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

Firms in this sector included giants such as Bata and servis  Informal sector has the big market share of about 80 percent. Firhaj. Epcot.  Sales Tax Small manufacturers prefer not to grow too large. During 11 .  Government Policy has big influence on the large players of the footwear industry through their import and export policies and duty rates.BUSINESS STRATEGY BATA PAKISTAN LTD PAKISTAN FOOTWEAR INDUSTRY:  Pakistan has a large footwear industry.  Exports About dozen firms are involved in the exports but only Servis. Bata. resulted in 6% annual GNP growth. Germany.  Tariff Duties Both tanneries and the footwear industry earned more from the Government deregulations which decreased tariffs on imported equipments and raw material.000 pairs per day. 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. was comprised of over 17.  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. It had a footwear market of above 150 million pairs per year. making quality finished leather widely available to footwear manufacturers. together with the afghan war. Shafi and Rajex participated regularly in the major annual footwear exhibitions in the Dusseldorf. each with the average of two employees.  In Pakistan footwear industry can be divided into two sectors formal sector and informal sector  Formal sector consist of about 500 small manufacturers.000 units. each producing from 500 to 40.  Market Size The number of tanneries tripled during 1981-1991 from 180 to 509.

 In Pakistan 1942 Bata establishment in Batapur plant. 6300 company owned retailed.000 franchised.000 independent dealers.  1987 Maraka factory 350 employees. 40. COMPANY BACKGROUND:  The Bata shoes organization establishment in 1894 by Thomas Bata.  In 1984 another factory at the Maraka branch. 11 .  In 1988 another small factory. Australia.  1987 discontinuous the production of tires and tubes due to the loss.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.  In 2002 Bata shifted to Canada with head quarter was the largest in a Canada. trannies in 95 countries. 1. Different processes used in manufacturing like labor intensive and capital intensive.  Bata international Group (BIG) headquarters included South Asia countries. New Zealand and Africa.  During 1980s the negative environment impact from Government and Bata headquarter on tannery operation. MANUFACTURING:  Footwear manufactured by Bata is grouped in to six main categories.  The company had a network of 75 shoes factory.2 million pair of leather footwear. 10. which is primarily based on manufacturing technology and material used.

specialized equipment and stable demand produced in-house with-in 12 months planning cycle and 6 months planning is required to outside orders. MARKETING: 11 .  Reasons of outsourcing by Doug Hearn’s MD: • Media revolution in 1990 resulted in increase awareness for great variety. Plans were made for two season’s winter which is from October to March and summer is from April to September.  Decisions to outsource any product line or produce in-house are based on many considerations. the workmanship and the material used…then visit factory to evaluate equipment and worker skills…at the end Bata try to try to match ABU with our SKU.  According MD of Bata the suppliers want to get as many SKU’s 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.BUSINESS STRATEGY  Bata has 1500 Stock Keeping Units (SKU) in which almost 66% percentage is outsourced which is called Associated Business Units (ABU). Product lines with higher volumes. to attain that Bata increase its SKU’s from 400 to 2200 and because of this Bata production cost and defects rate went up and productivity decreases.  Supplier selection approach: ask for sample of shoe products…then we check quality. This will decrease cost as 27 persons need per machine but on new machine on 2 people will be needed. That was the biggest reason to increase outsourcing. • Another one is because government applies 15% sales tax on formal sector of footwear industry. So in that way we can help our suppliers by providing training.  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. expertise and technical assistance.

BUSINESS STRATEGY  In beginning Bata divided its markets in two segments Category B and C to cater the needs of upper middle. some furnishing. middle and lower middle class and afterwards added Category A which fulfills the needs of upper class. and C. inventory plus rent is the responsibility of company and employees get commissions. commissions. expenses are 28% includes fixed salaries. inventory and the agency is only responsible for operating expenses against which Bata pays 14 to 16% commission on every sale.s are in less stock. Finally K-scheme stores are started in 1994 to employed ex. Within Category A stores different Concepts stores were introduced in 1984 like power store in which sports goods. RETAIL DISTRIBUTION:  Retail department operated through 256 company-owned stores. managed and run by company employees. An agency close to company-owned stores it carried only Bata brands.  Bata marketed its shoes through three main distribution channels: Retail. B. Company-owned stores owned. game accessories are stocked and there were 7 stores present till 2002. these stores carries all types of SKU’s but inexpensive SKU. utilities and rent. this is like leased store in which utility.  Bata targets almost all the segments of Pakistan in-terms of classes.  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 . 91 agencies and 25 K- scheme stores in 2002. Bata provided shoe racks. 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.  Retail outlets divided into four categories A. Category A stores caters the need of higher class of customers who preferred premium shoes. it carried 42% gross margin.Bata managers and salesmen. 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. Wholesale and export.

is much higher in wholesale than in retail.  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.BUSINESS STRATEGY pressurize Bata that they will become independent stores. MERCHANDIZING: 11 . He suggests that district manager must visit stores at-least once in two weeks. Rs 114 to 674 million from 1998 t o2001. • Another manager said that retail comes from personal commitment. agencies and registered dealers which are present in their geographical areas. And another things he said Bata should give them standard operating procedures (SOPs) and do not change them seasonally. registered dealers and distributors. To remove this Bata change the policy that now agencies will be responsible for expenditure regarding racks and fixtures. 550 Registered dealer bought shoes from 23 company own depots. So Bata adjusted this in 2002 as it is because of less sales and now Bata start marketing of its premium brands. 7 Distributors serve the need of all un-registered dealers. in that way they will motivate to work hard.  Trade debt increased because of credit to the distributors. WHOLESALE DISTRIBUTION:  Wholesale department operated two main channels. 4 in whole while 2. 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.5 in retail.  Stock turns that is defined as annual sales/average inventory level. While talking about the agencies of Bata he suggests that Bata should tell them to invest in their agencies as McDonalds franchisee do.

UMER group and FIRHAJ Footwear. Bubble Gummers and Weinbrenner. SHAFI group.  Design in multiple sizes treated as single SKU’s but a design in multiple colors is treated as multiple SKU’s. Department has three brand managers and under that four officers. we will grow distribution and marketing and specialize in manufacturing and increase outsourcing.  Bata aim to cater upper and middle class and its main customer is family with four children. Bata strengths are its network of retail outlet.BUSINESS STRATEGY  Merchandizing department act as a liaison between sales. BRANDING:  Bata strength is its brand name but it does not that power that Bata can enjoy brand premium.  MD comments on merchandizing: • Distribution is the real business. Marie Clarie. purchasing and advertisement departments. • • • There is a lot of opportunity in women sector and Bata needs to explore this sector.  SERVIS 11 . WOMEN Fashion Shoe Store and Main competitor which effects all the foot wear industry in Pakistan is imports from CHINA. Power. And it has no head-on competition with Servis as it only caters upper class. factory. brand name and human capital as it invest in training. We want to develop our work-force which is more dynamic and goal-oriented. COMPETITION:  Competitors defined in this case study are SERVIS.  In beginning Bata expanded its brands from 4 to 40 but now it cut down it to 5 global brands that are Bata.

BUSINESS STRATEGY • Servis group established in 1950 and has 236 companies owned outlets and 24 franchisees. In women sector trend is changing very quickly as normal design cycle is 30 to 45 days. • After that Bata get the license of Hush Puppies brand. Milli etc.  CHINA: • During 1990 China emerged as largest player in global shoe industry. To both China is a threat that would affect Srevis and Bata sales badly. 30 independent franchisees and about 100 SKU’s. This also facing same problem of China industry. of brands are present like Stylo. 11 .  SHAFI group: • Shafi group begin in 1940 and by 2002 it owned eight manufacturing units of leather garments and footwear. ECS. It starts to open outlet where Bata opens a store.  WOMEN Fashion Shoe Store: • • There are large no. Servis carried higher price of shoes. • In 1998 Safi opened an outlet under brand name of urbansole.  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. Metro. • • Compared to Bata. • By 2002 it has 10 company-owned concept stores. there are 7200 enterprises are present and its production represents 5% of world production.

HUMAN RESOURCE MANAGEMENT:  Bata Managing Directors’ are appointed by Bata headquarter Canada. almost 25 stores in one market of Lahore where Chinese shoes sold. • • Strong in marketing MD focus on the Brand and building our brand equity. Chinese workers are very much committed to their work and all labor laws in China is more favorable than Pakistan. • Chinese shoes prices are so minimum as compared to brands of Pakistan and it badly affected the man’s shoe market. 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.  Doug Hearns was the fifth MD since 1981. High operation experienced MD tries to improve production process and introduced new line and design. Every new MD brings in his own management style and area of focus. 11 . • Chinese productivity is several times higher than Pakistani market. • • • • 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.BUSINESS STRATEGY • Chinese shoes are widely available in Pakistan market.

through a process of natural attrition as employees tried. 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.  BATA INCENTIVES TO EMPLOYEES: • • • • • • • • • Bata traditionally had encouraged retention of loyal employees. Gratuity sachem. Annual bonus. Provident Funds to which both employees and company contributed 7% of salary. Extensive housing sachem in Batapur Lahore.BUSINESS STRATEGY • Employee’s cases are not solved in urgent basis and due to this reason company gain loss. Senior managers had served for over 20 years.  DOUG HEARNS COMMINTED: • • Average age in merchandising is decreased to 50yrs to 30yrs. In 1990s Bata had gradually allowed the number of employees to decrease. Children scholarship programs. Subsidized canteen facilities. • We adhere all government rules and policies and honor to commitments made to its labor union. In 1990-2002. FINANCIALTREND of BATA PAKISTAN Ltd: 11 . 30% employees decreased from Batapur plant and 32% increase in Maraka Factory and overall 25% decrease.

51 0. After that Bata profitability started to improve as in 2000 and 2001 its probability was 46.38 50 12.49 0 1979 -50 1980 1981 1985 1990 1991 1995 1997 1998 2000 2001 20.49 to 38. We see that from 1979 to 1985 Bata profitability is increasing day by day that is 12. 11 .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 -124.22 26.BUSINESS STRATEGY 100 68. There is a mix of economy.95 38.53 and 68.01 46. Bata only have two to three of crisis in its portability history.32 24.34 -150  Above graph tells the Bata profitability trend from 1979 to 2001.  We see healthy trend of Bata shoe profitability since its existence.53 34.38 respectively. premium brands and they should compromise of men’s.69 -100 -124.23 25. STRATEGIC OPTION:  Dougs Point of view: • Manufacturing: Product line should be outsources up to 70% in future. women and children shoes.34 profitability its main reason is its misstatement of debt. Regarding distribution Dougs suggested that it should be more company owned stores and also there is mix of retail and wholesale channels.

 When talks about company competitors we find out that Servis and Shafi group are main competitors of Bata in Pakistan.  The wholesale distribution of Bata is quite well but they have to decrease to give stock on credit.  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. 11 . the change is good but upper management should follow the same goal.Scheme stores management.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.  When we talk about the Retail channel of Bata then Bata should increase their company owned stores.  Bata HRM problem is that they are changes its MD after every 4-5 year. but china footwear industry is the biggest threat to Bata. decrease their agencies and should improve their K. As Servis upper management focus in the same goals because they have same management from decades. Bata should take steps to tackle with this problem by working on its manufacturing processes and improve its material.

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