Business Strategy Coursework ECCO By: Dipika Kumari Title page Date to hand in project:10th March, 2011 Project supervisor:Stefan Eberle Word count:1804 words International Business Academy Signature : __________ IBA Student Name: Dipika Kumari IBA Student No. : 139355 Class: KSIBA10BA1 * * * * * * * * * * * * * Table of content Title page2 1. 0 Executive summary3 2. 0 Strategic position of Ecco4 2. 1 Internal environment analysis5 2. 1. 1 Value chain5 2. 1. 2 Product life cycle7 2. 2 External environment analysis7 2. 2. Porter’s five forces7 2. 3 SWOT analysis9 3. 0 Competitive advantages in Hungry10 3. 1 Porter’s diamond10 3. 2 Capabilities for achieving & sustaing competitive advantages12 4. 0 Route to competetive advantages 12 4. 1 Porter generic strategy12 4. 2 Ansoff matrix14 5. 0 Conclusion:15 6. 0 Bibliography:16 6. 1 Book:16 6. 2 Website:16 * * * * * * * * * * * * * 1. 0 Executive summary: This course work is based on overall strategic view of ECCO by choosing one among the three given markets. And I choose Hungary as the base country for this task.
The report will seek to answer: * Strategic position of ECCO. * ECCO’s competitive advantages on Hungary. * And what strategy ECCO should follow on this market. * 2. 0 Strategic Position of Ecco: * The Strategic Position Environment Capability Purpose Culture * * * The strategic position is concerned with the impact on strategy of the external environment, an organization’s strategic capability (resources and competences) and the expectation and influence of stakeholders. * 2. 1 Internal environment analysis: We can analyze the internal environment of ECCO, by the help of value chain. * 2. 1. 1 Value chain: With the help of value chain, we can describe the categories of activities within and around an organization, which together create a product or services. * Fig: The value chain, Porter 1985 ECCO controls every part of the process, unlike other companies who outsource their production; ECCO places its production in its own factories. There are factories in different part of the world such as Portugal, Slovakia, Thailand, Indonesia and China.
Having own factories enables ECCO to maintain high level of technology throughout the production process and also constantly innovate the quality along with fashion. ECCO’s internal mould workshops in Denmark and Thailand ensure short development costs and delivery time. The company focuses on the lean company development which includes education, coaching and training of managers to guarantee top quality products and their working environment is being met by the Code of Conduct to provide safe and healthy environment. They can enhance teamwork and cooperation to gain high results.
Top quality has been achieved as ECCO massively focuses on qualitative raw material i. e. first class leather. ECCO’s tanneries are among the leading manufactures of quality leather for use as car and plane seats. ECCO operates its own laboratories as well as evaluate the shoes in real world conditions and on real feet so it organizes team of enthusiastic tester in long term orientation. ECCO is an international business with global scope so the collection work is adaptation to local markets to match with newest trends and requirement in local markets.
For this task ECCO’s headquarters arrange at least two major conferences each year. ECCO is a global brand. Therefore, the goal oriented training of shop personnel is a corner stone of ECCO. The shop strategy is a strong and independent part of ECCO’s overall business strategy. Sales efforts focus on ECCO’s own and partner- operated shop supplemented by carefully fitted shop-in shops. ECCO finds it important to listen to feedback from consumers all over the world when developing a new store concept.
Marketing plays an important role as it is responsible for advertising and informing the people about the products. The training of shop personnel guarantees that all customers receive high level services. In order to provide professional service ECCO runs some of its own and partner-operated shops in strictly selected areas, in the best possible locations. Thus, we can say that ECCO is a leading shoe company with special focus on top quality, high technology and constant innovations through global R&D.
The company achieved its leader position on the market owing to the fact that it owns every part of its value chain which guarantees the delivery of high customer value. * 2. 1. 2 Product life cycle: The ownership among many sources, use of well class logistics and continuous innovation and development on ECCO’s top quality products, distributed in carefully selected areas for high customer value and the increasing number of competitors puts pressure on ECCO in using latest technology, make its product life cycle long.
But at the same time their ownership among production and service make easier for ECCO to switch their business very fast. * 2. 2 External environment analysis: We can use PESTEL and five forces frame work to analyse this task. In this case, five forces analysis seems to be more relevant than PESTEL because Hungary follows EU regulations. * 2. 2. 1 Porter’s five forces: * Industry structure analysis with the five forces framework is value to most organizations. It can provide useful starting point for strategic analysis even where profit criteria may not apply. . Potential entrants: Threat of new entrants are high because no legal or government barriers. New entrants may be big international brands with high quality, within Hungary mid-low quality or very low quality cheap product from Asian countries. Capital investment depends upon the size of the company. 2. Buyer’s power: Buyer has lot of choices in the market moving from high quality high priced products to low quality low priced products. So, buyer’s power is high. 3. Supplier’s power: ECCO owns and control all stages of value chain from cow to consumers.
It produces leather in its own tanneries, located in Holland, Thailand, Indonesia and Portugal. These factor enable them to control in design and cost. So, low supplier power. 4. Industry rivalry: In the Hungarian market there is a huge choice of different sport shoes brands and models such as Adidas and Nike, Budmil, Fila, and Reebok and also competing with some local ones, such as Budmil and Wink. According to the data, 48% of the not-sporty population and 70% of the sporty people wear sport shoes daily. 82% of children use gym shoes regularly.
Branding plays a huge role amongst young people, and teenagers are becoming an important target for marketers. ECCO unique competitive atmosphere and distinctive advantage puts it in front. 5. Substitutes: Substitutes may be other branded shoes such as Nike, Reebok or local companies such as Budmil and Wink or low priced shoes imported from China. So, substitutes are many. 2. 3 SWOT analysis: SWOT summarizes the key issue from the business environment and strategic capability of an organization that are most likely to impact on strategy development. 1.
S-Strengths (internal origin): * Provides extensive range of men’s and women’s shoes worldwide. * More than 40 years of experience. * Dedicated to code of conduct. 2. W-Weaknesses (internal origin): * High prices 3. O-Opportunity (external origin): * Corporate much faster responds to changing markets. * Code of conduct and environment friendly. 4. T-Threat (external origin): * Competitive rivals * Economic crisis 3. 0 Competitive advantages in Hungary: Competitive advantages can be described by using various strategies, shown below. 3. 1 Porter’s diamond strategy:
Hungary is good country that ECCO can operate because it has many competitive advantages that add to the value chain compared to other places. Source: Porter (1990) In 1989, Hungary started the transformation of its political and economic system, replacing communism to free market economy. This set back the living standards of Hungarians. Many people lost their job before and faced financial insecurity. The main factor condition is low wages of people. Now-a- days the living standards are increasing and demand of branded product is increasing.
Due to these growing trends in customer behavior puts good chance of ECCO to attract customers. The distinctive feature and constantly innovation on ECCO product make it in upper position than its competitors. Hungarian economy is developing so many foreign company wish to establish business there and thus supported by government as well. 3. 2 Capabilities for Achieving and sustaining competitive advantage: Strategic capabilities might provide competitive advantage, can be measured by following five elements. * Value:
ECCO is supposed to be a strong brand. So its brand value added value to the customer. * Rarity: ECCO own their productions as well as services, which others competitor don’t have. * Inimitable: ECCO’s core competences for example: high class logistics, soles injection techniques, well control over production to service under their ownership and their motivation on their code of conduct and commitment on it, makes ECCO’s product durable and difficult to be copied by competitors. * Substitution: ECCO is weak in this part, has lots of substitutive product.
But their core competences elements make it unique among others. * Dynamic: ECCO has got the capability to switch their business, according to the market demand. 4. 0 Route to competitive advantages: We can determine the factor that how ECCO would compete in the Hungary by the help of following two strategies. 1. Porter’s generic strategy and 2. Ansoff matrix 4. 1 Porter’s generic strategy: In order to create the competitive advantage necessary to achieve growth, Porter (1990) suggests that firms should one of the following three generic competitive strategies. 1. Cost leadership:
The companies that attempt to become the lowest-cost producers in an industry can be referred to as those following a cost leadership strategy. The company with the lowest costs would earn the highest profits in the event when the competing products are essentially undifferentiated, and selling at a standard market price. So, ECCO should more or less concentrate on the factor to reduce cost. ECCO can reduce cost by giving emphasis on cost reduction on every activity of value chain without loosing the vision and Hungary, is one of the place where labor cost is also low so favorable place to conduct a company and with lower prices.
Also, ECCO can for instance charge an average price while following the low cost leadership strategy and reinvest the extra profits into the business (Lynch, 2003). 2. Differentiation: It is achieved through emphasizing particular benefits in the product, service, or marketing mix, which customers think are important and a significant improvement over competitive offers. ECCO is successful in presenting its differentiated product by following its code of conduct, systematic incremental innovation, first class leather, and direct injected sole and by testing in real field. 3.
Focus: Organizations’ can make use of the focus strategy by focusing on a specific niche in the market and offering specialized products for that niche. This is why the focus strategy is also sometimes referred to as the niche strategy (Lynch, 2003). Therefore, competitive advantage can be achieved only in the ECCO target segments by employing the focus strategy. ECCO can make use of the cost leadership or differentiation approach with regard to the focus strategy. In that, if ECCO is using the cost focus approach, would aim for a cost advantage for the people of Hungary.
Hungarian also want low cost product. If ECCO want to use the differentiation focus approach, it would aim for differentiation for them who want qualitative and branded product, not the overall market. 5. 2 Ansoff matrix: The Ansoff product/market growth matrix provides a simple way of generating four basic alternative directions for strategic direction for strategic development. These are shown in figure below. Following a product penetration strategy is appropriate for ECCO because it has already strong brand image regarding quality and customer service.
The resource available for ECCO in Hungary can be best use in concentrating on doing more of what already being done. Diversification, on the other hand, is strategy used, where demand for existing product is going down. This is not case of ECCO. The Hungarian customers are being more aware of brands now. So the popularity of ECCO is increasing. Product development implies greater degrees of innovation, which is the key concept of ECCO. So ECCO should more concentrate towards mastering new technologies and customer service oriented in ordering and getting things quickly by a click.
Risk of delays or project complexities should avoid totally. If product development doesn’t work then, we can go for market development. It is about offering same product in new market. If all strategy fails for the business in Hungary then we can make this choice. 5. 0 Conclusion: To sum up, with the help of different theories, now we can analyse the strategic position of ECCO in Hungary. It is most important task for any company to analyse it’s internal as well as external environment and taking care each activities of value chain carefully.
Hungary is a good country to operate and we have already analyzed this by the help of Porter’s diamond analysis. The rising economy, living standards of people and brand awareness make Hungary, one of the better places to do business for ECCO. And Porter’s generic and Ansoff matrix analysis provide us the broad overview to obtain a sustainable competitive advantage of ECCO in Hungary, which is necessary to achieve growth. 6. 0 Bibliography: * 7. 1 Books: * Exploring corporate strategy text & cases , 8th edition, by Gerry Johnson, Kevan Scholes and Richard Whittington, FT Prentice Hall, 2008, ISBN 0-273-73156-4 International marketing strategy analysis, development and implementation, by Isobel Doole and Robin Lowe, 5th edition, South-Western Cengage learning, ISBN 978-1-84480-763-5 * 6. 2 Websites: * http://www. ecco. com/downloads/ECCO_Annual_Report_2009. pdf * http://uk. reuters. com/article/idUKLNE6AL03O20101122 * http://www. emarketservices. com/clubs/ems/prod/The%20Sport%20Shoes%20Market. pdf * http://news. bbc. co. uk/2/hi/business/3662785. stm * http://www. kwintessential. co. uk/articles/article/Hungary/Environment-in-Hungary/400 * http://drypen. n/marketing/porters-generic-strategies. html ——————————————– [ 2 ]. Exploring corporate strategy text & cases , 8th edition, by Gerry Johnson, Kevan Scholes and Richard Whittington chapter 1 P13 [ 3 ]. Exploring corporate strategy text & cases , 8th edition, by Gerry Johnson, Kevan Scholes and Richard Whittington chapter 3 P110 [ 4 ]. http://www. ecco. com/downloads/ECCO_Annual_Report_2009. pdf [ 5 ]. Exploring corporate strategy text & cases , 8th edition, by Gerry Johnson, Kevan Scholes and Richard Whittington chapter 2 P60 [ 6 ]. http://www. emarketservices. om/clubs/ems/prod/The%20Sport%20Shoes%20Market. pdf [ 7 ]. International marketing strategy analysis, development and implementation, by Isobel Doole and Robin Lowe, 5th edition, Chapter 5 P169 [ 8 ]. http://drypen. in/marketing/porters-generic-strategies. html [ 9 ]. International marketing strategy analysis, development and implementation, by Isobel Doole and Robin Lowe, 5th edition, Chapter 5 P169 [ 10 ]. http://drypen. in/marketing/porters-generic-strategies. html [ 11 ]. Exploring corporate strategy text & cases , 8th edition, by Gerry Johnson, Kevan Scholes and Richard Whittington chapter 7 P257