The case is about New Balance Athletic Shoe Inc. and how they are planning to increase their efficiency and quality in their operation processes through the implementation of lean manufacturing. At this same period, two of the leading shoe producers Reebok and Adidas have merged hence New Balance needs to focus on ways to counter this move in order to sell effectively.
New Balance was founded in the year 1906 in Boston by William J. Riley, and it was formerly known as New Balance Arch. William was a 33-year old British, who dedicated himself to help people with feet problem by marking supports and footwear to improve on their shoe fit. In 1924, William made a partnership with his leading producer so as to increase the business. In 1954, William sold his company to his two kids who later on, made the world’s first running shoe. The shoe was made of Ripple sole and was available in various sizes. This marked the beginning of the company and gradually increased in size increasing its operations in the process. Jim Davis eventually bought the company from the kids in 1972, and he is the one who transformed it to what it is in the present through extensive investment and distribution of the products.
The United States has the world’s largest market for sport shoes that account for 50% of the demand. As the demand stood at $32 billion between 2004 and 2005, there was still an expected annual increase of 6.5% in relation to demand for the athletic shoes. The women in the country accounted for the 58% of the shoes bought in the United States with an 8.4% increase per annum.
Nike was the leading shoe manufacturers and distributors accounting for 43% of the total market demand for athletic shoes. Within the United States only, Nike was seen o account for 36% with Adidas, New Balance and Reebok accounting for between 12-8% of the demand. Therefore, the merging of Adidas and Reebok would create a demand that will bring competition to Nike’s monopoly in the shoe market. This merger was expected to boost the market share of Adidas by nearly over 20%.
The key challenges that faced New Balance were how they would penetrate the market. With Nike having a monopoly over the market as nearly 50% of the world demand their goods, New Balance had to come up with a strategy that would make sure that they gain market advantage, as well. The takeover of Reebok by Adidas was also a new problem which they had to factor in as it resulted in a change, in the shoe industry.
It is noted that New Balance level of technology did not match up to Nike’s and Adidas. This caused them a major back lag as in order to compete with these two superior firms they had to match up to them. They also received great competition from these two firms with others also emerging in the picture such as Puma. After the takeover, they firm was not doing well financially hence had to look for funds from other impossible avenues so as to improve their production lines for the better.
The options available to New Balance include a possible merge or a takeover. As it could be seen that the two leading firms in the market opened their gap with New Balance, New Balance needs to come up with something extraordinary that would enable them to capture the market. A possible merging with puma would have helped New Balance improve its market share and its financial position. The disadvantage of this strategy is that it may lose part of control of its assets and shares due to the merging. Also, the merging may result to a possible takeover as the partners will be fully knowledgeable of the firms operations and processes. The impact of this strategy will be measured by the amount of market share that New Balance would acquire from its competitors. Increase in revenue and profitability can also be used as a measure of progress.
