Ecco free essay sample

1) Describe the competitive environment of ECCO and determine how well ECCO is positioned (vis-a-vis competitors) to take advantage of changes in the industry. Use Porter’s five-forces model, the PEST model, and a SWOT analysis to explain your answer. (400 words) ECCO produces mainly casual footwear with an intense focus on high-quality production. In order to deliver the highest quality product, ECCO maintained a fully vertically integrated value chain situated in various countries leveraging local expertise. Because of this unique situation, competitors found it very difficult to sustain a comparable level of quality. As noted in the case, ECCO finds itself in a highly competitive industry. The primary competitors identified in the case are: Timberland, Clarks, and Geox. For a brief analysis of the strengths of each of these competitors, please refer to Figure 3. As ECCO has recently entered the golf shoe market, they also face stiff competition from firms such as Nike, Rebok, and Adidas. ECCO stands in a unique position among the competitors in that it is the only non-branded manufacturer. The primary competitors of ECCO identified in the case outsource the majority of their manufacturing then uniquely brand the end product. These firms depend on brand recognition and marketing to drive consumer decision, not intrinsic quality. By contrast, ECCO is very focused on quality, and maintains control of 80% of manufacturing in-house. Because ECCO is uniquely positioned with full control of manufacturing and distribution, they have a level of agility and efficiency that is unattainable by competitors. Because of this, they can respond more quickly and efficiently to consumer demand. This ability, however, stands in contrast to their practice of resource driven and quality focused manufacturing. A SWOT analysis can be found in Figure 1, and Porter’s Five Forces analysis can be found in Figure 2. As a result of ECCO’s agility, changes in the industry can be met by ECCO more efficiently than their competitors. ECCO may simply choose to stop producing a current item, instead of having to cancel outsourcing contracts. Close competitor Clarks at one time had many plants in the United Kingdom but has closed all but one to cut labor costs. Because of their value chain and supply chain ownership, ECCO is better prepared than their competitors to adapt to changes in the industry. 2) How well does the configuration of ECCO’s global value chain match the drivers in the industry? (400 words) ECCOs value chain is spread out through several countries, set up to leverage the various social, demographic, economical, and geographic advantages of each. For a brief analysis of each of the countries and their strengths and weaknesses, see Figure 4. The disadvantage of such a distributed approach is cost and complexity. ECCO must employ managers to oversee each of their specific tasks with local language, cultural, and political expertise as required. Furthermore, with each additional country in which ECCO decides to locate a factory, they face an increase in the risk that unfavorable political or economic forces might undermine any benefit they may have gained. Of course, the overall firm level risk will be lower because of the resource pooling effect. The industry for casual shoes, ECCOs main market, is driven by demand for comfortable and high quality footwear. ECCOs value chain has taken advantage of this driving factor by controlling the quality and production of their shoes to meet this demand for high quality. If operations were outsourced, they lose the control of ensuring such high quality and leverage of their high technology. 3) ECCO has a fully integrated vertical value chain. What are the advantages, disadvantages, tradeoffs, and risks of this strategy? What economic and strategic factors should be analyzed to answer this question? (400 words) As noted above, Ecco’s in-house production accounts for 80% of their total production. Vertical Value Chain Benefits ECCO benefitted from owning its own value chain in many ways. Each facility in their respective country utilized local resources and expertise in specific areas such as leather research in Denmark and assembly in Slovakia. By owning the entire value chain, products can be produced more quickly and product lines can be tweaked more frequently. Inventories can also be maintained at low levels, allowing ECCO to achieve closer to a just-in-time production operation. Vertical Value Chain Cons The main negative for ECCO in having an integrated vertical value chain is increased costs over competitors. For most shoe companies, the cheapest option is to outsource manufacturing, which is what most of ECCOs competitors have done. Another con of owning the entire production chain is that when demand abates, there are still high fixed costs to cover to keep the plants operational. Tradeoffs In-house production and total vertical value chain ownership means that ECCO is solely responsible for the quality and production of the product. ECCO is able to ensure the highest level of quality for its products, but there is likely to be a diminishing return on the level of quality. From an RBV perspective, ECCO is using the following resources: In-house production: Fully owned by ECCO, ensuring the highest quality. This is rare because of the expense and expertise in setting it up and acquiring the skill sets. Although this is imitable, it would be difficult to imitate. It would take a lot of capital and time for competitors to set up such a production pipeline. Finally, the organization can and has effectively exploited it. Private Ownership: Allows ECCO to focus on the strategic vision of the owners without such a heavy emphasis on shareholder equity. It allows ECCO to bear more risk. Also, capitalizes on the ability to guard proprietary knowledge. Again, this is a rare asset, as many other competitors are public companies and shareholders would likely demand the company to bear a lower level of risk. This is not easily imitable, as a company is or is not public, and transitioning between the states is difficult. Also, the organization has exploited this. 5) How is family ownership affecting ECCO? Comment on the corporate ownership structure and its implications for making and executing strategy. What alternatives exist? 400 words) Family ownership has been a key component to ECCO’s success. It has allowed the company to retain executives and executive vision due to familial loyalty to the company. As an example of this loyalty, CEO Karl Toosbuy had left the company several times only to return . Karl Toosbuy made several comments that indicates the true value of familial ownership. Regarding the ownership structure, Karl s tates, The family can take higher risks, and we act instead of wait. Based on the readings, it is my opinion that family ownership provides a competitive advantage for ECCO. Alternatives to family ownership include taking the company public or establishing a policy of hiring from outside the company and family. Although going public would provide a cash infusion for ECCO and allow more rapid growth, Karl Toosbuy believed that a company that was responsible to many individuals would ultimately be less agile and not be able to bear sufficient risk for continued success. The current ownership structure seems to work well for ECCO, and a change would likely involve a fundamental shift in culture and focus on quality. Such a drastic shift might condemn ECCO to mediocrity. 6) What do you recommend, why, and how would you implement your recommendation? (1000 words) ECCO has had great success in leveraging their in-house production model. If I were to identify one key component that they can leverage for continued success, this would be it. Because they have already invested in the expertise, this model allows them to free themselves from being at the mercy of suppliers and distributors. By leveraging this, they can continue to reduce costs of production and gain an even stronger edge over competitors. As noted in the case, Portugal is seeing a rise in labor costs. ECCO should attempt to cease the operations in Portugal and continue to monitor other economic factors in countries in which they operate. When the cost-benefit analysis fails to provide a compelling reason to continue operations in a less-profitable country, they should shift operations to other facilities. In their immediate future, it seems prudent to shift more resources to operations in China, Indonesia, and Thailand because of the attractive labor costs. Historically, ECCO has fallen short in sales and marketing efforts. ECCO should focus more time and resources in these areas, and improve their brand equity. Also, having a more balanced focus between market-driven and resource-driven would allow ECCO to capitalize on the latest fashion trends, but obviously not to an extent that undermines their core competency. In order to reduce costs and increase profit, ECCO needs should set up more tanneries. Currently they have tanneries only in Netherlands, Thailand and Indonesia but none in Slovakia and China. As noted in the case, these markets have the potential to be very lucrative, and production costs would be low. ECCO is already attempting to leverage their expertise in the production of leather. This should be further exploited. Because the marketing directory, Carl Gry, came from a retail director in Danish fashion clothing, ECCO could leverage his expertise and contacts to introduce a line of leather accessories, clothing, and other apparel. Not only will this contribute to their top line, but offering a wider variety of products would expand their consumer base. Finally, as noted several time in this analysis, ECCO’s primary strategic advantage is its unique, fully integrated vertical value chain. They should continue to find ways to further increase operating efficiency and quality. ? Appendex Figure 1 Figure 2 ? Geox Headquartered in Italy, is a threat to ECCO†¢s casual lifestyle footwear segment. Specializes in perforated rubber soles. They have their in house production facilities in Romania and Slovakia while they outsourced to manufacturers in China. 55 percent of their sales are from Italy itself. Clarks Biggest player in casual lifestyle footwear segment. They were into casual dress, casual boots and sandals.