A Strategic Analysis of Business and Financial Performance of

Bata Shoe Company (Bangladesh) Ltd.

1
Edi Amin Jony

Abstract

The business performance of any company can be boosted by identifying the drawbacks for decision
making regarding financial decisions and investment decision. This study investigates the business
and financial performance of Bata Shoe Company (Bangladesh) Ltd. Apex-Adelchi Footwear Ltd has
also been considered for the purpose of financial performance analysis comparing with Bata Shoe
Company. In addition, it provides some recommendations for improving near and long term
performance for Bata. It utilises financial ratios, horizontal analysis and statically information to assess
financial performance. The main result of this study shows that the financial and business
performance of Bata is positive but it must consider factors of risk in terms of growth and local
competitor demands.

Introduction

Precise measurement of business performance is important to provide a realistic forecast to the

management for taking appropriate action to protect company and investor interests as well as
shareholders. After the global financial crisis of 2008, a limited recovery began in 2010. The retailers
were facing constraints in exporting local products to overseas markets that ultimately effects
domestic industries and the purchase power of consumers. Although consumer and business
confidence remained significantly weaker than the pre-crisis levels, it seemed that the various
incentive and recovery programmes initiated by various governments were beginning to make their
mark in this sector.

The main objective of the present study is to rationalise the current market situation of Bata Shoe
Company (Bangladesh) Ltd through time series analysis and cross sectional analysis of financial
statement compared to Apex Adelchi Footwear Ltd. It will also make a comprehensive review of
current activities and strategy of the Bata.

In investigating this topic, it was essential for the researcher to compare Bata with another company,
so that the company in question could achieve higher profit and market value of the share. Financially
and technically Apex considered a stiff competitor for Bata. To identify whether Bata had achieved

                                                                                                                       
1
The author would like to express sincere gratitude to his supervisor Mohan Namasivayam for giving the opportunity to work
under his supervision on this challenging project and also for intellectual guidance in conducting the research.
 

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their business target, the researcher had to consider not only net profit income and ratio analysis, but
also analysed business performance as a whole.

To evaluate this topic, the researcher identified several different factors. These were financial
performance of the company during the economic recession and those effects on business
performance, strategy, competition and marketing. To analyse those factors, the researcher also had
to give some attention to customer satisfaction and product cost effectiveness.

Overview

a- Bata:
Bata Shoe Company (Bangladesh) Ltd, was established in Bangladesh in 1961 and incorporated in
1972. It is one of the leading footwear manufacturing, marketing and selling companies with a
powerful combination of skills and resources that provide a platform for delivering strong growth in
today’s quickly changing footwear industry. As a subsidiary of BSO (Bata Shoe Organisation), the
principal activities of the company are manufacturing and marketing of footwear and hosiery products.
It conducts the operational activities in Bangladesh as a principal with its own set-up of
manufacturing, marketing and distribution.

The company has retail and non-retail outlets. It has also dealer stores, DSP (Dealer Support
Program) stores and wholesale stores. Among the retail channels are flagship stores, family stores,
Bata Bazaars and Bata stores. Taking into consideration the consumer demand in a range of market
segments for new styles and designs without ignoring the necessity for volume sales, the company is
constantly introducing new products in all categories. Bata possesses a different outlook due to the
excellent technical assistance, innovation in manufacturing, professional marketing and management
information system.

The firm is playing a major significant role in influencing Bangladesh’s economy by paying taxes and
creating employment. In 2010 Bata contributed Tk 1,361 million. This represents an increase of 14%
over that of the previous year. Annual shoe sales currently stand at slightly more than 30 million pairs
with a turnover for the year 2010 of Tk 5,663 million ( Bata Annual Reports, 2010-11).

b- Apex:

The main business of Apex Adelchi Footwear Ltd is manufacturing leather footwear and footwear
accessories to export and sell in the local and international market. It sells footwear in local markets
through outlets named Gallerie Apex. The Apex was incorporated on 4th January 1990 as a Public
Limited company with the registrar of Joint Stock Companies and Firms in Bangladesh. It was listed
with Dhaka Stock Exchange Limited on 11 July 1993 and with Chittagong Stock Exchange Limited on
22 October 1995. It is comparatively new company, but expanding very rapidly. Over the last 20

22  
 
years, the business has come to parallel Bata. The production units are based in Chandra, Shafipur,
Kaliakoir, Gazipur in Bangladesh.

Financial ratios analysis

To assess the financial health or position of a business, financial ratios analysis provides a quick and
a relatively simple technique and financial performance of a business initial could be assessed by
using key ratio analysis (Atrill, 2009). The four major categories of financial ratios measurement are
liquidity, profitability, gearing and efficiency. As a general rule, a higher value in profitability and
liquidity and lower values in gearing indicate a better financial position of a company (Pamulu,
Kajewski, and Betts, 2007). The researcher had given attention to the financial ratio like sales,
profitiability, efficiency and customer’s satisfactions. The ratios analysis presented here show the
financial position of the company. Before making any assumption over the company performance, the
following limitations of ratios analysis were considered:

§ Accounting ratios were calculated on the basis of income statements and balance sheet
which both were being subjected to the limitations of historical cost accounting. The
inflation rate, changing in product market price, method of valuing assets and accounting
policy demised the credibility of ratios.
§ A lack of financial information on either similar industry field or previous year performance
had severely limited the credibility ratios analysis. The conclusions drawn on the basis of
ratios were judgmental as there was no standard defined value of ratios which could be
used as a benchmark for comparison.
§ The previous year performance of a company not always reflects the sign of future
performance of the business. The measured performance could be out of date and
irrelevant for the present market conditions.
§ The ratios are not all that is necessary to understand the business future; skilled human
resources and future management decisions are also important that are not incorporated
with the ratio.

Research approach

The researcher applied a deductive approach which is also known as scientific research. This
approach moves from theory to data analysis and works from a general idea to the more specific
(Saunders, Lewis and Thornhill, 2009). At the same time, the final outcome will be in a form of
conclusion which follows logical procedures.

Ratio analysis is the calculation and comparison of ratios which are derived from the information in a
company's annual financial statement. An analysis of the company’s financial ratios is generally the
first step in a financial analysis (Atrill, 2009). The level and historical trends of these ratios can be

23  
 
used to make inferences about a company's condition such as financial position and performances, its
operations and attractiveness as an investment. To evaluate a company’s financial performance, the
analyst usually performs evaluation of various aspects of information.

The information ‘term’ is widely used to refer to human acquirements through reading, study and
practical experience. The quality of data depends on primary and secondary sources, collection
methods and processing techniques. In this research formation was gathered from both of primary
and secondary sources to achieve the above set objectives. The researcher used a mix of
quantitative data and qualitative data in alignment with the deductive approach adopted (Bryman and
Bell, 2007).

Financial ratios analysis was performed using the secondary data while business strategic planning
and position analysis was carried out using primary data. A sampling size of 80 was adopted for this
study.

Results and discussion

Ratio analysis of BATA was conducted covering three financial years, i.e. FY2010, FY2009 and
FY2008. The ratios showing comparative financial performance with Apex up to FY2010 are
presented in Tables 1, 2 and 3.

a- Sales revenue analysis

Ratios Bata Apex

Year 2010 2009 2008 2010 2009 2008
Net sales
revenue 5,663 5,141 4,623 6,961 5,834 5,629
(Tk),(Million)
Sales revenue
10 8 16 19 3 26
growth (%)

Table 1: Sales Revenue

(Source: Annual reports of Bata and Apex 2008, 2009, 2010)

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 6961
7000
5663 5834 5629
6000
5141 BDT(million)
5000 4623

4000
Bata
3000
Apex
2000
2008 2009 2010

Figure 1: Comparative figures of sales growths (Bata and Apex)

Bata Sales revenue growth varied with a large fluctuation from FY2008 to FY 2010. The lowest
growth rate was found in FY2009, which fell to 8% but showed a good recovery in FY2010. The
fluctuation of revenue coincided with the beginning of the recession period. In FY2008, 16% sales
revenue growth was achieved due to a good distribution plan, aggressive marketing policy and strong
business decisions. The management took some strong strategic decision where loss making outlets
were closed down or relocated. The dramatic fall of revenue growth from 16% in 2008 to 8% in 2009
then raised to 10% in 2010 were also supported by the increase of shoe price. An effective
management choice also supported lower unit production cost. The revenue in FY2010 was Tk 5,663
million (Figure 1) which was comparatively 10% higher than FY2009 (Table 1). The net growth rate
was increased by 2% in FY2010 compared to the previous year because newly established stores
generated more profits and in some cases used cheaper raw materials. Strategic stores were
renovated and upgraded to reflect the improved image of the company. In the Non-Retail Sales
Department (NRSD), business grew by approximately 13% compared to 2009 in spite of stiffer
competition in this segment of the footwear market.

On the other hand sales revenue of Apex has increased gradually and remarkably since it was
established. Revenue in FY2010 was Tk 6,961 million and growth was 19% compared to the previous
year, but in FY2009 was only 3%. Apex is a comparatively new establishment, but has higher revenue
than Bata.

b- Profitability analysis

The profitability ratios attempt to measure the business success in generating income. Profitability
ratios show the combined effects of liquidity, asset management, and debt management on operating
results. The objective of profitability relates to a company’s ability to earn a satisfactory profit. The
investors and shareholders will continue to provide capital as investment as long it could bring
rewards. Maximizing profit margin is the best indication that a company can pay dividends and then

25  
 
the market share price will be a trend to upward. The profitability measures compare profits with
sales, assets, or equity: net profit margin, return on assets, and return on equity.

The profit margin shows how much profit a company makes for each unit of investment. A ratio of
profitability calculated as net income divided by generating revenues, or net profits divided by sales. It
measures how much out of every unit of sales a company actually keeps in as earnings. A higher net
profit margin means that a company is more efficient at converting sales into actual profit. The higher
of these ratios, the more effective a company is at cost control. The results are usually compared to
the industry average, it tells investors how well the management and operations of a company are
performing against its competitors:

§ A low profit margin ratio indicates a low amount of earnings, required to pay fixed and
variable costs that are generated from revenues.
§ A low profit margin also ratio indicates that the business may be unable to pay finance
costs and control its production costs.
§ The profit margin ratio provides clues to the company's pricing, cost structure and
production efficiency.
§ The profit margin ratio is a good ratio to benchmark against competitors.

The following table shows the net profit margin on sales ratios of Bata and Apex for the last 3 years,
from FY 2008 to FY2010:

Ratios Bata Apex

Year 2010 2009 2008 2010 2009 2008
Gross profit to sales
36 37 34 15.7 15.6 11.67
revenue (%)
Operating profit to
13 12.7 14 4.12 4.45 4.16
sales revenue (%)

Pre-tax profit to sales

13.12 12.34 13.4 3.93 4.24 3.97
revenue (%)

Net profit to sales

9.5 8.7 9.7 3.27 3.63 3.37
revenue (%)
Return on capital
37 35.8 40.88 31.4 28.78 33.72
employed, (%)
Table 2: Profitability analysis
(Source: Annual reports of Bata and Apex 2008, 2009, 2010)

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 40 37 36
34
35
30
25 Bata
20 15.6 15.7
15 11.67 Apex
10
5
0
2008 2009 2010

Figure 2: Comparative figures of gross profit margin (Bata and Apex)

(Source: Created for this study)

In Bata a moderate level gross profit margin was desirable. The gross profit margin of Bata was
increased to 36% in FY2010 compared with 34% in FY2008 (Table 2 and Figure 2). However, the
gross profit margin slightly decreased in FY2009 but not in a significant manner. The important issue
for the company was to find a reasonable solution to improve future performance. The falling gross
profit margin may indicate that the company was unable to achieve the same level of sales prices as it
was in 2009 or was not efficient at controlling its costs of sales. From mid-2010 we began to see
rising raw materials price, especially in raw hides and TPR granules, which were directly related to the
petroleum price and increased by almost 40% since January 2010 ( Annual reports Bata, 2010). The
major costs of sales were materials consumed, manufacturing overhead and wages for the
employees that was relatively high compared to all other production cost. In FY2010, total prime cost
was Tk 3,617 million, which was 79.5% of the total cost of sales.

Operating profit decreased to 13% in 2010 from 14% in 2008 due to increase in administration, sales
and distribution expenses and also some losses in exchange gain. Those expenses were greater in
comparison to sales revenue in 2010. Pre-tax profit margin had increased from 12.34% to 13.12% in
FY2010 due to efficient use of human resources and assets. In FY2010 company financial income
had increased like interest on fixed deposit and also declined in financial expense like interest on
bank overdraft help to increase pre-tax profit margin.

Gross profit margin of Bata was nearly 35% against Apex which was only 15%. This indicates that
Apex was offering a comparatively low product price. Therefore, Apex expanded their business very
quickly throughout the country to capture the market share of Bata. Apex can survive in the market
with a low profit margin as it sold products on a cash basis and all foreign exports were received in
advances.

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Overall comparison between Bata and Apex financial performance

The overall financial performance of Bata is better than that of Apex in spite of economic recession.
The main reason is that Bata has a strong network of 242 retail outlets located strategically in different
parts of the country. This extensive retail network is supplemented by an equally extensive network of
depots and dealers. Bata has 13 Wholesale depots covering Bangladesh. Under these depots 390
RWD (Registered Wholesale Dealers) and 553 DSP (Dealer Support Program) stores are operating,
whereas Apex is comparatively a new company and their closer concentration is on shoe exports
rather local market sales. Due to greater coverage, Bata cash flow was much higher than that of
Apex. The absence of long term borrowing also had a positive impact on financial performance of
Bata.

Bata customer satisfaction, marketing mix analysis and recommendations

The process which indicates customers are very happy about any specific company or happy to
consume any specific company’s product or service, is called customer satisfaction. But Beamish and
Ashford (2007) found that it not only ensures customer happiness, but also to ensure a positive
customer view about everything concerning the company. This section discusses customer
satisfaction and the current marketing strategy of Bata. For marketing mix analysis the researcher
wanted to show the overall scenario and strategy of Bata. An interview with a Bata representative and
customer satisfaction survey was also undertaken.

a- Product

Bata aims at positioning its products in the minds of its customers on the basis of product quality at a
competitive price. It demonstrates good value-for-money to a wide range of consumers. The firm
could successfully differentiate its products from other brands of local and international footwear
manufacturers from their quality of product and competitive price.

b- Current situation of Product Positioning and Differentiation

Bata is a prominent and popular brand name in Bangladesh as it has enjoyed a successful history.
So, it is obvious for them to have created an image of their own in the minds of people. The firm
positions its products on the base of quality and comfort at a competitive price. The survey revealed
that 52% people (Figure 3) preferred Bata due to its product quality and comfort in usages.

28  
 
 Why  Bata  is  preferred  

15%   Brand  
20%  
Quality  &  Comfort  
13%   Design  &  Variety  
Price  

52%  

Figure 3: Product positioning and differentiation

Bata was facing stiff competition from its local competitor in the footwear market for the last few years.
Apex and some other small footwear manufacturers are also positioning their products as ‘quality
products’ and ‘low price’. Illegal street markets are offering comparatively very low-quality goods at a
very low price. So, Bata needs to focus on its positioning factors and give more attention to those
factors affecting their potential for maintaining and increasing its overall growth. Bata can introduce
modern technology for shoe-making and cost effective policy to reduce cost of the products.

c- Product line, target customer and segmentation

Bata uses various segmentation bases for a better-defined target group and tailoring their services
more competently (Table 4).

The Market Segments

Geographic Segmentation Both urban and rural areas of Bangladesh, but main focus in urban
areas.
Demographic/Socio- All ages, 1-8 years, 6-15 years, 19-45 years, 15-35 years, 0-65
economic Segemntation years
Both male and female
Lower middle income to high income range, middle income range
and high income range
Psychographic Lower middle class to upper class, middle class to upper class,
Segmentation upper class,

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 Behavioral Segmentation Regular occasion, special occasion, young

Table 4: The market segmentation

(Source: BATA, 2012)

d- Price

According to Kotler and Armstrong (2010) to ensure higher customer satisfaction, the company has to
concern themselves with product price. Value based pricing or value optimized pricing is a business
strategy. It sets the selling price primarily, but not exclusively, on the perceived value to the customer,
rather than on the actual cost of the product, the market price, competitor prices, or the historical
price.

Bata had priced the products according to consumer buying behaviour and income levels. This was
proven to be quite effective as there was a small amount of complaints about the price of shoes. A
small group of people had complained about some shoe prices which mainly target high-income
consumer groups. Bata could introduce a new product base for that particular group.

e- Placing

Bata has a presence all over the country. It had explained its strategic placing of retail outlets as
different parts of an empire like cities, forts and protectors. According to Trehan and Trehan (2007)
the more channels of product distribution place, the more customer satisfaction can achieve by the
company. Bata puts its products into its numerous shops according to market demand and other
influencing factors, namely demographics, education, population, lifestyle and environment. Based on
these factors and consumer profile, the company divides its retail stores into three tiers. They are:
Flagship (City), Family (Fort) and Bazaar (Protector) (Bata annual reports, 2010-11).

Bata has a very well-planned distribution strategy based on its market segmentation basis and some
other related factors. They have retail outlets in convenient places over almost all of the country
(Figure 5). According to the survey conducted (only in the City area), 33% of people visit their flagship
store at Bashundhara City (Figure 5), 27% people in Elephant Road and nearby areas, 23% in
Dhanmondi and 17 % in other areas.

30  
 
 Preferred  stores  for  visi2ng  

17%   Bashundhara  city  

33%   Dhanmondi  
Elephant  road  

27%   Other  

23%  

Figure 5: Customer preference in visiting stores

There is still a lack of availability of some varieties and sizes of shoes in quite a number of stores, as
discussed in some interviews. 33% people visited the Bashuandhara city store mainly because of its
spectacular interior design, product range and huge space. So, Bata should take a new strategy
about their outlets; ensure availability of varieties and sizes in the stores as per demand. Bata could
also expand its retail outlets in densely populated and remote areas.

f- Promotion

According to Haughes and Fill (2007) this is the most important element of the marketing mix because
marketers can upsurge a specific communication method with targeted customers. Bata followed the
‘organization marketing strategy’ for their promotional purpose. They usually carried out the following
activities to increase sale:

• Banner, dangler, in-store promotions and cards to create a big impact in their sales.
• Newspaper advertisement, radio commercials, television commercials and E-flyers for mass
communication.
• Bata was the Official Clothing Sponsor of Bangladesh National Cricket Team during the World
Cup Cricket 2011. They were also the official sponsors of the nationwide Bata School
Handball Tournament for boys and girls in 2010.

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 Effect  of  discounts  in  buying  shoes  

43%  
Yes  
No  
57%  

Figure 6: Response of customer during the sale

Bata did not invest enough money to hold or enhance their total market share. To inform the
remaining 43% of customers (Figure 6) about their current sales, they could have undertaken some of
the following:

• Online advertising and promotion for their products and services in different websites and
social media like Facebook and Twitter.
• Currently teenagers are less inclined to newspaper and billboard advertisements. So, Bata
could run some innovative campaigns for teenagers.
• To maintain its consumer base and encourage loyal consumers, Bata could offer vouchers or
some kind of incentives for regular customers.

Since Bata was primarily dedicated to expansion of market size, their promotional activities were
comparatively low in quantity. But with the present market share of ‘Chinese shoes’ or unregulated
‘Black market shoes,’ Bata need to extensive amount of campaign to capture a greater market share.

Conclusion

Most of the previous studies stated that Bata was the only powerful company in the leather footwear
manufacturing sector in Bangladesh as it had a historical branding image in the global footwear
market. However, this study revealed that over the last three years the rival and most significant
competitors like Apex advanced significantly. In 2010, Sales revenue of Apex was higher than Bata,
although other assessment results shown that the performance of Bata was satisfactory among the
footwear industries. The sales revenue of Bata was grew by only 10% in 2010 while this figure for
Apex was 19%. This forward movement indicated that Apex had expanded to capture most of the
growing market share of the leather footwear sector.
Bata has successfully managed a good balance between the profitability and liquidity over the last
three years. It has dedicated footwear manufacturing facilities, good strategic locations for retail
outlets, strong marketing policy and historical industry knowledge. Bata Shoe Company satisfied most

32  
 
of the stakeholders by providing dedicated customer services, giving good value of money and
making horizontal expansion. Bata could gain greater benefits through joint ventures with other
popular brands or by exporting some of its popular brand. It has also a potential risk to be faced in the
near future in scientific advancements in making artificial leather which could reduce the demand for
true leather products. The company successfully qualified on the business failure risk assessment
(Altmen, 1968) test. However it faces enormous competition in market expansion by local companies
like Apex.

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