Date post: | 15-Jul-2015 |
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Education |
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EROSIndian Institute of Technology Kanpur
OUR STRATEGY
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Our Strategies1. Lowest Production Cost – Manufacturing Strategy
Economies of Scale
AP–Wholesale (High SQ), LA–Private (Low SQ), NA–till AP & LA grow
TQM & Best Practices
4. Lowest Distribution Cost – Distribution & SCM Strategy
Separate Plants for WS & PL
SCM to minimize taxation
3. Product Strategy (Marketing, Positioning)
Differentiation: Premium - Aim 9,500 (SQ rating, No of models)
4. Financial Practices (Leverage, Financing – Equity/Debt)
Grow with high Leverage: Debt/Assets Ratio
Issuing, Repurchasing Stock – to manage credit rating, ROE, EPS
Refinancing Loans
Dividends - waste of capital for temporary stock increases (Only Y17)
7,50 9,50 9,100 9,200 5,350 7,500 9,500
Private Label
Purchase 2000 LA & max in AP in 1st year and also in subsequent 3-4 years if possible
Use excess capacity in Private Label (After 2-3 year, no one will mess with your PL Market if they cant match your costs)
Produce PL only in LA – Can save ~4$/pair with huge capacity and proper distribution mgmt
By dumping, One can have 100% share of PL, but not for WS
Sell of NA plant when you are credit constrained
High PL market share increases Image ratings by increasing total share (worry less about CSR or selling WS shoes at higher SQ)
Drastic market share increases and bid-price reduction in PL would hit competitors who have bid for PL unawares (Silencing them for 1-2 years – Cr rating falls to C, stock pr lowers than 15)
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Finance
Take Only 10 yr loans – the game is not going to last ten years
10 yr loans have the less effect on Cr ratings (compared to 1,5 yr)
Avoid issuing stock unless credit constrained (decreases EPS)
Grow fast and huge by taking big loans initially , but maintain B + credit rating
In the last two years, sell excess unprofitable capacity, repurchase stock, give dividends (Or if you think industry is too oversupplied)
Repurchasing stock better than dividend. (Increases both EPS & ROE)
Avoid stock repurchasing and dividend during start & mid years - It would hurt your ability to grow fast and invest
Repurchasing stock at high stock price in the last year can be beneficial (reduce Equity drastically in ROE)
Do not spend in CSR, instead upgrade your LA & AP plants
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Whole Sale Don't spend too much on celebrity initially but bid around 1-2k max
(high marketing $/shoe)
Initially, use much needed capital to grow (dump excess shoe in PL)
When big enough for low marketing $/shoe even with very high
celebrity & adv costs => go for celebrities
Celebrity has to be accompanied with high advertising Cost
(PTO)
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Start Strategy
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Y 14 downfall reason
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This year we underperformed very badly
Y 15 Strategy Diversion
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Surprise to competitors & niche segment – Still not large enough for 9,500
Marketing Strategy Y17
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Problems
Quickly purchase used Capacity before others
Anticipate Demand, Supply Fluctuation
Anticipate pricing effects
Private Label bids – avoid too low, high
Do not be predictable
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Learning's Economics – Demand, Supply, Economies of Scale
Strategic Manufacturing, Distribution & Supply Chain to reduce Costs
Predatory strategy - Cornering the market
Finance Equity/Debt Mgmt – Stock sale/purchase, Dividend policy, Loan mgmt Using Leverage - Debt/Assets Practical implications of business decisions on ROE, EPS
Balancing between Investor expectation/Financial Stability/ Production
Costs/ Distribution/Quality/ Prices/Brand Image
Long term decisions (Y 11,12,13,14,15) – Investments, Capacities
Short term decisions (Y16, Y17) – Cash Out, dividends, stock repurchase
CSR is useless!!!
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Key Learning
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Big Fish always gobble up the
Small Fish - Matsya NyayaGrow fast and Big before your competitors do
Revenue, Sales & Market Share
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EPS & ROI
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STOCK PRICE – 234.02
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Stock Price of Nearest Competitor in Y17 was 78.9
Conclusion Reach max capacity in AP and LA as soon as possible
Best practices, TQM, economies of scale by huge capacities – Low Cost => Indulge in predatory pricing to suffocate competitors.
Buy off the NA capacities that they sell
After 2-3 years, invest in celebrities and marketing to push sales from your excess capacity plants v/s competitors who would not have enough muscle and economies of scale to invest in celebrities.
Don’t invest in CSR
Image ratings will automatically increase thru increase sales from excess capacity
Increase no of models rather than SQ rating – Models is fixed cost (beneficial in economies of scale) while SQ rating increase is variable cost
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ThankYou