Case: BATA, LTD.
In 1990, the management of Bata, Ltd. had a
critical decision to make concerning the possibility of reinvesting in Czechoslovakia (now the
Czech and Slovak Republic). This may not seem like a major concern at first, but there is significant history between Bata and Czechoslovakia.
As war swept across Europe in 1939, Tom Bata,
Sr., was faced with a difficult situation. His father,
the ninth generation of a family of shoemakers in
Czechoslovakia, had built a worldwide shoe net-
work in 28 countries, using machinery and the
mass-production technology of the 1920s. Tom
was left with the responsibility of panding that
empire during a period of great uncertainty world-
wide. Because of the invasion of the Nazis and the
uncertain future that occupation held, Bata took
100 Czech families and emigrated to Canada to
preserve his father's business.
Since that time, Bata's decision has been rati-
fied through strong growth worldwide. Bata,
Ltd. is a-family-owned business whose produc-
tion facilities produce over 300 million pairs of
shoes annually, generating over $3 billion in
revenues through sales in 6000 Bata-owned re-
rail outlets and 125 independent retailers in 115
nations. Its 85,000 employees work in over 90 factories and five engineering facilities, as well as
:he retail operations mentioned earlier. Bata's in-
fluence is so pervasive that it makes and sells
one out of every three shoes manufactured and
sold in the noncommunist world. In fact, the
word for shoe in many parts of Africa is "bata."
Bata, Ltd. is run as a decentralized operatio
that is free to adjust to the local environment,
within parameters. Tom Bata travels extensive
to check on quality control and to ensuriF gooc
relations with the governments of the countrie
where Bata, Ltd. operates.
Although Bata, Ltd. has factories in more
than 90 countries and operations of one form >
another in over 100, it does not own all of tho
facilities. Where possible, it owns 100 percent
the operations. In some countries, however, th
government requires less-than-majority owner
ship. In India, for example, 60 percent of the
stock of the local Bata operations trades on the
Indian stock exchange, and in Japan, Bata, Ltc
owns only 9.9 percent of the operations. In
some cases, Bata, Ltd. provides licensing, con-
sulting, and technical assistance to companies i
which it has no equity interest.
Bata, Ltd.'s strategy for servicing world mar-
kets is instructive. Some MNEs try to lower co;
by achieving economies of scale in production,
which means that they produce as much as po
sible in the most optimal-sized factory and thet
service markets worldwide from that single pre
duction facility. Bata, Ltd. tries to service its dil
ferent national markets by producing in a givei
market nearly everything it sells in that market
Part of the reason for this strategy is that Bata,
Ltd. can achieve economies of scale very quick
because it has a fairly large volume in the coun
tries where it produces.
This may seem difficult to believe, especially
since Bata, Ltd. has production facilities in som
African nations where it is the sole industry.
Bata, Ltd., however, believes that it can achievi
economies of scale very easily because it is a
labor-intensive operation. Bata, Ltd. alsojries to
get all of its jaw materials locally. This is not
possible in some cases, especially in some of the
poorer developing countries. Nevertheless, it
tries to have as much value-added as possible in
those countries.
Another of Bata, Ltd.'s policies is that it pre-
fers not to export production; rather, it chooses
local production to service the local market. Ob-
viously, that rule is not fixed, since the company
produces in only 90 countries but has distribu-
tion in over 100. Sonigfimgsjjata, Ltd. becomes
.entangled with local governments when it im-
jports some raw materials but does not export..
Then it has to adjust to the local laws and re-
quirements for operation.
Bata, Ltd. avoids excessive reliance on exports
partly because of the risk. For example, if an im-
porting country were to restrict trade, Bata could
possibly lose market opportunity and market
share. In addition, Mr. Bata noted the benefit to
the developing country of not exposing itself to
possible protectionism:
We know very well what kind of a social shock
it is when a plant closes in Canada. Yet in Can-
ada we have unemployment insurance and all
kinds of welfare operations, and there are many
alternative jobs that people can usually go to. In
most of the developing countries, on the other
hand, it's a question of life and death for these
people. They have uprooted themselves from an
agricultural society. They've come to a town to
work in an industry. They've brought their rela-
tives with them because working in industry,
their earnings are so much higher. Thus a large
group of their relatives have become dependent
on them and have changed their lifestyle and
standard of living. For these people it is a terri-
ble thing to lose a job. And so we are very sen-
sitive to that particular problem.
Bata, Ltd. operates in a variety of different
types of economies. It has extensive operations
in both the industrial democratic countries and
the developing countries. It has been soundly
criticized (as have been most MNEs) for operat-
ing in South Africa and thus tacitly supporting
the white minority political regime, and it has
also been censured for operating in totalitarian
regimes, such as Chile. Bata counters by point-
ing out that the company has been operating in
Chile for over 40 years, during which time a va-
riety of political regimes have been in power.
Although Bata's local operations have not
been nationalized very many times, the com-
pany has had some fascinating experiences. In
Uganda, Bata's local operations were national-
ized by Milton Obote, denationalized by Idi
Amin, renationalized by Amin, and finally dena-
tionalized by Amin. During that time the factory
continued to operate as if nothing had hap-
pened. Mr. Bata's explanation for finally being
left alone is that, "Shoes had to be bought and
wages paid. Life went on. In most cases, the
governments concluded it really wasn't in their
interest to run businesses, so they cancelled the
nationalization arrangements."
Despite Bata, Ltd.'s ability to operate in any
type of political situation, Mr. Bata prefers a
democratic environment. He feels that while
both democratic and totalitarian regimes are bu-
reaucratic, a democracy holds the potential to
discuss and change procedures, whereas under
totalitarianism it is sometimes wise to remain
silent.
Bata, Ltd. has a multifaceted impact on a
country. The basic strategy of the company is to
provide footwear at affordable prices for the
largest possible segment of the population. The
product, footwear, is a necessity rather than a
luxury. The production facilities are labor in-
tensive, so jobs are created, which increases con-
sumers' purchasing power. Although top
management may come from outside of the
country, local management is trained to assume
responsibility as quickly as possible. Because the
company tries to get most of its raw materials lo-
cally, suppliers are usually developed. Since
Bata, Ltd. likes to diversify its purchases, it usu-
ally develops more than one supplier for a given
product, which leads to competition and effi-
ciencies.
Typically Bata, Ltd. brings in its own capital
resources at the start-up of a new operation,
a.so skillful in utilizing international capital
markets. More than once Bata, Ltd., used the re-
ί jurces of the International Finance Corporation
Ζ , a division of the World Bank that pro-
ides development financing for private-enter-
prise projects in developing countries. One of
Β ata's most recent attempts at IFC financing was
:o expand a tannery in Bangladesh. The impor-
tance of getting IFC support is that Bata, Ltd.
uld be much more likely to attract other debt
and equity capital once it had received IFC ap-
proval. All of the five previous Bata projects sup-
rted by the IFC had been successful, and the
loans had been paid back.
The South African dilemma presented unique
challenges for Bata management, however.
South Africa, whose population ranks just below
those of Nigeria, Egypt, and Ethiopia, has long
been considered a good place to invest because
of its large market size. South Africa's per capita
GNP is the largest in Africa. The country's main
attraction has been the incredibly high rate of re-
turn that companies can earn, owing largely to
low labor costs and mineral wealth. The rela-
tively large market still allows firms to achieve
economies of scale in production while exploit-
ing the low labor costs.
But the situation deteriorated rapidly in the
early 1980s. The system of apartheid, which has
resulted in a political, social, and economic sepa-
ration of blacks, coloreds, and whites, has char-
acterized South Africa for decades, and change
has been slow. Government opposition has be-
gun to unite around the concept of one man,
one vote. Black nationalists will settle only for
total voting rights, whereas the white govern-
ment refuses that concept at all costs. Rioting
has left many dead and has heightened the un-
certainty of South Africa's political future. Most
of the fighting has been between rival black fac-
tions. The African National Congress (ANC), led
by Nelson Mandela, opposes capitalism and has
stated that it would nationalize all industry,
whether domestic or foreign-owned. The ANC is
beginning to back down from that stand, but re-
luctantly. The rival Inkatha movement is more
open to free-enterprise capitalism. South Africa's
0.8 percent per capita GNP growth during 1980-
1988 was significantly below that of the average
of 2.3 percent for upper-middle-income develop-
ing countries. In addition to a relatively stagnant
economy and political strife, pressure has come
from foreign firms and governments. A number
of U.S. firms, including Apple Computer, Coca-
Cola, Ford, International Harvester, General
Motors, IBM, Honeywell, and Warner Commu-
nications, have sold or significantly reduced their
investments in South Africa. In 1984, only seven
U.S. companies had pulled out of South Africa.
In 1985, forty pulled out; in 1986, fifty left; and
by mid-1987, thirty-three firms had already
withdrawn. U.S. investment in South Africa had
dropped in half between 1982 and 1986. Even
the U.S. consulate in Johannesburg had lost
faith in the future of South Africa, noting that
South Africa was on its way to becoming "just
another African country: chronic debtor, import-
starved ... a repressive regime unable to man-
age its own domestic constituency in any posi-
tive way."
The Canadian attitude toward South Africa
was also negative. Canada's government issued
very conservative voluntary guidelines on new
investments in South Africa. As a result, Bata
finally decided to leave South Africa in 1986. It
did not identify the buyer or the sales price. The
company denied that apartheid was the reason
for pulling out. Company personnel stated that
"it really was a business decision that took into
account all of the factors with respect to invest-
ment in South Africa at the present time." Under
the terms of the sale, the Bata company name
and trademark will no longer be used in South
Africa, and all ties with Canada will be broken.
Apparently, the new buyer gave assurances that
the jobs of the workers, most of whom are
black, would be preserved. As the South African
economy began to turn the corner in the late
1980s and the De Klerk government begins to
dismantle apartheid and pave the way for a so-
lution to the political impasse, Bata management
must be rethinking their decision.
The problem of Czechoslovakia is different.
Sometimes investment decisions are an affair of
the heart. Even though the Communist govern-
ment took over Bata's operations in 1945, Bata
is interested in possibly starting up operations
again in Czechoslovakia. The problem is, who
owns the plants? The Czech government would
like some kind of compensation for the factories,
but Bata feels that the factories are still his.
Some experts feel that Bata will eventually re-
ceive an equity investment in the huge facilities
in exchange for managerial expertise, marketing
help, and capital. It is estimated that it would
take as much as $100 million to modernize the
plants, which currently employ 85,000 people
and turn out 100 million pairs of shoes a year.
critical decision to make concerning the possibility of reinvesting in Czechoslovakia (now the
Czech and Slovak Republic). This may not seem like a major concern at first, but there is significant history between Bata and Czechoslovakia.
As war swept across Europe in 1939, Tom Bata,
Sr., was faced with a difficult situation. His father,
the ninth generation of a family of shoemakers in
Czechoslovakia, had built a worldwide shoe net-
work in 28 countries, using machinery and the
mass-production technology of the 1920s. Tom
was left with the responsibility of panding that
empire during a period of great uncertainty world-
wide. Because of the invasion of the Nazis and the
uncertain future that occupation held, Bata took
100 Czech families and emigrated to Canada to
preserve his father's business.
Since that time, Bata's decision has been rati-
fied through strong growth worldwide. Bata,
Ltd. is a-family-owned business whose produc-
tion facilities produce over 300 million pairs of
shoes annually, generating over $3 billion in
revenues through sales in 6000 Bata-owned re-
rail outlets and 125 independent retailers in 115
nations. Its 85,000 employees work in over 90 factories and five engineering facilities, as well as
:he retail operations mentioned earlier. Bata's in-
fluence is so pervasive that it makes and sells
one out of every three shoes manufactured and
sold in the noncommunist world. In fact, the
word for shoe in many parts of Africa is "bata."
Bata, Ltd. is run as a decentralized operatio
that is free to adjust to the local environment,
within parameters. Tom Bata travels extensive
to check on quality control and to ensuriF gooc
relations with the governments of the countrie
where Bata, Ltd. operates.
Although Bata, Ltd. has factories in more
than 90 countries and operations of one form >
another in over 100, it does not own all of tho
facilities. Where possible, it owns 100 percent
the operations. In some countries, however, th
government requires less-than-majority owner
ship. In India, for example, 60 percent of the
stock of the local Bata operations trades on the
Indian stock exchange, and in Japan, Bata, Ltc
owns only 9.9 percent of the operations. In
some cases, Bata, Ltd. provides licensing, con-
sulting, and technical assistance to companies i
which it has no equity interest.
Bata, Ltd.'s strategy for servicing world mar-
kets is instructive. Some MNEs try to lower co;
by achieving economies of scale in production,
which means that they produce as much as po
sible in the most optimal-sized factory and thet
service markets worldwide from that single pre
duction facility. Bata, Ltd. tries to service its dil
ferent national markets by producing in a givei
market nearly everything it sells in that market
Part of the reason for this strategy is that Bata,
Ltd. can achieve economies of scale very quick
because it has a fairly large volume in the coun
tries where it produces.
This may seem difficult to believe, especially
since Bata, Ltd. has production facilities in som
African nations where it is the sole industry.
Bata, Ltd., however, believes that it can achievi
economies of scale very easily because it is a
labor-intensive operation. Bata, Ltd. alsojries to
get all of its jaw materials locally. This is not
possible in some cases, especially in some of the
poorer developing countries. Nevertheless, it
tries to have as much value-added as possible in
those countries.
Another of Bata, Ltd.'s policies is that it pre-
fers not to export production; rather, it chooses
local production to service the local market. Ob-
viously, that rule is not fixed, since the company
produces in only 90 countries but has distribu-
tion in over 100. Sonigfimgsjjata, Ltd. becomes
.entangled with local governments when it im-
jports some raw materials but does not export..
Then it has to adjust to the local laws and re-
quirements for operation.
Bata, Ltd. avoids excessive reliance on exports
partly because of the risk. For example, if an im-
porting country were to restrict trade, Bata could
possibly lose market opportunity and market
share. In addition, Mr. Bata noted the benefit to
the developing country of not exposing itself to
possible protectionism:
We know very well what kind of a social shock
it is when a plant closes in Canada. Yet in Can-
ada we have unemployment insurance and all
kinds of welfare operations, and there are many
alternative jobs that people can usually go to. In
most of the developing countries, on the other
hand, it's a question of life and death for these
people. They have uprooted themselves from an
agricultural society. They've come to a town to
work in an industry. They've brought their rela-
tives with them because working in industry,
their earnings are so much higher. Thus a large
group of their relatives have become dependent
on them and have changed their lifestyle and
standard of living. For these people it is a terri-
ble thing to lose a job. And so we are very sen-
sitive to that particular problem.
Bata, Ltd. operates in a variety of different
types of economies. It has extensive operations
in both the industrial democratic countries and
the developing countries. It has been soundly
criticized (as have been most MNEs) for operat-
ing in South Africa and thus tacitly supporting
the white minority political regime, and it has
also been censured for operating in totalitarian
regimes, such as Chile. Bata counters by point-
ing out that the company has been operating in
Chile for over 40 years, during which time a va-
riety of political regimes have been in power.
Although Bata's local operations have not
been nationalized very many times, the com-
pany has had some fascinating experiences. In
Uganda, Bata's local operations were national-
ized by Milton Obote, denationalized by Idi
Amin, renationalized by Amin, and finally dena-
tionalized by Amin. During that time the factory
continued to operate as if nothing had hap-
pened. Mr. Bata's explanation for finally being
left alone is that, "Shoes had to be bought and
wages paid. Life went on. In most cases, the
governments concluded it really wasn't in their
interest to run businesses, so they cancelled the
nationalization arrangements."
Despite Bata, Ltd.'s ability to operate in any
type of political situation, Mr. Bata prefers a
democratic environment. He feels that while
both democratic and totalitarian regimes are bu-
reaucratic, a democracy holds the potential to
discuss and change procedures, whereas under
totalitarianism it is sometimes wise to remain
silent.
Bata, Ltd. has a multifaceted impact on a
country. The basic strategy of the company is to
provide footwear at affordable prices for the
largest possible segment of the population. The
product, footwear, is a necessity rather than a
luxury. The production facilities are labor in-
tensive, so jobs are created, which increases con-
sumers' purchasing power. Although top
management may come from outside of the
country, local management is trained to assume
responsibility as quickly as possible. Because the
company tries to get most of its raw materials lo-
cally, suppliers are usually developed. Since
Bata, Ltd. likes to diversify its purchases, it usu-
ally develops more than one supplier for a given
product, which leads to competition and effi-
ciencies.
Typically Bata, Ltd. brings in its own capital
resources at the start-up of a new operation,
a.so skillful in utilizing international capital
markets. More than once Bata, Ltd., used the re-
ί jurces of the International Finance Corporation
Ζ , a division of the World Bank that pro-
ides development financing for private-enter-
prise projects in developing countries. One of
Β ata's most recent attempts at IFC financing was
:o expand a tannery in Bangladesh. The impor-
tance of getting IFC support is that Bata, Ltd.
uld be much more likely to attract other debt
and equity capital once it had received IFC ap-
proval. All of the five previous Bata projects sup-
rted by the IFC had been successful, and the
loans had been paid back.
The South African dilemma presented unique
challenges for Bata management, however.
South Africa, whose population ranks just below
those of Nigeria, Egypt, and Ethiopia, has long
been considered a good place to invest because
of its large market size. South Africa's per capita
GNP is the largest in Africa. The country's main
attraction has been the incredibly high rate of re-
turn that companies can earn, owing largely to
low labor costs and mineral wealth. The rela-
tively large market still allows firms to achieve
economies of scale in production while exploit-
ing the low labor costs.
But the situation deteriorated rapidly in the
early 1980s. The system of apartheid, which has
resulted in a political, social, and economic sepa-
ration of blacks, coloreds, and whites, has char-
acterized South Africa for decades, and change
has been slow. Government opposition has be-
gun to unite around the concept of one man,
one vote. Black nationalists will settle only for
total voting rights, whereas the white govern-
ment refuses that concept at all costs. Rioting
has left many dead and has heightened the un-
certainty of South Africa's political future. Most
of the fighting has been between rival black fac-
tions. The African National Congress (ANC), led
by Nelson Mandela, opposes capitalism and has
stated that it would nationalize all industry,
whether domestic or foreign-owned. The ANC is
beginning to back down from that stand, but re-
luctantly. The rival Inkatha movement is more
open to free-enterprise capitalism. South Africa's
0.8 percent per capita GNP growth during 1980-
1988 was significantly below that of the average
of 2.3 percent for upper-middle-income develop-
ing countries. In addition to a relatively stagnant
economy and political strife, pressure has come
from foreign firms and governments. A number
of U.S. firms, including Apple Computer, Coca-
Cola, Ford, International Harvester, General
Motors, IBM, Honeywell, and Warner Commu-
nications, have sold or significantly reduced their
investments in South Africa. In 1984, only seven
U.S. companies had pulled out of South Africa.
In 1985, forty pulled out; in 1986, fifty left; and
by mid-1987, thirty-three firms had already
withdrawn. U.S. investment in South Africa had
dropped in half between 1982 and 1986. Even
the U.S. consulate in Johannesburg had lost
faith in the future of South Africa, noting that
South Africa was on its way to becoming "just
another African country: chronic debtor, import-
starved ... a repressive regime unable to man-
age its own domestic constituency in any posi-
tive way."
The Canadian attitude toward South Africa
was also negative. Canada's government issued
very conservative voluntary guidelines on new
investments in South Africa. As a result, Bata
finally decided to leave South Africa in 1986. It
did not identify the buyer or the sales price. The
company denied that apartheid was the reason
for pulling out. Company personnel stated that
"it really was a business decision that took into
account all of the factors with respect to invest-
ment in South Africa at the present time." Under
the terms of the sale, the Bata company name
and trademark will no longer be used in South
Africa, and all ties with Canada will be broken.
Apparently, the new buyer gave assurances that
the jobs of the workers, most of whom are
black, would be preserved. As the South African
economy began to turn the corner in the late
1980s and the De Klerk government begins to
dismantle apartheid and pave the way for a so-
lution to the political impasse, Bata management
must be rethinking their decision.
The problem of Czechoslovakia is different.
Sometimes investment decisions are an affair of
the heart. Even though the Communist govern-
ment took over Bata's operations in 1945, Bata
is interested in possibly starting up operations
again in Czechoslovakia. The problem is, who
owns the plants? The Czech government would
like some kind of compensation for the factories,
but Bata feels that the factories are still his.
Some experts feel that Bata will eventually re-
ceive an equity investment in the huge facilities
in exchange for managerial expertise, marketing
help, and capital. It is estimated that it would
take as much as $100 million to modernize the
plants, which currently employ 85,000 people
and turn out 100 million pairs of shoes a year.
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