LEVI'S IN CHINA?

 

Timothy P. Perkins
Colleen O'Connell
Carin Orosco
Mark Richey
Matthew Scoble

 

Saint Mary's College of California
School of Economics and Business Administration

 

LEVI'S IN CHINA?

Levi Strauss & Company (L.S.& Co.) was recently confronted with a very profound ethical and financial dilemma regarding its operations in China. Although China's market consists of more than one billion consumers and offers low production costs, its human rights violations have long been condemned by the United Nations. L.S.& Co. has been recognized as an ethical leader among American business fimms. These practices are often implemented at the expense of short term profits. In 1993, L.S.& Co. had to decide whether or not to continue its operations in China because of increased evidence of human rights violations. It was faced with deciding between maintaining its ethical standards or preserving its presence in one of the world's largest and fastest growing markets.

Levi Strauss & Co. was incorporated in 1873. Despite the passing of the company's founder, Levi Strauss in 1902, it enjoyed consistent growth with domestic operations. During the 1940's L.S.& Co. began operating overseas. During the 1970's, Levi's offered stock to the general public for the first time in its history. This was not done out of choice, but necessity, as L.S.& Co. desperately needed capital to expand its global operations.1 Continuing to grow, Levi's became the world's single largest clothing manufacturer in 1977 and achieved $2 billion in sales by the end of the decade. Fourteen years after taking the company public, Levi's management decided to take the company private again through a $2 billion leveraged buyout offer. This was the largest leveraged buy-out to date. The reasons for resuming the company to private ownership were numerous. It had hoped to avoid a hostile takeover, expedite profitability and, "focus attention on long-term interests (and) would be the most appropriate way to ensure that the company continues to respect and implement its important values and traditions."2 By 1993, the company's products were sold in 60 countries and were produced in 23 foreign lands. One of the most promising marketplaces that the company recently entered is the People's Republic of China.

 

ETHICS IN THE 1970'S

L.S.& Co. has been a leader in recognizing the increasing importance of business ethics and community relationships in the apparel industry. Through the years, L.S.& Co. has demonstrated concern for its employees' welfare as well as for the communities in which the employees live. The Seventies saw the formation of the L.S.& Co. Community-Affairs Department. This is a company funded employee group that participates in community projects where L.S.& Co. does business. This is L.S.& Co.'s philanthropic arm which seeks to give something back to the communities in which L.S.& Co. operates.

Both domestically and internationally, L.S.& Co. has been faced with ethical dilemmas. One of the first examples occurred in the 1970's when L.S.& Co. realized that some of its international employees were bribing foreign officials. These bribes were considered standard business practice by many companies throughout the world. This conduct was contrary to Levi's ethical standards and was immediately stopped by headquarters in San Francisco when it discovered the situation.


What sets L.S.& Co. apart from many companies, is the fact that it is committed to producing more than simply apparel and profits. It respects all of its stakeholders by recognizing its responsibility to its employees, suppliers, customers, consumers and stockholders. The company strives to conduct itself in a manner which is not only legal, but which is also fair and morally correct. It seeks to avoid not only real conflicts of interest, but the mere appearance of them as well. All of the preceding ideals emanate from the company's Code of Ethics.3

 

GOALS OF THE 1980s

In 1987 the senior management team reviewed the company's values and manifested them through its Mission Statement. In the same year, L.S.& Co. made great strides in establishing values to help guide both the work force and corporate decisions. This set of values became known as the company's "Aspirations Statement" and is how the company's Mission Statement would be promulgated. The purpose of the aspirations statement is to slow down the decision making process and challenge employees to contemplate factors that did not receive much consideration in the past. The Aspirations Statement also addresses issues on how leadership can help make their Mission Statement a reality. It addresses issues of new behaviors, diversity, recognition of individuals and teams, ethical management practices, communication, and empowerment.

As part of L.S.& Co.'s commitment to its employees, numerous actions have been taken to improve their working conditions and personal lives. L.S.& Co. extends liberal domestic partner benefits, offers flexible work hour programs, and has established child care voucher programs. A series of classes for senior managers which is known as the Core Curriculum is sponsored by the Executive Management Committee. It focuses on fulfillment of the aspirations as well as issues such as valuing diversity, leadership, and ethics. In December 1989, a task force was created to focus on balancing work and family. Robert Haas was the task force sponsor who said, "Balancing work and personal lives is one of our key values at Levi's and it's important to our success as a company."4 L.S.& Co.'s commitment to its employees has been recognized by outside institutions. In January 1992, L.S.& Co. received the Optima Award from Personnel Journal magazine because of its effective human resources department. The Human Resources Department (HR) has three key elements by which it functions.

1. To align all HR programs and policies with the company's Aspirations Statement.

2. To develop HR systems that will instill continuous improvement in the company's business systems, work processes and employees.
3. To promote the health, safety, and well-being of all employees.5

 

Each of these aspirations reflects the company's commitment to improving employee welfare.

 

HISTORY OF ETHICAL STANCES

L.S.& Co. has made a reputation for itself as an industry leader which faces controversial and ethical issues. It has taken numerous highly publicized stances on the issues it faces. L.S.& Co. is one of the first companies to establish programs to support ADDS victims. It has extended benefits to homosexual partners of L.S.& Co. employees as well as to those of unmarried heterosexual partners.

In January 1990, L.S.& Co. closed a Docker's plant in San Antonio, Texas to transfer production to private contractors in the Dominican Republic and Costa Rica. The workers in the new plant would earn approximately $6 a day whereas workers in San Antonio were receiving that approximate wage hourly. Acting in accordance with its commitment to its employees and the community, L.S.& Co. provided a severance package for the laid off workers that included 90 days notice of the plant closure and extended medical insurance benefits. L.S.& Co. also contributed $100,000 to local agencies and $340,000 to the city for extra services to the laid off workers.6 Despite their efforts to alleviate the workers' duress, L.S.& Co. received a great deal criticism for relocating the plant.

In July 1991, L.S.& Co. learned that the Boy Scouts of America was excluding homosexuals from the parent organization and not allowing them to serve as scoutmasters. Over the past five years, L.S.& Co. had donated $200,000 to the organization. They also found the Boy Scouts' oath to God discriminating against people with differing religious beliefs. In May 1992, L.S.& Co. stopped contributing to the Boy Scouts of America due to a corporate policy that prohibits the funding of groups that discriminate on the basis of sexual orientation or religious belief.7

 

BUSINESS PARTNER TERMS OF ENGAGEMENT

In early 1992, L.S.& Co. established a set of global sourcing guidelines to try and ensure that the standards of its contractors are compatible with the values of the corporation. These guidelines cover environmental requirements, ethical standards, worker health & safety, legal requirements, employment practices, and community betterment. Contractors must provide safe and healthy conditions; they must pay workers no less than prevailing local wages, allow company inspectors to make surprise visits, lirrdt foreign laborers' work week to 60 hours and preclude the use of child and prison labor.8 The company realized that it had to protect its brand -image in an increasingly sensitive consumer market. To develop the guidelines, a group of 15 employees from different facets of the company came together and spent nine months researching different areas of the company's operations and how each entity is affected by a given managerial decision. These groups included people of various capacities such as sewing machine operators, vendors, contractors, plant managers, and many others. The group used an ethical-decision making model, which ranked and prioritized all the affected parties to help design the global sourcing guidelines. The ethical-decision making model that L.S.& Co. utilizes, examines the consequences of each action and makes its decision based on a balance of ethics and profits. John Onoda, Vice President of Corporate Communications for L.S.& Co., stated that, "Most companies look at stakeholders and then act. We find what the consequences of our actions will be, then act."9 Once the guidelines were established, training sessions for 100 managers in the U.S. took place to help them deal with the 700 contractors worldwide. The guidelines became known as L.S.& Co. Business Partner Terms of Engagement.

L.S.& Co. also established "Guidelines for Country Selection.11 These guidelines are considered to be beyond the control of one particular business partner. Issues such as brand image, worker health & safety, human rights, legal requirements and political or social stability are considered on a national basis. The company will not source in countries that do not meet these guidelines.

 

INTERNATIONAL DILEMMAS

Saipan is a small island 7000 miles from the coast of California, but it is still considered part of America. There are neither quota limits nor duties for imports to America and the garments may carry a "Made in the U.S.A." label. For this privilege, some U.S. laws regarding hygiene, safety, and recompense apply there. However, firms realize that the costs of doing business in Saipan remain lower than those in other regions of the U. S. Conditions in these factories were found to be far below the U.S. standards. According to The Labor Department, the workers were young women imported from China, Korea, and Taiwan. Many were found to be living in padlocked barracks, working 11 hours a day, seven days a week, for as little as $1.65 an hour, while minimum wage was $2.15 an hourly The Labor Department and America's Occupational Safety and Health Administration had been issuing fines to companies who violated the laws. When L.S.& Co. learned ofthe problems in Saipan because of government suits against other companies, it canceled its contracts there." Canceling the contracts L.S.& Co. had in Saipan was believed to be consistent with the company's "Business Partner Terms of Engagement." L.S.& Co. feels that the contractors need to operate with "a set of ethical standards not incompatible with their own." 12

In Bangladesh, L.S.& Co. discovered that two of its contractors were employing children under the age of 14. This is legal in Bangladesh, but for L.S.& Co. it is a violation of its sourcing guidelines. The initial response would seem to be eliminating the employment of the under age children, but the situation was not quite so simple. L.S.& Co. was informed that the families of these children relied heavily on the childrens' income and would be devastated if they did not work. L. S.& Co. decided to pay for the childrens' education and to continue paying the children their salaries and their benefits. While the children were in school they did not work. The children would be offered a job when they turned 14.13

L.S.& Co. was willing to incur these increased costs of production because it meant that L.S.& Co.'s way of doing business would be more ethical and in compliance with its "Terms Of Engagement." After the "Terms of Engagement" were established, Levi's examined over 600 of its overseas contractors and canceled contracts with 30 of them because they did not meet the standards that L.S.& Co. established. According to Robert Haas, "Consumers are looking more and more to the company behind the product. Companies have to wake up to the fact that they are more than a product on a shelf. They are a behavior as well.14

 


CHINESE LABOR ENVIRONMENT

The International Organization Convention 105 established guidelines prohibiting the use of forced labor for commercial purposes. China has not ratified these guidelines. China's long-standing practice is that all prisoners, including political ones, work whether sentenced by a court to "reform through labor" or by an administrative or other extra judicial proceeding to "re-education through labor." Chinese officials claimed that prison-labor accounts for RMB 2.5 billion annually, primarily for use within the prison system or for domestic sale.15

China established regulations in 1987 prohibiting the employment of children who have not completed the compulsory nine years of education that is required by the state. These regulations impose strict fines for employers who hire children under the age of 16.16 Child labor is more prevalent in rural agricultural areas. Surveys have shown a recent increase in the dropout rate in Southern Chinese lower secondary schools. The booming economy there is suspected to be luring these 12 to 15 year-olds away from schooling opportunities.17

A unified labor code does not exist in China. Working conditions have been created and governed through a patchwork of various levels and types of government agencies. At the time of Levi's deliberations, no minimum wage existed. Safety conditions were "very poor" and the absence of a national labor code makes enforcement of safety extremely difficult.

 

HUMAN RIGHTS VIOLATIONS IN CHINA

China is ranked among the world's gravest violators of human rights. One of the greatest difficulties in remedying the situation is that the Chinese officials do not regard their actions as violations of rudimentary human rights. In fact, one Chinese official is known to have publicly declared that each country has its own definition of human rights. Some of the more egregious violations include not only arbitrary arrest and detention, but torture and murder as well. The U.S. State Department notes that these arrests and detentions have been known to end in death for the prisoner. However, "Because the Government often restricts access to such information, it is impossible to determine the total number of killings."18 Prisoners are also known to be subjected to inhumane treatment and torture, often in hopes of eliciting a confession. According to a credible human rights report, at least 12 people are known to have died at the hands of police torturers in 1993.19 China's Criminal Procedure Law prohibits arbitrary arrest, limits the time a prisoner may be held without charges and requires that the family of the prisoner receive notification of his/her arrest within 24 hours of detention. Several exceptions exist that nullify these requirements. One of the most commonly utilized clauses states that family notification and timely charging of the individual are not required if such actions would "hinder the investigation." 20 It is not uncommon for people involved with unauthorized religious organizations to be subject to the aforementioned treatment. They are routinely charged with violating Articles 90-104 of the Criminal Law. These Articles describe Crimes of counterrevolution."21 Although Chinese trials are supposed to be fair and public, it is believed that most verdicts are predetermined. In fact, confessions which are determined to be coerced are still viable evidence against the accused.22 Not surprisingly, the rate of conviction in China's courts is 99%. Appeals exist, but are rarely successful. China's political interests in the judicial process are evident as it is admitted that the courts judgment is subject to "guidance" by the Communist Party.23

The conditions in China's prisons can, at best, be described as deplorable. Labor and "re-education" are part and parcel of the sentence. Chinese officials estimate that 80,000 people are sentenced to prison each year.24 Typical terms for political prisoners last between one and three years. The common offenses for such sentences include "provoking incidents" and "inciting trouble."25 China asserts that these people are imprisoned not for their beliefs, but rather for specific criminal acts. As of December 1993, the official number for political prisoners is given as 3,172, but that does not include those individuals detained without charges.26

Personal privacy is practically non-existent in China. Although the 1982 constitution claims that "freedom and privacy of correspondence of citizens. . . are protected by law,"27 in practice, that simply is not true. Telephone conversations are monitored, mail is opened and examined and people and premises are frequently subjected to search without the necessary search warrants. China also engages in forced family planning which requires official permission to have a second child. Although most penalties for noncompliance are pecuniary and social, such as fines, demotions in the workplace and loss of social services, the Chinese do admit that some women are submitted to forced abortions and sterilization.28 L.S.& Co. was particularly irked by this practice because the monitoring of a womans' pregnancy status occurs at her place of employment.29 Even in passive compliance, the company could not help but aid the government in its enforcement of a program that Levi's found so unacceptable.

Though Chinese citizens do enjoy the right of "free speech," it is illegal for them to publish or broadcast any criticisms of senior officials. Nor can they espouse ideals which contradict the basic premise of the Communist Party.30 Even though the Chinese constitution provides for peaceful assembly, implementation of such rights is extremely restricted. This was quite evident when the world witnessed the Tiananrnen Square massacre in 1989. Conveniently, the constitution also allows for suppression of events which are believed to pose threats to the "interests of the state."31

Freedom of religion is severely restricted in China. This is not surprising since Party Officials have claimed that religion and allegiance to the state are mutually exclusive. Although religious institutions exist, students of seminaries and other religious institutes must provide proof of "political reliability."32

All of these government practices placed L.S.& Co. under increasing internal pressure to reexamine its decision to operate in the People's Republic of China. Since these violations existed long before the company ever entered the Chinese arena and it operates in such a socially conscience manner, the question arises as to why Levi's decided to produce their in the first place.

 


U.S. POSITION ON CHINA & HUMAN RIGHTS

In 1992-93, at a time when Levi's was most actively considering its role in China, the Clinton administration was threatening not to renew China's Most Favored Nation (MFN) trade status when it expired in June 1993.33 China has held this privilege since the 1970s. This status allows the lowest possible tariffs on imports to the U.S. L.S.& Co. said these governmental deliberations had no bearing on its future policies in China.34

Overall, most U.S. businesses had tremendous hopes that China's ON status would be renewed. American business leaders went to great lengths to expedite its renewal. This effort was so pronounced that many business leaders rallied for China's support.35

The Tiananmen Square massacre of June 1989 promulgated harsh practices from the China's Communist Party. This incident brought sanctions from the U.S. government which were still in place when Levi's was considering its position in China. Since the incident, China's human rights practices fell "far short of internationally accepted norms," according to the U.S. State Department. The State Department reported that only "modest progress" in easing rigid ideological controls occurred after June 1989.36

In 1991, the U.S. State Department found "substantial evidence" that China was exporting products produced with forced labor.37 The U.S. Government responded by barring specific goods known to be produced by prison labor from entering the country. This action was in conjunction with the Hawley Smoot Tariff Act of 1930 which prohibits imports produced in this manner.

The U.S. State Department and China's Foreign Affairs Ministry ratified an agreement in August 1992 which prohibited the export of goods produced by forced labor.38 The agreement allowed for site inspections by the U.S., but in 1993 U.S. inspectors were denied access to some of the Chinese factories. To further complicate the problems involved with enforcing the agreement, U.S. Government officials found that many of the suspected products had false labels. A vast array of elusive and misleading distribution channels made it increasingly difficult to determine the origin of these items.39

 

OPERATIONS IN CHINA

International sales have become a significant part of L.S.& Co.'s business, constituting 37% of 1992 revenues.40 At the time, manufacturing in China was quite enticing because the average wages for textile and apparel workers in China were the equivalent of $.36/hour and $.25/hour respectively.41 Although these wages were low, the operations in China represented only about 10% of L.S.& Co.'s total Asian contracting and 2% of worldwide contracting. Through it's Chinese operations, Levi's was producing approximately 5 million pants and shirts a year in 1993. This production was set up either directly or indirectly through roughly 30 Chinese contractors.42 Over half of the goods produced in China were shipped to Hong Kong to be refined for sale in other countries. These contracts were estimated to be worth $40 million.43


L.S.& Co. is one of hundreds of U.S. companies, and one of thousands of foreign firms which operate in China. Nike, Sears Roebuck & Co., General Motors, and Proctor and Gamble are just a few Fortune 500 companies which have factories or contracts with manufacturers in China. These companies are cognizant of the conditions to which some of the labor force is subject to. Most of the U.S. companies have lobbied President Clinton to renew the Most-Favored Nation trading status of China.44

Due to its rapid economic and industrial expansion, modern China has been compared to the U.S. at the turn of the twentieth century. The U.S. is attempting to reform China by directly applying its own experience. Some U.S. companies have had a positive influence on reform in foreign countries. Some workers have made twice the legal minimum wage. As President Clinton hopes, the improved wages by foreign companies investing in China will attract better laborers. In order for other companies to maintain the competitive quality they need to remain successful, they will need to offer higher wages and better working conditions. This will hopefully increase the standard of living and the human rights abuses.

According to President Clinton, investments such as those made by L.S.& Co. will transform the working conditions with acceleration towards the standards set by the United States and other westernized countries. In order to address the myriad issues regarding L.S.& Co.'s continued operations in China, the company organized the China Policy Group.


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Baldinger, Pamela. "The Birth of a Greater China." The China Business Review. March-April 1992:14.

Buchanan, Sherry. "China: ContingenciesforClinton."Asi0?Business. February 1993: 14.

Butler, Linda-Head of Corporate Communication, Levi Strauss & Co. Telephone interview. 19 January 1995.

"Chinese whispers." The New Republic. 14 June 1993: 8.

Clifford, Mark. "Levi's Law." Far Eastern Economic Review. 14 April 1994: 60.

Cuneo, Alice. "Diverse by Design: How Good Intentions Make Good Business." Business Week. 23 October 1992:27.

Davis, Virgina, and Carlos Yi. "Balancing foreign Exchange." The China Business Review. March-April 1992: 14.

Encyclopedia of Consumer grands. Detroit: St. James Press, 332-346.

"Exporting Jobs and Ethics." Fortune. 5 October 1992: 10.

Goll, Sally D., and Laurence Zuckerrnan. "Levi Straus, Leaving China, Passes Crowd of Firms Going Other Way." Wall Street Journal. 5 May Wednesday 1993: 64-65.

Gregory, Daniel E. "Of Grants and Grief." Financial World. 3 August 1993: 64-65.

Haas, Robert. "Ethics-A Global Business Challenge." Vital Speeches of the Day. 506-609.

Haas, Robert. "Ethics in the Trenches." Across the Board. May 1994: 12-13.

"Hard Road to Prosperity." Asiaweek. 26 October 1994: 46.

Howard, Robert. "Values Make the Company: An Interview with Robert Haas." Harvard Business Review. September-October 1990: 143.

Impoco,Jim U. "Working for Mr. Clean Jeans." US. News & World Report. 2 August 1993: 49-50.

Katz, Jane Palley. "Levi Strauss & Co.: Global Sourcing." Harvard Business School Case. 29 November 1994: 1-25.

Laabs, Jennifer J. "HR's Vital Role at Levi Strauss." Personnel Journal. December 1992: 34-46.

Levering, Robert, and Milton Moskowitz. 100 Best Companies to Work For. Epilogue: Why Levi Strauss Didn't Make It.

Levi Strauss and Co. Company Documents.

Lidded, Jon. "The One Billion Plus Lure. " Euromoney.

June 1992: 521.

Miller, Cyndee. "Levi's Espirit Spin New Cotton into Eco-Friendly Clothes." Marketing News. 27 April 1992: 11-12.

Miller, Cyndee. "Levi to Sever Link with China; Critics Contend It's Just a PR Move." 7 June 1993:10.

Mitchell, Russell, and Michael Oneal. "Managing By Values: Is Levi Strauss' Approach Visionary or Flakly?" Business Week. 1 August 1994: 46-52.

Munk, Nina. "The Levi Straddle." Forbes. 17 January 1994: 11.

Nichols, Martha. "Third-World Families at Work: Child Labor or Child Care?" Harvard Business Review. January-February 1993: 16.

"No More Dockers. " Time. 17 May 1993: 21.

Onoda, John. Vice-President of Corporate Communication. Personal Interview. February 1, 1995.

Quinn, Carin C. The Jeaning of America and the World. Trans. from Patterns, A Short Prose Reader." Boston: Houghton-Miflin, 1994.

Shoa, Maria, Robert New, and Jeffery Ryser. "For Levi's, A Flattering Fit Overseas." Business Week. 5 November 1990: 76-77.

"Shortchanging Rights." New Yo'* Times. 27 May 1994, editorial: A26.

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U.S. Department of State. "Economic Policy and Trade Practices: People's Republic of China." Country Reports on Economic Policy and Trade I 994.

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ENDNOTES


1.Levi Strauss & Co. O.8icial John Onoda. Interview. February 1, 199S.
2.San Francisco Chronicle. July 16, 1985. p. Sl.
3.Company Document.
4.Personnei JournaL December 1992. p. 41.
5.Personnel Journal. January 1992. p. 51,54.
6. The 100 Best Companies Jo Work For. p. 502.
7.Financial World. August 3, 1993. pp. 64-65.
8. Across the Board. May 1994. p. 12.
9.Levi Strauss & Co. Of ficial John Onoda. Oral Interview February 1, l99S.
10.The Economist. June 6, 1992. p. 27.
11.ibid.
12.ibid.
13.Harvard Business Review. January-February 1993. p. 16.
14. U.S. News & World Report. August 2, 1993. p. 49.
1S. u.s. Department of State: China Human Rights Practices, 1993.
16. ibid.
17. ibid.
18. ibid.
19. ibid.
20. ibid.
21. ibid.
22. ibid.
23. ibid.
24. ibid
25. ibid.
26. ibid.

27. ibid.
28. ibid.
29. ibid.
30. ibid.
31. ibid.
32. ibid..
33. Asian Business. February 1993. p. 14.
34. Led Strauss & Co. Official John Onoda. Oral Interview. February 1, 1995.
35. Wall Street Journal. May 5, 1994. p. A18.
36. Department of State, China Human Rights Practices, 1993.
37. The Washington Post. May 19, 1993. p. F3.
38. ibid.
39. ibid.
40. Levi Strauss & Co.: Global Sourcing. Exhibit 5, Levi Strauss Associates Inc., U.S. & Non-U.S. Operations, 1990-92.
41. Levi Strauss & Co.: Global Sourcing. Exhibit 6, Labor Costs and Operator Hours, Production Workers In The Textile And Apparel Industries-Selected Countries, 1993.
42. Marketing News. June 7, 1993. p. 10.
43. ibid.
44. The New Republic. June 14, 1993. p. 8.

CHINA POLICY GROUP

L.S.& Co. labored hard over the ethical dilemma concerning human rights violations and its operations in China. In fact, the decision at hand was not how to pull out of China, but whether or not they should continue operations there. The company felt that it could not do anything to remedy the situation because the violations were ones which could not be addressed strictly through communication and cooperation with the labor contractors. They were issues which had to be rectified on a national scale. Almost every one of the guidelines the company uses to determine where it will do business was violated in China. In order to improve its understanding of the issue before making a decision, a group of 12 L.S.& Co. employees devoted some 2000 hours reviewing the situation in China. The group was called the China Policy Group (CPG) and it consulted with human rights activists, scholars, and executives in its attempt to fully address the critical issues which L.S.& Co. faced. The CPG determined that "pervasive human right violations" existed in China, but the group was split upon what course of action to take. By leaving the country, L.S.& Co. would face the high opportunity cost of forgoing business in an emerging market that consists of more than one billion consumers. Some members of the group felt that the company would be supporting a repressive regime if L.S.& Co. remained in China. But one must keep in mind that Levi Strauss & Company is just that: a company. It is not a non-profit human rights agency. It is a company in business to make money. It acknowledges its responsibility to society, but it must also consider its responsibility to its shareholders and employees. The company can only afford to engage in its numerous social endeavors because it is a profitable enterprise and in an industry as competitive as apparel manufacturing, L.S.& Co. must carefully weigh the consequences of its decisions and actions.

The group defined pervasive human rights violations as meaning that it "would include the greater majority of the population who are denied virtually all human rights. Most human rights violations are severe. Government has taken few or no actions to improve human rights climate and positive change is unlikely or, at best, uncertain."1 Some of the CPG members felt that staying in China would enable L.S.& Co. to improve the conditions for Chinese citizens. Others felt that remaining there would violate L.S.& Co.'s own guidelines about where the company would and would not do business.2 Another issue confronting L.S.& Co. was the possibility that China may not welcome them back if they decided to forego operations there until conditions improved and then return at a later date. If the company ceased production in China, it may be difficult for it to sell its products there due to the high tariffs on imported apparel.3 L.S.& Co. vice-president Robert Dunn voices concern that questionable business practices could damage its image and ultimately its profits by saying that, "A concern about corporate values, a concern about the reputation of the company and an awareness that if we were not careful, we could put our brand at risk."4

In March of 1993 the China Policy Group delivered its findings to L.S.& Co.'s Executive Management Committee. On April 27, 1993 after half a day of deliberation, the committee was undecided. Then Robert Haas, Levi's CEO and Chairman of the Board of Directors, ended the stalemate by recommending that the company forego any direct investment in China and that the existing contracts be phased out over a period of three years due to "pervasive violations of basic human rights." He felt that the company had more to gain by remaining true to its ideals than by continuing to produce in China.

 

REACTIONS TO THE DECISION

Levi Strauss & Co. did not publicly announce the situation, nor the decision it made regarding the fate of continued sourcing in the People's Republic of China. It was, however, surprised at the volume and rapidity of media coverage that the decision elicited. John Onoda, L.S.& Co.'s Vice President of Corporate Communications, described the situation by remarking that, "We never intended to get in the spotlight. . . It was leaked and got out in 20 minutes."5 Many people were highly skeptical of Levi's intentions and actions. Some assert that it was only a public relations ploy engineered to make them look good. "I don't see broad support of it," claims Richard Brecher, Director of Business Services at the U.S.-China Business Council, "(it) would be regarded much more seriously if Levi had made a direct investment in China."6 In one respect, he is right. Besides, Levi's jeans will continue to be sold in China by Jardine Marketing Services.7 Levi did not have a direct investment in China. What it did have were contracts, contracts that would be fairly expensive to move elsewhere. In fact moving production to other countries in Asia would raise costs somewhere between four and ten percent, depending upon which location was chosen. L.S.& Co. recognizes this and considers it to be the price it has to pay in order to uphold its integrity and positive corporate and brand images. According to Vice President Bob Dunn, the company had more than profits in mind when it decided to discontinue operations in China. He supports this by stating that the decision was ". . . much more value-driven than consumer-driven."8 Some even believe that the decision may ultimately prove profitable to the company as one person claimed that, "In many ways it strengthens the brand.... This is a brand that thinks for itself, and these are values which people who buy the brand want for themselves. They're a badge product for youth who want to say 'I'm different."'9

China's position regarding the decision was one of apathy. Obviously, the leadership could not give credence to a decision that would undermine the integrity of their government. One Chinese Foreign Ministry official is quoted as remarking, "At present there are tens of thousands of foreign companies investing in China. If one or two want to withdraw, please do.10 Coincidentally, this all took place as the U.S. was considering extending China's MFN status. Michael Kantor, the U.S. Trade Representative, voiced his support for L.S.& Co. by stating that, "As far as what Levi Strauss has done, we can only applaud it; we encourage American companies to be the leader in protecting worker rights and worker safety and human rights wherever they operate."11

Since this time, President Clinton has decided to renew China's Most Favored Nation trading status without any conditions to improve human rights.12 President Clinton addressed the situation by saying, "I believe the question, therefore, is not whether we continue to support human rights in China, but how we can best support human rights in China and advance our other very significant issues and interests. I believe we can do it by engaging the Chinese."13 The position of the U.S., according to President Clinton, is that America should continue doing business with the Chinese and hope for improvements in the living conditions of the country's citizens. This, however, is not the sentiment of Levi Strauss & Company.

ENDNOTES

1. Company Document.

2. Far Eastern Economic Review. April 14, 1994. p. 60.

3. Wall Street Journal. May 5, 1994. p. A18.

4. Far Eastern Economic Review. April 14, 1994. p. 60.

5. Levi Strauss & Co. Offidal, John Onoda. Oral Interview. February 1, 1995.

6. Marketing News. June 7, 1993. p. 10.

7. Wall Street Jounnal. May 5, 1994. p. A18.

8. Far Eastern Economic Review. April 14, 1994. P.60

9. Wall Street Jounnal. May 5, 1994. p. A18.

10. Time. May 17, 1993. p. 21.

11. Levi Strauss & Co.: Global Sourcing. p. 15.

12. The New Republic. June 14, 1993. p. 8.

13. Department of State Dispatch. May 30, 1994. p. 345.

 

ATTACHMENT 1

Mission Statement

ATTACHMENT 2

Aspirations Statement

Leadership that exemplifies directness, openness to influence, commitment to the success of others, willingness to acknowledge our contributions to problems, personal accountability, teamwork, and trust.

Leadership that values a diverse work force at all levels of the organization, diversity in experience, and diversity in perspectives.

Leadership that provides recognition—both financial and psychic—for individuals and teams that contribute to our success.

Leadership that epitomizes the stated standards of ethical behavior.

Leadership that is clear about company, unit, and individual goals and performance.

Leadership that increases the authority and responsibility of those closest to our products and customers.

ATTACHMENT 3

Business Partner Terms of Engagement

ATTACHMENT 4

Guidelines for Country Selection

ATTACHMENT 5

Code of Ethics

 

ATTACHMENT 6

Human Rights Concerns in China