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Table of Contents

Introduction Page 2

Goals Statement Page 2-Page 4

Strategy Formulation Page 4-Page 6

Strategy Implementation Page 7-Page 10

Global analysis Page 10-Page 12

Corporate Social Responsibility and Citizenship Page 12-Page 14

Market Analysis:

a. Industry analysis Page 14-Page 18

b. Competitor analysis: Page 18-Page 46

● Wholesale Market Demand Analysis

● Internet Market Demand Analysis

● Private Label Analysis

● Implementation Analysis

● Performance Analysis

● Competitor Analysis

Conclusions and Strategic Responses Page 46-Page 49

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Introduction:

Ace Footwear is an organization that concentrates on selling athletic shoes to all different

types of consumers. Our team competed in a global competitive Footwear industry which is

located in four geographic market regions: North America, Europe-Africa, Asia-Pacific and

Latin America with five other firms. Our company produced Footwear at two plants which are

the North America and Asia-Pacific plants. We provide shoes at a low-cost that are within

affordability limits of the consumers. We focused on the wholesale and internet markets, but we

also competed in private label. Our firm initially started selling over 5 million pairs annually

with revenue of $238 million and net earnings of $25 million which narrows down to $2.50 per

share of common stock. In the long-term growth of sales for athletic Footwear are projected to be

positive. Overall, we would like to continue to stay competitive based off our business strategy

in the coming years.

Goals Statement

Our goal was to create a competitive advantage in the market that consisted of six

different firms. Additionally our goal was to gain a market share in more than one region and

stay debt free. As well as keeping the earnings per share, return on equity, image rating, credit

rating and stock price gains above the investors’ expectations. Lastly, maximize shareholders

wealth.

Market Share

We expected our projected growth for each region as follows: For branded Footwear

markets in North America and Europe-Africa we project 5-7% in Years 11-15 and 3-5% in Years

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16-20, in Asia-Pacific and Latin America we project 9-11% in Years 11-15 and 7-9% in Years

16-20. In regards to private label Footwear markets in all four regions we project 10% annual

growth in Years 11-15 and 8.5% annual growth in Years 16-20.

Earnings per share

Our organization’s goal in Year 11 was to obtain at least a 7% annual growth through

Year 15 and 5% for the future years. Ace Footwear’s overall goal is to maintain earnings per

share that achieve at least 15% of the industry average.

Return on Equity

Our firm’s goal every year is to maintain a return on equity of 15% or more. To meet

expectations, we allocated our resources towards plant upgrades in North America and

Asia-Pacific, and also, repurchasing stock and distributing dividends to shareholders. In addition,

we also want to provide consistency to let our shareholders believe that our firm is acting in the

best interests of gaining market share of at least 10% or more.

Image rating

Ace Footwear aims to achieve an image rating of 70 or higher in each geographic region.

We plan to observe the S/Q ratings in each of the geographic regions, the company’s actions to

display corporate social responsibility, as it related to the overall image rating, and advertising.

In addition, we aim to acquire celebrity endorsements in order to increase image rating and brand

awareness.

Credit rating

Ace Footwear believes that in order to be more credible to our shareholders, our credit

rating needs to be in check. Investor expectations are to achieve a credit rating of B+ or higher,

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depending on debt-to-asset ratio, default risk ratio, and interest coverage ratio. Our goal was to

maintain at least an A+ credit rating, which will give us borrowing power if and when we decide

to take out a loan. We will also have the advantage in lowering our overall cost to borrow.

Stock price

The goal of the stock price is to achieve 7% annually through Year 15 and about 5%

annually thereafter. Ace Footwear believes that it is in our firm’s best interest to increase

shareholders’ wealth year by year. Our goal is to exceed the average industry stock price.

Strategy Formulation

Ace Footwear started out with a differentiation business strategy. However, after the 15th

year, we changed our strategy to low-cost business strategy. Low-cost business strategy is where

the company offers a low-cost product, and seeks to increase demand and gain market share. We

changed our strategy due to analyzing the other firms in the market and came to conclusion that

we need to lower our S/Q rating and price to gain market share. Our goal is to focus on making

the price as competitive as possible while also having competitive S/Q ratings. Out of the eleven

competitive weapons, our company’s top competitive weapons are: Retail price, S/Q rating,

advertising expenditures, and delivery time.

Retail price

Part of the low-cost, retail price strategy is a competitive advantage and was an advantage

for our firm. As we decreased our price, our firm started to gain more of market share. For

example, during year 11, our retail price was the highest at $85.00 and our market share was

below 8%. From year 11 to year 15, our retail price was above $65.00 and our market share was

below 15%. From year 16 to year 20, our retail price was below $65.00, which caused a shift in

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the market and increased our market share in all regions. Decreasing our retail price increased

the intensity in the market and for our firm to win market share in different regions. For example,

in year 20, our market share was at 24.3% for North America region and leading firms market

share was 16.6%. Changing our price affected other firms. Our firm will continue to keep a low

retail price and compare it to other firms.

S/Q rating

From year 11 to year 15, our S/Q rating was majority a 7 in all regions with a higher

price, however, since we changed our strategy our S/Q rating decreased. From year 16 to year

20, our S/Q rating was below a 6. S/Q ratings are the second most important factor that

influences consumers' choice, aside from price when deciding which Footwear brand to

purchase. Even though our S/Q ratings are not high, we are still gaining market share in regions

since the decrease in our retail price and S/Q rating. We will continue to keep a low-cost, low

S/Q rating at this time in our intense market.

Advertising expenditures

Ace Footwear monitored other firms advertising decisions very closely in order to be

competitive in the market. Our firm increased advertising every year since advertising is an

important feature to a company's success. In order to gain brand awareness we had to increase

our advertising expenditures every year. Initially our firm started with an average advertising

cost of $8,000-$13,000 from year 11 to year 15 for North America and Europe-Africa. The

average advertising cost of $1,000-$7,500 from year 11 to year 15 for Asia-Pacific and Latin

America. But as our strategy changed after year 15 we significantly increased our advertising

cost in all four regions. In North America and Europe-Africa, our firm averaged advertising cost

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of $17,450-$23,300 and $6,500-$20,965 in Asia-Pacific and Latin America. We increased our

advertising since our retail price and S/Q rating were low from year 16 to year 20. Also, from

year 11 to year 15, we offered free shipping but, as we changed our strategy in year 16 our firm

stopped offering free shipping. As we continue to progress through the coming years, we will

closely analyze the expenditure factors of the competing firms. Our plans are to spend above the

industry average.

Delivery time

Ace Footwear understands it is important for the retailers to receive their goods in a

timely manner. In order for us to meet the expectations of the retailers our firm plans to average

a delivery time of 3 weeks in all four regions.

Corporate Citizenship and Social Responsibility

Our firm is planning to participate in corporate citizenship and social

responsibility because we believe it will help our organization increase image rating. We

plan to participate in ethics training/enforcement and workforce diversity program every

year, because we believe every employee should be educated in providing quality control

and providing a safe and open work environment. We understand that although these

implementations would decrease net revenue, but Ace Footwear believes in leaving less

of a carbon footprint, with its environmentally conscious decision-making and be more

‘green.’. We also plan to engage in energy efficiency initiatives, using renewable energy

sources. In the near future, we will continue to engage in corporate citizenship and social

responsibility and represent an ongoing effort for many years to come.

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Strategy Implementation

Ace Footwear created a strategic plan in order to stay aggressively competitive in all four

regions providing a low cost, decent quality shoe. In order to maximize our shareholders wealth

and company’s profit, we focused on manufacturing, human resource, marketing and finance

departments. Initially, we started with a differentiation strategy, but after year 15, we had to

change our strategy to remain competitive, continue to make a profit, and gain market share. Ace

Footwear began to produce shoes in two manufacturing plants - a 2 million -pair plant in North

America and a newer 4 million-pair plant in Asia. Our firm expected to boost our capacity by

20%. We operated both plants at regular time and if we saw that we needed to increase hours, we

would use overtime. The North America and Asia Pacific regions supplied production in all

markets using Internet, Wholesale and Private Label. All of these factors helped us in obtaining

an average net profit of 12.9 over the last ten years. Our firm managed to maintain or close to

average net profits expect for in years 15 and 16. Our marketing expenses was an average of

23%, administrative expenses were 3.5%, and warehouse expenses were 7.9% of net revenues.

Our firm tried to maintain the cost per pair sold as low as possible by optimizing the numbers in

branded production. This in return will help us gain higher profit margins which allows us to

maintain a competitive advantage over our competitors by widening the gap between value

creation and cost.

Our human resource department made efforts in satisfying the workers in our production

plants and increasing productivity. In years 11 through 20 we gave an incentive pay to the

workers for every pair that was a non-reject. This helps our firm increase productivity of pairs

and reduce defective workmanship. Our firm also participated in best practices training by

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investing a certain dollar amount in a year for each employee. This helped us maintain our S/Q

rating for both branded and private label Footwear, lowering the material costs spent on the

Footwear.

Throughout the years our firm did not build capacity in any other regions. Instead we

upgraded our plants in North-America and Asia-Pacific regions. The options we invested in

were: Option A which is an assembly line upgrade to reduce reject rate by 50% and Option D

which is facilities upgrade to boost worker productivity by 25%. This helped our organization

the incentive to produce more shoes and supply to our retail outlets. It allowed for us to price our

shoes accordingly and increase sales throughout the regions. Option A gave us advantage in

taking a loss against pairs that are rejected due to defective workmanship. Option D allows for

our firm to increase the production of shoes which gives us the advantage to fulfill inventory

demand in the wholesale, private-label and internet markets.

Moreover, we focused on repurchasing stock. So, from year 15 until year 21, we will be

unable to repurchase stock moving forward, because there is no more stock to repurchase. In

year 15, we purchased 600,000 shares for $18,924,000. In year 16, we purchased 800,000 shares

for $20,688,000. In year 17, we purchased 660,000 shares for $29,020,000. In year 18, we

purchased 352,000 shares for $29,378,000. In year 19, we purchased 88,000 shares for

$6,119,000. In year 20, we purchased 0 shares, because there were none available. The reason

we repurchased stocks was to: increase earnings per share, return on equity, and stock price. In

regards to increasing shareholder’s wealth, we wanted to allocate our ending cash, so we

repurchased stocks year after year.

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When it comes to dividends, they were not distributed to shareholders until year 18 until

year 20. For year 18, dividend payments to shareholders were $22,764,000. For year 19,

dividend payments to shareholders were $37,500,000. For year 20, dividend payments to

shareholders were $22,500,000. For year 18, they were $3.00/share. For year 19, they were

$5.00/share. For year 20, they were $3.00/share.

When it comes to private-label markets, that was another way for our firm to gain market

share and to maintain competitive. The projected growth at 10% annually during years 11-15 and

8.5% during years 16-20. We competed in the private label market every year. Our firm

participated in private label to make the market competitive among other rival firms. In the

industry, our firm was not competing against all the competitors, but with DABonair Footwear.

For 4 years out of the 10 years, for the North America region, we did not sell any shoes offered.

In the remaining 6 years, we successfully sold shoes to consumers across the North America

region; for the Europe-Africa region, we competed for 3 years and in year 12, we were

unsuccessful in selling shoes. Although we bid every year, we were unsuccessful in selling

products to consumers in Asia-Pacific region for 6 out of the 10 years to date. In years 11, 15,

and 16, we sold all of the amount of pairs sold. In year 15, we won 100% market share in

private-label market for Asia-Pacific region. For Latin America region, we competed from years

11-13. In year 11 and 12, we successfully sold all of the pairs of shoes offered. In addition, we

won 100% private-label market share for year 12. Unfortunately, we were unsuccessful in selling

any pairs to consumers in year 13.

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Corporate Social Responsibility and Citizenship

Our firm participated in corporate citizenship and social responsibility because we

thought it will help our organization's image rating increase. We participated in ethics

training/enforcement and workforce diversity program every year. After year 15, our firm

decided to engage in more activities since our image rating was low. Therefore, we

invested in energy efficiency initiatives. We invested in energy efficiency initiatives

because we are investing in something positive and beneficial. In year 16, we started by

giving $100 million per distribution center and million pairs of plant capacity. We

increased our giving since we were debt free and had plenty of ending cash.

Unfortunately, even though we engaged in more CSR, our image rating was still low. Our

image rating average was a 63 when we calculated it for the past 10 years. Our firm was

awarded 2nd place for Exemplary Corporate Citizenship in year 16, 17, 18, and 19. This

means that our firm was spending the second highest percentage of its revenues for social

responsibility and citizenship initiatives. This was a positive image on our firm and

helped us gain market share. More activities that are included in CSR are: Use of recycled

boxing / packaging, charitable contributions, and use of “Green” Footwear Materials. In

the near future, we will continue to engage in corporate citizenship and social

responsibility and possibly participate in more areas of social responsibility.

Global Analysis

Globalization is defined as the spreading of political, economic, and social phenomena of

businesses and the exchange of trade and goods and services across borders. It includes the

transfer of ideas, information, and money as well as more uniform rules and norms across

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borders. Globalization is a growing importance in today’s business world and is becoming

rapidly important for most firms that want to survive - especially larger firms. Today,

globalization has increased the standard of living for many countries around the globe. It is

important for companies to compete with the rise in communications and income levels in

developing nations, businesses have been able to reach more markets. Business now have to

think about all of the aspects of their operations and how they fit into the globalized culture. For

example, factors such as product design, product image, and the functionality of the product all

have to be thought about before going global. Do these factors fit in regions of the world whose

cultures and ideas are different from their own? Additionally, production, distribution and

management play a role in globalization. Financial factors such as tariffs, transportation costs,

and exchange rates play a role when going global. These factors impacted and affected our

company’s production and selling decision. Our firm focused a lot of time and effort in finding

the best shipping routes to get our product around the globe to our customers as efficiently and

cost-effectively as possible and to meet our demand in all four regions of business. Decreasing

tariff expenses was another point of focus for the company. Another goal of our firm was to

produce the pairs demanded in each region to supply that region to save costs in transportation,

tariffs, and exchange rates.

Exchange rates were an important aspect that our firm had to focus on every year. The

foundation of properly allocating our expenditures was based off of the exchange rates. The

exchange rates affect revenue generated in all four regions and also, the cost of pairs shipped

from a plant in one region to distribution warehouses in a different region. The exchange rates

fluctuated every year impacting advertising cost, inventory shipment between plants,

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wholesale/internet pricing and private-label bids. Our organization had to adjust the internet

pricing depending on the percentage of the branded Footwear demand for every year. Since we

had the advantage of competing in all four regions in online buying, the payments made to our

firm were impacted by the shifting exchange rates. In order for our firm to stay consistent with

the changing rates, we tried to achieve high-operating profit margins. There were years where

our firm gained a sufficient amount of profits compared to other years due to exchange rate

fluctuations. In years 18 through 20 the exchange rates for Latin America were insufficient

compared to other currencies. This made it very difficult for us to sustain profit margins without

being in the negatives. To prevent our firm taking a huge loss we significantly decreased our

advertising in year 19 and stay consistent till year 20. We also increased our wholesale price in

that particular region. Our firm’s goal was to make sure we had a positive impact on our net

revenue and profit with the varying exchange rates every year.

Tariffs played an important role when shipping our shoes to different countries. Tariff

expenses are incurred on pairs once they are imported and are due and payable at the port of

entry rather than when orders are filled and the pairs shipped to retailers and online buyers. Our

firm incurred high cost of tariffs when our shoes were shipped to the Latin America plant. We

were at a disadvantage because we did not have production plants in Latin America and

Europe-Africa region.

Corporate Social Responsibility and Citizenship

Corporate social responsibility is thinking about what the proper thing to do is and how a

company’s actions can impact society as a whole. There were 6 different options that our firm

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could choose from, in order to improve image rating both internally and externally, as well as

diminishing the plants’ carbon footprints. The use of “Green” Footwear materials involves using

environmentally friendly materials in manufacturing athletic Footwear at all plants. Between

years 11 and 20, Ace Footwear did not use green materials, because we chose to focus more on

changes that would give the firm the most benefit long-term, such as implementing energy

efficiency initiatives and ethics training. The second option was the use of recycled

boxing/packaging, which involves the use of recycled packaging materials to box each pair of

athletic Footwear at company distribution centers. In addition to not using green materials, we

also did not use recycled boxing/packaging because we decided that it was best to allocate the

opportunity cost that would have been for recycled boxing and packaging to other green options.

The third option was Energy Efficiency Initiatives, which involves investments to improve

energy efficiency and using renewable energy sources. We began energy efficiency initiatives in

year 16, as we felt that we had more than enough profit to afford the energy efficiency initiatives,

and felt that the benefit of improving our image rating outweighed the cost of maintaining this

option active. The fourth option is Charitable Contributions, which involves making pre-tax

donations to charities or charitable causes. Although it is imperative for our firm to have been

involved in local charities and help the communities that surround our plants, we did not

implement this option because we felt that the most important factor in a firm’s success came

from within, and that meant improving strategic management, maintaining employee morale

high and satisfactory, as well as supervising the plant's operations to ensure effectiveness and

efficiency in its daily operations. The fifth option is Ethics Training / Enforcement, which

involves training for and development / enforcement of a code of ethics. We believe that by

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proper training and establishing guidelines that reflect our vision and goals, can our employees

handle situations properly and represent Ace Footwear with integrity and dignity. The sixth

option is Workforce Diversity Program, which involves initiatives to achieve and maintain

workforce diversity concerning age, sex, ethnicity, and other factors. Globalization has affected

the business world in more ways than one. We believe that firms should push toward a

‘forward-thinking’ company, capable of meeting the demands of an ever-changing global

market. What better way to begin this change, than by enforcing a program that embraces

potential employees from all walks of life, and teaches all that the only to achieve a common

organizational goal is by working collaboratively and in unison.

The potential drawbacks of high investments in each of these areas include decreased

profitability and decreased returns to shareholders that take form for our company on the

evaluation of earnings per share, return on equity, and stock price. Therefore, we did not invest

further in other areas of CSR programs like green materials, use of recycled boxing / packaging,

or charitable contributions. We believed it was too costly to our operating projections and not

worth the costs to our company’s strategic positioning.

Market Analysis:

a. Industry analysis

Michael Porter's Five Forces model can be used as a reliable source to compare and

analyze the industry in which our firm competed in. Also, it can be used to identify the

competitive forces that have developed in the Footwear industry in which our company operates.

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Using each dimension which include: the threat of new entrants, threat of substitute products,

bargaining power of suppliers, bargaining power of buyers, and competitive rivalry, we can see

the potential effects this model has on our specific organization as well as the rest of the industry.

Threat of New Entrants

Initially when the firms in the industry started competing; differentiation strategy was

what other firms were pursuing. As the first two years went by, the market became very

competitive and firms started to change to different strategies in order to gain the most market

share. As firms started to change their strategies it opened a door for threat of new entrants. For

our firm to continue to stay competitive in the market we maintained a cost-leadership strategy

starting from year 15 and aimed to keep the cost of production and price as low as we would

because we needed to stay within our S/Q rating. Threat of entry requires for our firm and other

firms to spend more money satisfying existing customers.

Threat of Substitutes

Due to the intense competition between the companies, there was a high threat of

substitutes from the different companies within the industry and not from outside sources.

Company E was our closest competitor in terms of S/Q rating and price. Advertising was also

similar, but depending on the region. For example, in North America it is significantly different,

but in Asia-Pacific it is similar.

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Bargaining Power of Suppliers

The supplier power was also a competitive force in the Footwear industry. Since our

strategy changed, our firm focused on producing a medium to low star rated shoe by using a

lower percentage of superior materials and enhanced styling features. The materials provided

from suppliers are set at a base price, which can be adjusted up or down depending on the

demand of such materials. Moreover, suppliers have a high degree of control over their material

prices. Our firm can also benefit from cost cutbacks of materials if the supplier is able to

decrease the cost of superior materials. It was important for our firm to keep an eye out on the

changes in the cost of materials though, making the necessary adjustments to our production

each year that progressed. Due to our generally low S/Q rating, we did not require many superior

materials as our strategy was to maintain low quality and low cost.

Bargaining Power of Buyers

The consumers had the ability to switch to any other company at any time, depending on

how satisfied they were. The power of buyers was low because of limited firms.

Competitive Rivalry

The rivalry among the existing firms in the industry has been one of the major

competitive forces that has spread and affected our company and industry. Rivalry within the

industry has been important to our firm since the beginning. From year 15, the intensity within

the industry increased even more. Each company was making great efforts to make their strategy

work the best in the attempt to gain the largest market share. With other firms developing new

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competencies and increasing their performance that created competition which became more

threatening towards our company and our performance. Our closest competitor is Team

Endeavor specifically in years 18-20. They had a similar S/Q rating to our firm and similar

pricing in the internet and wholesale market. In year 18, our firm’s S/Q rating was a 4-star and

Team E had a S/Q rating of a 3-star. For Year 19, our S/Q rating was a 3-star and Team E was at

a 2-star. For Year 20, we maintained a S/Q rating of 3-start and E at 2-star. We were the only

firms in the industry to have the lowest S/Q ratings. This was one of the ways for us to gain

competitive advantage because the other firms were averaging S/Q ratings between

5-star-10-star. In some of the regions depending on the year, Team E had similar advertising

budgets as our firm. For example, in Year 18, our firm’s advertising budget in the Asia-Pacific

region was 18,550 and Firm E’s budget was 17,500. Also, due to the competitive environment, it

was difficult to gain profits and market share. The competition increased due to converging

prices between our company’s close competitors, similar S/Q ratings, and advertising budgets.

Changing our strategy has helped our firm increase shareholder value, gain market share,

and maintain competitive over the years. Also, our firm was able to exceed shareholder

expectation for most of the years. The Footwear industry our firm does business in could be to a

certain extent attractive for competitors outside the industry currently. The rivalry among

existing competitors and supplier power are high, however the remaining forces in 5-Forces

model are all quite low. The remaining forces include the threat of entry, bargaining power of

buyers, and the threat of substitutes. Since majority of the 5-Forces are low, the Footwear

industry is more competitive than attractive for competitors outside the industry. The competitive

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intensity is high within the industry currently, therefore it is less attractive for firms outside the

industry to join.

The insights from the 5-forces analysis is crucial to the success of our firm and will help

us maintain a competitive advantage. It will allow our firm to recognize the opportunities, the

strengths and weaknesses of other firms. We can analyze these factors and modify our strategy

accordingly such as looking at our S/Q rating, advertising budget, delivery time, internet and

wholesale pricing. For example, after year 15 we used the Porter’s Five forces model to change

our strategy to cost-leadership. The Five Forces analysis influence our decisions on how we are

going to safeguard ourselves from new entrants. Closely analyzing the market every year is

essential for our firm’s success to increase and maintain a competitive advantage amongst other

rivals in the industry.

Competitor analysis

I. Wholesale Market Demand Analysis

1. a.

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1. b. Based on this series of graphs, Ace Footwear considers Team E to be their closest

competitor by year 20. In year 18, our closest competitor was Team E according to S/Q rating

and price. Their S/Q rating was 3-star with a price of $42.00 in year 18. Our firm’s S/Q rating

was 4-star with a price of $42.00 in year 18. In year 19, our closest competitor was again Team

E. Their S/Q rating was a 2-star with a price of $36.50 and our S/Q rating was a 3-star with a

price of $48.25. For year 20, our S/Q ratings were the same as year 19 and closest to Team E.

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2. a.

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2. b. We believe that, in addition to Team E being our closest competitor, Team B is also a close

competitor. Although we considered both Teams B and E close competitors, we must consider

the fact that it depends on a different variable. First, in Advertising, we noticed that Team B, in

year 18, allocated $19,000,000 for their internet and wholesale segments, while we allocated

$20,450,000; in year 19, Team B allocated $21,000,000 while we allocated $23,300,000. Lastly,

in year 20, Team B allocated $21,000,000 while we allocated $22,300,000. Also, when looking

at number of models offered, Team B offered 50 models just like our firm did. Moreover, in

years 19 and 20, Team B, had a closer price related to ours and Team E had a closer S/Q rating

to ours, as well. Overall, Team E is our closest competitor, but Team B is a close competitor,

based on these variables.

3. After year 15, Team E changed their strategy by decreasing their price and S/Q rating. Only

when Team E changed their strategy, did they start to win market share. Lowering their prices

and S/Q rating gave them an advantage in the market and their strategy change increased the

intensity within the industry. Referring to the graphs from question 1, Team E’s S/Q rating was

set at 3, for a price of $42.00. Retailer demand was 2,839,000 pairs, but Team E sold 2,877.

Therefore, Team E’s market share demanded for year 18 was 27.2%. For year 19, Team E set the

S/Q rating at 2, for pairs to be sold at $36.50. Retailer demand was 3,117,000 pairs, but actually

sold 3,160,000 pairs.Therefore, market share demanded for year 19 was 28.8%. For year 20,

Team E sold pairs at an S/Q rating of 2, for $37.00. Retailer demand was 3,248,000, but actually

sold 3,247,000 pairs. Therefore, market share demanded for year 20 was 28.9%.

4. Our firm is going to stay consistent with our S/Q rating instead of decreasing every year.

Team E has an option to either increase or stay consistent with their S/Q rating because image

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rating will decrease gradually. This will give a bad reputation for the buyers in the industry

which will result in switching to another supplier. We will continue to invest in advertising

expenditures in all the regions and modify the spending accordingly to reflect currency exchange

rates. Also, we will decrease our price in the wholesale market if needed because those prices

have an affect on the market share. Our firm will plan to increase the models we offer to a 100.

Also, we will attempt to increase the number of retail outlets utilized for the wholesale market.

Our firm will also make efforts to increase our celebrity appeals which will help boost our image

rating. These are just some of the main factors our firm will focus on to threaten our close

competitor firm.

II. Internet Market Demand Analysis

Region/Market Share Y20 Ace Endeavor Catalyst

North America 24.3% 18.1% 18.6%

Europe-Africa 24.3% 18.7% 16.7%

Asia-Pacific 23.2% 18.9% 16.6%

Latin America 18.3% 21.7% 19.6%

In addition to the image above for year 20, we further interpreted overall market share

with the following variables: S/Q Rating, cost, and market share. When it comes to S/Q rating,

for year 18, we elected a 4-S/Q rating, while Team E elected a 3-S/Q rating. For year 19, we

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elected a 3-S/Q rating, while Team E elected a 2-S/Q rating. For year 20, we elected a 3-S/Q

rating, while Team E elected a 2-S/Q rating.

In terms of cost, for year 18, we sold pairs at $54.90 each, whereas Team E sold pairs at

$53.50 each. For year 19, we sold pairs at $54.25 each, whereas Team E sold pairs at $53.50

each. For year 20, we sold pairs at $52.50 each, whereas Team E sold pairs at $51.50 each.

In terms of market share, for year 18, we ended up controlling 22.1%, whereas Team E

ended up with 26.1%. For year 19, we ended up controlling 22.0%, whereas Team E ended up

with 18.7%. For year 20, we ended up controlling 24.3%, whereas Team E ended up with 18.1%.

III. Private Label Analysis

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Our private-label market was not competitive as it should have been because many firms

chose not to place bids on the shoes. Our firm was at a disadvantage of not being able to compete

in Europe-Africa and Latin America, because we did not have any plant capacity in these two

regions. This prevented us from placing bids on private-label shoes being shipped from these

regions. We competed every year in private label bids to possibly increase our earnings per share

along with our firm’s image rating. In the last few years, we utilized regular capacity along with

overtime capacity when competing in the private label market. Our future strategy in regards to

private label bids is to continue placing bids and using any overtime capacity there is available.

We will also optimize the bid amount while keeping the margin over direct costs in the positives.

If the need arises we will make adjustments to our proposed shipment plants to distribute out of.

One firm that is our concern is Team DABonair because they have won a significant amount of

market shares competing against our firm in private-label bids. The precise bids they placed on

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the shoes allowed for them to win market share. Team Endeavor is our biggest concern in the

private label market because they have production plants in Europe-Africa and Latin America.

This will be an disadvantage firm in the coming years because we do not have plant capacity in

both of these regions. To stay competitive within the private-label market we will have to

optimize our bid prices in the North-America and Asia-Pacific Plant and closely analyze margin

over direct costs.

IV. Implementation Analysis

A. Threat: We believe that Endeavor Footwear is choosing to assume a cost

leadership, because side-by-side comparisons from inventory management

and profit and cost analysis have shown that we have dealt with more

expenses, as a result of our determination to excel in the industry.

B. Opportunity: Because Endeavor Footwear appears to lean towards a cost

leadership business strategy, we can counter their strategy with a

differentiation strategy, allowing us to focus more on improving our line

of Footwear’s quality and adding unique features.

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The following section goes into detail comparing our firm’s performance against our

closest competitor, Endeavor Footwear, over the course of three years. To give the best

comparison between Team E and our firm, we will utilize several variables.

Inventory Management

We began year 18 with a capacity in North America for only 2,000,000 pairs of shoes,

and 4,000,000 pairs of shoes in Asia-Pacific; Europe-Africa and Latin America are at zero,

therefore, the total capacity available for us was 6,000,000 pairs of shoes. On the other hand,

Team E elected their plant capacity to be at 3,000,000 pairs in North America; 2,100,000 pairs in

Europe-Africa; 5,000,000 pairs in Asia-Pacific; and 2,300,000 pairs in Latin America; in

addition, Company Endeavor initiated new construction in year 18, totaling their plant capacity

at 12,400,000 pairs of shoes. Total global plant capacity for year 18 production was 51,800,000

pairs. Obviously, with a diversified strategy to gain capacity and have access to all four

geographic regions, Team E had the opportunity for optimum production and guaranteed

delivery to retailers and consumers worldwide. Which left us at a disadvantage.

In year 19, we kept the same amount of plant capacity for all regions, as well as Team E.

Our total capacity available for year 19 production was 6,000,000, and for Team E, it was

13,600,000 pairs. Total global plant capacity for year 19 production was 55,000,000 pairs. In

year 20, data from year 19 stayed exactly the same, including the total global capacity for year

20 production.

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Profit and cost analysis

Sales per unit

According to the graph above, throughout year 18, sales per unit was $47.19 for Ace

Footwear. For Endeavor Footwear, their sales per unit was $42.57; the industry average was

$26.05 per unit. In year 19, Ace Footwear’s sales per unit was $52.39, while Endeavor

Footwear’s sales per unit was $37.88; industry average was $26.05 per unit. Lastly, for year 20,

Ace Footwear’s sales per unit was $50.91, while Endeavor Footwear’s was $43.19 per unit; the

industry average was $25.26 per unit.

Manufacturing COGS unit cost

According to the graph above, Endeavor Footwear exceeded us in years 18 and 20, but

both of us maintained a similar unit cost in year 19. Both firms exceeded the industry average by

more than $5.00 per unit.

Warehousing unit cost

In year 18, Ace Footwear maintained a warehousing unit cost of $4.00, while Endeavor

Footwear maintained a cost of $2.00 per unit; both firms exceeded the industry average which

was less than $2.00 per unit. In year 19, Ace Footwear’s warehousing unit cost was $15.00,

while Endeavor Footwear’s was a little over $2.00, leaving Endeavor as a cost leader for this

variable; both firms exceeded the industry average, which was less than $2.00. In year 20, Ace

Footwear’s warehousing unit cost was $4.00, while Endeavor Footwear’s was $3.00; again, both

firms exceeded the industry average, which was set at less than $2.00 per unit.

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Marketing unit cost

In year 18, Ace Footwear’s marketing unit cost was $13.00, while Endeavor Footwear’s

was $6.00 per unit; both firms exceeded the industry average, which was at $5.00 per unit. In

year 19, Ace Footwear’s marketing unit cost was $15.00, while Endeavor Footwear’s was less

than $2.00 per unit. With that, Endeavor Footwear’s unit cost was actually less than the industry

average, at a little over $4.00. In year 20, Ace Footwear’s marketing unit cost was $14.00, while

Endeavor Footwear’s was a little over $2.00 per unit; Like last year, Endeavor Footwear’s

marketing unit cost is actually less than that of the industry average, which was at $4.00 per unit.

Administrative unit cost

In year 18, Ace Footwear’s administrative unit cost was $1.40, whereas Endeavor

Footwear’s was $1.20. Both firms exceeded the industry average, which was $0.60. In year 19,

Ace Footwear’s administrative unit cost $1.60, whereas Endeavor Footwear’s was $1.20. Both

firms exceeded the industry average, which was at $0.60. In year 20, Ace Footwear’s

administrative unit cost was $1.50, whereas Endeavor Footwear’s was $1.40. Both firms, again,

exceeded the industry average, which was $0.60 per unit.

Interest and Extraordinary losses (gains) unit cost

In year 18, Ace Footwear’s losses unit cost was -$0.60, whereas Endeavor Footwear’s

gains unit cost was $0.20. Ace Footwear’s losses unit cost was actually more than the industry

average, which was -$0.40; as for Endeavor Footwear, they exceeded the industry average.

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In year 19, Ace Footwear’s losses unit cost was -$0.60, whereas Endeavor Footwear’s

gains unit cost was $0.10. Similar to year 18’s results, only Endeavor Footwear exceeded the

industry average, which was at $0.15. In year 20, Ace Footwear’s losses unit cost was $0.50,

whereas Endeavor Footwear’s losses unit cost was -$1.30. In this variable, both firms performed

below the industry average, which was $0.10.

Profit per unit

In year 18, Ace Footwear’s profit per unit was $5.00, whereas Endeavor Footwear’s was

$6.00. Both firms exceeded the industry average, which was $3.50 per unit. In year 19, Ace

Footwear’s profit per unit was $6.50, whereas Endeavor Footwear’s was $7.00 per unit. Both

firms exceeded the industry average, which was $3.00 per unit. In year 20, Ace Footwear’s profit

per unit was $7.00, whereas Endeavor Footwear’s was $8.50 per unit. Both firms, once again,

exceeded the industry average, which was $4.10 per unit.

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Credit Rating Y18 Y19 Y20

Ace A+ A+ A+

Endeavor A+ A+ A+

Industry Average A+ A+ A+

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V. Performance Analysis

A. Threat: Although Endeavor Footwear’s debt ratio increased for the first

time in year 20, this will give them another advantage to expand their

portfolio and horizons, making it that much more difficult for Ace

Footwear to gain a competitive advantage.

B. Opportunity: Currently, there are no opportunities for Ace Footwear to

gain nor sustain a competitive advantage against Endeavor Footwear, if

we continue on our current strategic path.

Sales & Net Income

According to the Sales revenues graph above, in year 18, Ace Footwear made

$297,267,000, whereas Endeavor Footwear made $571,737,000. In addition to the shocking

difference, only Endeavor Footwear exceeded the industry average, which was at $445,511,000.

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In year 19, Ace Footwear made $299,072,000, whereas Endeavor Footwear made $560,750,000.

Only Endeavor Footwear exceeded the industry average, which was at $445,888,000. In year 20,

Ace Footwear made $309,892, whereas Endeavor Footwear made $539,616,000. Only Endeavor

Footwear exceeded the industry average, which was $480,816,000.

According to the Net Income graph above, in year 18, Ace Footwear earned a net income

of $32,458,000, whereas Endeavor earned a net income of $86,540,000. Only Endeavor

Footwear exceeded the industry average, which was $65,420,000. In year 19, Ace Footwear

earned a net income of $39,061,000, whereas Endeavor Footwear earned a net income of

$106,721,000. Only Endeavor Footwear exceeded the industry average, which was $61,666,000.

Lastly, in year 20, Ace Footwear earned a net income of $43,287,000, whereas Endeavor

Footwear earned a net income of $111,829,000. Only Endeavor Footwear exceeded the industry

average, which was $86,861,000.

Earnings per share

According to the Earnings per share year graph, in year 18, Ace Footwear’s earnings per

share were $4.28, whereas Endeavor Footwear’s earnings per share were $5.54. Unfortunately,

both firms did not exceed the industry average, which was $6.86 per share. In year 19, Ace

Footwear’s earnings per share were $5.21, whereas Endeavor Footwear’s earnings per share

were $7.74. Only Endeavor Footwear exceeded the industry average, which was $6.86 per share.

In year 20, Ace Footwear’s earnings per share were $5.77, whereas Endeavor Footwear’s were

$10.09 per share. Even though Endeavor Footwear was close to the industry average, neither

firm exceeded the industry average, which was $10.70 per share.

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According to the Return on Equity graph, in year 18, Ace Footwear’s return on equity

was 10.70%, whereas Endeavor Footwear’s was 12.90%. Only Endeavor Footwear exceeded the

industry average, which was 12.52%. In year 19, Ace Footwear’s return on equity was 13.40%,

whereas Endeavor Footwear’s was 15.60%. Both firms exceeded the industry average, which

was 13.23%. Lastly, in year 20, Ace Footwear’s return on equity was 14.40%, whereas Endeavor

Footwear’s was 21.50%. Only Endeavor Footwear exceeded the industry average, which was

20.50%.

Credit Rating & Debt Ratios

According to the credit rating chart shown above, in year 18, Ace Footwear maintained

an A+, as well as Endeavor Footwear. Both firms met the industry average credit rating, which

was A+. In year 19, Ace Footwear maintained an A+, as well as Endeavor Footwear. Both firms

met the industry average credit rating, which was A+. In year 20, Ace Footwear maintained an

A+ rating, as well as Endeavor Footwear. Both firms met the industry average credit rating,

which was A+.

According to the debt ratio graph shown above, in year 18, both Ace Footwear’s and

Endeavor Footwear’s debt ratio was 0%. The industry average was 0.01%. In year 19, both firms

continued with 0% debt ratio. The industry average was 0.04%. Lastly, in year 20, Ace Footwear

had a 0% debt ratio, whereas Endeavor Footwear had a 0.39% debt ratio, exceeding the industry

average of 0.1%.

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Stock Price

According to the stock price graph shown above, in year 18, Ace Footwear’s stock price

was $68.72, whereas Endeavor Footwear’s stock price was $70.04. Both firms’ stock price were

below the industry average, which was $97.30. In year 19, Ace Footwear’s stock price was

$81.57, whereas Endeavor Footwear’s stock price was $116.12. Only Endeavor Footwear

exceeded the industry average, which was at $101.27. In year 20, Ace Footwear’s stock price

was $79.81, whereas Endeavor Footwear’s stock price was $157.16. Only Endeavor Footwear

exceeded the industry average, which was $171.41.

VI. Competitor Analysis

A. Endeavor Footwear could be vulnerable when faced with the issue of their

Manufacturing cost of goods sold unit cost. After reviewing the profit and

cost analysis, it would appear that Endeavor Footwear has the competitive

advantage simply because they are using their cost leadership strategy to

the best of their ability; keeping costs low and allocating expenses

accurately. In addition, Endeavor Footwear since year 18, has built

capacity in all four geographic regions, whereas we only had 2 plants

operating in North America and Asia-Pacific.

B. Endeavor Footwear is building competitive advantage by expanding the

number of models offered, low marketing expenses, high operating profit,

maintaining a low S/Q rating, and a diversified and extensive branded

production capacity.

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C. We believe that Endeavor Footwear, in the near future, will increase

number of models offered until capacity is reached, in order to meet the

demand of the four geographic regions. There is little ‘wiggle-room’ for

drastic improvements for Endeavor Footwear. In addition, Endeavor

Footwear may increase their S/Q rating, if they decide to diversify and

switch their current cost leadership strategy to either differentiation or blue

ocean, a combination of both.

Conclusion and Strategic Responses

Ace Footwear is a well-respected and has performed very well in the industry over the

past ten years. The accomplishments we earned took time and effort, even with the obstacles that

we had to face. The industry we competed in was intense and competitive. Company Endeavor

was proven to be our closest competitor when competing in the industry. To remain competitive

with company Endeavor, we increased our advertising cost, decreased S/Q rating, decreased

price, endorsed more celebrity endorsements, and repurchased stock. One advantage they had

over us was they built product plant capacity in Latin America and Europe-Africa. This was a

setback for our team because company Endeavor was able to bid on all their shoes because they

had production plants in those regions. The company was in debt due to the loans they

established to complete construction of their plants. Our firm remained debt free since year 12

which resulted in us having a Credit Rating of A+. If our firm takes the path of building capacity

we would be a threat to Company Endeavor because they have been able to fully utilize their

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efforts in the private-label market. Since our firm competes in private-label bids and if we end up

achieving the bid, their market shares will gradually decrease. Some key challenges our firm had

to face were: limited models availability, being able to maintain low cost, differentiation

advantage, creating a new way to differentiate the product, not producing enough to participate

in private label market, and competitors imitating our strategy plan. Company Endeavor had a

total of 350 models in years 18-20, on the other hand our firm only had 50 models available for

purchase. This was a challenge for us because the buyers had a variety of models to chose from.

This was their differentiating factor that led them to a larger market and stronger demand, other

things equal. In the coming years our firm plans to build or purchase available capacity to

increase our production rate of shoes. Our firm was unable to participate efficiently in

private-label bid, because we did not have a surplus of footwear. We could not cost effectively

produce more models than what we sold for the ten-year period. During this period of time, our

firm could only produce 50 models of shoes in each region to remain at a low cost position in

terms of costs per pair sold. Initially when the firms first entered the industry, our indirect

competitor DABonair continued to win private label-bids. But our firm realized we need to make

all efforts in participating in private-label bids to make it competitive amongst other firms. Our

firm had a difficult time in setting a price that will be competitive against other firms.

Our future plans are to build capacity by 1,000 in Latin America and 1,000 in

Europe-Africa. Also, allow us to be able to meet wholesale demand with a surplus in private

label market. Moreover, sustain the current price by raising S/Q rating from 3-4-Star.

Furthermore, we plan to increase number of models offered from 50 to 100. Last but not least,

we want to try to keep our cost as low as possible. Based off of the industry and competitor

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analysis we plan to use our current cost-leadership strategy in the coming years. Our firm plans

to utilize advertising budget, retail support outlets, online buyers, and wholesale market to stay

consistent with the competing firms.

The 3- year pro forma income statement below reflects our possible outcomes in years

21-23. Our firm plans to stay consistent with the internet pricing in each of the regions, this will

help us gain high percentages of market shares like it did in the previous years. Also, we plan on

building capacity in Europe-Africa and Latin-America regions. Building plants in these two

countries will increase our production of footwear and allow us to complete more efficiently in

private label bids. Since our credit rating is at an A+ it will allow for us to obtain additional

loans to build capacity. There will also be an increase in the advertising budget in all the regions

depending on the exchange rates. We will pursue our efforts in making sure we follow our

cost-leadership strategy: footwear that is low price but quality is higher than average. Our firm

will increase celebrity endorsements, increase our network of retail outlets, maintain a consistent

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delivery time to retailers to make sure they have inventory and keep our expenses as low as

possible since our firm is pursuing a cost-leadership strategy. Our firm’s goal is to continue to

add value for our shareholders through stock price appreciation and continued payment of

dividends, while exceeding all investors expectations that our company is appraised on at the end

of every year.