Ecco is a Danish producer of shoes. Ever since the company was established in 1963 by a guy called Karl Toosbuy. A small southern town in Denmark, it has been immensely successful. Throughout the 1980s the company expanded its operations internationally. By 1982, sales reached 1 million pairs of shoes annually. And today, it's products are currently retailed in over 4,000 locations worldwide. It has more than 19,000 employees, in more than 30 countries. To understand ECCO's success, it is important to take a look at the value it represents. ECCO's vision is to be most wanted brand within innovation and comfort footwear. More over, the company stresses that this can only be attained by constantly and courageously researching new path. Investing employees, in our core competencies of product development and production technology. As such, three key words that define the company and the shoes that they produce are Design, Comfort and Quality. Central component in ECCO's corporate strategy is its from cow to customer philosophy. With this strategy, ECCO keeps the whole process from the Development of the Idea, Production Design, Production in Leather and Shoes. To marketing, distribution and wholesale internally within the full control of the company. Although it has moved production facilities to low cost countries around the world. It has decided to make everything themselves. Now, in industry of footwear, this is a rather a typical strategies. Famous shoe producers like Nike and Adidas are almost famous for their aggressive outsourcing of the production. Other prominent competitors of ECCO such as Geox, Clarks and Timberland have also extensively outsourced the production phases to subcontractors in low-cost countries. So why does ECCO want to keep the whole process of making good quality shoes inside the company? Without a doubt this strategy of internalizing the whole value chain is very capital intensive. For example ECCO has tied up a lot of capital in this vast inventory of raw hides and wet for production of leather used in its shoes. However, it was the conviction of ECCO that this approach was vital to ensure the quality, and standards of the production of the shoes. And consequently, the final product. We cannot get the best quality, if we don't do it ourselves, as the founder Karl Toosbuy often states. In particular, the from cow to customer strategy allows ECCO to maximize the productivity, and to be in full control of the quality of the production. This is considered essential for the company. The production can be carried out more predictably. And the company is not as prone to, for example, sourcing fluctuations and market irregularities. The risk of ethical misbehavior along the value chain, a problem that a company like Nike has had particularly bad experiences with. Is also reduced. Therefore, although it has tied up a substantial amount of money and increased the financial risk. ECCO values the autonomy and control of internalizing the value chain higher. This also allows for reduced uncertainly and easier quality control. Now, what does this story mean for generally understanding strategy formulation? Well, in industry where everybody are outsourcing their production to cut costs, a company like ECCO decides to keep entire value chain within the firm boundaries. Is ECCO wrong in doing this? Or is ECCO's seeking out a smart strategy. As we shall discuss in this module, variations in firm performance of firm behavior can to a large extent be explained by the resources, and capabilities that the firm is in control of. Specifically, one could make the argument that ECCO has a unique capability in ensuring that the quality of its products is at its highest at all times. And therefore it doesn't want to jeopardize this by relying on external suppliers. Other companies, such as Nike and Adidas, may rather be more occupied with the design and the marketing of its products. Therefore we can say that ECCO's core competency is different from that of Nike and Adidas. In raw circumstances we will over the next few lessons try to get a better grasp of what the resources and capabilities of a firm means for its strategies.
