Ecco A/S – Global Value Chain Cha in Management Case Analysis by Vasudevaram Vasudevaraman an – GAPR11IT090
Understanding Ecco A/S Before doing a critical analysis, it is imperative to understand what Ecco A/S is all about – what defines and drives the company. Ecco is a very unique player in the shoe industry and hence this understanding would help us set the context and analyze the various aspects of the company more relevantly. Vision of ECCO was to be the leading shoe brand in innovation and comfort footwear. Product Range of ECCO was casual, outdoor and semi-sport shoes for different demographics and
for different seasons Value Proposition was their extreme commitment to comfort, design and the perfect-fitting shoe.
Usability was their highest priority. Hence, their focus was always on quality and not on becoming a fashionable brand. Main Markets were United States, Germany and Japan but Asia, Central and Eastern Europe are also
lucrative markets with good potential for presence and growth in the region. Chinese market was seen as one which could serve export needs as well apart from targeting the internal market. Production Facilities were present at Portugal, Indonesia, Thailand and Slovakia with China being
their latest addition. They had tanneries at Netherlands, Indonesia and Thailand. These were to ensure that they had control over the quality of the leather as it is of extreme importance to them. Ownership of the company was private as it enabled them to be in control and hence take risks as
and when they seemed fit. Growth of ECCO took a hit in the period from 1999 to 2003 as they was investing and expanding in
newer markets but through streamlined logistics they could lift operating margins again in 2004. All the above mentioned aspects of ECCO meant that their value chain is of foremost importance to their success. An integrated global value chain with ECCO having end-to-end control would ensure high quality as well as enable them to optimize costs and sustain growth while expanding across international markets. Their value-chain also differentiated them from their competitors. Hence, an in-depth analysis of the value chain i s required.
Value Chain Analysis ECCO through its unique strategy controlled the value chain from ‘cow to shoe’ through tanneries, production and distribution centres.
Raw Materials Hides & Skins
Tanning
Manufacturing & Shoes Assembling
Distribution
Retail Outlets
ECCO bought raw hides and processes them into usable leather through tanneries. They had the largest tannery in the Netherlands and also a leather research institute. This ensured that they never had to compromise on their high standards of quality. Their lead times were better than even the leather suppliers. Competitors like Clarks and Timberland outsourced production of leather and were affected by price increases in raw materials. They also had to scrutinize the quality of leather which incurred extra cost. Their production process took place in Portugal, Thailand, Indonesia, Slovakia and China where the processes were streamlined to produce specific volumes of shoes. The development and research for new products, however, were done from Denmark. The R&D activities in foreign sites were only on the production process and material optimization. ECCO had distribution centres in the US and Denmark and Shoes were shipped overseas from these centres. Apart from ensuring quality control, ECCO ’s ownership of the value chain also meant better supplychain management. Their time-to-market, hence, would also be under their control as they no external dependency. New products can be launched and introduced very quickly and efficiently once R&D centre in Denmark comes up with the design. ECCO is also insulated from price fluctuations initiated by suppliers and manufacturers as they only procure raw hides. Their global supply chain also diversified their ri sks. One of the major disadvantages ECCO would face is the high cost incurred in integration of the global supply chain. It was proven by ECCO ’s competitors that outsourcing processing and production would lower production costs.
Apart from this, co-ordination and integration also
become increasingly difficult with increasing international presence and expansion.
SWOT Analysis In order to evaluate ECCO ’s next moves, we need to do a SWOT analysis so that we could arrive at recommendations and action plans that leverage on ECCO ’s strengths and addresses its weaknesses and threats. Strengths: ECCO’s production technique, known as ‘direct injection’ technology was unique, hard to
imitate and was its biggest strength. Through its research on leather processing, it can experiment and produce different kinds of leather for the next generation of ECCO Shoes. Leather research can also help them explore environmental-friendly tanning. ECCO ’s skilled manpower was also its strength as it invested aggressively in their workforce through training, career development and its Education and Conference Centre at Futura. Weaknesses: ECCO had only a 6% market share in the US which was one of their biggest markets
and this figure never improved indicating that the market has already saturated. Even though, they focussed so much on quality, their uniqueness and distinction was never properly communicated to the customers. They had only 2 distribution centres in the world, in US and Denmark – this would prove to be a problem as they continue with expansion in China and elsewhere. Opportunities: Aibu’s market know-how and position in the Chinese market along with ECCO’s
expertise and experience can ensure that they can gain loyalty of Chinese consumers. Once the 5 factories in China get operational, ECCO would have the opportunity to further expand into other lucrative markets in Asia. Threats: Competitors were lowering costs by outsourcing and streamlining operations. Brands like
Nike and Reebok began competing with ECCO on certain products. Even retailers were bringing in new products under private labels. As if these were not enough, Chinese Manufacturers started copying ECCO design
Recommendations Currently ECCO has only 2 distribution centres in the world, in US and Denmark. Since they are looking at expansion in Asia, having another distribution centre in Asia would reduce their transportation costs and time-to-market R & D on development of new products happens only in Denmark which might not cater to specific needs and wants of consumers in foreign markets. Hence R & D centres need to be established in all leading markets of ECCO. Quality is what drives ECCO but this vision has not been communicated properly to its customers. Customer need to connect quality with ECCO. Hence a concerted effort on Marketing needs to be done to position the brand appropriately. If the marketing strategy succeeds in positioning ECCO as a niche brand selling unique, high-quality shoe, then ECCO can go public to raise funds and expand further. If the marketing strategy fails, then maybe people are not willing to pay a premium cost for quality. In that case, the entire value chain need to be relooked at and modified. Outsourcing would then be the way to go to lower costs
