BATA INDIA LIMITED

Repositioned

Or

Still a Foot weary

Presented by-

Yugesh Kumar dubey (8279)

Vinay Singh (8272)

Vinay gupta (8271)

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oor business school, khandala
 External environment

We have analyze various external environments from case as well as from outside source-

Industry environment-

Threat of new entrants-

There are many barriers to entry preventing new entrants from capturing significant market share. Large
footwear producer enjoy economy of scale that create cost advantage over any new rival.

BIL differentiated it’s product from rivals product like Comfort (using dynamic spring pad that acted as
cushion on the feet for women’s footwear), Wind (in build air technology that allowed feet to breath fresh
air) etc.

The capital requirements are a high entry barrier to a new firm to the industry. However, an existing shoe
manufacturer may enter the athletic shoe industry simply by re-tooling their manufacturing plant.

Switching cost is very low for footwear industry because shoes are relatively inexpensive personal goods
that are frequently replaced.

Access to distribution channel is barrier to entry because it is really difficult for a startup firm to get shelf
space at major shoe retailer. But existing firm may use their existing connections to easily access shoe
distribution channel.

Bargaining power of buyer-

Bata was largest player in industry with 9-10%volume share and 60% market share in organized segment.
It had a market share of 70% in canvas shoe segment and 60% in leather shoe segment. Their dominant
market share give them power over buyer.

Bata is a big buyer of raw material who buys significant part of suppliers’ revenue. This in a way
provides good bargaining power over suppliers.

As a part of its strategic decision Bata set up a rubber/canvas factory in Faridabad, Haryana in 1951. So it
can threaten it’s supplier to integrate backward.

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Bargaining power of supplier-

Shoes are made of leather, rubber, nylon etc. These materials could be classified as commodities, where
the manufacturing process adds the value. For this reason supplier have limited bargaining power over
buyers.

Threat of substitute product-

Consumer switched from one product to another if alternatives are available in same quality and
performance range and have competing price or lesser price.BIL produces 10% of total hawai ranged
from Rs. 35-110 while competing local brands were selling at Rs. 25-50.Again when global trade open
then market flooded with many international brands having variety and competing price.

Rivalry among existing firms-

Mostly numbers of competitors are stable, especially because of high entry barriers. This adds to the
rivalry among existing firm. Manufacturers watch each other carefully and make appropriate
countermove to match the competitors move. Leading competitor of BIL are Lakhani shoes, liberty shoes,
action shoes, woodland, paragon and relaxo in organized segment.

Company Year ended Sales EPS(Rs.)

(Rs. Cr.)

Bata India Dec 2004 698.5 12.2

Lakhani India Mar 2004 109.6 1.6

Liberty shoes Mar 2004 177.2 15.9

Mirza tanners Mar 2004 174.6 9.9

Relaxo footwears Mar 2004 200.7 4.4

Source- capital market dated April 25-may 8 2005

General environment-

Demographic- Indian market is highly fragmented between rural and urban market. Rural market was
large at approximately 70% of the total market but was dominated by multiple medium size regional
players and serviced through traditional independent dealers.

Political/legal environment-

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Industry is governed by central by Central Excise and Custom, Factory act and Labor Law and
Environmental control acts.

Council for leather export, Central leather research institute and Footwear design and development
institute were promoting industry for special purpose.

Political unrest, cross border unrest, terrorism in and out of India has direct or indirect impact on industry.

When quantitative restriction was lifted from import then industry slowed down from 20 % (in 90’s) to 8-
10 %( in 2004).

Increase in excise duty led to increase in cost of footwear (1993-94, excise exemption was withdrawn
from shoe costing below rs. 200 and hence price went up by 20% and this led to drop in profit from 20
crore to 95 lac within a year).

Tax holidays for period of 10 years on full excise duty and income tax and a subsidy on sales tax,
land/building and plant/machinery was given by state government of Himachal Pradesh, Uttaranchal,
Jammu & Kashmir and Assam to promote manufacturing.

Global environment-

India produced more of gent’s footwear while world’s major production was ladies footwear. India has
10% of world’s raw material and low tanning cost made it second in footwear production after China.

Sociocultural-

Over a period of time, as disposable income increases, consumer preference changed but Bata failed to
recognize these social changes and they continue with same product over long period of time.

Internal environment

BIL is India’s largest manufacturer and marketer of footwear product which sold over 60 million pair per
year in India and overseas market. Here in this section we will analyze resources, capability, core
competencies and value chain of Bata India limited. By doing internal analysis we will identify strength
and weakness of Bata India limited.

Resources-

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Human resource-

Footwear industry is labor intensive and concentrated in small and cottage industry area. Availability of
human resource is one of important strength of Bata India limited. Below table will tell why this is
strength-

Labor cost in leading footwear producing countries

Country Rs./hr.

India 8.254

Pakistan 8.254

Thailand 20.63

Vietnam 24.76

China 24.76

Romania 28.88

Indonesia 28.88

Brazil 61.90

Portugal 218.73

Hong Kong 222.85

Taiwan 243.4

Korea 297.1

Source- SATRA Technology Centre

Bata has large pool of permanent employees on payroll that is 9969 as on January 31, 2005.

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oor business school, khandala
BIL emphasis on training and skill assessment program and created a large pool of trained employees.

Company has 8 trade unions and biggest and oldest plant at batanagar witnessed industrial unrest in 1992
when there was a strike from January 3 to May 25, 2002. Strike was resolved through tripartite
settlement for a term of 3 year. During the year 2002-04, company entered into agreement with its eight
trade unions wherein the dearness allowance was capped.

Let’s have a look on major strike in BIL-

RETAIL

Date Event/all India Bata Event/all India Bata duration

shop (managers union) shop (employee union)

July 31, 2002 Strike Strike 1

September 28, 2002 Strike Strike 1

October 2, 2002 Strike Strike 1

July 31, 2004 Strike Strike 1

FACTORY
Southcan - Peenya Industrial Area, Bangalore

Date Event Duration (in days)

March 8, 2000 to July 3, 2000 Lockout 117

July 3, 2000 to February 7, 2001 Strike 219

February 8, 2001 to September 30, 2001 Go slow 234

October 1, 2001 to January 7, 2002 Lockout 99

January 7, 2002 to October 12, 2003 Strike 662

FARIDABAD

Date Event Duration (in days)

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May 11,2000 Strike 1

July 31, 2002 Strike 1

MOKAMEHGHAT

Date Event Duration(in days)

July 31, 2002 Strike 1

Hence BIL has good trained manpower who are working at low daily wage, BIL providing
all facility to improve their performance, still company is facing problem of lockout, go slow and strike in
retail, production unit. There is something which has not been addressed till now or it can be
communication gap between top level and worker.

Brand value-

Bata has created unique image in consumer mind as footwear producer. Consumer easily connects Bata as
Shoe Company. It has positioned itself as, “one Bata, one world”.

Physical resources-

BIL has most modern leather shoe factory, at HOSUR geared to make international footwear for export.
Six manufacturing locations enable company to schedule production to meet demand for a large number
and varied categories of footwear.

Technological resources-

In 2004, Bata installed point of sale management information system (POS), for providing sales and
inventory information across the company’s stores. This provides company to plan production and
optimize inventory level.

Backward integration-

Company’s own tanneries located in batanagar and mokamehghat insures uninterrupted supply of raw
material. Now they are not dependant on some third party for procurement of raw material.

Huge distribution network-

Bata operated through exclusive chain of executive own and franchise stores located in prime location
countrywide. Bata owns network of 300 exclusive wholesalers who serviced 30,000 retail outlets

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throughout country. Overall it has over 1,600 showrooms, 27 wholesale depots and 8 distribution centers
across the country.

Financial resources-

Company had a financial collaboration with Bata BV, Holland for all types of footwear and footwear
component.

Capability-

Research and development-

Focused on key areas of product, process, material development, footwear moulds, tannery technology
with emphasis on pollution free environment. Research resulted in breakthrough product like comfort,
wind and flexible technologies.

Effective organizational structure-

Employees were categorized in descending hierarchy-

Director, senior manager (senior vice president, vice president, general manager), middle manager, junior
manager, selling manager, shop manager, shop employees.

Marketing department was divided into four zones. Senior general manager was responsible for each
zone, supported by business development manager and several district level managers.

Core competency-

Brand value is one core competency of Bata India limited. BIL created very strong brand value and
positioned that name connect only to shoe manufacturing company. Bata had 60 % market share in
organized sector, which shows the customer perception about BIL.

Company’s own tanneries located in batanagar and mokamehghat are the main core competencies of the
company. Now company is not dependant on third party for raw material and there will be uninterrupted
supply of raw materials.

Why repositioning

Bata was considered as manufacturing oriented company who concentrate on producing footwear and sell
them in market at anyhow. Bata wanted to change this image of production oriented company to
affordable, market driven, fashion conscious, lifestyle brand. That’s why Bata wanted to reposition itself.

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oor business school, khandala
 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.
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.

Strategy of the Company

The Company’s management has evolved the strategy of the Company after considering the Company’s
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 Company’s 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
Company’s 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 Company’s 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 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,

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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.

Joint Venture Company formed by Bata India Limited

Riverbank Holdings Private Limited (“Riverbank”)

Riverbank is a joint venture company between the Company and Calcutta Metropolitan Group Limited
(“CMGL”) pursuant an Agreement dated January 14, 2005. Riverbank was incorporated on February 18,
2005. Riverbank was incorporated for the purpose of implementing the project of developing an

Integrated Modern Township on a part of the surplus land situated at the Batanagar premises of the
Company. The main objects of Riverbank are, inter alia, to undertake a Project relating to construction
and development of an integrated modern township in Batanagar as well as any sub-projects including
provision of various Infrastructure Services, Social Facilities and other services and amenities relating to
the said Project, all in details set out in the Agreement dated January 14, 2005 between the Company and
CMGL, and generally to carry out the intent and purpose of the said Agreement. Chesterton Meghraj
(International Property Consultants) has submitted a report titled “Best Use option Study for Batanagar
Redevelopment) dated September 11, 2004. Riverbank has appointed Hellmuth, Obata + Kassabaum, ,
Inc. (‘HOK”) for preparing the master plan for the project. Larsen & Toubro Limited (Engineering
Design Research and Consultancy, the design arm of the ECC Division) has also been appointed by
Riverbank for undertaking the utility and services planning for the project. The project is currently in the
preliminary stages of planning and Riverbank shall have to seek and obtain approvals from appropriate
authorities as and when necessary.
Recent news

1- Bata ignores slowdown, ready to 40 new stores by March -09

Even as the retail trade industry in India faces one of its worst crises in recent years, Bata India plan to
open 40 new stores across country by end of march, 09. These new stores will be based on the
international format of Bata stores and will have an average size of 3,000 square feet. The new store will
primarily be located in tier-1 and tier-2 cities like Jodhpur, Ludhiana etc, apart from metros. Investment
for the expansion will be raised through internal accruals.

“Bata India has open over 150 new large format stores since 2006 and it will continue to open 60 new
stores every year. Our retail expansion plan is aimed at meeting the shoe requirement of our customer
across India” said Bata India managing director Marcelo Villagran.

2- Bata India records strong growth in profit in Q1-2009

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 Quarter ended 31 Quarter ended 31 % increase
march, 2008 march, 2009

Net sale/volume (in Rs. lacs) 21,819.9 23,303.2 6.8

Profit before tax (in Rs. lacs) 1276.9 1623.5 27.1

“In today’s challenging market, Bata has performed remarkably. Our strategy of opening large format
stores has been successful and we continue to invest in expanding our retail business. Along with this, we
have also focused upon providing our customers with a new trendy collection and better shoe designs.
Our value pricing, coupled with improved customer service, has helped us to grow.” said Mr. Marcelo
Villagran, Managing Director, Bata India Limited.

3- Bata India threatens to suspend operations at Batanagar unit-

Shoe manufacturer Bata India Ltd has threatened to indefinitely suspend work at its Batanagar unit in
West Bengal if the contract laborers did not withdraw their strike immediately.
A company notice Wednesday said the management may declare suspension of work in Batanagar at any
time if the strike is not withdrawn. In case of suspension of work, the responsibility would solely lie on
the contract labourers and their union representatives, the statement said. Around 200 contract labourers
are on strike before the company gate from Monday demanding a wage hike.
“They are demanding a wage hike. They haven’t got any wage hike for four years,” Subir Chakraborty,
president of the Bata Mazdoor Union, said here. But the management said a hike is not possible keeping
in view the rising competition in the market. Instead, it has asked some contract labourers to take
voluntary retirement, he said.
A day after threatening to suspend operations at its strike-hit Batanagar unit in West Bengal, Bata India
Thursday held talks with union leaders and asked them to exhort the striking contract labourers to end the
four-day-old agitation.“The management has told us today (Thursday) that they are willing to listen to the
demand of the contract workers, but they have to first withdraw their strike,” Bata Mazdoor Union
president Subir Chakraborty said.
A company notice Wednesday said the management might declare suspension of work in Batanagar at
any time if the strike was not withdrawn. Chakraborty said the contract workers were also preventing
permanent workers from entering the factory.“There is a fear in the mind of the permanent workers that
the factory may shut operations because of the attitude of the contract staff which we don’t support,” he
said.The Bata Mazdoor Union is affiliated to the All India Trade Union Congress (AITUC).

Conclusion-

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oor business school, khandala
Over a period of time Bata has improved its distribution network, generated skilled manpower, integrated
itself backward as well as forward, resolved problem with trade unions, lower down the input cost, create
good physical infrastructure and technological advancement. It is continuously increasing its distribution
network and cutting cost through manpower reduction.

Looking net sale/volume and profit before tax increases significantly from 2008 to 2009. Now, Bata has
no more considered as only a production company which produces footwear. They now created an image
of fashion driving, market oriented manufacturer. Positioning has been done in very passionate way to
change a stable image of company over a period of time.

They back their campaign through several TVC’s, print media and word of mouth. Collaboration with
several big players is giving an edge to Bata India Limited.

Bata successfully changes its image and repositioned itself.

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oor business school, khandala