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Bata India Limited
Bata India Limited
Bata India Limited
Bata India Limited
Bata India Limited
Bata India Limited
Bata India Limited
Bata India Limited
Bata India Limited
Bata India Limited
Bata India Limited
Bata India Limited
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Bata India Limited

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internal and external analysis of BATA India Limited as well as reason for not performing good despite new positioning. strategy for better performance

internal and external analysis of BATA India Limited as well as reason for not performing good despite new positioning. strategy for better performance

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  • 1. BATA INDIA LIMITED<br /> Repositioned <br /> Or <br /> Still a Foot weary<br />Presented by- <br /> Yugesh Kumar dubey (8279)<br /> Vinay Singh (8272)<br /> Vinay gupta (8271)<br /> <br />External environment<br />We have analyze various external environments from case as well as from outside source-<br />Industry environment- <br />Threat of new entrants-<br />There are many barriers to entry preventing new entrants from capturing significant market share. Large footwear producer enjoy economy of scale that create cost advantage over any new rival.<br />BIL differentiated it’s product from rivals product like Comfort (using dynamic spring pad that acted as cushion on the feet for women’s footwear), Wind (in build air technology that allowed feet to breath fresh air) etc.<br />The capital requirements are a high entry barrier to a new firm to the industry. However, an existing shoe manufacturer may enter the athletic shoe industry simply by re-tooling their manufacturing plant.<br />Switching cost is very low for footwear industry because shoes are relatively inexpensive personal goods that are frequently replaced.<br />Access to distribution channel is barrier to entry because it is really difficult for a startup firm to get shelf space at major shoe retailer. But existing firm may use their existing connections to easily access shoe distribution channel.<br />Bargaining power of buyer-<br />Bata was largest player in industry with 9-10%volume share and 60% market share in organized segment. It had a market share of 70% in canvas shoe segment and 60% in leather shoe segment. Their dominant market share give them power over buyer.<br />Bata is a big buyer of raw material who buys significant part of suppliers’ revenue. This in a way provides good bargaining power over suppliers.<br />As a part of its strategic decision Bata set up a rubber/canvas factory in Faridabad, Haryana in 1951. So it can threaten it’s supplier to integrate backward.<br />Bargaining power of supplier-<br />Shoes are made of leather, rubber, nylon etc. These materials could be classified as commodities, where the manufacturing process adds the value. For this reason supplier have limited bargaining power over buyers.<br />Threat of substitute product-<br />Consumer switched from one product to another if alternatives are available in same quality and performance range and have competing price or lesser price.BIL produces 10% of total hawai ranged from Rs. 35-110 while competing local brands were selling at Rs. 25-50.Again when global trade open then market flooded with many international brands having variety and competing price.<br />Rivalry among existing firms-<br />Mostly numbers of competitors are stable, especially because of high entry barriers. This adds to the rivalry among existing firm. Manufacturers watch each other carefully and make appropriate countermove to match the competitors move. Leading competitor of BIL are Lakhani shoes, liberty shoes, action shoes, woodland, paragon and relaxo in organized segment. <br />CompanyYear endedSales (Rs. Cr.)EPS(Rs.)Bata IndiaDec 2004698.512.2Lakhani IndiaMar 2004109.61.6Liberty shoesMar 2004177.215.9Mirza tannersMar 2004174.69.9Relaxo footwearsMar 2004200.74.4<br />Source- capital market dated April 25-may 8 2005<br />General environment-<br />Demographic- Indian market is highly fragmented between rural and urban market. Rural market was large at approximately 70% of the total market but was dominated by multiple medium size regional players and serviced through traditional independent dealers.<br />Political/legal environment-<br />Industry is governed by central by Central Excise and Custom, Factory act and Labor Law and Environmental control acts.<br />Council for leather export, Central leather research institute and Footwear design and development institute were promoting industry for special purpose.<br />Political unrest, cross border unrest, terrorism in and out of India has direct or indirect impact on industry. <br />When quantitative restriction was lifted from import then industry slowed down from 20 % (in 90’s) to 8-10 %( in 2004). <br />Increase in excise duty led to increase in cost of footwear (1993-94, excise exemption was withdrawn from shoe costing below rs. 200 and hence price went up by 20% and this led to drop in profit from 20 crore to 95 lac within a year).<br />Tax holidays for period of 10 years on full excise duty and income tax and a subsidy on sales tax, land/building and plant/machinery was given by state government of Himachal Pradesh, Uttaranchal, Jammu & Kashmir and Assam to promote manufacturing. <br />Global environment- <br />India produced more of gent’s footwear while world’s major production was ladies footwear. India has 10% of world’s raw material and low tanning cost made it second in footwear production after China. <br />Sociocultural-<br />Over a period of time, as disposable income increases, consumer preference changed but Bata failed to recognize these social changes and they continue with same product over long period of time.<br />Internal environment<br />BIL is India’s largest manufacturer and marketer of footwear product which sold over 60 million pair per year in India and overseas market. Here in this section we will analyze resources, capability, core competencies and value chain of Bata India limited. By doing internal analysis we will identify strength and weakness of Bata India limited. <br />Resources-<br />Human resource-<br />Footwear industry is labor intensive and concentrated in small and cottage industry area. Availability of human resource is one of important strength of Bata India limited. Below table will tell why this is strength-<br />Labor cost in leading footwear producing countriesCountryRs./hr.India8.254Pakistan8.254Thailand20.63Vietnam24.76China24.76Romania28.88Indonesia28.88Brazil61.90Portugal218.73Hong Kong222.85Taiwan243.4Korea297.1Source- SATRA Technology Centre<br />Bata has large pool of permanent employees on payroll that is 9969 as on January 31, 2005. <br />BIL emphasis on training and skill assessment program and created a large pool of trained employees.<br />Company has 8 trade unions and biggest and oldest plant at batanagar witnessed industrial unrest in 1992 when there was a strike from January 3 to May 25, 2002. Strike was resolved through tripartite settlement for a term of 3 year. During the year 2002-04, company entered into agreement with its eight trade unions wherein the dearness allowance was capped.<br />Let’s have a look on major strike in BIL-<br />RETAIL<br />DateEvent/all India Bata shop (managers union)Event/all India Bata shop (employee union)durationJuly 31, 2002StrikeStrike1September 28, 2002StrikeStrike1October 2, 2002StrikeStrike1July 31, 2004StrikeStrike1<br />FACTORY<br />Southcan - Peenya Industrial Area, Bangalore<br />DateEventDuration (in days)March 8, 2000 to July 3, 2000 Lockout117July 3, 2000 to February 7, 2001Strike219February 8, 2001 to September 30, 2001Go slow234October 1, 2001 to January 7, 2002Lockout99January 7, 2002 to October 12, 2003Strike662<br />FARIDABAD<br />DateEventDuration (in days)May 11,2000Strike1July 31, 2002Strike1<br />MOKAMEHGHAT<br />DateEventDuration(in days)July 31, 2002Strike1<br /> Hence BIL has good trained manpower who are working at low daily wage, BIL providing all facility to improve their performance, still company is facing problem of lockout, go slow and strike in retail, production unit. There is something which has not been addressed till now or it can be communication gap between top level and worker. <br />Brand value-<br />Bata has created unique image in consumer mind as footwear producer. Consumer easily connects Bata as Shoe Company. It has positioned itself as, “one Bata, one world”.<br />Physical resources-<br />BIL has most modern leather shoe factory, at HOSUR geared to make international footwear for export. Six manufacturing locations enable company to schedule production to meet demand for a large number and varied categories of footwear.<br />Technological resources-<br />In 2004, Bata installed point of sale management information system (POS), for providing sales and inventory information across the company’s stores. This provides company to plan production and optimize inventory level. <br />Backward integration-<br />Company’s own tanneries located in batanagar and mokamehghat insures uninterrupted supply of raw material. Now they are not dependant on some third party for procurement of raw material.<br />Huge distribution network-<br />Bata operated through exclusive chain of executive own and franchise stores located in prime location countrywide. Bata owns network of 300 exclusive wholesalers who serviced 30,000 retail outlets throughout country. Overall it has over 1,600 showrooms, 27 wholesale depots and 8 distribution centers across the country.<br />Financial resources-<br />Company had a financial collaboration with Bata BV, Holland for all types of footwear and footwear component.<br />Capability-<br />Research and development-<br />Focused on key areas of product, process, material development, footwear moulds, tannery technology with emphasis on pollution free environment. Research resulted in breakthrough product like comfort, wind and flexible technologies.<br />Effective organizational structure-<br />Employees were categorized in descending hierarchy-<br />Director, senior manager (senior vice president, vice president, general manager), middle manager, junior manager, selling manager, shop manager, shop employees.<br />Marketing department was divided into four zones. Senior general manager was responsible for each zone, supported by business development manager and several district level managers.<br /> Core competency-<br />Brand value is one core competency of Bata India limited. BIL created very strong brand value and positioned that name connect only to shoe manufacturing company. Bata had 60 % market share in organized sector, which shows the customer perception about BIL.<br />Company’s own tanneries located in batanagar and mokamehghat are the main core competencies of the company. Now company is not dependant on third party for raw material and there will be uninterrupted supply of raw materials.<br /> <br />Why repositioning<br />Bata was considered as manufacturing oriented company who concentrate on producing footwear and sell them in market at anyhow. Bata wanted to change this image of production oriented company to affordable, market driven, fashion conscious, lifestyle brand. That’s why Bata wanted to reposition itself. <br />Major problems at BIL<br /><ul><li>Company has been in existence for more than seven decades and faces a challenge in switching to new product technology.
  • 2. Due to increase in cost of raw material, sale went up by 21 crore, cost has gone up by 68 crore. So profit affected due to increased input cost.
  • 3. Sales and distribution cost is also very high because most of shops are owned by company itself and staffed employee.
  • 4. High value added footwear did not find acceptance in the market and led to drop in sale volume. So 2 million shoes were sold at a discount of 50 % at a loss of 41 crore.
  • 5. Bata was focusing on premium segment which account very less in footwear industry in India.
  • 6. Conflict of management with Mazdoor union is main weakness of BIL.
  • 7. The Company heavily depends on its Promoter group for its technology. The Company has entered into a Technical Collaboration Agreement dated December 29, 2000 with Bata Limited, Canada (“Bata Canada”) for a period of 10 years. Company does not anticipate any withdrawal of such services in future operations also, in case there is any withdrawal of the services, such withdrawal may adversely affect the business, operations and profitability of the Company.
  • 8. Unrelated diversification is also a major problem of BIL because consumer has such image of Bata in their mind that they connect Bata with shoes only.</li></ul>Strategy of the Company<br />The Company’s management has evolved the strategy of the Company after considering the Company’s strengths and weaknesses. The Company believes that this strategy will enable the Company to build on the opportunities in the market.<br />Cost optimization and margin improvement<br />The Company is focusing on margin improvement and cost effectiveness programs which have started yielding results. The Company has initiated strict control on costs in purchases and outsourcing and is looking at global sourcing for raw materials to improve the net realization. The Company has also been clearing old merchandize through discount sales, write offs, etc. which will enable it to focus on improving sales.<br />Logistics and demand based production<br />To optimize utilization of production facilities a new logistics team focuses on obtaining specific orders from the market for best selling designs and sizes and ensures that all raw materials are available in the factories well in time so that the Company can produce and place in shops the products that consumers want. Thus the Company has been focusing on consumers and market demand which will reduce inventories and improve sales-to-stock turnover. The Company has closed five depots and converted them into C&F (carrying and forwarding) agents. It is also renegotiating transport costs to ensure a competitive transportation cost of the Company’s products to the sales outlets.<br />Tax-free zone manufacturing base<br />A part of the outsourcing of manufacturing is now routed by the Company from contract manufacturers based in Himachal Pradesh and Uttaranchal which are both states offering concessions in excise, sales tax and corporate tax. The Company is also looking at and negotiating with third party manufacturing facilities in two other tax-free states of Assam and Jammu and Kashmir. The Company is thus aiming to maximize its margin improvement program.<br />Rationalizing and re-engineering<br />As part of the rationalization of work practices, processes and modernization the Company offered Voluntary Retirement Scheme (VRS) to its work force. 1520 employees have accepted the VRS in year 2004. The Company plans to introduce a new VRS in year 2005. The VRS is expected to reduce the Company’s employee cost in the medium term. The Company has modernized seventeen stores, opened twenty new stores and closed down sixty unviable stores.<br />Focus on collecting old outstanding dues<br />The Company’s sales team is fully focused on collecting old outstanding amounts from wholesalers thus reducing working capital. The Company is adopting a dual policy to collect the old outstanding. On one hand the Company is negotiating settlement with the wholesalers and offering discounts to those willing to pay the reduced amount. At the same time the Company is filing legal cases against those who are not willing to settle and pay.<br />Training and restructuring the frontline sales force<br />The Company has reorganized its front line sales force and has promoted its best performing shop managers as district managers. It has undertaken an intensive training programmed for its shop assistants and managers to ensure excellence in service to the customers. The Company has also undertaken a rural marketing thrust where the market is growing faster than the urban markets. The Company is bringing in young managers with fresh ideas to inspire and empower the workforce with the requisite skills.<br />Technology-<br />installation of point of sale management information system keep BIL update about inventory level, sale figure etc. now production unit can lower down there inventory level and can produce the amount which is needed.<br />Cost- cutting-<br />Raw material used for production account for 33% of total cost. Now Bata identified this problem and started using different mix for footwear production with cheaper raw material.<br />Also, they started cutting some cost through sales and distribution network, which is really huge distribution network.<br />Brands and designs<br />The Company is consistently trying to leverage on its established brands like Mocassino, Super Stride, Quo Vadis, Jubilee etc. at the same time create a niche for its new brands like Azaleia, Toppers, Bubble gummers, Weinbrenner and Power International. The Company has been focusing on specialty value added products for better margins. It has been continuously introducing new designs in shoes for men, ladies and children. The Company is endeavoring to break the myth of the price factor, by introducing an economy range of products that will encompass both style and quality.<br />Joint Venture Company formed by Bata India Limited<br />Riverbank Holdings Private Limited (“Riverbank”)<br />Riverbank is a joint venture company between the Company and Calcutta Metropolitan Group Limited (“CMGL”) pursuant an Agreement dated January 14, 2005. Riverbank was incorporated on February 18, 2005. Riverbank was incorporated for the purpose of implementing the project of developing an <br />Integrated Modern Township on a part of the surplus land situated at the Batanagar premises of the Company. The main objects of Riverbank are, inter alia, to undertake a Project relating to construction and development of an integrated modern township in Batanagar as well as any sub-projects including provision of various Infrastructure Services, Social Facilities and other services and amenities relating to the said Project, all in details set out in the Agreement dated January 14, 2005 between the Company and CMGL, and generally to carry out the intent and purpose of the said Agreement. Chesterton Meghraj (International Property Consultants) has submitted a report titled “Best Use option Study for Batanagar<br />Redevelopment) dated September 11, 2004. Riverbank has appointed Hellmuth, Obata + Kassabaum, , Inc. (‘HOK”) for preparing the master plan for the project. Larsen & Toubro Limited (Engineering Design Research and Consultancy, the design arm of the ECC Division) has also been appointed by Riverbank for undertaking the utility and services planning for the project. The project is currently in the preliminary stages of planning and Riverbank shall have to seek and obtain approvals from appropriate authorities as and when necessary.<br />Recent news<br /><ul><li>Bata ignores slowdown, ready to 40 new stores by March -09</li></ul>Even as the retail trade industry in India faces one of its worst crises in recent years, Bata India plan to open 40 new stores across country by end of march, 09. These new stores will be based on the international format of Bata stores and will have an average size of 3,000 square feet. The new store will primarily be located in tier-1 and tier-2 cities like Jodhpur, Ludhiana etc, apart from metros. Investment for the expansion will be raised through internal accruals.<br />“Bata India has open over 150 new large format stores since 2006 and it will continue to open 60 new stores every year. Our retail expansion plan is aimed at meeting the shoe requirement of our customer across India” said Bata India managing director Marcelo Villagran.<br /><ul><li>Bata India records strong growth in profit in Q1-2009</li></ul>Quarter ended 31 march, 2008Quarter ended 31 march, 2009% increaseNet sale/volume (in Rs. lacs)21,819.923,303.26.8Profit before tax (in Rs. lacs)1276.91623.527.1<br />“In today’s challenging market, Bata has performed remarkably. Our strategy of opening large format stores has been successful and we continue to invest in expanding our retail business. Along with this, we have also focused upon providing our customers with a new trendy collection and better shoe designs. Our value pricing, coupled with improved customer service, has helped us to grow.” said Mr. Marcelo Villagran, Managing Director, Bata India Limited.<br /><ul><li>Bata India threatens to suspend operations at Batanagar unit-</li></ul>Shoe manufacturer Bata India Ltd has threatened to indefinitely suspend work at its Batanagar unit in West Bengal if the contract laborers did not withdraw their strike immediately.A company notice Wednesday said the management may declare suspension of work in Batanagar at any time if the strike is not withdrawn. In case of suspension of work, the responsibility would solely lie on the contract labourers and their union representatives, the statement said. Around 200 contract labourers are on strike before the company gate from Monday demanding a wage hike.<br />“They are demanding a wage hike. They haven’t got any wage hike for four years,” Subir Chakraborty, president of the Bata Mazdoor Union, said here. But the management said a hike is not possible keeping <br />in view the rising competition in the market. Instead, it has asked some contract labourers to take voluntary retirement, he said.<br />A day after threatening to suspend operations at its strike-hit Batanagar unit in West Bengal, Bata India Thursday held talks with union leaders and asked them to exhort the striking contract labourers to end the four-day-old agitation.“The management has told us today (Thursday) that they are willing to listen to the demand of the contract workers, but they have to first withdraw their strike,” Bata Mazdoor Union president Subir Chakraborty said.<br />A company notice Wednesday said the management might declare suspension of work in Batanagar at any time if the strike was not withdrawn. Chakraborty said the contract workers were also preventing permanent workers from entering the factory.“There is a fear in the mind of the permanent workers that the factory may shut operations because of the attitude of the contract staff which we don’t support,” he said.The Bata Mazdoor Union is affiliated to the All India Trade Union Congress (AITUC).<br /> <br />Conclusion-<br />Over a period of time Bata has improved its distribution network, generated skilled manpower, integrated itself backward as well as forward, resolved problem with trade unions, lower down the input cost, create good physical infrastructure and technological advancement. It is continuously increasing its distribution network and cutting cost through manpower reduction. <br />Looking net sale/volume and profit before tax increases significantly from 2008 to 2009. Now, Bata has no more considered as only a production company which produces footwear. They now created an image of fashion driving, market oriented manufacturer. Positioning has been done in very passionate way to change a stable image of company over a period of time.<br />They back their campaign through several TVC’s, print media and word of mouth. Collaboration with several big players is giving an edge to Bata India Limited.<br />Bata successfully changes its image and repositioned itself.<br /> <br />

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