BUSINESS

Picking up the pieces

Thomas Bata gives Czech capitalism a boost

BARBARA WICKENS July 9 1990
BUSINESS

Picking up the pieces

Thomas Bata gives Czech capitalism a boost

BARBARA WICKENS July 9 1990

Picking up the pieces

Thomas Bata gives Czech capitalism a boost

The managers of the giant state-owned Svit shoe factory in Zlín, a city of 90,000 in central Czechoslovakia, found it a harsh lesson in capitalism. In May, they invited a team of executives from Toronto-based Bata Ltd., the international shoemanufacturing giant that the Bata family founded in the city 96 years ago, to conduct a capitalist sales seminar. The two sides played a marketing game, and the Svit managers tried to win by simply raising prices—but their competitors captured the market and won the game—by cutting prices. Said Bata team leader Hubert Mayer: “They didn’t understand competition. They have been trapped by the Communist system.” Indeed, after visiting the Zlin works in December, 1989, Sonja Bata, the wife of 75-year-old company chairman Thomas Bata, said, “If you just looked at the balance sheet, you would run away.”

In fact, the Svit managers, like many others in formerly Communist-dominated Eastern Europe, are eager to learn to survive in a privateenterprise system. But unlike many other Eastern European managers, who complain that their factories are hopelessly outdated, the Svit managers maintain that they have enough modern tools and equipment to thrive domestically and compete in the West. What is needed, they say, is the marketing capacity of an MBA and the sales pizzazz of a New York City

advertising agency. Said Jaromir Ranocha, Svit’s director of technical development: “We have many talented people here. We can survive.”

Meanwhile, Thomas Bata, who visited his birthplace in Zlin last December for the first time in 50 years, says that he is eager to teach his own brand of marketing to the Svit executives. But before the white-haired Toronto multimillionaire gets deeply involved, he said that he wants the government to settle the issue of who owns the factories that his father, Tomás Bata, began building before the First World War and that were confiscated by the Communist-dominated government in 1945. Bata claims that he still owns the Svit factory and is demanding restitution. Still, he is committed to helping capitalism replant its roots in Czechoslovakia.

Since sweeping into power after a bloodless revolution last November, President Václav Havel’s non-Communist government has instituted reforms permitting private ownership. But, so far, it has refused to let state-owned assets, such as the Zlin complex, which includes factories run by Svit and ZPS Zlin, an engineering works that produces shoemaking machines, pass into the private sector. But Eastern European investment experts predict that, eventually, Bata will receive a substantial share in Svit in return for supplying new

investment, management expertise and marketing help.

Bata and his officials have discussed the matter with Czechoslovakian officials, but decline to comment on the substance of those talks. During his visit to Svit in May, Mayer, who is chairman of Bata’s Charlotte, N.C.based U.S. operations, said only that “if we are here, we must have good reason to be here.” In the Toronto head office, Thomas Drucker, Bata’s general counsel, confirmed that discussions that began with Bata’s initial visit are continuing. He added, “There are a number of fundamental changes taking place in Czechoslovakia that do not make it easy to make decisions quickly.” One of the sticking points in Czechoslovakia is that it has yet to establish a convertible currency that would allow foreigners to take profits out of the country.

Despite the obstacles, Bata seems determined to re-establish a strong presence in his native country. In addition to sending the executives to Zlin, in June he recruited Georgina Wyman, 43, Canada’s former deputy minister of supply and services, to lead his firm’s Czechoslovakian initiative. Wyman, who was bom in Czechoslovakia, climbed quickly through the federal bureaucracy over the past decade, becoming a deputy in 1986. At supply and services, she supervised 9,500 employees and oversaw government procurement, worth about $8 billion a year.

In Zlin, meanwhile, the sprawling complex of about two dozen fourand five-storey redbrick buildings has changed little from the 1930s, when the Bata shoemaking empire was at its height. By the time Tomás Bata, an eighth-

generation cobbler, died in 1932 when a plane in which he was a passenger crashed into the chimney of one of his own buildings, he had factories in 28 countries and his shoemaking enterprise was worth about $40 million. After his death, his half brother Jan took over the operations.

In 1939, after the Nazis marched into Czechoslovakia, Thomas Bata and about 180 Czechoslovakians fled to Ontario, where they established the town of Batawa, 160 km east of Toronto, and set up a new shoemaking business where Bata today employs 630 people, producing 1.8 million pairs of shoes annually. Bata took control of the familyowned company from his uncle later that year, and today it produces 300 million pairs of shoes a year in more than 90 countries.

On his return trips to Zlin last December and March,

Bata found that much more than the buildings’ exteriors had remained the same. Even the famous office elevator that his father installed to enable him to continue working while travelling between floors still functioned. And he discovered that much of the shoemaking machinery still in use was more than 50 years old. Bata said that it might cost as much as $100 million to modernize the factories.

He added: “We can’t afford to dream of financing that kind of operation. That’s a World Bank type of thing.”

Still, Svit managers claim that their factories can compete without a massive, multimillion-dollar refitting.

They say that Svit has continually updated its equipment and that their main problems are organization and marketing. Still, while Svit makes about 60 million pairs of shoes a year, in recent years it has sold about half of its shoes to the Soviet Union, where most consumers do not have access to highquality goods.

Svit managers say that they are determined to expand their presence in highly competitive Western markets. The company already exports 10 million pairs of shoes and boots to Western countries annually, including two million pairs of work boots to Canada. Frantisek Marek, a Svit director, said that another group of North American Bata executives who visited Svit earlier this year reported that they were impressed by their findings. He added: “They told us that our ladies’ footwear could not be sold in the West. But they said that our sportswear was very good.” Marek said that he was told Svit’s women’s shoes are too stiff to satisfy

the pampered feet of Western consumers, who prefer shoes made of softer leather.

Still, Marek says that changes are clearly needed. He added that Svit will have to reorganize along Western lines to improve productivity. Management, he added, is not tough enough on workers, who in tum lack incentives to perform faster and more efficiently. De-

clared Marek: “Pay is structured so that there is no difference between the good and the bad workers, or between highly skilled and lowskilled. They all earn the same. We have to change that.”

Marek and other Svit managers also blame the structure of the Czechoslovakian economy for much of the company’s problems. Under the Communists, Svit gave all its profits to the state. It then reinvested only about 20 per cent in the company, while channelling the rest to the general budget or into inefficient industries such as steel. Said Marek: “We want to be able to keep our own profits here and use them to invest in our own productivity.”

Even with a democratic government, Svit is still being hampered by bureaucracy. Indeed, said Sonja Bata: “We saw the problems of how seven government departments may be involved in any business. One produces, another distributes, but they do not talk to each other.

But if you look at the people and the markets, you feel that there must be a way of finding a solution.”

Many analysts say that it will be several months before Czechoslovakia changes the laws governing state enterprises. While Havel received a strong mandate for reform, winning 173 seats in Czechoslovakia’s 300-seat parliament on June 9, selling stateowned firms to private—and especially to foreign—investors is still a sensitive issue because of potential layoffs at the plants.

As well, after four decades of strict government control, Svit’s managers are finding it difficult to make independent decisions. Said Ranocha: “We need new thinking. We will need to rely on ourselves from now on.” Marek added: “For 40 years, we worked in a bad way, being directed by ministries in Prague. We just had to meet production targets. Now, we must start to work independently. It’s as if we changed trains, and the new train is going in the opposite direction.”

So far, however, one of the biggest changes is the rehabilitation of the Bata name itself. According to Zlin resident Miroslav Zigmunt, 71, after the Communists took over in 1948, they painted the Bata family as the archetypal capitalist villains. A government-sponsored novel, Shoe Machine, and a movie based on the book vilified the family. Said Zigmunt, a writer who has published books in 11 languages: “They presented it as a capitalist tyranny. For 40 years, the Communist system just threw

mud on the name of Bata.” The town’s name was even changed to Gottwaldov, in honor of the first Communist president of Czechoslovakia, Element GottwaJd.

In January, however, the town council changed the name back to Zlin, and a statue of Gottwald that had stood in the main square was removed. Outside the Svit complex, a billboard erected in April signalled further rehabilitation. It quotes Bata founder Tomás Bata: “The shortest way to success is the direct way.” As well, a notice on a door inside the Svit complex promoted a new biography of Bata called Bata-. Shoemaker to the World, on sale for 25 Czech crowns, or about $2 at the official tourist rate. Clearly, in Zlin, the trap of the Communist past is finally springing open.

BARBARA WICKENS

ANDREW PHILLIPS

ANN WALMSLEY