Bata Shoes Ltd Case study

Bat interacted with foreign political systems Question 1 Following the First world War the Status-Hungarian empire was fragmented into Austria, Czechoslovakia, Hungary, Romania and Yugoslavia. During this period the Czechoslovakian state was conceived as a parliamentary democracy, with the constitution of 1920 giving the central government a high degree of control over local government. Czechoslovakia, in particular, saw rapid economic growth during the 1920 brought about by foreign investment and advances in manufacturing technology.

The country proved particularly tempting for foreign investors such as the British, French, Belgian and Dutch due to low labor costs and readily available natural resources. Only in the shoe industry the foreign capital played no important role. Thanks to a monopoly position of Bat Works Czechoslovakia held the first place among the Normal’s leading shoe exporters in sass’s after overtaking Great Britain and the USA. In 1938 interference by Hitler resulted in the old Slovakia and Ruthenium demands for autonomy finally been granted.

Czechoslovakia was deprived of one third of its rewriter containing some of its most important industrial centers and most fertile farm-land, leaving the country economically crippled. Following this Bat realized his business did not have good future prospects if it were to remain in Czechoslovakia. He sought to continue operations and preserve the business by moving to Canada as the country was viewed as a safer operating environment, both economically and politically. ATA move to Canada, along with one hundred of his staff and families, would see the company and its workers having to adapt to operations in a different political system o Czechoslovakia, the first of many adaptations they would have to make as the company expanded across the globe. Ere relocation in Canada was a big change for Bat, as the government there gives significant political power to the provinces which each have their own trade barriers. Iris is a big contrast to Czechoslovakia, where the central government has great power over the provinces.

However, Canada was seen as very politically and economically stable in comparison to Czechoslovakia despite the political differences mentioned above. Ninth operations in over 60 countries across the world, Bat Limited runs as a centralized operation in order to allow its managers to adjust operating procedures to local environments. However tight control of Bat’s core philosophies and strategies are in place, even though these may be deterrent trot that to the country the operation is in and the managers and workers employed there.

This could potentially cause problems if pursued too rigorously. However, the text states that Bat does interact with foreign political systems with Thomas G. Bat traveling extensively to check on quality control and to ensure good relations with the governments of the countries in which Bat operates. This interaction is particularly important as I feel Bat offers a number of key benefits to many of the countries it chooses to invest in such as increased economic stability due to their labor Intensive operations and policy of purchasing materials locally. He countries Bat operates in vary in the amount of political and economic freedom they offer to their citizens and companies operating there. The case states that Bat does not won 100 percent of the factories it has in some countries. It appears that data prefer to own 100 percent of their factories, but are willing to compromise if the lattice situation requires. This includes taking minority ownership, or in some cases providing licensing, consulting and technical assistance where it does not have an equity interest in a country.

Bat seem to work this policy well as they have the flexibility to cope with these different operating environments. I believe this is a sensible policy as it allows Bat intrusion into markets that may become freer and more prosperous in the future. data serves its markets by producing in each market all it will sell there. It will buy raw materials locally and achieves economies of scale due to its processes being very Barbour intensive. One may suggest that the lack of exports would make Bat a less attractive prospect for the host countries as little outside money is feeding into the economy.

However, since operations are labor intensive there will be a great benefit from the Job opportunities created. The main issue that causes problems to arise in some countries is if raw materials are imported into the countries in question rather than being brought locally. In such cases the case states that Bat “must adjust to local laws and requirements for operation”. However, by normally buying raw trials within the countries Bat operates in it appears to work well with the governments concerned. He main driving force behind Bat choosing not to export goods is the security that operating domestically brings, such as the avoidance of problems associated with exporting like if an importing country were to restrict trade. Bat obviously feels that stability is of key importance to its strategy, particularly in many of the less economically developed areas in which it operates. In these countries there are not the laws to protect workers rights and safeguard income in times of unemployment, o if a factory were to close the effect would be very hard hitting to the workers and Mould potentially ruin Bat’s political relations permanently.

Bat operates in countries with varying degrees of freedom. Tom Bat Son. Prefers to operate in democratic countries as these offer the chance to discuss issues, whereas totalitarian regimes do not. However, Bat have still operated under some Totalitarian regimes SUCh as South r ca Chile and Uganda. In Uganda Bat has had its operations nationalized and De-nationalized twice while operating under a violent and repressive regime that saw the expulsion of many skilled foreigners.

Bat took the view that people would still need Jobs and shoes Anteater political system they were living under, a similar view that has been expressed recently by many people talking about Iraq. Therefore operations would continue. Bat benefited as the way it operated fitted in with the Uganda governments policy of becoming more self sufficient, rather than relying on imports. Iris is because Bat obtained its raw materials from with the country and offered the stability of selling in their home market.

Bat also helped the government with a second policy that aimed to promote links between agriculture and industry, with the away materials coming from rural areas. The continued presence of Bat in Uganda, despite the expulsion of many foreign workers, reinforces its faith in local workforce, Inch in turn helped build trust. Ay fitting in with these policies Bat was able to operate in Uganda while many other companies were forced to leave, and benefit from a 98% share of the shoe market. data followed a similar model in Chile where Pinochle ruled the country for a period of time while the company operated there.

Again Bat saw no need to leave to country as it viewed its investment there to be long term, in which time various lattice systems would come and go, but people would always need Jobs and shoes. Many of the benefits offered by Bat to Uganda were also of benefit to the Chilean government and people. Ere regimes in both Uganda and Pinochle Chile both suffered from poor human rights records. Bat was therefore put under some pressure to withdraw from these countries by various parties including governments and international organizations.

However, Bat was always able to argue that it had been in the countries far longer than the regimes in place and had seen many come and go. Its simple reason for Ewing there was the fact that people needed shoes, and it was in a good position of providing this basic need. South Africa caused far greater problems for Bat. Here the same type of extreme regime was seen as in countries such Uganda and Chile. The difference for Bat was that South Africa attracted far more public attention across the globe. The Canadian government took a very negative view of Canadian countries having interests in South Africa.

Maybe more importantly public opinion and knowledge about the regime in South Africa were to have a big effect on the company. Bat possibly realized that if it intended to operate in South Africa it would risk alienating itself from its consumers in countries such as Canada and the US and set itself up for ridicule by the large number of international organizations opposed to apartheid. In this situation it was important for Bat to interact with the various political systems involved to withdraw operations from South Africa while causing minimum illustration.

It sold its holding in South n Atria in 1986 It did not identity TTY the buyer or the sales price, and it denied that apartheid was the reason for its pulling out, citing that all factors had been taken into account with respect to its investment. Bat ensured that the Bat name and trademark could not be used by the buyer and that the Jobs of the workers in its plants would be preserved. NH they now operate in Czech Rep, but not Slovakia. Question 2 Czechoslovakia has being subject to turbulent time in the period following World War II.

With the advent of communist rule countries were often formed from different ethnic groups held together by totalitarian rule, as was the case here. The break-up of the communist bloc in 1989 resulted in the disintegration of countries such as Czechoslovakia, that would be split into two independent nations; The Czech Republic and Slovakia. Ere fact that both of these countries are now free from communist rule does not necessarily mean that they are free. Freedom House is an organization that monitors the political rights and civil liberties of countries around the world and rank them to the degree that freedom exists.

Below is a summary of the assessment they give to the Czech republic and Slovakia. Fear Slovakia Czech Rep 1993-19943, 4, 1994-1995 z 3, 1995-1996 Z 3, 1996-1997 Z 4, 1997-199824, Partly Free 1, 2, Free Free 1 Free Free 1, 2, Free 1998-1999 2, 2, Free 1, 2, Free 1999-2000 1, 2, Free 1, 2, Free 000-2001 1, 2, Free 1, 2, Free 2001-2002 1, 2, Free 1, 2, Free Since 1972, Freedom House has published an annual assessment of state state of freedom by assigning each country and territory the status of “Free,” “Partly Free,” or ‘Not Free” by averaging their political rights and civil liberties ratings.

Countries Noose combined averages for political rights and for civil liberties fall between 1. 0 and 2. 5 are designated “free”; between 3. 0 and 5. 5. Artsy free? And between 5. 5 and 7. 0 to free.? As we can see from the chart above, both countries are now considered politically ere. However, economically Slovakia still lags behind the Czech Republic. It has being politically free for less time and lacks consistency in the freedom scores it achieves, suggesting that the political system may be subject to some instability.

Bat express concern relating to Slovakia not being economically free in the case. As The Czech Republic is clearly further along in its progress to economic freedom than is Slovakia, Bat is likely to face considerably less government intervention in its business. Private property ownership and protection, property rights, and economic intention are likely to be more common in the Czech Republic making the operating environment more stable. In Slovakia, Bat is likely to face greater political risks.

There is likely to be more political instability in Slovakia, usually an indicator that there is also a lack of economic freedom. It also appears from the case that Slovakia may not have a very positive attitude toward foreign investment, despite Bat roots in the region. Bat would benefit from investment in both the Czech republic and Slovakia. From a nostalgic point of view, Bat will be able to return to the home country. Bat will also main access to large facilities and a huge market in Eastern Europe and the former Soviet Union. He Czech Republic and Slovakia would also benefit from Bat’s investment themselves. They would gain access to Bat global design, production, and marketing expertise. They will be able to design better, more fashionable, and more reasonably priced shoes. The Czech Republic and Slovakia might be able to get Bat to invest significant capital into the plant to get it up to world-class standards. Bat will create new Jobs for Czech and Slovakian workers, especially as the processes are quite labor intensive.

Bat also has a policy of buying raw materials locally, benefiting the host countries economy as a whole. There are some disadvantages of investment for both parties too. Bat may be forced to pay compensation for its own plants if the company chooses to invest in Slovakia. Rhea is also a slightly higher risk of political instability and economic restrictions in the country. There are also disadvantages for the countries involved. Bat may actually have better production processes than are currently employed in the Czech Republic and Slovakia.

Therefore they may actually require less workers than are errantly employed in the factories so workers would be made unemployed. Bat do not export goods so do not bring as much foreign capital into the country as maybe Mould be expected by a company of their size. data reentered the Czech Republic and not Slovakia because the two countries nave ‘ere different economic environments. The Czech Republic is moving more quickly than Slovakia toward a free market system. Slovakia are also in dispute with Bat regarding the ownership of the companies former factories in the country.

The Slovakia government appear disinterested in helping to solve the problem by implementing ewe laws to make it very difficult for companies in the same situation as Bat to regain their former property without either reaching agreement with the new owners or by taking expensive legal action. When looking at this evidence it looks advantageous for Bat not to seek to reinvest in Slovakia at present. Explain the current situation and relate to probable causes mentioned above Question 3 Ere political environment can have a dramatic impact on the operations of a firm.

For example managers in most western European countries may be accustomed to a stable political system and a relatively homogeneous population. This is often not true in other countries. A political system integrates the parts of a society into a viable, functioning unit. Sometimes that is a very difficult task. A country political system influences how business is conducted domestically and internationally. Ere basic political ideologies of a country are the body of ideas, theories and aims that constitute a socio-political program.

The ultimate test of any political system in its ability to hold a society together despite pressures from different ideologies tending to split it apart. History, culture, language, religion, geography and political ideologies help define national borders. Forms of government range from Democracy to Totalitarianism. Democracies usually have economic freedom and laws that safeguard individual and corporate rights and are often preferred by investors. The more developed democracies tend to have the following characteristics. ?Freedom of opinion, expression, press, and freedom to organize. Elections in which voters decide who is to represent them. ?Limited terms for elected officials. Independent and fair court system with high regard for individual rights and property. Non-political bureaucracy and defense infrastructure. Accessibility to the decision-making process. ‘A tree press Freedom in the areas of political rights and civil liberties are particularly important in democracies. These are measured by the organization Freedom House using a number of indicating factors, and the results compiled to rank countries according to their degree of freedom.

In 1998, 88 of the worlds countries were “free” and 50 were ‘not free”. Free countries are high in both political rights and civil liberties, whereas those countries who deny their citizens basic political rights and civil liberties are not free. In addition 53 countries were partly free, with limited political rights and civil liberties, often in the context of corruption, weak rule of law, ethnic strife or civil war. Despite the large proportion of countries claiming to operate democratic governments, many new democracies around the world are not yet stable with few political parties and corruption threatening the system’s survival.

Examples include Indonesia and some countries from the former Soviet union. Businesses should be cautious when looking to invest in these areas. In contrast to democracies, totalitarian regimes offer far less political and economic redeem. Forms of totalitarianism include fascism (Mussolini Italy), authoritarianism Chile under Pinochle), and communism. Communists believe in the equal distribution of wealth, which entails total government ownership and control of resources. Political systems have a great impact on management decisions.

This includes political risk and government intervention in the economy. Political risk occurs when there is a possibility that the political climate in a foreign country will change in such a way that the operations of international companies in that country will deteriorate. Types of political risk include government takeovers of property, operating restrictions, and agitation that damage the company performance. Such problems can be caused by changing opinions of political leadership, civil disorder, and changes in external relations (such as animosity between the home and host country governments.

We can see many examples of the above in the Bat case. The companies operations were taken over in Czechoslovakia Ninth the advent of communist rule. They are subject to operating restrictions in several countries where they are not allowed to have 100 percent ownership of their plants. Animosity between the home Canadian government and the South African host government during the Apartheid era was a contributing factor that lead to Bat’s eventual withdrawal from South Africa. Civil disorder and strike action has affected the companies operations in several countries over the years. Moment intervention in the economy occurs because some governments adopt an individualistic paradigm? And keep intervention in the economy at a minimum. Others adopt a Unitarian paradigm? Wherein the government plays a larger role in the economy. They thrive on a respected, centralized bureaucracy with a stable lattice party or coalition in power. It a U S. Trim moves trot the United S linguistics’s) to Germany, Japan, or South Korea (communitarian), it may have to develop new strategies for its relationships with government, suppliers, customers, and competitors.

Bat show evidence of adapting to different environments as the case states that the company is “run as a decentralized operation in which its managers are free to adjust operating procedures to local environments”. This highlights how the company acknowledge the need to be flexible in order to fit in under varying restrictions depending where in the world they are. Stable democracies are usually seen as the safest operating environment for businesses.

In the Bat case Tom Bat Son states that he prefers a democratic system ‘a democracy offers the potential to discuss and change proceedings, whereas under totalitarianism it is sometimes wisest to remain silent”. However, one must remember that not all democracies operate in the same way. For example the degree to which citizens are involved in the political process and the degree of centralized control. In the case Bat relocate from Czechoslovakia to Canada. Here the provinces have significant political power at expense of the federal government. Many provinces have their own trade barriers.

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