Reference no: EM131327676

LEVI STRAUSS & COMPANY NO LONGER "MADE IN THE USA"

Levi Strauss & Company (LS&C) of San Francisco, California, has been in the clothing business for 150 years.The company developed and set the standard for denim jeans and has been manufacturing them for over 130 years.Throughout most of LS&C's existence its clothing has been manufactured, at least in part, in the United States.The firm recently announced that it will no longer manufacturer its products in North America, shutting down its one remaining plant in the United States and two in Canada.

For most of its history, the company founded by Levi Strauss proudly manufactured clothing in the United States. Levi Strauss was born in Bavaria in 1829.He immigrated to the United States with his mother to join other family members in a dry goods business in New York. At age 24 Strauss moved to San Francisco to open a west-coast branch of the family business.

While the dry goods business was successful, Strauss stumbled upon a product line that would make Levi's a household name in the United States, and much of the rest of the world. Jacob Davis, a tailor in Reno, Nevada, was a customer of Levi Strauss. Davis wrote Strauss in 1872 telling him of an invention in which he might be interested. Davis had developed a new way of ensuring that men did not rip the pockets of their pants.

He had installed metal rivets at the corners of the pants pockets to strengthen them, and he found that customers liked the new product. Davis sought a patent on this process; however, he did not have the money required for the legal protection of his invention,so he sought the financial aid of Strauss. Realizing that riveted pants might have potential, Strauss provided the $68 needed to obtain the patent.

Using denim to create work pants, the partnership of Strauss and Davis created the "original, authentic jeans." Today, Levi Strauss & Company is privately owned by the Haas family, descendants of Levi Strauss. LS&C sells its products in over 100 countries.The firm continues to sell its traditional product under the Levi brand, and has added the successful Dockers brand of khaki-type products to its product offerings. LS&C also sells a value-oriented brand called Signature that it markets through mass merchandisers such as Walmart.

While the company enjoyed enormous success throughout many years of its existence, it has suffered in recent years as competitors have significantly eroded market share.The company, once the premier supplier of clothing for America's youth,has witnessed sizable decreases in sales and earnings over the past few years. A new strategy of product development is underway in an effort to recapture the loyalty of the youth market. At the same time, LS&C is attempting to reduce its costs through a change in its product sourcing.

In the past, LS&C relied on its own manufacturing capability to source its product. The company operated many manufacturing facilities in the United States.Eventually foreign manufacturing was established and production capability began to shift to lower-cost countries.The company also began to contract the manufacturing of its products to independent producers.The decision in 2003 to end all North American production caused some to question the ethical orientation of a company well known for being a socially responsible organization.The change in strategy will allow LS&C to focus on product design and marketing, and to free resources previously devoted to manufacturing.

LS&C was built on four core values: empathy, originality, integrity, and courage. The company feels that these core values have served the organization well, and they continue to be the driving forces for change at LS&C. Levi Strauss has been a pioneer not only in clothing design,but also in other areas of business as well. The firm's progressive employment policies predated the civil rights movement in the United States, and LS&C has been listed as one of "America's 50 Best Companies for Minorities" by Fortune magazine.

LS&C has been awarded the Excellence in Ethics designation by Business Ethics magazine,and the company was a pioneer in establishing and supporting employee volunteers through its Community Involvement Teams.

In addition, the Levi Strauss Foundation awards $15 million annually to community-based organizations. LS&C was an early supporter of ethical guidelines for contractors. In 1991 the Company created the Global Sourcing and Operating Guidelines that regulate its contractors in areas of worker health and safety, environmental standards, and general employment practices. Critics of the company contend that LS&C is simply following other American companies in outsourcing its production to lower labor-cost countries.

This practice reduces the employment opportunities available in the United States and further erodes the industrial base of the country. It is felt by some that the company relies on the important US market for sales; however, the company does not provide employment opportunities to support those sales. LS&C has responded to these charges by stating that outsourcing of production is necessary in order for the company to survive.As CEO Phil Marineau states, "We're in a highly competitive industry where few apparel brands own and operate manufacturing facilities in North America."

The company also counters its critics with the fact that a Community Trust Fund has been established by the company to aid the communities affected by the plant closures, and that comprehensive separation packages will be offered to the terminated employees. Some critics feel that Levi, an American icon, has a greater responsibility in stopping the deindustralization of America.

CASE DISCUSSION
1. Do you feel that LS&C is acting in a responsible manner in closing its North American production operations? Explain.

2. Do American companies like LS&C that transfer production to lower-wage countries hurt or help the economy of the United States?

3. Evaluate the soundness of the strategic shift away from production and towards a focus on design and marketing.