ECCO A/S - Global Value Chain Management: Case Analysis Memo

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Case Analysis Memo: Global operations and logistics
BU 635
ECCO A/S -Global value chain management
MithunSelvarajah
185833700

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ECCO is a Denmark based company which was founded in 1963 in Bredebro. The founder Karl
Toosbuy found the company with a vision bringing up the most modern and comfortable
footwear for leisure and work of the world.
Issue identified: The company’s move to China was risky as well as huge. In terms of production
site, Chinese one might become the largest one for the firm. Company’s key decisions such as
that of the vertical value chain might be explained by its structure of family ownership. Having
such a value chain leads to the increase in the costs of the company as it was allowed to take
higher risks and acting upon instantly.
Further evidences: During 2003-04, substantial resources were used by ECCO to analyze where
establishment of production facilities could be initiated in China. The total sales of the company
for the year 2002 were 10.5% of the total global sales. This number hiked by 17.5% as the
preceding year’s sales were 11.4%. From the years 1999 to 2004, the profit of ECCO had been
fluctuating. In 1999, the profit was $185 million. The same for the year 2004 was $151 million.
Although the sales of shoes and net revenue of the organization had been increasing, a gradual
decrease can be seen in the firm’s operating margins and returns (assets, equity and investment)
(Exhibit 2). In the upcoming future, the company expects to reach a direct consumer share of
50%. This implies that half of the sales of the company are targeted at coming directly from the
customers. The means by which the sales would be initiated by the company are operated and
owned shops and electronic commerce.
Recommendation: The organizational structure of the company should be changed as it is not the
appropriate strategy because of various reasons. Firstly, substantial losses related to the immense
investment that was made would be represented. It would also destroy the firm’s core value
which strives for products of high quality. Next, keeping in mind the industry’s competitive
landscape, the timing for making these changes does not seem to be appropriate. Subsequently,
the organizational structure of ECCO seems significant; nevertheless, it needs to focus more
upon being market oriented. As such, the company would require increasing its marketing
budgets that can potentially affect the operating profits in the short run. Additionally, for
offsetting the superior production cost of the company, a positioning that is more high-end and