14.4 Exemplary twins


14.4 Exemplary ˜twins

The Polish cosmetics industry was well developed under the communist regime . Several factories used the umbrella brand of Pollena and established a wide range of products for the domestic and export markets. It was also an industry that many entrepreneurs decided to enter in the 1980s (Eris, Soraya, Dax, Oceanic, Kolastyna, Comindex, Catzy, InterFragrances and others). These new entrants focused on niche markets.

Eris was established in 1983 by a pharmacist who wanted to develop new types of cosmetic. She was able to leave her job and establish a firm due to an unexpected inheritance. She started with one employee and a very limited product range. Production was undertaken in leased premises and without any professional equipment, but with the clear goal of making high-quality products at a reasonable price. Many of the ingredients were imported and production frequently halted because an ingredient or packaging had run out. State-owned shops were not interested in purchasing products from an unknown private producer, but in spite of all obstacles the firm slowly grew, employing four people in 1984 and producing 6000 units per month. Real opportunities were created by the transformation in 1989. The owners of the company decided to borrow money and to invest this and all their earnings in the development of the business. They built new production facilities, and because of a clause in Polish employment law that provided companies with tax relief if they supported the employment and rehabilitation of disabled individuals, the new factory was specially adapted to enable the employment of a number of disabled people. Swiss-made machinery was installed.

Despite a rapid increase in sales the company encountered serious cash-flow problems, and when bankruptcy became a distinct possibility the owners agreed to sell products to a powerful distributor at cost just to continue operations. This was a hard lesson in cash-flow management and the managers learnt it well, securing a collection of accounts receivable with each new project. In 1993 the product range was extended to include body lotions, skin tonic and cleansing milk, and employment increased. Monthly production rose significantly to one million units. In 1994 the firm established its own laboratory, which guaranteed a stable technological regime and consistently high quality. In the same year the firm decided to launch a product line for women aged 40 and above to compete with renowned Western brands. Industry experts viewed this move with disbelief because the products were expensive, bore heavy advertising costs and had a comparatively limited market. However the entire range proved very successful and the firm quickly followed with a similar line for women in their thirties.

In 1996 Eris changed its organizational structure and remodelled its distribution system in order to focus on supplying 19 large wholesalers. This proved disastrous as other companies refused to cooperate as minor partners . Sales went down, but the CEO of the firm persisted with the tactic. After almost a year of downturn, sales bounced back. In the meantime the firm opened Poland s first cosmetic institute, which offered comprehensive face and body treatment by a dermatologist and skin-care specialists. This move enhanced the company s reputation as an industry trendsetter and led to the establishment of a ˜beauty farm in the Polish mountains , where each client received a customized programme of treatment by a team of dermatologists, skin-care specialists, masseusses, rehabilitation specialists and dietitians.

The speed of the company s development and its positive financial results attracted numerous awards for its products, services and management style. At the time of the study Eris controlled 16 per cent of the market share, but its owners attention continued to focus on company promotion and their most valuable asset “ a well-known brand that was now also recognized outside Poland.

The history of Dax was very different, despite its similar beginnings. Two colleagues from the Medical Academy established the company in 1984. The first two years were difficult, but the firm slowly increased its sales and began to focus on exporting to communist countries where quality requirements were not high and good packaging could sell anything. This proved to be a profitable strategy and the firm grew rapidly . However in 1989 the communist markets collapsed and the company s sales slowed. The company already had high fixed costs but it nonetheless invested additional money in new machinery in order to increase output. But its problems persisted as it had difficulty collecting payments from the former communist markets and had problems with selling its low-quality products on the Polish market as the brand name was practically unknown and distribution channels were limited.

In 1991 a well-known international company entered the Polish market with a new, heavily advertised liposome cream. Dax decided to piggyback on this company s success and placed a similar but cheaper cream on the market. This proved successful and the firm decided to expand into other product ranges by similar means. A short time later the international company warned Dax against using its registered brand name, so Dax renamed the product and placed it on the market at a higher price. It did not sell well “ partly because general sales of liposome cream were declining due to bad press “ and the firm began to face severe cash-flow problems. In 1996/97 Dax reduced its employee and production levels. In 1998 it began to restructure in order to focus more on marketing and distribution. New sales representatives were appointed and a rational distribution system was slowly developed. Once again the company decided to copy a successful international brand, this time a shampoo. It then launched a body lotion, and later a facial mask. This strategy worked and the company expanded. Over the following years its product range grew and in 2002 Dax held a 4 per cent share of the body-care market in Poland.




Change Management in Transition Economies. Integrating Corporate Strategy, Structure and Culture
Change Management in Transition Economies: Integrating Corporate Strategy, Structure and Culture
ISBN: 1403901635
EAN: 2147483647
Year: 2003
Pages: 121

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