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ECCO bought raw hides and processes them into usable leather through tanneries. They had the largest tannery in the Netherlands and also a leather research institute. This ensured that they never had to compromise on their high standards of quality. Their lead times were better than even the leather suppliers. Competitors like Clarks and Timberland outsourced production of leather and were affected by price increases in raw materials. They also had to scrutinize the quality of leather which incurred extra cost. Their production process took place in Portugal, Thailand, Indonesia, Slovakia and China where the processes were streamlined to produce specific volumes of shoes. The development and research for new products, however, were done from Denmark. The R&D activities in foreign sites were only on the production process and material optimization. ECCO had distribution centres in the US and Denmark and Shoes were shipped overseas from these centres. Apart from ensuring quality control, ECCOs ownership of the value chain also meant better supplychain management. Their time-to-market, hence, would also be under their control as they no external dependency. New products can be launched and introduced very quickly and efficiently once R&D centre in Denmark comes up with the design. ECCO is also insulated from price fluctuations initiated by suppliers and manufacturers as they only procure raw hides. Their global supply chain also diversified their risks. One of the major disadvantages ECCO would face is the high cost incurred in integration of the global supply chain. It was proven by ECCOs competitors that outsourcing processing and production would lower production costs. Apart from this, co-ordination and integration also become increasingly difficult with increasing international presence and expansion.
SWOT Analysis
In order to evaluate ECCOs next moves, we need to do a SWOT analysis so that we could arrive at recommendations and action plans that leverage on ECCOs strengths and addresses its weaknesses and threats. Strengths: ECCOs production technique, known as direct injection technology was unique, hard to imitate and was its biggest strength. Through its research on leather processing, it can experiment and produce different kinds of leather for the next generation of ECCO Shoes. Leather research can also help them explore environmental-friendly tanning. ECCOs skilled manpower was also its strength as it invested aggressively in their workforce through training, career development and its Education and Conference Centre at Futura. Weaknesses: ECCO had only a 6% market share in the US which was one of their biggest markets and this figure never improved indicating that the market has already saturated. Even though, they focussed so much on quality, their uniqueness and distinction was never properly communicated to the customers. They had only 2 distribution centres in the world, in US and Denmark this would prove to be a problem as they continue with expansion in China and elsewhere. Opportunities: Aibus market know-how and position in the Chinese market along with ECCOs expertise and experience can ensure that they can gain loyalty of Chinese consumers. Once the 5 factories in China get operational, ECCO would have the opportunity to further expand into other lucrative markets in Asia. Threats: Competitors were lowering costs by outsourcing and streamlining operations. Brands like Nike and Reebok began competing with ECCO on certain products. Even retailers were bringing in new products under private labels. As if these were not enough, Chinese Manufacturers started copying ECCO design
Recommendations
Currently ECCO has only 2 distribution centres in the world, in US and Denmark. Since they are looking at expansion in Asia, having another distribution centre in Asia would reduce their transportation costs and time-to-market R & D on development of new products happens only in Denmark which might not cater to specific needs and wants of consumers in foreign markets. Hence R & D centres need to be established in all leading markets of ECCO. Quality is what drives ECCO but this vision has not been communicated properly to its customers. Customer need to connect quality with ECCO. Hence a concerted effort on Marketing needs to be done to position the brand appropriately. If the marketing strategy succeeds in positioning ECCO as a niche brand selling unique, high-quality shoe, then ECCO can go public to raise funds and expand further. If the marketing strategy fails, then maybe people are not willing to pay a premium cost for quality. In that case, the entire value chain need to be relooked at and modified. Outsourcing would then be the way to go to lower costs