Indian Institute of Management, Ahmedabad

Operations Strategy

Competing Through Availability

New Balance Athletic Shoes, Inc.
Individual Assignment I

Submitted to

Prof. Anshuman Tripathy

Academic Associate: Ms Sumeetha Ramnath Natesan

On

07/01/2011

By

Rahul Sharma
New Balance: Strategy

New Balance Athletic Shoes Inc. has a very different strategy from its competitors. The major

differences can be classified into the following headings

 Products – The focus for the company is fit, quality and comfort. It has a portfolio of

different sneaker widths around which various designs are made. Most of the energy is

channeled towards innovation and R&D.

 Manufacturing – More than one-fourth of the total US volumes are produced in the US.

For sourcing the company maintains close relations with its two suppliers from China

and there is a constant endeavor to reduce lead times in ordering and production.

 Sales and Distribution – The Company has outsourced its selling to independent agents.

The sales force, though independent, is extremely loyal. Due importance is also laid on

“specialty retailers” apart from larger “key accounts”.

 Marketing – The Company does not use any celebrity for endorsements, rather it

promotes anti-celebrity promotions. Instead the image that has been built is that of a

reliable and durable shoe specially made for performance.

 Culture – Organizational culture is that of team work and entrepreneurship.

SWOT Analysis

 Strengths – New balance has strong ties both upstream and downstream. Relationship

with specialty retailers becomes important because it accentuates the brand value which

New Balance has developed over the years. New Balance shoes are considered as high

quality performance shoes available in various sizes and widths. This also results in a
 unique customer profile, one which is mature and brand loyal. The company’s focus on

R&D and a dedicated sales force are in line with the overall strategy.

 Weaknesses – Limited endorsements and marketing effort hamper brand recognition

globally. Despite being present in various geographies, New Balance is not as popular as

its competitors. Also the kind of ties it has with its foreign customers is not clear.

 Opportunities – The footwear market is growing and has a positive outlook. There are

many upcoming markets which would be important in the long term. The demand for

sporting apparels and equipments is also on the rise across the globe and offer an

opportunity to grow. The strong R&D practice in New Balance can help it gain market

share in the new and upcoming markets.

Lean manufacturing which is being adopted can help New Balance become more

competitive. New Balance has always been a manufacturing oriented company with an

entrepreneurial and team work driven culture. These are the right kind of inputs required

for emulating TPS. New Balance should reorganize its manufacturing set-up and look at

line production. Since the process is labor intensive not requiring high skills, line

production is possible. There should also be an effort to look for areas of improvement

continuously. These changes will help New Balance reduce inventory and lead times thus

reducing the manufacturing cost and making it competitive with the outsourced shoes.

NB2E is therefore an important initiative which can help New Balance do well in the

future.

 Threats – New Balance faces intense competition from competitors with much more

resources and global presence. Bigger companies have more bargaining power. Footwear

technology is evolving and competitors have the ability to launch technologically

 advanced shoes which will affect New Balance sales. The nature of the industry is such

that it is susceptible to counterfeits and raw material costs.

Changing Environment

The Adidas- Reebok deal is bound to change the complexion of the athletic footwear industry.

The deal will result in a company which would rival Nike in size. This would lead to bargaining

power shifting to manufacturers. New Balance can make use of its long standing relationship

with “specialty retailers” and push for a niche in the performance category.

New Balance could also be squeezed for margins as the trade deficit in shoes increases for the

US. With Adidas increasing to the size of Nike, it is likely to put more pressure on its

outsourcing partners for lower costs. In such a scenario, New Balance’s NB2E program becomes

important as it will help New Balance in reducing costs and turn-around times.

In the long term there is a need to increase the marketing effort to gain mind share in existing

and future markets. But the effort needs to be in line with the image that New Balance has

always had. Its “built in US” image can specially be useful in the home country.

Recommendations

 Reorganize manufacturing to achieve the NB2E goal

 Look for partnerships at the global level. The focus should be on distribution partners in

new markets.

 Invest more in marketing keeping the existing image intact. Messages like “Home

produced shoes” and “Focus on fit and performance” should be used.

 Further reduce lead time by working closely with suppliers and educating them.