Levis In China

Major

Issues

Economic, competitive Ethical, moral Reputational

Levis Ethical Values

Compassion

Promise-keeping
Honesty Fairness Respect

for others Integrity How do these relate to Levis 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

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?

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

Levis 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, Levis 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
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.

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 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.
Am.

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

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.