3 [P.T.O.Restricted internet site: Software development has focused on internal systems, rather than internet development.
The current website only provides information about Hammond Shoes; it is not possible to buy footwear from the
company’s website.
Opportunities
Increased consumer spending and consumerism: Despite the decline of its manufacturing industries, Arnland
remains a prosperous country with high consumer spending. Consumers generally have a high disposable income
and are fashion conscious. Parents spend a lot of money on their children, with the aim of ‘making sure that they get
a good start in life’.
Increased desire for safe family shopping environment: A recent trend is for consumers to prefer shopping in safe,
car-free environments where they can visit a variety of shops and restaurants. These shopping villages are increasingly
popular.
Growth of the green consumer: The numbers of ‘green consumers’ is increasing in Arnland. They are conscious of
the energy used in the production and distribution of the products they buy. These consumers also expect suppliers
to be socially responsible. A recent television programme on the use of cheap and exploited labour in Orietaria was
greeted with a call for a boycott of goods from that country. One of the political parties in Arnland has emphasised
environmentally responsible purchasing in its manifesto. It suggests that ‘shorter shipping distances reduce energy
use and pollution. Purchasing locally supports communities and local jobs’.
Threats
Cheap imports: The lower production costs of overseas countries provide a constant threat. It is still much cheaper
to make shoes in Orietaria, 4000 kilometres away, and transport the shoes by sea, road and train to shops in Arnland,
where they can be offered at prices that are still significantly lower than the footwear produced by Hammond Shoes.
Legislation within Arnland: Arnland has comprehensive legislation on health and safety as well as a statutory
minimum wage and generous redundancy rights and payments for employees. The government is likely to extend its
employment legislation programme.
Recent strategies
Senior management at Hammond Shoes have recently suggested that the company should consider closing its
Petatown production plant and move production overseas, perhaps outsourcing to established suppliers in Orietaria
and elsewhere. This suggestion was immediately rejected by the Hammond family, who questioned the values of the
senior management. The family issued a press release with the aim of re-affirming the core values which underpinned
their business. The press release stated that ‘in our view, the day that Hammond Shoes ceases to be a Petatown
company, is the day that it closes’. Consequently, the senior management team was asked to propose an alternative
strategic direction.
The senior management team’s alternative is for the company to upgrade its production facilities to gain labour and
energy efficiencies. The cost of this proposal is $37·5m. At a recent scenario planning workshop the management
team developed what they considered to be two realistic scenarios. Both scenarios predict that demand for Hammond
Shoes’ footwear would be low for the next three years. However, increased productivity and lower labour costs would
bring net benefits of $5m in each of these years. After three years the two scenarios differ. The first scenario predicts
a continued low demand for the next three years with net benefits still running at $5m per year. The team felt that
this option had a probability of 0·7. The alternative scenario (with a probability of 0·3) predicts a higher demand for
Hammond’s products due to changes in the external environment. This would lead to net benefits of $10m per year
in years four, five and six. All estimated net benefits are based on the discounted future cash flows.
Financial information: The following financial information (see Figure 1) is also available for selected recent years for
Hammond Shoes manufacturing division.
