Abstract
A firm’s internal and external environment determines its competitiveness in its industry. An environmental scan can help a company assess its strengths and weaknesses as well as identify growth opportunities and mitigate business risks. The information gathered can help a firm in strategic planning, which will translate to improved performance and profitability.
In the wake of globalization, firms experience stiffer competition than ever before. Thus, an effective business strategy helps a firm gain a competitive edge over its rivals in the industry. In this paper, an environmental scan of the two companies operating in the sports footwear and apparel industry is presented. The two firms, Nike and Adidas, have different internal and external environmental factors. The external and internal factors are analyzed using PESTEL and SWOT analysis.
Additionally, the two firms’ business strategies are analyzed to determine their effectiveness. An assessment of the measurement guidelines used by each firm is also given.
Introduction
Environmental scanning plays a crucial role in corporate strategic planning. It helps an organization identify external opportunities and threats as well as internal strengths and weaknesses that may affect its competitiveness. The sports footwear industry is a highly competitive industry globally. The key players employ different marketing strategies to compete effectively in this market. This paper gives an environmental scan of three sports apparel firms Nike and Adidas and analyzes the strategies they use to maintain a competitive position in the sports apparel and shoe industry.
Internal and External Environments Nike, Inc.
Internal Environment
Strengths
Human resources – Nike, Inc., over the years, has accumulated specialized skills and competencies in its employees. The firm attracts talented and experienced people who can drive innovation and growth.
Financial resources – Nike also has sufficient financial resources in terms of credit lines, assets, liquidity, and other sources of revenue. Its revenue in 2010 rose by $19.2 billion, with the footwear segment representing 53.7 percent of the sales (Nike, Inc., 2013).
Tangible resources – Nike owns several shoe lines, retail stores, factories, and equipment. Besides its footwear products, Nike produces sports apparel that accounts for 27 percent of its revenue (Nike, Inc., 2013).
Logistics – Nike has 143 retail stores in different locations worldwide. Products manufactured in the factory are shipped to these distribution centers. Nike’s logistics department collaborates with local consolidators to facilitate shipping and manage the company’s supply chains.
Weaknesses
Supply chain management – Due to a large number of products shipped to different markets, it is difficult to maintain efficient supply chains. Rivals can obtain information about Nike’s inventory levels and use it for marketing their products to the consumers.
Shipping expenses – Nike incurs high transportation costs, import duties, and tariffs, which reduce its profits.
External Environment
Economical – The 2007 economic downturn affected consumer spending in the US, as many people lost their jobs. The job losses reduced per capita income, which affected the purchase of goods, such as footwear, that are ranked high in Maslow’s hierarchy. The fluctuation of the exchange value of the dollar also affects Nike’s profitability.
Social – The US population is diverse in terms of age, race, and ethnicity. Nike makes tailor-made products for particular demographics based on their needs and preferences.
Political – The American textile industry, which is Nike’s sole source of raw materials, has been affected by certain political actions. Laws restricting the export of raw materials reduce the number of products Nike can ship out of the country.
Legal – Court battles regarding patent infringement often lead to huge financial losses. The cost of obtaining international patents is also prohibitive.
Technological – Footwear companies, including Nike, have invested in research and development to develop innovative sneakers and apparel for athletes.
Adidas Group
Internal Environment
Strengths
Strong brands – The firm produces trusted brands such as Reebok shoe products for athletes and other consumers. Currently, it has over 2,200 retail stores that sell its top brands globally (Adidas Group, 2013).
Improved performance – Football tournaments, such as the 2010 FIFA soccer tournament, contribute to the firm’s strong performance. The firm’s revenue from its sales during the 2010 event stood at $2.2 billion compared to $1.8 billion earned the previous year (Adidas Group, 2013).
Weaknesses
Third-party agents – Adidas relies on third-party firms in Asia for over 90 percent of its production (Adidas Group, 2013). This affects product quality, as the firm cannot regulate overseas production.
The decline in demand – Adidas’ revenue in the Asian market decreased by 15% in 2010 due to a drop in consumer demand (Adidas Group, 2013). This has affected the company’s performance.
Opportunities
Endorsements and sponsorships – Agreements between Adidas and sports organizations, such as UEFA, will enhance the firm’s performance and profitability.
Reebok’s acquisition – Adidas acquired Reebok in 2007. Reebok has begun to show signs of recovery with products like ‘EasyTone’ that enjoys a market share of over 40 percent (Banham, 2006).
Threats
Exchange rate variations – Adidas operates in different markets globally. Its revenue may be affected by the fluctuations in exchange rates.
Stiff competition – Adidas’ business rivals in the sports footwear industry are many. Puma’s and Nike’s innovative products could give stiff competition to Adidas’ brands and reduce the company’s earnings.
External Environment
- Political – Political upheavals in the nation that Adidas operates in will affect its profitability. Additionally, regulatory policies and import duties can affect the shipment of raw materials to overseas plants.
- Economic – Globalization, unstable interest rates, and inflation can affect people’s income and spending. This affects Adidas’ performance.
- Social factors – Adidas produces products for people of different demographics. Its products are tailor-made for people of different social attributes.
- Technological – Customers can purchase Adidas’ products online. The company also advertises its products using online media channels.
- Environmental – Adidas monitors its emissions that may cause climate change. It runs programs such as the ‘Better Place’ project that produces environmentally friendly products.
- Legal – Adidas risks lawsuits related to patent infringement in the sports industry. To avoid legal battles, the company must ensure that it complies with the legal requirements relating to designs and product names.
The Firms’ Competitive Advantages
Nike utilizes target marketing to differentiate its products and gain a competitive edge over its rivals in the industry. Nike’s clients can customize their sports footwear and apparel through the company’s website (Nike, Inc., 2013). This product differentiation strategy is lacking in Adidas.
Nike also invests in technology to produce items like the ‘Nike+’ shoes. It collaborates with the technology giant, Apple, to develop innovative products. Nike prides itself on brand quality, innovation, and competitive prices for its products. Its marketing strategy involves high-achieving athletes, teams, and coaches to create a strong brand image.
On the other hand, Adidas’ competitive advantage is its use of differential pricing strategy. Adidas’ products are priced based on the target market characteristics. The firm uses “low prices and market skimming tactics” to penetrate its target market (Banham, 2006, Para. 4). Regular appraisal of its prices enhances the competitiveness of its products in the market. Moreover, the firm’s promotional strategy is unparalleled in the industry. It includes collaborations with international sports bodies like FIFA and UEFA.
The Firm’s Business Strategies
Adidas and Nike employ different business strategies to create value and sustain a strong competitive advantage. Nike uses a number of business strategies to maintain its leading position in the market. It has better product differentiation than Adidas. Its products range from football, gym, and basketball apparel and shoes. Nike also invests in technology, which ensures that its products meet the needs of its customers. Nike also uses high profile endorsements from renowned athletes and players to enhance its reputation.
Adidas’ business strategies include investments in promotional campaigns, flexible supply chain, innovation, and broad product range. Its acquisition of Reebok, which is a renowned brand in the US, was a major breakthrough that promises to enhance its business growth. Reebok’s fitness technologies, including the ‘Step Reebok,’ will help Adidas maintain a sustainable competitive advantage.
The Firms’ Measurement Guidelines
To measures the effectiveness of its business strategy through its manufacturing and sourcing standards. It has a sustainability index that evaluates its different plants based on “quality, cost, and on-time delivery” (Nike, Inc., 2013, Para. 6).
Nike also works with its supply chain agents to ensure its manufacturing model and product quality standards are adhered to. Through its sustainability index, Nike ensures that its manufacturing initiatives are implemented in its production plants. On the other hand, Adidas’ measures its promotional strategy by monitoring its marketing activities during sports events like the London 2012 Olympic Games. It monitors social media users’ views, likes, and comments to determine whether its business objectives are met, and the expected ROI is achieved.
The Effectiveness of the Measurement Guidelines
Nike’s sustainability index helps the firm measure the cost-effectiveness of its innovations. In 2012, Nike implemented the ‘Flynit’ technology to make footwear. Using the sustainability index, the firm established that the technology made cost savings of up to 80 percent in the 2013 financial year (Nike, Inc., 2013). This indicates that Nike’s measurement technique is effective. Adidas’ ROI measurement approach may be effective because social media comments and views do not translate into actual sales.
References
Adidas Group. (2013). Adidas Group Annual Report. Web.
Banham, M. (2006). Media Week Online: Adidas and Reebok set to merge £200m Global Media Spend. Web.
Nike, Inc. (2013). Our Sustainability Strategy. Web.