ECCO Case Study Essay
ECCO Case Study
ECCO has been one of the leading shoe manufacturers of the world. The company has been based in Denmark and it has been committed in delivering high quality shoes to the customers all around the world. The company was founded by Karl Toosbuy at Bredebro in Denmark in 1963. The company from the days of its inception has worked on the concept of quality and maintenance of the products. The management takes special care of its products so that they turn out to be the most comfortable pair of shoes of the world.
In this age of competition where the global players like Nike and Adidas have made their preference clear on the branding and the marketing front, ECCO has been committed to manufacture quality shoes. However, the new management board has made it apt that the marketing and the branding part cannot be neglected for long. They have made it clear that the company must implement the modern strategies to survive the age of competition. Therefore, the management has embarked on the voyage of expanding its business globally to various countries in Asia and Europe.
The main aim of the management has been to lower the costs and spread the risks of operations. With the expansion of the business, the problem for the management has been to integrate the global supply chain. (Nielsen & Pyndt, 2008). The paper will look to find out the future strategies of the company that can help the management to achieve its aim. The paper will try to find the solutions with the help of answers to some questions. Critically evaluate how the Ansoff matrix might be used to assist ECCO’s global expansion decisions.
The matrix was devised by Igor Ansoff, a renowned Russian strategist. He found out that in the planning process of the company, the competitive advantage played a big part. Therefore, the matrix deals with the key element in the business- development. The matrix is prepared with the help of the markets and the products. It helps to create strategies in the case of the four conditions the business may face during the course of the development of the business: • To sale the existing products in the existing markets. • To sale the existing products in the new markets.
• To develop new products and sale in the existing markets. • To develop new products and sell in the new markets. The four strategies are plotted in the matrix and the strategies are devised through it. For example in the case of first condition, “market penetration” is the right objective which may involve increase of expenses in the marketing of the products. In the case of the ECCO, the main aim of the management has been to sale the existing products into the new markets. This has been evident from the set up of the factory in China.
The management has constructed various factories in the South East Asia like Thailand and Indonesia. One of the main reasons has been to produce the shoes at low costs. Another reason has been to capture the emerging markets of the area. Therefore, the strategy of the company should be of market development or market expansion according to Ansoff Matrix. This involves increasing the scope of the selling process with the establishment of stores or entering into partnerships with multibrand stores that would sell their products. (Stone, 2001:50-52; Nielsen & Pyndt, 2008).
The SWOT analysis of the firm underlines the internal and the external strengths and the weakness of the firm. In the case of ECCO the SWOT analysis can be depicted as follows: The SWOT and the PEST analysis points out that the fact that the company must go for the market development as the Chinese site will help to cater to the markets in the South East Asia and also lower the cost of production. The view is similar to what has been found with the Ansoff Matrix. The management should go for the market development phase to help in the growth of the company. (Nielsen & Pyndt, 2008).
ECCO has a vision of integrating the global value chain The value chain concept of Porter is a comprehensive framework of the company where the divisions are analyzed that helps the company to create value as well as the competitive advantage. The value chain framework consists of the following divisions or activities: • Inbound logistics: this is involved in the management of the inventory, storage etc. • Operations: the work in this division includes the manufacturing, packaging etc. • Outbound logistics: this is involved in the transport of the goods to the dealers or the consumers.
• Marketing and sales: this is involved in the marketing and the sales activities of the firm. • Service: the activities in this division include the customer support activities, installation etc. • Procurement: the purchase of the raw materials for the production is the activity of this division. • Technology development: the division is involved in developing the technology of the production of the firm. • Human resource management: the management of the workers and the employees are the main function of this division.
• Infrastructure: the management of the firm and the activities pertaining to legal advices, accounting etc. fall in the purview of this division. (Porter, 1998: 36-40) Therefore, the value chain is the comprehensive framework of the activities of the firm. In the case of ECCO, the value chain will involve all the activities described in the framework. The main aim of the company has been to be a global player in the shoe market. It has presence in the USA and in Europe. The emerging market of Asia is a good target for the market and the management is moving on the right track in setting up facilities in China.
The company, in 2004, employed 9,657 employees of which only 553 were based in the home country of Denmark. The rest were placed in the facilities of Portugal, Indonesia, Thailand, Slovakia and China. The company has wholly owned tanneries in Netherlands, Indonesia and Thailand. Given the facilities the company is on the way to create a global value chain. The following part will discuss the practical framework of the possible value chain of the company. (Nielsen & Pyndt, 2008). Inbound Logistics: The inbound logistics will be done in the main warehouse of Denmark.
The warehouse is competent to handle a large number of shoes. However, to be a global player and to cater to the different corners of the world, the company should construct storage centers in different continents. In the case of Asia, China would be suitable given its location to the emerging markets of South East Asia. In the case of the Americas, the USA is a good choice given the volume of sales there. Operations: Presently, the company has operations in Portugal, Indonesia, Thailand, Slovakia and China in addition to that in Netherlands.
The production centers are strategically placed in the low cost centers of the world. In the future, most of the production should come out from the factories of Asia. Outbound Logistics: The outbound logistics of the company takes place in ships. This type of supply takes time and in some cases this can be fatal. The sales structure of the company shows that 80% of the sales happen when the dealers book in advance. 20% occur in a very short notice. In this case, the air transport is essential. The outbound logistics department should be an integral part in every center of production.
Marketing and sales: This is perhaps the area where the company lags behind its competitors. To be a pert of the emerging markets, the company must market the products to good effect. The management can use the old tagline of the company “A perfect fit-a simple idea” to cater to the masses. The use of celebrity endorsement is also a good idea to market the products. Service: To cater to the masses, the company should think of single brand shops on their own in the new markets. This will also help in the service of the customers.
The customer service is an integral part of the business in the modern world and the management would do well to incorporate it. Procurement: The Company is at an advantageous position in this respect as it owns three tanneries in Netherlands, Indonesia and Thailand. The procurement activities will not be a problem as long as the transport from the centers is problem free. Technological development: The Company has the technology of injecting the upper sole in high air pressure. This has been integral to the success of the company.
The R&D department should look to incorporate further such technologies to stay ahead of the rest. It would be advisable that the production centers get a separate R&D to cope with the needs of the individual country or area. Human Resource management: The division should be placed in every center of the country to employ people and to look over their needs. The main division should be place in the head office in Denmark. Firm infrastructure: The firm infrastructure is in good hands with a strong board of management. Each center should have a representative or manager to look after the operations.
They should be liable to report to the Board of Directors. This will help in the development of the operations and the activities of the firm. This can be a possible framework for the global value chain of the company which will help to cater to the needs of the customers all around the world. (Nielsen & Pyndt, 2008). Describe and discuss how ECCO can manage the cultural issues that result from being a global player. There are many advantages of being a global player. The company has more chances of prospering to attain the heights of a strong player in the market.
However, to attain the status of global player, the company has to manage several issues. One of the main issues is the cultural issues of the different companies. The cultural issues of a country differ from one another. The cultural issues shape the consumer behavior of different countries. The global companies must keep in mind the difference of the cultures in each country to prosper in the business. In the case of ECCO, the company is contemplating to set up business facility in China to cater to the huge market there and to take advantage of the low cost production.
Therefore, the next part will analyze the cultural condition of China which will underline the problems for the country. In this part, the paper will take the help of Hofstede’s cultural analysis to analyze the differences of culture between Denmark and China. Geert Hofstede devised a framework to depict the cultural characteristics of a country. The analysis takes place with the help of five dimensions. These are as follows: • Power Distance Index (PDI): This is the measurement of the inequality of the people and the society of the country.
The higher PDI underlines the fact that the country demarcates between the people of the society while a lower PDI states that the society is free and there is opportunity for all and sundry. • Individualism (IDV): This states the status of the individualism in the society. In the case of high ranking of IDV the individuals are important in the society while in the case of low IDV, the families are more important. • Masculinity (MAS): This is the measurement of the biasness of the gender. A higher ranking of MAS states the women in the country have lower status and there is gender biasness.
While in the case of lower MAS, the women have equal status of the women. • Uncertainty Avoidance Index (UAI): This indicates the tolerance level of the country in the case of any unscheduled happenings or incidents. A higher UAI states that the country has a strong legal system with implications of laws, rules and regulations. • Long term orientation (LTO): The LTO states the respect of the people for their tradition. A higher LTO means that the people have respect for their tradition and vice versa. (Hofstede’s cultural dimensions, n. d. ) The Hofstede analysis for the countries for the country is as follows: