Levi Strauss In Mexico


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Levi Strauss In Mexico

  1. 1. Levi Strauss in Mexico <ul><li>Team 9 </li></ul><ul><li>Paul Page </li></ul><ul><li>Nicole Paquette </li></ul><ul><li>Nicole Pham </li></ul><ul><li>Sergios Rahmatoulin </li></ul>
  2. 2. Levi Strauss and Company <ul><li>Founded in 1853 by Bavarian immigrants </li></ul><ul><li>First jeans (Levi’s) were born in 1873 </li></ul><ul><li>Privately held company </li></ul><ul><li>Sales in more than 100 countries </li></ul><ul><li>Staff of 11,000 people worldwide </li></ul>
  3. 3. Levi Strauss Business Divisions <ul><li>Levi Strauss, North Americas (LSNA) </li></ul><ul><ul><li>Levi Strauss U.S. </li></ul></ul><ul><ul><li>Levi Strauss Canada </li></ul></ul><ul><ul><li>Levi Strauss Mexico </li></ul></ul><ul><li>Levi Strauss Europe (LSE) </li></ul><ul><li>Asia Pacific Division (APD) </li></ul>
  4. 4. Feasibility of Selling Levi’s in Mexico <ul><li>Currently manufactures in Mexico </li></ul><ul><ul><li>1980s: shifted half of production out of the US </li></ul></ul><ul><ul><li>Rapid growth in border cities </li></ul></ul><ul><ul><li>Maquiladoras (economic and legal advantages) </li></ul></ul><ul><ul><ul><li>Example: Tehuac á n (60% of garment industry is denim) </li></ul></ul></ul><ul><li>Determine ease of entry </li></ul>
  5. 5. Background on Mexico <ul><li>Government : Federal Presidential Democratic Republic </li></ul><ul><li>Administrative divisions : 31 states and 1 federal district </li></ul><ul><li>Economy : free market, trade-dependent country </li></ul><ul><li>Manufacturing : accounts for about 22% of GDP </li></ul><ul><li>Agriculture : 4.4% of GDP (27.9% labor force) </li></ul>
  6. 6. Mexican Economy Overview <ul><li>Middle-income country </li></ul><ul><li>Young workforce: 34 million people </li></ul><ul><li>Late 1994: </li></ul><ul><ul><li>economic turmoil </li></ul></ul><ul><ul><li>devaluation of peso </li></ul></ul><ul><ul><li>worst recession in over half a century </li></ul></ul><ul><li>25% of people living in extreme poverty in southern states - f ew advancement opportunities </li></ul>
  7. 7. Economic & Social Concerns <ul><li>Low real wages </li></ul><ul><li>Underemployment </li></ul><ul><li>Inequitable income distribution with huge gaps between: </li></ul><ul><ul><li>Rich and poor </li></ul></ul><ul><ul><li>North and south </li></ul></ul><ul><ul><li>Urban and rural </li></ul></ul>
  8. 8. Economic Comparison 13.6% (<$11/day) 53%(<$2/day) 24%(<$1/day) Population below poverty line $7,067.51 per person $1,334.50 per person Budget (expenditures) per capita $35,060 per person $5,910 per person Gross National Income per capita USA Mexico
  9. 9. Relationship with the United States <ul><li>North American Free Trade Agreement (NAFTA) </li></ul><ul><ul><li>Eliminate barriers to trade </li></ul></ul><ul><ul><li>Fair competition </li></ul></ul><ul><ul><li>Increase investment opportunities </li></ul></ul><ul><ul><li>Protection and enforcement of intellectual property rights </li></ul></ul>
  10. 10. Results of NAFTA in Mexico <ul><li>Trade has tripled since NAFTA </li></ul><ul><li>Higher wage jobs </li></ul><ul><li>New opportunities for local entrepreneurs </li></ul><ul><li>Technological advantages </li></ul><ul><ul><li>Automated sewing and assembly systems </li></ul></ul><ul><ul><li>Computerized cutting technologies </li></ul></ul><ul><ul><li>Water recycling systems </li></ul></ul><ul><ul><li>Online inventory replenishment systems </li></ul></ul><ul><li>Increase of imports/exports to/from Mexico </li></ul>
  11. 11. Mexico’s total exports (billions of US dollars) PRE - NAFTA NAFTA 00 99 98 97 96 95 90 EXPORTS BEFORE and AFTER NAFTA 93 92 91 94 89 88 87 01 Source: Mexican Economic Secretariat
  12. 12. US Imports from Mexico <ul><li>Exports to US: $8.6 billion </li></ul><ul><li>32.6% share of denim fabric imports to the U.S. </li></ul><ul><li>44.2% share of the US import market </li></ul>
  13. 13. Mexico’s Apparel Market <ul><li>Second largest importer of US apparel products </li></ul><ul><li>Expected growth of 15% per year for apparel products </li></ul><ul><li>Respond to local needs of customers </li></ul><ul><li>Personal selling and influence tactics </li></ul>
  14. 14. Barriers to Entry <ul><li>60% of all clothes sold in Mexico are smuggled </li></ul><ul><li>$10 billion in illicit apparel </li></ul><ul><li>20% are legally imported </li></ul><ul><li>20% are produced locally </li></ul>
  15. 15. Mexico vs. China <ul><li>Chinese illegal imports caused 32,000 lost jobs in 2004 </li></ul><ul><li>China </li></ul><ul><ul><li>Cheap workforce </li></ul></ul><ul><ul><li>Subsidies from the government </li></ul></ul><ul><li>Mexico </li></ul><ul><ul><li>Manufacturing cheaper compared to Europe or US </li></ul></ul><ul><ul><li>Not as cheap as China </li></ul></ul>
  16. 16. Imported Clothes Tariffs <ul><li>Many goods enter Mexico without paying proper tariffs </li></ul><ul><ul><li>Mishandling or corruption in Mexican customs </li></ul></ul><ul><ul><li>Deliberately misleading documents submitted by exporters </li></ul></ul>
  17. 17. Combating Illegal Imports <ul><li>Societe Generale de Surveillance (SGS) </li></ul><ul><ul><li>Verify origin of imports </li></ul></ul><ul><ul><li>Monitor goods from vulnerable industry segments </li></ul></ul><ul><li>2,700 workers hired to seize illegally imported clothing </li></ul><ul><li>Illegal clothing imports dropped 40% in 2004 </li></ul>
  18. 18. “Informal” Apparel Market <ul><li>Fake brand names </li></ul><ul><li>Cheap smuggled clothes </li></ul><ul><li>The principal-agent problem </li></ul>
  19. 19. Principal-Agent Problem: Example <ul><li>Clothing company manufactures jeans in Mexico </li></ul><ul><li>US headquarters asks for 100,000 pairs of jeans </li></ul><ul><li>Some managers secretly change that number to 110,000 </li></ul><ul><li>Remaining 10,000 illegally sold in Mexico at very low prices </li></ul>
  20. 20. Preventing the Problem <ul><li>Monitor employees and managers </li></ul><ul><li>Provide salary incentives </li></ul><ul><li>Long-term employment contracts for managers </li></ul>
  21. 21. Decision Analysis <ul><li>Benefits </li></ul><ul><li>Denim demand </li></ul><ul><li>Product line </li></ul><ul><li>Target market </li></ul><ul><li>Region of Entry </li></ul>
  22. 22. Benefits for Companies in Mexico <ul><li>34% federal corporate tax </li></ul><ul><li>No withholding tax on dividends </li></ul><ul><li>Range of import tax rates: 1% to 25% </li></ul><ul><li>Companies may open checking and deposit accounts in US dollars </li></ul>
  23. 23. Mexico’s Demand for Blue Jeans <ul><li>Growing & increasingly affluent domestic market of 91 million consumers </li></ul><ul><li>$240 billion annual economic output </li></ul><ul><li>Middle class ready for blue jeans </li></ul><ul><li>Middle market: 35% - 40% of population </li></ul><ul><li>Upscale market: 7% - 10% of population </li></ul>
  24. 24. Marketing Strategy <ul><li>Increasing US consumers interest in name-brand denim </li></ul><ul><li>Promotions: </li></ul><ul><ul><li>Brand loyalty </li></ul></ul><ul><ul><li>Quality </li></ul></ul><ul><ul><li>Durability </li></ul></ul>
  25. 25. Product Lines <ul><li>Levi’s Brand </li></ul><ul><ul><li>Original and authentic jeans </li></ul></ul><ul><ul><li>Most widely recognized </li></ul></ul><ul><ul><li>Levi’s 501 jeans </li></ul></ul><ul><li>Dockers </li></ul><ul><ul><li>Number 1 khaki pant brand in the US </li></ul></ul><ul><li>Levi Strauss Signature </li></ul><ul><ul><li>Mass channel </li></ul></ul><ul><ul><li>Value-conscious consumers </li></ul></ul>
  26. 26. Target Markets <ul><li>Levi’s Brand </li></ul><ul><ul><li>Middle-class </li></ul></ul><ul><li>Dockers </li></ul><ul><ul><li>Tourists </li></ul></ul><ul><li>Levi Strauss Signature </li></ul><ul><ul><li>Workers, middle-class </li></ul></ul>
  27. 27. Region of Entry
  28. 28. Questions or Comments