Introduction

Delta Shoes Wear is a company operating in a highly competitive footwear industry

considering that the entire foot wear industry contains at least twelve footwear firms. The

scenario in the game represents the real-world footwear industry where each firm wants to

remain competitive by using production as well as marketing strategies that are suitable based

on its mission. In this context, Delta Shoes Wear Company alongside other eleven firms were

striving towards heightening their respective Net Profits, Earnings per Share (EPS), Stock

price as well as the Credit and Image ratings. On the same note, this report presents the

analysis of the steps and decisions made throughout the six year-period that Delta Shoes

Wear has been competing at the global footwear industry. The report contains five sections

which include situational analysis for the footwear industry, strategy adopted by the company

based on the outcome of the footwear industry, performance analysis to ascertain the

suitability of the adopted strategy, and the recommendations based on the outcome of the

performance analysis.

Situational Analysis

According to Fleisher, and Bensoussan, (2015 pp. 25), situational analysis is a term

that describes a collection of tools used for the purpose of analysing the internal as well as

external environment of organisations. The analysis aids towards the comprehension of an

organisation’s capabilities, its existing and potential customers, and the business environment

at large. Delta Shoes Wear used two tools for situational analysis, they include Porter Five

Forces and Porter Diamond models as described below;

 A. Porter’s Five Forces Model

Porter’s Five Forces Models is used to assess the competitive forces. In this context,

the competitive forces in the footwear industry where Delta Shoes Wear was operating in

incorporate;

i. Threat of New Entrants

The possibility that new entrants will join the footwear industry is low. This

contributed by the fact that the initial cost of setting up a new production plat for shoes is

very high. Besides the cost of equipment and the plant itself being high, the process of

starting and progressing to the point where new shoes a released in the market are

complicated. That is, new entrants will have to take extremely high risks.

ii. Bargaining Power of Buyers

It has already been noted that the foot wear industry is highly populated with a

number of firms. It means that buyers have a higher bargaining power owing to the wide

range of choices they ca choose from. Nevertheless, there are some customers that are loyal

to one brand and the approach can be used to penetrate the market with an objective of

obtaining loyal customers.

iii. Bargaining Power of Suppliers

Taking into consideration that the number of shoe produces is high, suppliers have an

option to choose the company with the best offering. It means that suppliers have a higher

bargaining power for a firm that wants high quality suppliers at relatively lower cost.

iv. Threat of Substitutes

The threat of substitute foot wear products is high especially when customers come

across high quality shoes whose prices is relatively low. It means that for a firm to scale

down the threat of substitutes, there is need for producing high quality products and at a

relatively low cost.

 v. The Intensity of Competition

Based on the fact that the probability of new entrants is high, the possibility of having

substitute products is high, buyers as well as suppliers have high bargaining power, the foot

wear industry in this context is under strong forces of competition where every firm is aiming

at sustaining as well as increasing its present market share.

B. Porter’s Diamond Model

According to Chikán, (2008 pp. 20), Porter’s Diamond Model is used to assess the

competitive advantage that nations or regions. In this context, the model was used to explore

the comparative advantage of the four main regions which include North America, Europe-

Africa, Asia-Pacific, and Latin America on the basis of how easy it is to start and operate a

manufacturing plant.

i. Raw Materials

Basically, suppliers in the open market offer two main categories of materials which

include standard option and superior option. It should be noted that the quality of the two

category of materials is the same across all the regions and from supplier to supplier. Also,

the prices do not vary from one region to another.

ii. Manufacturing Costs

Manufacturing costs can be classified into a number of areas and differs across the

four regions. To start with, trained labor is available in all the four regions. Nevertheless, at

the start of year 10 it was noted that labour cost of Asian-Pacific as well as labor cost from

Latin America is lower compared to that of Latin America and Asian-Pacific. It is lower by

75 percent. Despite the fact that when employees in the manufacturing plants are paid 1.5

times their regular base wages for working overtime, the productivity levels as well as labor

cost per pair produced differ across the four regions with North America and Europe-Africa
leading. The overall cost of production and other benefits and incentives also differ across the

four regions with Asian-Pacific and Latin America having the least, averagely.

iii. Transportation of Produced Shoes

Transporting footwear produce from the manufacturing plants to the demand side,

typically in other regions or nations, is affected by a number of factors. They include the

import tariffs, fluctuating currency rates, and cost of shipping. For instance, when shipping to

a distribution center within the same region it is $1 per pair while it costs $2 per pair to ship

to foreign distribution centres. Also, tariffs have to be paid when exporting to other regions.

For instance, when footwear products are exported from Asia-Pacific facilities to markets in

Latin America a tariff of $10 per pair is paid, to Europe-Africa a tariff of $6 per pair is paid

and when and exporting to North America a tariff of $4 per pair is paid.

Defining Strategy

The defining strategy that the company used was influenced by the outcome of the

situational analysis. The model used to assess the defining strategy for Delta Footwear is

Porter's Model of Generic Strategies for Competitive Advantage (Ormanidhi, and Stringa,

2008 pp. 56). The model has four main strategic approaches which include cost leadership,

cost focus, differentiation focus, and differentiation leadership (Ormanidhi, and Stringa, 2008

pp. 56). Considering that in the situational analysis it was identified that the demand for foot

wear is high just like the probability of substitutes and new entrants, and that having loyal

customers is the most optimal target, the aim of the firm was to have loyal customers. To

achieve this, Delta Foot Wear adopted a global best-cost strategy as informed by Porter's

Model of Generic Strategies for Competitive Advantage (Ormanidhi, and Stringa, 2008 pp.

56). It means that, for Delta Footwear to have a competitive advantage it focused on offering

more value for money, i.e. providing a wide range of shoe models and of high quality
(between 5 and 10) at lower prices. As it can be seen in Figure 1 below, the starting number

of models for the North America based manufacturing plant was 250 while that of the Asia-

Pacific manufacturing plant was 200.

Figure 1: Pictorial representation of the defining strategy used by Delta Shoes Wear

The above strategy was to be achieved by using cost cutting measures such as locating

plants in regions where the quality is high at relatively low total cost of production. Regions

where the shipping costs, tariffs and barriers will not affect the affect the intended low cost of

the produced. The ideal regions to locate manufacturing plant based on the Porter’s Diamond

model was in North America and Asia-Pacific. For instance, in North America, there is more

skilled labor to produce high quality products with incurring much cost in training. Also, in

Asia-Pacific, the general cost of labor is low and with some training and motivation, the

employees can produce high quality products at relatively low costs. As it can be seen in

Figure 2 below, indeed the company had succeeded in executing its strategy of having many

models but of high quality rating.

 Figure 2: Successful implementation of the defining strategy

Besides high quality rating and cost, another focus was to invest in advertising, use of

celebrities as well to maintain high image reputation. One of the most evident thing is that,

executing the strategy including the supporting objectives such as the use of celebrities and

maintaining high brand reputation all within the first year was impossible. Nevertheless, we

were able to continue

Implementing Strategy

To ensure that Delta Foot Wear successfully produces and sales a wide range of shoe

models with a higher quality rating, the TQM Model was adopted. According to Choi, and

Eboch, (2008 pp. 132), TQM model is framework used by the management at the

organisational level to help in the improvement of the quality of outputs by improving the

internal practices. Mostly, the focus is creation of a conducive environment where the

workers and everyone in the supply chain can continually contribute towards improving the

quality of the end product. At the start of Year 11 we focused more allocating maximum

production capacity for both plants, in North America as well as in Asia-Pacific. The models

produced from the two regions were almost equal considering that 250 models of branded

shoes were produced from North America while 200 models of branded shoes were produced
from Asia-Pacific. As already shown in Figure 1 above, the S/Q rating was way below 5, the

least expected quality.

To boost the S/Q rating hence the quality, major decisions had to be made going to

year 12. Two decisions were made, they include adding more superior materials and

enhancing the styling/ features of the already existing models. For instance, in North America

the cost of materials in 2011 was $8.88 per pair while in 2012 was $11.36. Also, the cost of

enhanced styling/ features in 2011 was $0.64 per pair while in 2012 it was $1.37 per pair. The

same increasing trend was applied to the production plant in Asia-Pacific. The adjustment led

to a significant increase in the S/Q rating from below 5 in 2011for branded brands to above 5

in 2012 for branded brands.

Figure 3: Improved S/Q rating because of increased superior materials and enhanced

styling

According to TQM Model, one of the most fundamental approaches of measuring the

quality of a product is through customer satisfaction. It means that increasing styling and

quality of the materials increased customer satisfaction. The same trend of producing shoes

with superior materials and further enhancing the styling was repeated for year 2013 and

positive results for S/Q rating achieved. In addition to that, to further enhance the quality of
the shoes produced in 2013, there was an increase in best practices training. It helps in

enhancing the employees’ workmanship as well as production methods. It should be noted

the incremental cost of training was not that high because it might affect the profit margin

hence the price of the shoes. In year 2014, new models of shoes were introduced. From 300

branded models in North America and Asia-Pacific to 350 branded models from both regions.

The new models were highly styled and characterized by new features as evidenced by high

incremental cost of enhanced styling/ features. In 2014, the cost of enhanced styling/ features

was $4.82 per pair in North America, up from $2.74 per pair in 2013. This was accompanied

by a sharp rise in S/Q rating for shoes manufactured in North America as shown in Figure

below.

Figure 4: Sharp increase in S/Q rating for Year 2014

To increase the quality further, in 2015 the total production of both plants was

reduced with North America experiencing the highest slashing from 4000 to 2500. For Asia-

Pacific plant, the total foot wear production was reduced from 6000 to 5500. Also, branded

models in North America plant were reduced from 350 to 300 while in Asia-Pacific they

were increased from 300-350. The aim of reducing the total production is because with many

models or total production, the quality is often sacrificed for quantity. Thus, to ensure quality,
it is vital to limit the quantity of production. As shown in Figure 4 below, the S/Q rating in

Year 15 was superb.

Figure 5: Improved S/Q rating of branded and private label at Year 15

Performance Analysis

The purpose of this section is to analyse how the company performed after executing

the strategy outlined in the preceding section. There are six measures of a firm’s

performance. They include Earnings per Share (EPS), Return on Equity (RoE), Stock Price,

Credit Rating, Image Rating, and Corporate Social responsibility and Citizenship. Two

measures will be used to analyse the performance of Delta Foot Wear and the two include

Image Rating and Stock Price.

i. Image Rating

When defining the strategies, one of the objectives was to ensure that the company

maintains a higher image rating. In this co text, image rating is characterized by rating of the

firm’s S/Q across all geographic regions and including the market share for both the branded

as well as private label footwear. It also incorporates the efforts made by a company towards

enhancing a recommendable corporate citizenship and conducting the business activities in a

more socially responsible manner. The market target holds that every company in the

footwear industry attain an image rating 70 and above between Years 11 and 13, image rating

of 2 between Years 14 and 16, and lastly, an image rating of over 75 between Year 17 and 20.

As shown in Figure 6 below, Delta Shoe Wear has managed to surpass the image rating of

every year as mentioned above.

Figure 6: Image rating of foot wear companies

Nevertheless, it has never been in position as far as global rating of image rating is

concerned. For instance, the highest it has gone is position 2 in Y14 and Y15. Most

importantly, the image rating of the company has been improving from Y11 to Y14 with a

small drop in Y15. This is a clear indication that efforts to enhance S/Q rating throughout

these years has had a positive impact across all geographic regions.

ii. Stock Price

Stock Price is another tool used to measure the performance of a perform. Thus, the

stock prices of Delta Shoe Wear across the years it has been in an operation can be used to

analyse it performance. According to (citation), the stock price of a company can be used as a

barometer for checking the health status of a company since it shows the perception of
investors on the company’s ability to earn and grow profits in the future. The stock price

information for Delta Foot Wear is shown in Figure 7 below;

Figure 7: Stock price for Delta Foot Wear from Y11 to Y15

From Figure 7 above, it is shown that the Board of Delta Foot Wear set the Stock

Price for Y11 at 40.00, Y12 at 50.00, Y13 at 65.00, Y14 at 80.00, Y15 at 100, and Y16 at

125. For the above company annual targets of stock price, Delta Foot Wear failed to achieve

the set target in Y11 when the stock price was 27.19 against a target of 40. From Y12 to Y15,

the company has achieved all the set target. This is a clear indication that the firm is health

based on the perception of the shareholders. Additionally, the stock price data shows high

levels of inconsistencies between the years. Despite putting effort in a continuous manner,

some years ended up recoding lower stock price as opposed to the previous one, notably Y15

where the stock price was 106.42 down from 241.00 in Y14. This can be attributed to the

scaling down of total production in the two main production plants, that is, in North America

and in Asia-Pacific. Reducing the total production as well as the models of branded shoes

might have sent a negative signal to the investors regarding the capacity of the firm to

generate profits in future.

 Recommendations

Having analysed the performance of Delta Foot Wear for the past five years based on the

implemented strategies geared towards enhancing the quality of products, this section

presents recommendations aimed at enhancing the competitive advantage of Delta Foot

Wear.

i. Changes in strategic direction

The first recommendation is geared towards enhancing the image rating of the

company via a slight change in the strategic direction. In the strategic definition, it was

mentioned that one of the strategic objectives for Delta Foot Wear was to invest in

advertising as well as use of celebrities for marketing purposes. This will help in creating

awareness for the already branded and stylish shoes made of superior materials. In Y15, it

was noted that the company reduced its total production in both plants so as to allow the staff

to focus the skills in producing high quality products. However, with adequate advertising

and marketing using celebrities, Delta Foot Wear can increase sales whose revenue can be

used to employ more skilled staff to produce high quality foot wear at the expense of

reducing total production.

ii. Corporate Social Responsibility and Citizenship

It is recommended that Delta Forces considers spending more on Corporate Social

Responsibility and Citizenship in order to enhance its image rating. This this attributed to the

fact that S/Q rating alone is not sufficient to ensure Delta Foot Wear taking a leading role in

image rating. It has been identified that total image rating largely depends on the efforts made

by a company towards enhancing a recommendable corporate citizenship and conducting the

business activities in a more socially responsible manner. Having a superior image rating was

a key objective for the company and having enhanced the S/Q rating for the branded shoes

across all the geographic regions, it is high time that the company directs its efforts towards

Corporate Social Responsibility.

 References

Chikán, A., 2008. National and firm competitiveness: a general research model.

Competitiveness Review: An International Business Journal, 18(1/2), pp.20-28.

Choi, T.Y. and Eboch, K., 2008. The TQM paradox: relations among TQM practices, plant

performance, and customer satisfaction. Journal of Operations management, 17(1),

pp.59-75.

Fleisher, C.S. and Bensoussan, B.E., 2015. Business and competitive analysis: effective

application of new and classic methods. FT Press.

Ormanidhi, O. and Stringa, O., 2008. Porter's model of generic competitive strategies.

Business Economics, 43(3), pp.55-64.