Levi Strauss&Co: Global Sourcing

Levi's

Levi Strauss & Co. is an apparel company from US, built in 1850s by Mr. Levi Strauss. The company achieved early success producing and selling first jeans to miners who arrived during the gold rush. As apparel industry became more competitive with the faster syle change and fewer, though larger, retail customers, LS&CO reconceived itself from manufacturer to marketer. The company moved an increased portion of its production to contract manufacturers, most of them offshores, to cut cost.

LS&CO. was known for its long-standing commitment to employees and community. The company started Sourcing Guidelines Working Group (SGWG) in 1991 to determine standards for contractors worldwide. At the same times, more and more consumers based their purchasing decisions on ethical concerns.They are sensitive to goods being made under conditions that are not consistent with its values. SGWG developed into two parts, Business Partner Terms of Engagement and Guidelines for Country Selection.

To implement Business Partner Terms of Engagement, managements send autidt teams to inspects the facilities of all company’s contractors. They also put this requirement, beside traditional requirements such as price, quality, quota and delivery time. To implement Guidelines for Country Selection, the company required an assesment of every countries in which it did business, especially on countries suspected of being in violation.

In 1992, LS&CO. started China Policy Group (CPG) to asses China as their country selection. It consider whether LS&CO should continue sourcing and purchasing fabric in China and whether it should make direct investments in marketing and manufacturing ventures there. CPG leaders, consist of three top managements, recruits other nine others to join the group. This will give them relevant knowledge and a range of perspectives.

CPG started when many other companies rushing into China. Some competitors of jeans products started business and became popular in China. Meanwhile, LS&CO. made little business in China, no direct investment, only raw material and some items clothing product of sewing and laundry. The company’s Chinese contractors were doing well under Business Partner Terms of Engagement.

Nevertheless, China as a country still posed difficulties for business. Outmoded infrastructures and tariffs made difficult and high price logistics. Inflations and sharp rises in stock price and property values added costs of doing business. Companies were under pressure by government. Business laws and their inforcement lagged behind economic development. Corruption and bribery are standard practice. Protection of intelectual property is not recognized in communist ideology.

CPG also learned that China’s human rights record are among the worst in the world. Trials of dissidents, religious figures, and other political offenders violated China’s own legal principles, as well as international standard. Freedom of expression and associations were severely restricted. Prison labor was also still implemented.

After reviewing the facts, LS&CO. decided would stop doing business with any contractors in China owned by Central government or the military as soon as possible, not initiate business with new contractors, transfer work being done in China to other locations when cost and delivery considerations were not substantially different, and withdraw all remaining sewing and finishing work in an orderly way based in a plan to be developed by company’s sourcing organization.

Many reactions regarding this decision. Some gave positives reactions, some were dissapointed. Consumers are happy to buy products that do not exploit people and destroy the environment in some other part of the world. US Government praised company’s actions. As China government were cooler, “ten of thousands of foreign companies invest in China, also from the US. If some individual ones want to withdraw, please do. They are quite free to move in and out and they don’t need to make excuses.”

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