hush puppies main report 1(1)
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case analysisTRANSCRIPT
1
Hush Puppies is the family owned business of Ricardo Swett. This is the business of
casual shoes and its retail outlets are in Chile. Hush Puppies in Chile had seen profits
go up and sales blow up by an average of 30% per year since 1985. Hush Puppies had
become the preferred brand of upper-class Chilean men by emphasizing excellence in
design and by expanding a chain of up-scale retail shoe stores as well as a competent
factory. Hush Puppies had become the most wanted brand of upper-class Chilean men
and later expansion occurred into women’s and children’s shoes. The general manager
of Hush Puppies in Chile
began to weigh up further
expansion of the business in
other Latin American
markets. Ricardo was
uncertain how fast the
company should expand in
these countries or whether
efforts should be focused
instead on promoting exports
to North America or on
consolidating the company’s
market position in Chile.
Company Synopsis:
In 1980, Hush Puppies Chile began functions through the resolute attempts of three
brothers, Alfonso, Ricardo and Juan Pablo Swett. Later in early-1960s, the three
brothers figured NORSEG, a start-up corporation that supplied safety equipment to
industrial and mining sites all the way through Chile. Over time, these procedures
were organized as separate companies under the family-owned Costanera S.A.C.I.
Holding Co.
Wolverine World Wide:
Wolverine World Wide was concerned in expanding into Chile. This news was got by
three Swett brothers in the spring of 1979 by their advertising agency, Veritas Ltd.
Incorporated in 1954; Wolverine outlined much of its initial success in footwear
market to its reliance on the production of casual pigskin shoes. Wolverine,
pedestaled in Rockford Michigan, controlled a collection of footwear brands
including Hush Puppies casual shoes, Wolverine work and outdoor boots, Bates
uniform shoes and Brooks athletic shoes. During the 1960s and 1970s, Hush Puppies
appeared as a most important brand with meticulous strength in the men’s division.
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Success in the U.S. was followed by international growth, to begin with in Canada
and Europe. In the early 1980s, spurred by fears that the U.S. government might lift
import quotas on low cost shoes from the Far East and Latin America, Wolverine
shifted to pick up the pace its international expansion.
Wolverine was appearing
for an agent to import or
manufacture Hush
Puppies brand shoes in
Chile under license. The
Swett brothers
commissioned market
research studies in
rejoinder to Wolverine’s
initiatives and disclosed
that the Chilean shoe
market was dominated by
formal, dressy products and that no companies successfully met the requirement for
casual shoes. Bata Chile functioned first and foremost as a manufacturing company
which sold the bulkiness of its output to small self-regulating stores all the way
through the country. Bata also activated numerous dozen of its own retail stores
throughout Chile and was reported to be thinking about additional growth. The
brothers were predominantly noticed in the upper class market in Chile which, by
experience from side to side international travel, was familiar with the Hush Puppies
brand, quality and unique designs.
A shift to Retailing:
The brothers make a decision near the beginning on that retailing made available the
greatest alternative for acquiring Hush Puppies into Chile in working with Wolverine.
After compromising with Wolverine, Hush Puppies Chile was given restricted rights
to import Hush Puppies shoes and expand retail outlets in Chile. Anticipations were
that the costs for the first five stores, including leasehold improvements, training, and
inventories and so on, would total about $2.0 million. Of this amount, about $1.0
million would be borrowed. The residual $1.0 million symbolized a considerable risk
to the brothers. The best Hush Puppies shoes would be imported from approximately
the world with about 80% coming on or after the U.S. given the stratification of
wealth in Chile, these consumers contrasted constructively with upper-middle and
upper class U.S. consumers.
3
Stores were positioned in big, suitable locations primarily in the Santiago
metropolitan area. The sales staff was broadly trained to improved recount to the
upscale customers and were well compensated, reflecting the longing for permanence
and professionalism. As agreed ahead by the brothers, Ricardo supposed
responsibility as the general manager of Hush Puppies Chile. Alfonso was engaged in
most important investment decisions and strategic planning for all family owned
businesses as well as a number of day-to-day judgments making at Hush Puppies
Chile.
A Move into Manufacturing:
The bottom fell out of
Latin American economies
in 1982. In Chile, the GNP
fell by 14% in 1982 alone.
Between the 1982-1985,
unemployment formally
floated around 14%;
unofficially, it surpassed
30%. During the same
period, the Chilean Peso
dropped by 300%, leading
to a proportionate rise in
import costs. In April
1982, the choice was made to move Hush Puppies Chile into shoe manufacturing.
Both partners had the same opinion to make payment representative amounts of
capital to make sure that manufacturing output met developed targets.
In 1981, import quotas ended in the U.S. and Wolverine shifted uncompromisingly to
shift production overseas. Under the joint venture agreement with Hush Puppies
Chile, Wolverine would have right of entry to a new starting place of shoes made with
low cost Chilean labor. In February 1983, a small new manufacturing facility was
unlocked in suburban Santiago which comprised something like 10,000 square meters
of manufacturing capacity, a two story decision-making office complex and factory
retail outlet. Hush Puppies Chile and Commercial Puppies were both systematized
with their personal board of directors, which included the three Swett brothers, as well
as a small group of trusted, Western-educated managers from the working companies.
Most directors served on two or three boards.
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Speedy Growth:
From 1985-1990 the Chilean economy established enjoying rapid growth. Brooks
Athletic Shoes was possessed by Wolverine and had advantaged in the U.S. by the
upsurge in interest in physical fitness. As on the whole sales picked up, Hush Puppies
Chile and Commercial Puppies centered further on building and maintaining key
brands. Hush Puppies Chile managers observed the company as market sloping as
opposed to manufacturing oriented, thus differentiating the company from many Far
East suppliers.
In 1987, the company founded a most important advertising program titled “the
pleasure of walking” which was predominantly appealing to increasingly health
conscious upper and upper-middle class Chileans. Television advertisements were
also expanded which focused on Hush Puppies as declarations of quality and style.
During the late 1980s and early 1990s, Hush Puppies Chile won three annual
Wolverine World Wide awards for the quality of its advertising campaign and
marketing strategy. The company’s approach to strengthen the Hush Puppies brand
succeeded. By the end of 1987, the production of shoes reached 265,000 pairs, an
increase of 18% over 1986. In 1988, production increased an additional 15% to
305,000 pairs; in 1989, shoe production was up 29% to 392,000 pairs.
A shift into Women’s and Children’s Shoes:
More endeavor was dedicated
to product design and
marketing to make stronger
the company’s arrangement
in the women’s shoe market.
The women’s product
manager, Cardina Schmidt,
believed that prior to 1990
the women’s product line had
not sufficiently satisfied the
style and fashion demands of
Chilean women. In order to
construct Hush Puppies further appealing to women, high fashion shoes were
imported from Italy, France and Argentina. Hush Puppies Chile also hired exclusive
designers to develop its own collection of women’s shoes. During this same period,
the company also undertook a most important proposal in children’s shoes.
5
In early 1990, Hush Puppies for Kids were commenced, consisting of four different
categories which varied according to the age of the child. Soft Puppies shoes were
introduced for infants; Little Puppies were designed for children age one to three
years; Young Puppies were introduced for children age four to eight years; and
finally, Junior Puppies were designed for children age nine to fourteen years.
Amplifying the Athletic Shoe Position:
In the U.S., Brooks was a
comparatively weak brand,
information not altogether lost
on fashion-conscious Chilean
adolescents, and L.A. Gear was
emerging as the top brand for
adolescents. The opportunity to
market a more fashionable brand
in L.A. Gear was clear and
Alfonso approached the
company in the summer of 1990.
After considerable discussion,
L.A. Gear agreed in the fall of
1990 to work with Hush Puppies
Chile to bring the L.A. Gear
brand to Chile. L.A. Gear shoes
would be imported from U.S. inventories or directly from the shoes’ manufacturers in
Korea and China thus sparing Hush Puppies any manufacturing threats.
Wolverine’s Manufacturing point Purchase:
Costanera obtained the 30% of Hush Puppies Chile operations owned by Wolverine
World Wide in December of 1991. In late 1989 and 1990, manufacturing facilities
were enlarged over 30% in Chile in order to remain pace with flourishing demand.
Plans called for production capacity to be increased by another 20% in 1991. At the
same time, Wolverine was facing transforms in the business in the U.S. and was
struggling to preserve capital. As a result, a buyout became an attractive option for
both parties. The purchase of Wolverine’s 30% share of manufacturing was
approximated to have cost Costanera approximately $3.6 million.
Wolverine expanded its licensing agreement to Forus for twenty years. In addition,
Forus pushed for and obtained the rights to manufacture and sell Hush Puppies brands
in Bolivia, Paraguay, and Uruguay. Outside these countries, sales of Hush Puppies or
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Brooks brand products could only be made to other Wolverine licensees. For
Wolverine, Costanera’s program for growth, sanctioned by the success obtained in
Chile, made it the best company to build sales in Latin America. Outside these
countries, sales of Hush Puppies or Brooks brand products could only be made to
additional Wolverine licensees. For Wolverine, Costanera’s program for growth,
endorsed by the achievement acquired in Chile, made it the best company to put up
sales in Latin America.
Extensive Market Appeal:
Hush Puppies was number one in market share; in the ABC1 women’s market, Hush
Puppies was number five in market share; and in the ABC1’s children’s market, Hush
Puppies was number four in market share.
Growth in Retail Operations:
Entire retail sales of Hush Puppies,
Brooks and L.A. Gear shoes amounted
to 328,000 pairs by the end of 1991.
About 74% of these shoes were sold in
25 company-owned stores. An
additional 9% of sales were produced
through “Hush Puppies Corners”
which had been instituted in shoe
departments of 14 major retail
department stores. Regarding 10% of
the company’s sales were also
produced through small independent
retail outlets. Franchise sales
represented approximately 7% of total
retail sales. By the summer of 1992,
the number of company-owned retail
stores in Chile had augmented to 26
with four more diagramed by year-end.
International Expansion:
Certainly Costanera was a much more balanced company by mid-1992 than it had
been ten years earlier. It had a healthy balance sheet, a portfolio of accepted American
brand names, improving manufacturing capabilities, world class design skills and
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substantial marketing expertise. Undoubtedly Ricardo and several managers began to
understand that the depth of Hush Puppies Chile’s market penetration, predominantly
in the ABC1 men’s casuals would lead to augmented competition on or after new
European and American brands.
With these apprehensions in mind, Ricardo began thinking other substitutes intended
for growth. A shift into men’s dress shoes was refused because the segment was by
now highly competitive and for the reason that managers at Hush Puppies Chile did
not believe that their skill base would make available the company with a noteworthy
competitive advantage.
Export Opportunities—North America:
Hush Puppies Chile had at all
times hoped to build up a
strapping export business,
particularly to North America and
Europe. Hush Puppies Chile’s
manufacturing labor costs in 1991
averaged $2.00/hr. counting all
benefits; in neighboring
Argentina, wages in the shoe
industry averaged from between
$2.25 and $2.50 per hour. From a
company point of view, a
prominence on exporting appeared
to build sagacity for two reasons.
First, sales to the Northern
Hemisphere could potentially
offset cyclical sales in the
Southern Hemisphere. Any
supplementary export sales during
the off-season would make available a better utilization of plant and equipment while
minimizing fluctuations in employment levels. Second, the added export sales volume
would contribute to ever-increasing manufacturing and new product development
overheads, in that way increasing overall profits.
Exports to North America and Europe maintained comparatively self-effacing. Hush
Puppies’ domestic target market was also the high-end section which added design
and service costs that negated many of Chile’s labor cost advantages. A final
difficulty was that direct and indirect labor costs symbolized only about 25% of total
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manufacturing costs therefore limiting the company’s ability to follow a low cost
exporting approach. Because of these difficulties, more than a few managers in the
company believed that an export strategy built on superior design and marketing had
the majority chance to achieve something. The company had never critically judged
shifting manufacturing to lower cost Asian countries. Difficulties in controlling
overseas production and the need to respond to rather fickle customer needs
destabilized the potential savings of overseas manufacturing.
Opportunities in Latin America:
From 1990 to 1991, sales growth
increased speed to a staggering
35%, supported in part by the
rapid growth of the Chilean
economy. Many economists were
predicting GDP growth of 10%
per annum all the way through the
remainder of 1992 making Chile
one of the fastest growing
economies in the world and an
engine of economic growth in the
region. The company’s proposal in
Latin America began in earnest in
May of 1989 when Hush Puppies
Chile began exporting Hush
Puppies shoes to Uruguay. In
1990, Hush Puppies Chile
contributed exclusive franchise
rights to the Moliterno family, a diversified industrial company based in the capital
city of Montevideo. Moliterno speedily instituted Hush Puppies Uruguay as a wholly-
owned subsidiary.
Forus purchased 55% of Hush Puppies Uruguay in the spring of 1991. According to
Ricardo, Hush Puppies Chile had at all times desired to be a partner with Moliterno.
The original agreement included an option to buy a majority stake in Hush Puppies
Uruguay that Forus decided to exercise. Hush Puppies Chile shifted to strengthen
operations. Sales employees received additional training and new store locations were
sought out. Essentially no Hush Puppies shoes were exported to Paraguay in 1991 and
no changes were sketched for 1992. In Bolivia, a country of seven million, Forus
instituted a licensing agreement with Global Trading Company of La Paz. Ricardo
estimated that exports for 1992 would amount to about 15,000 pairs or about $U.S.
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525,000. Because of triumphing import tariffs, retail prices in Bolivia were set at a
10% premium over Chilean net prices. In 1992, the company’s efforts in Argentina
were focused exclusively on promoting its Brooks line of athletic shoes. Coast Sport
Argentina was established in 1991 and acted exclusively as a wholesaler for a variety
of self-governing retail outlets in the country.
Recent Developments:
Ricardo was thoughtful after witnessing approximately a decade of accelerating
growth and profits. By the summer of 1992, Ricardo was weighing a number of
options to recommend to Alfonso and Juan Pablo for consideration. One major shove
under consideration was to move aggressively into the retailing of apparel. While the
combination of athletic shoe and clothing stores had proved a major hit in Europe,
Japan and North America, it had yet to be effectively pursued in Chile. Costs for retail
space in a typical up-scale Santiago shopping mall were estimated at 7% of net sales
with leasehold improvements averaging about $U.S. A second option being
considered was to open a chain of outdoor clothing stores. A third option for the
company was the introduction of a new retailing perception for children’s shoes and
apparel. A full line of merchandise would accompany a full shift into children’s
retailing by filling out stores and providing an added draw for consumers.
Behind the increasing attention in expanding the retail base of the company was the
recognition that retailing was becoming more concentrated. Ricardo was also
countenanced with the decision of focusing management efforts on either increasing
sales in Chile or on expanding sales in other Latin American countries. Clearly,
Ricardo had much to consider. While any major pronouncement would necessitate the
maintenance of both Alfonso and Juan Pablo, Ricardo appreciated that they would be
relying on him for bearing.
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Identification of the Problems:
Hush Puppies started their business for mass market, but a major difference is that
wealthy American consumers were generally not targeted by Hush Puppies in the
United States.
In December of 1991, Wolverine failed to support Hush Puppies Chile’s
ambitious expansion plans.
New investment requirements in Chile as well as other countries, combined with
the need to reinvest profits, translated into a negative cash flow for Wolverine.
Hush Puppies buyout with Wolverine as Wolverine was facing changes in the
business in the U.S. and was struggling to conserve capital.
Hush Puppies Chile altered its name to Forus and Forus was licensed to sell
brooks athletic shoes in Bolivia, Paraguay, Uruguay, Chile, Argentina and Peru,
but they did not get the license to manufacture.
Ricardo and several managers began to understand that the depth of Hush Puppies
Chile’s market penetration, mainly in the ABC1 men’s casuals would direct to
boosted competition from new European and American brands.
Forus was typically over capacity in the period leading up to Fall/ Winter
(February through July) and under capacity in Spring/Summer (August through
January).
One problem was that exports from Chile were supposed to contend with much
lower cost footwear from China, India and the Philippines.
Hush Puppies Chile’s incredibly diversified product line boosted per-unit
production costs through short production runs while at the same time removing
opportunities for high volume exports.
11
What strategic measures Hush Puppies Chile should take in order to
decrease production costs and expand low cost exporting strategy to
initiate high volume exports to other countries and stay competitive
with European and American brands?
12
A SWOT analysis is a strategic balance sheet of an organization; that is the strengths
of the organization, the weaknesses of the organization, the opportunities facing the
organization, and the threats facing the organization. It is one of the cornerstone
analytical tools to help an organization develop a preferred future. It is one of the
time-tested tools that have the capacity to enable an organization to understand itself,
to respond effectively to changes in the environment. The purpose of the SWOT
analysis is to provide information on strengths and weaknesses in relation to the
opportunities and threats.
Successful planning process for the human resources of an organization depends on
creating a fit between the resources available to an organization and the opportunities
present in its environment to minimize the weaknesses and face the challenging threats
to survive and lead the industry. Evaluation of internal and external factors helps to
analysis Strengths, Weakness, Opportunities, and Threats.
In other words, in order
to operate successfully
in a continuously
changing environment,
the business firms
should plan its future
goals and strategies
around its strengths and
also try to overcome the
weaknesses. Thus, the
assessment of strengths,
weakness, as well as
opportunities, and
threats become an
essential task for
management.
Strengths refer to the competitive advantages and other distinctive competencies
that a company can exert in the market place.
Weaknesses are constraints that hinder movements in certain directions.
Opportunities primarily arise from the external environment, and refer to the
chances of gaining competitive advantages.
The external uncontrollable variables that can create problems on organizational
performances pose as Threats to business firms.
13
Hush Puppies is a very famous brand all over the world. Wolverine, based in
Rockford Michigan, controlled a portfolio of footwear brands including Hush Puppies
casual shoes, Wolverine work and outdoor boots, Bates uniform shoes, and Brooks
athletic shoes. Incorporated in 1954, Wolverine traced much of its initial success in
footwear markets to its reliance on the production of casual pigskin shoes. The
infamous basset hound became a widely recognized symbol for quality and comfort.
During the 1960s and 1970s, Hush Puppies emerged as a major brand with particular
strength in the men’s segment.
To Hush Puppies, product design was
an important issue. They have always
come up with innovative designs of
shoes. By emphasizing excellence in
design and by developing a chain of
up-scale retail shoe stores as well as
an efficient factory, Hush Puppies
had become the favorite brand of
upper-class Chilean men. Expansion
into women’s and children’s shoes
during the recent three years had also
been successfully implemented. In
order to come close to the ladies customers, the designers talked with them and tried
to know their preference, so that Hush Puppies can come up with the desired design
shoes of their customers.
In Chile, stores were designed as family concept outlets in which both parents and
children could find comfortable, casual shoes. The best Hush Puppies shoes were
being imported from around the world with about 80% coming from the U.S. This
product quality was a great strength for Hush Puppies and as a result they were able to
attract the customers in Chile.
14
In Chile Hush puppies stores were
situated in large, convenient
locations primarily in the Santiago
metropolitan area. The sales staff
was extensively trained to better
relate to the upscale customers and
were well compensated, reflecting
the desire for continuity and
professionalism.
During the late 1980s and early 1990s, Hush Puppies Chile won three annual
Wolverine World Wide awards for the quality of its advertising campaign and
marketing strategy. To strengthen marketing efforts, advertising budgets were
expanded, reaching 5% of sales in 1987. In 1987, the company started a major
advertising program titled “the pleasure of walking”. This advertising campaign was a
massive success and as a result hush puppies Chile won the award.
Hush Puppies Chile has always ignored the two most important market segments. One
is the women’s shoe segment and another is kid’s shoe segment. The company’s
strategy to strengthen the Hush Puppies brand succeeded. By the end of 1987, the
production of shoes reached 265,000 pairs, an increase of 18% over 1986. In 1988,
production increased an additional 15% to 305,000 pairs; in 1989, shoe production
was up 29% to 392,000 pairs. Despite these impressive gains, the company remained
relatively weak in these two important categories. By the end of 1991, Hush puppies
had a market share of 30 % for men’s shoes, whereas it had a market share of only 8%
and 11 % respectively for women’s and children’s shoes. As a result the competitors
captured the market shares.
15
Since, Hush Puppies Chile has always
ignored the women’s shoe segment,
the customers were not happy with the
shoe designs. Prior to 1990 the
women’s product line had not
adequately satisfied the style and
fashion demands of Chilean women.
Good design was particularly
important in the women’s segment in
which styles changed nearly every six
months. Women in the target segment
were particularly fashion conscious
and were generally familiar with the
newest fashions in Europe and North
America. As a result, Hush Puppies
Chile’s market share in women’s shoe
segment was only 8 %. Hush Puppies
lost the entire women’s shoe market to
their competitors.
Hush Puppies Chile was always dominant in men’s shoe segment. But, Hush puppies
Chile was relatively weak in children’s shoe segment because of several reasons.
They also had several disadvantages in this segment. First of all, Hush puppies
Chile’s stores were not appropriate for selling kid’s shoes. On the other hand, other
competitors had years in the market and most of all, they didn’t have the machinery to
develop a great collection for kids up until 12 years in age.
In December of 1991, Costanera acquired the 30% of Hush Puppies Chile operations
owned by Wolverine World Wide. The buyout was prompted by Wolverine’s failure
to support Hush Puppies Chile’s ambitious expansion plans. During late 1989 and
1990, manufacturing facilities were increased over 30% in Chile in order to keep pace
with booming demand. Plans called for production capacity to be increased by
another 20% in 1991.
16
Like most Chileans, Ricardo, Alfonso and Juan Pablo believed that the open market
of 1980 provided an ideal opportunity to start a new business. The open economy put
no barrier for entering into the Chile market. As a result, it was a great opportunity to
enter into the open market of Chile. The brothers were particularly interested in the
upper class market in Chile which, by exposure through international travel, was
familiar with the Hush Puppies brand, quality and unique designs. Wolverine World
Wide also appeared to be an open company; its managers were supportive and
personable. The brothers agreed that any venture with Wolverine would succeed.
Hush Puppies Chile has
always ignored the women’s
and children’s shoe segment.
But it was not too late to
invest in these segments.
Especially the children’s
market was showing potential
opportunity. Surveys
detected great opportunities
for Hush puppies Chile in the
children’s market. The
market was very traditional. It
offered old models in brown
or white color. The market seemed willing to pay a higher price for shoes with
aggressive colors and concepts such as comfort and security. Other competitors of
Hush Puppies were not offering any products with aggressive colors. At the same time
other competitors of hush puppies were not focusing on comfort and security. So, the
market was demanding some attractive products and Hush Puppies was capable of
satisfying the market for children.
17
Since Hush Puppies had
been manufacturing shoes in
Chile for many years, it had
always hoped to develop a
strong export business,
particularly to North
America and Europe.
Success in exports seemed
likely given Chile’s
comparative advantage of
low-cost labor and Hush
Puppies Chile’s excellent
styling and product-
development skills. Hush
Puppies Chile’s manufacturing labor costs in 1991 averaged $2.00/hr. including all
benefits; in neighboring Argentina, wages in the shoe industry averaged from
between $2.25 and $2.50 per hour. In addition to being at least comparable in terms
of costs, the quality and consistency of Chilean labor was generally regarded as
superior to that available in neighboring countries. So, all the factors related to cost
were in favor of Hush Puppies Chile and it showed a great opportunity to export
products in North America and Europe.
From 1987 to 1991, the average annual sales growth for Forus, For-Shop and Coast
Sport was 20% per year. From 1990 to 1991, sales growth accelerated to a staggering
35%, encouraged in part by the rapid growth of the Chilean economy. Strict
adherence to free markets and free trade had led to booming economic growth in
Chile with the economy expanding an average of 6% per year from 1987 to 1992.
Many economists were predicting GDP growth of 10% per annum throughout the
remainder of 1992 making Chile one of the fastest growing economies in the world
and an engine of economic growth in the region. Customs duties on shoes averaged
70% in Paraguay but were being slowly cut under pressure from the General
Agreement on Tariffs and Trade (GATT) as well as broader initiatives undertaken in
creating the Southern Cone Economic Market. The company established a limited
presence in Uruguay, Bolivia and Paraguay and was beginning to enter Argentina
with its line of Brooks athletic shoes. So, the overall Latin American market was an
opportunity for Hush Puppies Chile.
18
A market research in
Chile indicated that
Bata, a large Canadian-
owned shoe company
with worldwide
operations, controlled an
estimated 60% market
share in Chile. Bata
Chile operated primarily
as a manufacturing
company which sold the bulk of its output to small independent stores throughout the
country. Bata also operated several dozen of its own retail stores throughout Chile
and was considering further expansion. This expansion program would enhance the
overall operational efficiency in Chile and it was a threat for Hush Puppies Chile,
because Bata was the key player in the overall shoe market of Chile and it already
captured more than half of the market share of Chile. So, further expansion would
create a huge problem for the other competitors, including Hush Puppies.
In Chile independent retailers had considerable power over manufacturers in
controlling which brands to promote and which styles to display. These independent
retailers had good connection with Bata and they were assisting Bata to come closer
to the customers. Bata was coming up with products according to their customer
preference. In this case the independent retailers were playing a key role. On the other
hand, Hush Puppies did not have such good connections with the independent
retailers of Chile. As a result, it was quite difficult for Hush Puppies to expand their
operation in Chile.
19
After several years of promising
economic growth, the bottom
fell out of Latin American
economies in 1982. Hit by
slumping commodity prices,
massive national debt, soaring
interest rates, and worldwide
recession, the Chilean economy,
like every other in Latin
America, plunged into a state of
depression. In Chile, the GNP
fell by 14% in 1982 alone.
Between the 1982-1985,
unemployment officially
hovered around 14%;
unofficially, it surpassed 30%.
During the same period, the
Chilean Peso dropped by 300%, leading to a commensurate rise in import costs. With
Hush Puppies Chile totally reliant on imported shoes, the company was devastated by
the economic downturn.
20
Porter's five forces study is an outline for industry analysis and business strategy
development formed by Michael E. Porter of Harvard Business School in 1979. It
describes upon industrial organization (IO) economics to derive five forces that verify
the competitive intensity and therefore attractiveness of a market. Attractiveness in
this circumstance submits to the overall industry profitability. An "unattractive"
industry is one in which the combination of these five forces acts to drive down
overall profitability. A very unattractive industry would be one approaching "pure
competition", in which accessible profits intended for all firms are driven to normal
profit.
Porter's five forces include - three forces from 'horizontal' competition: threat of
substitute products, the threat of established rivals, and the threat of new entrants; and
two forces from 'vertical' competition: the bargaining power of suppliers and the
bargaining power of customers.
21
The bargaining power of buyers is high in the Hush Puppies Chile. This is a
manufacturing company. So the bargaining power of buyer is always higher. Again
the customer has always the ability to keep the firm under pressure. The customer’s
sensitivity to price changes has a great impact on the company’s operation.
Moreover, there are other big competitors. So customers can anytime easily switch
from this company to that. This is a great threat for the company. So, customers
bargaining power is high. The buying volume is also good enough. As the customers
buy more, so they have more chance to bargain over the companies strategies.
Moreover, buyers have more information available of the companies as there is
competition.
Thus, considering all the factors, the Bargaining Power is good enough. Since there is
chance of more business to arise, it is going to turn higher.
22
Hush Puppies Chile is a well-established company which has suppliers to provide
their products. The suppliers play noteworthy role in the company. But there is no
specific information regarding the bargaining power of suppliers.
The condition of suppliers,
their switching cost etc
information is not given in
the case. There must be
needed of distribution
channel for the products.
But the channel
information is not
provided here. Moreover,
In the Hush Puppies Chile,
most of the suppliers are
possessed by the company
itself. Here the supplier
switching cost is higher since the companies own the suppliers. Moreover loyalty for
the company is already exists. So supplier competition is not enough here.
The threat of substitutes is not
very high here as customer
switching cost is good enough
because of product category.
Shoe is a product which is
needed to everyone. Nobody
walk without it. But someone
can use sandle instead of shoe.
Though this may be a substitute
of shoe, but there is no
information about that type of
products. Buyers are not willing
to look for several substitutes. They need shoe to maintain their standard for several
purposes and customers are happy with that.
23
Moreover, if there is substitute, they cannot be able to provide their product in
cheaper rate than that. Product differentiation facility will also not be able to gain by
substitutes. Number of substitute products is not a very good enough.
The allegiance of customers is effortlessly diversifiable thinking the tendency of
consumers is backed up by lower switching costs. The greater the cost for customer’s
to change to a substitute product the less the threat of substitution. But, Hush Puppies
Chile has an economically developing region with a consumer base focused on price
preferences making it easier for the substitutes to be available. But as shoe is really
essential in modern days for everybody in their daily life, so threat of substitute is not
an alarming number.
Hush Puppies Chile is a
well-established market in
Chile as well as in the
world. This is a saturated
Market. But other new
comers also have options to
enter into the market. There
is potentiality of that.
Though there is already
some big giants like Hush
Puppies Chile, BATA etc.,
and other companies can
start business here with enough capital and well established designers.
Still this is a growing industry; there are many companies who can wish to come here.
It is also not very difficult for starting a business. Still if any new company wants to
come in this business, then they need to have enough capital to make a place in this
region. But they have a facility that production process is easy for them to learn.
Moreover labor cost is not very high. Economic condition of the country is also well
enough.
Moreover, all the new comers need to have idea about the government of the country.
Govern rules and regulations needed to maintain by the new companies. There is a
challenge to face all the government regulations. Along with all these, they need to
know all the distribution channels properly.
24
The competition in this industry in very alarming and Hush Puppies Chile has many
competitors. Bata is a big competitor for the company. Though Hush Puppies Chile is
rich with fashionable shoes and well known fashion designers, other competitors also
have such type of facilities.
Brooks was positioned as the number three brand in the Chilean athletic shoe market
after Diadora and Adidas. Adidas is a very famous company in terms of athletic
shoes. L.A. Gear was emerging as the top brand for adolescents. The opportunity to
market a more fashionable brand in L.A. Gear was clear and Alfonso approached the
company in the summer of 1990.Moreover many shoe companies also emerged there
with fashionable designs and colors.
So the number of competitors is large enough. Again Adidas is a competitor who is
big enough to defeat. But the Hush Puppies Chile’s growth rate is also well enough.
So the threat of competitors is very much here and the market is not free from
competition.
25
The growth and expansion of Hush Puppies Chile is, probably, one of the successful
stories of the brand Hush Puppies. After negotiations with Wolverine, Hush Puppies
Chile was given exclusive rights to import Hush Puppies shoes and develop retail
outlets in Chile. Although no up-front fees were paid to Wolverine, in 1980 Hush
Puppies Chile committed to opening as many as 25 retail stores within three years.
Expectations were that the costs for the first five stores, including leasehold
improvements, training, and inventories and so on, would total about $2.0 million.
In April 1982, after economic downturn and rising import cost, the decision was made
to move Hush Puppies Chile into shoe manufacturing. In November 1982, a
partnership was formed between Wolverine World Wide and Hush Puppies Chile
with 70% of the manufacturing joint venture owned by Hush Puppies Chile and 30%
owned by Wolverine. Both partners agreed to contribute representative amounts of
capital to ensure that manufacturing output met growth targets.
As overall sales picked up in 1985, Hush Puppies Chile and Commercial Puppies
focused more on building and maintaining key brands. The objective was to develop a
reputation for excellence in marketing by emphasizing advertising, service and style.
Feedback from retail stores proved a major strength in focusing design and
manufacturing on consumer needs. The company’s strategy to strengthen the Hush
Puppies brand succeeded. By the end of 1987, the production of shoes reached
265,000 pairs, an increase of 18% over 1986. In 1988, production increased an
additional 15% to 305,000 pairs; in 1989, shoe production was up 29% to 392,000
pairs.
In December of 1991, Costanera acquired the 30% of Hush Puppies Chile operations
owned by Wolverine World Wide. The buyout was prompted by Wolverine’s failure
to support Hush Puppies Chile’s ambitious expansion plans. During late 1989 and
1990, manufacturing facilities were increased over 30% in Chile in order to keep pace
with booming demand. Plans called for production capacity to be increased by
another 20% in 1991. With the buyout complete, Hush Puppies Chile changed its
name to Forus, S.A. In January 1992, the name of Commercial Puppies was changed
to For-Shop. Under the terms of the acquisition, Wolverine extended its licensing
agreement to Forus for twenty years. In addition, Forus pushed for and received the
rights to manufacture and sell Hush Puppies brands in Bolivia, Paraguay, and
Uruguay.
26
By the end of 1991, Hush Puppies Chile had succeeded in significantly broadening
the market appeal of its Hush Puppies brands. In the ABC1 men’s market, Hush
Puppies was number one in market share; in the ABC1 women’s market, Hush
Puppies was number five in market share; and in the ABC1’s children’s market, Hush
Puppies was number four in market share.
From 1987 to 1991, the average annual sales growth for Hush Puppies Chile was 20%
per year. From 1990 to 1991, sales growth accelerated to a staggering 35%,
encouraged in part by the rapid growth of the Chilean economy.
The company’s initiative in
Latin America began in
earnest in May of 1989 when
Hush Puppies Chile began
exporting Hush Puppies shoes
to Uruguay. In 1990, Hush
Puppies Chile granted
exclusive franchise rights to
the Moliterno family, a
diversified industrial company
based in the capital city of
Montevideo. Moliterno
quickly established Hush
Puppies Uruguay as a wholly-
owned subsidiary. In the Spring of 1991, Forus purchased 55% of Hush Puppies
Uruguay. After gaining effective control over retailing, Hush Puppies Chile moved to
strengthen operations in the region. In Bolivia, a country of seven million, Forus
established a licensing agreement with Global Trading Company of La Paz. Although
the agreement had been in place for less than a year, two stores had been opened and
Hush Puppies Corners had been set up in two department stores. In 1992, the
company’s efforts in Argentina were focused exclusively on promoting its
Brooks line of athletic shoes.
Considering the exploitation of available capital for Hush Puppies Chile, it can be
phased in the growth stage with rapid expansion in different Latin American
countries.
27
The first concept which will be applied to the specialty shoe industry is the product
lifecycle. This lifecycle is based on the assumption that all industries pass through a
number of generic stages. The four generic stages are introduction, growth, maturity,
and decline. They are defined using the rate of growth in sales in an industry. As an
industry’s sales grow and decline through the numerous stages, inflection points can
be marked in order to determine where the stages start and end. This concept also
makes the assumption that all industries go through an S-shaped pattern in their sales
growth.
From 1987 to 1991, the average annual sales growth for Hush Puppies Chile was 20%
per year. From 1990 to 1991, sales growth accelerated to a staggering 35%,
encouraged in part by the rapid growth of the Chilean economy. Strict adherence to
free markets and free trade had led to booming economic growth in Chile with the
economy expanding an average of 6% per year from 1987 to 1992. Many economists
were predicting GDP growth of 10% per annum throughout the remainder of 1992
making Chile one of the fastest growing economies in the world and an engine of
economic growth in the region.
The market seemed willing to pay a higher price for shoes with aggressive colors and
concepts such as comfort and security. By the end of 1991, total retail sales of Hush
Puppies, Brooks and L.A. Gear shoes amounted to 328,000 pairs. About 74% of these
shoes were sold in 25 company-owned stores. By the summer of 1989, Brooks was
positioned as the number three brand in the Chilean athletic shoe market after Diadora
and Adidas. In the U.S., however, Brooks was a relatively weak brand, a fact not
altogether lost on fashion-conscious Chilean adolescents, and L.A. Gear was
emerging as the top brand for adolescents.
The massive export of cheap shoes from China, India and Philippine in Latin
American market created opportunities for many of the global companies to take bite
in the growing shoe industry. The market research also indicated that Bata, a large
Canadian-owned shoe company with worldwide operations, controlled an estimated
60% market share in Chile.
Bata Chile operated primarily as a manufacturing company which sold the bulk of its
output to small independent stores throughout the country. Bata also operated several
28
dozen of its own retail stores throughout Chile and was rumored to be considering
further expansion.
However, an emphasis on
exporting seemed to make
sense for two reasons. First,
sales to the Northern
Hemisphere could potentially
offset cyclical sales in the
Southern Hemisphere. Forus
was typically over capacity in
the period leading up to fall/
winter (February through
July) and under capacity in
Spring/Summer (August
through January). Any
additional export sales during
the off-season would provide a better utilization of plant and equipment while
minimizing fluctuations in employment levels. Second, the additional export sales
volume would contribute to ever-increasing manufacturing and new product
development overheads, thereby boosting overall profits.
Considering the background of the Chilean Show industry the retail outlets played a
vital role in the life cycle of the industry. The growth of the industry has often been
improvised by government regulation and import tariffs.
In this context, the Hush Puppies Chile’s former strategy was centered in offering a
high quality casual shoes to a narrow consumer segment (upper-class Chilean men),
therefore, a focus strategy. Later on, primarily thanks to the vision of management,
the company moved to the diversification strategy to women and children shoe
segment. Some of the advantages of this strategy are: customers have a lower
sensitiveness to price, opportunity for higher margins, creation of entry barriers
thanks to customer loyalty and brand uniqueness.
29
During the 1960s and 1970s, Hush Puppies emerged as a major brand with particular
strength in the men’s segment. The infamous basset hound became a widely
recognized symbol for quality and comfort. Success in the U.S. was followed by
international expansion, initially in Canada and Europe. By 1992, Wolverine World
Wide had established joint ventures or licensing agreements in over 40 countries
including most of Europe, Japan and South America. In the athletic shoe segment,
Brooks was positioned as the number three brand in the Chilean athletic shoe market
after Diadora and Adidas. In the U.S., however, Brooks was a relatively weak brand, a
fact not altogether lost on
fashion-conscious
Chilean adolescents, and
L.A. Gear was emerging
as the top brand for
adolescents. L.A. Gear
was a relative new comer
in the athletic shoe
industry and, to capitalize
on its increasing
popularity, had begun to
search for international
distributors.
Therefore, after much analysis, the company is showing some details that according to
concept of product life cycle, the company might enter in the growth stage.
30
Financial analysis is the process of evaluating businesses, projects, budgets and other
finance-related entities to determine their suitability for investment. Typically,
financial analysis is used to analyze whether an entity is stable, solvent, liquid, or
profitable enough to be invested in. When looking at a specific company, the financial
analyst will often focus on the income statement, balance sheet, and cash flow
statement. In addition, one key area of financial analysis involves extrapolating the
company's past performance into an estimate of the company's future performance.
From the current ratio analysis we can observe that Hush Puppies Chile’s current ratio
has gone up significantly from the year 1990 to 1991. It clearly indicates that the
company has enough current assets to pay of its current liabilities. It is always
expected that, a company will have a current ratio of more than one. Hush Puppies
Chile is in a very good condition to pay of its current liabilities.
31
From the total debt ratio analysis we can observe that Hush Puppies Chile’s total debt
ratio has been very much consistent throughout the year1990 to 1991. It clearly
indicates that the company has been using approximately 42% debt for financing its
assets and rest of the 58% asset is backed up by the equity.42% usage of debt is a very
nice portion for the company. If any company borrows more debt for financing its
assets, then financial leverage goes up and risk increases. So, from this perspective,
Hush Puppies Chile is not exposed to financial leverage risk.
From the Debt to Equity Ratio analysis we can observe that Hush Puppies Chile’s
Debt to Equity Ratio has been consistent throughout the year1990 to 1991. For the
year 1990 Hush Puppies Chile’s equity was 0.73 times than its debt. In the year of
1991 Hush Puppies Chile’s equity was 0.68 times than its debt.
From the Equity Multiplier Ratio analysis we can observe that Hush Puppies Chile’s
Equity Multiplier Ratio has been consistent throughout the year1990 to 1991. It is not
a co incidence that the Equity Multiplier ratio is 1 plus the debt to equity ratio.
From the Times Interest Earned Ratio we can observe that Hush Puppies Chile’s
operating profit was 4.48 times higher than its interest expense in the year of 1990 and
it was 8.3 times higher in the year of 1991. It clearly indicates that Hush Puppies
Chile was very much capable of covering its interest obligations.
32
From the Total Asset Turnover Ratio analysis we can observe that Hush Puppies
Chile’s Total Asset Turnover Ratio has been consistent throughout the year 1990 to
1991. Higher the value of total asset turnover ratio, it is better for the organization.
From the above table we can see that in the year 1990, for every dollar in assets, Hush
Puppies Chile generated 0.81 dollars sales. In the year of 1991, asset utilization was
better than the previous year and it indicates good asset utilization by Hush Puppies
Chile.
From the Inventory Turnover Ratio analysis we can observe that Hush Puppies
Chile’s Inventory Turnover Ratio has been consistent throughout the year 1990 to
1991. But the inventory turnover ratio is too small. One reason behind this is that,
Hush Puppies Chile was targeting the higher class people of the society and as a result
they were selling premium products and premium products are not sold so quickly.
So, it is expected that the inventory turnover ratio is too small.
From the Day’s Sales in Inventory Ratio analysis we can observe that Hush Puppies
Chile’s Inventory sits almost 150 days on average before it is sold. This is quite high
for the company and the reason behind it is the small Inventory turnover ratio. Lower
the inventory turnover ratio, higher the Day’s Sales in Inventory Ratio.
33
From the Profit Margin Ratio analysis we can observe that Hush Puppies Chile’s
Profit Margin Ratio has been consistently increasing from the year 1990 to 1991. It is
definitely a positive sign for the organization. Higher profit margin is a desirable
situation for any company. Each and every company wants to increase their profit
margin. In the year 1990, for every dollar in sales, Hush Puppies Chile’s Profit
Margin was 9.69%, which increased to 19.23% in the year 1991. So, profit margin
almost doubled within one year.
From the Return on Asset Ratio analysis we can observe that Hush Puppies Chile’s
Return on Asset Ratio has been consistently increasing from the year1990 to 1991. It
is definitely a positive sign for the organization. Higher Return on Asset is a desirable
situation for any company. Return on Asset has almost doubled from 1990 to 1991
and it is really a good indication for the company.
From Return on Equity Ratio analysis we can observe that Hush Puppies Chile’s
Return on Equity Ratio has almost doubled from the year 1990 to 1991. It is definitely
a positive sign for the organization. Higher Return on Equity is a desirable situation
for any company.
34
Country risk refers to the risk of investing in a country, dependent on changes in the
business environment that may adversely affect operating profits or the value of assets
in a specific country. In other words country risk is a collection of risks associated
with investing in a foreign country. These risks include political risk, exchange rate
risk, economic risk, sovereign risk and transfer risk, which is the risk of capital being
locked up or frozen by government action. Country risk varies from one country to
the next. Some countries have high enough risk to discourage much foreign
investment. For example, financial factors such as currency controls, devaluation or
regulatory changes, or stability factors such as mass riots, civil war and other potential
events contribute to companies' operational risks. This term is also sometimes referred
to as political risk; however, country risk is a more general term that generally refers
only to risks affecting all companies operating within a particular country. Country
risk is comprised of various aspects of risk involved in doing business in a particular
country. For example: political risk, economic risk, currency exchange rate risk are all
part of country risk analysis. Country risk can reduce the expected return on an
investment and must be taken into consideration whenever investing abroad. Some
country risk does not have an effective hedge. Other risk, such as exchange rate risk,
can be protected against with a marginal loss of profit potential.
35
The political situation of Chile
is quite stable now a day. But
the situation was really horrible
in the mid of 1970’s.
Currently, Chile is a
democratic country and the
democracy seems quite stable
to the international observers.
Political polarization under the
left wing government of
President Salvador Allende
(1970-73) brought the country
close to a civil war, and ended
in September 1973 with a coup
d’etat led by General Augusto
Pinochet. During his 17 year
rule, Pinochet turned to the
writings of free market
advocate and Nobel Prize
winning economist Milton
Friedman to guide national industrial policy.
Immediately after seizing power, Marshall Law was imposed, the economy was
liberalized and foreign corporations were invited to return to Chile. Pinochet’s 1980
blueprint for political democratization was completed on December 14, 1989 when a
national plebescite was held and Patricio Alwin, the Christian Democratic leader of a
center-left coalition was elected president. He took office on March 11, 1990. While
Augusto Pinochet remained commander of the nation’s armed forces in mid-1992, the
emerging democracy seemed stable and strong to most observers.
The success of Chile’s free market reforms after a decade of stagflation and debt
crisis amazed many observers. Most economists attributed Chile’s enviable economic
growth to its unrelenting dedication to free markets. By mid-1992, the bulk of the
Chilean left was no longer anti-capitalist, and a remarkable degree of consensus
existed in the country about the need to maintain a liberal market economy and
prudent fiscal policies. The main dividing issues related to a new labor code granting
36
more rights to unions, and the question of what to do about serious human rights
violations that occurred under the Pinochet regime.
After several years of
promising economic
growth, the bottom fell out
of Latin American
economies in 1982. Hit by
slumping commodity
prices, massive national
debt, soaring interest rates,
and worldwide recession,
the Chilean economy, like
every other in Latin
America, plunged into a
state of depression. In Chile, the GNP fell by 14% in 1982 alone. Between the 1982-
1985, unemployment officially hovered around 14%; unofficially, it surpassed 30%.
During the same period, the Chilean Peso dropped by 300%, leading to a
commensurate rise in import costs. With Hush Puppies Chile totally reliant on
imported shoes, the company was devastated by the economic downturn.
But the situation improved during 1985. By 1985, the Chilean economy started to turn
around. Strict adherence to free markets and free trade had led to booming economic
growth in Chile with the economy expanding an average of 6% per year from 1987 to
1992. Many economists were predicting GDP growth of 10% per annum throughout
the remainder of 1992 making Chile one of the fastest growing economies in the
world and an engine of economic growth in the region.
37
In 1985, the Chilean Peso dropped by 300%, leading to a commensurate rise in import
costs. With Hush Puppies Chile totally reliant on imported shoes, the company was
devastated by the economic downturn. If peso declines then it is easy to export
products outside Chile. But at the same time import cost increases if peso declines.
Since, in 1985 peso declined by almost 300 %, import cost increased like anything.
38
As it could be read from the case, the factors that were available for the market in
Chile and other Latin American countries were pretty good for Hush Puppies Chile to
market their product. Chile was Hush Puppies Chile’s largest business operation
which was followed by U.S.
Since, Hush Puppies Chile was totally reliant on imported shoes; the company was
devastated by the economic downturn in 1982. Only two options appeared possible:
shut down in the face of massive losses or move into manufacturing. As a
consequence to that, in April 1982, the decision was made to move Hush Puppies
Chile into shoe manufacturing.
However, a manufacturing facility in Chile made sense for a number of reasons. In
1981, import quotas ended in the U.S. and Wolverine moved aggressively to shift
production overseas. Under the joint venture agreement with Hush Puppies Chile,
Wolverine would have access to a new source of shoes made with low cost Chilean
labor. Hush Puppies Chile’s manufacturing labor costs in 1991 averaged $2.00/hr.
including all benefits; in neighboring Argentina, wages in the shoe industry averaged
from between $2.25 and $2.50 per hour. In addition to being at least comparable in
terms of costs, the quality and consistency of Chilean labor was generally regarded as
superior to that available in neighboring countries. Despite the fact, direct and indirect
39
labor costs represented only about 25% of total manufacturing costs thus limiting the
company’s ability to pursue a low cost exporting strategy. Besides that, to make Hush
Puppies more appealing to women, high fashion shoes were imported from Italy,
France and Argentina. Hush Puppies Chile also hired exclusive designers to develop
its own collection of women’s shoes. Designers and managers regularly visited Hush
Puppies stores to question women on desired design features like colors and styles.
By 1985, strict adherence to free markets and free trade had led to booming economic
growth in Chile with the economy expanding an average of 6% per year from 1987 to
1992. But, managers at Hush Puppies Chile also believed the company had no
competitive advantage in importing. Estimates for 1992 were that the company would
import about $U.S. 3.0 million in raw materials (mostly soles and leathers) and about
$U.S. 1.7 million in finished shoes. The U.S. would supply approximately 25% of
these imports with the rest coming from the Far East, Argentina, Brazil, Italy, Spain,
Germany, Mexico and the U.K.
Hush Puppies in Chile had seen profits climb and sales explode by an average of 30%
per year since 1985. By emphasizing excellence in design and by developing a chain
of upscale retail shoe stores as well as an efficient factory, Hush Puppies had become
the favorite brand of upper-class Chilean men. Expansion into women’s and
children’s shoes during the last three years had also been successfully implemented.
Chile was becoming more westernized in its tastes and placed a high demand and
value on imported and designed shoes. Once a foreign product was adopted in the
domestic market, it usually commanded a high price. So, the market seemed willing to
pay a higher price for shoes with aggressive colors and concepts such as comfort and
security. Hush Puppies Chile had a few advantages such as the excellent Hush
Puppies’ image which was attractive for children and easily identified. During late
1989 and 1990, manufacturing facilities were increased over 30% in Chile in order to
keep pace with booming demand.
However, after the buyout of Wolverine, by the end of 1991, total retail sales of Hush
Puppies, Brooks and L.A. Gear shoes amounted to 328,000 pairs. About 74% of these
shoes were sold in 25 company-owned stores. An additional 9% of sales was
generated through “Hush Puppies Corners” which had been established in shoe
departments of 14 major retail department stores. In promoting Hush Puppies
Corners, For-Shop agreed to train sales employees and assist in designing and setting
up displays. About 10% of the company’s sales was also generated through small
independent retail outlets. Franchise sales represented approximately 7% of total retail
40
sales. In 1991, the company had five franchise stores located in isolated cities in
Chile. By the summer of 1992, the number of company-owned retail stores in Chile
had increased to 26 with four more planned by year-end.
The research also found that, from 1987 to 1991, the average annual sales growth for
Forus, For-Shop and Coast Sport was 20% per year. From 1990 to 1991, sales growth
accelerated to a staggering 35%, encouraged in part by the rapid growth of the
Chilean economy.
Hush Puppies Chile management had defined the strategy of the firm to be
emphasized on the excellence in design and developing a chain of up-scale retail shoe
stores as well as an efficient factory. These related activities began with the
establishment of a small new manufacturing facility opened in suburban Santiago in
February 1983, which included approximately 10,000 square meters of manufacturing
capacity, a two story executive office complex and factory retail outlet.
As overall sales picked up, Hush Puppies Chile and Commercial Puppies focused
more on building and maintaining key brands. The objective was to develop a
reputation for excellence in marketing by emphasizing advertising, service and style.
Feedback from retail stores proved a major strength in focusing design and
manufacturing on consumer needs. Hush Puppies Chile managers regarded the
company as market oriented as opposed to manufacturing oriented, thus
differentiating the company from many Far East suppliers. By the end of 1985,
Commercial Puppies was managing 22 company-owned stores and Hush Puppies
Chile was supervising four franchise stores.
To strengthen marketing efforts, advertising budgets were expanded, reaching 5% of
sales in 1987. In 1987, the company started a major advertising program titled “the
pleasure of walking” which was particularly appealing to increasingly health
conscious upper and upper-middle class Chileans. Follow-up multicolor ads
promoting Hush Puppies’ line of outdoor casual and hiking boots were placed in
major newspapers and top magazines throughout the country. Television
advertisements were also developed which focused on Hush Puppies as statements of
quality and style. Moreover, a separate company, Coast Sport was organized to
manage all Brooks sales. It was hoped that creating separate companies for athletic
41
shoes would allow greater focus on Hush Puppies brands as well as encourage new
sales initiatives for athletic shoes.
In order to make Hush Puppies more appealing to women, high fashion shoes were
imported from Italy, France and Argentina. Hush Puppies Chile also hired exclusive
designers to develop its own collection of women’s shoes. Designers and managers
regularly visited Hush Puppies stores to question women on desired design features
like colors and styles. New window displays were designed to establish a more stylish
image and a major television advertising campaign was launched. As a result of these
efforts, sales growth in the women’s segment increased dramatically.
The company had leveraged multiple franchises and licensing to sell its shoes. In
1990, Hush Puppies Chile granted exclusive franchise rights to the Moliterno family,
a diversified industrial company based in the capital city of Montevideo. Moliterno
quickly established Hush Puppies Uruguay as a wholly-owned subsidiary. In Bolivia,
a country of seven million, Forus established a licensing agreement with Global
Trading Company of La Paz. Coast Sport Argentina was established in 1991 and
acted exclusively as a wholesaler for a variety of independent retail outlets in the
country. Coast Sport Chile owned 80% of the new company, with the remaining 20%
owned by NORSEG Argentina, which had NORSEG Chile as a majority owner.
Through the analysis of the case, it could be found that the case does not mention
much about any related or supporting industry that helped the Hush Puppies Chile,
other than that of slight mentioning of an influential retail industry in the Chilean
market.
In Chile, independent retailers had considerable power over manufacturers in
controlling which brands to promote and which styles to display. Besides, Retailers
treated all brands alike, not giving special treatment to any brand in particular. The
market research also indicated that Bata, a large Canadian-owned shoe company with
worldwide operations, controlled an estimated 60% market share in Chile. Bata also
operated several dozen of its own retail stores throughout Chile and was rumored to
be considering further expansion.
42
Therefore to offset the power of independent retailers, after negotiations with
Wolverine, Hush Puppies Chile was given exclusive rights to import Hush Puppies
shoes and develop retail outlets in Chile. Although no up-front fees were paid to
Wolverine, the brothers committed to opening as many as 25 retail stores within three
years. Expectations were that the costs for the first five stores, including leasehold
improvements, training, and inventories and so on, would total about $2.0 million. As
agreed, stores were designed as family concept outlets in which both parents and
children could find comfortable, casual shoes.
After the political reformation in 1980s, Marshall Law was imposed, the Chilean
economy was liberalized and foreign corporations were invited to return to Chile.
Pinochet’s 1980 blueprint for political democratization was completed on December
14, 1989 when a national plebiscite was held and Patricio Alwin, the Christian
Democratic leader of a center-left coalition was elected president.
The success of Chile’s free market reforms after a decade of stagflation and debt crisis
amazed many observers. Most economists attributed Chile’s enviable economic
growth to its unrelenting dedication to free markets. By mid-1992, the bulk of the
Chilean left was no longer anti-capitalist, and a remarkable degree of consensus
existed in the country about the need to maintain a liberal market economy and
prudent fiscal policies. The main dividing issues related to a new labor code granting
more rights to unions, and the question of what to do about serious human rights
violations that occurred under the Pinochet regime.
Despite its interest in open markets, Chile has avoided involvement in Mercosur or
the free trade zone that neighboring Paraguay, Uruguay, Argentina and Brazil hoped
to have running by 1994. Confident after nine years of stability and growth, Chile in
1992 was aspiring to become the first Latin American county to join NAFTA. If
NAFTA membership were to prove elusive, the government intended to pursue a free
trade agreement with Japan, Chile’s top export market after the United States.
43
The company’s initiative in Latin America began in earnest in May of 1989 when
Hush Puppies Chile began exporting Hush Puppies shoes to Uruguay. With air freight
to Uruguay averaging about $U.S. 0.55 per kg., transportation costs appeared
favorable for exports.
On the other hand, no Hush Puppies shoes were exported to Paraguay in 1991 and no
changes were planned for 1992. Customs duties on shoes averaged 70% in Paraguay
but were being slowly cut under pressure from the General Agreement on Tariffs and
Trade (GATT) as well as broader initiatives undertaken in creating the Southern Cone
Economic Market. Management believed that as the economy opened up in 1993,
Forus would begin some modest exports.
44
Internal Considerations
Product/ Service
Demand
Technology
Financial Resources
Absenteeism/Turnover
Organizational Growth
Management Philosophy
TECHNIQUES
Staffing Tables
Markov Analysis
Skills Inventories
Management
Inventories
Replacement Charts
Succession Planning
EXTERNAL
CONSIDERATIONS Demographic
Changes
Education of the
Workforce
Labor Mobility
Government Policies
Unemployment Rate
(Shortage)
Recruitment
- Full time
- Part time
- Recalls
(Surplus)
Reduction
- Layoff
- Termination
- Demotion
- Retirements
-
Techniques
Trend Analysis
Managerial Estimates
Delphi Techniques
45
The human resources planning model is a method companies can use to make sure it
has enough employees and the right employees to carry out the various functions of
the company. The human resources planning model encompasses three key elements,
which include predicting the employees your company needs, analyzing if the supply
of potential employees meets your demand and learning to balance the supply and
demand of employees.
There is sufficient information in the given case about the demand of Hush Puppies
shoes. Good quality shoe is a product and the demand of quality shoes is high not
only in Chile but also in the whole world. Hush Puppies brand product is highly
demanded in the high class people. They are doing business with various types of
shoes like shoes for children of various ages, shoes for women and shoes for men.
This variation had played an important role to expand their business and increase their
sales.
Justification:
In a word, the essence of demand is the willingness to exchange value goods or
services. Demand of shoe is world-wide. So it is already justified. In a word, the
essence of demand is the willingness to exchange value goods or services.
Hush Puppies is a well-known brand not only in South and North America but also in
the whole world but the Asian market is in behind position other than Europe and
American market. They have well and strong technology to prepare proper and best
quality shoes. Enough technology can do it properly to fulfil the demand of all ages of
people (Children, male and female)
Internal Considerations:
46
Justification:
The company uses different updated and modified technology to prepare the best
quality shoes for all high class higher middle class people. Technology is needed to
fulfil the demand of people. Technology is the making, usage, and knowledge of
tools, machines, techniques, crafts, systems or methods of organization in order to
solve a problem or perform a specific function. It is very nicely justified that modern
technology is needed to serve and fulfil the customer demand and also to increase the
sales.
In the case there is a lot of financial information about the company Hush Puppies.
During 1987 to 1991 the amount of purchase of leather and raw materials $6,302 and
the projected amount is $2,000. The royalty of Hush Puppies is $1,032 and the Brooks
is $441. There are much other financial information in the Balance sheet and the
income statement. The net income of Fours, S.A in 1990 is Ch$379,477,518 and in
1991 is 979,686,268. All other financial information is available in this difficult case.
Justification:
Hush Puppies have enough financial resources to expand their business and they can
start manufacturing in other countries and they can make enough profit with enough
financial resources. There are various sources of financial resources but
indiscriminate choosing of these resources may bring devastating result for the
company.
There is no information provided about the trend analysis in this case.
Growing from local company to an international company, there is enough
information in the case. Company’s growth is very rapid and Hush Puppies has a
strong bonding with other foreign companies to get the sustainability in the particular
shoe industry. Shoe companies of other countries have good relation with Hush
Puppies and they got a good opportunity to capture new market and keep the
continual growth. Commercial Puppies was managing 22 company- owned stores and
Hush Puppies Chile was supervising four franchise stores.
47
Justification:
Organizations value growth. However, liberalized global environment requires
organizations to plan and ensure growth for their very survival. The organizational
growth requires adoption, change and innovation.
There is a lot of information about the management philosophy. If management is not
so strong then it is impossible to grow local to international. Alfonso, Ricardo and
Juan Pablo Swett are three brothers and they are the top management of Hush Puppies
Chile. There are another one named Sebastian Swett, a second generation family
member and product manager of children’s shoe. They are doing well to get the
maximum share of that particular industry. Now Hush Puppies is a name which can
solve problem in a minute with their strong management team and top level managers.
Justification:
Having a wide spread management philosophy is very important for an organization
as it gives employees the overall idea about how to control various firm operations
and how to treat competition as well as competitors.
There is no information provided about the trend analysis in this case.
There is some information provided about managerial estimates in this case.
Management Estimates are the opinions (judgment) of supervisors, department
managers, experts, or others knowledgeable about the organization’s future
employment needs.
Techniques:
48
Justification:
To expand the business they need new people for production of new products. Also
the management is expecting that their sales will be increased in future. To increase
the sales new employee is required as there will be increased in the production. So it
can be said that management must have a plan to materialize their new plan of
increased sales and introduction of new product line successfully.
There is not information provided about the Delphi Techniques in this case.
There is enough information about demographic changes. The gender and the age
limit are two main important factors for Shoe Company like Hush Puppies. Shoes for
children of different ages, shoes for male and shoes for female are very important
concern. These should have taken in consideration for increase the sales of shoes.
There is also information about Argentina, Peru, Paraguay, and Uruguay and also
about United States of America. They have huge amount of chemical specialist to
refine the oil and make them usable and they also have moderate number of other
engineers.
Justification:
In this present fashionable world, well designed and quality shoes are needed to is
needed to every person even in children. So the demand is very high. Hush Puppies is
now a big figure in Chile, Latin America as well as in the whole world. So the
demography is a vital figure for oil shoe business in the world and they are a well
performer in this shoe manufacturing industry in Europe and Latin America.
External Considerations:
49
According to the case there is no available information about the education of the
workforce..
According to the case there is no available information about labor mobility.
There is not enough information about government policy in the case. For running the
business in Chile and other Latin America and Europe must have to follow the
Government Policy.
Justification:
Government policy usually influences important organizational decisions, including
the identification of different alternatives such as programs or spending priorities, and
choosing among them on the basis of the impact they will have on the nation or to its
public.
There is enough information about unemployment rate in Chile in this case. It is
matter of concern for any country If the unemployment rate is too high for that
specific country.
Justification:
Between the 1982-1985, unemployment officially hovered around 14%; unofficially,
it surpassed 30%. During the same period, the Chilean Peso dropped by 300%,
leading to a commensurate rise in import costs.
We did not find any information about Staffing Table in this particular case.
Techniques:
50
We did not find any information about Markov analysis in this particular case.
There is not too much information about the skill inventories in the case. The
technical people are very demandable here because of various shoes manufacturing
technology. To run the high quality technology, Hush Puppies needs well skilled and
well trained labors and the HR department will provide the skilled people.
Justification:
The Company’s business strategy is to use its accumulated utility experience and
expertise to improve the profitability of its existing shoe business in Latin America
and to enhance the value of other businesses it may acquire in the whole world.
There are some inventories about the management inventories in this case. There are
another one named Sebastian Swett, a second generation family member and product
manager of children’s shoe. They are doing well to get the maximum share of that
particular industry.
Justification:
It is very nicely justified that to move globally management inventories are very
important to capture the market. To spread the business in Europe, North America,
Latin America and as well as in the whole world, they should take some initiatives to
start management inventories.
There is not available information about the replacement chart in the case.
There is not available information about the succession planning in the case.
51
RE
CR
UIT
LA
YO
FF
After analyzing the considerations and techniques of forecasting labor supply and
forecasting labor demand we have seen that the labor supply is not much affected here
but there are some considerations which indicate the demand for new employees in
the company in future. Here To do the balancing of supply and demand Hush Puppies
should consider recruitment decision that is can hire efficient employees. Now Hush
Puppies is doing the market research to launch a new product line successfully which
is new cloths product line.
In order to do the proper utilization of human resource in the organization, Hush
Puppies should create an effective workforce by means of selecting the right number
of people at the right time for the right job, compensating them to motivate and
develop and retain them by effective training and career development in
customization. Some steps should be taken and they are:
Firstly, Hush Puppies should recruit and select the efficient employees for full
time position and hire part time employees in contractual basis through proper
recruitment and selection process.
In order to ensure that right people job evaluation process should be sound and
flawless.
They should include different approach like external hiring, informal interview
and select people who fit their culture.
What businesses need and HR should be providing are innovative solutions to
business challenges. Efficient service at a lower cost, to sell and service more of them,
and to do so at the highest possible profit margins is very important for Hush Puppies
Chile.
52
Internal Recruitment:
In this case Hush Puppies can go for the internal recruitment as there must be some
employees who are very efficient in the company as the existing products line are
doing very well in the market. So Hush Puppies can hire those employees for the
successful development and launch of new products. This is called identifying the
critical talent.
Identify "Critical Talent":
At first Hush Puppies will need to define the skills that are critical to its business
strategy, and then identify the people within the organization who possess these skills.
These individuals are considered the "critical talent." They are not necessarily the
most highly paid executives. Instead, they are people who have highly developed
specialized skills and know how to get things done within the organization. This will
be cost effective as well as efficient for the company to hire some efficient
employees’ from within the organization because they will know well about the
company and its objectives.
External Recruitment:
After fulfilling employee demand from within inside, Hush Puppies needs to recruit
from outside as part-time and full-time basis. As is a new product line for the
company existing employees will know less about the technical and product part of
the products. That why they will need to go for external recruitment which will help
the company by providing new ideas fresh perspectives, reducing expensive training
by hiring experienced employee, allowing rapid growth, and increasing diversity.
Recruit Salespeople on Full-Time Basis:
Salespeople play a very important role in Hush Puppies in creating the demand and
successfully selling of the shoes. From the market research, Hush Puppies found out
that the women and children prefer to buy from the salespeople who come to their
house rather than buy from the supermarkets.
Recruit Workers for the Production Process:
As this is a new product for the Hush Puppies, the existing workers have not much
idea about the production process of the products. For the effective production of the
trash bags Hush Puppies needs to hire people who are expert in the production of new
products.