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What ails Bata India ?

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  • Category: Brand

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If we take a look at the history of footwear industry in India, we shall see that Bata India has been the emperor of footwear products. Bata had such a good run that it almost became a generic name for shoes. People used to go to shops and just ask for Bata and not any other brand.

But today, the brand is facing stiff competition from other players. A host of other problems have cropped up and added to their woes. In this case, we shall try to examine how Bata slipped down and what they are doing to reclaim the lost throne.

The History
Bata was established by Thomas Bata on August 24, 1894 in Zlin, Czechoslovakia. The company was incorporated in India in 1931.The production of footwear started in 1933 in rented premises at Konnagar, near Kolkata, where for the first time rubber and canvas shoes were manufactured in India.

The first manufacturing unit was set up, at a place called Batanagar. The factory shifted from Konnagar to Batanagar in 1936. In 1940-45, during World War II, the factory’s production was geared to meet war requirements. In 1950, Bata successfully launched the brand Hawaii. In 1952, one of Asia’s largest tanneries was set-up at Mokamaghat, Bihar. In 1988, The Bata factory was set-up in Peenya, Bangalore. In 1993, Batanagar factory became the first Indian shoe-manufacturing unit to receive ISO 9001 certification.

Currently, the production units of the company are situated in Batanagar (West Bengal), Faridabad (Haryana), Bataganj (Bihar), Mokamaghat (Bihar), Bangalore (Karnataka) and Hosur (Tamil Nadu). Bata India Limited manufactures and markets all types of footwear, footwear components and leather products. In addition, the company markets products related to footwear, accessories, garments, sports goods and other merchandise.

Bata World
Bata is one of the world’s most widely spread companies, with operations in 68 different countries. It employs over 50,000 people in retail,
manufacturing and whole-selling operations. The company has over 4,700 self-owned retail stores, and over 100,000 independent retailers and franchisees distributing Bata footwear. Bata annually manufactures over 140,000,000 pairs of shoes in 46 production facilities, and over 30 million square feet of leather in nine tanneries. Bata companies serve almost one million customers each day.

Bata has the largest retail network in India and has over 1000 shops and around 600 franchisees. It is a brand that Indians have grown up with. In spite of such an illustrious legacy, Bata’s performance has slipped in recent times. A traditional SWOT analysis could well provide an understanding of the current situation:

1. The widespread retail network of the company owned and franchisee stores allows the company to serve customers across the country. 2. The company’s own tanneries in Batanagar and Mokamaghat ensure uninterrupted supply of raw materials. 3. The company, being a part of Bata Shoe Organisation, has easy access to new designs, brands and production technologies. 4. The brand has earned a reputation of trust, which adds substantially to the strengths of the company. 5. In addition to the eight internationally renowned brands – Bata, Hush Puppies, Marie Claire, Bubble Gummers, Power, Sandak, North Star and Weinbrenner – the company also offers a wide range of domestic labels like Quo Vadis, Jubilee, Featherlite, Ambassador, Signor, Hawaii, Naughty Boy and Tennis.

1. The company has a large labour force resulting in high employee costs. 2. The company has been in existence for more than seven decades and faces a challenge in switching to new production technologies. 3. Poor financial position in the market has resulted in Bata incurring huge losses for the past four years. 4. Unorganised top-level management; facts: 28 directors have been changed in last three years. Eight resignations from key top managerial personnel since 2001 5. The inability of the management to deal with a highly unionised factory and sales staff is yet another major problem as the organisation wastes considerable time to resolve labour disputes and strikes. Opportunities

1. Footwear being an item of mass consumption has immense demand potential in Indian market. 2. Products like Bata Aquastatic, Bata Airsystem and Bata Lavorazione Artigiana, which are very well known as premium brands in other foreign markets, hold huge promise for Bata. 3. There is a massive potential for the company to leverage the Bata brand and retail coverage for marketing merchandise consumer products other than footwear.

1. The Company faces stiff competition from various regional players like Action, Lakhani, Mesco’s, Relaxo and Liberty, which are able to sell footwear at even lower prices due to lower overheads and manufacturing costs. 2. Opening of the Indian market to imports has resulted in the company facing competition from cheap imports as well. 3. Change in the taste of consumer towards lifestyle statements like Sprandi, Catterpillar, Stacy Adams and others has created another challenge for Bata in the high end market. 4. The problems which the company is already living with – high manufacturing costs – has been coupled with increasing employee costs year on year.

Bata’s 2004-05 financial results are not yet available (at the time of going to print), however, net loss for FY03 was Rs.241.23 million, as against the net loss of Rs.113.02 million for FY02 and in the year 2004 till September it got worse, net loss further increased to Rs.404.61 million. Bata’s exports revenues and sales have decreased dramatically up to 50% or even more in the last few years.

Now these figures clearly show that while the footwear industry is growing, Bata is struggling to make profits because of their huge expenditure. There are also several other factors, some of which are detailed below:

Consolidating the factors affecting Bata’s performance:

1. Workforce & Expenses:
The company has a large workforce, resulting in high employee costs. Their operating expenses are quite high; and in retail operations, the said cost is as high as three to four times more than their competitors. Bata has five manufacturing facilities and a nation-wide retail and wholesale distribution. Reducing employee costs and restructuring and streamlining its operations are the major challenges and risks which, if addressed properly, can solve a lot of problems.

2. Relations between Top Level Management and Trade Unions:
There are eight recognised trade unions in the company and the company management has had a history of disputes with these trade unions and has been fraught with labour unrest. Quite recently, there was another call for a strike, but the management succeeded in avoiding it.

3. Trends and Lifestyle:
With the era of consumerism and globalisation, footwear has progressed from being a necessity to becoming a fashion statement. Bata has to be innovative in manufacturing technology and devising new marketing strategies, so that it is able to maintain and expand its customer base. The company faces competition from not only high end footwear products, but also from unbranded products produced by the large unorganised sector that compete on lower costs.

4. Globally competitive business environment
With the opening of the Indian economy, Bata now faces competition from international players, along with existing competition from the national players. Though the company has taken steps, like importing readymade shoes with attractive design and styles, to score over competitors, it might have to reduce its prices because of the competition. This may in turn reduce the company’s revenues and hence might adversely affect its business.

5. Lack of Sustained Advertising and Promotions:
Bata is continuously introducing new designs of footwear; but the company is still not associated with being ‘fashionable’. Neither the promotion, nor the advertising of the company, is strong.

The premium segment competitors seem to completely overshadow the presence of the company. However, Bata has not announced any new products or business segments in recent times. Further, the investments on advertising and promotions seem to be ‘following’ rather than ‘leading’. That is, rather than spending more on advertising, Bata has started spending less on advertising, as a direct result of sales decreasing.

6. Non existence in garment products
It has been almost seven decades since their launch in India, but Bata has not been able to mark its presence in the garments sector. Because of non-existent promotions, not even 1% of the population is aware of Bata’s presence in shirts and trousers. Bata could leverage their strong retail presence to move into such sectors in a planned manner.

7. Totally dependent on promoter group for technology
The company entered into a technical collaboration agreement dated December 29, 2000 with Bata Limited, Canada (Bata Canada) for a period of 10 years, for receiving various services from Bata Canada, including engineering, construction and architectural, research and development, testing and quality control services, footwear technology and general technical services, environmental, health and safety services and brand development services. On one hand, this agreement provides Bata India access to most modern technologies. At the same time, on the other hand, it shackles Bata India’s domestic innovative capacities.

8. Trademark infringements by domestic unorganised sector
Small companies are copying the trademark of the company and selling the footwear at significantly low prices as compared to company’s prices. The company is trying to adopt legal proceedings against such competitors to prevent them from using the designs. But such counterfeiting has had adverse effects on the company’s businesses and profits. The Situation Now

Bata’s brand equity in India has been and continues to be under threat.
However, internationally it is still quite a strong brand. Though the market share of Bata is not very high, its market position is definitely significant. There is no real premium commanded by the Bata brand, since Bata is synonymous with durability and “value-for-money” footwear.

Bata is now going through a mass upheaval. The company is recruiting young executives, who can bring in innovative ideas to match the competition. In 2003, Bata tried to reposition itself from a manufacturing company to a marketing company, after recording losses of nearly Rs.119 crores in 2002. Bata has also started focusing on ‘quality sales’ with a heavy stress on consumer satisfaction, as it found that quantity sales could increase the turnover, but quantity without quality would only destabilise the consumer confidence that had taken ages to build up. Now as Stephen J. Davies, MD of Bata India, plans out various new strategies, the question remains on what strategies should the new MD focus on so that the company regains the lost pride in years to come?

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