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Introduction
This case describes the challenges faced by the Bata management due to the change of market
trends. The challenges that are faced by the Bata are increased competition from the local
players and increasing threat of Chinese importer.
Bata had traditionally targeted the lower middle and middle class segments of the society and
was now considering changes in its strategy to be able to survive in the market. Now they were
thinking to also target the higher end of the market. The MD of Bata was considering the
efforts necessary to realign Bata Pakistan’s manufacturing, outsourcing, distribution and brand
strategy in the light of increased local competition and Chinese imports. Moreover this case
consists of two major portions, one before 1999 and second 1999-2002.
Mission:
“To be successful as the most dynamic, flexible and market responsive organization, with
footwear as its core business”
Vision:
To grow as a dynamic, innovative and market driven domestic manufacturer and distributor,
with footwear as our core business, while maintaining a commitment to the country, culture
and environment in which we operate.
Goals:
The ultimate goal of Bata is to deliver its services mainly on its core business which is of
the footwear to its consumers with maximum satisfaction.
Create an efficient resource management which creates a highly professional and
motivated management team to meet challenges.
Our priority is to grow our distribution and marketing. We will continue to do specialized
manufacturing in-house and gradually increase the level of outsourcing.
To keep with modern technology and design to optimize production and enhance brand
image to attain international recognition for the company’s products.
To compete in the rapidly changing shoe industry by realigning their business strategies
to compete effectively with competitors.
Objectives:
To increase the outsourcing from 17% to 70% whether locally or internationally.
Building up a new cadre of management capable of leading Bata in future.
Building up premium retail network including mega stores.
Bringing up new nix of brands for mixed economy and premium brands.
Pest analysis (Before 1998)
Political Factors:
Second largest export earner sector after textiles with higher import duty (i.e.) 65% tariff
duties in 1990s.
Negative effects of tanneries increased concern of Govt. of Pakistan during 80s.
Economical Factors:
The exchange rate in late 80s w as US $1 = Rs 16.
Moderate buying power.
High Switching cost due to relatively low rivalry in early 1990s
Social Factors:
Media Revolution in 1990s resulted in increased awareness of global brands and
demand for great Varity.
Negative impact of effluent from tannery operation in Pakistan.
Technological Factors:
Labor intensive industry and no such impact of technologies were there.
Pest analysis (1998-2002)
Political Factors:
Government imposes 15% sales Taxes on informal sector. As informal sector comes
under CBR and don’t have to pay any sales tax.
The government has lowered the tariff duty on imported shoes from 65% to 25% and is
expected to decrease more in future.
PVC granules are protected with the duty of 25% by the government.
Low trade barrier by WTO.
Economical Factors:
Buying power of people has increased.
There was increase in the growth in the number of tanneries which resulted the
increased leather export
Switching cost is low of buyers.
The exchange rate in late 2002 was US $1 = Rs 60.
Social Factors:
Brand consciousness.
Trend of fashionable and trendy shoes.
Handing of wastage that harm society.
Technological Factors:
Use of modern and advanced technology to minimize cost of production.
Changing trend of labor intensive trend to automated plants.
More specialized equipments like Air Injecting Machine Technologies are being
introduced.
THE PORTERS 5 FORCE MODEL ON SHOE INDUSTRY OF PAKISTAN
BARGAINING POWER OF BUYER
Determinants Defining Question
Assess the power of Buyers Circle one of the
following.
1 = low, 5 = high, or N/A if it doesn’t apply to
your industry.
Reasoning for choosing option
Concentration Are buyer fragmented or highly concentrated ( i.e. do a few monopolize the market?) If they are few and concentrated, then buyer bargaining power is typically high.
1 2 3 4 5
N/A
Because there are many producers available in the market, so low bargaining power.
Product Cost versus Total Purchases
Does your product buyer’s purchase represent a significant fraction of the buyer’s cost? If so, buyer bargaining power is typically high.
1 2 3 4 5
N/A
There are many shoe producers so consumer can buy from any of them.
Product Differentiation
Is the buyers product or service a commodity? Is there branding critical to success? If the product are standard or undifferentiated, buyers typically have high bargaining power
1 2 3 4 5
N/A
Shoe is commodity and branding does affect the product image and sales.
Switching Costs
Is Switching cost low or high? If buyers face few switching costs, their bargaining power is typically high.
1 2 3 4 5
N/A
Buyer can switch easily to any brand if there is unavailability and low satisfaction level.
Profits Do buyers earn low profits? If so they are typically more likely to
1 2 3 4 5 Prices of specific shoe at all stores
bargain hard N/A are more or less same and availability is at every store.
Backward Integration
Can they make what you make themselves? Is there a threat of backward integration? If so the threat is typically high
1 2 3 4 5
N/A
Byers are least interested in manufacturing shoes themselves.
Impact on Quality/
Performance
Is the product you offer important to the quality of the buyer’s product or services? If not buyer power is typically high
1 2 3 4 5
N/A
Quality products are preferable by buyers.
Buyers
Information
Does the buyer have complete information on the product he may purchase? If so buyer power is typically high
1 2 3 4 5
N/A
Buyers do not prefer and are not involve in collecting info about shoes.
Result: Low to moderate bargaining power of buyers.
BARGAINING POWER OF SUPPLIERS
Determinants Defining Question
Assess the power of Buyers Circle one of the
following.
1 = low, 5 = high, or N/A if it doesn’t apply to
your industry.
Reasoning for choosing option
Concentration Are you supplier are fragmented or highly concentrated? (do a few monopolize the market)? If an industry is dominated by a few
1 2 3 4 5
N/A
Rapidly increase in tanneries and other manufacturers of raw materials for
companies, the suppliers are typically powerful.
shoes.
Presences of Substitute inputs
Are there any substitutes for your supplier products? If not suppliers are typically powerful.
1 2 3 4 5
N/A
Because if shoe manufacturer are short of for example leather then they can switch to other raw material, such as synthetic leather or canvas.
Importance Relative to Customer.
Is your industry an important customer the supplier group? If not suppliers are typically powerful
1 2 3 4 5
N/A
Shoes industry is very important customers because of growing shoe industry.
Impact on Quality/
Performance
Is your supplier product essential to the quality or performance of your business? If so suppliers are typically powerful
1 2 3 4 5
N/A
If good quality raw material is available then there would be high quality of product.
Product Differentiation
Is the suppliers product or service a commodity? Is branding critical for success? Is there an actual versus a perceived difference? Suppliers with differentiated products typically have more bargaining power then suppliers selling commodities.
1 2 3 4 5
N/A
Leather, nylon canvas etc are materials which are not affected by brands and these raw materials are the commodities.
Switching Costs How costly is it for you to switch from suppliers product? If switching costs are high,
1 2 3 4 5
N/A
There are many suppliers of raw material so
suppliers are typically more powerful.
switching cost is low.
Forward Integration
Can the supplier produce the product you make? Is there a threat of forward integration? If so, suppliers are typically powerful
1 2 3 4 5
N/A
Yes they ca come into shoe production.
Result: Moderate power of suppliers is shown by the above analysis.
INTENSITY OF RIVALRY
Determinants Defining Question
Assess the power of Buyers, Circle one of the
following.
1 = low, 5 = high, or N/A if it doesn’t apply to
your industry.
Reasoning for choosing option
Industry growth
How slowly or quickly is the industry growing? If it is a slow growth industry, there is likely to be more intense fights among rivals for market share.
1 2 3 4 5
N/A
Not to intense growth, but moderate growth in this industry.
Fixed Cost Does your business have a high fixed cost? If so, rivals will typically be tempted to cut prices to ensure sales, thus posing a significant threat
1 2 3 4 5
N/A
Fixed cost for manufacturing shoe setup is not so high; any one can enter in small scale.
Intermittent Overcapacity
How frequently is there a problem of excess capacity in your industry? Overcapacity often leads to price cutting. If so, there is typically a threat.
1 2 3 4 5
N/A
Yes there is problem of excess capacity in shoe industry; mass production is not done due to demand variability.
Product Differentiation
Is your product or service a commodity?
1 2 3 4 5
N/A
Shoe is a commodity so somehow stern rivalry.
Brand Identity Is branding critical for your Rival’s success? Is there actual vs. perceived difference?
1 2 3 4 5
N/A
Brand does matter but most of Pakistani people
Prefer to buy non-branded products, due to low income level.
Switching Costs How costly is it for your buyer to switch between providers? Low switching costs typically increase rivalry. When a customer can freely switch from one product o another, companies must struggle to capture and retain customers.
1 2 3 4 5
N/A
Availability of shoes is good, so low switching cost and buyer can switch to any brand.
Concentration and balance
Are there a large number of firms of equal size and power, all chasing after the same customer? If so rivalry is typically intense
1 2 3 4 5
N/A
Companies with branded products try to attract other brand customers.
Diversity of competitors
Are there competitors with different strategies and frame of reference? When competitors are diverse it is more difficult to establish the rules of game, so the threat from competitors is greater.
1 2 3 4 5
N/A
To some degree strategy used by every competitor is different.
Corporate Stakes
How high are the rival’s corporate stakes? What do rivals stand to lose (e.g. profits, decision-making power)? Strategic stakes are high when
1 2 3 4 5
N/A
Not applicable to shoe industry.
several firms in an industry take great risks to expand, diversify and gain market position.
Exit Barriers Are exit barriers low or high? High exit barriers make it costly to abandon a product.
1 2 3 4 5
N/A
Due to low fixed cost exit barriers are relatively low.
Result: There is moderate to high rivalry in shoe industry.
THREAT OF NEW ENTRANTS
Determinants Defining Question
Assess the power of Buyers. Circle one of
the following.
1 = low, 5 = high, or N/A if it doesn’t apply
to your industry.
Reasoning for choosing option
Economies of Scale and experience
Does successful entry require that companies have significant economies of scale or experience? Barriers to entry are typically high when a aspiring company must cut costs in order to compete in a large-scale and/or experienced market.
1 2 3 4 5
N/A
Does not require economies of scale. Small scale producer can easily enter.
Product Differentiation
Do new entrants need to differentiate by spending heavily on advertising, customer services or product differences to overcome existing customer loyalty? Product differentiation is
1 2 3 4 5
N/A
To some extant differentiation is important in order to compete with market leaders.
typically a barrier to entry.
Brand Identity Do new companies need to spend heavily on brand identification to gain customers loyalty? Brand identification is typically a barrier to entry
1 2 3 4 5
N/A
Yes, they have to spend heavily to attract customers.
Switching Costs
Does the buyer have to pay to switch from one supplier’s product to another? High switching costs are typically a barrier to entry.
1 2 3 4 5
N/A
Same quality products are available in market and low switching power.
Capital Required
Does the new company need to invest large financial resources (relative to market size) in order to compete? Huge capital requirements are typically a barrier to entry
1 2 3 4 5
N/A
Any one having medium size capital can enter the market.
Access to Distribution
Do the new comers have access to distribution channel for product or services? Difficult access can typically be a high barrier to entry.
1 2 3 4 5
N/A
They can start with small scale and with passage of time can expand.
Cost advantage
Established companies have cost advantages over new rivals because they may have already obtained proprietary product technology, access to raw materials, favorable locations and government subsidies. In addition, established company may have passed a learning or
1 2 3 4 5
N/A
experience curve. Such costs advantages are typically a barrier to entry for a new entrant.
Government policies
Government policies, such as antitrust regulations, can help to preserve or limit competition. Such policies can typically create a barrier to entry
1 2 3 4 5
N/A
Not applicable to our industry.
Expected Retaliation
New entrants may decide not to enter a new market if existing firms are likely to retaliate. Established firms may have a history of retaliating, resources to fight back, a strong commitment to the industry, and illiquid assets employed in the industry. Also, if the industry is growing slowly, they may retaliate against new players who would threaten sales growth.
1 2 3 4 5
N/A
Old firms do not retaliate the new firms.
Result: There is a moderate threat of new entrants in the shoe industry.
THREAT OF SUBSTITUTION
Determinants Defining Question
Assess the power of Buyers
Circle one of the following.
1 = low, 5 = high, or N/A if it doesn’t apply to your industry.
Reasoning for choosing option
Price performance
Does the substitute offer a better price or performance? A substitute product or service is
1 2 3 4 5
N/A
No substitute to the shoes.
a threat to competition when it offers a higher performance at a given price or the same performance at a lower price.
Switching Cost Is it costly for buyer to switch to the substitute product? When buyers must pay more to switch to a substitute the threat of substitutes is low.
1 2 3 4 5
N/A
No substitute to the shoes.
Result: No threat of substitute.
SWOT Analysis (Before 1998)
Strengths:
Vertical integration(raw materials manufactured by Bata in its own tanneries)
Forward integration(own retail outlets and franchised outlets all over Pakistan)
Strong brand image
Low rivalry and competition
High percentage of exports
Loyal employee of Bata
Weaknesses:
catering only lower and middle class
Failed Diversification of Rubbers and Cycle tubes
Very much labor intensive production.
Opportunity:
Target upper class segment of the economy
Product development
Manufacture trendy shoes according to changing environment
Use of modern technology to reduce costs
Outsourcing of raw materials
Threats:
Increase in Rivalry
Entry of Chinese manufacturers
Lowering of tariff duties
Increase in sales tax by the government for formal company
EFE Matrix (Before 1998)
Opportunities Weight Rating Weighted
score
Reasoning
1 Target upper class segment of the economy
0.1 3 0.3 Bata is a financially strong company And can easily capture high class segment.
2 Product development 0.15 2 0.3 Bata can avail product development opportunity but they have fully understand the market.
3 Manufacture trendy shoes according to changing environment
0.1 2 0.2 Bata can enter to trendy shoes but it cost very high and is opposite to their bulk production technique.
4 Use of modern technology to reduce costs
0.1 3 0.3 Bata can avail this opportunity because Bata is financially strong and understand the importance of technology to cut costs.
Threats
1 Increase in Rivalry 0.1 3 0.3 Shoe industry is very attractive
so greater threat of rivalry
2 Entry of Chinese manufacturers
0.15 3 0.45 Chinese are very low cost manufacturer so they can attract to Pakistan’s growing industry.
3 Lowering of tariff duties 0.1 2 0.2 Exports of Bata would be affected if Tariff duties are lowered by govt. Other companies then can easily export
4 Increase in sales tax by the government for formal companies
0.1 3 0.3 Increase in sales tax can increase cost so it is bigger threat for Bata.
Total 1 2.65
Result: Total weighted score of 2.65 indicates that the business has slightly more than average
ability to respond to external factors.
IFE Matrix (Before 1998)
Strengths Weight Rating Weighted
score
Reasoning
1 Vertical integration(raw materials manufactured by Bata in its own tanneries)
0.2 4 0.8 Vertical integrated companies have competitive advantage, and it is Bata core competency.
2 Forward integration(own retail outlets and franchised outlets all over Pakistan)
0.15 4 0.6 Good distribution is KSF of industry, and Bata has extensive and its own distribution system.
3 Strong brand image 0.2 4 0.8 To have loyal customers brand image is important, and Bata
has very good brand image.
4 Low rivalry and competition
0.05 3 0.15 Low rivalry due to less shoe manufacturer and Bata has advantage.
5 Loyal employee of Bata 0.05 3 0.15 To have loyal employee is important for any company, and Bata employee are very loyal to them which reduce cost of company.
6 High percentage of exports
0.05 3 0.15 Bata is a good exporter of the shoes.
Weaknesses
1 Catering only lower and middle class
0.15 1 0.15 Bata is not targeting upper class segment and this is major weakness of Bata.
2 Very much labor intensive production.
0.05 2 0.1 Bata is not using advanced technology and is labor intensive
3 Failed Diversification of Rubbers and Cycle tubes
0.1 2 0.2 Bata failed in diversification strategy with heavy losses.
Total 1 3.1
Result: Total weighted score value is 3.1 which mean company internal position is Good
SWOT Analysis (1998-2002)
Strengths:
Strong Brand
Air Moulding injection machine Technology
Alliance with Big Brands.
Extensive Distribution with 241 retail stores (Forward integration)
Footwear for the entire family
Targeting all income segments
Financially Strong Company
Differentiation strategy
Weaknesses:
Less variety of trendy shoes.
Could not sustain specific competitive advantage
Advertisement is not properly managed
Opportunity:
Specialized in trendy and fashionable shoes
Increasing consumer buying power.
Create causal ambiguity to have competitive advantage.
Cater higher end of market by their own brand.
Threats:
Chinese importers Threat the men’s economy segment
Imitation of air Moulding technology.
The increasing and the changing consumer preferences.
The price war with competitors
EFE Matrix (1998-2002)
Opportunities Weight Rating Weighted score
Reasoning
1 Specialized in trendy and 0.1 2 0.2 To be in trendy shoe market is
fashionable shoes good option, and Bata is financially strong and can avail this opportunity.
2 Create causal ambiguity to have competitive advantage.
0.2 3 0.12 Bata can create Casual ambiguities in its value chain to have competitive advantage.
3 Increasing consumer buying power.
0.05 2 0.1 Bata can attract customers being a strong brand.
4 Cater higher end of market by their own brand
0.1 3 0.3 Bata is Financially strong and can have its own company brand to cater higher end market.
Threats
1 Chinese importers Threat the men’s economy segment
0.15 3 0.45 Chinese manufacturer are low cost manufacturer and Bata have strong threat of men’s economy sector.
2 Imitation of air Moulding technology.
0.2 3 0.6 Air moulding technology can easy to imitate by other competitors.
3 The increasing and the changing consumer preferences.
0.1 2 0.2 Changing customer preferences has threat to Bata standard production.
4 The price war with competitors
0.1 2 0.2 Bata has threat of lower prices offered by competitors.
Total 1 2.65
Result: Total weighted score of 2.65 indicates that the business has slightly more than average
ability to respond to external factors.
IFE Matrix (1998-2002)
Strengths Weight Rating Weighted
score
Reasoning
1 Extensive Distribution with 241 retail stores (Forward integration)
0.2 4 0.8 Good distribution is KSF of industry, and Bata has extensive and its own distribution system.
2 Alliance with Big Brands 0.1 4 0.4 To cater higher class Bata has alliance with other brands
3 Air Moulding injection machine Technology
0.15 3 0.45 Advanced Technology used by Bata.
4 Strong Brand 0.1 4 0.4 To have loyal customers brand image is important, and Bata has very good brand image.
5 Footwear for the entire family
0.05 3 0.15 Availability of Bata shoes for every individual of family.
6 Targeting all income segments
0.05 3 0.15 Bata Targeting all income segments through A, B, C, and D category stores.
7 Financially Strong Company
0.05 3 0.15 Bata is Financially strong and can take risks.
8 Differentiation strategy 0.05 3 0.15 Bata uses differentiation strategy
Weaknesses
1 Advertisement is not 0.05 2 0.1 Bata has no proper
properly managed advertisement to attract more customers.
2 Less variety of trendy shoes.
0.1 1 0.1 Trend of fashionable shoes but Bata has less variety.
3 Could not sustain specific competitive advantage
0.1 1 0.1 Bata is not able to attain sustainable competitive advantage.
1 2.95
Result: Total weighted score value is 2.95 which mean company internal position is Good.
KSF of the Industry
Following are the key success factors for the industry:
Distribution Channel:
Distribution channel is one of the key success factors for the shoe industry because customer mostly prefers those things that are near to them and they can get it easily. So, the players in shoe industry must have their strong distribution channel so that the customers can reach to them easily.
Outsourcing:
Now-a-days the firms operating in shoe industry prefer to outsource stitched uppers rather than producing it in their own manufacturing unit. It helps the firm to reduce their costs so it is also a key success factor for the shoe industry.
Technology:
Today in any type of business, technology is one of the major key success factors. Technology helps the firms to differentiate themselves from the competitors and helps to gain a competitive edge. Moreover by using the latest technology firms can also reduce their costs.
Customer Loyalty:
Customer loyalty is another key success factor for the shoe industry. If once a firm can create the customer loyalty, it helps the firm in repeat purchases of their products.
Current Strategies that BATA is using
Following are the current strategies that BATA is using:
Manufacturing
Distribution
Brand
Manufacturing:
One of the major strategies in manufacturing is Air Moulding Injection Machine technology. The
purpose of this strategy is to reduce the cost because by using traditional manufacturing, they
require 27 persons per conveyer while this technology only requires 2 people.
Another strategy regarding manufacturing is the outsourcing of the stitched uppers. They were
producing all the materials of the shoes themselves due to which their costs were increasing so
they decided to outsource so they can reduce their costs.
Distribution:
BATA has three manufacturing plants in Pakistan and all are situated in Lahore. BATA distribute
all their supplies from these plants. It has550 registered dealers all over Pakistan. Their current
distribution strategy is that they divided their retail outlets in four major categories; A, B, C and
D type stores.
Category A stores catered the higher end of the market by providing them premium shoes.
Category B stores catered the middle and upper middle class of the customers, category C
stores catered the low class of the customers which have the large quantity of rubber slippers
and PVC slippers. Category D stores also catered the lower end of the market by providing them
low cost shoes.
Brand:
Brand name of Bata is its one of the major strength. Strategies regarding brand is that they has
developed global alliance with Hush Puppies, Caterpillar and Echo to extend its product range
into the premium segment.
Bata Pakistan Value Chain
Primary Activities
Inbound Logistics:
Bata Pakistan shoe manufacturing value chain starts with the integrated value chain of
tanneries. Inbound logistics of Bata Pakistan include the raw material gathered from Bata’s own
tanneries and also from the different other tanneries. This includes canvas, heels, and plastic
which are used in the production.
Operations:
Once the raw materials are brought in the company the company’s manufacturing plant gets
involved and there are three operational facilities of Bata where the production of the shoes is
being manufactured and finalized.
Outbound Logistics:
From its three manufacturing plant the next step in the value chain of Bata is the outbound
logistics which includes the transportation of the finished products to its warehouses and then
to its own distributors and to its retail shops.
Marketing and Sales:
Once the product is reached in the retails shops of Bata, marketing and sales process begins.
Major portion of the marketing and sales are being done by the Bata outlets and the agency
they have hired and also through mega stores, this is the major source the finished product is
being marketed.
Services:
The value chain process continues in Bata even after the products are being sold. If there is any
complain they are properly adhered to.
Secondary Activities
Firm Infrastructure:
Bata Pakistan is one of the leading firms of shoe manufacturing in Pakistan. Company has 3
manufacturing plants situated in Punjab. Company has retails stores all over Pakistan and does
most of its distribution by itself through their very large scale distribution network.
Human Resource Management:
Human resource management department in Bata has always been an exceptional one. Bata
realizes that nothing is possible without a loyal workforce, because it’s only possible to add
value to the product if the workforce is aware about the production functions and is capable of
doing these function effectively and efficiently.
Technology:
In the value chain of Bata Pakistan technology is very much important as this is also a key
success factor for the firm. New and better technology is being introduced to make sure the
production process is simplified and made effective. Technologies like air molding are adding
value to the product.
Procurement:
Procurement deals with the handling of the raw material and product through different stages
in the company. Bata is making sure that the company is adding value throughout these
processes.
McGahan Framework
McGahan frame work describes the change in the industry by analyzing the threat level in the
core assets and core activities of the Industry. In the footwear industry the threat to the
activities is high, threat is high because there is a greater chance of obsolesce. Many firms in
the industry are having almost the same kind of activities. The threat to Assets is also high in
the footwear industry so we Place the footwear industry in the radical changes.
Core Activities
Core
Ass
ets
Thre
aten
ed
Threatened Not Threatened
Radical Change Creative Change
Not
Thr
eate
ned
Intermediate Change Progressive Change
Intended and Emergent Strategies
Intended Strategies:
Ratio Analysis
Ratio Analysis (1991-1992)
Short-Term Solvency or Liquidity Ratios
a) Current Ratio = Current Assets/Current Liabilities
= 640.21/234.36
= 2.73 Times
If it is less than 1.90 then it is dangerous for the company and if it is above 2.10 then it is in-
efficiency of the company. In this case current ratio is 2.73 which show in-efficiency of the Bata.
b) Quick Ratio = Current Assets – Inventory/Current Liabilities
= 640.21 – 409.06/234.36
= 0.98 Times
Industry average for this ratio is 1.20 so that is not good for the company because it is low then
the industry average.
Long-Term Solvency or Financial Leverage Ratios
a) Total Debt Ratio = Total Assets – Total equity/Total Assets
= 1017.12 – 404.86/1017.12
= 0.60 Times
Industry average for this ratio is 0.90 so the ratio for the company is below industry average.
b) Debt Equity Ratio = Total Debt/Total Equity
= 247.27/404.86
= 60%
This ratio shows the risk factor of the business, if it is between 40%-60%, then it is reasonable.
In this case debt equity ratio for the company is 60% so it is reasonable for the company.
c) Time Interest Earned Ratio = EBIT/Interest
= 80.58/38.97
= 2.07 Times
This ratio shows that how many times the firm can pay interest. Industry average for this ratio is
6 times and in this case it is 2.07 so it is below industry average.
Asset Utilization or Turnover Ratios
a) Inventory Turnover = CGS/Inventory
= 1121.92/409.06
= 2.74 Times
This ratio shows that how many times we sell our inventory in a year. Industry average is 9
times, but for it is 2.74 which is below the industry average.
b) Receivable Turnover = Sales/ Account Receivables
= 1513.21/120.04
= 12.60 Times
This ratio shows that how many receivables we have in a year, the low is better. It is high so it
needs to be minimized.
c) Total Asset turnover = Sales/Total Asset
= 1513.21/1017.12
= 1.49 Times
This ratio shows that using total assets, how much sales we managed in a year. Industry
average is 1.8 times and for the company it is 1.49 times, so it needs to be improved.
d) Capital Intensity = Total Asset/Sales
= 1017.12/1513.21
= 0.67 Times
Profitability Ratios
a) Profit Margin = Net Income/Sales
= 29.28/1513.21
= 1.94%
This ratio shows that if we make a sale of 1$, how much in this 1$ is our profit. Industry average
is 5% and in this case it is 1.94% which is very below as compare to industry average.
b) Return on Asset = Net Income/Total Asset
= 29.28/1017.12
= 2.88%
This ratio shows that how many returns we can gain by engaging the total assets. Industry
average is 9.0% and for the firm it is 2.88% which is below then the industry average.
c) Return on Equity = Net Income/Equity
= 29.28/404.86
= 7.23%
In this ratio we do not check performance, we check benefits. Industry average is 15.0% and for
the company it is 7.23% which is below then the industry average.
(Ratio Analysis 2000-2001)
Short-Term Solvency or Liquidity Ratios
a) Current Ratio = Current Assets/Current Liabilities
= 1225.78/579.7
= 2.11 Times
If it is less than 1.90 then it is dangerous for the company and if it is above 2.10 then it is in-
efficiency of the company. In this case current ratio is 2.11 which show that it is good for the
company.
b) Quick Ratio = Current Assets – Inventory/Current Liabilities
= 1225.78 – 391.68/579.7
= 1.43 Times
Industry average for this ratio is 1.20 so that is good for the company because it is higher then
the industry average.
Long-Term Solvency or Financial Leverage Ratios
a) Total Debt Ratio = Total Assets – Total equity/Total Assets
= 1492.02 – 363.32/1492.02
= 0.76 Times
Industry average for this ratio is 0.90 so the ratio for the company is below industry average.
b) Debt Equity Ratio = Total Debt/Total Equity
= 579.7/363.32
= 160%
This ratio shows the risk factor of the business if it is between 40%-60%, then it is reasonable. In
this case debt equity ratio for the company is 160% so it is a very risky situation of the business.
c) Time Interest Earned Ratio = EBIT/Interest
= 182.26/81.78
= 2.23 Times
This ratio shows that how many times the firm can pay interest. Industry average for this ratio is
6 times and in this case it is 2.23 so it is below industry average.
Asset Utilization or Turnover Ratios
a) Inventory Turnover = CGS/Inventory
= 1376.21/391.68
= 3.51 Times
This ratio shows that how many times we sell our inventory in a year. Industry average is 9
times, but for it is 3.51 which is below the industry average which needs to be improved so that
business can work properly.
b) Receivable Turnover = Sales/ Account Receivables
= 2065.50/674.13
= 3.06 Times
This ratio shows that how many receivables we have in a year, the low is better. Here it is below
the industry average which is good for the firm.
c) Total Asset turnover = Sales/Total Asset
= 2065.50/1492.02
= 1.38 Times
This ratio shows that using total assets, how much sales we managed in a year. Industry
average is 1.8 times and for the company it is 1.38 times, so it needs to be improved.
d) Capital Intensity = Total Asset/Sales
= 1492.02/2065.50
= 0.722 Times
Profitability Ratios
a) Profit Margin = Net Income/Sales
= 68.38/2065.50
= 3.31%
This ratio shows that if we make a sale of 1$, how much in this 1$ is our profit. Industry average
is 5% and in this case it is 3.31% which is below as compare to industry average.
b) Return on Asset = Net Income/Total Asset
= 68.38/1492.02
= 4.58%
This ratio shows that how many returns we can gain by engaging the total assets. Industry
average is 9.0% and for the firm it is 4.58% which is below then the industry average.
c) Return on Equity = Net Income/Equity
= 68.38/363.32
= 18.82%
In this ratio we do not check performance, we check benefits. Industry average is 15.0% and for
the company it is 18.82% which is above then the industry average which is good for the firm.
Key Issues of the Case
Following are the key issues of the case:
The main issue of the case rises when in 2001 Bata decided to cater the higher end of the
market. Bata has always been known as a Brand of middle and lower middle class, it has been
serving these segments from last 60 years. By entering into the higher end, they are not only
damaging their brand image but also changing their target market. They are not having as many
resources to cater the higher end of the market they were just meeting the basic functional
needs of their middle class customers. So, at that time it is not a good strategy to cater the
higher end of the market. They should focus on their current strategies so that they can cater
the middle class.
Another issue in the case is about the distribution to the agencies. Bata was having their own
company owned stores but when they start giving agencies they were having problems because
service level over there was poorer and they always find a new set of people to be trained.
Recommendations
Company should focus on Product Development, Market Development and Market penetration
Strategies
Should exit from the lower end segment and focus more on the middle and upper middle class
of the society, because of the growth in numbers of people belonging to these segments and
also because of the rising incomes of its target customers.
Renewed brand image will enable Bata to earn premium at the upper middle end of the market
will aid the achievement of the financial goals.
Footwear industry is highly fashionable industry; hence Bata must improve the efficiency of
product development in order to bring new design and style.
The service standards should be strictly monitored and hence an experience fit will be provided
to the customers and these customers for this will be willing to pay a bit of premium because of
Bata’s brand and hence the competition undercutting Bata on price would no longer be that big
a threat.
It will need to focus on marketing itself as an outlet meeting all basic needs of the families in its
target market segment
Should provide consistent quality service to its customers so that customers can associate the
same experience with whichever outlet they visit of Bata.
Internet is a broad medium so they should also improve e-business.
