Transcript Levi`s In China

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
WOS in
Europe
Levi Strauss
HQ in U.S.
JV in Honduras
Contract Suppliers
in 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 tiebreaker:
– “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.”
Others’ Reactions
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.”
 Am.
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
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
 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.