The Zeis Excelsa case


1. An industry with problems

Starting more or less from 1985 the Italian footwear industry has seen a drop in production, and indeed at the end of 1981 the industrial production index recorded a fall of about 20%. The crisis moreover was structural in character, particularly because the demand though still growing was increasing at lower rates than those of other consumer products. However the speeding up of the fashion cycles, which involves the shortening of the average time of the life of the products, was somehow helping the industry. Anyhow the most serious problems were on the supply side, as the Italian companies had to face an increasingly fierce competition by low cost manufacturers from the Far East in the lower quality products and by countries such as Spain and Portugal in the others.

Due to the depreciation of the dollar (up to 1990) which gave a further advantage to the Asian manufacturers the strong orientation to exports has also exposed the Italian industry to the fluctuations both of international demand and of the exchange rates. Hence the domestic market was heavily attacked by imports, whereas the international ones recorded sizeable losses of market shares. A favourable period was the one after the devaluation of the lira in September 1992, but as of the second half of 1994 the regained stability of the exchange rates worsened the strategic positioning of the industry on the market again.


2. Zeis Excelsa: the initial development

Z. E. was founded in 1948 at Montegranaro in the Marches by Dino Pizzuti. It was similar to many other small cottage footwear industries active in the area of Fermo and characterised by an organisation of production like the one of the “districts” described by Alfred Marshall, which greatly favour start – up firms owing to their typical positive externalities.

In the first years the company operated at a local level gradually creating an outlet market for its products, acquiring also the services of high level suppliers of raw materials and machinery. But toward the beginning of the Sixties the local market was no longer sufficient and on the other hand the area attracted a growing interest from foreign, especially American, manufacturers looking for supply or subcontracting agreements.


3. The international expansion: the first phase (mercantile internationalisation: introduction on foreign markets).

It was indeed an American manufacturer to place the first foreign orders with Z. E., providing the moulds and sometimes even the materials as well as defining prices and delivery conditions for a range of products oriented mostly towards the young market. The contacts with the USA made the company aware of the new market trends making it acquire new design skills: the intertwining of know how placed it on a higher level than its local competitors, even if from the sales point of view it granted a almost complete proxy to its Italian and above all American clients. This was therefore a passive internationalisation.

The Seventies saw the beginning of the erosion of the competitiveness of the Italian footwear industry, which was to increase as seen in the decade to come. Generally speaking the world crisis caused a reduction in trade, also due to increased protectionism by many countries: in the footwear industry, in particular, the USA considerably cut down the flow of orders to Italian companies, including Z. E. On the other hand the company had not developed alternative outlets, for example on the domestic market. The lack of a commercial structure and strategy therefore proved to be a factor of considerable vulnerability.

Thus a period of internal tensions opened up in which the search for a different strategic approach was linked with the entry into the company of the son of the founder, Maurizio Pizzuti. Z. E. then decided to balance the drop of sales on the US market with a massive reorientation on the domestic one, creating for this purpose a sales network based on representatives. On making this choice the company was however well aware that it was a temporary one: first and foremost it was necessary to support productivity and self financing, but at longer term the game would be played on a wider and particularly European field. And results did not fail to come in: in only four years (1982 / 85) sales grew from 10 to 55 billion liras (from 6 a 28 million US $ at prices of that period).


4. The international expansion: the second phase (from mercantile to mature internationalisation)

Therefore, to start with it was necessary to define the competitive scene on which to operate, avoiding at the same time returning to the logic of the niche, following in a purely imitative fashion the strategic project and actions taken by companies already operating at a global level and finally adopting choices of compromise which would leave the company in intermediate undefensible positions. In other words, the internationalisation of the industry was a constant trend and therefore an extraordinary opportunity, provided the company would know how to adequately define its strategy of entry and of presence on the international markets. To this purpose the following tools were adopted.

a) The reformulation of the product portfolio, pursued researching a new type of footwear (the so called “boatshoe” model which appeared at the end of the Seventies in imitation of a model created by an Anmerican company). This type was associated with the new brand name Dockstep, thus underlining the abandonment of the purely domestic outlook. The model would enjoy a prolonged success as it anticipated the fashion trends addressed to the “sports” segment: the US thus again became the learning market of the company. Moreover for the first time since the beginning of the Eighties the commercial action was supported by a fairly considerable advertising investment (50 million liras a year, equivalent to 360 million of 1998, or US $ 200.000).

Subsequently, the product portfolio was extended to other brands. In the “classic” segment this was obtained through an alliance with Barton & Sons, active in the high layer of the market with a very accurate hand – made working of the product; in the young segment with the Sonora brand (for boots); in the very young segment with the Cult brand (phosphorescent soles and steel tips). This policy if brand proliferation therefore promotes the logic of differentiation and positioning of the families of products and of the individual products which create the conditions for a better control of the total market.

b) The development of a network of alliances. The company was also active in the search for licenses to extend its product portfolio. The core business continued to be footwear, but the portfolio was extended to accessory products, always in the fashion area, such as small leather goods, leather cases, articles for the writing desk and the like, to which clothing would be added in 1992.

At the same time. Z. E. started stipulating manufacturing and marketing agreements, initially with Champion, a very well known US brand in the sport sector and then with Foot Joy, also a US brand leader in the segment of golf shoes. It became licensee for Europe of the Henri Lloyd, Harley Davidson and Dickis brands. The manufacturing and / or marketing licence thus became the tool to extend and diversify the product portfolio in an integrated way according to a logic of strategic co-operation between companies. The growth of the company was linked to the extension of the relationships with other footwear or fashion companies.

c) The revision of the organisational structure. The extension of the product portfolio, moreover, made it possible to restructure the sales network. As of the early Eighties the company employed exclusive (meaning with a single agency) agents and strengthened the sales organisation reorienting part of the investments from production to design, planning, advertising and marketing.


5. The internationalisation: the third phase (mature internationalisation: the consolidation).

In the late Nineties, Z. E. was ready for the third and most intense phase of internationalisation. By then the company had a considerable size (in Italy alone it had 800 employees). Its competitive strategy became more aggressive as it could rely on well structured and more solid brands than in the past, besides those for which it enjoyed a licence for Europe.

On the domestic market the sales network was again restructured by opening new sales points, initially as franchisees and then with the formula of straight ownership (in 1997 there were 60 shops). The company was then among the leaders of the Italian footwear industry and, partly, among the leaders of some segments of the European fashion industry.

The product diversification led to a share of the non – foorwear sale of 25% of the total (about 100 billion liras, or 56 million US $ at the prices of the period, mostly on foreign markets).

The strategic boundaries of the extended industry where to operate clearly coincided by then with those of the fashion industry, also with the aim of avoiding on the domestic market too the destructive competition of low price Asian manufacturers (bolstered by the devaluations of 1997 / 98). However, the acceleration on the change of the world competitive scenarios implied on the one hand a more and more intense productive and marketing internationalisation, and on the other a growing turbulence on the consumer market. The ability to compete on international markets required therefore defining new development frontiers and working out the strategic choices in a long – term view. This all the more so as the Fermo footwear district (3400 firms with 23.000 employees and sales of 4000 billion liras, 2,2 US $ billion, of which 65% exported) had to face not only the old problem of the high cost of labour, but also the one of the scarcity of skilled manpower and even more of middle to high level technicians of marketing, quality and certification.


Z. E. singled out the three following strategic options as the fundamental ones.

a) To intensify and better and better qualify its presence on the learning markets, and particularly on the US one, by means of a careful analysis of the evolution of the life styles as well as of the tastes and trends of the various segments of end users (the socio – cultural factor) to be put together however in an original framework.
b) To pursue strategies of productive internationalisation in order to reduce the costs of production. Even today about 50% of the company’s footwear production is made in Slovakia, where the cost of labour is 6 or 7 times lower than the Italian one: the plant employs 500 workers and manufactures 2500 pairs of shoes a day.
c) To capitalise the design and marketing know how gained in the process of commercial internationalisation thanks to the synergic relationships with the US partners transferring it through licences to manufacturers located in developing areas of the world.


6. The reasons for a success.

Towards the end of the Nineties the Z. E. case clearly reveals the success of a growth based on the search for a specific learning path aimed at obtaining an original mix between local tradition and innovation on a global scale. This success is essentially due to a corporate maturity which has been gradually reached without deflecting the established targets. In spite of the the more or less latent but in any case prolonged crisis of the industry and the emergence of negative externalities in its own industrial district the company has managed to plan and implement a consistent strategy of internationalisation.