Levi's is leaving china
...quires it. All this prompted the Chinese News Service to complain. "Some foreign businessmen do not care about Chinese laws. They beat and swear at our workers, treat them badly, and embezzle their wages," said the Pittsburgh Tribune-Review ("In China Factory Hazards Abound" 1994). Apparently the Chinese government is most upset with the behavior of businessmen from Hong Kong and Taiwan, who are reportedly the worst culprits. Safety conditions in such factories appear to be no better. There is little ventilation, for windows are often sealed and barred to prevent robberies. Few of these factories even have fire extinguishers, and even if a factory is cited for safety violations, bribes are commonly paid to government officials to avoid fines and shutdowns. Besides bribes, officials are also reluctant to enforce existing worker protection laws, for fear of scaring off foreign investment. Lack of safety concerns produced tragedy late in 1993. At the Zhili Handicraft Factory in Shenzhen, 84 women were killed in a fire. Many were trampled to death as workers scrambled to reach the one unlocked door--all the windows were barred. Earlier in the year a fire at another Shenzhen sewing factory killed 61 workers. Events such as these have spawned conflict. The Chinese government admits to 10,000 labor disputes in 1993 alone. However, any attempts by workers to organize independent unions are illegal, and when they are discovered, arrests usually follow, indicating that the Chinese government is still intolerant of any organized opposition. The fact that Levi's did not find these kinds of sweatshop conditions present with its subcontractors indicates that fair workplace standards are certainly possible, if American multinationals demand and ensure that the standards are being followed. Notwithstanding, Levi's has taken action against other business partners when their standards were not being met. For example, the company withdrew from Saipan because of worker abuse from a subcontractor. Levi's also threatened to withdraw from two factories located in Bangladesh over the use of child labor, but changed its mind when the practice was adjusted. In all, the company has severed its relationship with 30 business partners and demanded changes from 120 others in various countries. The situation in Bangladesh illustrates that Levi's is not inflexible when cultural differences are involved. In Bangladesh it is legal to employ children under the age of 14. Moreover, families are often dependent on these incomes for survival. Yet according to Levi's guidelines, children under 14 should not be employed. Levi's did not want the youths discharged, which would have hurt their families, but it didn't want them working either. To make the situation palatable, Levi's worked out a compromise with the local contractors in which the children would be paid while attending school but offered full-time jobs once they turned 14. The second part of the "Global Sourcing Guidelines" deals with country selection and concerns larger issues that are beyond the control of Levi's business partners. Levi's maintains that it is the only company that has adopted standards for country selection. These guidelines focus on such things as political or social instability that could threaten Levi's interests, a country's impact on brand image, dangers to company employees, and human rights abuses. Violations of any or all of these guidelines can mean the cutting off of all business relationships in a particular country. For 19 days Levi's China policy group scrutinized the situation and finally concluded that subcontracting in China had to be phased out. Human rights violations were widespread and inconsistent with company values. A recent report by two human rights groups (Human Rights Watch-Asia and Human Rights in China) indicates that violations in China may be worse than previously thought, despite assurances from President Clinton and others that the situation is improving. Specifically, the report claims that approximately 500 more people were imprisoned as a result of Tiananmen Square than previously reported, and that 200 are still being detained in extremely harsh conditions, where torture and solitary confinement are commonplace. Moreover, the report states, "Known cases of political and religious imprisonment in China represent only the tip of the iceberg" ("Chinese Abuses Unveiled" 1994). Other reports indicate that in the first four months of 1994 at least 88 arrests and trials of political or religious dissidents occurred. China is not the first country from which Levi's has withdrawn. It severed all subcontractor relationships in Burma because of human rights abuses. And the company suspended its business dealings in Peru because it felt that its employees were in danger from terrorist activity by the Shining Path guerrillas. However, when the danger in Peru subsided, Levi's lifted the suspension. One inconsistency is apparent in Levi's China decision. Although the company is phasing out its dealings with subcontractors who produce garments, it will continue to purchase fabric in China. Why Levi's would continue to do so when it has stated that China has failed to meet its "country selection" standards is puzzling. For its part, Levi's says that it is reviewing the situation. PROFIT OR PRINCIPLES Critics of Levi's have charged that the decision to leave China was nothing more than a publicity stunt aimed at luring more customers. They suggest that consumers will be attracted to Levi's for its stand against human rights abuses while reinforcing the company's "antiestablishment image." As one critic charged, "This was a pure business decision related to bottom line profitability" (Miller 1993). Levi's admitted that the decision could improve its image. Top management believes that the brand is symbolic of American culture, so brand identity must be protected. Moreover, it appears that strengthening its customer base was also a concern. As one Levi's vice president put it, "Increasingly, consumers are sensitive to goods being made under conditions not consistent with U.S. values and fairness" (Dumainc 1992). Although the statement does seem to substantiate the charges of Levi's critics, it is more likely an indication of the complexity of business decisions, which are seldom made on purely ethical grounds. It would be naive to assume that financial considerations do not play paramount roles. Critics have also noted that because Levi's had no direct investment in China, little is being sacrificed, since the company will be able to find low-cost subcontractors in other Asian countries. In the short term such may be the case. But in the long term Levi's may end up sacrificing a great deal. China is the world's fastest growing economy. Some have even predicted that in 20 years China will be the world's largest economy. The country's urban income has doubled since 1985. By leaving China and not making direct investments, Levi's may be passing up the chance to clothe an increasingly affluent population. Without production facilities in China, Levi's will be hard pressed to compete because of stiff tariffs on all imported apparel. "They're going to lose opportunities in the market that someone else will fill," stated one Asian business consultant (Gull and Zukerman 1993). A manufacturing presence could also help Levi's combat the growing counterfeiting problem. In China and other Asian nations, the company has been victimized by operations that simply steal the Levi's trademark. Although the company will not put a dollar figure on the amount involved, it does concede that the figure is large. However, with Levi's severing much of its relationship with China, the problem is likely to worsen. Evidence exists that the Chinese government condones counterfeiting, particularly in the software and video games industry. Just as important is the loss of centralized control. Rapid economic change has eroded government power to the point that The Wall Street Journal calls the situation in China not free enterprise but a "free-for-all." Added to this is the fact that corruption and bribery within the trademarkenforcement system are reportedly widespread. Although Levi's has stated that it has not totally closed the door on China, the Chinese government could close the door on Levi's. As one observer of the situation put it, Chinese leaders "don't tend to forget things. They have elephantine memories" (Gull and Zukerman 1993). If Levi's decides to return to China, it may find the door locked. WHAT TO DO? Levi's action raises the larger ethical issue of how American firms should approach China. In this regard, the human rights situation in China has been compared to South Africa when apartheid was law. American companies were urged to leave South Africa, and about 150 corporations did so, including GM, Ford, and General Electric. Their departure, at least in part, helped bring an end to apartheid. Some have argued that change could also be induced in China if more firms would pull out following Levi's example. However, there are crucial differences between the two cases. First, the world's attention and indignation were focused on South Africa. The Western industrialized nations became convinced that the racial situation in South Africa had to change, and that to some extent Western multinationals could play a role in ending apartheid. But such is not the case with China. The American public has shown little concern about American multinationals doing business in China, or for that matter human rights abuses. To this point most of the indignation about China has come from the White House, certain members of Congress, and human rights activists. As a matter of fact, a Wall Street Journal/NBC News Poll indicated that only about 3 percent of those surveyed were concerned about U.S.-China relations. Unlike South Africa, there is no pressure on U.S. firms to leave China. By 1986 two states and 31 local governments had passed "selective purchasing" laws that prohibited the awarding of public contracts to any company doing direct business in South Africa. And these laws did have an impact. For example, in Los Angeles six contracts were negated in the first four months after the law went into effect. Companies that continued to deal with South Africa were harmed financially-the type of pressure to which business is most likely to respond. None of this exists with regard to China. Consequently, there will be no mass exodus from the People's Republic. The action Levi's has taken will likely be isolated and largely symbolic. Moreover, many would argue that American firms can improve the situation in China by increasing their presence and setting an example of how to do business in an ethical manner. If one follows this line of reasoning, the action taken by Levi's could be viewed as counterproductive. As Richard Brecher of the U.S.-China Business Council put it, "By withdrawing from the market Levi's is abdicating any role they might play in economic improvement and reform" (Miller 1993). Should it be concluded, then, that Levi's made the wrong decision about China, if it is truly concerned about human rights and fair working conditions? I would argue that the answer is no. If a privately held company, such as Levi's, believes that it cannot operate in an environment without abrogating its values on which the organizational culture is based, then it should withdraw. Besides the larger danger of eroding organizational stability, Levi's believes that company values must be applied consistently. If not, cynicism will emerge, making it less likely that individual employees will act eth...