Few companies are as global as the privately-held Bata Shoe Organization. In the 100 years since the company was founded in the little Moravian village of Zlin in today’s Czech Republic, it has grown to be one of the largest shoe companies in the world, annually manufacturing more than 300 million pairs of shoes in over 75 countries. Few companies have had to deal with the amount of turmoil that Bata has faced during its long history: the breakup of the Austro-Hungarian Empire, the Nazi takeover of Europe, the rise of Communism in Eastern and Central Europe, the nationalization—sometimes followed by de-nationalization—of its assets in several countries in Africa, Asia, and Latin America, civil wars and so on. But each time it has re-emerged—intact but in a somewhat different form—as a genuinely global company. This interview with Thomas Bata, Chairman of the company, discusses the elements of its structure, culture, and values that have made the company so resilient in its approach yet so determinedly international in its outlook.

McKinsey: In its 100 years of existence, the Bata Shoe Organization has explored several different ways to operate as a global company. Why?

Bata: Our first major transformation occurred when the Austro-Hungarian Empire broke up in 1918. My father had built our shoe business bearing in mind the 35 million consumers within the Empire, only to watch it splinter into Austria, Hungary, Czechoslovakia, Romania, Yugoslavia, and Poland.

These new nations squabbled with each other so much that trade between them ground to a halt. Soon, the Czechs were buying wheat from Canada instead of from neighboring Hungary and Poland; the Austrians were buying textiles from France, and so on. As a Czech company we were restricted as to where we could operate. We were, for example, forbidden to open retail stores in Hungary and Austria. We had to rethink our strategy for going forward.

We were making 36 million pairs of shoes a year at that time—most of them in our factories in Zlin, which many then called "the Detroit of Czechoslovakia"

These severe trade restrictions were by no means unique to the countries of the former Empire. In the decade that followed, many other European countries adopted similar measures to restrict the activities of mass manufacturers like ourselves. In an effort to keep prices artificially high, local shoe manufacturers in Switzerland got together and persuaded their government to impose severe import quotas against us. In the United States, the Smoot-Hawley Tariff Act severely limited our ability to compete. Due to these protectionist measures, we saw as much as 30 to 40 percent of our business disappear. We were making as many as 36 million pairs of shoes a year at that time—most of those in our factories in Zlin, which many then called "the Detroit of Czechoslovakia."

What did you do?

Following the break-up of the Austro-Hungarian Empire, we had to manufacture abroad or forget the foreign market

We faced a simple proposition: either manufacture abroad, or forget the foreign market. We found the decision to do the former very difficult to make, as we had built an intensely vertically-integrated organization in Zlin that sourced hides and tanning materials from all over the world, but manufactured the shoes out of a single integrated operation. My father, who had set up the company, had traveled around the world to study shoe-making operations, and had concluded that mechanizing the process to realize scale benefits provided the key to an efficient footwear operation.

Except for the United States, which had created shoe factories as far back as the Civil War to manufacture enormous quantities of shoes for the military, no one really took advantage of scale at that time. In 1904, my father spent six months in a New England shoe assembly line to achieve a better grasp of manufacturing and management techniques, which he then incorporated in Zlin.

We had become so vertically integrated that we not only produced everything from shoe boxes to machinery for shoe making, but also owned and operated our own fleet of aircraft to minimize travel time for Bata managers. We ran sports and leisure facilities for our employees, provided low-cost housing, and ran schools for their children. We paid our employees wages roughly twice those of other Czech workers. Despite this level of integration, we operated the company on an "internal supplier-customer" principle so that every department within the company competed with external suppliers for another department’s business. We put in place such management concepts as autonomous profit centers and profit sharing—all this in the 1920s.

We decided to build factories in those countries where we had already created strong markets. We built one of the earliest in the Croatian town of Vukovar—a town which we have all recently witnessed being smashed to smithereens. Soon factories in Holland, Germany, France, Switzerland, and the UK followed. It was the Swiss factory that my father and his pilot flew to see one morning in July 1932. They took off in a heavy fog and never made it. I was 18 years old.

How did the business do?

Thanks to a strong team and a "no debt" balance sheet the business continued as usual and actually grew in the seven years before Hitler occupied my old country. The division of responsibilities ensured that everyone in the organization knew what he or she had to do. And the localization of production in various parts of the world also helped enhance the sense of autonomy.

Our mission statement, written by my father, said that the business was to be considered a public trust and not a source of personal profit

Guiding all the autonomous units was a mission statement, written by my father, which we found only after his death. It continues to guide us today. In essence it said that the business he had created was to be considered a public trust run on efficient business lines but not mainly a source of personal profit. We should consider unworthy of his legacy any successor who did not pursue such an objective.

The managers who ran the company after my father all believed in this statement. Incidentally, among them was Hugo Vavrecka, an executive director who later became Czechoslovakia’s minister of information just before the Nazi invasion. Half a century later, Vavrecka’s grandson, Vaclav Havel, led his country through another tumultuous period—the fall of communism.

The Nazi threat quickly became real. We began to think of a Bata Shoe Organization not based in Zlin. At first we planned to move to England, but when we realized that this threat could encompass all of Europe, we decided to move to Canada—as far away from Europe as we could go. So with some 250 managers, supervisors, workers, and their families; some 1,000 machines; and all the supplies from Zlin, required to produce 100,000 pairs of shoes, I set off for Canada. Soon thereafter, the Nazis overran Zlin, war broke out and I lost all contact for the next five years.

How did you manage your global operations out of Canada?

For the most part, we couldn’t. During the war we lost contact with many other country organizations. In addition, the Japanese overran our businesses in several Southeast-Asian countries. In many countries, most notably in Africa, Latin America, and parts of South Asia, we still had stores, but no shoes with which to stock them.

In the Belgian Congo, the local manager turned some of our shoe repair machinery into shoe manufacturing machinery

Due to the sheer ingenuity of Bata employees in many of these countries, we managed to survive. In Egypt, for example, one of our managers organized hundreds of local cobblers into production teams, and, assisted by automotive repair machinery bought from local garages, produced shoes to stock our Egyptian stores. In the Belgian Congo, the local manager turned some of our shoe repair machinery into shoe manufacturing machinery.

Not only the machinery, but even the materials—such as rubber and tanning chemicals—for producing shoes were in short supply. We were often forced to buy rubber that had washed ashore on African beaches from torpedoed cargo ships. We would have to boil this rubber for hours before it became usable as soles for our shoes. In Kenya, one of our chemists discovered that we could use the bark of the mimosa tree as a tanning material. That helped us get around the lack of chemicals.

All we could do from Canada was occasionally to help our businesses buy a secondhand machine from someone we knew, or recover from a temporary shortage of some material. I could pay only part of my attention to the business, since traveling on missions to help the Canadian government with its war effort, including a stint in the Canadian army, kept me busy.

What happened after the end of the war? Peace brought us a major shock. Instead of regaining those businesses we had left behind in Europe, we found that we had lost as much as 80 percent of them—permanently to the general communist confiscation of all property. The only bright spot was Britain, where our manufacturing had almost miraculously not only escaped the war unscathed but, despite the heavy taxes on profits imposed during the war, continued to turn a very nice profit. Switzerland was another, even if smaller, base for reconstruction.

But the Germans had converted our factory in the Alsace-Lorraine region of France into a military laundry. In Holland, our plant, caught between German and British gunners, was riddled with more than 2,000 shells. Yet our employees had prevailed: even during the days of heavy shelling, our plant manager in Holland kept going to work. He would wait for the British gunners to take their tea break and then bicycle to the plant and away again before the break had ended.

In Malaya the manager dismantled much of the machinery and asked each employee to take some parts home. After the war, they put it back together

In Germany, Allied bombing had reduced most of our 250 stores to rubble. The communists had of course nationalized and taken over all of our operations in Eastern and Central Europe. In Asia, except for India, we lost most of our businesses to the Japanese, who sent many of our executives off to their prisoner of war camps and razed our businesses in keeping with their "scorched earth" policy. In Malaya, fortunately, the manager had dismantled much of the machinery and asked each employee to take some parts home. After the war, they started putting the pieces back together.

After the war we had a new aspiration—to be shoemaker to the world, not just shoe traders

We decided that, going forward, we would focus on two strategic dimensions: modernizing operations in Europe where possible, and expanding into the "New World" by letting our employees—many of whom the war had stung with entrepreneurial zeal—go off and create Bata manufacturing and sales organizations in various countries. We had a new aspiration—to be shoemaker to the world, not just shoe traders. So we started building lots of little organizations around the world. One group went off to Bolivia and started a factory; another one in Peru, and so on.

Sometimes we had to camouflage ourselves so as not to tread on local sensitivities. In Peru, for example, the largest local shoe manufacturer persuaded the government to pass a law outlawing us. We went in under a different name, but that didn’t cut the mustard either. Protesters occupied our factory, and the government sent in the police to stop production. There were even debates about us in the press because some politicians realized we were doing something useful: creating jobs and training people. Despite these difficulties, some of the protesters slowly picked up the basics of making shoes. At the end even some of the police became our employees.

How did you decide where to invest?

At that time, Bata Development Limited (BDL) made the decision to support a new factory, but all decisions were locally driven—as they are today. BDL played a key role: it scrounged around for capital and provided consultancy to the country organization as it grew.

Right after the war, a major shift took place in the way we staffed country organizations. Before the war, top managers would generally be Czech nationals who had worked in Zlin and studied at our company institutions—a practice also followed by large multinationals such as Philips, Unilever, and Du Pont, which in the 1920s and 1930s sent out Dutch, British or Dutch, and American nationals respectively to manage their country organizations.

After the war, the world had become a different place. Shoe-making technology had progressed. We realized that if we wanted to run Bata as an agglomeration of autonomous units, we would need to instill sound management practices in the operating units and, at the same time, develop a common culture that would bind the units together. We opened several company institutes, mainly in Europe, to teach management practices and to bring managers from far-flung units together to study and work.

We recruited the best people we could find anywhere in the world who wanted to work in a global organization

We also sent many of our managers to America to learn management practices; several of our customers—in particular, Sears, Montgomery Ward, and Melville—accepted them as interns for extended periods of time. We recruited the best people we could find anywhere in the world who wanted to work in a global organization. If the war had a silver lining, it was that it had made many people into able officers who had a perspective on the world that extended far beyond national boundaries: we hired many such officers.

What is your biggest challenge today?

Our biggest challenge today is to determine to what extent we should develop the Bata brand name

Our biggest challenge today is to determine to what extent we should develop the Bata brand name. In some parts of the world, such as India, we sell Bata shoes out of Bata stores. In others, we sell them out of stores with other names. In yet others, we sell shoes to many merchants that do not carry the Bata brand name out of Bata stores.

Take, for example, the 900 retail shoe outlets we own in the United States. None of them are associated with the Bata brand name. These self-service retail outlets sell shoes in the $15-20 price range, and we constantly debate whether or not we want the Bata brand name associated with that price range. In the US, we attach the Bata name only to the very large and lucrative market for our industrial safety footwear. The average consumer doesn’t know about us.

We make many shoes under other names, such as Power and Bubble Gummer, which many of our competitors carry in their retail outlets. But they might not do so if we attached the Bata label to these products. Our retail stores also sell other people’s shoes—Nikes and Reeboks, for example. We also manufacture for others. We make Adidas shoes in India, for instance, on behalf of the German company that owns that label, and we also license to others the manufacture of many of our products.

This company is very different from—and more complicated than—the one my father developed, where our stores sold only the shoes that we had made. Today, we believe that our manufacturing side should sell our shoes to anyone they wish, and that our retail side should source the shoes their customers want—not necessarily those we make.

Do you still maintain a policy of promoting from within?

We fill most of our senior positions from within. We have, however, always brought in specialized skills from outside—functional managers such as a chief financial officer, as well as technical people such as chemists. But rarely do we hire top general managers from the outside. Although those who come out of large consumer products companies usually have very strong experience in advertising and sales promotion, seldom do they bring knowledge about the nuts and bolts of product development. For us, this latter skill is extremely important.

How much of your reticence about hiring senior executives from the outside stems from Bata’s strong internal culture?

We do have a very strong internal culture, and we worry that an executive brought in from the outside might have trouble adapting when, in fact, what we look for in people from outside are new initiatives and better methods. The more important issue for me is not whether our culture gets changed—some of it needs changing, I know—but which elements to change. My feelings on this issue resemble Lord Leverhulme on advertising: he said that 50 percent of his spending on advertising is money down the drain; he just did not know which 50 percent.

What is the single most important mistake that you have learned not to repeat?

I have learned—as have large Japanese corporations—never to say never again. Japan’s implicit policies of lifetime employment did build morale, but today’s economic conditions make such policies unworkable. Ten years ago, I said, "We have never retreated from any country, nor have we closed any factory." The reality is that soon thereafter we were forced to close seven factories when parts of French-speaking Africa failed to devalue their currencies, which resulted in cheap imports and very high domestic production costs.

Sam Johnson of Johnson Wax has written a very fine mission statement, part of which reads, "[we] ... manage our business in such a way that we can provide security for regular employees and retirees ... However, this may not always be possible, particularly when major restructuring or reorganization is required to maintain competitiveness." I wonder if the original mission statement included the last part.

What plans do you have for Central and Eastern Europe?

A man wearing our shoes in St Petersburg must be able to stand in melting snow for two-and-one-half hours without his feet getting wet

The Bata Shoe Organization employed as many as 45,000 people in this region before the war. After the war, the nationalized units continued to produce under communist regimes mainly to the Soviet Union. Each of these nationalized units manufactured enormous quantities of a single shoe style—often with very stringent design criteria. The quality of all men’s shoes shipped to St Petersburg, for example, had to be such that a man wearing our shoes there could stand in melting snow for two-and-one-half hours without his feet getting wet. Looking back, that was a very important design criterion because that is the amount of time a man had to wait in line every morning to buy food.

After the "velvet revolution" in Czechoslovakia, we were very enthusiastic about making a big return. However, the new government stipulated that it would give back private, but not business, property. So it returned to us our houses, some farmland, some forest land, and some apartments in Prague. I understand the government’s stand on business, even though the stand was not in our interest, because it is difficult to identify owners in joint stock companies from 45 years ago. In any case, we had to scale back our ambitious plans.

We decided, instead, to buy about 200 retail stores in the Czech Republic and run a modestly-sized manufacturing operation. But again, we ran into difficulties when the government decided to privatize retail stores and small enterprises on an individual basis. So far the government has been able to provide us with less than 50 stores in first-class locations. They are doing well and we expect to grow.

Our biggest problem today is persuading our executives to spend time in these regions, because they find it extremely difficult to operate there—due mainly to language problems. We have decided to focus primarily on the Czech Republic. In other countries we are expanding through our Western European companies. We have, for example, started running franchise operations in Poland and Hungary through our Italian company.

Where is Bata’s next geographic expansion going to take place?

Our focus is on India and Asia-Pacific. I believe these regions—not North America or Western Europe—will drive our next phase of worldwide expansion

Our focus is on India and Asia-Pacific. We are already extremely well established in India, with a massive manufacturing and retail operation, which we plan to expand, that serves not only urban but also rural areas. We are also looking at China and negotiating to expand in Indonesia, Malaysia, and Vietnam. I believe these regions in Asia—not North America or Western Europe—will drive our next phase of worldwide expansion.

How do you spend your time these days?

As Chairman of the Board, I concern myself only with long-term strategy. I have handed over all operational responsibilities to my son, who is the organization’s chief executive. The only operational issue that I do stay involved in is our employees’ pension scheme. I chair the pension committee, which ensures that we are properly funded everywhere and that we safeguard our people’s future. Otherwise, I do enjoy looking at what progress is being made.

Other than this, I truly believe the company needs to be able to manage without me, so that I can be sure it will run when I am not around. The rest of my time I spend on committees of the International Finance Corporation, International Chamber of Commerce, and of the Organization for Economic Cooperation and Development. And of course, Central Europe continues to occupy a portion of my mind.