International Business

Case Study: ECCO A/S – Global Value Chain

Submitted To: Prof. Chandan Palaksha

Submitted By:

Akilesh Holla K U – 21005

Karl Toosbuy founded ECCO in 1963 in Bredebro, Denmark, with the purpose of developing
the most comfortable and contemporary work and leisure footwear in the world. To attain this
long-term aim, the business chose to control every step of the manufacturing process,
whereas most of its competitors outsourced portions of it. ECCO has a significantly
distinctive operating approach as compared to its competitors, such as Clarks, Geox, and
Timberland.

Unlike many of its rivals, ECCO did not outsource production to focus on marketing. ECCO
concentrated on its value chain. Furthermore, ECCO owned its tanneries, from which it got
leather for its shoes and sold it to automakers. The basis of ECCO's product strategy was its
direct-injection method, which used very high pressure to join the shoe uppers and bottoms
using capital-intensive apparatus. Many rivals attempted to use the same techniques or
licence ECCO's production processes but found it impossible to replicate the manufacturing
process. As a result, the topic of ECCO's position is influenced in part by whether their
manufacturing technique allows ECCO to benefit from industry developments.
Unfortunately, this appears to be doubtful. "There was a widespread belief that the benefits of
world-class manufacturing technology could not be retained indefinitely." Because they
control and oversee the whole value chain, they have a lot of flexibility and can maintain the
highest standards of quality. Their activities are one of their major competitive advantages.
The operations strategy at ECCO is both top-down (designed in pursuit of the company's
business plan) and bottom-up (based on the company's resources and capabilities). They
prioritise quality and dependability, and the supply chain is designed to produce precisely and
without error.

One of ECCO's major weaknesses stems from its manufacturing technology-centric approach
to business. While production technology is an important tool in the creation of high-quality
shoes, the importance of marketing cannot be overstated. Indeed, the most significant
restraint for ECCO moving ahead was its relaxed marketing approach. While ECCO was
well-positioned to fight fiercely in its existing market sector if customer tastes remained
consistent, a shift in consumer preferences may cause ECCO to become immobile in reacting
to changes. On the other hand, ECCO's competitors, who have placed a more focus on
marketing, may be able to adapt to changes in customer tastes. Because ECCO's rivals do not
have control over its production, they are able to locate alternative vendors to create the sort
of shoe that is "in vogue."

2. Analyse ECCO's global value chain. How well does this configuration
match the drivers in the industry?

ECCO is a prominent quality shoemaker, and its shoes are always on par with Nike or Adidas
in terms of quality, but at a lesser price than these global brands since it does not invest
 substantially in advertising. When it comes to ECCO's quality product, it has been decided
that the company's technology is considerably superior to that of its competitors in terms of
manufacturing high-quality footwear. Understanding the product, as well as its marketing and
production principles, it has been concluded that ECCO outperforms its competitors in terms
of adjusting to market changes.

The Global Value Chain of ECCO was investigated.

1. It has established a presence and earned a name for itself in several countries.

2. It has tanneries all around the world, including Indonesia, Thailand, and the Netherlands.

3. It has the know-how of Denmark, the world's best shoe-making country.

4. ECCO is the only firm that produces 80 percent of its own manufacturing range among its
competitors who outsource their raw materials and units.

5. There is a worldwide demand for ECCO's products.

ECCO has been able to establish a footing in the footwear market because of its significant
global exposure, and its configuration conforms to the sector's drivers, allowing it to develop
high-quality products.

The firm's dedication to quality was maintained by owning tanneries, factories, and leather
research centres, which strengthened the company's ambition and confidence in delivering
products that met client standards. The company was able to maintain high quality levels
through tight quality control procedures and keep its brand image of working to develop the
perfect shoe by minimizing the number of vendors.

In certain cases, the corporation compromised its objective by outsourcing the production of
shoes that could not profit from its in-house innovations. To save money on labour and
vendor logistics, most shoe businesses outsourced manufacture.

3. ECCO has a fully integrated vertical value chain. What are the pros and
cons of this strategy? What economic and strategic factors should be
analysed to answer this question?

ECCO's total ownership of all aspect of their shoes, from design to distribution, is one of the
benefits of a completely integrated vertical value chain. Because ECCO controlled the whole
value chain, it was not subject to the same "leather pricing" constraints as competitors like
Timberland, which relied on third-party leather providers. ECCO was able to estimate the
pricing of its leather inputs in advance since it owned its tanneries. Furthermore, by creating
in-house rather than following its competitors' "outsource and sell" approach, ECCO was able
to assure quality while worrying less about vendor relationships. The full-scale,
benchmarking, ramp-up, prototype, and laboratory production procedures at ECCO provided
the company with total control from the research phase to full-scale manufacture.
 Focusing on a completely integrated value chain, on the other hand, has the drawback of
transforming the firm into a manufacturing company rather than a marketing company, as
Nike, Timberland, and Adidas have done. While manufacturing may appear to be the most
important engine of a shoe company's success at first glance, consumer enthusiasm and
ardour for attractive and well-known shoes are more important in today's market. When
quality criteria that can be satisfied by several vendors are assumed, the value and importance
of in-house production is lowered. Furthermore, neglecting to market a shoe, regardless of its
quality, and delivering it to the end consumer diminishes the value of a value chain. This is
the problem that ECCO is addressing. The value of a vertically integrated value chain appears
to be significantly lower than the value of a "outsource and market approach" that effectively
gets shoes on consumers' feet without a sufficient pipeline to excite and adapt to changing
consumer preferences in the fashion shoe industry.

4. Is ECCO following the inside-out or outside-in strategic perspective? What

ECCO employs an inside-out strategy, whilst its competitors employ an outside-in one. Its
primary focus is on manufacturing technology and high quality. Its success has been ascribed
to a concentration on essential competencies. In terms of long-term viability, this is very
disputed. The inside-out approach is a corporate strategy method that drives change, product
creation, and innovation by focusing on the company's core capabilities rather than external
pressures such as the market, competition, and consumer preferences.

ECCO does not offer shoes in which the brand name is the most important component, and
the quality is secondary. We want to be known for selling high-quality shoes, which is why
we want to be famous. Based on the strong emphasis on quality and quotes like these, ECCO
can notice that ECCO does not follow the newest trends or fashion. They are quality-oriented,
and they have a defined plan for maximising quality by using their local knowledge.

ECCO employs the following resources: - In-house production- ECCO owns the whole
manufacturing process, assuring the highest quality. This is unusual due to the cost and
expertise required to put it up and develop the appropriate skill sets. Even if something is
imitable, it would be difficult to replicate it. Competitors would require a lot of money and
time to put up a similar production chain. Finally, the firm can and has used it successfully.

Private ownership allows ECCO to focus on the owners' strategic goals without worrying
about shareholder equity. It enables ECCO to take on greater risk. Uses the ability to secure
private information as well. This is an uncommon advantage, considering that many of the
firm's competitors are public corporations with shareholders who would almost certainly
demand that the company take on less risk. This is difficult to imitate since a firm might be
public or private, and transitioning between the two stages is difficult. Furthermore, the
organisation has benefited from this.
5. How is family ownership affecting ECCO? Comment on the corporate
ownership structure and its implications for strategy-making and
implementation. What alternative exists?

The fact that ECCO is owned by a family may be detrimental to the firm. A family-
dominated corporate ownership structure may lack the vision and energy needed to adapt to
shifting industry trends. Furthermore, a lack of an equitable corporate structure may
disenfranchise or overlook the relevance of others inside the organisation. Strategy
development may become very narrowly focused without input from a diverse range of
decision-makers inside the organisation, leaving a corporation immobile in the face of
shifting industry trends. Strategy execution might be ineffectual without the support of other
management and employees inside a company. Furthermore, because ECCO's former CEO,
Karl Toosbuy, put a high value on developing novel manufacturing methods, the corporation
placed a strong emphasis on production technique and execution. Using Toosbuy as an
example of how future business strategy could be impacted, it indicates that ECCO is
extremely responsive to the CEO's values and goals.