Page 92 - DMGT545_INTERNATIONAL_BUSINESS

Unit 5: Political and Economic Environment

single production facility. Bata serves its different national markets by producing in a given notes
market, nearly everything it sells in that market. It does this in part because substantial
sales volume in the countries in which it produces, enable it to achieve economies of scale
very quickly. It may seem difficult to believe that Bata can always achieve economies of
scale, especially since the company has production facilities in some small African nations.
However, Bata’s management believes that the company can achieve scale economies very
easily because its shoe production is a labour-intensive operation. It also tries to buy all
its raw materials locally, although this is not always possible, especially in some poorer
countries.
Bata also prefers not to export production. When possible, it chooses local production to
serve the local market rather than imports. However, sometimes Bata becomes entangled
with local governments when it imports some raw materials but does not export. In such
cases, it must adjust to local laws and requirements for operation. Bata avoids excessive
reliance on exports partly to reduce its risks. For example, if an importing country were to
restrict trade, Bata could possibly lose market opportunity and market share.
Bata operates in many different types of economies. It has extensive operations in both
industrial democratic countries and developing countries. However, it was soundly
criticized for operating in South Africa and thus tacitly supporting the white minority
political regime. It also has been censured for operating in totalitarian regimes, such as that
in Chile. In the latter case, Tom Bata, Sr., countered by pointing out that the company had been
operating in Chile for over forty years, during which time various political regimes were in power.
Despite Bata’s ability to operate in any type of political environment, Tom Bata Sr., prefers
a democratic system. He feels that both democratic and totalitarian regimes are bureaucratic, but a
democracy offers the potential to discuss and change procedures, whereas under totalitarianism, it
sometimes is wisest to remain silent. Bata has a multifaceted impact on a country. Its product is
a necessity, not a luxury. The company’s basic strategy is to provide footwear at affordable
prices for the largest possible segment of the population. The production of shoes is labour-
intensive, so jobs are created, which increases consumers’ purchasing power. Although
the top management may come from outside the country, local management is trained
to assume responsibility as quickly as possible. Because the company tries to get most
of its raw materials locally, sources of supplies usually are developed. Further, it likes
to diversify its purchases, so it usually uses more than one supplier for a given product,
which leads to competition and efficiency.
South Africa presented unique challenges for Bata management. The size of the country’s
population is just under that of Nigeria, Egypt or Ethiopia. Thus, South Africa had long
been considered a good place in which to invest because of its large market size. Further,
South Africa’s per capita GNP was the largest in Africa. However, the country’s main
attraction was the incredibly high rate of return that companies could earn, which was
largely the result of low-labour costs and extensive mineral wealth. The large market
allowed companies to achieve economies of scale in production while exploiting low
labour costs.
But the situation deteriorated rapidly in the early 1980s. A relatively stagnant economy,
political strife resulting from apartheid, including the policy of not granting political
freedom and civil liberties to blacks, prompted foreign companies and governments to
pressurize the government for political reforms. The Canadian attitude towards South
Africa was very negative. Canada’s government issued very conservative voluntary
guidelines on new investments in South Africa. As a result, Bata sold its holdings in South
Africa in 1986. It did not identify the buyer or the sales price and it denied that apartheid
was the reason for its pulling out. Company personnel stated, “It really was a business
decision that took into account all of the factors with respect to investment in South Africa at the
present time.” Under the terms of the sale the Bata company name and trademark could no
Contd...

lovely Professional university 87