Assignment Submission Form

Batch Name Course Name : GMBA GAPR11 : International Management

Assignment Title : Case Study Analysis on ECCO Individual or Group Prepared by : Individual : Name of the Student / s Ramkumar Sunder Roll Number GAPR11GLSCM1 28 Divisio n A

Submitted by : Ramkumar Sunder SPJCM Honor Code: I will represent myself in a truthful manner I will not fabricate or plagiarize any information with regard to curriculum I will not seek, receive, or obtain an unfair advantage over other students I will personally uphold and abide, in theory and practice, the values, purpose, and rules of the SPJCM Honor Code I will respect the rights and property of all in the SPJCM community

I certify that I have adhered to the Honor Code of the SPJCM in completing this assignment. Signature: Date: 20/6/2011

To be filled by the Evaluator only Score Obtained:

Case Objective:
For an organization like ECCO, where operations are spread worldwide, supply chain is the most important factor. ECCO has been very successful in the footwear industry by producing quality products and also in maintaining control over its supply chain from cow to shoe. Through the growing phase of ECCO, various processes which were involved in value chain were offshored to low-cost countries. An increasingly complex and dispersed supply chain configuration posed a lot of organizational and managerial challenges regarding the collaboration, communication and logistics. This case study gives a picture of the integrated value chain of ECCO and the various organizational challenges which are faced by the managers in maintaining an effective value chain.

Executive Summary:
ECCO was founded by Karl Toosbuy in Bredebro, Denmark in the year 1963. Till date, the ownership of the company is kept within the family. The main objective of this company was to produce the worlds most comfortable and modern footwear with utmost quality. Moreover, a lot of stress was laid on the quality of shoes manufactured. As a matter of fact, ECCOs recognition was on the high quality shoes rather than the fashion brand and the trend setting image. Right from its inception, the company worked on constantly creating new markets in Asia, Central Europe and Eastern Europe. US and Canada were also of significant importance. The company showed a significant growth right from 1963 up to 2004 with almost 90% of its exports going to US, Germany and Japan in the year 2004. As the organization was operating on a global scale, ECCO gave high preference to training facilities so as to inculcate international mind set and good adaptability skills amongst its employees. Huge investments were made in vocational training, career development, developmental conversation and expatriation. As a matter of fact, Toosbuy himself, in 1990 stepped down as CEO to reinvent himself as he knew the importance of knowing the company inside out. ECCOs product range varied from casual and outdoor shoes for men, women and children right up to sports shoes for outdoor, walking, running, trekking and other sporting activities. As mentioned earlier, ECCO maintained its focus on the entire value chain from cow to shoe. The company owned a lot of tanneries in various countries which supplied leather to ECCOs factories all over the world and also to various auto and furniture industries. ECCOs strategy was in- house production. 80% of the shoes were produced in-house in contrast to many of its competitors who phased out in-house production. Their major objective was to uphold the quality and operational reliability and still produce volumes. ECCOs assets also consisted of the latest production technology with excellent cutting edge production techniques. The production technique was more capital intensive though some amount of work like sewing and finishing was done manually. ECCOs production techniques were also very difficult to be copied as they performed a lot of small tasks very differently which improved quality and made it hard to imitate. Hence, this was an advantage over its competitors.

The finished goods of ECCO were distributed via the groups distribution centre and sales agents. The distribution centre was very vital to ECCOs business. It had two distribution centres viz. United States and Denmark. In 2001, four additional warehouses were built. Majority of the shoe shipments arrived through the habour of Aarhus, Denmark. Vans and freight planes were used in cases of urgency. ECCO implemented the bar code system which helped in shipping 60,000 pairs of shoes per day in a lorry to 25 countries. Shoes for markets outside Europe were shipped by sea. Until the establishment of a production facility in Brazil in 1974 which was the first step to globalization, ECCOs main forces which were driving the internationalization have been (a) establishment of market presence and (b) reduction of labor cost and increased flexibility. Over the next 25 years, ECCO established 26 sales subsidiaries and 4 international production units covering the entire world. This spread out the risks and reduced labor cost. ECCOs first relocation took place by shifting a part of its production facility to Portugal. This took place in 1984. Subsequent relocations took place to sites in Thailand and Indonesia in 1993 and 1991 respectively. Further expansions included opening of a production unit in Slovakia which was primarily an assembly plant. This move facilitated the penetration ECCO into promising markets like Russia and Poland. Currently, ECCO is planning to establish its production facilities in China. Xiamen is the site chosen with a plan to build five factories over the next five years as well as a tannery with a beam house to convert rawhides. Chinas production facility will be the largest ever built by ECCO worldwide. ECCO has high expectations from the China market and hopes to double its sales figures. ECCO along with its long standing partner in China Aibu, plans to strengthen its brand and position on a global scale. A Brief on the Competition faced by ECCO: Traditionally, the footwear industry had been fragmented but in recent years the difference between the sportswear and the casual wear blurred. Companies like Nike and Reebok directly competed with some of ECCOs products. In addition to these companies, Geox, Clarke and Timberland are also its main competitors worldwide.

Situation Analysis - 5C Model:

Company: ECCO was started by Karl Toosbuy in Denmark in the year 1963 with the aim and philosophy of creating a perfect shoe. As of today it holds 40 years of craftsmanship and dedication to uncompromised quality. The companys recognition lies more on its superior design and customer comfort products rather than on brand and modern trend setting. Until 1974, the production activities were taking place within Europe. The overseas production facility was established in Brazil. Subsequently, over a period of 25 years, 26 sales subsidiaries and four international production units were setup around the globe. The various production sites were capable of producing the same type of shoes indicating an insignificant degree specialization in the production units. However, in recent years, ECCO is capitalizing on its core competencies. ECCOs first relocation project involved shifting of a part of its production facility to Portugal. Subsequently, production facilities were setup in Thailand and Indonesia. A high tech production facility was set up in Portugal, thereby decreasing the number of employees. The production of the Indonesia plant contributed to about 40% to 50% of the groups upper demand. The production facility in Thailand encompassed both tannery and assembling facilities. Thailand plant produced 35% of the uppers and 40% of the total unit volume. Thailands workmanship

was world class. With these characteristics, most of the complicated shoes were produced in Thailand. In 1998, an assembly unit was opened in Slovakia and to a lesser extent, the uppers were also produced. Setting up of the Slovakia plant led to easy penetration of ECCO into promising markets of Russia and Poland. But despite ECCOs global production facilities, Denmark still constituted ECCOs primary model in terms of the development of cutting edge technology. Context: ECCO has been successful in the European and South East Asian markets. But it has not been that successful in the US market. In the United States, ECCO grew only by 4.5 percent with net sales of US$ 115 million in comparison to its competitor Geox, which increased sales by 250% from US$ 4 million in 2002 to US$ 14 million in 2003. Competitors: ECCO faces tough competition from players like Nike and Reebok especially in the athletic shoe segment. Further to this, ECCOs entry into the segment of golf shoes also gave rise to a few more competitors. ECCO also felt increasing pressure from retailers that had established products under private labels. However, from ECCOs point of view the major competitors were Geox, Clarke and Timberland. Geox is a threat to ECCO in the casual lifestyle footwear segment. Geox is highly successful in the US in comparison to ECCO. The company also had a strong penetration into the Italian market. International sales were also gaining a good momentum. Clarke is also the biggest player in the casual lifestyle footwear segment. It had grown into a global shoemaker producing 35 million pairs and offering a wide product range. Clarkes in house production was only 1 %. With the usage of many independent manufactures, Clarke was exposed to a variety of technologies, materials and shoemaking techniques. Timberland, another shoemaker, totaled a revenue of US$ 1.328 million in 2003 making it twice the size of ECCO in terms of product sales. In the year 2001, the international sales comprised of 38.5% of total generated revenue. The products in US were sold through independent retailers, department stores and athletic stores. The Timberland specialty stores and factory outlets were dedicated exclusively to Timberland products. There were also a lot of franchised retail stores in Europe. Customer: The shoes manufactured are for a variety of customers. These include casual and outdoor shoes for men, ladies and children. In 2004, the revenues obtained were 11% from the children category, 47 % from the ladies category, 30% from the mens category and 12% from sports person category. Customer base included lot of golfers. 90% golfers in US preferred ECCO brand. The American market was a lucrative market as shoes were selling at high prices. Canada is also a promising market. Collaborators: One of ECCOs collaborators is Aibu, a long standing partner in China. Aibu had a unique market knowledge and position in the Chinese market. ECCO is closely associated with Main group, an Italian company which specializes in injection machine molds and services for footwear. Majority of the materials were obtained from European suppliers, in particular, Granulate and Gore-Tex.

Recommendations:
1.) Issue an IPO and convert family owned business to a corporate owned business. In this way, additional capital can be raised. Also, the company results will need to be published. Therefore, there will be an extra sense of responsibility and competitiveness among

employees. Also, if the business is under a corporate ownership, strategy making is easier since family feelings are left out. 2.) Though the value chain of ECCO is an effective value chain, there is no standardization of the processes. Hence, standardization of the processes and creation of global and scalable processes are recommended. 3.) For any shoe company, the cheapest option is to outsource manufacturing. It is not necessary for ECCO to outsource all of their manufacturing facilities. But, wherever there are drastically increased costs, ECCO can look into the option of outsourcing the manufacturing facility. 4.) More stress should be laid towards market orientation. Obtain feedbacks from customers through the retail stores, sports stores etc. so that further improvements can be made in the design. 5.) The main manufacturing facility is located in Denmark where the sale is just 6% to 8 %. This plant can be shifted to a promising country like US where sales are more.