Introduction
In the real world, the determined players are the producers and the consumers, who are responsible for the continuous industrial and economical processes in the society. Producers of goods and services are essential in providing the needs and wants of the consumers, while on the other hand, consumers determine the success of the products being offered by producers in the market. With these interrelated jobs and responsibilities, it is essential to identify and stress the importance of some related concepts and strategies in the success of business organizations. These concepts and theories are related to strategic marketing management. The concepts and theories underlying it give many business organizations the advantage in their successful establishment in the market, and these concepts will be evaluated and applied in a specific company, ECCO.
Financial, Organizational and Managerial Challenges
The global market is a tough nut to crack. ECCO must be competitive enough in order to penetrate this market. Today’s competition for business supremacy has always been a battle. It’s a battle on who will be the best, a battle that the end winner will be determine by the company’s ability to compete against other competitors. Competition is like a bottle neck road, who ever goes in first always have the advantage against the other. Because the domestic and international market undergoes a never ending phase, an organisation must be capable to adapt to these constant changes. A company’s capacity to change should be given consideration. Discrepancy between an organisation capacity and the demands of its customers results in an inefficiency, either in under-utilised company resources or unfulfilled customers. Maybe, ECCO want to initiate a management system and strategy that could maintain the organisations’ capability, strength and competitiveness. And this is important for the management teams and the organisations per se that they would always be open minded for changes that they might encounter in order to cope and adapt to the latest development that are happening within and outside their environment. Businesses are continuously evolving just to maintain progress and being competitive.
In ECCO, the company was facing a lot of challenges in accordance to their financial, organisational and managerial sections (Nielsen, Pedersen, & Pyndt 2008). In terms of finance, ECCO is somewhat expressive despite of the problems in past decades. As seen in their history, the company experienced stagnating productivity and declining operating margins from year 1999 to 2003. This effect was a challenge for ECCO as they enter the 21st century considering that competition in this era are becoming tough due to the technologies merged in businesses’ operations. And those businesses lacking of financials that will support technological advancement may possibly suffer more in terms of progress and returns.
In terms of organisational and managerial challenges, ECCO are now operating in global scale. This is a challenge for ECCO to have the most capable employees with excellent international mindsets and good adaptability skills. With this ECCO conducted several trainings which is also a challenge not only for employees but also for managers. The managers’ goal in improving and developing insistent and competitive business organization may weaken the potential of their human resources for the benefit of the company relative to total work output. This will also encourage the improvement of constructive working relationship and superior communication channeling among the personnel in the establishment whether between the supervisor and the subordinates or employee to peers and colleagues.
The employees, on the other hand, should benefit in opportunities of developing their skills more and enriching their knowledge through the training programs and exercises that their company invests on. This will guarantee their competitiveness in the fast-paced and ever-changing description and scope of their work. This may also sustain their personal desire of improving themselves as productive individuals. Minimum stress level could also be expected in the workplace atmosphere.
In the evident advantages of practicing workplace learning on the side of both the employers and employees, it is apparent that the business organization as a whole will in general gain from utilizing the said training and bonding practices. The smooth working business operations and transactions inside the company that resulted from the availed workplace learning activities will guarantee that the higher productivity level of the organization in general.
Change of management is not bad as long as the changes made can really enhance the competitiveness and strength of an organization. It is effective, if and only if, a thorough investigation and evaluation of the company’s performance has made. And if the study suggests that there is a need for change, then that is the only time, the organization should imposed required changes to be done. Because, change of management system is very critical, one wrong move, the company, might faced its biggest downturn instead of strengthen its business portfolio and survive to the stiff competition in the business arena. It is recommended that any organization, which will undergo some changes on their management system, must see to it that the changes are well planned and implemented carefully, because these will the basis for the success and/or failure of any organization.
Outsourcing and In-house Production
As reported, ECCO’s production was composed of two portions. Basically, 80% of the shoes/products manufactured by ECCO were produced in in-house and only 20% of its total were outsourced which are usually composed of ladies’ shoes with thin soles and some types of sport shoes (Nielsen, Pedersen, & Pyndt 2008). Outsourcing of production is one of vital business and supply chain strategies for ECCO, which is one way the company is revolutionizing their operations to deliver better products faster at lowest cost possible. As majority of the competitors of ECCO shifted in outsourcing, these companies understand that this mode was a supply chain collaboration model and strategic alliance approach, which allows the company to concentrate on product development, sales and marketing. Aside from this, outsourcing will eventually helps the company gain competitive advantage of increased product availability, reduced inventory, minimized total logistics cost and rapidly introduce their product to market without a significant investment in plans for capital equipment. For instance, Sobrero & Roberts (2001) presented a study evaluating the implications of 50 supplier-manufacturer relationships in the area of product development. There were three new product development projects which were utilized for the analysis of the inter-organizational relationships. The contributions of both parties were analyzed focusing on the products’ (a) design scope or the types of problem-solving activities utilized, as well as the (b) level of task interdependency or effects of the interaction between the manufacturer and the supplier to the product innovation practices. The results of the study indicated that the success of their relationship is highly dictated by the distribution of tasks and the type of problem-solving approaches as well as their continuous coordination during the entire project. It was emphasized that resolving the differences between the suppliers and the manufacturers likewise contributed to the positive performance outcomes of the relationships through the exchange of efficient short-term business strategies and long-term dedication to learning enhancement.
But for ECCO, in-house production is somewhat better than outsourcing. Why? Because in in-house production, it avoids the underestimation of communication costs. Actually, the long distance and higher expenses for communication when working with sub-contractors require a completely new set of management techniques. Moreover, inadequate governance may be also prone in outsourcing unlike in in-house that there was already a steering committee to oversee the work of the supplier. Normally, the size of the steering committee should be a certain percentage of the working time of some of your employees. ECCO was also over protective when it comes in information, that is why 80% of their production was handled in-house. Unlike in outsourcing, loss of control over key information, crucial knowledge and technical staff was prone. The technical staff, their know-how, and the documentation they produce are controlled by an independent supplier that has its own balance sheet and its own interest which might be different than your interests.
ECCO was also protecting their leadership in business relations. Actually, outsourcing relations have the tendency to expand. The supplier might take over leadership in the buyer’s business relations; in time some of these relations may be managed by the supplier, and the communication will pass its desk.
Resource based Review: Outsource versus Offshore
While we know that information technology has greatly contributed to the methods of implementing the economic and social methods of running departments, we also now know that information technology has greatly changed the method of running businesses. One of the evidences of this is through the implementation of outsourcing. Communication has always been an important aspect in the corporations and it is through lesser delays in the distribution, gathering, and exchange of information that a corporation has a chance in succeeding. Hormozi, Hostetler & Middleton (2003) give their own definition of outsourcing, one which they point out is actually not a new practice but has only recently been focused on; with this, it described outsourcing as the practice of companies to find outside source for help in their business. Along with the acknowledgement that outsourcing is not a new venture in businesses due to organizations continuing to seek the aid of other companies or outside expertise to help with several sections within their work. With the improvement of technology, it is professed that communication and the development of digitalized information has resulted to the dramatic increase of costs that the companies pour into hiring employees; there has been a shift in the core of the company and has aided in the focusing on information technology to continue helping with its assistance in the expansion of several companies in the present times.
In the case of ECCO, outsourcing plays a crucial role in their manufacturing process (Nielsen, Pedersen, & Pyndt 2008). But still the offshoring tends to become their main asset. Similar in outsourcing, offshoring was also a good way to cut overhead costs. But in some cases, there is a lot of overhead involved with offshoring due to language barriers, cultural barriers, and time zone challenges. To successfully offshore development, the paying customer must provide a maximum amount of oversite and process to overcome these barriers.
As stated, the first and foremost key driver to choose offshore is cost efficiency. For ECCO, cost efficiency in the offshoring is a result of continuous optimization through scalability of operations. In ECCO, one of their key goals was to increase productivity per employee. Their plan is to reduce the presence of service functions and processes in global high cost locations and move them to an offshore location. The lesser the onshore presence, the more profitable the organization, and hence better the ability to provide “value for money” services. In a volume driven industry size and scale play an important role.
On the other hand, it was discussed that outsourcing is the technique of utilizing the resources of other areas in order to conduct places in another area; it is widely understood that this method uses modern information technology to their fullest advantage in order to take credit of the uses of the resources that may only be found in certain areas, as well as take advantage of the costs of cheap labouring. Hormozi, Hostetler & Middleton (2002) pointed out that outsourcing requires fast and innovative information technology to cater to the needs of the workers as well as the companies, especially if they are needed for the exchange of the information with other companies in their partnership. Strategy of the company must be taken into deep consideration as they ensure that both the workers are given relatively better employment while also ensuring that the necessary information technology is employed in order to offer better services to their clients and their partner companies. Because of the importance of information technology, however, it has been suggested that the corporations’ information technology departments must be able to retain their control over many of the actions that must be done in order to keep some centralized control and be able to pinpoint the possible source of problems in case they crop up, or be able to initialize immediate changes that may be required of them (Siemers, 1995). Other factors must also be considered when attempting to use outsourcing for the business, such as the ability of the staff and the budget of the company, but all things considered, it must also be deliberated if the information technology costs will be less or at least equal the demanded services of the people (Lowe, 2004). Moreover, outsourcing is subject to the problems of international laws and social incompatibilities and therefore may give more problems to the workers that may not work out, not to mention that it may affect the company’s relationship with their contractors and partners. Great assessment must be considered for the need of the outsourcing companies as well as the ability of the workers to provide for the needed requirements.
In engaging with outsourcing and the use of information technology, Siemers, (1995) has cautioned against the possible problems that may be met by the corporations, and that with the direction of businesses in the field in this era, total reliance on information technology may prove to be a weakness in these areas; centralization of the abilities and the departments of the providers may prove to be problematic and may provide countless of predicaments especially in a possible event of a breakdown of these methods. Such an event may render the company into a catatonic state and provide problems to the companies, halting their businesses. Other problems such as this dependence must be addressed by the user in the occasion that these problems might occur; addressing these problems may also ensure the safety of their future.
International Corporate Strategy
Since the company are currently focusing on cost and efficiency, the company may expand in China (Nielsen, Pedersen, & Pyndt 2008). China was known as a low-cost country whereas the labor resources are abundant in the area. Thus, the creating of manufacturing site in China is a good idea. ECCO may also begin an expansion in the said foreign market by exporting its product. When the results are good or even excellent, what follows is the creation of production facilities in the foreign market and foreign direct investment (FDI) to start satisfying the local demand for the enterprise’s product. Afterwards, ECCO may continue to export its product and progressively expand its local production facilities. Actually ECCO may go in China to exploit the rents inherent in the monopoly over advantages that they possess (i.e., patented technology, team specific managerial skills, marketing skills and brand names), and that all other methods of exploiting these advantages in external markets (such as licensing agreements and exports) are inferior to FDI because the market for knowledge or advantages possessed by firms has the tendency to be imperfect.
Actually, ECCO’s expansion to China is a win-win solution. Meaning, ECCO benefit from it and also China have great gain. For this, the company create a manufacturing site in the country which help them to lessen their overhead cost since the production cost in China is quite low compared to other 1st world countries. On the other hand, the expansion of ECCO create jobs among locals in China.
As for evaluation and control of the strategy, i.e. creation of manufacturing site in China, ECCO should still need to review the current status and economy of China. Meaning, the issues concerning not only their man-power but also issues pertaining to their business and environment policies must be reviewed. If the company also plans to market their products in China or even in other countries and not only for manufacturing processes, the company should consider the so-called product life cycle which can be divided into four phases: the launch phase, growth phase, maturity and maturity and decline. Basically, as seen in launch phase, ECCO tend to see the new product, (the one that is to be exported to the rest to the world) produced in the economy where the product is developed; the growth phase, the phase where the business, in order to maintain competitiveness, will look to reduce costs and may thus consider to shift production overseas to lower-cost production centers (this is because as the market of the new product grows, other producers will seek to copy or imitate the new product, thus, prices will begin to fall); maturity, where, at the early stage of maturity, the business is still looking to sell its product in the market of the developed economies, but as the original market becomes increasingly saturated, ECCO should seek to expand into markets overseas that are at an earlier stage of development; and, maturity and decline, where, by the time the original markets are fully mature and moving into decline, the only way to extend the product’s life is to cut costs and sell the product in markets of developing countries, thus, the location of production may shift once again, this time to even lower-cost countries (accordingly, by this stage, the country in which the product was developed will almost certainly be a net importer, although it may only be importing the product from a subsidiary of the same company that produced it within that country in the first place).
Since the company is aware of the need of the customers, ECCO should learn how to balance customer satisfaction and efforts towards sustainability. ECCO should predict and plan the long term issues in industry award-wining program which includes the ability to select storage and distribution sites which will be profitable to achieve further growth. Careful planning must be conducted to understand location, competitors, number of potential customers and the ability to make a profit. Consequences of making decisions without careful planning may result in an outlet having negative cash flows as opposed to positive. Actually, the implementation of an industry award-wining program has nothing to do with the prices passed on consumers. For this, ECCO should also realize that a business is a business. It has its own goal, if their goal is to consider the best practice in emission reduction measures, they should continue to implement the industry award-wining program despite of the raising prices. But as I said earlier, ECCO should learn to how balance whereas these increase in prices would only have small impact to their consumers.
ECCO's Advantages in Dynamic Environment
In order for ECCO to be persistent with its success both nationally and globally, the company must offer quality products to consumers. As seen the company vision, they aimed to become the leading provider of shoes for all people. This is one of the competitive advantages of the company over their competitors i.e. to offer shoes with internal values to their consumers. Basically, another competitive advantage of the company is its increasing venue of marketing their products. The wide range of business venture they are engaging in can be also considered as one of their competitive advantage. Together with its key resources such as people, finances and material assets, the company is doing their business expressively. With the growing influence of globalisation, competition within businesses and markets is inevitable. However, with an established goal and appropriate techniques, a company can gradually lead its way towards success. Objectives, goals and strategies are indeed significant in the business foundation as these serves as a guide to the company so as to serve its main purpose and obtain its core objectives. In the case of ECCO, the company goals and objectives are clear and catchy.
As for it internal environment, one of the strengths of the company is their wide knowledge of shoe industry. The competent top management and rank & file for operation and maintenance also adds to their strength. Actually, becoming one of the pioneers in shoe making was also considered a strength since there are numerous consumers in China that are giving their loyalty to businesses that are environmentally concerned. And this is evident through their existing customer base, excellent financial investment backing and strong IT in manufacturing.
Despite of this strength, ECCO has also weaknesses, their weaknesses include low supervision on international market, high turnover of employee and in global expansion, the required local partner is also their weakness. Despite of this, the company are still considering the different opportunities such as expansion of target market, healthy market environment and increasing detraction of small businesses in China but they also have to review the current business threats such as economic restructuring, intensified competition and government regulation.
In ECCO, the value chain is also crucial for their success. Normally, these are divided into two activities namely Primary and Support.
Primary Activities - For Inbound Logistics, ECCO has considered product quality which enables them to create excellent shoes and also help other pre-production processes; thereby improving the process of selecting raw materials needed for the designs of a new product line which increase the speed and efficiency of the whole process. Apparently, in accordance to operations, ECCO has conducted a comprehensive review of its operations system and the result was that a new operations workflow and system in all functional areas within the purchase and sales cycle and other inventory areas. Key Performance Indicators (KPIs) were also redefined and set as new guidelines of performance assessment, communication and evaluation.
For Out-bound Logistics, the supply chain of ECCO is the different outlets (both for manufacturing and distribution) it has around the globe. This enables ECCO to produce products that suits to the needs of its consumers. With respect to their marketing and sales, ECCO aims to give consumers better living through innovation in its product mix, merchandising, and store lay out as well as its entire marketing strategy. The over-all objective is to build a strong brand of a balanced fusion of technology and people. Its promotions strategy, on the other hand, is anchored on the mission to become the market leader through showing consumers that the company has improved its products, shopping environments and customer service. Actually, the company has also established an operations support centre in some part of the globe to build the company’s strength in China and provide a cost effective and timely back office support which will serve the China markets. This made it easier for the head office to deal with services and it also improves the over-all customer service perception of consumers regarding ECCO.
Support Activities - In terms of procurement, the off-shore operations has a respective procurement office which will offset the burden of the head office in procurement and create a more organized workflow because it will take care of the procurement needs of the other nearby areas. On the other hand, ECCO must consider IT to create the e-based marketing and transaction which may improve business management for the company. The need for new operations workflow and system is essential since it may also result of reengineering which correspond to the needs of it consumers such as product sustainability, affordable prices, zero waste, and triple bottom line consideration. Each department of the organization is now geared towards realising the main corporate objective of being the shoe manufacturing industry leader in China.
References:
Hormozi, A., Hostetler, E. & Middleton, C. (2003). “Outsourcing Information Technology: Assessing Your Options.” SAM Advanced Management Journal, 62 (4), 18.
Lowe, S.C. (2004). Marketplace masters: How professional service firms compete to win.. Westport, CT: Praeger.
Nielsen, B.B., Pedersen, T. & Pyndt J. (2008). ECCO A/S- Global Value Chain Management. Ivey Management Services.
Siemers, R. (1995). “Meet the New Outsourcing.” ABA Banking Journal, 87 (6), 52.
Sobrero, M. & Roberts, E.B. (2001). ‘The trade-off between efficiency and learning in interorganizational relationships for product development’, Management Science, vol. 47, no. 4, pp. 493-511.
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