Levi

1
Levis In China

• Major Issues
• Economic, competitive
• Ethical, moral
• Reputational

2
Levis Ethical Values

• Compassion
• Promise-keeping
• Honesty
• Fairness
• Respect for others
• Integrity

How do these relate to Levis strategy and entry
choices??
3
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

4
Social Influence on Strategy and Entry
WOS in Europe
Levi Strauss HQ in U.S.
JV in Honduras
Contract Suppliers in China
5
Social Drivers of Entry Mode Decision

• Mindset
• Country-market opportunity/cost analysis
• Stand-alone Attractiveness
• Strategic Importance
• Resources-Control-Risk tradeoff

6
Levis Options for Entry and Strategy

• Withdraw and postpone further involvement
• Remain and expand presence
• Intermediate option
• level of engagement linked with progresson 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?

7
China Policy Groups 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

8
Levis 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,
  Levis will defer future FDI and begin a
  three-year withdrawal from all sourcing
  relationships with contractors in China.

9
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

10
Your Reactions

• What do YOU think of this decision?
• What do YOU think about the decision process?

11
Others Reactions

• Levis Sr. Mgr. I just came back from China and
  am pleasantly surprised by this decision.
• Levis Jr. Mgr. Im impressed by Levis
  willingness to put so much effort into this
  decision. Only history will tell us if its the
  right one.
• Levis Hong Kong Mgr. The cost of developing
  new production capabilities will not be a trivial
  one.
• Nike Mgr. I cant figure out what Levis is
  doing ... everyone else is moving forward in
  China.

12
Others Reactions

• 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 Levis 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. Theyre all quite free to
  move in and out ... they dont need to make
  excuses.
• Ad Exec. It strengthens the brand ... one that
  thinks for itself.

13
Advantages to Ethical Guidelines

• To ensure consistency between Levis values and
  practices
• To protect Levis brand image (against vigilante
  customers -- those interested in the companys
  behavior as well as its products)
• To avoid penalties for breaking extraterritorial
  application of U.S. employment laws

14
Disadvantages to Ethical Guidelines

• Difficult to apply and monitor
• How far up supply chain should they go?
• Too rigid, may be applied universally to
  situations warranting further engagement
• Levis 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.