1

Hush Puppies is the family owned business of Ricardo Swett. This is the business of

casual shoes and its retail outlets are in Chile. Hush Puppies in Chile had seen profits

go up and sales blow up by an average of 30% per year since 1985. Hush Puppies had

become the preferred brand of upper-class Chilean men by emphasizing excellence in

design and by expanding a chain of up-scale retail shoe stores as well as a competent

factory. Hush Puppies had become the most wanted brand of upper-class Chilean men

and later expansion occurred into women’s and children’s shoes. The general manager

of Hush Puppies in Chile

began to weigh up further

expansion of the business in

other Latin American

markets. Ricardo was

uncertain how fast the

company should expand in

these countries or whether

efforts should be focused

instead on promoting exports

to North America or on

consolidating the company’s

market position in Chile.

Company Synopsis:

In 1980, Hush Puppies Chile began functions through the resolute attempts of three

brothers, Alfonso, Ricardo and Juan Pablo Swett. Later in early-1960s, the three

brothers figured NORSEG, a start-up corporation that supplied safety equipment to

industrial and mining sites all the way through Chile. Over time, these procedures

were organized as separate companies under the family-owned Costanera S.A.C.I.

Holding Co.

Wolverine World Wide:

Wolverine World Wide was concerned in expanding into Chile. This news was got by

three Swett brothers in the spring of 1979 by their advertising agency, Veritas Ltd.

Incorporated in 1954; Wolverine outlined much of its initial success in footwear

market to its reliance on the production of casual pigskin shoes. Wolverine,

pedestaled in Rockford Michigan, controlled a collection of footwear brands

including Hush Puppies casual shoes, Wolverine work and outdoor boots, Bates

uniform shoes and Brooks athletic shoes. During the 1960s and 1970s, Hush Puppies

appeared as a most important brand with meticulous strength in the men’s division.

2

Success in the U.S. was followed by international growth, to begin with in Canada

and Europe. In the early 1980s, spurred by fears that the U.S. government might lift

import quotas on low cost shoes from the Far East and Latin America, Wolverine

shifted to pick up the pace its international expansion.

Wolverine was appearing

for an agent to import or

manufacture Hush

Puppies brand shoes in

Chile under license. The

Swett brothers

commissioned market

research studies in

rejoinder to Wolverine’s

initiatives and disclosed

that the Chilean shoe

market was dominated by

formal, dressy products and that no companies successfully met the requirement for

casual shoes. Bata Chile functioned first and foremost as a manufacturing company

which sold the bulkiness of its output to small self-regulating stores all the way

through the country. Bata also activated numerous dozen of its own retail stores

throughout Chile and was reported to be thinking about additional growth. The

brothers were predominantly noticed in the upper class market in Chile which, by

experience from side to side international travel, was familiar with the Hush Puppies

brand, quality and unique designs.

A shift to Retailing:

The brothers make a decision near the beginning on that retailing made available the

greatest alternative for acquiring Hush Puppies into Chile in working with Wolverine.

After compromising with Wolverine, Hush Puppies Chile was given restricted rights

to import Hush Puppies shoes and expand retail outlets in Chile. Anticipations were

that the costs for the first five stores, including leasehold improvements, training, and

inventories and so on, would total about $2.0 million. Of this amount, about $1.0

million would be borrowed. The residual $1.0 million symbolized a considerable risk

to the brothers. The best Hush Puppies shoes would be imported from approximately

the world with about 80% coming on or after the U.S. given the stratification of

wealth in Chile, these consumers contrasted constructively with upper-middle and

upper class U.S. consumers.

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Stores were positioned in big, suitable locations primarily in the Santiago

metropolitan area. The sales staff was broadly trained to improved recount to the

upscale customers and were well compensated, reflecting the longing for permanence

and professionalism. As agreed ahead by the brothers, Ricardo supposed

responsibility as the general manager of Hush Puppies Chile. Alfonso was engaged in

most important investment decisions and strategic planning for all family owned

businesses as well as a number of day-to-day judgments making at Hush Puppies

Chile.

A Move into Manufacturing:

The bottom fell out of

Latin American economies

in 1982. In Chile, the GNP

fell by 14% in 1982 alone.

Between the 1982-1985,

unemployment formally

floated around 14%;

unofficially, it surpassed

30%. During the same

period, the Chilean Peso

dropped by 300%, leading

to a proportionate rise in

import costs. In April

1982, the choice was made to move Hush Puppies Chile into shoe manufacturing.

Both partners had the same opinion to make payment representative amounts of

capital to make sure that manufacturing output met developed targets.

In 1981, import quotas ended in the U.S. and Wolverine shifted uncompromisingly to

shift production overseas. Under the joint venture agreement with Hush Puppies

Chile, Wolverine would have right of entry to a new starting place of shoes made with

low cost Chilean labor. In February 1983, a small new manufacturing facility was

unlocked in suburban Santiago which comprised something like 10,000 square meters

of manufacturing capacity, a two story decision-making office complex and factory

retail outlet. Hush Puppies Chile and Commercial Puppies were both systematized

with their personal board of directors, which included the three Swett brothers, as well

as a small group of trusted, Western-educated managers from the working companies.

Most directors served on two or three boards.

4

Speedy Growth:

From 1985-1990 the Chilean economy established enjoying rapid growth. Brooks

Athletic Shoes was possessed by Wolverine and had advantaged in the U.S. by the

upsurge in interest in physical fitness. As on the whole sales picked up, Hush Puppies

Chile and Commercial Puppies centered further on building and maintaining key

brands. Hush Puppies Chile managers observed the company as market sloping as

opposed to manufacturing oriented, thus differentiating the company from many Far

East suppliers.

In 1987, the company founded a most important advertising program titled “the

pleasure of walking” which was predominantly appealing to increasingly health

conscious upper and upper-middle class Chileans. Television advertisements were

also expanded which focused on Hush Puppies as declarations of quality and style.

During the late 1980s and early 1990s, Hush Puppies Chile won three annual

Wolverine World Wide awards for the quality of its advertising campaign and

marketing strategy. The company’s approach to strengthen the Hush Puppies brand

succeeded. By the end of 1987, the production of shoes reached 265,000 pairs, an

increase of 18% over 1986. In 1988, production increased an additional 15% to

305,000 pairs; in 1989, shoe production was up 29% to 392,000 pairs.

A shift into Women’s and Children’s Shoes:

More endeavor was dedicated

to product design and

marketing to make stronger

the company’s arrangement

in the women’s shoe market.

The women’s product

manager, Cardina Schmidt,

believed that prior to 1990

the women’s product line had

not sufficiently satisfied the

style and fashion demands of

Chilean women. In order to

construct Hush Puppies further appealing to women, high fashion shoes were

imported from Italy, France and Argentina. Hush Puppies Chile also hired exclusive

designers to develop its own collection of women’s shoes. During this same period,

the company also undertook a most important proposal in children’s shoes.

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In early 1990, Hush Puppies for Kids were commenced, consisting of four different

categories which varied according to the age of the child. Soft Puppies shoes were

introduced for infants; Little Puppies were designed for children age one to three

years; Young Puppies were introduced for children age four to eight years; and

finally, Junior Puppies were designed for children age nine to fourteen years.

Amplifying the Athletic Shoe Position:

In the U.S., Brooks was a

comparatively weak brand,

information not altogether lost

on fashion-conscious Chilean

adolescents, and L.A. Gear was

emerging as the top brand for

adolescents. The opportunity to

market a more fashionable brand

in L.A. Gear was clear and

Alfonso approached the

company in the summer of 1990.

After considerable discussion,

L.A. Gear agreed in the fall of

1990 to work with Hush Puppies

Chile to bring the L.A. Gear

brand to Chile. L.A. Gear shoes

would be imported from U.S. inventories or directly from the shoes’ manufacturers in

Korea and China thus sparing Hush Puppies any manufacturing threats.

Wolverine’s Manufacturing point Purchase:

Costanera obtained the 30% of Hush Puppies Chile operations owned by Wolverine

World Wide in December of 1991. In late 1989 and 1990, manufacturing facilities

were enlarged over 30% in Chile in order to remain pace with flourishing demand.

Plans called for production capacity to be increased by another 20% in 1991. At the

same time, Wolverine was facing transforms in the business in the U.S. and was

struggling to preserve capital. As a result, a buyout became an attractive option for

both parties. The purchase of Wolverine’s 30% share of manufacturing was

approximated to have cost Costanera approximately $3.6 million.

Wolverine expanded its licensing agreement to Forus for twenty years. In addition,

Forus pushed for and obtained the rights to manufacture and sell Hush Puppies brands

in Bolivia, Paraguay, and Uruguay. Outside these countries, sales of Hush Puppies or

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Brooks brand products could only be made to other Wolverine licensees. For

Wolverine, Costanera’s program for growth, sanctioned by the success obtained in

Chile, made it the best company to build sales in Latin America. Outside these

countries, sales of Hush Puppies or Brooks brand products could only be made to

additional Wolverine licensees. For Wolverine, Costanera’s program for growth,

endorsed by the achievement acquired in Chile, made it the best company to put up

sales in Latin America.

Extensive Market Appeal:

Hush Puppies was number one in market share; in the ABC1 women’s market, Hush

Puppies was number five in market share; and in the ABC1’s children’s market, Hush

Puppies was number four in market share.

Growth in Retail Operations:

Entire retail sales of Hush Puppies,

Brooks and L.A. Gear shoes amounted

to 328,000 pairs by the end of 1991.

About 74% of these shoes were sold in

25 company-owned stores. An

additional 9% of sales were produced

through “Hush Puppies Corners”

which had been instituted in shoe

departments of 14 major retail

department stores. Regarding 10% of

the company’s sales were also

produced through small independent

retail outlets. Franchise sales

represented approximately 7% of total

retail sales. By the summer of 1992,

the number of company-owned retail

stores in Chile had augmented to 26

with four more diagramed by year-end.

International Expansion:

Certainly Costanera was a much more balanced company by mid-1992 than it had

been ten years earlier. It had a healthy balance sheet, a portfolio of accepted American

brand names, improving manufacturing capabilities, world class design skills and

7

substantial marketing expertise. Undoubtedly Ricardo and several managers began to

understand that the depth of Hush Puppies Chile’s market penetration, predominantly

in the ABC1 men’s casuals would lead to augmented competition on or after new

European and American brands.

With these apprehensions in mind, Ricardo began thinking other substitutes intended

for growth. A shift into men’s dress shoes was refused because the segment was by

now highly competitive and for the reason that managers at Hush Puppies Chile did

not believe that their skill base would make available the company with a noteworthy

competitive advantage.

Export Opportunities—North America:

Hush Puppies Chile had at all

times hoped to build up a

strapping export business,

particularly to North America and

Europe. Hush Puppies Chile’s

manufacturing labor costs in 1991

averaged $2.00/hr. counting all

benefits; in neighboring

Argentina, wages in the shoe

industry averaged from between

$2.25 and $2.50 per hour. From a

company point of view, a

prominence on exporting appeared

to build sagacity for two reasons.

First, sales to the Northern

Hemisphere could potentially

offset cyclical sales in the

Southern Hemisphere. Any

supplementary export sales during

the off-season would make available a better utilization of plant and equipment while

minimizing fluctuations in employment levels. Second, the added export sales volume

would contribute to ever-increasing manufacturing and new product development

overheads, in that way increasing overall profits.

Exports to North America and Europe maintained comparatively self-effacing. Hush

Puppies’ domestic target market was also the high-end section which added design

and service costs that negated many of Chile’s labor cost advantages. A final

difficulty was that direct and indirect labor costs symbolized only about 25% of total

8

manufacturing costs therefore limiting the company’s ability to follow a low cost

exporting approach. Because of these difficulties, more than a few managers in the

company believed that an export strategy built on superior design and marketing had

the majority chance to achieve something. The company had never critically judged

shifting manufacturing to lower cost Asian countries. Difficulties in controlling

overseas production and the need to respond to rather fickle customer needs

destabilized the potential savings of overseas manufacturing.

Opportunities in Latin America:

From 1990 to 1991, sales growth

increased speed to a staggering

35%, supported in part by the

rapid growth of the Chilean

economy. Many economists were

predicting GDP growth of 10%

per annum all the way through the

remainder of 1992 making Chile

one of the fastest growing

economies in the world and an

engine of economic growth in the

region. The company’s proposal in

Latin America began in earnest in

May of 1989 when Hush Puppies

Chile began exporting Hush

Puppies shoes to Uruguay. In

1990, Hush Puppies Chile

contributed exclusive franchise

rights to the Moliterno family, a diversified industrial company based in the capital

city of Montevideo. Moliterno speedily instituted Hush Puppies Uruguay as a wholly-

owned subsidiary.

Forus purchased 55% of Hush Puppies Uruguay in the spring of 1991. According to

Ricardo, Hush Puppies Chile had at all times desired to be a partner with Moliterno.

The original agreement included an option to buy a majority stake in Hush Puppies

Uruguay that Forus decided to exercise. Hush Puppies Chile shifted to strengthen

operations. Sales employees received additional training and new store locations were

sought out. Essentially no Hush Puppies shoes were exported to Paraguay in 1991 and

no changes were sketched for 1992. In Bolivia, a country of seven million, Forus

instituted a licensing agreement with Global Trading Company of La Paz. Ricardo

estimated that exports for 1992 would amount to about 15,000 pairs or about $U.S.

9

525,000. Because of triumphing import tariffs, retail prices in Bolivia were set at a

10% premium over Chilean net prices. In 1992, the company’s efforts in Argentina

were focused exclusively on promoting its Brooks line of athletic shoes. Coast Sport

Argentina was established in 1991 and acted exclusively as a wholesaler for a variety

of self-governing retail outlets in the country.

Recent Developments:

Ricardo was thoughtful after witnessing approximately a decade of accelerating

growth and profits. By the summer of 1992, Ricardo was weighing a number of

options to recommend to Alfonso and Juan Pablo for consideration. One major shove

under consideration was to move aggressively into the retailing of apparel. While the

combination of athletic shoe and clothing stores had proved a major hit in Europe,

Japan and North America, it had yet to be effectively pursued in Chile. Costs for retail

space in a typical up-scale Santiago shopping mall were estimated at 7% of net sales

with leasehold improvements averaging about $U.S. A second option being

considered was to open a chain of outdoor clothing stores. A third option for the

company was the introduction of a new retailing perception for children’s shoes and

apparel. A full line of merchandise would accompany a full shift into children’s

retailing by filling out stores and providing an added draw for consumers.

Behind the increasing attention in expanding the retail base of the company was the

recognition that retailing was becoming more concentrated. Ricardo was also

countenanced with the decision of focusing management efforts on either increasing

sales in Chile or on expanding sales in other Latin American countries. Clearly,

Ricardo had much to consider. While any major pronouncement would necessitate the

maintenance of both Alfonso and Juan Pablo, Ricardo appreciated that they would be

relying on him for bearing.

10

Identification of the Problems:

Hush Puppies started their business for mass market, but a major difference is that

wealthy American consumers were generally not targeted by Hush Puppies in the

United States.

In December of 1991, Wolverine failed to support Hush Puppies Chile’s

ambitious expansion plans.

New investment requirements in Chile as well as other countries, combined with

the need to reinvest profits, translated into a negative cash flow for Wolverine.

Hush Puppies buyout with Wolverine as Wolverine was facing changes in the

business in the U.S. and was struggling to conserve capital.

Hush Puppies Chile altered its name to Forus and Forus was licensed to sell

brooks athletic shoes in Bolivia, Paraguay, Uruguay, Chile, Argentina and Peru,

but they did not get the license to manufacture.

Ricardo and several managers began to understand that the depth of Hush Puppies

Chile’s market penetration, mainly in the ABC1 men’s casuals would direct to

boosted competition from new European and American brands.

Forus was typically over capacity in the period leading up to Fall/ Winter

(February through July) and under capacity in Spring/Summer (August through

January).

One problem was that exports from Chile were supposed to contend with much

lower cost footwear from China, India and the Philippines.

Hush Puppies Chile’s incredibly diversified product line boosted per-unit

production costs through short production runs while at the same time removing

opportunities for high volume exports.

11

What strategic measures Hush Puppies Chile should take in order to

decrease production costs and expand low cost exporting strategy to

initiate high volume exports to other countries and stay competitive

with European and American brands?

12

A SWOT analysis is a strategic balance sheet of an organization; that is the strengths

of the organization, the weaknesses of the organization, the opportunities facing the

organization, and the threats facing the organization. It is one of the cornerstone

analytical tools to help an organization develop a preferred future. It is one of the

time-tested tools that have the capacity to enable an organization to understand itself,

to respond effectively to changes in the environment. The purpose of the SWOT

analysis is to provide information on strengths and weaknesses in relation to the

opportunities and threats.

Successful planning process for the human resources of an organization depends on

creating a fit between the resources available to an organization and the opportunities

present in its environment to minimize the weaknesses and face the challenging threats

to survive and lead the industry. Evaluation of internal and external factors helps to

analysis Strengths, Weakness, Opportunities, and Threats.

In other words, in order

to operate successfully

in a continuously

changing environment,

the business firms

should plan its future

goals and strategies

around its strengths and

also try to overcome the

weaknesses. Thus, the

assessment of strengths,

weakness, as well as

opportunities, and

threats become an

essential task for

management.

Strengths refer to the competitive advantages and other distinctive competencies

that a company can exert in the market place.

Weaknesses are constraints that hinder movements in certain directions.

Opportunities primarily arise from the external environment, and refer to the

chances of gaining competitive advantages.

The external uncontrollable variables that can create problems on organizational

performances pose as Threats to business firms.

13

Hush Puppies is a very famous brand all over the world. Wolverine, based in

Rockford Michigan, controlled a portfolio of footwear brands including Hush Puppies

casual shoes, Wolverine work and outdoor boots, Bates uniform shoes, and Brooks

athletic shoes. Incorporated in 1954, Wolverine traced much of its initial success in

footwear markets to its reliance on the production of casual pigskin shoes. The

infamous basset hound became a widely recognized symbol for quality and comfort.

During the 1960s and 1970s, Hush Puppies emerged as a major brand with particular

strength in the men’s segment.

To Hush Puppies, product design was

an important issue. They have always

come up with innovative designs of

shoes. By emphasizing excellence in

design and by developing a chain of

up-scale retail shoe stores as well as

an efficient factory, Hush Puppies

had become the favorite brand of

upper-class Chilean men. Expansion

into women’s and children’s shoes

during the recent three years had also

been successfully implemented. In

order to come close to the ladies customers, the designers talked with them and tried

to know their preference, so that Hush Puppies can come up with the desired design

shoes of their customers.

In Chile, stores were designed as family concept outlets in which both parents and

children could find comfortable, casual shoes. The best Hush Puppies shoes were

being imported from around the world with about 80% coming from the U.S. This

product quality was a great strength for Hush Puppies and as a result they were able to

attract the customers in Chile.

14

In Chile Hush puppies stores were

situated in large, convenient

locations primarily in the Santiago

metropolitan area. The sales staff

was extensively trained to better

relate to the upscale customers and

were well compensated, reflecting

the desire for continuity and

professionalism.

During the late 1980s and early 1990s, Hush Puppies Chile won three annual

Wolverine World Wide awards for the quality of its advertising campaign and

marketing strategy. To strengthen marketing efforts, advertising budgets were

expanded, reaching 5% of sales in 1987. In 1987, the company started a major

advertising program titled “the pleasure of walking”. This advertising campaign was a

massive success and as a result hush puppies Chile won the award.

Hush Puppies Chile has always ignored the two most important market segments. One

is the women’s shoe segment and another is kid’s shoe segment. The company’s

strategy to strengthen the Hush Puppies brand succeeded. By the end of 1987, the

production of shoes reached 265,000 pairs, an increase of 18% over 1986. In 1988,

production increased an additional 15% to 305,000 pairs; in 1989, shoe production

was up 29% to 392,000 pairs. Despite these impressive gains, the company remained

relatively weak in these two important categories. By the end of 1991, Hush puppies

had a market share of 30 % for men’s shoes, whereas it had a market share of only 8%

and 11 % respectively for women’s and children’s shoes. As a result the competitors

captured the market shares.

15

Since, Hush Puppies Chile has always

ignored the women’s shoe segment,

the customers were not happy with the

shoe designs. Prior to 1990 the

women’s product line had not

adequately satisfied the style and

fashion demands of Chilean women.

Good design was particularly

important in the women’s segment in

which styles changed nearly every six

months. Women in the target segment

were particularly fashion conscious

and were generally familiar with the

newest fashions in Europe and North

America. As a result, Hush Puppies

Chile’s market share in women’s shoe

segment was only 8 %. Hush Puppies

lost the entire women’s shoe market to

their competitors.

Hush Puppies Chile was always dominant in men’s shoe segment. But, Hush puppies

Chile was relatively weak in children’s shoe segment because of several reasons.

They also had several disadvantages in this segment. First of all, Hush puppies

Chile’s stores were not appropriate for selling kid’s shoes. On the other hand, other

competitors had years in the market and most of all, they didn’t have the machinery to

develop a great collection for kids up until 12 years in age.

In December of 1991, Costanera acquired the 30% of Hush Puppies Chile operations

owned by Wolverine World Wide. The buyout was prompted by Wolverine’s failure

to support Hush Puppies Chile’s ambitious expansion plans. During late 1989 and

1990, manufacturing facilities were increased over 30% in Chile in order to keep pace

with booming demand. Plans called for production capacity to be increased by

another 20% in 1991.

16

Like most Chileans, Ricardo, Alfonso and Juan Pablo believed that the open market

of 1980 provided an ideal opportunity to start a new business. The open economy put

no barrier for entering into the Chile market. As a result, it was a great opportunity to

enter into the open market of Chile. The brothers were particularly interested in the

upper class market in Chile which, by exposure through international travel, was

familiar with the Hush Puppies brand, quality and unique designs. Wolverine World

Wide also appeared to be an open company; its managers were supportive and

personable. The brothers agreed that any venture with Wolverine would succeed.

Hush Puppies Chile has

always ignored the women’s

and children’s shoe segment.

But it was not too late to

invest in these segments.

Especially the children’s

market was showing potential

opportunity. Surveys

detected great opportunities

for Hush puppies Chile in the

children’s market. The

market was very traditional. It

offered old models in brown

or white color. The market seemed willing to pay a higher price for shoes with

aggressive colors and concepts such as comfort and security. Other competitors of

Hush Puppies were not offering any products with aggressive colors. At the same time

other competitors of hush puppies were not focusing on comfort and security. So, the

market was demanding some attractive products and Hush Puppies was capable of

satisfying the market for children.

17

Since Hush Puppies had

been manufacturing shoes in

Chile for many years, it had

always hoped to develop a

strong export business,

particularly to North

America and Europe.

Success in exports seemed

likely given Chile’s

comparative advantage of

low-cost labor and Hush

Puppies Chile’s excellent

styling and product-

development skills. Hush

Puppies Chile’s manufacturing labor costs in 1991 averaged $2.00/hr. including all

benefits; in neighboring Argentina, wages in the shoe industry averaged from

between $2.25 and $2.50 per hour. In addition to being at least comparable in terms

of costs, the quality and consistency of Chilean labor was generally regarded as

superior to that available in neighboring countries. So, all the factors related to cost

were in favor of Hush Puppies Chile and it showed a great opportunity to export

products in North America and Europe.

From 1987 to 1991, the average annual sales growth for Forus, For-Shop and Coast

Sport was 20% per year. From 1990 to 1991, sales growth accelerated to a staggering

35%, encouraged in part by the rapid growth of the Chilean economy. Strict

adherence to free markets and free trade had led to booming economic growth in

Chile with the economy expanding an average of 6% per year from 1987 to 1992.

Many economists were predicting GDP growth of 10% per annum throughout the

remainder of 1992 making Chile one of the fastest growing economies in the world

and an engine of economic growth in the region. Customs duties on shoes averaged

70% in Paraguay but were being slowly cut under pressure from the General

Agreement on Tariffs and Trade (GATT) as well as broader initiatives undertaken in

creating the Southern Cone Economic Market. The company established a limited

presence in Uruguay, Bolivia and Paraguay and was beginning to enter Argentina

with its line of Brooks athletic shoes. So, the overall Latin American market was an

opportunity for Hush Puppies Chile.

18

A market research in

Chile indicated that

Bata, a large Canadian-

owned shoe company

with worldwide

operations, controlled an

estimated 60% market

share in Chile. Bata

Chile operated primarily

as a manufacturing

company which sold the bulk of its output to small independent stores throughout the

country. Bata also operated several dozen of its own retail stores throughout Chile

and was considering further expansion. This expansion program would enhance the

overall operational efficiency in Chile and it was a threat for Hush Puppies Chile,

because Bata was the key player in the overall shoe market of Chile and it already

captured more than half of the market share of Chile. So, further expansion would

create a huge problem for the other competitors, including Hush Puppies.

In Chile independent retailers had considerable power over manufacturers in

controlling which brands to promote and which styles to display. These independent

retailers had good connection with Bata and they were assisting Bata to come closer

to the customers. Bata was coming up with products according to their customer

preference. In this case the independent retailers were playing a key role. On the other

hand, Hush Puppies did not have such good connections with the independent

retailers of Chile. As a result, it was quite difficult for Hush Puppies to expand their

operation in Chile.

19

After several years of promising

economic growth, the bottom

fell out of Latin American

economies in 1982. Hit by

slumping commodity prices,

massive national debt, soaring

interest rates, and worldwide

recession, the Chilean economy,

like every other in Latin

America, plunged into a state of

depression. In Chile, the GNP

fell by 14% in 1982 alone.

Between the 1982-1985,

unemployment officially

hovered around 14%;

unofficially, it surpassed 30%.

During the same period, the

Chilean Peso dropped by 300%, leading to a commensurate rise in import costs. With

Hush Puppies Chile totally reliant on imported shoes, the company was devastated by

the economic downturn.

20

Porter's five forces study is an outline for industry analysis and business strategy

development formed by Michael E. Porter of Harvard Business School in 1979. It

describes upon industrial organization (IO) economics to derive five forces that verify

the competitive intensity and therefore attractiveness of a market. Attractiveness in

this circumstance submits to the overall industry profitability. An "unattractive"

industry is one in which the combination of these five forces acts to drive down

overall profitability. A very unattractive industry would be one approaching "pure

competition", in which accessible profits intended for all firms are driven to normal

profit.

Porter's five forces include - three forces from 'horizontal' competition: threat of

substitute products, the threat of established rivals, and the threat of new entrants; and

two forces from 'vertical' competition: the bargaining power of suppliers and the

bargaining power of customers.

21

The bargaining power of buyers is high in the Hush Puppies Chile. This is a

manufacturing company. So the bargaining power of buyer is always higher. Again

the customer has always the ability to keep the firm under pressure. The customer’s

sensitivity to price changes has a great impact on the company’s operation.

Moreover, there are other big competitors. So customers can anytime easily switch

from this company to that. This is a great threat for the company. So, customers

bargaining power is high. The buying volume is also good enough. As the customers

buy more, so they have more chance to bargain over the companies strategies.

Moreover, buyers have more information available of the companies as there is

competition.

Thus, considering all the factors, the Bargaining Power is good enough. Since there is

chance of more business to arise, it is going to turn higher.

22

Hush Puppies Chile is a well-established company which has suppliers to provide

their products. The suppliers play noteworthy role in the company. But there is no

specific information regarding the bargaining power of suppliers.

The condition of suppliers,

their switching cost etc

information is not given in

the case. There must be

needed of distribution

channel for the products.

But the channel

information is not

provided here. Moreover,

In the Hush Puppies Chile,

most of the suppliers are

possessed by the company

itself. Here the supplier

switching cost is higher since the companies own the suppliers. Moreover loyalty for

the company is already exists. So supplier competition is not enough here.

The threat of substitutes is not

very high here as customer

switching cost is good enough

because of product category.

Shoe is a product which is

needed to everyone. Nobody

walk without it. But someone

can use sandle instead of shoe.

Though this may be a substitute

of shoe, but there is no

information about that type of

products. Buyers are not willing

to look for several substitutes. They need shoe to maintain their standard for several

purposes and customers are happy with that.

23

Moreover, if there is substitute, they cannot be able to provide their product in

cheaper rate than that. Product differentiation facility will also not be able to gain by

substitutes. Number of substitute products is not a very good enough.

The allegiance of customers is effortlessly diversifiable thinking the tendency of

consumers is backed up by lower switching costs. The greater the cost for customer’s

to change to a substitute product the less the threat of substitution. But, Hush Puppies

Chile has an economically developing region with a consumer base focused on price

preferences making it easier for the substitutes to be available. But as shoe is really

essential in modern days for everybody in their daily life, so threat of substitute is not

an alarming number.

Hush Puppies Chile is a

well-established market in

Chile as well as in the

world. This is a saturated

Market. But other new

comers also have options to

enter into the market. There

is potentiality of that.

Though there is already

some big giants like Hush

Puppies Chile, BATA etc.,

and other companies can

start business here with enough capital and well established designers.

Still this is a growing industry; there are many companies who can wish to come here.

It is also not very difficult for starting a business. Still if any new company wants to

come in this business, then they need to have enough capital to make a place in this

region. But they have a facility that production process is easy for them to learn.

Moreover labor cost is not very high. Economic condition of the country is also well

enough.

Moreover, all the new comers need to have idea about the government of the country.

Govern rules and regulations needed to maintain by the new companies. There is a

challenge to face all the government regulations. Along with all these, they need to

know all the distribution channels properly.

24

The competition in this industry in very alarming and Hush Puppies Chile has many

competitors. Bata is a big competitor for the company. Though Hush Puppies Chile is

rich with fashionable shoes and well known fashion designers, other competitors also

have such type of facilities.

Brooks was positioned as the number three brand in the Chilean athletic shoe market

after Diadora and Adidas. Adidas is a very famous company in terms of athletic

shoes. L.A. Gear was emerging as the top brand for adolescents. The opportunity to

market a more fashionable brand in L.A. Gear was clear and Alfonso approached the

company in the summer of 1990.Moreover many shoe companies also emerged there

with fashionable designs and colors.

So the number of competitors is large enough. Again Adidas is a competitor who is

big enough to defeat. But the Hush Puppies Chile’s growth rate is also well enough.

So the threat of competitors is very much here and the market is not free from

competition.

25

The growth and expansion of Hush Puppies Chile is, probably, one of the successful

stories of the brand Hush Puppies. After negotiations with Wolverine, Hush Puppies

Chile was given exclusive rights to import Hush Puppies shoes and develop retail

outlets in Chile. Although no up-front fees were paid to Wolverine, in 1980 Hush

Puppies Chile committed to opening as many as 25 retail stores within three years.

Expectations were that the costs for the first five stores, including leasehold

improvements, training, and inventories and so on, would total about $2.0 million.

In April 1982, after economic downturn and rising import cost, the decision was made

to move Hush Puppies Chile into shoe manufacturing. In November 1982, a

partnership was formed between Wolverine World Wide and Hush Puppies Chile

with 70% of the manufacturing joint venture owned by Hush Puppies Chile and 30%

owned by Wolverine. Both partners agreed to contribute representative amounts of

capital to ensure that manufacturing output met growth targets.

As overall sales picked up in 1985, Hush Puppies Chile and Commercial Puppies

focused more on building and maintaining key brands. The objective was to develop a

reputation for excellence in marketing by emphasizing advertising, service and style.

Feedback from retail stores proved a major strength in focusing design and

manufacturing on consumer needs. The company’s strategy to strengthen the Hush

Puppies brand succeeded. By the end of 1987, the production of shoes reached

265,000 pairs, an increase of 18% over 1986. In 1988, production increased an

additional 15% to 305,000 pairs; in 1989, shoe production was up 29% to 392,000

pairs.

In December of 1991, Costanera acquired the 30% of Hush Puppies Chile operations

owned by Wolverine World Wide. The buyout was prompted by Wolverine’s failure

to support Hush Puppies Chile’s ambitious expansion plans. During late 1989 and

1990, manufacturing facilities were increased over 30% in Chile in order to keep pace

with booming demand. Plans called for production capacity to be increased by

another 20% in 1991. With the buyout complete, Hush Puppies Chile changed its

name to Forus, S.A. In January 1992, the name of Commercial Puppies was changed

to For-Shop. Under the terms of the acquisition, Wolverine extended its licensing

agreement to Forus for twenty years. In addition, Forus pushed for and received the

rights to manufacture and sell Hush Puppies brands in Bolivia, Paraguay, and

Uruguay.

26

By the end of 1991, Hush Puppies Chile had succeeded in significantly broadening

the market appeal of its Hush Puppies brands. In the ABC1 men’s market, Hush

Puppies was number one in market share; in the ABC1 women’s market, Hush

Puppies was number five in market share; and in the ABC1’s children’s market, Hush

Puppies was number four in market share.

From 1987 to 1991, the average annual sales growth for Hush Puppies Chile was 20%

per year. From 1990 to 1991, sales growth accelerated to a staggering 35%,

encouraged in part by the rapid growth of the Chilean economy.

The company’s initiative in

Latin America began in

earnest in May of 1989 when

Hush Puppies Chile began

exporting Hush Puppies shoes

to Uruguay. In 1990, Hush

Puppies Chile granted

exclusive franchise rights to

the Moliterno family, a

diversified industrial company

based in the capital city of

Montevideo. Moliterno

quickly established Hush

Puppies Uruguay as a wholly-

owned subsidiary. In the Spring of 1991, Forus purchased 55% of Hush Puppies

Uruguay. After gaining effective control over retailing, Hush Puppies Chile moved to

strengthen operations in the region. In Bolivia, a country of seven million, Forus

established a licensing agreement with Global Trading Company of La Paz. Although

the agreement had been in place for less than a year, two stores had been opened and

Hush Puppies Corners had been set up in two department stores. In 1992, the

company’s efforts in Argentina were focused exclusively on promoting its

Brooks line of athletic shoes.

Considering the exploitation of available capital for Hush Puppies Chile, it can be

phased in the growth stage with rapid expansion in different Latin American

countries.

27

The first concept which will be applied to the specialty shoe industry is the product

lifecycle. This lifecycle is based on the assumption that all industries pass through a

number of generic stages. The four generic stages are introduction, growth, maturity,

and decline. They are defined using the rate of growth in sales in an industry. As an

industry’s sales grow and decline through the numerous stages, inflection points can

be marked in order to determine where the stages start and end. This concept also

makes the assumption that all industries go through an S-shaped pattern in their sales

growth.

From 1987 to 1991, the average annual sales growth for Hush Puppies Chile was 20%

per year. From 1990 to 1991, sales growth accelerated to a staggering 35%,

encouraged in part by the rapid growth of the Chilean economy. Strict adherence to

free markets and free trade had led to booming economic growth in Chile with the

economy expanding an average of 6% per year from 1987 to 1992. Many economists

were predicting GDP growth of 10% per annum throughout the remainder of 1992

making Chile one of the fastest growing economies in the world and an engine of

economic growth in the region.

The market seemed willing to pay a higher price for shoes with aggressive colors and

concepts such as comfort and security. By the end of 1991, total retail sales of Hush

Puppies, Brooks and L.A. Gear shoes amounted to 328,000 pairs. About 74% of these

shoes were sold in 25 company-owned stores. By the summer of 1989, Brooks was

positioned as the number three brand in the Chilean athletic shoe market after Diadora

and Adidas. In the U.S., however, Brooks was a relatively weak brand, a fact not

altogether lost on fashion-conscious Chilean adolescents, and L.A. Gear was

emerging as the top brand for adolescents.

The massive export of cheap shoes from China, India and Philippine in Latin

American market created opportunities for many of the global companies to take bite

in the growing shoe industry. The market research also indicated that Bata, a large

Canadian-owned shoe company with worldwide operations, controlled an estimated

60% market share in Chile.

Bata Chile operated primarily as a manufacturing company which sold the bulk of its

output to small independent stores throughout the country. Bata also operated several

28

dozen of its own retail stores throughout Chile and was rumored to be considering

further expansion.

However, an emphasis on

exporting seemed to make

sense for two reasons. First,

sales to the Northern

Hemisphere could potentially

offset cyclical sales in the

Southern Hemisphere. Forus

was typically over capacity in

the period leading up to fall/

winter (February through

July) and under capacity in

Spring/Summer (August

through January). Any

additional export sales during

the off-season would provide a better utilization of plant and equipment while

minimizing fluctuations in employment levels. Second, the additional export sales

volume would contribute to ever-increasing manufacturing and new product

development overheads, thereby boosting overall profits.

Considering the background of the Chilean Show industry the retail outlets played a

vital role in the life cycle of the industry. The growth of the industry has often been

improvised by government regulation and import tariffs.

In this context, the Hush Puppies Chile’s former strategy was centered in offering a

high quality casual shoes to a narrow consumer segment (upper-class Chilean men),

therefore, a focus strategy. Later on, primarily thanks to the vision of management,

the company moved to the diversification strategy to women and children shoe

segment. Some of the advantages of this strategy are: customers have a lower

sensitiveness to price, opportunity for higher margins, creation of entry barriers

thanks to customer loyalty and brand uniqueness.

29

During the 1960s and 1970s, Hush Puppies emerged as a major brand with particular

strength in the men’s segment. The infamous basset hound became a widely

recognized symbol for quality and comfort. Success in the U.S. was followed by

international expansion, initially in Canada and Europe. By 1992, Wolverine World

Wide had established joint ventures or licensing agreements in over 40 countries

including most of Europe, Japan and South America. In the athletic shoe segment,

Brooks was positioned as the number three brand in the Chilean athletic shoe market

after Diadora and Adidas. In the U.S., however, Brooks was a relatively weak brand, a

fact not altogether lost on

fashion-conscious

Chilean adolescents, and

L.A. Gear was emerging

as the top brand for

adolescents. L.A. Gear

was a relative new comer

in the athletic shoe

industry and, to capitalize

on its increasing

popularity, had begun to

search for international

distributors.

Therefore, after much analysis, the company is showing some details that according to

concept of product life cycle, the company might enter in the growth stage.

30

Financial analysis is the process of evaluating businesses, projects, budgets and other

finance-related entities to determine their suitability for investment. Typically,

financial analysis is used to analyze whether an entity is stable, solvent, liquid, or

profitable enough to be invested in. When looking at a specific company, the financial

analyst will often focus on the income statement, balance sheet, and cash flow

statement. In addition, one key area of financial analysis involves extrapolating the

company's past performance into an estimate of the company's future performance.

From the current ratio analysis we can observe that Hush Puppies Chile’s current ratio

has gone up significantly from the year 1990 to 1991. It clearly indicates that the

company has enough current assets to pay of its current liabilities. It is always

expected that, a company will have a current ratio of more than one. Hush Puppies

Chile is in a very good condition to pay of its current liabilities.

31

From the total debt ratio analysis we can observe that Hush Puppies Chile’s total debt

ratio has been very much consistent throughout the year1990 to 1991. It clearly

indicates that the company has been using approximately 42% debt for financing its

assets and rest of the 58% asset is backed up by the equity.42% usage of debt is a very

nice portion for the company. If any company borrows more debt for financing its

assets, then financial leverage goes up and risk increases. So, from this perspective,

Hush Puppies Chile is not exposed to financial leverage risk.

From the Debt to Equity Ratio analysis we can observe that Hush Puppies Chile’s

Debt to Equity Ratio has been consistent throughout the year1990 to 1991. For the

year 1990 Hush Puppies Chile’s equity was 0.73 times than its debt. In the year of

1991 Hush Puppies Chile’s equity was 0.68 times than its debt.

From the Equity Multiplier Ratio analysis we can observe that Hush Puppies Chile’s

Equity Multiplier Ratio has been consistent throughout the year1990 to 1991. It is not

a co incidence that the Equity Multiplier ratio is 1 plus the debt to equity ratio.

From the Times Interest Earned Ratio we can observe that Hush Puppies Chile’s

operating profit was 4.48 times higher than its interest expense in the year of 1990 and

it was 8.3 times higher in the year of 1991. It clearly indicates that Hush Puppies

Chile was very much capable of covering its interest obligations.

32

From the Total Asset Turnover Ratio analysis we can observe that Hush Puppies

Chile’s Total Asset Turnover Ratio has been consistent throughout the year 1990 to

1991. Higher the value of total asset turnover ratio, it is better for the organization.

From the above table we can see that in the year 1990, for every dollar in assets, Hush

Puppies Chile generated 0.81 dollars sales. In the year of 1991, asset utilization was

better than the previous year and it indicates good asset utilization by Hush Puppies

Chile.

From the Inventory Turnover Ratio analysis we can observe that Hush Puppies

Chile’s Inventory Turnover Ratio has been consistent throughout the year 1990 to

1991. But the inventory turnover ratio is too small. One reason behind this is that,

Hush Puppies Chile was targeting the higher class people of the society and as a result

they were selling premium products and premium products are not sold so quickly.

So, it is expected that the inventory turnover ratio is too small.

From the Day’s Sales in Inventory Ratio analysis we can observe that Hush Puppies

Chile’s Inventory sits almost 150 days on average before it is sold. This is quite high

for the company and the reason behind it is the small Inventory turnover ratio. Lower

the inventory turnover ratio, higher the Day’s Sales in Inventory Ratio.

33

From the Profit Margin Ratio analysis we can observe that Hush Puppies Chile’s

Profit Margin Ratio has been consistently increasing from the year 1990 to 1991. It is

definitely a positive sign for the organization. Higher profit margin is a desirable

situation for any company. Each and every company wants to increase their profit

margin. In the year 1990, for every dollar in sales, Hush Puppies Chile’s Profit

Margin was 9.69%, which increased to 19.23% in the year 1991. So, profit margin

almost doubled within one year.

From the Return on Asset Ratio analysis we can observe that Hush Puppies Chile’s

Return on Asset Ratio has been consistently increasing from the year1990 to 1991. It

is definitely a positive sign for the organization. Higher Return on Asset is a desirable

situation for any company. Return on Asset has almost doubled from 1990 to 1991

and it is really a good indication for the company.

From Return on Equity Ratio analysis we can observe that Hush Puppies Chile’s

Return on Equity Ratio has almost doubled from the year 1990 to 1991. It is definitely

a positive sign for the organization. Higher Return on Equity is a desirable situation

for any company.

34

Country risk refers to the risk of investing in a country, dependent on changes in the

business environment that may adversely affect operating profits or the value of assets

in a specific country. In other words country risk is a collection of risks associated

with investing in a foreign country. These risks include political risk, exchange rate

risk, economic risk, sovereign risk and transfer risk, which is the risk of capital being

locked up or frozen by government action. Country risk varies from one country to

the next. Some countries have high enough risk to discourage much foreign

investment. For example, financial factors such as currency controls, devaluation or

regulatory changes, or stability factors such as mass riots, civil war and other potential

events contribute to companies' operational risks. This term is also sometimes referred

to as political risk; however, country risk is a more general term that generally refers

only to risks affecting all companies operating within a particular country. Country

risk is comprised of various aspects of risk involved in doing business in a particular

country. For example: political risk, economic risk, currency exchange rate risk are all

part of country risk analysis. Country risk can reduce the expected return on an

investment and must be taken into consideration whenever investing abroad. Some

country risk does not have an effective hedge. Other risk, such as exchange rate risk,

can be protected against with a marginal loss of profit potential.

35

The political situation of Chile

is quite stable now a day. But

the situation was really horrible

in the mid of 1970’s.

Currently, Chile is a

democratic country and the

democracy seems quite stable

to the international observers.

Political polarization under the

left wing government of

President Salvador Allende

(1970-73) brought the country

close to a civil war, and ended

in September 1973 with a coup

d’etat led by General Augusto

Pinochet. During his 17 year

rule, Pinochet turned to the

writings of free market

advocate and Nobel Prize

winning economist Milton

Friedman to guide national industrial policy.

Immediately after seizing power, Marshall Law was imposed, the economy was

liberalized and foreign corporations were invited to return to Chile. Pinochet’s 1980

blueprint for political democratization was completed on December 14, 1989 when a

national plebescite was held and Patricio Alwin, the Christian Democratic leader of a

center-left coalition was elected president. He took office on March 11, 1990. While

Augusto Pinochet remained commander of the nation’s armed forces in mid-1992, the

emerging democracy seemed stable and strong to most observers.

The success of Chile’s free market reforms after a decade of stagflation and debt

crisis amazed many observers. Most economists attributed Chile’s enviable economic

growth to its unrelenting dedication to free markets. By mid-1992, the bulk of the

Chilean left was no longer anti-capitalist, and a remarkable degree of consensus

existed in the country about the need to maintain a liberal market economy and

prudent fiscal policies. The main dividing issues related to a new labor code granting

36

more rights to unions, and the question of what to do about serious human rights

violations that occurred under the Pinochet regime.

After several years of

promising economic

growth, the bottom fell out

of Latin American

economies in 1982. Hit by

slumping commodity

prices, massive national

debt, soaring interest rates,

and worldwide recession,

the Chilean economy, like

every other in Latin

America, plunged into a

state of depression. In Chile, the GNP fell by 14% in 1982 alone. Between the 1982-

1985, unemployment officially hovered around 14%; unofficially, it surpassed 30%.

During the same period, the Chilean Peso dropped by 300%, leading to a

commensurate rise in import costs. With Hush Puppies Chile totally reliant on

imported shoes, the company was devastated by the economic downturn.

But the situation improved during 1985. By 1985, the Chilean economy started to turn

around. Strict adherence to free markets and free trade had led to booming economic

growth in Chile with the economy expanding an average of 6% per year from 1987 to

1992. Many economists were predicting GDP growth of 10% per annum throughout

the remainder of 1992 making Chile one of the fastest growing economies in the

world and an engine of economic growth in the region.

37

In 1985, the Chilean Peso dropped by 300%, leading to a commensurate rise in import

costs. With Hush Puppies Chile totally reliant on imported shoes, the company was

devastated by the economic downturn. If peso declines then it is easy to export

products outside Chile. But at the same time import cost increases if peso declines.

Since, in 1985 peso declined by almost 300 %, import cost increased like anything.

38

As it could be read from the case, the factors that were available for the market in

Chile and other Latin American countries were pretty good for Hush Puppies Chile to

market their product. Chile was Hush Puppies Chile’s largest business operation

which was followed by U.S.

Since, Hush Puppies Chile was totally reliant on imported shoes; the company was

devastated by the economic downturn in 1982. Only two options appeared possible:

shut down in the face of massive losses or move into manufacturing. As a

consequence to that, in April 1982, the decision was made to move Hush Puppies

Chile into shoe manufacturing.

However, a manufacturing facility in Chile made sense for a number of reasons. In

1981, import quotas ended in the U.S. and Wolverine moved aggressively to shift

production overseas. Under the joint venture agreement with Hush Puppies Chile,

Wolverine would have access to a new source of shoes made with low cost Chilean

labor. Hush Puppies Chile’s manufacturing labor costs in 1991 averaged $2.00/hr.

including all benefits; in neighboring Argentina, wages in the shoe industry averaged

from between $2.25 and $2.50 per hour. In addition to being at least comparable in

terms of costs, the quality and consistency of Chilean labor was generally regarded as

superior to that available in neighboring countries. Despite the fact, direct and indirect

39

labor costs represented only about 25% of total manufacturing costs thus limiting the

company’s ability to pursue a low cost exporting strategy. Besides that, to make Hush

Puppies more appealing to women, high fashion shoes were imported from Italy,

France and Argentina. Hush Puppies Chile also hired exclusive designers to develop

its own collection of women’s shoes. Designers and managers regularly visited Hush

Puppies stores to question women on desired design features like colors and styles.

By 1985, strict adherence to free markets and free trade had led to booming economic

growth in Chile with the economy expanding an average of 6% per year from 1987 to

1992. But, managers at Hush Puppies Chile also believed the company had no

competitive advantage in importing. Estimates for 1992 were that the company would

import about $U.S. 3.0 million in raw materials (mostly soles and leathers) and about

$U.S. 1.7 million in finished shoes. The U.S. would supply approximately 25% of

these imports with the rest coming from the Far East, Argentina, Brazil, Italy, Spain,

Germany, Mexico and the U.K.

Hush Puppies in Chile had seen profits climb and sales explode by an average of 30%

per year since 1985. By emphasizing excellence in design and by developing a chain

of upscale retail shoe stores as well as an efficient factory, Hush Puppies had become

the favorite brand of upper-class Chilean men. Expansion into women’s and

children’s shoes during the last three years had also been successfully implemented.

Chile was becoming more westernized in its tastes and placed a high demand and

value on imported and designed shoes. Once a foreign product was adopted in the

domestic market, it usually commanded a high price. So, the market seemed willing to

pay a higher price for shoes with aggressive colors and concepts such as comfort and

security. Hush Puppies Chile had a few advantages such as the excellent Hush

Puppies’ image which was attractive for children and easily identified. During late

1989 and 1990, manufacturing facilities were increased over 30% in Chile in order to

keep pace with booming demand.

However, after the buyout of Wolverine, by the end of 1991, total retail sales of Hush

Puppies, Brooks and L.A. Gear shoes amounted to 328,000 pairs. About 74% of these

shoes were sold in 25 company-owned stores. An additional 9% of sales was

generated through “Hush Puppies Corners” which had been established in shoe

departments of 14 major retail department stores. In promoting Hush Puppies

Corners, For-Shop agreed to train sales employees and assist in designing and setting

up displays. About 10% of the company’s sales was also generated through small

independent retail outlets. Franchise sales represented approximately 7% of total retail

40

sales. In 1991, the company had five franchise stores located in isolated cities in

Chile. By the summer of 1992, the number of company-owned retail stores in Chile

had increased to 26 with four more planned by year-end.

The research also found that, from 1987 to 1991, the average annual sales growth for

Forus, For-Shop and Coast Sport was 20% per year. From 1990 to 1991, sales growth

accelerated to a staggering 35%, encouraged in part by the rapid growth of the

Chilean economy.

Hush Puppies Chile management had defined the strategy of the firm to be

emphasized on the excellence in design and developing a chain of up-scale retail shoe

stores as well as an efficient factory. These related activities began with the

establishment of a small new manufacturing facility opened in suburban Santiago in

February 1983, which included approximately 10,000 square meters of manufacturing

capacity, a two story executive office complex and factory retail outlet.

As overall sales picked up, Hush Puppies Chile and Commercial Puppies focused

more on building and maintaining key brands. The objective was to develop a

reputation for excellence in marketing by emphasizing advertising, service and style.

Feedback from retail stores proved a major strength in focusing design and

manufacturing on consumer needs. Hush Puppies Chile managers regarded the

company as market oriented as opposed to manufacturing oriented, thus

differentiating the company from many Far East suppliers. By the end of 1985,

Commercial Puppies was managing 22 company-owned stores and Hush Puppies

Chile was supervising four franchise stores.

To strengthen marketing efforts, advertising budgets were expanded, reaching 5% of

sales in 1987. In 1987, the company started a major advertising program titled “the

pleasure of walking” which was particularly appealing to increasingly health

conscious upper and upper-middle class Chileans. Follow-up multicolor ads

promoting Hush Puppies’ line of outdoor casual and hiking boots were placed in

major newspapers and top magazines throughout the country. Television

advertisements were also developed which focused on Hush Puppies as statements of

quality and style. Moreover, a separate company, Coast Sport was organized to

manage all Brooks sales. It was hoped that creating separate companies for athletic

41

shoes would allow greater focus on Hush Puppies brands as well as encourage new

sales initiatives for athletic shoes.

In order to make Hush Puppies more appealing to women, high fashion shoes were

imported from Italy, France and Argentina. Hush Puppies Chile also hired exclusive

designers to develop its own collection of women’s shoes. Designers and managers

regularly visited Hush Puppies stores to question women on desired design features

like colors and styles. New window displays were designed to establish a more stylish

image and a major television advertising campaign was launched. As a result of these

efforts, sales growth in the women’s segment increased dramatically.

The company had leveraged multiple franchises and licensing to sell its shoes. In

1990, Hush Puppies Chile granted exclusive franchise rights to the Moliterno family,

a diversified industrial company based in the capital city of Montevideo. Moliterno

quickly established Hush Puppies Uruguay as a wholly-owned subsidiary. In Bolivia,

a country of seven million, Forus established a licensing agreement with Global

Trading Company of La Paz. Coast Sport Argentina was established in 1991 and

acted exclusively as a wholesaler for a variety of independent retail outlets in the

country. Coast Sport Chile owned 80% of the new company, with the remaining 20%

owned by NORSEG Argentina, which had NORSEG Chile as a majority owner.

Through the analysis of the case, it could be found that the case does not mention

much about any related or supporting industry that helped the Hush Puppies Chile,

other than that of slight mentioning of an influential retail industry in the Chilean

market.

In Chile, independent retailers had considerable power over manufacturers in

controlling which brands to promote and which styles to display. Besides, Retailers

treated all brands alike, not giving special treatment to any brand in particular. The

market research also indicated that Bata, a large Canadian-owned shoe company with

worldwide operations, controlled an estimated 60% market share in Chile. Bata also

operated several dozen of its own retail stores throughout Chile and was rumored to

be considering further expansion.

42

Therefore to offset the power of independent retailers, after negotiations with

Wolverine, Hush Puppies Chile was given exclusive rights to import Hush Puppies

shoes and develop retail outlets in Chile. Although no up-front fees were paid to

Wolverine, the brothers committed to opening as many as 25 retail stores within three

years. Expectations were that the costs for the first five stores, including leasehold

improvements, training, and inventories and so on, would total about $2.0 million. As

agreed, stores were designed as family concept outlets in which both parents and

children could find comfortable, casual shoes.

After the political reformation in 1980s, Marshall Law was imposed, the Chilean

economy was liberalized and foreign corporations were invited to return to Chile.

Pinochet’s 1980 blueprint for political democratization was completed on December

14, 1989 when a national plebiscite was held and Patricio Alwin, the Christian

Democratic leader of a center-left coalition was elected president.

The success of Chile’s free market reforms after a decade of stagflation and debt crisis

amazed many observers. Most economists attributed Chile’s enviable economic

growth to its unrelenting dedication to free markets. By mid-1992, the bulk of the

Chilean left was no longer anti-capitalist, and a remarkable degree of consensus

existed in the country about the need to maintain a liberal market economy and

prudent fiscal policies. The main dividing issues related to a new labor code granting

more rights to unions, and the question of what to do about serious human rights

violations that occurred under the Pinochet regime.

Despite its interest in open markets, Chile has avoided involvement in Mercosur or

the free trade zone that neighboring Paraguay, Uruguay, Argentina and Brazil hoped

to have running by 1994. Confident after nine years of stability and growth, Chile in

1992 was aspiring to become the first Latin American county to join NAFTA. If

NAFTA membership were to prove elusive, the government intended to pursue a free

trade agreement with Japan, Chile’s top export market after the United States.

43

The company’s initiative in Latin America began in earnest in May of 1989 when

Hush Puppies Chile began exporting Hush Puppies shoes to Uruguay. With air freight

to Uruguay averaging about $U.S. 0.55 per kg., transportation costs appeared

favorable for exports.

On the other hand, no Hush Puppies shoes were exported to Paraguay in 1991 and no

changes were planned for 1992. Customs duties on shoes averaged 70% in Paraguay

but were being slowly cut under pressure from the General Agreement on Tariffs and

Trade (GATT) as well as broader initiatives undertaken in creating the Southern Cone

Economic Market. Management believed that as the economy opened up in 1993,

Forus would begin some modest exports.

44

Internal Considerations

Product/ Service

Demand

Technology

Financial Resources

Absenteeism/Turnover

Organizational Growth

Management Philosophy

TECHNIQUES

Staffing Tables

Markov Analysis

Skills Inventories

Management

Inventories

Replacement Charts

Succession Planning

EXTERNAL

CONSIDERATIONS Demographic

Changes

Education of the

Workforce

Labor Mobility

Government Policies

Unemployment Rate

(Shortage)

Recruitment

- Full time

- Part time

- Recalls

(Surplus)

Reduction

- Layoff

- Termination

- Demotion

- Retirements

-

Techniques

Trend Analysis

Managerial Estimates

Delphi Techniques

45

The human resources planning model is a method companies can use to make sure it

has enough employees and the right employees to carry out the various functions of

the company. The human resources planning model encompasses three key elements,

which include predicting the employees your company needs, analyzing if the supply

of potential employees meets your demand and learning to balance the supply and

demand of employees.

There is sufficient information in the given case about the demand of Hush Puppies

shoes. Good quality shoe is a product and the demand of quality shoes is high not

only in Chile but also in the whole world. Hush Puppies brand product is highly

demanded in the high class people. They are doing business with various types of

shoes like shoes for children of various ages, shoes for women and shoes for men.

This variation had played an important role to expand their business and increase their

sales.

Justification:

In a word, the essence of demand is the willingness to exchange value goods or

services. Demand of shoe is world-wide. So it is already justified. In a word, the

essence of demand is the willingness to exchange value goods or services.

Hush Puppies is a well-known brand not only in South and North America but also in

the whole world but the Asian market is in behind position other than Europe and

American market. They have well and strong technology to prepare proper and best

quality shoes. Enough technology can do it properly to fulfil the demand of all ages of

people (Children, male and female)

Internal Considerations:

46

Justification:

The company uses different updated and modified technology to prepare the best

quality shoes for all high class higher middle class people. Technology is needed to

fulfil the demand of people. Technology is the making, usage, and knowledge of

tools, machines, techniques, crafts, systems or methods of organization in order to

solve a problem or perform a specific function. It is very nicely justified that modern

technology is needed to serve and fulfil the customer demand and also to increase the

sales.

In the case there is a lot of financial information about the company Hush Puppies.

During 1987 to 1991 the amount of purchase of leather and raw materials $6,302 and

the projected amount is $2,000. The royalty of Hush Puppies is $1,032 and the Brooks

is $441. There are much other financial information in the Balance sheet and the

income statement. The net income of Fours, S.A in 1990 is Ch$379,477,518 and in

1991 is 979,686,268. All other financial information is available in this difficult case.

Justification:

Hush Puppies have enough financial resources to expand their business and they can

start manufacturing in other countries and they can make enough profit with enough

financial resources. There are various sources of financial resources but

indiscriminate choosing of these resources may bring devastating result for the

company.

There is no information provided about the trend analysis in this case.

Growing from local company to an international company, there is enough

information in the case. Company’s growth is very rapid and Hush Puppies has a

strong bonding with other foreign companies to get the sustainability in the particular

shoe industry. Shoe companies of other countries have good relation with Hush

Puppies and they got a good opportunity to capture new market and keep the

continual growth. Commercial Puppies was managing 22 company- owned stores and

Hush Puppies Chile was supervising four franchise stores.

47

Justification:

Organizations value growth. However, liberalized global environment requires

organizations to plan and ensure growth for their very survival. The organizational

growth requires adoption, change and innovation.

There is a lot of information about the management philosophy. If management is not

so strong then it is impossible to grow local to international. Alfonso, Ricardo and

Juan Pablo Swett are three brothers and they are the top management of Hush Puppies

Chile. There are another one named Sebastian Swett, a second generation family

member and product manager of children’s shoe. They are doing well to get the

maximum share of that particular industry. Now Hush Puppies is a name which can

solve problem in a minute with their strong management team and top level managers.

Justification:

Having a wide spread management philosophy is very important for an organization

as it gives employees the overall idea about how to control various firm operations

and how to treat competition as well as competitors.

There is no information provided about the trend analysis in this case.

There is some information provided about managerial estimates in this case.

Management Estimates are the opinions (judgment) of supervisors, department

managers, experts, or others knowledgeable about the organization’s future

employment needs.

Techniques:

48

Justification:

To expand the business they need new people for production of new products. Also

the management is expecting that their sales will be increased in future. To increase

the sales new employee is required as there will be increased in the production. So it

can be said that management must have a plan to materialize their new plan of

increased sales and introduction of new product line successfully.

There is not information provided about the Delphi Techniques in this case.

There is enough information about demographic changes. The gender and the age

limit are two main important factors for Shoe Company like Hush Puppies. Shoes for

children of different ages, shoes for male and shoes for female are very important

concern. These should have taken in consideration for increase the sales of shoes.

There is also information about Argentina, Peru, Paraguay, and Uruguay and also

about United States of America. They have huge amount of chemical specialist to

refine the oil and make them usable and they also have moderate number of other

engineers.

Justification:

In this present fashionable world, well designed and quality shoes are needed to is

needed to every person even in children. So the demand is very high. Hush Puppies is

now a big figure in Chile, Latin America as well as in the whole world. So the

demography is a vital figure for oil shoe business in the world and they are a well

performer in this shoe manufacturing industry in Europe and Latin America.

External Considerations:

49

According to the case there is no available information about the education of the

workforce..

According to the case there is no available information about labor mobility.

There is not enough information about government policy in the case. For running the

business in Chile and other Latin America and Europe must have to follow the

Government Policy.

Justification:

Government policy usually influences important organizational decisions, including

the identification of different alternatives such as programs or spending priorities, and

choosing among them on the basis of the impact they will have on the nation or to its

public.

There is enough information about unemployment rate in Chile in this case. It is

matter of concern for any country If the unemployment rate is too high for that

specific country.

Justification:

Between the 1982-1985, unemployment officially hovered around 14%; unofficially,

it surpassed 30%. During the same period, the Chilean Peso dropped by 300%,

leading to a commensurate rise in import costs.

We did not find any information about Staffing Table in this particular case.

Techniques:

50

We did not find any information about Markov analysis in this particular case.

There is not too much information about the skill inventories in the case. The

technical people are very demandable here because of various shoes manufacturing

technology. To run the high quality technology, Hush Puppies needs well skilled and

well trained labors and the HR department will provide the skilled people.

Justification:

The Company’s business strategy is to use its accumulated utility experience and

expertise to improve the profitability of its existing shoe business in Latin America

and to enhance the value of other businesses it may acquire in the whole world.

There are some inventories about the management inventories in this case. There are

another one named Sebastian Swett, a second generation family member and product

manager of children’s shoe. They are doing well to get the maximum share of that

particular industry.

Justification:

It is very nicely justified that to move globally management inventories are very

important to capture the market. To spread the business in Europe, North America,

Latin America and as well as in the whole world, they should take some initiatives to

start management inventories.

There is not available information about the replacement chart in the case.

There is not available information about the succession planning in the case.

51

RE

CR

UIT

LA

YO

FF

After analyzing the considerations and techniques of forecasting labor supply and

forecasting labor demand we have seen that the labor supply is not much affected here

but there are some considerations which indicate the demand for new employees in

the company in future. Here To do the balancing of supply and demand Hush Puppies

should consider recruitment decision that is can hire efficient employees. Now Hush

Puppies is doing the market research to launch a new product line successfully which

is new cloths product line.

In order to do the proper utilization of human resource in the organization, Hush

Puppies should create an effective workforce by means of selecting the right number

of people at the right time for the right job, compensating them to motivate and

develop and retain them by effective training and career development in

customization. Some steps should be taken and they are:

Firstly, Hush Puppies should recruit and select the efficient employees for full

time position and hire part time employees in contractual basis through proper

recruitment and selection process.

In order to ensure that right people job evaluation process should be sound and

flawless.

They should include different approach like external hiring, informal interview

and select people who fit their culture.

What businesses need and HR should be providing are innovative solutions to

business challenges. Efficient service at a lower cost, to sell and service more of them,

and to do so at the highest possible profit margins is very important for Hush Puppies

Chile.

52

Internal Recruitment:

In this case Hush Puppies can go for the internal recruitment as there must be some

employees who are very efficient in the company as the existing products line are

doing very well in the market. So Hush Puppies can hire those employees for the

successful development and launch of new products. This is called identifying the

critical talent.

Identify "Critical Talent":

At first Hush Puppies will need to define the skills that are critical to its business

strategy, and then identify the people within the organization who possess these skills.

These individuals are considered the "critical talent." They are not necessarily the

most highly paid executives. Instead, they are people who have highly developed

specialized skills and know how to get things done within the organization. This will

be cost effective as well as efficient for the company to hire some efficient

employees’ from within the organization because they will know well about the

company and its objectives.

External Recruitment:

After fulfilling employee demand from within inside, Hush Puppies needs to recruit

from outside as part-time and full-time basis. As is a new product line for the

company existing employees will know less about the technical and product part of

the products. That why they will need to go for external recruitment which will help

the company by providing new ideas fresh perspectives, reducing expensive training

by hiring experienced employee, allowing rapid growth, and increasing diversity.

Recruit Salespeople on Full-Time Basis:

Salespeople play a very important role in Hush Puppies in creating the demand and

successfully selling of the shoes. From the market research, Hush Puppies found out

that the women and children prefer to buy from the salespeople who come to their

house rather than buy from the supermarkets.

Recruit Workers for the Production Process:

As this is a new product for the Hush Puppies, the existing workers have not much

idea about the production process of the products. For the effective production of the

trash bags Hush Puppies needs to hire people who are expert in the production of new

products.