BATA

BATA

In 1990, the management of Bata Ltd. took an important decision regarding the company's opportunities to re-invest in ex-Czechoslovakia. At first sight, this does not seem to be an important problem, but between Bata and Czechoslovakia there is an old connection.

In 1939, at the beginning of WWII, Tom Bata Sr. faced a very difficult situation. His father, the ninth generation of a Czechoslovakian family traditionally dedicated to the production of shoes, built up a global network for the production of shoes by using machines and mass production technology in 1920s. Tom had to keep this huge business in a time of global uncertainty. Bata and other 100 Czech families immigrated to Canada because of Nazis' invasion and an uncertain future to come.

After that moment, Bata had to adapt its decisions to an international context of economic global growth. Bata is a family business annually producing more than 300 million pairs of shoes. This leads to an annual profit of more than $3 billion from sales in 6,000 retail shops of Bata and 125 independent retailers in 115 countries. The 85,000 employees of the company work in 90 factories and 5 industrial units of technological production lines, as in the above mentioned retail outlets. Bata Company has the economic power to produce and sell one third of the pairs of shoes in the non-communist world. In many African regions, the word for "shoe" is "bata".

Bata Ltd. is managed in a decentralized way, which means that the company is able to adapt to the local environment. Tom Bata travels a lot in order to control production's quality and to establish diplomatic relationships with the governments of the countries where the company has subsidiaries. Although Bata has factories in more than 90 countries and a lot of economic operations in more than 100 countries, the company does not own 100% of these businesses. The company owns 100% of the business only in countries where this is possible, but in certain countries the government does not allow to a foreign company to have the majority control. For example, in India 60% of the local shares of Bata are listed on the stock exchange, meanwhile in Japan Bata Ltd. owns only 9.9% of the operations. In some cases, Bata also provides licences, consulting and technical assistance to its business partners.

Bata has a performing business strategy based on economies of scale. Some multinational companies try to diminish their costs by obtaining economies of scale in production, which means that these companies produce as much as possible by using standard production factors. Bata is able to obtain economies of scale very rapidly because of the large production in different countries. This could seem pretty hard to believe, especially if we consider that Bata has production facilities in certain African countries where the company's operations represent the only form of industrialization. In spite of this situation, Bata considers that economies of scale are very easy to obtain because it intensively uses the workforce production factor. Bata also tries to completely use the raw materials found locally, but in some cases this is not possible, especially in the underdeveloped countries. But the company still tries to maximize the value added in these countries.

Another policy of Bata Ltd. is about trying of not exporting; the local production is basically dedicated to the internal market. Obviously, this rule is not generally available since the company produces in 90 countries but distributes its products in more than 100 countries. Sometimes, when importing raw materials but not exporting its products, Bata's policies are in conflict with the ones of local governments. The company has to adapt to the local legislation. Bata generally avoids basing its operations excessively on exports, mainly due to the risks it implies. For example, if an importer country decides to diminish its commercial activities, Bata could lose market opportunities and could also lose in terms of market share. More than that, Mr. Bata noticed the advantage of a developed country that is not applying a protectionist policy.

"We know very well that closing up a factory in Canada generates a huge social shock. But in Canada we have unemployment insurance and there are many performing businesses and a lot of alternative jobs for the unemployed workers. On the other hand, in the vast majority of developed countries the problem of unemployment is a life and death issue. Many people left rural societies and came to towns in order to work in industries. They brought their relatives with them, because working in industry is much better paid; but a large part of these relatives became dependent on the industrial workers, because their families changed their life styles and standards. For all these people there is something terrible to lose their jobs. So we have to take a lot of care when considering this problem."

Bata activates in many sectors of the economy. The company has economic operations in democratic industrial countries, as well as in developing countries. The company had been hardly criticized for its operations in South Africa (as the majority of the multinational corporations), but it was tacitly supported by a minority of white Africans representing the white political regime of the country. Bata had been also criticized for maintaining different types of relationships with totalitarian regimes, as the one of Chile. The company presented in its own defence the argument that it had been activating in Chile more than 40 years, meanwhile many political regimes had changed.

Although the majority of Bata's operations had not been nationalized, there were some fascinating experiences. The local factories of the company in Uganda had been nationalized by Milton Obote, de-nationalized by Idi Amin, re-nationalized by Amin and finally de-nationalized also by Amin. Meanwhile the company had worked as nothing had ever happened. Bata's explanation regarding the presented events was the following:

"Shoes have to be bought and salaries have to be paid. Life goes on. In the majority of the situations, the governments reached the conclusion that it is better for them not to manage the business operations, so they cancelled the nationalization agreements."

Mr. Bata prefers a democratic environment, although the company is able to efficiently operate in any political situation. Mr. Bata considers that both regimes - democratic and totalitarian - are bureaucratic ones, but meanwhile in a democratic regime people can talk and change certain procedures, in a totalitarian one is more advisable not to object.

Bata has a multiple influence on a country. The basic strategy of the company is to provide shoes at good and accessible prices for a large segment of the population. The shoes are rather a necessity than a luxury. The production facilities were based on intensive use of the workforce; this strategy creates new jobs, which leads to a higher purchasing power of the population. Although the top management of a certain subsidiary is not necessary to be a national one, the local management is trained to take responsibilities in managing the respective business as soon as possible. There are many national raw materials providers, because the company tries to satisfy its internal necessities mainly by local sources. Bata's strategy is to diversify its products, so the company has to establish for one product different relationships with many raw materials providers, which could finally lead to growing competition and increasing efficiency.

Bata usually uses its own capital for initializing an operation and it is very efficient in addressing the international markets. Bata had to consider the opportunity of appealing to the resources of the International Financial Corporation more than once; this Corporation is a department of the World Bank that provides financial capital for the development projects of the private companies operating in developing countries. One of the most recent situations when the company needed the Corporation's funds was the extension of a tannery in Bangladesh. In the future, having the approval of the International Financial Corporation, Bata could easily obtain other loans from different financial entities. All five Bata's previous projects financed by the International Financial Corporation were successful and the loans were paid back.

The case of South Africa was a major challenge for Bata. South Africa has a smaller number of inhabitants than Nigeria, Egypt or Ethiopia and the potential market of South Africa was considered to be the ideal one to invest in due to its size. The GDP per capita in this country is the highest of all nations in the African continent. The main attraction of the country is represented by the incredible high profit rate, mainly generated by low labour costs and rich deposits of mineral resources. The relatively large South African market allows the companies to obtain economies of scale in production by using cheap labour force.

The general background deteriorated rapidly at the beginning of 1980s. For decades, South Africa had an apartheid regime that led to political, social and economic segregations between black and white people. The Opposition of the regime began to sustain the concept "one man, one vote". The black Nationalists were fighting for the right to vote of each and every citizen, but the white Government was refusing them. The street fights produced many victims, and the political future of South Africa became even more uncertain. The majority of the fights were between rival parties. The African National Congress, led by Nelson Mandela, was fighting against capitalism and was sustaining the idea of nationalizing the whole industry, no matter if the companies considered were national or owned by foreign entities. Then the African National Congress began to withdraw, but not as rapidly as it should. The rival party called Inkatha was basically prepared to accept a capitalist view. The GDP per capita in South Africa only grew with 0.8% annually during 1980 - 1988, which represented a very insignificant growth compared with an average of approximately 2.3% annually in the developing countries. Besides an almost stagnant economy and the political fights, foreign companies and governments of different countries were exerting a certain pressure on the political leaders of South Africa. Some American companies, including Apple Computer, Coca-Cola, Ford, International Harvester, General Motors, IBM, Honeywell and Warner Communications, have sold or considerably reduced their investments in South Africa. In 1985, 40 companies have left the country; in 1986, only 50 companies have remained to continue their operations in South Africa; and till the end of 1987, other 33 companies have left South Africa. During 1982 - 1986, the US investments in South Africa have been halved. Even the USA Consulate of Johannesburg has lost the confidence in the future of South Africa, declaring that it was on the way of becoming: "a typical African country: a chronicle debtor, a hungry importer. a repressive regime unable to keep its voters one way or another".

Also Canada has had a negative attitude concerning the political regime of South Africa. The Canadian Government has imposed a very conservative legislation regarding the new investments in South Africa. As a result, Bata decided to leave South Africa in 1986, but the company did not admit that the apartheid had represented the cause of its decision. The personnel of the company said that: "It was just a business decision that had considered all the factors concerning South African investments at the moment". The selling conditions were clearly stipulating that the name of the company and the production brand would not be used anymore in South Africa and all the connections with Canada would be broken off. The new buyer of the business operations and the production facilities had to keep the jobs of all workers, most of them black people. At the end of 1980s, the recovery of the South African economy, the cancellation of the apartheid regime and the endeavour of De Klerk's Government to surpass the political challenges represented important factors to be taken into account by Bata's management when reconsidering their decision of leaving South Africa.

The problem of ex-Czechoslovakia is totally different. Sometimes investment decisions are considered for sentimental reasons. Although the communist Government confiscated the business facilities of the company in 1945, Bata considers the opportunity to resume its operations in Czech Republic. The remaining problem is: Who owns the factories and the production facilities? The Czech Government would probably offer the company a financial compensation for the factories, but Bata considers that it still owns the factories. Some experts think that Bata will finally receive a part of the huge business in exchange of managerial expertise, marketing assistance and capital. Some preliminary figures indicate that $100 million are necessary to modernize the factories; 85,000 employees are currently working in these factories and producing 100 million pairs of shoes annually.