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The Legal,Political,and Economic Environments Facing Buciness

Case: BATA, LTD.

In 1990, the management of Bata, Ltd. had a critical decision to make concerning the possibility of reinvesting in
Czechoslovakia (now the Czech and Slovak Republic). This may not seem like a major concern at first, but there is
significant history between Bata and Czechoslovakia. As war swept across Europe in 1939, Tom Bata,Sr., was faced with a
difficult situation. His father, the ninth generation of a family of shoemakers in Czechoslovakia, had built a worldwide
shoe net-work in 28 countries, using machinery and the mass-production technology of the 1920s. Tom was left with the
responsibility of panding that empire during a period of great uncertainty world-wide. Because of the invasion of the Nazis
and the uncertain future that occupation held, Bata took 100 Czech families and emigrated to Canada to preserve his
father’s business.
Since that time, Bata’s decision has been ratified through strong growth worldwide. Bata,
Ltd. is a-family-owned business whose production facilities produce over 300 million pairs of shoes annually, generating
over $3 billion in revenues through sales in 6000 Bata-owned retail outlets and 125 independent retailers in 115 nations.
Its 85,000 employees work in over 90 factories and five engineering facilities, as well as the retail operations mentioned
earlier. Bata’s influence is so pervasive that it makes and sells one out of every three shoes manufactured and sold in the
non-communist world. In fact, the word for shoe in many parts of Africa is “bata.”

Bata, Ltd. is run as a decentralized operation that is free to adjust to the local environment, within parameters.
Tom Bata travels extensive to check on quality control and to ensure good
relations with the governments of the countries where Bata, Ltd. operates.
Although Bata, Ltd. has factories in more than 90 countries and operations of one form or
another in over 100, it does not own all of those facilities. Where possible, it owns 100 percent
the operations. In some countries, however, the government requires less-than-majority ownership. In India, for example,
60 percent of the stock of the local Bata operations trades on the Indian stock exchange, and in Japan, Bata, Ltd owns only
9.9 percent of the operations. In some cases, Bata, Ltd. provides licensing, consulting, and technical assistance to
companies in which it has no equity interest.
Bata, Ltd.’s strategy for servicing world markets is instructive. Some MNEs try to lower cost
by achieving economies of scale in production, which means that they produce as much as possible in the most optimal-
sized factory and then service markets worldwide from that single production facility. Bata, Ltd. tries to service its different
national markets by producing in a given market nearly everything it sells in that market. Part of the reason for this strategy
is that Bata, Ltd. can achieve economies of scale very quickly because it has a fairly large volume in the countries where it
This may seem difficult to believe, especially since Bata, Ltd. has production facilities in some
African nations where it is the sole industry. Bata, Ltd., however, believes that it can achieve economies of scale very
easily because it is a labor-intensive operation. Bata, Ltd. also tries to
get all of its raw materials locally, this is not possible in some cases, especially in some of the
poorer developing countries. Nevertheless, it tries to have as much value-added as possible in
those countries.
Another of Bata, Ltd.’s policies is that it prefers not to export production; rather, it chooses
local production to service the local market. Obviously, that rule is not fixed, since the company
produces in only 90 countries but does not export. Then it has to adjust to the local laws and requirements for operation.

Bata, Ltd. avoids excessive reliance on exports partly because of the risk. For example, if an importing country were
to restrict trade, Bata could possibly lose market opportunity and market
share. In addition, Mr. Bata noted the benefit to the developing country of not exposing itself to
possible protectionism:

We know very well what kind of a social shock it is when a plant closes
in Canada. Yet in Canada we have unemployment insurance and all
kinds of welfare operations, and there are many alternative jobs that people
can usually go to. In most of the developing countries, on the other
hand, it’s a question of life and death for these people. They have
uprooted themselves from an agricultural society. They’ve come to a
town to work in an industry. They’ve brought their relatives with
them because working in industry, their earnings are so much higher
Thus a large group of their relatives have become dependent
on them and have changed their lifestyle and standard of living.
For these people it is a terrible thing to lose a job. And so we are
very sensitive to that particular problem.

Bata, Ltd. operates in a variety of different types of economies. It has extensive operations
in both the industrial democratic countries and the developing countries. It has been soundly
criticized (as have been most MNEs) for operating in South Africa and thus tacitly supporting
the white minority political regime, and it has also been censured for operating in totalitarian
regimes, such as Chile. Bata counters by pointing out that the company has been operating in
Chile for over 40 years, during which time a variety of political regimes have been in power.
Although Bata’s local operations have not been nationalized very many times, the company has had some
fascinating experiences. In Uganda, Bata’s local operations were nationalized by Milton Obote, denationalized by Idi
Amin, renationalized by Amin, and finally denationalized by Amin. During that time the factory continued to operate as if
nothing had happened. Mr. Bata’s explanation for finally being left alone is that, “Shoes had to be bought and wages paid.
Life went on. In most cases, the governments concluded it really wasn’t in their interest to run businesses, so they
cancelled the nationalization arrangements.”
Despite Bata, Ltd.’s ability to operate in any type of political situation, Mr. Bata prefers a
democratic environment. He feels that while both democratic and totalitarian regimes are bureaucratic, a democracy holds
the potential to discuss and change procedures, whereas under totalitarianism it is sometimes wise to remain silent.
Bata, Ltd. has a multifaceted impact on a country. The basic strategy of the company is to
provide footwear at affordable prices for the largest possible segment of the population. The
product, footwear, is a necessity rather than a luxury. The production facilities are labor intensive, so jobs are created,
which increases consumers’ purchasing power. Although top management may come from outside of the country, local
management is trained to assume responsibility as quickly as possible. Because the company tries to get most of its raw
materials locally, suppliers are usually developed. Since Bata, Ltd. likes to diversify its purchases, it usually develops more
than one supplier for a given product, which leads to competition and efficiencies.
Typically Bata, Ltd. brings in its own capital resources at the start-up of a new operation,
but it is also skillful in utilizing international capital markets. More than once Bata, Ltd., used the resources of the
International Finance Corporation a division of the World Bank that provides development financing for private-enterprise
projects in developing countries. One of Βata’s most recent attempts at IFC financing was expand a tannery in Bangladesh.
The importance of getting IFC support is that Bata, Ltd. would be much more likely to attract other debt and equity capital
once it had received IFC approval. All of the five previous Bata projects supported by the IFC had been successful, and the
loans had been paid back.
The South African dilemma presented unique challenges for Bata management, however.
South Africa, whose population ranks just below those of Nigeria, Egypt, and Ethiopia, has long
been considered a good place to invest because of its large market size. South Africa’s per capita
GNP is the largest in Africa. The country’s main attraction has been the incredibly high rate of return that companies can
earn, owing largely to low labor costs and mineral wealth. The relatively large market still allows firms to achieve
economies of scale in production while exploiting the low labor costs.
But the situation deteriorated rapidly in the early 1980s. The system of apartheid, which has
resulted in a political, social, and economic separation of blacks, coloreds, and whites, has characterized South Africa for
decades, and change has been slow. Government opposition has begun to unite around the concept of one man, one vote.
Black nationalists will settle only for total voting rights, whereas the white government refuses that concept at all costs.
Rioting has left many dead and has heightened the uncertainty of South Africa’s political future. Most of the fighting has
been between rival black factions. The African National Congress (ANC), led by Nelson Mandela, opposes capitalism and
has stated that it would nationalize all industry, whether domestic or foreign-owned. The ANC is beginning to back down
from that stand, but reluctantly. The rival Inkatha movement is more open to free-enterprise capitalism. South Africa’s 0.8
percent per capita GNP growth during 1980-1988 was significantly below that of the average of 2.3 percent for upper-
middle-income developing countries. In addition to a relatively stagnant economy and political strife, pressure has come
from foreign firms and governments. A number of U.S. firms, including Apple Computer, Coca-
Cola, Ford, International Harvester, General Motors, IBM, Honeywell, and Warner Communications, have sold or
significantly reduced their investments in South Africa. In 1984, only seven U.S. companies had pulled out of South
Africa. In 1985, forty pulled out; in 1986, fifty left; and by mid-1987, thirty-three firms had already withdrawn. U.S.
investment in South Africa had dropped in half between 1982 and 1986. Even the U.S. consulate in Johannesburg had lost
faith in the future of South Africa, noting that South Africa was on its way to becoming “just another African country:
chronic debtor, import-starved … a repressive regime unable to manage its own domestic constituency in any positive
The Canadian attitude toward South Africa was also negative. Canada’s government issued
very conservative voluntary guidelines on new investments in South Africa. As a result, Bata finally decided to leave South
Africa in 1986. It did not identify the buyer or the sales price. The company denied that apartheid was the reason for
pulling out. Company personnel stated that “it really was a business decision that took into account all of the factors with
respect to investment in South Africa at the present time.” Under the terms of the sale, the Bata company name and
trademark will no longer be used in South Africa, and all ties with Canada will be broken. Apparently, the new buyer gave
assurances that the jobs of the workers, most of whom are black, would be preserved. As the South African economy began
to turn the corner in the late 1980s and the De Klerk government begins to
dismantle apartheid and pave the way for a solution to the political impasse, Bata management must be rethinking their

The problem of Czechoslovakia is different. Sometimes investment decisions are an affair of

the heart. Even though the Communist government took over Bata’s operations in 1945, Bata is interested in possibly
starting up operations again in Czechoslovakia. The problem is, who owns the plants? The Czech government would like
some kind of compensation for the factories, but Bata feels that the factories are still his. Some experts feel that Bata will
eventually receive an equity investment in the huge facilities in exchange for managerial expertise, marketing help, and
capital. It is estimated that it would take as much as $100 million to modernize the plants, which currently employ 85,000
people and turn out 100 million pairs of shoes a year.

Guide Questions:
1. Why do you think that a developing country might allow Bata, Ltd, to operate locally?
2. Do you agree with Bata’s assessment of the riskiness of exporting? How do you think the developing countries
might react to that assessment?
3. Explain why Bata, Ltd.’s operations might be less susceptible to serious political influence than some other types
of companies.
4. What problems do you think that Bata might encounter in starting up operations and operating profitably in the
Czech and Slovak Republic again? What should Bata do?