a. Building the policy about the protection of intellectual propertyb. Continuing to study human rights practices to the other countries such as UK,France, and Swedenc. Law enforcement to overcome great corruption and bribery

2. During the 3 years of phaseout, the management LS&Co should be approaching the China governmnet to make a condusive situation for the business

http://www.levistrauss.com/