Levi Looks to Cut It Cloth Differently by Rewarding Responsible Suppliers

Case Study

Levi looks to cut it cloth differently by rewarding responsible suppliers.

Managing in the Global Environment

Shantol Harris

10/2/16

Multinational Corporation(MNC) are companies that have facilities or assets overseas. These companies usually have offices or factories in other countries than their own and usually, have a centralized head office where they coordinate global management. A majority of businesses’ goal is to maximize profit, companies seek the most efficient and effective ways to earn as much profit as they can. A lot of large companies such as Nike, Apple, Levi, Walmart outsource labor overseas. Outsourcing labor to countries like China and Bangladesh reduce the labor cost for MNCs. They are able to make a substantial profit, because they pay employees abroad little to nothing, and sell the finished product in their home countries for 3-4 times the cost they paid to make the item. Those countries also have fewer regulations causing MNCs to get away with unethical business practices. Outsourcing labor takes away jobs from home countries boosting the unemployment rate and causing disasters in countries overseas.  

Due to unsafe working conditions, 1127 workers were killed in a fire at the Tarzeen Fashions Factory in Bangladesh in November 2012. Accusations abound of locked doors and very few fire exists. The Bangladesh government blame Tarzeen factory owners for negligence and unsafe working conditions. Companies such as Sears, Gap, Walmart, and Hennes scout out low wage production companies in Bangladesh and China to produce their products. The following year April 2013 a factory complex in Dhaka collapse and killed over 1200 people. June 2013 of that year the Obama administration restricted Bangladesh from trade program forcing the government to improve working conditions and to allow workers to form unions. In addition to the horrible working conditions, workers are paid 37 dollars per month working 60+ hours a week, minimal union activities, only about 1 percent of textile workers in Bangladesh are unionized. Increasing political unrest and questions of social responsibility, Waltz Disney suspended its production of merchandise in Bangladesh and states that they would reconsider doing business in Bangladesh if labor standards and working conditions were improved. US retailers such as Walmart, Gap, Target, H&M and Macy’s were criticized for the conditions under which their products are made forcing them to make binding commitments to improve safety in those factories overseas.

Levi Strauss & CO new financial incentive to suppliers to help meet labor, environment and safety standards could have a positive impact on working conditions in China and Bangladesh. The 2013 collapse of Rana Plaza factory in Bangladesh led to the new incentive idea.  A supplier who improve their environmental performance and conditions for workers would be rewarded a lower interest rate. Levi’s suppliers would have cheaper access to capital and the suppliers who did their best would on labor and other standards would receive a further discount of up 50 basis points on the interest rate charged. New incentive programs would force factory owners to improve working conditions. Levi Strauss and IFC could monitor suppliers by hiring a safety team to conduct monthly/quarterly reviews of the factory conditions as well as interviewing working through surveys.