Lal Ba adur Shastri I Strategich management IIn s t i t u t e

Bata India Limited

of

Managemen

Repositioned or Still Foot Weary?

111

Strategic Management II

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The case tracks the development of Bata India Ltd. as Indias largest manufacturer and marketer of footwear products in the organized sector over a period of 7 decades. Bata India was part of the Bata Shoe Organization, Toronto. Though the company was the leader in footwear, by the end of 1994, there were indications of decline as profit dropped from Rs.20 crores to Rs. 95 lakhs within a year. This was attributed to environmental contingencies. The parent company BSO stepped into reposition Bata India as an affordable, market driven fashion conscious lifestyle brand and to streamline the whole business to improve the performance of the company. Bata India is the largest retailer and leading manufacturer of footwear in India and is a part of the Bata Shoe Organization.

Incorporated as Bata Shoe Company Private Limited in 1931, the company was set up initially as a small operation in Konnagar (near Calcutta) in 1932. In January 1934, the foundation stone for the first building of Batas operation - now called the Bata. In the years that followed, the overall site was doubled in area. This township is popularly known as Batanagar. It was also the first manufacturing facility in the Indian shoe industry to receive the ISO: 9001 certification.

The Company went public in 1973 when it changed its name to Bata India Limited. Today, Bata India has established itself as Indias largest footwear retailer. Its retail network of over 1200 stores gives it a reach / coverage that no other footwear company can match. The stores are present in good locations and can be found in all the metros, mini-metros and towns Batas smart looking new stores supported by a range of better quality products are aimed at offering a superior shopping experience to its customers.

SUBMITTED BY:

Nikhil Gupta 130/10 Section B

Anil Deokar 168/10 Section B

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The Company also operates a large non retail distribution network through its urban wholesale division and caters to millions of customers through over 30,000 dealers.

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Major problems at BIL

1. 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.

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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.

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Q1. Why did the profits of Bata decline in 1994? Ans: Increase in excise duty led to increase in cost of footwear. In1993-94, excise exemption was withdrawn from shoe costing below Rs. 200 and hence price went up by 20% and it hit volumes as it became uncompetitive at lower end. The middle class customers switched to other brands when the company started selling its medium and low ranged products at exboriant prices. The cost of raw material mainly rubber, textile , PVC compound and raw hide were also increasing.

Q2. Were the different types of strategic controls at Bata Inadequate? Ans: The different strategic controls at Bata: Reduction in raw material cost Replacing costly raw materials with cheaper substitute. The idea was right to shift from premium product to a lower end product especially in a country like India where the major chunk of people belong to that category. So targeting volume was an optimal choice at that time of crisis.

Reduction in advertising Advertising is an integral part of any marketing campaign. Bata being a very old and promising brand didnt require mass advertising to an extent. But this provided opportunity for other brands to advertise and make their product sell more than Bata and give customer a Top of Mind Recall for their brand. Bata failed to connect with the present generation for whom Adidas, Nike and Puma are shoe brands and no one recalls Bata. The Bata FB has only 56,150 likes as compared to 11,295,276

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for Adidas, 5,371,337 for Nike and 5,811,608 for Puma. This solely shows the popularity of the brand The idea of Freight cost reduction and waste reduction by stringent quality control were adequate. Q3. After 1994, what did Bata do to strengthen its control systems and foster continuous improvement? Ans: The Companys management has evolved the strategy of the Company after considering the Companys strengths and weaknesses. The Company believes that this strategy will enable the Company to build on the opportunities in the market. Cost optimization and margin improvement 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. Logistics and demand based production 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 Companys products to the sales outlets.

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Tax-free zone manufacturing base 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. Rationalizing and re-engineering 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 Companys employee cost in the medium term. The Company has modernized seventeen stores, opened twenty new stores and closed down sixty unviable stores. Focus on collecting old outstanding dues The Companys 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. Training and restructuring the frontline sales force 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

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markets. The Company is bringing in young managers with fresh ideas to inspire and empower the workforce with the requisite skills. Technology 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. Cost- cutting 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. Also, they started cutting some cost through sales and distribution network, which is really huge distribution network. Brands and designs 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.

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Q4. What does the Balance Score Card methodology indicate? (Analyze all functions) Ans: Strategies Priorities Financial

Objectives Financially Strong

Measures

Targets 216%

Initiatives Replace Costly Material Raw

F1:Profitability Profitability

F2:Market Share Volume Growth 11%

Open Stores Close

New and Cash

Drain store Customer

Delight Customer

the

C1:Delighted the

Share

of 60 Mn. Ensured

the

Targeted Segment

pairs of Availability

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Customer

shoes sold

of Material Time

Raw on

Internal

Research and Development Operational Expenses Quality

I1:Product Development I2:Inventory Management I3:Quality Check

New Product On-Line Information Sampling and Physical 99% Test Defects Free 140 Pont of Sales MIS

Learning and Growth

Motivated and Prepared Workforce

L1:Competanci Strategic es Competency

Training Programme