Current Strategic Situation of Adidas and VFC
Adidas is one of the leading multinational corporations that manufactures and sells sportswear in the global market. The firm’s headquarters are in Herzogenaurach, Germany, where the products are designed and manufactured before they are distributed to the world market (Das, 2010). Although the firm has been facing stiff competition from global rivals such as Nike, Puma, and VCF, among others, it has remained strategically strong in the market, making impressive profits in the recent past. The firm has diversified its products to go beyond the sportswear as a way of gaining competitive advantage in the market. Some of the popular products recently introduced by this firm include shirts, bags, eyewear, and watches.
As the head of the strategy for Adidas, this move was taken after realising that some of the customers needed more than what this firm was offering. The brand Adidas is one of the best brands in the sportswear industry (Carney, 2009). However, the future remains uncertain as new forces in the market introduce new dynamics which are making it difficult for the players to predict the future market conditions.
VF Corporation is a large American conglomerate that designs and manufactures clothes and different types of shoes. Having been in the market for the last 24 years, this firm has gained a massive competitive advantage to become one of the leading designers and manufacturers of clothes and shoes not only in the United States but also in other regions across the world. The recent statistics show that this firm has been very profitable, with revenue of $ 9.459 billion generated in the financial year that ended in December 2012. The total asset of the firm within this period was estimated to be $ 9.734 within the same period, with an employee base of about 58,000 people (Das, 2013). This firm has been able to attract young consumers in their outdoor products. Some of their products that have gained global popularity among the youths include Timberland, Vans, North Face, Reef, and Lucy.
It is important to analyse some of the commonalities and differences between these two firms. It is clear that the two firms have some commonalities that may make the integration much easier than anticipated. Both firms design and manufactures both sportswear and casual clothing. They are both operating in the global market, and currently, the United States remains their most attractive market. The two firms have been struggling to tap into the emerging markets in China, India, and Africa. However, it is necessary to understand some of the differences that may create some complications when integrating the two firms.
Adidas is a large German corporation, while VF Corporation is an American conglomerate. The strategy used at the two firms, especially the management structure is very different (Bruner, 2004). While Adidas has a strict hierarchy of command that must be followed when communicating any information to the workers, VF Corporation has a more liberal management structure where such strict channels are not given the priority.
Strategic Options
It is clear from the above analysis that it would be necessary for Adidas to make a portfolio diversification by acquiring VF Corporation. A number of strategies have been analysed in order to come up with the best strategic approach that would not only cost less for this firm in the long run but also give this firm a complete control of the firm. A detailed analysis of this American corporation revealed some facts that must define the strategy that would be taken by the management of Adidas when making the acquisition (Kuglin & Hook, 2002). It was noted that the management unit of the firm has a hard-nodded dealer culture that is unique, and this could pose some challenges in the negotiation process. Market research done in the American and German markets revealed that some of the products of this firm such as Timberland and Vans are very popular among the youths.
This was the main reason why this firm has remained very profitable in the market. Based on these facts, we consider it necessary to buy the whole VF Corporation. This strategy will not only help this firm to benefit fully from the current profitability and strong brand name of the firm’s products but will also give the management of Adidas full control of this new portfolio (Reuer, 2004). The management of Adidas may then make a choice of the most appropriate approach in managing the acquired premises. This approach is also appropriate because Adidas will not be forced to conform to the organisational culture that was practised at VF Corporation before the acquisition.
The management may consider other alternative arrangements in case the first strategy may be considered too expensive. A cheaper option may be to buy some filet pieces that are very popular in the market. For example, Adidas can choose to buy Timberland and Vans, which are very popular, and leave the other brands. Adidas may consider a collaboration strategy with this firm, such as forming a strategic alliance with the firm. When developing the strategic alliance, it should be clear what role each firm should have in that alliance and the benefits that each of the partners will achieve from it (Cooper & Finkelstein, 2010).
The last option would be to buy shares of VFC so that Adidas can share the profitability of the firm. In case this strategy is taken, it may be necessary for this firm to take majority shares in order to achieve full control of the firm. Having the majority shares may be very helpful for the management of Adidas because it would be necessary for it to be able to define the approach taken on all the strategic plans.
Barriers to the Strategy
The discussion above clearly indicated that there are some differences between these two firms that may be a barrier to a smooth acquisition or collaboration between the two firms. Adidas is a German company with a strict organisational culture defined closely, based on the cultural beliefs and practices within this country. However, VFC is an American conglomerate with a liberal management structure that is very strange at Adidas. When these two firms enter into a strategic alliance, Adidas may find it difficult to fit the VFC’s management approach (Das, 2011). Similarly, the VFC’s managers will find the management approach of Adidas strange to them. This may strain this alliance, the fact that it may threaten the ability of both firms to achieve the desired success. When Adidas makes the choice of buying the entire firm, then it will need to align the cultural practices of employees at VFC to that of Adidas.
Recommendations
The United States remains the most attractive market for Adidas products because of its population and the purchasing power of the Americans. However, the growing markets in China, India, and Africa cannot be ignored by this firm as it struggles to come up with an appropriate way of managing the market competition (Steinhilber, 2008). China has a population of about 1.3 billion people, which means that it has a third of the world’s population. It is also the second-largest economy in the world after the United States. India has a population of about 1.2 billion people, and it has become one of the strongest economies in Asia.
The African economy is gradually improving, and with the emergent of a middle class in this region, the purchasing power of people in the region is rising consistently (Sherman & Sherman, 2011). These markets cannot be ignored by Adidas if it expects to retain its competitiveness in the market. Many firms have already gotten into these markets, but with the strong brand of Adidas, penetrating this market may not be a difficult task. The following recommendations should be considered by the top management.
- In China, Adidas should form a strategic alliance with some of the local retail outlets and sell its brands through this strategic alliance. This is so because of the challenges that this firm may be subjected to if it makes a direct entry.
- In Africa and India, Adidas should make a direct market entry. Although the products will be sold in the retail outlets, the firm may consider having exclusive stores for some special products.
Given the fact that the brand Adidas is popular in the above three regions, it should be used on all the products of the firm.
References
Bruner, R. F. (2004). Applied mergers and acquisitions. Hoboken, N.J: John Wiley & Sons. Web.
Carney, W. J. (2009). Mergers and acquisitions. Austin: Wolters Kluwer Law & Business. Web.
Cooper, C. L., & Finkelstein, S. (2010). Advances in mergers and acquisitions. Bingley: Emerald. Web.
Das, T. K. (2010). Researching strategic alliances: Emerging perspectives. Charlotte, NC: Information Age Publishers. Web.
Das, T. K. (2011). Strategic alliances in a globalizing world. Charlotte, N.C: Information Age Pub. Web.
Das, T. K. (2013). Management dynamics in strategic alliances. Charlotte, NC: Information Age Publishers. Web.
Kuglin, F. A., & Hook, J. (2002). Building, leading, and managing strategic alliances: How to work effectively and profitably with partner companies. New York: AMACOM. Web.
Reuer, J. J. (2004). Strategic alliances: Theory and evidence. Oxford: Oxford Univ. Press. Web.
Sherman, A. J., & Sherman, A. J. (2011). Mergers & acquisitions from A to Z. New York: American Management Association. Web.
Steinhilber, S. (2008). Strategic alliances: Three ways to make them work. Boston, Mass: Harvard Business Press. Web.