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