Global Strategic Management: Footwear Industry

The case study for Company B is a classic example of how companies can work in reconciling dichotomies. Dichotomies are non-overlapping two extremes of doing something; and Company B seems to have reconciled all methods to produce, promote and project the company to the right people in the right manner. This particular case study describes the journey of Company B since the start and how the company witnessed alterations in its ruling and dichotomous philosophies that kept modifying due to change in leadership. It also discussed the same dichotomous nature that can be seen in every aspect of Company B right from the style of management of the company to its production process, strategic thinking and the likes (De Wit & Meyer, 2010). This case study rules out Company B as a bundle of dichotomous relationships between various aspects of management including governing style, nature of hierarchy, and levels of management, among others. The case study aims to understand how Company B with so much of dichotomy or extreme opposites still has managed to become a world leader and made its mark on the global platform. The reason is that every aspect of Company B defines originality, innovation and marked efficiency which is of course only a result of the dichotomous nature of the company.

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Introduction

The Global footwear industry has made many changes and innovations during the last few decades in order to meet the growing competition and at the same time respond to the market demand for superior footwear. The Footwear industry in the 21st century faces challenges that extend beyond the framework of production technology, such as, prevention of global warming by committing to zero emissions as part of a concerted effort toward issues concerning the global environment (Shimokawa, 2010). Globalization has exposed the company to international and global culture in which it is not unreasonable to dream. In fact it would not be an exaggeration to state that globalization has introduced many people to a better standard of living and allowed them to look towards a bright future.

As a matter of fact, the strategic policy of Company B is to expand as much as possible in the international market and become global leaders explaining why its focus was on the untapped international market and not on the domestic market that is, at the time, in control of domestic companies. Most of the objectives and operations of the company are focused on the international market and trade. As the case study points out, 77% of its sales by volume are done outside the home country. This explains the orientation of Company B and its attitude towards rising competitiveness through its focus on strategic innovation and sound leadership and management.

Resource Weaknesses

There are four main weak areas that should be addressed by the company if it aims to remain competitive and relevant to the market. Conventionally, competitiveness depends on positive and continuous innovation that requires huge capital expenditures, with little assurance in the success of the innovations at commercial levels. Secondly, the industry faces stiff competition from other major players and, as a result, product popularity and market penetration are largely dependent on consumer loyalty that notoriously changes with new innovations. Further, based on macro-economic scale, the company’s products are vulnerable to economic downturns, both at local and international levels. Sadly this is an area of weakness where Company has no reasonable control over. The company also heavily invests in its advertisement expenditure on leading personalities rather than products. Such personalities can easily engage in behaviors that make them a liability to the company.

The Footwear industry has been an active part of such a dream where more and more people were lured towards the charms of footwear in order to add convenience to their life and luxury to their status. However, whatever the reasons may be, major footwear companies like Company B, Bata Shoe Organization, Adidas, Puma, Nike, and Fiat among others have had a tough time competing with each other in terms of quality, design, performance, power, price of footwear. Company B has always been a pioneer in all these aspects and this is the reason the company has already gained a huge success within a few years of its entry into international market and has become the top leader in the field.

It is clear from the case study that the company wants to focus on reducing prices. However, it aims at providing high quality products to the customers. This is where the first overlapping of ideas lies because if the company wants to improve the quality of the product then the prices cannot go down under a certain level. Also to ensure that the quality is right, the company takes time to introduce the product into the market. This means that the company does not want to waste its resources in testing and retesting the products and wants to get it right the first time and hence this increases the cost incurred because of the resources lying idle for a longer period of time; however, it is to be noted that the entire effort is done only to lower the costs of the innovation.

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Resource Strengths

The strengths of Company B based on importance include significant brand reputation, especially in the local market and to the rest of the world to an extent. Additionally, there are just few footwear manufacturers in the local market, who enjoy widespread presence as company A does. The company further enjoys a strong manufacturing capability as well as extensive range of a distribution facilities in various countries. Further, the company enjoys a stable workforce throughout its production facilities, thanks to years of experience in footwear production. It is also important to note that the company enjoys a diverse range of product lines, in addition to multiple subsidiaries dealing in footwear and related accessories. The company is also an active player in corporate social responsibility and regularly sponsors sporting events and environmental protection initiatives.

The company also draws strength from dynamic and robust marketing initiatives by hiring top media and sports personalities, and designs products meeting the needs of its diverse clients. As a matter of fact, its products are linked to efficient endorsement marketing initiatives. It is also estimated that the company has the potential to market up to 60 new footwear designs annually. Other than its production and design capabilities, Company B enjoys a strong and steady financial base thanks to its continuous growth in profits over the last five years. Additionally, the company prides in innovative technology that enhances consumers’ capabilities and performance.

Additionally, the company enjoys strong managerial and leadership styles in the business. Various leaders in the company have tried their own ways of leading the company. Some of them favored centralization and exercised complete authority in their work, others have favored decentralization to allow free reign to the employees to practice creativity and innovation in their working style. This has kept on changing for a few years already and hence the company’s culture is a mixture of both leading ways, which has become an approach that works to the company’s advantage.

The company also has product strategies where it worked on the assumption that it is better to control pollution by not creating it in the first place. However, by doing so the company also ended up making products or footwear that reduce pollution but increase the fuel consumption in production which ultimately resulted in the same degradation of the environment.

As explained earlier, the 1990s were an era where the footwear industry was growing rapidly with innovations and inventions happening with the blink of an eye in the sector. Footwear became more popular because of a lot of reasons, and more and more people were able to pay for it. Companies like Company B, Bata Shoe Organization etc. were busy planning strategic moves in order to gain their fair share of the international market. This required big players to understand that capturing the international market was the prime time priority. This led to companies like Company B to focus more on international market. They did this by setting up factories, plants etc. in overseas markets to benefit from the economies of scale and to reduce the cost of the product in order to compete with prices as well. “Manufacturing integration occurs when firms organize their operations so that one unit is providing inputs that are used in another unit’s manufacturing activities” (Berry, 2013). Around 77% of volume of sales were directed towards the international market which explained the company’s plans for the future. Thus, this led to the global integration of activities. All major aspects of business that include marketing, sales, engineering, and innovation were globally integrated. In other words, all global units of Company B responded unanimously to a change, new innovation, strategic policy etc. to come up with the best possible results. Globalization was then at its peak and the companies took advantage out of it.

Opportunities to move up in the value chain for suppliers in emerging economies have proliferated and are likely to become even stronger now leading to an increase of new models developed specifically for markets in developing countries (Sturgeon & Biesebroeck, 2010). Company B is not the only prominent figure in the footwear industry because of the presence of other domestic companies. However, the company managed to get international recognition in a global platform within years spent on the international market. The company intentionally played less on the domestic front while trying to capture the global market aggressively. The company has been successful in achieving its objectives because of its innovation and dedication towards improving quality of its products, in addition to providing its clients with products. The company’s innovations in terms of cutting edge technology in pollution and fuel consumption in production are some reasons why the company achieved international fame and recognition.

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Competitive Power

Competitive Power

Company B is one of the largest market players both at international and local levels. Its market penetration as well as control gives it a strong competitive edge over its competitors. Currently, it enjoys up to 15% of the market with rival companies controlling the rest of it. Nonetheless, irrespective of huge rivalry and encroachment of the market by smaller players locally and internationally, the company still retains its market position.

The company is however faced with the threat of perfect substitutes in the market, more especially from the rival companies such as New Balance, Puma, Adidas, Asics, and Nike, among others. The company however operates under an oligopolistic market and prices are unlikely to exceed the others. This promotes the customer loyalty. Substitutes are 78% from the international rivals and the rest from local small players. There is however low threat of new entrants, thanks to the big economy of scale required in production, distribution, and R & D.

While the company was focusing on global integration of activities, it was also important to focus on the home market or the local market which was also considered as a potential market for the company. However, the presence of other firms like Nike, etc. increased the pressure of localization. It is pointed out that if in the year 1994 the total production of Company B (in 1,000’s) was around 1,561, approximately 38.9% of it was based in America, 3.3% in Europe while 54.1% in Japan which shows that the company still had plants and manufacturing units in Japan where the major production was based. On the other hand, it is also interesting to note that out of the total amount of goods produced, 53.2% were sold out in America with only 23% sold in the home country.

If we are to consider the examples of other companies like Bata Shoe Organization, it can be said that around 5486 units were produced in 1994 and none of them were produced in Japan. America was still the biggest player in terms of the production units, and also in sales with only 0.4% of the share. The major sales in America during the same period were from companies like Adidas (36.5%), Puma (36.9%), etc which shows that these companies were doing even better than Company B in the local market which was a reason for the local pressure to rise up. Apparently, Company B had other plans for the future that involved a strategic approach to the international market share and played for it.

In general, Company B is a realistic depiction of a company facing both the pressures for global Integration of activities and the local responsiveness pressure in order to remain competitive in a highly competitive and sophisticated market. Its regional sale breakdown bears witness to the competitive and diverse environment within which Company B operates.

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As a means of handling global integration challenges within a diverse market, Company B aims at coming up with standardized products and processes as a means of lowering costs. However, it incorporates considerable customizations to ensure it does not lose touch with the reality. This would save the organization costs while at the same time address the needs of clients. Additionally, there is a need to align its global production to achieve the low-cost one. For instance, Company B focuses more on the production for Japan due to reduced costs in addition to using the economies of scale. A major highlight of Company B’s global integration strategy is, however, its universal footwear specification with some customizations to meet the needs of its diverse markets.

In terms of respect to local responsiveness pressure, Company B has a lot to show in terms of creating products to meet varied consumer needs, tastes, and preferences. For instance, Company B is known to develop different footwear models for different geographical markets. Additionally, its world production is distributed according to its regional sales. Another notable area where Company B’s responsiveness to local pressures is evident is its right-sided driver seats tailored for countries such as the UK and Japan.

Organizational Culture

Most businesses of Company B have a specific laid out organizational hierarchy that defines the set of relationships between the employees. These relationships stay the same even if people come and leave the organization at any level. They are rigid and they cannot be changed because they usually define the work parameters for a position, the span of authority etc. There exist vertical and horizontal structures in any organization. Vertical structure includes the hierarchy of relationships that includes the supervisor and the subordinate in the same chain or line. For instance, “Increasing both the size and diversity of policymaking panels is widely thought to enhance the accuracy of collective policy decisions” (Krause & Douglas, 2013). Horizontal structure includes employees from different departments working at the same level. Generally, these structures are clearly laid out, however, in Company B there is a mash up of vertical and horizontal structures. Nowadays, more and more management consultancy firms appear that suggest the companies to get rid of such inexorable structures. In such cases, the relationships are complex, as it is prohibited to use innovations and creative thinking. Company B has another story to tell about its organizational structure dichotomy.

In Company B, it is pretty common to find the lack of any such vertical and horizontal hierarchy. In Company B, it is common to observe lack of respect for hierarchical structures where round table meetings are held frequently to discuss issues of company’s interest and also where vertical and horizontal structures are dismantled and then again put together when a need arises. “Decentralization increases firms’ speed of response to market changes” (Bloom, Sadun & Reenen, 2010). In fact, there are also diagonal structures in the company and that does not come as a surprise to the employees. These diagonal structures that work both horizontally and vertically also help to control the work process better. In other words, one part of the dichotomy specifies that this is a perfect match of the organizational structure and can be applied when necessary. Company B has more of a web like structure that is inter-mingled to give the best possible result.

Other side of this dichotomy is the level of individualism or individual responsibility that depends on the employees of the company. Even with lack of formal relationships and hierarchy, the level of responsibility that is handed over to any employee is not reduced in fact. People are responsible for making decisions. Individual managers are closely related or associated with the projects that they are allotted and are responsible for the results that they achieve. Therefore, this is a direct paradox to the first dichotomy of the organizational structure that mentions that there should be no rigid structure.

Creativity and Innovation

The case study also brings out the low cost factor and product differentiation. It was cleared previously that, for international markets, there is a heavy supply of American Company B products. In fact, Company B mainly caters for the international market where mass production happens to be an ideal trait. It is interesting to note that in such situations the product prices are comparatively low as the company aims to stay in the international market and oust its competitors. This allows them to keep low prices of the product and, since most of its production and sales also happen at global units, the cost of transportation is also saved in fact. Mass production helps to cut down the costs and increase the profits and revenue.

On the other hand, another dichotomy is product differentiation. Company B prefers to make new innovations in the product and try them in the home market to understand the response first and only then release the product with some further modifications if needed. Therefore, it can be said that product differentiation is also another characteristic of Company B. In fact, the company can complete this task in two ways, either by introducing a new brand where each detail of a product is changed in order to enhance it.

In case of product differentiation, the price or the cost of the product goes up because the quantity in which the components or the products are manufactured is less and hence costs cannot be controlled. A lower volume of production always results in the diseconomies of scale and hence the prices may vary. “Economies of scale can be defined as the advantages created within the plant or firm, by reason of the increase in the scale of the plant’s capacity” (Reed, Storrud-Barnes & Jessup, 2012).

There is also another example of sheer reconciling dichotomy in the case of organizational structure and prices where the company follows both extremes of an aspect:

  1. Lack of organizational structure in formal relationships and individual responsibility ;
  2. Low prices and production differentiation that lead to an increase in the prices.

Company B offers a typical example of an institution that practices reconciliation of dichotomies in its various structures. As discussed earlier, this is evident in its use of a combination of vertical and horizontal strategies. Whilst vertical strategies involve buying out of suppliers and getting involved directly, horizontal strategies use a completely different approach. The organization, therefore, has to reconcile the two dichotomies in order to ensure the success of its operations. Additionally, its production line is typical in reconciliation of dichotomies. The organization has retained its old models, but at the same time, it also started producing modern and trendy models to meet the needs of the changing market. Additionally, Company B is known for its low-fuel and high-fuel consuming costs.

Approach Comparison

Managing strategic challenges is also something that Company B has a dichotomous way to do. The company does things both ways that allow them to enjoy the benefits of both extremes while at the same time manage to excel in their field. In specific terms of strategic challenges, the company mainly tries to take advantage of its product related core competencies and process related dynamic capabilities that help the business to achieve their objectives. Both are dichotomous in nature and are explained below.

Product related core competencies

The company belongs to the footwear industry that is always in search of new technological innovations that can improve the production process and at the same time help to reduce or pull down the costs of it. For a footwear company technological innovations to be helpful, the business should have vehicles that pollute the environment less and help to save it or probably those that consume less fuel in production and help to save the precious resource on the Earth. These would be the product related core competencies, however, it is to be noticed that both are again considered as dichotomy of each other. When the company finds product technology that ejects less emissions, it will consume a higher amount of fuel and vice versa.

Another small example of product related core competency is that while most footwear companies change their product line within the span of 8 – 10 years, Company B introduces modifications in the market every 4 years. These modifications sometimes change the look rather than the technology. The company again adheres to a safer approach thus proving this dichotomy is true.

Process related dynamic capabilities

It is also true that the company has used engineering neither in its products nor in the production process. The company has heavily invested in its assembly line and manufacturing units to help ease the manufacturing process. For example, the company uses separate carriers that allow unfinished vehicles to stay for some time until the supervisor or the workers finish them before moving them to the next stage. In this way, the decision whether the product is ready for the next stage can only be made by the appointed supervisor. This supervisor is free to make decisions regarding the process and also, at the same time, the company makes these employees responsible for their decisions focusing on their philosophy of individualism.

Another interesting example of dichotomy in the process department is the relationship that Company B has with its suppliers. Though for every product the company modifies the product mix and uses a different supplier to avoid direct competition in the market, it is also true that all suppliers of Company B have a direct chance of grabbing the opportunity to become Company B’s biggest supplier if the other ones miss the shot. These suppliers always have a chance to expand the number of clients. Thus, Company B avoids tactics of the suppliers while at the same time keeps them wishing for more into the Company B business. This is also a type of dichotomy that Company B practices.

Therefore, both the product and process witnessed dichotomies that were reconciling and overlapping and yet the company has managed to lead the international market with the best of both worlds. This is how the company faces strategic challenges by maintaining a balance between both extremes in all cases.

To the consumers, the efficiency of the final product matters the most. Basically, we mean that consumers are looking for a product made with a help of superior technology available at a reasonable price and, at the same time, the product must meet all expectations of the customer. This means that both the product and process have the capability to affect the customer. The process also involves the relationship between suppliers. Hence, it can be concluded that Company B is indeed capable of proving the dichotomy. Reconciling dichotomy has been observed in the core of all Company B’s strategic practices and in fact may also be considered as the key to their success. Adopting two approaches in strategic management can potentially result in confusion. Although this is in line with the company’s tradition, it could potentially act to its disadvantage.

Skills Audit

Skills audit is conducted using various techniques depending on the prevailing circumstances as well as the organization’s strategy (Johnson, Scholes, & Whittington, 2005). The process often begins with the analysis of the organization’s context and strategy with reference to its skills audit aims. Context involves available time, logistics, prime reasons behind skills audit, as well as the existing socio-political scenario (Johnson, Scholes, & Whittington, 2005). Strategy offers alignment basis with reference to existing and anticipated needs of the organization. This alignment ensures the audit is consistent with organizations’ operational strategies and values (Markides, 1999, p. 58). Meeting current and future leadership requirements in an organization requires some skills to be set. To be able to appropriately identify these skills, it is necessary to conduct a skills audit.

Balanced Scorecard Effectiveness

Various approaches may be adopted in skills audit. Basically, they can be classified into the following (Markides, 1999, p. 60):

  1. Panel approach
  2. Consultant approach
  3. One-on-one approach

Skills Audit Approaches.
Figure 1: Skills Audit Approaches.To evaluate the skills needed in order to meet current and future leadership needs, a skills matrix shown below was developed.

List the personal skills/qualities required for leadership Present/absent Skill average rating
Communication skills
Interpersonal skills
Control skills
Administrative skills
Planning skills
Computer application skills
Drafting legal documents
Interviewing skills
Business law
Management skills

Table 1: Skills Matrix.

Development

Competency profiles

A competency profile chart is developed based on hypothetical results. The resulting chart obtained from this hypothetical skills audit is shown below:

Competency Profiles Graph.
Figure 3: Competency Profiles Graph.

Radar report

Radar Report, skills shortcomings. Figure 4: Radar Report, skills shortcomings.

While the line graph shows the level of skills currently present amongst the leaders, the radar report illustrates the gap differences in skills and hence helps in identifying the areas that require more training. For the desirable skills to be successfully applied to the required areas more training will be needed. The gap indicates the level of training required based on the skills rating earlier illustrated.

Conclusion

It is rare to find a company or any entity that practices dichotomy in all its business activities and still manages to become a world leader. Most critics may call it Company B’s unfocused and unplanned strategic move, but the truth will be that Company B practices moderate strategies by finding a middle way to do things. All of its core competencies, strategic processes, product designs and control and even its management seem to have stemmed out of similar dichotomies and as a result the company has been faring well in the global market while managing a significant presence in the home country is again a dichotomy.

References

Berry, H. (2013). Global integration and innovation: Multicounty knowledge generation within MNCs. Strategic Management Journal, 13(5), 115-119.

Bloom, N., Sadun, R., & Van Reenen, J. (2010). Recent advances in the empirics of organizational economics. Annu. Rev. Econ., 2(1), 105-137.

De Wit, B. & Meyer, R. (2010). Strategy Process, Content, and Context International Perspective (4th ed.). London: Thomson Learning.

Johnson, G., Scholes, K. & Whittington, R. (2005). Exploring Corporate Strategy: Text and Cases. New York: Financial Times Prentice Hall.

Krause, G. A., & Douglas, J. W. (2013). Organizational Structure and the Optimal Design of Policymaking Panels: Evidence from Consensus Group Commissions’ Revenue Forecasts in the American States. American Journal of Political Science, 57(1), 135-149.

Markides, C. (1999). A dynamic view of strategy. Sloan Management Review, 40(3), 55–63.

Reed, R., Storrud-Barnes, S., & Jessup, L. (2012). How open innovation affects the drivers of competitive advantage: Trading the benefits of IP creation and ownership for free invention. Management Decision, 50(1), 58-73.

Shimokawa, K. (2010). Japan and the global production industry. New York: Cambridge University Press.

Sturgeon, T. & Van Biesebroeck, J. (2010). Effects of the crisis on the production industry in developing countries: a global value chain perspective. World Bank Policy Research Working Paper Series, 45(5), 234-23.

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