ECCO, a global manufacturer and a supplier of shoe products, wants to expand into the Chinese market to increase its export to major markets and also increase product sales among Chinese consumers. But many Chinese manufacturers imitated the product design and features of ECCO increasing the intense competition for the company in the Chinese market. Also, ECCO for years has a sole focus on increasing the quality of the shoes manufactured by using its sophisticated in-house 'direct injection' technology. But the company cannot only thrive on its quality unless the company's efforts to ensure quality are not communicated to the consumers. Thus, the company focused less on marketing operations that is evident from its low marketing budgets as compared to its competitors.
Also, the most of the products manufactured in four production facilities outside Denmark were distributed through its distribution centre in Tonder, Denmark where only six to nine percent of total production was actually sold. Thus, ECCO became inefficient to fulfil the replenishment orders that had to be delivered within a few days notice. Thus, the main challenge for ECCO is to focus more on the marketing operations of its products & remove the inefficiencies in its in-house 'cow to shoe' value chain that converts the raw hides procured to the finished goods.
ECCO has various options to overcome the challenges and significantly increase the market share in Chinese geography. One option can be to hire a marketing agency to increase its marketing operations in China thus informing consumers about its unique value chain & overall quality of products. Also, ECCO can focus on establishing a distribution centre in China to reduce the time to ship the shoes manufactured to distribution centre and from the distribution centre to the retailers. In addition, company decide to obtain patents for its technologies in order to take legal action on the Chinese manufacturers who imitate the product features and design of ECCO's shoes.
Karl Toosbuy founded ECCO in Bredebro, Denmark in 1963. The company's goal is to develop shoes that are pleasant to work regardless of the weather conditions. The company produces various types of shoes including casual and outdoor shoes for men, ladies and children, as well as semi-sport shoes (outdoor, walking, running & golf shoes) for two different seasons ' spring/summer & autumn/winter. Although the sales of shoes for ladies recorded the highest percentage of overall sales in 2004, the Golf shoes recorded a significant growth & were preferred by more than 90 percent of golfers over other brands.
ECCO exported 90 percent of its production mainly to United States, Germany & Japan, with the American market being the most lucrative due to higher selling prices of shoes. ECCO maintained focus on the entire value chain of the shoe manufacturing by buying raw hides and transforming them into various kinds of leather usable in shoe manufacturing, unlike competitors in the industry that outsourced production to a large extent. The company owned tanneries that supplied leather to production plants over the world. Leather constituted the main material that was produced at ECCO's production sites. ECCO's production process is divided into five strategic phases: full-scale, benchmarking, ramp-up, prototype and laboratory production.
Also, the company focused on R&D activities at the production sites for optimization of materials. Tannery operations were divided into phases such as prototype, laboratory & ramp-up production of leather. Finished Shoes were distributed via sales agents & company's distribution centre. ECCO has two distribution centres, one in US and other in Denmark.
ECCO manufactured 80 percent of its shoes using 'direct injection' technology which was hard to imitate. As ECCO was willing to keep the production in-house, it began co-operating closely with an Italian company Main Group specialized in injection machine molds & services for footwear. ECCO also established 26 sales subsidiaries around the world and 4 international production units each in Portugal, Indonesia, Thailand & Slovakia with the main objective to reduce labour costs & to distribute risk. The Portugal plant was more focused on technology that transformed the plant into EECO's leading developer within laser technology. Production site in Thailand was successful in terms of output, employee satisfaction and size.
ECCO established production facilities in China due to 100 percent ownership of production sites & 50 percent of world's shoe production was manufactured in China. Access to local manpower, not low labour costs & taxes, was the main factor to establish operations in China. ECCO formed a sales subsidiary in China together with Aibu to increase sales of shoes to Chinese consumers & encouraged a network approach to gain the loyalty of Chinese consumers.
The industry was highly competitive & subject to frequent changes in consumer preferences that sparked investments in both cost optimization and new technologies. Although pinpointing ECCO's competitors was a challenge, ECCO regarded Geox, Clarks and Timberland as its main competitors.
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