Table of Contents

Preface .................................................................................................................................... 1
Strategy ................................................................................................................................. 1
Low Quality, Low Models, and Low Price ..................................................... 3
High Quality, Low Models, and Lower Medium Price ............................. 3
Low Quality, High Models, and Higher Medium Price ........................... 4
High Quality, High Models, and High Price .............................................. 4
Create The Foundation With Forecasting ......................................................... 5
How do I get a high score? ...................................................................................... 5
Production, Branded Marketing, and Distribution .................................... 7
Branded Production ..................................................................................................... 7
Branded Wholesale Marketing and Internet Marketing....................... 10
Branded Distribution............................................................................................... 12
Mitigating the Risks................................................................................................... 13
The Private Label Market ..................................................................................... 13
Supplementary Screens ................................................................................................ 15
Corporate Citizenship ............................................................................................ 15
Plant Capacity and Upgrades .............................................................................. 16
Celebrities .................................................................................................................... 18
Finance and Cash Flow ............................................................................................ 18
The Strategic Plan (Instructor’s Choice)................................................... 20
Business Strategy Invitational (Student Choice) .................................. 21
Conquering The Competition 1

Preface
It was early October, 2006 and I was waiting at the Business Tower computer lab at my college.
I was about to check how I had done on this new simulation game for a strategic management
class. I was very confused by the game and I didn’t seem to understand what was happening. I
had tried to pay attention to my professor, and the manual was so long to read. I really wasn’t too
sure if I’d do well. I just wanted to pass the course. As I opened up BSG for my first practice run
I couldn’t believe what I saw… I was at the top with 93 points.

This was the beginning of an area I would soon master and the shining point in my academic
education. I had already played strategic business games, and I found I was able to apply much
of my strategic thinking. I successively won twice at my college playing the now defunct BSG 7.
Later I would encounter BSG 8 at my university which I would win. It is the current online
edition of BSG that you will be playing. It was from this point that I was able to gain entry into
the Grand Championships, where once again I would able to achieve a high degree of success.
Hundreds of people have asked me for help to gain a competitive advantage.

Thus I decided to write this guide highlighting my working knowledge of BSG. This guide is to
help you win your game (and get a high mark in your class) by explaining the basic execution of
strategies and describing what I saw as the main strategies for this game. As each game can be
different, the biggest secret of the game is to counter your opponents strategically and to be
efficient. Each strategy is a very viable method to win in its respective conditions. Whenever you
play a new game, it is beneficial to learn the rules, and BSG is no exception. When I first began
this game, I used to spend hours thinking of what my next strategy was even in my sleep. Now
fully advanced, I can do an average round in less than an hour, and be very accurate in my
predictions to what will happen next. This game is engaging and even if you don’t win, you learn
a great deal.

Strategy

Through the hundreds of rounds of BSG I’ve played, I noticed how well executed companies
affected the overall game based on their position in the strategic map. I developed a BSG
strategy model that aided in the interpretation of the dynamics in the industry. This model is
based upon the strategic map found in the competitive intelligence reports and it will give you
greater insight of your own company’s strategic position capabilities and that of your
competition. The big decision you will have to make is how you want to position yourself in the
market. Don’t get caught up in the targeted selling of certain markets like North America or
Asia, or deciding if you’ll be a small company vs. a large company. The fact of the matter is you
are going to be dominating all geographic regions with a large plant capacity. The only real
decision left to be made is deciding in which part of the market you will make your company’s
niche in terms of quality and models. There will be other companies, that have really unique
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strategies, but they may not know how to leverage their advantages and execute their strategy
poorly. It is these companies you will mow down. The opponents that you pay attention to are
the companies who understand what they are doing. You must beat these competitors by being
more efficient through proper execution and out strategizing the competition.

If you look below, you will see my strategic model that explains the four strategies that I have
researched. The Y axis represents quality (vertical), and the X axis represents models
(horizontal).

The four strategies are:

Low Quality, Low Models, and Low Price (The Lower Left)
High Quality, Low Models, and Medium Price (Upper Left)
Low Quality, High Models, and Medium Price (Lower Right)
High Quality, High Models, and High Price (Upper Right)

High Quality STRATEGIC GROUP MAP High Quality

Low Models High Models

COMPETITIVE
INTELLIGENCE
REPORTS

STAR
QUALITY
RATINGS

Low Quality Low Quality

Low Models PRODUCT LINE BREADTH High Models

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Conquering The Competition 3

Remember that these strategies hold true when all other variables are constant. If a low quality
and low models strategy has a weak production line and bad distribution decision, I have no
doubt that their prices will end up as “Medium” to the industry. Conversely, a high quality and
high models strategy may end up being one of the lowest prices in the industry if the rest of the
competition is extremely inefficient.

For example that if 1 person played 4 companies, with each representing a strategy, and gave
each company the same amount of thoughtful decision making. This is how the four strategies
would look in comparison to each other. Since you are playing against different people, it is
important to choose a strategy that you can execute easily.

Low Quality, Low Models, and Low Price

(Lower Left)

A low quality, low models strategy is the easiest strategy to execute. The combination of low
quality and low models sets your company up to have a low price. This price penetration strategy
is both devastating and can have long term effects on the industry if your competition is not able
to outperform you. This strategy is specifically easy to perform because you choose a low
number of models (50, 100 or 150) and make a really cheap shoe between the 2-5 star ratings.
Because you are working with low numbers, this strategy is easy to perform.

This strategy takes advantage of upgrade C, which is the most money saving upgrade of the 4
available upgrades. The benefit of upgrade C makes this strategy a decent cash cow.

The disadvantages to this strategy is that it is very much an early game starter strategy, and does
not fare so well against competitors with more advanced and well executed strategies with
specific features (high quality or high models) in the long run.

High Quality, Low Models, and Lower Medium Price

(Upper Left)

A high quality, low models strategy is probably the next easiest strategy to execute, but
definitely with a significant advantage. The mix of high quality and low price turns out a “lower
medium price” and therefore is just as capable to inflict devastating, long term effects on the
industry that can bankrupt the competition. A typical high quality, low models strategy is to have
models at 50, 100 or 150 with quality being 5, 6, 7, 8 and in some rare cases (as it becomes
unrealistically expensive to do so) 9 and 10.

The major advantage of this strategy is that it can be used as a long term plan because of its high
quality which allows it to achieve many image rating points in the Financial Industry Report.
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The disadvantage to this strategy is that it does not have many extra benefits in generating net
profit. Therefore the strategy is reliant upon the competition having less money to invest with no
hope of this strategy becoming weaker in the end game.

Low Quality, High Models, and Higher Medium Price

(Lower Right)

A low quality, high model strategy begins to have a slightly harder feel, but it is not overly
complicated. The mix of low quality and high models creates a “higher medium price” which
differentiates itself from the high quality, low models strategy. This is another long term strategy
with models being at 250, 350, and 500 and quality being 2, 3, 4, and 5 star ratings.

The major advantage of this strategy is that it benefits from the 2 upgrades that save the most
money. This is Upgrade B (specifically for high models) and C (specifically for low models).
This makes this strategy the best profit generator based on upgrade potential.

The disadvantage to this strategy is that it will not achieve very high image ratings and therefore
it will suffer more than its high quality counterparts on the Financial Industry Reports.

High Quality, High Models, and High Price

(Upper Right)

A high quality, high models strategy is the most complicated strategy of them all. This strategy
naturally has a high quality and high models which makes the price high. Most often this strategy
has models at 250, 350, and 500 with quality being at 5, 6, 7, 8 and in rare cases (because it very
unrealistic to go higher) 9and 10 star ratings.

The major advantages to this strategy is that it does benefit from upgrade B financially, is able to
achieve all the image points, and is a long term strategy that can be very difficult to break.

The significant disadvantage to this strategy is that it very hard to execute in the beginning, and
therefore will only become a true force in the end game when the strategy is able to take
advantage of economies of scale.

Epilogue

All four strategies have been played and won by me personally. Each strategy has its own
complexities, strengths, weaknesses, and is best played by an individual or a team of managers
who think the strategy would work well in their industry. It is not uncommon to have strategies

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evolve, so if you have a low quality, low models strategy, it would be an option to make a
strategic shift and execute a low quality, high models or high quality and low models plan.
Therefore your corporation will be able to keep up with the market while you are learning the
game and taking advantage of an easier strategy to start. My mini-guide for Year 1 magic
numbers shows a low quality, low models strategy in place.

Create The Foundation With Forecasting

A secret weapon that you can create yourself is having a large knowledge base of the industry.
With this guide you will be given a blank forecasting spreadsheet. It is important that every
round you write down the actual industry numbers and then forecast (usually more competitively
in a worse case scenario style) for the next year. This allows you to be proactive and anticipate
changes in the industry. Don’t think you can get by without forecasting because “the numbers
won’t change”. Not every number will be exactly the same every year; even minor changes need
to be accounted for, between 8 elements and the 4 regions, there can be a noticeable difference
with minor changes. If you make your decisions with static forecasts, the foundation of your
company is already off. Since most people don’t forecast, this is truly a very potent weapon.

The first year of forecasting is the hardest since anything can happen. A good rule of thumb is
bring the values down (just slightly) which is essentially worst case scenario forecasting. So if
the price is listed at $44.50 then put it at $44. The first couple of years may see a lot of dynamic
change in the industry; however, it will eventually level off and the industry should become a bit
more predictable as you can perform trend analysis. This can let you get a feel for what you’re
doing.

The best way to forecast (because you aren’t able to have BSG and an excel document open) is
to actually use Google docs. Just type in Google docs on Google to find it and register yourself
an account; you don’t need a gmail account to use Google docs. This allows you easily transfer
information from BSG onto your excel spreadsheet and vice versa. You are able to import the
demand forecast document that came with this guide onto google docs.

How do I get a high score?

There are five variables which you can attain, EPS, RoE, credit rating, stock price, and image
rating. Each of these variables plays an interesting role on the scoring system in both Best in the
Industry and Investor’s Expectations. Three of the five variables are directly related to net profit,
and the 4th one is loosely related to it. Therefore all decisions you make always look at net profit
to see if it’s going up positively.

Earnings Per Share (EPS) - Earnings per share = Net Profit/Shares Outstanding. To get this
number high, you want to have a high numerator and a low denominator by having high net
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profits and fewer shares outstanding. Your game outlines what the minimum amount of EPS is
needed in every round. Exceeding the amount by 10%-40% gives you 1-4 bonus points on
investor expectations. Because of EPS’s bell curve function in BSG, you’re able to lower the
marks of other teams by having comparatively higher EPS.

Return on Equity (RoE) - RoE = Net Profit/Shareholder’s Equity. You want high net profit as a
numerator with a low shareholder’s equity as a denominator. You do this by having more net
profit, and also buying back shares along with giving out dividends (but not until you have a lot
of money). On investor’s expectations, you will always need a 15% to meet their expectations.
Achieving 16.5, 18%, and 19.5% gives you 2, 3, and 4 extra bonus points on investor’s
expectations. RoE is bell curved, and therefore it is also possible to lower the points of others
while having a high RoE. Beware, RoE is hard to maintain by mature and vastly rich companies
since their shareholder’s equity becomes so large. Keep it above 19.5%, and bank on having
some good RoE numbers at the start.

Credit Rating (CR) - Credit rating is loosely connected to the financial well being of your
company. The amount of net profit you earn, taking into account how much money you owe.
There’s not a direct science to CR because the amount of money you earn and the amount you
can borrow without hurting your CR is proportionate with how big your company is. Credit
rating is unique on Best In the Industry scores; CR is based upon the most recent year. Therefore
you can have a bad credit rating throughout the entire game, and still be marked for an A+ on the
Best In The Industry score. While good to know, it’s not the thing you want to bank on.
Investor’s Expectations play a role on the CR and they want a B+. For bonus points you need an
A-, A and an A+ for 2, 3, and 4 points.

Stock Price- It’s rather hard to determine the exact price of your stock, however if your EPS,
RoE, and CR go up, your stock price is sure to go up too. Stock price is bell curved therefore you
can lower the marks of others by having a high stock price. Stock price is unique on the Best In
the Industry scores; stock price is based upon the most recent year. Therefore you can have a bad
stock price throughout the entire game, and still be marked for all 20 points on the Best In The
Industry score. While good to know, it’s not the thing you want to bank on. Investor’s
Expectations play a role on the stock price, and there is a specific minimum you must meet to get
16 points. For bonus points, you’ll need to see increases of 10%-40% on the base stock price
stipulated by investor’s expectations to get bonus points in between 1-4 points.

Image Rating- Image rating is an interesting component which is primarily based on the quality
you have on the shoes and your market share of the industry. Image rating is bell curved, and you
are able to lower the marks of others by having a high image rating (a key aspect of the top
strategies). Bottom strategies are able to have a high image rating, but they have to bank mostly
on having huge factories that sell all around the world and have a high net profit, it doesn’t come
as easy as a top strategy. Investor’s Expectations need to see 70 point image rating for 16 points,
but bonus points are awarded for 77, 84, 91, and 100 in between 1-4 points.
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Production, Branded Marketing, and Distribution

The upcoming screens act as the main focal point of all happenings in your company. They are
branded production, wholesale marketing, and branded distribution. After forecasting you can
start the round by looking at the first screen, branded production. Very specifically the
production and distribution screens can affect the main forecasting screen; therefore, whenever
you go over these screens, go back to the main forecasting screen and ensure that projected S/Q
and models is the same as achieved. You can see if such an inconsistency exists by going to the
branded distribution screens. Having different forecasts from what your factory is actually
achieving causes a ton of problems if the round goes through It is possible for example that you
have decided to create a shoe that is 1 star quality rating higher than last year, so you need to
change last year’s star quality rating which is a 5 to a 6 to reflect the new direction you are taking
the company. This is a tame example that you incur the costs of 6 S/Q, and you show 5 S/Q,
therefore you’re undercutting yourself. But the worst case scenario is a situation where
something like your models was projected 500, and you changed it to 50 without noting the
change on sales forecast. This leads your company to see all the benefits of having 500 models
and all the low costs of having low models. This isn’t reality, and your company’s projected net
profits are not at all secure. So play it safe and make sure your forecasts are reliable.

Branded Production
Branded Production is the key element where you enact your strategy. You should have already
decided which strategy you plan to follow and what mixture of quality and models you plan to
have. There is also an important page on the FIR report called the Footwear Industry Overview
that has a paragraph commentary on the status of materials usage. Sometimes superior materials
are significantly cheaper in relation to normal materials and vice versa. (This is dependent on
how many of your competitors are using superior or normal materials). With this extra
knowledge, you can decide whether to use more superior or normal material, and take advantage
of specific decreases in price.

1) Choose the number of models.

Low models strategies have 50-150 models. Most often it is better to be more extreme and go
with 50, increasing later on in the game when you want to increase more buyers.

High model strategies have 250-350 models to start with, and then gradually go into 500 models
when you want to increase more buyers.

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2) Now go to compensation and training (We are skipping enhanced styling and features,
superior materials, and TQM/six sigma quality program for now).

Always max best practices training no matter what your strategy. The savings are substantial
overtime, it reduces reject rates, and it’s a flat fee that makes your quality go up.

Play around with the change to annual base and watch the total manufacturing cost below. See
what percentage change seems to lower the cost of branded pairs at the bottom. You’ll need to go
through all 15 changes to see what brings down the cost, over time you’ll recognize what usually
works for you to bring down that cost.

Now do the same for incentive pay. Usually in my experience, about a 0.35-0.4 is the lowest, but
try out everything from 0-0.6 for sure. Anything about a 0.6 usually makes costs higher
unnecessarily.

3) With a base quality set by Compensation and Training (this is often at least a 2 or 3), we
can decide on what quality shoes we want.

Low quality strategies are below 5 star quality ratings and high quality strategies are above
5 star quality ratings.

If you are performing a low quality strategy, play around specifically with TQM/six sigma
quality program and then enhanced styling and features.

Go up by 0.1 in TQM and notice the star quality level and how much it takes to get from one
level to the next. For example if there is a big cost difference between having a 3 star quality
rating and a 4 star quality rating, you can decide if the cost for the 4 star quality rating is worth it.
You must follow this idea for Enhanced Styling and Features which goes by 2.

Eventually for these 2 components you will find a good low quality for the price with the quality
rating of at least 5 or below.

If you are performing a high quality strategy that involves 5 star quality ratings and higher, you
must perform the above steps plus those below.

You will need to monitor TQM/six sigma, enhanced features PLUS superior materials which go
up by 1% to decide on the best price for the best quality shoe you are looking for. Cross
referencing these 3 components is more complicated, and only become wary if you reach up to
star quality rating 8 as it is unrealistic to go below it.

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Look in the box on the next page for more detailed instructions for a systematic approach in
obtaining the right numbers for TQM/sig sigma, enhanced features, and superior materials.

Enhanced/Styling and Features is usually a good spot to start since it’s a flat fee for all models that decide
quality. Press in 50k in enhanced styling and features and note the manufacturing cost, then go all the
way down (by 2) until the quality rating changes from where it was. Once you have lowered the enhanced
styling and features, the star quality rating has changed to a lower number.

Now invest into TQM/six sigma by 0.1 until you raise the star quality rating just as it once was when
enhanced styling and features was 50k. When you eventually change the star quality rating, note the
manufacturing cost again. Compare the 2 costs of simply having 50k in enhanced styling and features
and a mixture of six sigma and enhanced features. Choose the cheapest one and note all the numbers you
would invest into both and the manufacturing cost.

You can then do this process again by lowering the enhanced styling and features until you lower the
quality star rating. After that you can raise TQM/six sigma until your quality star rating is back to where
it was. If there is a cheaper option then choose it. Eventually you will find that old enhanced styling and
features investment and the old TQM/six sigma investment levels gave you the better and lower cost.

When you are done that, you can now introduce superior materials and go up by 1% until the star quality
rating changes with the existing TQM/six sigma and enhanced styling and features. You can further cross
reference the 3 of them by looking at what the cheapest manufacturing options are when comparing
further investment into superior materials against more investment TQM/six sigma and enhanced styling
and features. Eventually you’ll decide upon a good price for your shoes.

You can lower costs by bringing percentage of superior materials used upwards, and six sigma quality
downwards. You can this for enhanced and styling features too.

You’ll need to use all 3 of these components if you want a high quality because you are implementing a
top strategy.

4) The last thing to do is put in the number of shoes to be manufactured in each plant.

Remember to have production maxed at least for normal production of branded shoes. Use
overtime for private label, but it can be used for branded if profits are better in the branded
market. It’s usually never beneficial to use half of your normal production for branded and
private label, or to use overtime for both branded and private label. Only in circumstances where
you have a lot of shoes in normal production and you simply can’t squeeze into branded, is it
possible to put that into private label. Do not use half of overtime production for branded shoes.

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Branded Wholesale Marketing and Internet Marketing

These next 2 marketing screens set out the framework in how you market and price your shoes.
These 2 screens along with distribution tie very closely as they affect each other. Production is
sort of an isolated screen; branded wholesaling, internet marketing, and distribution are very
involved and be prepared to do a little flipping back.

The best way to start distribution is to quickly have a few shoes allocated in reach region. There
are more advanced ways to distribute which we’ll get into later, but for now we just need to
get something distributed to act as the framework. Because this may be one of your earlier
rounds, it’s usually best to use NA shoes and send them to LA first, with the balance going to
NA. Then you can ship shoes from Asia within Asia, some to Europe, and then the last bit to
NA.

The key to this is to have a proportionally equal amount of shoes in each region. You can
determine this by going to your FIR (Footwear Industry Report), seeing what the demand for the
year is and then divided by how many companies are in your industry. If you have less
production than the total amount of shoes the industry can purchase, proportionally make each
region a little less than its potential AND BUY MORE CAPACITY YOU’RE MISSING OUT ON
SALES. If you have more production than the total amount of shoes the industry can purchase,
proportionally make each a little more than what it can absorb..

But now we have to get into the main marketing and pricing aspects of BSG.

Internet

Internet is the best place to start. It usually has the highest mark up, and it’s pretty easy to do.
You need to make sure you have no free shipping, I’ve yet to see free shipping work. Have the
maximum number of models available for sale. Hopefully you have a surplus amount of shoes in
each region that is about the same, therefore all the regions can keep up with one another in the
amount of shoes being sold.

Now it’s time to start changing the price, and usually in the beginning, lowering the price is the
best way to see the most net profits. You can lower the price from 65 to 64.75, 64.49, 64.25, and
64. Just repeat this pattern downwards until your net profit is no longer improving. Sometimes
increasing your prices can be good too, but that’s a little later in the game. It’s not uncommon to
see your internet prices at $55 by the time you’re done. The internet market is the “5th region”,
and you want to excel in it by price penetration.

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Branded Wholesaling

This is where it gets a little more complicated, this is probably the most complicated screen in
the game, but don’t worry; you’ll get the hang of it. The key to this screen is let net profit lead
your decisions, don’t have any feelings of wanting low advertising and low prices or whatever
your strategy is, just do whatever makes the cash.

1) First have delivery time at 3, retailer support at 100, and have the maximum number of
outlets utilized as it appears in purple at the top.

2) Advertise and Price accordingly.

Now note the amount of shoes you still have in surplus or in deficit, you’ll need to play around
with advertising and price to sell all the shoes at the highest price. The key numbers to look at is
net profit and most importantly the number of shoes you have a shortfall on/ or have a supply of.
Advertising is usually best kept around the 15-20k area for each region (although it can be lower
in the earlier rounds). You’ll eventually need to match that with a good price. Keep on increasing
advertising by 1000 until it seems that the demand it generates (look at the inventory surplus to
see how much it’s changing) seems to start having diminishing returns. Now you need to match
the advertising with a price. If you have a surplus/shortfall of shoes, go in increments of about
0.25 (I personally use decimals of 0.25, 0.49, 0.75, 0.99 as the increments) to make the inventory
close to 0.

If you have a shortfall, you can increase the price by increments while watching the shortfall go
closer to 0 and see the net profit increase.

If you have a surplus, you can decrease the price by increments while watching the surplus go
closer to 0 and see the net profit increase.

3) Look at the other variables to augment it.

For surplus inventories and advanced ways of marketing, you can use rebates to help pull in
customers. Increase rebates by $1 and see if it greatly increases demand, on average $3 to $4 is a
about right for most cases. You can also increase retail support to get rid of more shoes, but this
has a marginal effect. You can increase retail support by $100 and see how it affects net profit,
although about $300-$400 is all that is required to make use of retailers.

Both of these 2 options are to increase demand which puts the shoe inventory into a shortfall and
allows you to raise the shoe price a little bit more. You must look at the net profit and see if it
significantly helps. To make sure you have a correct decision, look at lowering the amounts of
rebates and retailers and see if money can be saved because the added investment isn’t creating

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very good demand. In that case you may need to lower price and see if you have a higher net
profit.

I’ve yet to see delivery to retailers be profitable at 1 and 2 delivery times. But you can also try
increasing the delivery time to 4, which allows you more shoes to market, (since the company
has more time to allocate them) and you can try reducing price, rebates, and retailers to see what
is most profitable. This is the last step of really fine tuning your decision.

It is a very complicated screen which requires you need to change around a lot of variables,
mostly focusing on advertising and price. But it’s really rewarding to see your net profits go up
substantially as you see how different ways of marketing your shoes make it more profitable for
the company.

When this is done, you should see the operating profit margins of internet and wholesale. They
should all be healthy, internet being usually more than wholesale, and the wholesale markets
themselves having healthy profit margins. You may see a huge discrepancy between a region’s
profitability, such as $8 in Europe, and $17 in Asia. This may be due to distribution inefficiency
and requires that you to take some shoes out of the lower profitability region and place them into
a higher profitability region. Then you need to redo the steps for wholesale marketing, this
shouldn’t happen too often if you did everything else correctly.

Branded Distribution

This is probably my most favorite screen because it shows how distribution makes a huge impact
on net profit. This screen follows a lot of rules. But the overall theme is to send shoes to the
correct region with the least amount of costs while balancing out the demand for shoes.

1) The first and foremost rules are tariffs.

Unless your instructor has changed it, these are the rules which you need to remember.

NA receiving has no tariffs from imported shoes.

Europe has a tariff of $4 of all imported shoes.
Asia has the highest tariff of $8 for all imported shoes.
LA has a tariff of $6 of all imported shoes except for NA which means no tariff.

These rules give the groundwork that your existing plants and distribution warehouses should
abide by. It is best to send NA shoes to LA because Asian shoes would incur a huge tariff. This
leaves the main Asian plant to supply shoes to Asia, Europe, and possibly North America. These
tariffs should also play a role in future expansions since you may want to strategize which
factories should ship to which region.

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2) The second rule to keep tabs on is exchange rates.

When you look at the exchange rates in the corporate lobby, you can see the impacts on revenues
and costs. Your distribution decisions will most likely be influenced by the tariffs. However, if
there’s ever a change in the tariff rules or you need another factor to help decide something,
exchange rates act as the tie breaker. And of course it is always smart business to know what is
going on in the industry.

Remember, all revenues come back in North American dollars. If you look at the exchange rate
revenue impact for Europe, Asia, and Latin America, you can see the percentage changes
positively or negatively. You want this number to be a high positive number because it helps
revenues, if for example the percentage in Europe is 11% that means all revenues from Europe
have 10% extra through exchange rates. Therefore, $10 of revenue has become $11. If it was a
negative 10%, that means a $10 revenue has become $9.

This becomes even more complex when looking at the cost of pair shipped from different
regions. You want this number lower because it represents costs. You can see what is profitable
from a North American shoe being sent to Latin America. If this number is -10%, this makes
costs of $10 become $9 for shoes in North America going to Latin America. Vice versa, a +10%
makes a cost of $10 become 11 from shoes in North America going to Latin America.

These 2 sets of rules, exchange rates and tariffs, act as the guiding force of how distribution is
done.

Mitigating the Risks

The Private Label Market

Branded production acts as the mainstay core of any company. However, to truly exert power
and get ahead in the industry is through the private label market. View private label as the
battlefield of the game, winning the bids in private label gives you the edge and can also defeat
other companies as they don’t end up selling their shoes. However, not winning in private label
is part of the risk and in doing so can hinder a company severely.

Private Label has a little to do with the production screen and distribution, it’s like its own mini
BSG as it allows you in to produce, price, and distribute your shoes.

1) First off you need to put as many shoes as possible to be produced in private label.

Then you can start shipping them to some region. Similar to the distribution rules we learned
earlier. Exchange rates play a factor in private label in how you distribute.
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And tariffs work the same way unless otherwise stated by your instructor.

Usually I’ve seen North American overtime being used for North America, and Asian overtime
for Asia.

However, the PL for Europe and Latin America can be approached by creating 2 new plants in
those regions worth about 1000 (plus 200 in overtime) capacity to start with.

2) Second, for overtime production in factories producing branded shoes, bring your
enhanced styling to 25k and keep on going down until you can not meet the minimum S/Q
rating.
Now start putting money into superior materials by 1% while continually bringing down
enhanced styling by 1 and try to find the lowest cost for the pairs you are producing. You need to
find the right balance of S/Q and enhanced styling. It is possible to not need any superior
materials put in and that the existing set up is best to just invest into the enhanced styles. This
whole process of finding the right numbers is very similar to what we practiced in both
wholesale marketing and branded production, so therefore you should be well practiced now in
finding the right numbers.

3) Remember you need to price your shoes so they will sell given the demand and supply of
PL market.

The last thing to do is price out your shoes which involves going into the competitive
intelligence reports and seeing what prices others are selling their PL shoes at.
Look at how many pairs were being offered last year in the competitive intelligence reports and
see the demand of the current year on the PL screen. If the average shoes seem to be selling at
$25, you may want to price your shoe at $23. Remember your prices for Private label shoes are
not guaranteed and merely pending.

4) There are two powerful PL strategies that can break and make companies.

The first of the advanced strategies is flooding the market with cheap PL shoes; therefore no one
is able to sell any shoes. This requires you to have a large factory (let’s say LA) which only
produces PL shoes. The LA factory is able to cover both the NA and LA markets without any
tariffs and is able to lower the costs of PL beyond what any other factory can do. This allows you
to make a good profit, and undercut people where it hurts the most.

The second of the advanced strategies is to have a few PL shoes that can go in a market where
the supply isn’t meeting the demand. This allows you to take advantage of the low supply. In this
scenario you can price your shoes to the highest level (At least $5 beneath the wholesale price).

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This lets you have a huge mark up on your shoes and since there is a low supply, you get away
with it.

Supplementary Screens

Corporate Citizenship

In Winter 2009, Corporate Citizenship was the first new decision screen I’ve seen in over 4 years
added to BSG. The screen serves a very useful purpose underneath the “glorified” gold medal for
being a socially responsible company. The gold medal though doesn’t win games and doesn’t
affect your mark (unless your professor really respects corporate responsibility). So going for the
gold doesn’t pay very good dividends.

But being a socially responsible company does give a slightly higher image rating. Being a smart
company that postures itself with a environmentally friendly image, but is really just hiding
dollars will help you gain a couple image points without putting anything at stake!

Below are my personal opinions about the Corporate Social Responsibility options:

Use of “Green” Footwear Material

This option knocks off about $2000 off your net profit so therefore I choose a NO for this
selection. This option would be “ok”

Use of Recycled Boxing / Packaging

This option knocks about $1000 off your net profit, this option is not bad, but is not great.
Depending if you need image points this would be another way to get it, but overall this is a NO.

Energy Efficiency Initiatives

This upgrade actually costs $10,000 out of your cash account, and no net profit is affected. In
effect what happens is that you reinvest $10,000 back into the company with no ill effects on
your performance rating. On top of that it depreciates the equity side of the balance sheet which
helps your return on equity ratio in the future. Your return on equity is hard to keep up because
over time, your equity should be very substantial, and your net profits aren’t rising the way they
use to be. This is an option to MAX OUT.

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Charitable Contributions

This is the worse of the 6 options; it can kill your net profit. This is a no, unless you’re crazy and
you want that damn gold medal.

Ethics Training / Enforcement

This upgrade is rather interesting, it lowers net profit by about $200 for managers and about
$500 for all employees. Those are really small amounts to get this upgrade and say you have
good employee training, I take this upgrade myself.

Workforce Diversity Program

This upgrade lowers net profit by about $500 and is once again a fairly cheap option to obtain to
make you “socially responsible”. I personally take this upgrade.

With the above guidance, your company has probably invested a bit more $10,000 into social
responsibility and can say you have 3 of the 6 options. A measly $1000-$2000 is taken off your
net profit, but instead if you do this every year for several years, your image rating will rise.
Depending on the industry and your company’s size, if you do this for 10 years, you will
accumulate about 12 image points for more or less reinvesting back into your company and not
affecting your bottom line.

Plant Capacity and Upgrades

This screen buys and sells plant capacity. In almost any circumstance, never sell capacity, (you’ll
nearly always regret it).

As well it is good habit to be there right when the round ends, so you quickly see what used
capacity is available. Used capacity is important because it’s 25% cheaper and is available the
moment you buy it.

After that you can initiate most construction of capacity on this page. What works well is to enter
the PL markets and begin construction of Europe and LA plants in the second or third year. The
smaller the plant, the less upgrade costs for it, therefore it’s good to get small plants in Europe
and LA, upgrade them, and expand them, thus allowing you to take full advantage of a cheap
upgrade you bought when the factory was small.

Update
In the Fall of 2009 I noticed that BSG now insists that you “justify” capacity to
the Board of Directors to show that buying capacity is a sound business
decision. BSG Central has implemented this screen most likely because too
many people don’t think about how much capacity they are buying. The screen 16
itself is a weak safeguard to prevent the inevitable, if someone thinks buying
5000 capacity is good, they’ll do it.

For those people who are intimidated by ddthis screen, don’t be. Make up some
nonsense to get past it and build the capacity you want or use it as a tool, but
don’t take it seriously. If you need more help, just input the numbers in the chart
below and if they don’t work, email me at admin@bsgtips.com.
Conquering The Competition 17

Asssumptions Optimistic Case Expected Case Pessimistic case

Capacity Utilization 100% 100% 90%
S/Q Rating 5 5 4
Number of Models 500 500 350
Selling Internet 65 60 50
Selling Wholesale 55 50 40
Marketing Internet 7 6 1
Marketing Wholesale 7 6 1
Portion financed with debt 50%

Choosing an upgrade that compliments your strategy is very important. Each upgrade does a
variety of actions.

Option A- Reduces Reject Rate by 50%. This shines the best in second world countries like
Asia and LA because they have the highest reject rates. After that, this option is fairly good
for all strategies because it scales with the size of your plant. This is also a fairly cheap
upgrade to attain too.

Option B- Reduces Production Run Set Up Costs by 50%. This is the most expensive
upgrade which works in its disfavor. This upgrade would theoretically work the best with a
high model company that has a lot of models and has a very high payout (which
unfortunately does has a cap unlike Option C). However, if you want instant savings, have
high models, and plan to stay there this would be a great upgrade to get.

Option C- Boosts S/Q Rating by 1 Star. This is the best upgrade of them all given its very
specific strategies. All companies that are low quality would benefit from this upgrade the
most; it has the potential to save the most money out of all the upgrades when it is utilized.
It is useless for high quality companies though and is also the second most expensive
compared to upgrade B. However, utilizing this upgrade brings in much higher returns for
low quality strategies.

Option D- Boosts Worker Productivity by 25%. This upgrade works the best for highly
developed nations with an affinity of being very productive, this includes NA and Europe.
It is a fairly well rounded upgrade which would serve all strategies which scales well in the
end game and is also fairly inexpensive.

Each upgrade has a purpose, but some work well for a specific strategy. If you want to get a well
rounded set of upgrades, choose A and D, they are quite generic and will work with any strategy.

For specific strategies here are the upgrades you can use.

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Low Quality, Low Models, and Low Price- Option C for all plants, Option A for Asia and LA,
Option D for NA and Europe.

High Quality, Low Models, and Lower Medium Price- Option A and D for all plants.

Low Quality, High Models, and Higher Medium Price -Option C and B for all plants.

High Quality, High Models, and High Price- Use Option B for all plants. Option A for Asia
and LA, and Option D for NA and Europe.

Private Label Plants-Plants that are strictly for private label seems to do well for sure with
upgrades A and D.

Celebrities
It’s important to have a few celebrities sponsoring your company, but even more important: pay
a good price for them. Like private label, it’s hard to determine where the prices may be, so
there’s no set rule for this. You simply just need to gauge how prices are going in general and
maybe bid a $1000 more. Trying using obscure numbers at the end to throw people off, don’t
have a straight 4500 for a bid. It’s more confusing to see a $4576, and this helps keep people
guessing. Don’t bid insanely high at the start, something beneath $5000 is usually sufficient,
usually around the $3500 mark.

Bid for all the celebrities competitively, if you take all the celebrities away from your
competitors, the better off you are. Once you pass the 400 celebrity appeal mark, diminishing
returns set in then. Past 500 celebrity appeal, and it’s all worthless. To help manage the bidding
of celebrities you can use that nifty feature that puts a cap on spending.

Finance and Cash Flow

The last screen to go through is the Finance one. To help get a feel where you are financially, go
to your company operating reports for the year and go to the balance sheet and cash flow tab.
There if you scroll down, you will see all of your loans outstanding at certain interest rates.

Loans

Going back to the finance screen, you may consider refinancing certain loans by paying one off
and refinancing it into a lower interest rate loan. You can check current loans on the company’s
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balance sheet. In terms of which loan is the best, I know it’s best to simply get the 10 year loan,
while it has a slightly higher interest rate; you can borrow a lot more money without damaging
your credit rating. Whenever you make a large purchase and need a way to pay it off, use the 10
year loan. Only use the other 2 loans if the amount is small and the company is able to pay it off
within 1-2 years.

Stock

One of the first things you want to start doing, especially in the first round, is to start buying
back stock. If you followed this guide properly, you will have a net profit much higher than in
year 10 of the game (first round), and your stock price will definitely go up. It may be the best
idea to simply by buy all your stock ($45 x 2500 shares outstanding=$112,500). In the long run,
this is a small amount and your stock price may never be so low again. The immediate effects of
buying back stock is quite visible on the scoring systems, your return on equity immediately goes
up, your earnings per share goes up, and it helps your stock price skyrocket too. Point wise, this
is the single most dramatic thing you can do to get yourself on top.

Update 2011

BSG no longer allows to buy back all shares at the start. You are only allowed to repurchase 100.
This is of no consequence, but now you need to buy back every single year.

Dividends

During the time your company is starting out, don’t issue dividends. As a growing company,
you’ll need all the money you can get to reinvest in your company. A company that never issued
dividends looks better than a company with dividends decreasing every year. Only mature and
rich companies should issue dividends.

An end game strategy for the final year is to release a dividend. Do not exceed the EPS amount
or it will have adverse effects on your stock price and credit rating. The good news is that during
the final year, most companies would have paid off all their debt and bought all the capacity they
would ever need. This leaves you with cash without much of a purpose. Issuing a dividend takes
money out of the retained earnings account which lowers shareholder’s equity.

In the formula RoE= Earnings/Shareholder’s Equity. By lowering equity, you would increase
your RoE, which is a help to you at the end.

The Financial Screen really is that simple, purchase lots of stock, pay off your higher rate
loans as soon as you can, and issue dividends when your company has money.

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The Strategic Plan (Instructor’s Choice)

Strategic plans are pretty simple if you have a good company and a sharp understanding of how
this works. You need to go through the hoops of making a mission statement and describing your
company in terms of corporate strategy terms (high differentiation, etc).

But you’re actually marked on the values you put in those boxes and how your company
achieves them. For plain 16 points, or an 80% across the board, you can put in the investor
expectation values. But to be better than that, you’ll have to go a step higher in some areas.

EPS- To get 18, 19, and 20 points for EPS, you need to achieve 10%, 20%, 30% gains on your
current EPS. And then you have to sort of forecast for the future of where your EPS would be. A
very conservative way to do it is to put the 10% values for each succeeding year since it’s easy to
accomplish and gives you the most “bang for your buck”. So if your current EPS is $10, the
following year would be $11, a 10% increase would make it $12.1 (11x1.10=12.1).

RoE- If your company is doing well and has a RoE above 19.5%. You can put 19.5% for every
year and get all 20 points easily. If you can’t make the 19.5%, ask yourself, can you make 18%,
16.5%, or at least 15%? These scores get 19, 18, and 16 points. Then put in the value that you
think is most attainable.

Credit Rating-If your credit rating is already an A+ and you have little debt with high earnings,
you can put +A all across the board and get all 20 points. If it’s not, or you see trouble in the
future, what is the most attainable in terms of A, A-, or at least a B+? These credit ratings are
matched once again with 19, 18, and 16 points. Unlike RoE though, if your company is gaining
ground, Credit ratings usually improve.

Stock Price- Like EPS, to get 18, 19, and 20 points for EPS, you need to achieve 10%, 20%, 30%
gains on your current stock price. And then you have to sort of forecast for the future of where
your stock price would be. Stock price is the hardest to predict, but the most conservative way
would be to put 10% values for each succeeding year since it’s easy to accomplish and gives you
the most “bang for your buck”. So if your current stock price is $100, the following year would
be $110, a 10% increase would make it $121 (110x1.10=12.1).

Image Rating- To achieve 18, 19, and 20 points, you’ll need to see image rating at 77, 84, and
91. Choose approximately what seems to be achievable by your company, and you can safely use
that as the across the board value. Bottom strategies are able to get as high as 84 points if played
out well with large market shares.

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All that forecasting nonsense at the end of the strategic plan is just to “prove” how you’ll do it,
sort of a tool. It’s not really anything important, so just throw in some numbers that “seemingly”
make your strategic plan work, so the instructor thinks you went through the hoops.

Business Strategy Invitational (Student Choice)

If in the event you are the highest scored company in your industry, you will have a chance to
enter the Business Strategy Invitational (BSI). The BSI lets the top students of all the schools
compete against each other, it’s a voluntary bloodbath. Since the BSI is totally optional to
students, everyone playing in the BSI means business. As well the founders of BSG throw in
new tricks that you may not have seen. It’s usually based on public policy as every year has new
bulletins that change around the rules. Here are the bulletins I had in the BSI, knowing what may
lay ahead gives you a distinct advantage.

Year 12
For Senator Philip Buster of Texas, 2008 is an election year. Most of the athletic footwear
manufactured in North America comes from plants in Texas, so Senator Buster has just
introduced a bill in the U.S. Congress that would levy a tariff on athletic footwear imported into
the U.S. from Asia-Pacific.

Senator Buster is asking for a $6.00 per pair tariff, but many of the more free-trade-oriented
congress men and women want a lower tariff or no tariff at all. Senator Buster is a personal
friend of the President of the United States and it is believed that this friendship may influence
the final decision. A decision on this issue will not be made until after Year 12, and all North
America countries are expected to follow suit.

Year 13
The tariff on footwear imported from Asia-Pacific and Latin America to North America will
indeed be $6.00 per pair in Year 13. Analysts are not sure if this change was just election year
politics and will be reduced in coming years, or if it is perhaps more permanent. More news to
come at the end of Year 13.

Year 14

No announcement

Year 15
As footwear production is moved to plants in regions where labor costs are lower (namely Asia-
Pacific and Latin America), analysts expect reject rates in those plants to increase significantly.
The industry has more production capacity then needed for the next few years, and the
oversupply of shoes has had an impact on profitability industry-wide. Analysts suggest that
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some companies should sell-off capacity that they really do not need.
BSI administration will keep a close watch on projected company performances over the next
few years, paying special attention to companies purposefully losing money in markets or
regions just to gain market share. There is no glory in gaining market share at the expense of
shareholders, and your company’s Board of Directors will not hesitate to step in if necessary.

Year 16
European governments, concerned that few footwear-making plants have been constructed in
Europe-Africa have agreed to offer an incentive to athletic footwear companies for building new
capacity in the region. Effective Y16, the cost to build new or expand capacity in Europe-Africa
is reduced by 50% over the standard construction/expansion cost. European governments will
cover the other 50%.

Year 17
Sky-rocketing fuel prices have resulted in increased costs to ship footwear. Effective Year 17,
the shipping cost within a region is $2.00 per pair and the shipping cost between regions is
$5.00 per pair.

Year 18
Plant supervision costs in Asia-Pacific and Latin America have increased from $2,000 per
worker to $3,000 per worker, effective immediately.

Year 19
Asia-pacific and Latin America governments are well aware of how profitability in the global athletic
footwear industry as improved over the last few years, and expect profitability to improve even more in
coming years. It is their belief that much of this is due to the fact that most footwear-making capacity is
located in A-P and L.A. where labor costs are relatively low. Believing that footwear workers in A-P and
L.A should participate in this improved profitability, governments in those regions have increased the
minimum wage (annual base pay) to $4,400 per worker, effective immediately.

Year 20
As we move into the final year of the competition, please remember to continue to run your
company in a realistic and business-like manner. Companies left unattended and/or companies
entering wild, end-game decisions (designed to torpedo rivals rather than enhance their own
company performance) are subject to removal from the competition without notice.

Best of luck to all in Year 20.

The nature of the rule changes in the BSI made shipping from Asia to North America
unprofitable. It made more sense to be a multi-domestic company with plants all over the world.
In the BSI, the best advice is to be very cautious and be ready to be really flexible. Everyone
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who enters the BSI won the game at some point in time and has chosen to be there, it gets really
messy quick.

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