Levi Strauss Co Global Sourcing GROUP 2

Levi Strauss & Co: Global Sourcing GROUP 2 Mahardhika Susianto Arif 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 board ’s approval for a planned withdrawal of fabric and sundry sourcing from China. Reactions to the announcement were mixed. While the US hailed Levi Strauss ’ withdrawal, China shrugged it off. Some thought that Levi Strauss ’ withdrawal did not make business sense as China had begun to make improvements with regard to its human rights ’ record. Others lauded Levi Strauss ’ 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 marketleading 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 Facts 1. 2. 3. 4. 5. 6. 7. 8. 9. During 100 years, LS&CO was private company. In 1971 go public In 1980 s caused of declining in the US Jeans, LS&CO closed 58 plants and laid off more than a third of its work force. In 1984 Robert D. Haas was promoted to be President & CEO 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) In 1988, LS&CO Manufacture changed to be a Marketer (reducing layers of management & consolidating personnel, finance, & operations) Production & distribution more than 20 countries. Market area more than 60 countries. Employees in USA 25, 000 people. Employees overseas 9, 000 people. Value of th company $5. 5 billion Levi’s was the market leader in every country where the company sold jeans.

Pervasive (China) Serious RANKING OF HUMAN RIGHTS PROBLEM Moderate Modest Minimal

Whether Continue Sourcing & Purchasing Fabric in China ? CPG (THE CHINA POLICY GROUP, FOUNDING LATE 1992) Whether Direct Invesment in Marketing & Manufacturing Ventures ?

Based on the Company’s Ethical Values RECOMMENDATION USED PRA (PRINCIPLED REASONING APPROACH Global Sourcing Guidelines

Special Care in Selecting Business Partner SOURCING Selecting countries whose practices are not incompatible with LS&Co values

Majority Continue Sourcing DECISION Determined by Haas Approved by BOD (defer any invest and begin a years phaseout from China) Minority Withdrawal

Employee (the level of care shown to employees) PRO DECISION 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)

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) CONTRA DECISION 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: Weakness: Opportunity SO: WO: Threat ST: WT: 1. Strong brand & company image 2. Good business ethic 3. Good management (implement CSR and increase profit) 4. Focus on four core values (integrity, courage, emphaty, originality 5. Strong financial performance 6. Strong bargaining power of sourcing 7. The mature company 1. Increase efficiency 2. China as a biggest potential market 1. 2. 3. 4. 5. 6. Contractors resistency Damaging the brand image and threateningcommercial success Threat of political instability Corruption&Bribery Intervention of China Government Use false country of origin Offering good reputation to develop market & low cost sourcing 1. By the value of emphaty, considering the needs of contractors 2. Approaching the local government to protect from “grey market” 1. Raising cost as impact of implement good business ethic 2. Moving production to other part of Asia over 3 years period woud raise cost between 4% and 10% depending on the country 1. Selecting contractors who had previously been chosen in the basis of price, quality, and delivery time from the pool of firms with available quota 2. 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 ANALYSIS Potential Problems Consequences 1. Potential Problem Analysis Possible Causes Preventive Actions Weakness from Internal Contingency Plan Good reputation in CSR need much Implement CSR may increase High selection contractors Selected and review CSR long term money&didn’t expect high cost and countries program 2. High cost in profit in short term Decrease in Approaching local To protect its brand Damages brand images sales, market share, and Low Law enforcement government and tight name, the copany profit distribution channel registered its trademark Too strict implement the Contractor uncontinued Lack of sourcing and agreement & negelct win- More flexible and meet the Improve the agreement sourcing&relationsgip with Levis supply win solution in business needs of sourcing better philosphy Moving production may increase High cost may increase high cost and decrease profit high price and decrease Moving production margin market share Selective in choosing partnership and country Expanding the new feasibility sourcing

Recommendations 1. 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 property b. Continuing to study human rights practices to the other countries such as UK, France, and Sweden c. 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

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