Case Study of Bata Ltd Essay

Bata Ltd. is a privately owned global shoe manufacturer and retailer headquartered in Ontario, Canada. The company is led by a third generation of the Bata family. With operations in 68 countries, Bata is organized into four business units. Bata Canada, based in Toronto, serves the Canadian market with 250 stores. Based in Paris, Bata Europe serves the European market with 500 stores. With supervision located in Singapore, Bata International boasts 3,000 stores to serve markets in Africa, the Pacific, and Asia, Finally, Bata Latin America, operating out of Mexico City, sells footwear throughout Latin America. All told, Bata owns more than 4,700 retail stores and 46 production facilities. Total employment for the company exceeds 50,000. Company Founded in 1894 The Bata family’s ties to shoemaking span more than two dozen generations and purportedly date as far back as 1580 to the small Czech village of Zlin. However, it was not until 1894 that the family began to make the transition from cobblers to industrialists. In that year, Tomas G. Bata, Sr. along with his brother Antonin and sister Anna, took 800 florins, some $350, inherited from their mother and launched a shoemaking business. They rented a pair of rooms, acquired two sewing machines on an installment plan, and paid for their leather and other materials with promissory notes. They produced stitched, coarse-woolen footwear. Within a year, the business was successful enough to enable the Batas to employ ten people in their factory, such as it was, as well as another forty who worked out of their own homes. In the same year, 1895, Antonin was drafted into the military and Anna quit the business to get married, forcing Tomas to assume complete control of the venture. He was just 19 years old. In 1900, Bata moved the operation to a new building located close to Zlin’s railway station and took the first major step in industrialization, installing steam-driven machines. The company enjoyed success producing light, linen footwear that appealed to a large portion of the population, who could not afford better-made leather shoes. Nevertheless, Bata came close to bankruptcy on more than one occasion and concluded that in order for his business to survive he needed to find more efficient ways to manufacture and distribute shoes. In 1904, he and three employees took a trip to the United States to learn firsthand the ways of mass production. Bata spent six months working as a laborer on a shoe assembly line in New England. On his way back to Zlin, he also took time to visit English and German factories. Upon his return home, Bata began to transform the family shoe business, not only by applying the latest production techniques–which would one day earned him the moniker, â€Å"the Henry Ford of the shoe industry†Ã¢â‚¬â€œbut also by finding a way to preserve the role of workers, which all too often changed dramatically during the transition from an artisan to an industrial approach to commerce. The Bata shoe business began to experience steady growth, so that by 1912 it was employing 600 full-time workers plus another few hundred who worked out of their homes in neighboring villages. Tomas Bata now began to exhibit another side to his personality, the social idealist. Because there was a shortage of housing in Zlin for his new workers, he constructed new homes, which he rented at cost. He also offered inexpensive meals in factory cafeterias and free medical care. He even built a new hospital to care for his workers. However, as soon as they began to earn higher incomes, area merchants raised prices. In answer, Tomas Bata opened his own less-expensive company stores to ensure that his employees were able to enjoy the fruits of their success. He also took steps to identify management talent among the ranks of his workers and instituted a training program that was ahead of its time. World War I Boot Contract a Turning Point Bata received a major boost in 1914, following the outbreak of World War I, when the company received a contract to produce boots for the Austro-Hungarian army. From the waste of these items, the company produced the uppers to a wooden shoe that it sold to the lower classes. Tomas Bata then invested the profits in new machinery, as well as in the opening of new retail shops, so that the business was well positioned to take advantage of the economic boom of the 1920s. Before the company could enjoy this strong period of growth, however, Tomas Bata and his employees were forced to take a major gamble together. In the years immediately following the end of World War I in 1918, an economic slump prevailed across the globe, leading to significant unemployment. Czechoslovakia, formed as part of the peace settlement of World War I, attempted to fight inflation, which had already devastated Germany, by adopting tight monetary controls. As a result, the country’s currency lost three-quarters of its value, which in turn led to a drop in demand for products, a cutback in production, more unemployment, and even less consumer demand–developments that together threatened national economic devastation. In August 1922, a group of industrialists met to discuss their plight. Unlike the others, Tomas Bata did not simply throw up his hands and blame the government. Instead, he called on the industrialists to take decisive steps to stimulate market demand, and he shocked everyone by announcing that he was going to cut the price of Bata shoes in half. Once the surprise of the moment wore off, Bata’s audience simply laughed at him. Bata was able, however, to convince his workers that he had a plan, albeit a radical one, that would work. He believed that the company had to cut costs to the bone and work at peak efficiency in order to halve the price of Bata shoes. Workers, ignoring their union leadership, accepted a 40 percent reduction in wages across the board. Tomas Bata, in turn, provided food, clothing, and other necessities at half-price to mitigate the loss of wages. In addition, he introduced measures that were pioneering, including the creation of individual profit centers and incentive payments to both management and workers to spur productivity. With his operations lean and efficient, he then launched a national advertising campaign. The response from consumers was swift and dramatic, as Bata stores, which had been virtually empty for months, were now swamped with customers looking for inexpensive shoes. Bata was forced to increase production, and not only did the company maintain full employment, it began to hire. The decision to cut prices proved to be a turning point in the history of the company, which now grew at a tremendous pace. Tomas Bata continued to innovate, improving on productivity primarily through the introduction of an assembly line approach. After five years, productivity improved 15-fold; after ten, the retail price of Bata shoes dropped by 82 percent. The employees’ faith in Tomas Bata was also rewarded. After accepting a severe wage cut in 1922, by 1932 they had seen their salaries doubled. They were now working for the largest shoemaker in the world. According to company lore, in fact, in some developing countries â€Å"bata† gained currency where there was no word for â€Å"shoe. † Moreover, Bata became involved in a variety of other industries, including socks, leatherwork, chemicals used in leather making, shoemaking machinery, wooden packing crates, tires and other rubber goods. The company launched its own film studio to produced advertising materials, and it soon evolved into a full-fledged enterprise that produced some of the earliest animated films. Because of the company’s involvement in transportation, as Bata became the world’s largest exporter of shoes, Tomas Bata even became involved in the manufacture of airplanes through the Zlin Air Company, which produced both sporting and business planes. He also became famous for housing his headquarters in the tallest reinforced concrete office building in Europe, which featured an elevator that housed his â€Å"floating office. † With a push of a button, Bata was able to confer, and keep an eye on, his employees on every floor without leaving his desk. Bata established operations in new markets, such as Singapore in 1930. The company, which in 1931 adopted a joint stock company form of organization, also established subsidiaries and shoe factories in a number of European countries as a way to circumvent tariffs that had been imposed in response to a worldwide economic depression. In mid-1932, Tomas Bata called together his team of executives and announced that in order for the company to weather increasingly difficult economic conditions and drive further growth, they would have to look to more distant markets, in particular North America. Just two days later, however, Tomas Bata was killed when an airplane he was in took off in a thick fog and crashed into a chimney of one of his buildings. He was 56 years old. Bata left a 22-year-old son, Thomas J. Bata, whom he had groomed since childhood to one day head the business, but in the meantime Bata’s half-brother Jan took over and continued the mentoring process. It was Thomas Bata who was to be dispatched to North America, to which the company was already exporting shoes, to establish a manufacturing operation. While most executives in the organization lobbied for the United States as the location for a plant, the young Bata was fixated on locating the business in Canada, a place he had romanticized since childhood after reading the works of Jack London. With the rise of Nazi Germany in the 1930s, the importance of organizing a North American operation took on increasing importance, as the company now made plans to relocate its headquarters to the West. In March 1939, with Germany on the verge of invading his country, Thomas Bata fled to Canada along with 180 Czechoslovakians. After being granted permission from the Canadian government, he started up operations in Frankford, Ontario, taking over a former Canadian Paper Company mill while a new factory was built. To aid in the Allied war effort, the company focused its personnel and equipment on the production of anti-aircraft equipment and machines used to inspect ammunition. For his part, Jan Bata moved his headquarters to the United States, but when blacklisted by the Allies he was forced to relocate to Brazil. The Bata Shoe Organization, as it was called, was now split between uncle and nephew, resulting in an eventual contest for management control and ownership. Thomas Bata essentially prevailed in 1949, but the contest continued to be played out in the courts of numerous countries until the end of 1966. The return of Bata operations lost to the Nazis was short lived after World War II. In 1945, the communist government installed in Czechoslovakia by the Soviet Union had nationalized the country’s industry, usurping the original Bata shoe factory in Zlin and the company’s far-flung network of shops. Even Zlin’s name was changed, becoming known as Gottwaldov, a tribute to the country’s first communist president. ) Bata was further stripped of assets as other countries, including East Germany, Poland, and Yugoslavia, also nationalized their shoe industries. Now based in the West, Bata and its many Czechoslovakian expatriates began to rebuild the business, taking on an almost missionary zeal in the process. Rather than organizing in a centralized manner, the company established a structure based on autonomous operations, primarily in the new markets of developing countries. Also following the war, Thomas Bata married an aspiring architect named Sonja, a woman who would play an influential role in the success of the company, supplementing her husband’s manufacturing and sales expertise with a sense of design and style. By the mid-1950s, Bata was operating 56 factories in 46 countries. Thirty years later, Bata was in 115 countries, selling close to $2 billion worth of footwear each year through 6,000 company-owned stores and 120,000 independent retailers. Bata Shoes Returns to the Czech Republic in 1991 In the 1970s and 1980s, the manufacture of shoes began to shift increasingly to Pacific Rim countries, where lower labor costs provided a competitive edge that proved devastating to shoe companies around the world. With its widely cast operations and well-established distribution network, Bata was better able to compete, but it too suffered from a softening in its business. With the fall of communism in the late 1980s, Bata was able to return to the country where the family business was founded. The company was not able to resume ownership of its prior assets, which has been combined with other Czech shoe operations, nor did Bata wish to be encumbered with facilities that the communists had neglected for more than 40 years. Nevertheless, Thomas Bata was committed to establishing a business in his native country. After some study, the management team elected to focus on a retail distribution business and a modest manufacturing facility, one that was not part of the old Bata operation. A small factory established by the communist regime was found acceptable, and the company then selected a number of retail locations, which would total a 20 percent market share, and presented the government with a joint venture proposal that was accepted in late 1991. Thomas Bata, at the age of 80, elected to retire in 1994. His son, Thomas Bata, Jr. , had been serving as president since 1985. According to The Globe and Mail, Thomas, Jr. â€Å"took over at a time when the international shoe maker was experiencing heightened competition from strong global marketers. The movement toward free trade challenged its network of quasi-autonomous national companies. Mr. Bata tried to make changes, but insiders says he lost the support of key members of the board. † He was widely expected to succeed his father, but to the surprise of many, Stanley Heath, a Canadian with considerable executive experience with RJR Nabisco, took over as president and CEO to assume the day-to-day running of the business, while the younger Bata assumed the chairmanship, ostensibly charged with focusing on the â€Å"big picture. He soon left the family business and moved to Switzerland. His father, with a reputation as an autocrat, was slated to become honorary chairman, but the post proved to be far from ceremonial, as he continued to be involved in the company’s operations on a day-to-day basis and was not reticent about letting management know his opinions. Little more than a year after coming to Bata, Heath resigned for â€Å"personal and family reasons. â⠂¬  Taking over for Heath was a loyal company man, Rino Rizzo, who had been with the Bata organization since 1969. In 1999, Bata brought in Jim Pantelidis, an executive who had no experience in the shoe industry, to assume the CEO position. Pantelidis’s background was in retail gasoline sales, and during his career he had worked for one of Canada’s largest chains, Petro-Canada Corporation. Pantelidis instituted a plan to develop regional shoe lines, as opposed to lines created for individual countries. In addition, he wanted to create economies of scale by building regional infrastructures. The goal was to use the regional infrastructures to position the Bata brand on a global basis. The tenure of Pantelidis lasted just two years. In late 2001, Thomas Bata, Jr. returned, gained control of the business, and was named chairman and CEO, while Pantelidis left to â€Å"pursue other challenges. † Bata began to reorganize the company, essentially running the business out of Switzerland. It remained to be seen if he would be able to succeed where outsiders had failed in the effort to transform Bata from a federation of stand-alone local subsidiaries into a truly international company. Principal Subsidiaries: Bata Canada; Bata Europe; Bata International; Bata Latin America. Principal Competitors: Footstar, Inc. ; Jimlar Corporation; Payless ShoeSource, Inc. Product Profile: Legendary quality, trend-setting styles, and a tradition of innovation that goes back to 1894. For more than 100 years, the Bata brand has offered the best shoe at the best price. With contemporary and classic styles, the Bata collection has shoes and accessories for active men and women who appreciate great design and understand the meaning of value. Everyday shoes that look good and feel even better; nobody knows shoes better than Bata. Bata Ambassador Combining Italian design with handcrafted detail and the highest quality leather, Bata’s premium Ambassador brand sets the standard for European footwear. And its trend-setting style doesn’t sacrifice comfort. The Ambassador offers a flexible genuine leather upper, a leather lining to absorb moisture, and a polyurethane sole for a firm grip. A contemporary classic for the man who knows where he’s going. Combining great-looking style and design with the latest technology, Bata Benefit offers the ultimate in healthful comfort for men and women. Developed at Bata’s Shoe Innovation Centre in Europe, the Benefit collection breaks new ground in shoe design, exceeding the expectations of even the most discriminating customers. From sporty and casual to elegant and formal, From Bata Flexible, Bata Antistatic to Bata Air System, all Benefit shoes are made with high-quality leather and Bata’s trademark precision.