bata case 2007
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Transcript of bata case 2007
BUSINESSBUSINESS STRATEGYSTRATEGY
PPROGRAMROGRAM: BBA (H): BBA (H)
SSECTIONECTION: : AA
AASSIGNMENTSSIGNMENT # 2 # 2
BATA: STRATEGIC CHOICES
Submitted to:
Mr. Ghulam Ahmad Rana
Submitted by:
Sohail Mazhar 083805013Moeez Saleem 083805016Umer Ashraf 083805027Shahbaz Arshad 083805030
Zain fazal Ahmad 083805032Furqan Tariq 083805046
Omer Sher 083805129
DATE: 26-03-12
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BUSINESS STRATEGY
BATA PAKISTAN LTD
PAKISTAN FOOTWEAR INDUSTRY:
Pakistan has a large footwear industry. It had a footwear market of above 150 million
pairs per year.
In Pakistan footwear industry can be divided into two sectors formal sector and informal
sector
Formal sector consist of about 500 small manufacturers, each producing from 500 to
40,000 pairs per day. Firms in this sector included giants such as Bata and servis
Informal sector has the big market share of about 80 percent, was comprised of over
17,000 units, each with the average of two employees.
Exports About dozen firms are involved in the exports but only Servis, Bata, Firhaj,
Epcot. Shafi and Rajex participated regularly in the major annual footwear exhibitions in
the Dusseldorf, Germany.
Government Policy has big influence on the large players of the footwear industry
through their import and export policies and duty rates.
Sales Tax Small manufacturers prefer not to grow too large. They just want to remain
under central board of revenue for to save themselves from 15 percent sales tax and by
doing so they can save on many duties.
Expansion The larger expansion in the leather industry happened in the 1980s that was
resulted due to the remittances from migrant in the Middle East, together with the afghan
war, resulted in 6% annual GNP growth.
Market Size The number of tanneries tripled during 1981-1991 from 180 to 509, making
quality finished leather widely available to footwear manufacturers.
Tariff Duties Both tanneries and the footwear industry earned more from the
Government deregulations which decreased tariffs on imported equipments and raw
material. During 2000-2003 tariff duties on imported shoes dropped 65 percent to 25
percent and were expected to decrease further to 5 percent by 2005.
COMPANY BACKGROUND:
The Bata shoes organization establishment in 1894 by Thomas Bata.
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BUSINESS STRATEGY
In 2002 Bata shifted to Canada with head quarter was the largest in a Canada.
The company had a network of 75 shoes factory, trannies in 95 countries, 6300
company owned retailed, 10,000 franchised, 40,000 independent dealers.
Bata international Group (BIG) headquarters included South Asia countries, Australia,
New Zealand and Africa.
In Pakistan 1942 Bata establishment in Batapur plant.
In 1984 another factory at the Maraka branch.
1987 Maraka factory 350 employees, 1.2 million pair of leather footwear.
In 1988 another small factory.
During 1980s the negative environment impact from Government and Bata headquarter
on tannery operation.
1987 discontinuous the production of tires and tubes due to the loss.
MANUFACTURING:
Footwear manufactured by Bata is grouped in to six main categories, which is primarily
based on manufacturing technology and material used. Different processes used in
manufacturing like labor intensive and capital intensive.
Bata has 1500 Stock Keeping Units (SKU) in which almost 66% percentage is
outsourced which is called Associated Business Units (ABU).
Reasons of outsourcing by Doug Hearn’s MD:
Media revolution in 1990 resulted in increase awareness for great variety, to attain
that Bata increase its SKU’s from 400 to 2200 and because of this Bata production
cost and defects rate went up and productivity decreases. That was the biggest reason
to increase outsourcing.
Another one is because government applies 15% sales tax on formal sector of foot-
wear industry.
Decisions to outsource any product line or produce in-house are based on many
considerations. Product lines with higher volumes, specialized equipment and stable
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BUSINESS STRATEGY
demand produced in-house with-in 12 months planning cycle and 6 months planning is
required to outside orders. Plans were made for two season’s winter which is from
October to March and summer is from April to September.
Supplier selection approach: ask for sample of shoe products…then we check quality,
the workmanship and the material used…then visit factory to evaluate equipment and
worker skills…at the end Bata try to try to match ABU with our SKU.
According MD of Bata the suppliers want to get as many SKU’s as they van but in
future we want to cut down our suppliers to 15 as now we have 40 suppliers which was
150 in 1980. So in that way we can help our suppliers by providing training, expertise
and technical assistance.
Future manufacturing at Bata by MD: In future Bata is no focusing on labor-intensive
manufacturing and will star working on capital manufacturing in-house and increase
outsourcing to cater almost 70% sales. This will decrease cost as 27 persons need per
machine but on new machine on 2 people will be needed.
MARKETING:
In beginning Bata divided its markets in two segments Category B and C to cater the
needs of upper middle, middle and lower middle class and afterwards added Category A
which fulfills the needs of upper class.
Bata targets almost all the segments of Pakistan in-terms of classes, and when talking
about its positioning it is well-known brand in all over Pakistan and world but not a
brand as powerful to enjoy premium by using its brand name.
Bata marketed its shoes through three main distribution channels: Retail, Wholesale and
export.
RETAIL DISTRIBUTION:
Retail department operated through 256 company-owned stores, 91 agencies and 25 K-
scheme stores in 2002. Company-owned stores owned, managed and run by company
employees, it carried 42% gross margin, expenses are 28% includes fixed salaries,
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BUSINESS STRATEGY
commissions, utilities and rent. An agency close to company-owned stores it carried only
Bata brands, Bata provided shoe racks, some furnishing, inventory and the agency is only
responsible for operating expenses against which Bata pays 14 to 16% commission on
every sale. Finally K-scheme stores are started in 1994 to employed ex- Bata managers
and salesmen, this is like leased store in which utility, inventory plus rent is the
responsibility of company and employees get commissions.
Retail outlets divided into four categories A, B, and C. Category A stores caters the need
of higher class of customers who preferred premium shoes, these stores carries all types
of SKU’s but inexpensive SKU,s are in less stock. Category B store catered to middle
and upper level class of customers while Category C store cater the need of lower
middle class as they stocked with larger quantities of slippers and PVC slippers. Within
Category A stores different Concepts stores were introduced in 1984 like power store
in which sports goods, game accessories are stocked and there were 7 stores present till
2002.
Insights from different managers:
A manager said that Bata has good control on their company owned stores but
agencies are reproving the Bata image as they are not well committed and try to
pressurize Bata that they will become independent stores. To remove this Bata
change the policy that now agencies will be responsible for expenditure regarding
racks and fixtures.
Another manager said that retail comes from personal commitment. He suggests
that district manager must visit stores at-least once in two weeks. While talking
about the agencies of Bata he suggests that Bata should tell them to invest in their
agencies as McDonalds franchisee do, in that way they will motivate to work
hard. And another things he said Bata should give them standard operating
procedures (SOPs) and do not change them seasonally.
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BUSINESS STRATEGY
WHOLESALE DISTRIBUTION:
Wholesale department operated two main channels, registered dealers and distributors.
550 Registered dealer bought shoes from 23 company own depots. 7 Distributors serve
the need of all un-registered dealers. All registered and un-registered dealers have their
own shoe shops which stocked with Bata and several other brands and depots staffed
with company employees and located in outlying areas to serve company-owned stores,
agencies and registered dealers which are present in their geographical areas.
Wholesale department usually consisted of lower-prices shoes as in 2001 one the price
of an average shoe sold through wholesale was 85 and through retail the same shoes price
was 190.
Stock turns that is defined as annual sales/average inventory level, is much higher in
wholesale than in retail, 4 in whole while 2.5 in retail.
Trade debt increased because of credit to the distributors, Rs 114 to 674 million from
1998 t o2001. So Bata adjusted this in 2002 as it is because of less sales and now Bata
start marketing of its premium brands.
MERCHANDIZING:
Merchandizing department act as a liaison between sales, factory, purchasing and
advertisement departments. Department has three brand managers and under that four
officers.
Design in multiple sizes treated as single SKU’s but a design in multiple colors is treated
as multiple SKU’s.
MD comments on merchandizing:
Distribution is the real business, we will grow distribution and marketing and
specialize in manufacturing and increase outsourcing.
There is a lot of opportunity in women sector and Bata needs to explore this sector.
We want to develop our work-force which is more dynamic and goal-oriented.
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BUSINESS STRATEGY
Bata strengths are its network of retail outlet, brand name and human capital as it
invest in training.
BRANDING:
Bata strength is its brand name but it does not that power that Bata can enjoy brand
premium.
Bata aim to cater upper and middle class and its main customer is family with four
children. And it has no head-on competition with Servis as it only caters upper class.
In beginning Bata expanded its brands from 4 to 40 but now it cut down it to 5 global
brands that are Bata, Marie Clarie, Power, Bubble Gummers and Weinbrenner.
COMPETITION:
Competitors defined in this case study are SERVIS, SHAFI group, UMER group and
FIRHAJ Footwear, WOMEN Fashion Shoe Store and Main competitor which effects
all the foot wear industry in Pakistan is imports from CHINA.
SERVIS
Servis group established in 1950 and has 236 companies owned outlets and 24
franchisees. It starts to open outlet where Bata opens a store.
Compared to Bata, Servis carried higher price of shoes.
To both China is a threat that would affect Srevis and Bata sales badly.
SHAFI group:
Shafi group begin in 1940 and by 2002 it owned eight manufacturing units of leather
garments and footwear.
In 1998 Safi opened an outlet under brand name of urbansole. This also facing same
problem of China industry.
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BUSINESS STRATEGY
UMER group and FIRHAJ Footwear:
Umer group started in 1960 and 1995 it get exclusive license to manufacture and
distribution premium Hush Puppies brand in Pakistan.
By 2002 it has 10 company-owned concept stores, 30 independent franchisees
and about 100 SKU’s.
After that Bata get the license of Hush Puppies brand.
WOMEN Fashion Shoe Store:
There are large no. of brands are present like Stylo, ECS, Metro, Milli etc.
In women sector trend is changing very quickly as normal design cycle is 30 to
45 days.
CHINA:
During 1990 China emerged as largest player in global shoe industry, there are
7200 enterprises are present and its production represents 5% of world
production.
Chinese shoes are widely available in Pakistan market, almost 25 stores in one
market of Lahore where Chinese shoes sold.
Chinese shoes prices are so minimum as compared to brands of Pakistan and it
badly affected the man’s shoe market.
Chinese productivity is several times higher than Pakistani market, Chinese
workers are very much committed to their work and all labor laws in China is
more favorable than Pakistan.
HUMAN RESOURCE MANAGEMENT:
Bata Managing Directors’ are appointed by Bata headquarter Canada.
Doug Hearns was the fifth MD since 1981.
Paul Kos (1981-84)
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BUSINESS STRATEGY
Raymond Gasser (1984-90)
Derek Barton (1990-97)
George Sticker (1997-2001)
Comment of manager regarding HRM:
MD changes after every 4-5 year.
Every new MD brings in his own management style and area of focus.
High operation experienced MD tries to improve production process and
introduced new line and design.
Strong in marketing MD focus on the Brand and building our brand equity.
Bata Pakistan is one of the biggest operations so every MD is chosen very
carefully because every person with different high experience and practice set
new goals and targets.
Employee’s cases are not solved in urgent basis and due to this reason company
gain loss.
BATA INCENTIVES TO EMPLOYEES:
Bata traditionally had encouraged retention of loyal employees.
Senior managers had served for over 20 years.
Extensive housing sachem in Batapur Lahore.
Provident Funds to which both employees and company contributed 7% of salary.
Gratuity sachem.
Annual bonus.
Subsidized canteen facilities.
Children scholarship programs.
In 1990s Bata had gradually allowed the number of employees to decrease,
through a process of natural attrition as employees tried. In 1990-2002, 30%
employees decreased from Batapur plant and 32% increase in Maraka Factory and
overall 25% decrease.
DOUG HEARNS COMMINTED:
Average age in merchandising is decreased to 50yrs to 30yrs.
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BUSINESS STRATEGY
We want to develop new cadre of manager in merchandising and groom dynamic
young individuals who are goal oriented and self starters for several position and
willing to work on international assignment in 7 to 12 years.
We adhere all government rules and policies and honor to commitments made to its
labor union.
FINANCIALTREND of BATA PAKISTAN Ltd:
Above graph tells the Bata profitability trend from 1979 to 2001. We see that from
1979 to 1985 Bata profitability is increasing day by day that is 12.49 to 38.01 million but
from 1990 to 1995 we see decreasing trend even in 1997 Bata earn the minimum profit in
its history and the next year 1998 Bata has -124.34 profitability its main reason is its
misstatement of debt. After that Bata profitability started to improve as in 2000 and 2001
its probability was 46.53 and 68.38 respectively.
We see healthy trend of Bata shoe profitability since its existence, Bata only have two to
three of crisis in its portability history.
STRATEGIC OPTION:
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BUSINESS STRATEGY
Dougs Point of view:
Manufacturing: Product line should be outsources up to 70% in future. Regarding
distribution Dougs suggested that it should be more company owned stores and also
there is mix of retail and wholesale channels. There is a mix of economy, premium
brands and they should compromise of men’s, women and children shoes.
RECOMMENDATIONS:
Bata brand is well known brand in all over the world but it is not such a brand that can
enjoy premium through its brand so Bata should start working on it.
The main problem with Bata is that its cash convergence period is so long and because
of this Bata faces big loses so Bata should decrease the period.
Bata HRM problem is that they are changes its MD after every 4-5 year, the change is
good but upper management should follow the same goal. As Servis upper management
focus in the same goals because they have same management from decades.
When we talk about the Retail channel of Bata then Bata should increase their company
owned stores, decrease their agencies and should improve their K- Scheme stores
management.
The wholesale distribution of Bata is quite well but they have to decrease to give stock
on credit.
When talks about company competitors we find out that Servis and Shafi group are main
competitors of Bata in Pakistan, but china footwear industry is the biggest threat to Bata.
Bata should take steps to tackle with this problem by working on its manufacturing
processes and improve its material.