Levi Strauss to Provide Financial Incentives to Encourage Better Practices in Social Compliance

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Levi Strauss, a global manufacturer of brand-name clothing, announced today that it plans to provide financial incentives for garment suppliers in developing countries to upgrade environmental, health, safety and labor standards. Specifically, if a vendor scores higher on  Levi Strauss’s Terms of Engagement (TOE) assessment, which measures labor, health and safety, and environmental performances, it will receive lower cost rates on working-capital financing from the International Finance Corporation (member of the World Bank) Global Trade Supplier Finance program (GTSF). Established in 2010, GTSF is a $500 million multicurrency investment and advisory program that provides short-term finance to emerging-market suppliers and small and midsized exporters. Lower financing cost will help a garment manufacturer reduce its operation cost and potentially result in increased profits.

As we learned in TMD433, corporate social responsibility is a critical and long-time issue facing the global textile and apparel industry. Despite many great efforts, the phenomenon of “race to the bottom” still widely exists because of the intensive competition among suppliers. Levi Strauss is the first major international buyer that partners with a financial institution to offer its suppliers a direct financial incentive to improve social compliance. Levi’s program also reminds us that to improve the corporate social responsibility practices in the fashion apparel industry requires joint efforts and creativity among all stakeholders.

Discussion: What do you think of Levi’s program? Will it work well? Can it become a “model” and gradually involve more retailers or fashion brands? Any challenges will the program face in its implementation? Feel free to share your thoughts. Related reading: Levi’s Sourcing VP Talks Supply Chain Strategies (from Sourcing journal Online, May 2014)

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Author: Sheng Lu

Professor @ University of Delaware

15 thoughts on “Levi Strauss to Provide Financial Incentives to Encourage Better Practices in Social Compliance”

  1. I think this is a great idea and program for Levi to do because it is important that they play a role in the social and environmental responsibilities caused by their products. They are such a rich company that I believe it is their duty to give some of their money back. I think that Levis is a leader for other company in terms of social responsibility, so this could definitely influence other brands to do similar programs to help with labor, health, and environmental issues. It is also smart of Levi to use financial incentives because money is definitely the most influential motivator.

  2. I agree, I feel as though Levi is paving the way for retailers to improve the labor conditions of factories. Instead of using strategies where their only objective is to increase profits, Levi is focusing on every aspect of the business and making sure their products are made while keeping in mind labor, health, and environmental issues. Providing financial incentives is the best way to influence manufacturers to improve their labor conditions. Hopefully this will become a trend and others will follow.

  3. I think the financial incentive program is a great way to get developing countries to upgrade environmental, health, safety, and labor standards. A lot of poorer countries don’t have any reason to try and improve there standards, especially when it is going to cost them financially. Some countries like china break environmental laws to save time and money but with this incentive they may be willing to change their ways.

  4. I believe that Levi’s program to provide financial incentives for garment suppliers is a great initiative in the social responsibility associated with the developing countries that are producing these garments. I believe that this program will work well and will help to make more companies and fashion brands follow in their footsteps. Hopefully this will provide a new way in which companies take care of their employees in developing countries and will help to eventually eliminate the environmental, health, safety and labor problems associated with the garment suppliers.

  5. I think that this is definitely a step in the right direction because it motivates suppliers to act socially responsibly. it helps to motivate suppliers to upgrade their standards for the environment, for health, for labor and for safety. Its a good idea to reward the vendor for scoring high on the (Toe) assessment with lower cost rates on working capital financing so that that they will continue to keep up the standards. The reduction in operations cost and the higher profit will also be a motivator. I think that this strategy will work incredibly well, and that other stores should do this with their suppliers as well. It also is a good way for countries in poverty to make money and reap the benefits

  6. Levi Strauss for a while now has been trying to increase their social responsibility towards a better industry market and with this program it could be a leading example towards many companies to come. With the added benefit for the company to increase their standards it is an excellent incentive for retailers in this industry. The market currently is all about competition and there is an on going struggle for the race to the bottom; this program would allow many international companies a paved way to a new future. This program also benefits both the company and the country it is getting its recourses from which allows a money flow to the corporate company by having a lower operations cost through funding as well as a better image to the world.

  7. I think that it is a great idea that Levi Strauss is stepping in the right direction of financial incentives for garment suppliers in developing countries to upgrade environmental, health, safety and labor standards. It is setting a corporate social responsibility example to other companies in the industry to do the same and follow the lead of Levi Strauss. I believe that this strategy will work very well and have a positive impact on other companies in the industry. I also agree with the comment above that the program not only benefits the company, but the country as well, which will help the economy at large.

  8. I definitely think this is a great idea that Levi Strauss has developed. It shows consumers that they are aware of the problems facing the T&A industry and are stepping up to the plate to try and fix them. Levi Strauss is known for being a great American brand, and I think this will help them maintain their status as an industry leader. The GTSF seems very similar to the Ex-Im bank we read about for Assignment 4. They both are trying to help American companies grow and be able to compete in the global market. I didn’t know there were this many government sponsored groups helping these businesses and I think they should continue to do so.

  9. I agree with everyone that this is a great idea that Levi has come up with to provide financial incentives for garment suppliers in developing countries. I think a program like this has the potential to work very well and can definitely prove to be a model for other retailers and brands to follow. I found it interesting to learn that Levi Strauss is the first major international buyer to partner with a financial institution to offer its suppliers a direct financial incentive, improving corporate social responsibility practices which is a critical issue in the global textile and apparel industry. I think that it is important that this program is designed to help with labor, health, and environmental issues and I am glad that Levi is taking a stand and using financial incentives to improve these conditions in the workforce as their corporate social responsibility and hopefully other retailers and brands will be able to follow this great idea.

  10. I also agree with the overall agreement that Levi Strauss is heading in the right direction and this program is a good idea. As a well established company, Levi is setting the standards for other companies by providing financial incentives for garment suppliers in developing countries to upgrade their environmental, health, safety and labor standards. Developing countries have had a constant struggle with these types of issues and it is great to see that Levi has stepped up in a leadership role to try and improve the conditions. It is rare to see companies implement a program like this one, but it will hopefully set an example for others to follow. It is great that Levi is aware of the practices in developing countries and are in the process of eliminating the issue. Although these problems are not going away anytime soon, Levi might be able to start a movement involving other companies to create programs as well to upgrade environmental, health, safety and labor standards in developing countries.

  11. I think that Levi’s program is a great example of corporate responsibility. They are taking the initiative to ensure that their oversea’s factories are meeting requirements for safe and fair labor practices they will get a financial incentive. I think it will work as long as the factories remain interested in meeting these requirements and as long as the benefits of the incentives outweigh the benefits of unfair labor practices. If it is successful it could become the model for more brands to adapt their practices. The main challenge that I feel the program will face is monitoring the factories of the conditions and making sure they are constant and not just show for inspections.

  12. I think this program is a great idea because they are taking part of corporate social responsibility. This program has the potential to succeed and set the standards for other companies to follow. If other companies follow the labor, health, and environmental issues of the industry could get better in time.

  13. I think the idea of offering incentives to suppliers in order to ensure safer conditions is a great concept. It will hopefully lead to more off-shore companies making an effort to improve their current conditions. However, I am slightly skeptical about its long term ability to maintain its promises. If the incentive is lower cost rates, what happens when most suppliers start abiding by these conditions? Can they offer everyone lower cost rates?

  14. I think the program being run by Levi’s is a great and futuristic idea. I found it admirable that the company is making moves to ensure social responsibility. They are helping make sure that all the requirements are met for safe labor practices which is very important to our industry yet often forgotten. They are setting a good example for other companies and the use of incentives is crucial in making sure people go through with making conditions safer. If more companies start doing this it could lead to a great improvement in the industry.

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