Levi Strauss at Home and Abroad
case 5.3 Levi Strauss at Home and Abroad
Juvenile Manufacturing of San Antonio, Texas, began making infants’ and children’s garments in a plant on South Zarzamora Street in 1923; in the 1930s, the company switched to boys’ and men’s clothing and changed its name to Santone Industries. During the 1970s, Santone manufactured sports jackets for Levi Strauss & Co., which eventually decided to buy out the company. In 1981, Levi Strauss paid $ 10 million and took over operations on South Zarzamora Street. 84 Although the garment industry had been struggling in some parts of the country, it had prospered in San Antonio— not least on South Zarzamora Street. One of three Levi’s plants in the city, the plant was slowly converted in the late 1980s from making sports jackets to manufacturing the company’s popular Dockers trousers, which had surpassed Levi’s 501 jeans as the firm’s top- selling line. And despite the sweatshop image that the industry brings to people’s minds, many of San Antonio’s semiskilled workers were happy to be employed at Levi Strauss. They thought that pay at the plant was good. Benefits were respectable, too: paid maternity leave for qualified employees, health insurance, and ten days of paid vacation at Christmas and ten during the summer. Then in 1990, Levi Strauss decided to close the plant— the largest layoff in San Antonio’s history— and move its operations to Costa Rica and the Dominican Republic. This was the course of action that had been recommended the previous year by Bruce Stallworth, the firm’s operations controller. Closing the plant would cost $ 13.5 million, Stallworth calculated, but transferring its production abroad would “ achieve significant cost savings,” enabling the company to recover its closing costs within two years. In 1989, it cost $ 6.70 to make a pair of Dockers at the South Zarzamora plant. Plant management had hoped to reduce that to $ 6.39 per unit in 1990, but even that would be significantly higher than the per unit cost of $ 5.88 at the Dockers plant in Powell, Tennessee— not to mention the $ 3.76 per unit cost Levi Strauss could get by using third- world contractors. Stallworth attributed the San Antonio plant’s high costs to workers’ compensation expenses, to less- than- full- capacity plant operation, and to the fact that “ conversion from sports coats to Dockers has not been totally successful.” Retraining workers who have spent years sewing jackets to sew trousers, it seems, is not very easy. Furthermore, running the San Antonio plant efficiently would mean running it at full capacity, but operating at full capacity on South Zarzamora Street with 1,115 workers— compared with 366 and 746 employees, respectively, at the company’s other two U. S. Dockers plants— meant too many pairs of trousers produced by high-priced American labor. Workers at San Antonio averaged $ 6 an hour, which was about a day’s pay in the Caribbean and Central America for workers with the same level of skill. Bob Dunn, Levi Strauss vice president of community affairs and corporate communications, denies that the company did anything it shouldn’t have done with regard to closing the plant. “ We didn’t see any way to bring costs in line.” And he adds: “ As much as people like Dockers, our research shows people are not willing to pay $ 5 or $ 10 more for a pair of pants just because the label says ‘ Made in the U. S. A.’” Closing plants is nothing new for Levi Strauss. Before closing South Zarzamora Street, it had already closed twenty- five plants and shifted the work overseas, either to its foreign production plants or to overseas contractors. Using overseas contractors saves the firm even more money, because in addition to paying lower wages, the company avoids paying directly for benefits like health insurance and workers’ compensation. This time, though, the company’s decision to close a domestic plant and move its production abroad prompted local labor activists to fight back. They filed a class- action lawsuit and organized a boycott of Levi’s products. The boycott, however, gained little publicity outside San Antonio, and the lawsuit fizzled out. Neither seems to have dampened sales, but they embarrassed the company, which donated nearly $ 100,000 to help local agencies retrain its former employees and gave San Antonio an additional $ 340,000 to provide them with extra job counseling and training services. Most politicians kept a low profile on the issue, praising Levi Strauss for offering its workers more than was legally required and promising to try to recruit a new company to use the empty factory. U. S. Representative Henry B. Gonzales, however, spoke out harshly: “ When a company is so irresponsible— a company that has been making money and then willynilly removes a plant to get further profit based on greed and cheaper labor costs in the Caribbean— I say you have a bad citizen for a company.” To this, Bob Dunn responded, “ Our sense is we do more than anyone in our industry and more than almost anyone in American industry.” He was proud of the way Levi Strauss treated people when it closed plants. “ We try to stress the right values,” he said. “ It’s not easy. There isn’t always one right answer.” Levi Strauss in China Dunn’s emphasis on values reflects the thinking of Levi Strauss’s Robert D. Haas, CEO until 1999, now chairman of its board. Ever since he organized a successful leveraged buyout of the company, Haas has tried to create a more values- centered management at Levi Strauss by emphasizing social responsibility and employee rights. A year after the closure on South Zarzamora Street, the company’s values-centered management received a second blow when a con-tractor in the U. S. territory of Saipan was accused of virtually enslaving some of its Chinese workers. When the company learned the contractor was not paying the island’s legal minimum wage, it fired him and formed a top- management committee to monitor its overseas contractors. Levi Strauss then went on to become the first multinational to adopt guide-lines for its hired factories. The first part of its “ Global Sourcing Guidelines” covers the treatment of workers and the environmental impact of production; the second part sets out the company’s standards for choosing the countries in which it will do business. As a result of its guidelines, Levi Strauss stopped all production in China because of human rights abuses and systemic mistreatment of labor. For instance, in a factory in Shenzhen, women sew for twelve hours a day plus overtime and receive only two days off a month. They have no health care and no compensation for injury ( although Chinese legislation requires this). Their pay is often below the legal mini-mum of 12 cents an hour. Back home in San Francisco, the decision to pull out of China caused a fiery debate within the company. Because Chinese labor is so cheap, a committee had recommended that the company stay in China and work to make things better, but Haas decided to withdraw from China altogether. With an annual revenue of $ 6.5 billion, Levi Strauss is the largest clothing company in the world, and because it has no direct investment in China, it could afford to pull out. But some business analysts worried that in the long run the company would be sacrificing a great deal by leaving China. China is the world’s fastest- growing economy, and some predict that it will be the world’s largest economy in twenty years. Many people praised Levi Strauss’s decision, but it dumb-founded some companies. At Nike, one executive said, “ I can’t figure it out. I have no idea what Levi’s is doing.” Nike was still having trouble figuring it out when the cartoon strip Doonesbury began pummeling the athletic footwear company for having its products made in sweatshops in Vietnam. Cheap Asian labor is a high priority for Nike’s top executive Philip Knight, and his company has long favored places like Indonesia and China, where pay is poor and labor unions are suppressed. In Indonesia, the women who work at the sweat-shops of Nike contractors make $ 2.20 a day, and it took four years of violent struggle to get the minimum wage raised that high. Now Nike has moved into Vietnam, where labor costs are cheaper yet. At one Nike plant in Vietnam, investigators found that employees worked sixty- five hours a week— more than Vietnamese law allows— for a weekly wage of $ 10 and that 77 percent of them suffered respiratory problems from breathing chemical fumes at work. By contrast, Levi Strauss believes that a growing number of its customers shun products made in sweatshops. Consumers “ don’t want to buy a shirt made by children in Bangladesh or forced labor in China,” says one industry observer. The firm’s top management also believes that Levi Strauss is emblematic of American culture and that its mildly anti- establishment image must be guarded. “ Anyone seeking to protect their brand and company reputation will realize these policies make sense,” says Bob Dunn, who helped design the company’s overseas guidelines. For this reason, some critics do not charge that Levi Strauss was foolish to leave China, but rather that its decision was dictated only by bottom- line profitability— that it was a publicity stunt aimed at attracting more customers. But the team of inspectors that Levi Strauss has monitoring its contractors is a reality, not a publicity stunt. They regularly visit factories and are prepared to fire violators of the company’s guidelines— such as the factory operator who was strip- searching female workers to determine whether they were, as they claimed, menstruating and thus, according to local Muslim law, entitled to a day off with pay. The firm has also pulled out of Myanmar because of human rights abuses in that country. The company is sensitive to local mores, however, and its first goal is not to boycott countries or cancel contracts. In Bangladesh, its inspectors discovered that a contractor was employing children under the age of fourteen— something that is legal there but contrary to Levi Strauss guidelines. The company didn’t want the children discharged, which would have hurt the families who were dependent on their income, but it didn’t want the children working, either. So Levi Strauss devised a solution: Younger children would be paid while attending school and would be offered full- time jobs when they turned fourteen. Six Years Later Six years after withdrawing from China because of human rights violations, Levi Strauss reported in April 1998 that it would resume manufacturing its clothing there. The company denied that its decision was related to its having just closed several U. S. plants, but the reversal of its China policy provoked an outcry among human rights groups, who accused Levi Strauss of putting profits before its self- pro-claimed concern for workers. The company’s critics pointed to a National Labor Committee report that found gross labor violations in twenty- one Chinese factories. These include forced overtime ( sometimes amounting to a workweek of ninety- six hours), wages as low as 13 cents per hour, and restrictions on workers’ freedom to assemble. And the U. S. State Department declared that it had not detected any “ appreciable” improvement in China’s human rights record during that period. Executives at Levi Strauss responded, however, that it is now possible for the company to operate in China while adhering to its corporate code of conduct. Unlike before, it now has contracting partners who are willing and able to adhere to its code, and improvements in the company’s monitoring system enable it to prevent abuses at its own factories. For its part, Nike has begun to see the light of social responsibility. Bowing to pressure from its critics, the company has now pledged to root out underage workers and to require overseas manufacturers of its wares to meet strict U. S. health and safety standards. It also agreed to allow out-siders from labor and human rights groups to join the auditors who inspect Nike’s Asian factories— a demand the company had long resisted. Nike CEO Knight acknowledged the public-relations problem facing his company, which stood accused, he said, of having “ single- handedly lowered the human rights standard for the sole purpose of maximizing profits.” Nike had “ become synonymous with slave wages, forced overtime and arbitrary abuse.” But, Knight continued, “ I believe that the American consumer does not want to buy products made in abusive conditions.” He did not, however, pledge to increase wages. Meanwhile, Back Home . . . Levi Strauss, which in the early 1980s had fifty U. S. plants, has now abandoned all American production. In 2003, it shut the historic ninety- six- year- old San Francisco factory that made its 501 jeans, and in 2004 it stopped production at its only remaining North American operations: three manufacturing plants in Canada and two sewing and finishing plants in San Antonio. The company still owns eight manufacturing plants outside the United States, but it is expected to close those eventually as well. “ The closures are an absolutely necessary part of ensuring the long- term competitiveness of our business,” said Julie Klee, a Levi Strauss general manager. “ Moving away from owned- and- operated manufacturing to a broader sourcing base will strengthen our business by giving us much more flexibility.” Levi’s Robert Haas added that the closures were inevitable. The company had invested tens of millions of dollars in auto-mated equipment, training, and incentives to keep domestic plants competitive enough to offset the overseas wage differential, but it was not enough, he said. “ We’ve resisted all of the pressures that have been on us to close plants. As you know, we are one of the very last major companies that has any kind of manufacturing presence in North America anymore. . . . Belatedly and reluctantly, we’re having to follow in the footsteps of other apparel manufacturers” and shift work overseas. However, to help its displaced workers, Levi Strauss gave them eight months’ notice of the layoff, instead of the two months required by law, and provided them with three weeks’ severance pay per year of service. Levi Strauss also offered displaced workers up to $ 6,000 each to help them make the transition into new fields. The money was to be used for job training, community college education, English- language les-sons, moving expenses, or setting up a small business. “ We can’t ignore the fact that certain jobs are not . . . sustainable in North America,” said Haas. “ They’re done better in other countries. But companies . . . must be sensitive to [ the workers’] circumstances and help move [ them] into the next stage of their lives.”
1. Evaluate the pros and cons of Levi Strauss’s decision to close its South Zarzamora Street plant. Was it a sound business decision? Was it a socially responsible decision? Could the company have reasonably been expected to keep the plant running?
2. Having decided to close the plant, was there more that Levi Strauss could and should have done for its laid- off workers?
3. How, if at all, is your assessment of Levi Strauss’s responsibilities affected by the fact that the company bought the plant and then closed it nine years later?
4. Should consumers avoid products that are made by sweat-shops? Should they shun companies that lay workers off needlessly? Are consumer boycotts ever justified? When are such boycotts likely to be effective? Under what circumstances would you participate in a consumer boycott?
5. How would you feel if you had been an employee at the plant? Bob Dunn said, “ My hope is that as time passes and people have a chance to reflect on what we’ve done, [ people who have lost jobs] will judge us to have been responsible and fair.” Do you think Levi Strauss’s former employees will judge the company that way?
6. With regard to Levi Strauss’s conduct both at home and abroad, does it make sense to talk about the company as a morally responsible agent whose actions can be critically assessed, or can we assess only the actions and decisions of individual human beings inside the company?
7. Do corporations have a responsibility to monitor the conduct of the companies they do business with— in particular, their contractors and suppliers? Do they have a responsibility to avoid doing business in countries that are undemocratic, violate human rights, or permit exploita-tive work conditions? Compare and critically assess the conduct of Levi Strauss and Nike in this respect.
8. Should Levi Strauss have resumed its manufacturing opera-tions in China? Should it have pulled out in the first place?
9. Is Levi Strauss sincere in its professed concern for foreign workers? Is Nike?
10. American consumers say that they don’t like having their clothes made by exploited workers in foreign sweatshops. Is consumer pressure sufficient to get American compa-nies to improve the pay and working conditions of foreign factory workers?
11. Some pessimists say that because most companies don’t make social welfare a priority, competition will ultimately undermine the efforts of companies like Levi Strauss to establish standards. Assess this argument.
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