BUSINESS STRATEGY

PROGRAM: BBA (H) SECTION: A

ASSIGNMENT # 2 BATA: STRATEGIC CHOICES Submitted to: Mr. Ghulam Ahmad Rana Submitted by: Sohail Mazhar Moeez Saleem Umer Ashraf Shahbaz Arshad Zain fazal Ahmad Furqan Tariq Omer Sher 083805013 083805016 083805027 083805030 083805032 083805046 083805129

DATE: 26-03-12

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

11

BUSINESS STRATEGY

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. 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.

11

BUSINESS STRATEGY 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 Hearns MD:

Media revolution in 1990 resulted in increase awareness for great variety, to attain that Bata increase its SKUs 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 footwear 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 demand produced in-house with-in 12 months planning cycle and 6 months planning is required to outside orders. Plans were made for two seasons winter which is from October to March and summer is from April to September.
Supplier selection approach: ask for sample of shoe productsthen we check quality,

the workmanship and the material usedthen visit factory to evaluate equipment and worker skillsat the end Bata try to try to match ABU with our SKU.
According MD of Bata the suppliers want to get as many SKUs 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:

11

BUSINESS STRATEGY 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, 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 SKUs 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

11

BUSINESS STRATEGY

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.

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:

11

BUSINESS STRATEGY 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 SKUs but a design in multiple colors is treated

as multiple SKUs. 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. 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

11

BUSINESS STRATEGY

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.

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 SKUs.

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.

11

BUSINESS STRATEGY

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 mans 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) 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.

11

BUSINESS STRATEGY

Employees 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. 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:

11

BUSINESS STRATEGY

100 68.38 50 12.49 0 1979 -50 1980 1981 1985 1990 1991 1995 1997 1998 2000 2001 20.23 25.95 38.01 46.53 34.32 24.22 26.51 0.69

-100 -124.34 -150

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: 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 mens, women and children shoes.

11

BUSINESS STRATEGY

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.

11