Chapter Two: External Environment Analysis

Leather Footwear Industry Analysis Based on Porter’s Five Forces Model

1. Threat of New Entrants:

• In Bangladesh the leading leather footwear companies are Bata, Apex Adelchi, Jennys
Shoes, Landmark Footwear, Leatherex Footwear, Bay Emporium Footwear, Fortuna Shoes
ltd etc.
• The threat of new entrants depend on the barriers to entry.
1. Economies of Scale: New entrants in the footwear industry cannot easily take over the
existing firms of Bangladesh as they have low production cost and are enjoying large
economies of scale compared to its neighboring countries.
2. Brand name: The footwear industries of Bangladesh such as Bata, Apex are leading
the market from the very beginning which has already created their brand name and
customer loyalty. Thus new entrants have to invest a lot to build their own brand name.
3. Huge capital requirement to enter into the industry.
4. Access to Distribution Channels: Bata, Apex and Bay footwear Ltd has their own
secured distribution channels which are barriers for the new entrants.
5. Government Subsidies: Bangladesh Government has already declared the leather
footwear industry as the priority sector as it is creating great opportunity and
entrepreneurship, employment and investment of higher value added products. In this
sector Government subsidies may give these industries long lasting advantages.
6. Government Policy: Entry into industries can be limited with controls such as
licensing requirements and limits on access to raw materials which is already being
done by Bangladeshi Government in Leather footwear sectors.
• However, the entrants of new firm can still be observed, which is due to low production
cost, high quality, durability and attractive design of footwear from the countries like
China, Thailand, India etc.
2. Threats of Substitute Products:
• There are a lot of substitute products of leather footwear like footwear of Rexine, Plastic,
Rubber, and Jute.
• Bangladesh is a country of middle class people. Most of the people are not willing to spend
a huge amount of money for footwear. Leather footwear is comparatively more expensive
than other substitute product like, rexine, plastic, etc.
• Rexine is a product which fulfills almost all the requirements of leather and it looks quite
similar.
3. Intensity of Rivalry among existing competitors:
• In Bangladesh leather footwear industry, 109 firms are of equal size and power which
increased competition for the same customers and product resources such as Bata, Apex,
and Fortuna etc.
• Industry growth is glow. For example Bata which is leading the market from a very long
time. It reached to maturity stage and now competes to gain market share. Apex is also
reaching the same stage gradually.
4. Bargaining Power of Buyers:
• Bargaining power of buyers in the footwear industry is increasing day by day. They want
durable shoes as well as modern designs to keep up with the trend.
• In Bangladesh BATA and APEX are the main footwear firms but the substitute products
are many more. The entrance of foreign brands like Nike, Reebok does not make the
scenario easier. As the number of firms selling footwear both in local and international
market, is growing, the bargaining power of buyers is being strong.
• The footwear firms are supplying footwear to a large number of consumers. The purchasers
are much larger and so can exercise pressure on the suppliers.
• The footwear are not that much different from the others.
• The customers can easily switch to an alternative footwear firm at low switching costs.
Anyone wearing footwear of BATA can easily switch to APEX at their convenience.
5. Bargaining Power of Suppliers:
• In Bangladesh footwear industry, the bargaining power of supplier is moderate as the
number of suppliers is huge.
• The threat of forward integration by the footwear suppliers is high as brand identity is not
a critical issue in the footwear industry in many cases in Bangladesh.

Strategic Group of Leather Footwear Industry

• In an industry analysis, two assumptions are unquestionable no two firms are totally
different; and no two firms are exactly the same.
• Strategic Groups refers to a group of companies who follow the same strategy within a
particular industry.
• Dimensions to map strategic group include breadth of product, price or quality, type of
distribution (e.g., dealers, mass merchandisers, and private label), customer service and so
on.
• The figure provides a strategic grouping of the footwear industry based on price and quality.
• In the lower left-hand
corner are low-price
footwear firms, who focus
on reducing price e.g. non
brand local producer.
• At the other extreme, in
the upper right-hand
corner, is a strategic group
that identifies with high-
price and high quality
products. These players
are foreign brand such as
Nike, Reebok, Puma,
Hush Puppies
 SWOT ANALYSIS OF BATA

Internal Environment Analysis (Strengths and Weaknesses)

Factors Relative Weight Score Weighted Strengths Weaknesses
importan (B) (C) score (D) (E) (F)
ce rating B= (1– (B × C) largest largest
(A) A/N 10) (D) (A–C)
(1–10)

Management Strong
Management Strength
Position

Expertise
knowledge in Strength

leather
processes and
footwear
manufacturing

Bata at present
conducts all the
store
management
Weakness
activity
manually
Finance Strong Financial Strength
Position

Cost Leadership Strength

Marketing Diversifying Strength

(Product/Pric their product
e Place/ line by
Promotion)
increasing
 different
products in
their product
portfolio

Strengths
High Quality
No heels:
Weaknesses
Women feels
less interested.

Pricing based on Strength

income level
Strong Strength
Distribution
Network

Brand Image Strength

Inefficient
Promotional
Activities:
They think that
they should go weakness
on with more
and more retail
outlets rather
than intense
advertising.
Operation/ Production Strength
Production capacity
Utilization of Weakness
Production
Capacity
 External Factors Relative Weig Capabili Weighte Opportunities Threats
importan ht (B) ty Score d score (E) (F)
ce rating B= (C) (D) largest (D) largest
(A) A/51 (1–10) (B × C) (A–C)
(1–10)
Economic Factor
Rising disposable income
and consumers increasing
spending.
Social Factor
• Consumer attitudes
and opinions changing
favorably towards
branded shoes. They
prefer buying a
relatively expensive
shoe rather than the
one which is cheap
with less durability.
• With various schemes
promoting primary and
secondary education,
more students are
enrolling in schools
and colleges, creating a
demand for school
footwear.
Demographic Factor
• Market segment based
on gender, income
level and age.
• Markets Opportunities
increased due to
 increase in number of
populations
• Highly competitive
marketplace due to
increase in the number
of firms
Political Factors
• Rising export of
footwear has made the
government interested
in this sector
• The GST rate on
leather goods is at
28%, making leather
shoes more expensive.
• Employment law, tax
law and political unrest
increase the cost of
raw materials, wages
and transportation.
• Actively trying to stop
environmental
pollution by the
tanneries and tannery
shifting plan is
changing the dynamics
of the sector
Technological Factor:
• Bata’s rival companies
are using digital media
for their product
advertising and
 sponsoring at major
events
• Many footwear
companies are focusing
on product innovations
enhancing comfort,
agility and durability
posing a threat on
Bata’s market share.
• High R&D cost in the
industry.
Global Factor:
• China is going away
from Footwear export
business
• Negative growth rate of
Romania and Brazil
will help Bangladesh to
capture more market
from US and Germany.
• Labor cost is lower
than average labor cost
of other countries