ECCO A/S – Global Value Chain Management
ECCO is a worldwide company acting on the market of the shoes manufacturing. It has been created for more than 40 years and is one of the leaders of the market. The company key point in his product is the quality with a combine production: manual and machinery, a production of their leather made in-house and a unique direct injection technology. With this different assets the firm aimed to become the producer of the world’s most comfortable and modern footwear for work, leisure and festive occasion with a target market constituted by all gender: men, women and children.
ECCO has an international profile on several points, first with his workforce to guarantee to use capabilities, skills and knowledge of each one at its best interest, second with his place of production and of sells with the United States, Germany and Japan as his main Market. Despite of its growing success, we can notice that the company had to face to a stagnating productivity and to some declining margins from 1999 to 2003 and to an increase of his debts.
2004 brings signs of improvements, nevertheless with their future plan to implant 5 closely connected factories over the next four years in China
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That’s why I would advice to the company to put quality and design on the same level in term of requirements for the company. Indeed if the company reach this level on the market just with the quality of its product with more marketing and products that are more trendy, the firm could erase some of its direct concurrent. This technique has proved its efficiency already in the past to solve the lost of money before 2004, as a consequence, ECCO should continue to improve his work on making more modern shoes adapted to today tastes and requirements of customers.
Then, In-house production of shoes is an important advantage for ECCO who do not have to deal with suppliers prices, problems and concurrence, the company have to keep his strategy of having an entire value chain going “from cow to shoes”. Leather being produced in ECCO tanneries it is important to have tanneries near sites of productions and also near countries who ask the most for the product.
We see that there are tanneries in Netherlands, Thailand and Indonesia but none near the United States, it could maybe be interesting to implement one near this country although that a production site to furnish one of the main customer of the brand and the distribution centre situated over there. We notice also that Denmark has become over the years the place for designing prototypes, managing marketing and research and development.
It could be interesting for the company to segment these activities among the different sites of the company to have specific research, development and marketing according to the cultural tastes of different regions. More over it appears that some prototypes needs to be create in Indonesia asking 8 weeks for the final product to go to Denmark, having different headquarters with marketing pole or prototypes pole could also serve in this way to reduce cost by reducing time of shipping prototypes.
The situation of the biggest sites in Denmark put in the light other structural problems, indeed majority of the shoe’s production is going through this country even though just 6 to 9 per cent of the total production is sold on the Danish market. If majority of the production is not sold in this country it should maybe not go through it. Even if ECCO was one of the pioneers in Danish Manufacturing it could be beneficial for the firm to wonder if this place is still full of benefits for the company.
Some of the productive places are hit by the same problem, notably the one in Portugal, which was the first relocation of production; this place is experiencing a significant decrease since 2000 in the number of shoes leaving the infrastructure. In my opinion, ECCO should consider maybe to close this unit in Portugal and concerning Denmark to reduce productions, which are going through this place.
At least, I will recommend to the firm to do a filter analysis to plan in which future country they want to open a new market. If China is among these country, I think they should conduct all other analysis and research necessary before to enter and check they have all keys of success: a sales strategy, market studies, a deep knowledge of customers and a good distribution network.
Once this has been check they have to take care of the four important dynamics in such an implementation: Time, Control, Cost and Risk and to answer to the good questions: Is the comparative advantage of the country enough important? Are Competitive pressures from domestic and foreign-based companies and the necessity to compete in the competitors’ home and third country markets not too much important?
At least, they will have to think well about redesigning the set of activities and interfaces among them in the Chinese market but also to think again the design to accrue significant gains in the firm’s cost structure, asset, investment and, or speed of responsiveness to external environmental changes. Once they ensure that they make all the changes necessary in their current structure and are ready in terms of research and means to implement these new units I think ECCO will considerably win some market shares and some important advantages in front of their concurrent.