Executive Summary
The global sportswear industry is becoming one of the most competitive industries in the world. One of the main companies that operate in the industry is the Adidas Group. The purpose of this paper is to carry out a strategic audit of the Adidas Group.
The paper has taken a diversified approach of analysis; internal analysis and external analysis. Various models of analyses have been applied in the paper, and they include PEST and the Porter’s analysis.
The analysis was aimed at capturing the strategies of the company and how they help it to adapt to the competitive forces in the industry. The findings from the analysis point out that Adidas is still competitive in the industry. The competitiveness has been enhanced through focus on the global approach of management.
Introduction
According to Slack (2004), the global sports industry is growing at a quick pace due to commercialization of sports. The number of sporting events has been rising each day, thus attracting more people directly and indirectly into the sporting industry. In the contemporary times, the sports industry has a wide number of stakeholders.
The most critical question to ask is what the growth of the sporting industry implies for the business world. The growth of the global sporting industry has attracted many business players in the sporting industry by presenting the opportunity to supply the sporting infrastructure and equipment.
There are a substantial number of companies that deal in the global sporting industry (Andreff & Szymanski 2005). Adidas is one of the companies that have operated in the global sporting industry for an extended period of time.
The Adidas company is a Germany based multinational company that deals in the manufacturing and designing of sporting ware and equipment, which include balls, sporting uniforms and clothes, shoes, sports bags, footwear, watches, and eyewear among others.
The company was founded in the year 1920. However, the main operations of the company can be traced from the year 1948, though there had been a lot of developments years back prior to the decision to open the company.
The global headquarters of Adidas are in Herzogenaurach. Adidas acts as the main holding company for the Adidas group, which is comprised of Rockport, Reebok sportswear company and the Taylor-made Adidas golf company.
The company is considered as the most dominant sportswear company in Germany and the entire Europe, while globally, Adidas is ranked as the second most competitive sportswear company.
The company sells its products in over 200 countries across the globe. Though faced with competition from other companies in the world, Adidas has remained to be outstanding through the continued display of creativity in design and production of its products (Bajak 2010).
External Analysis
As mentioned earlier, there is a growth in the global sporting industry, which has attracted many players in the global sportswear industry in which Adidas operates.
As competition keeps mounting a company should keep investing in its strengths and limit its weaknesses by capitalizing on the opportunities that prevail in the business environment. As the global sporting industry keeps expanding, sportswear companies keep coming up so as to meet the demands and capitalize on the business opportunities in the industry (Slack 2004).
Strengths
The strength of a company within the industry lies in a wide variety of developments. One of the key business initiatives that give company strength and competitiveness in production and the market is the brand of the company. Through the over 64 years of operation in the global sportswear industry, Adidas has established a very strong brand in the industry.
The logo of the company, the three stripes and the originality of the products of the company, has given the company a resounding name in the industry. The company has established a portfolio of strong brands in the global market, which makes it have a stronger market position over most of its competitors (Motion, Leitch & Brodie 2003).
Through the strong brand portfolio, the company’s ability to develop a strong retail footprint in diverse markets is enhanced (Joseph 2013). The brands of the Adidas Group include: Adidas, Rockport, Reebok, TaylorMade and Ashworth.
Just like Nike, its biggest competitor in the market, the logo and quality of products by Adidas gives the company a competitive edge over Nike and other companies in the industry. Through its brand, the company has managed to attain customer loyalty across a wider section of the global sporting industry.
Adidas is considered by many people as a global brand through its increased investment in design and the subsequent production of high quality and diverse products (Braun 2008).
Customer loyalty is a key contributing factor to the development and expansion of the company in the market. Having managed to dominate Europe, which is one of the world’s largest sporting regions, the company has managed to retain the second position in terms of the global market share.
As at the end of the year 2010, Adidas had a global market share of 21%, coming second from Nike which had an average market share of 30%. This is considered to be strength since the company has not slipped from this position for a long time, and the percentage of market share keeps rising (Bajak 2010).
Besides being a manufacturer of sportswear products, Adidas also venture into the development of sports technology. This makes the company come out strong in the market. Through the venture in sports technology, the company is able to come up with sporting tools and equipment that meet the modern standards of sporting (Bajak 2010).
As one of the market leaders in the sportswear industry, Adidas benefits from the economies of scale. The company produces large quantities of products, which makes it easy to avail its goods to a wide market. Through this, the company puts itself in a better position to beat other smaller companies in the market. The company was the main supplier of footwear during the 2010 world cup (Bajak 2010).
Opportunities
Andreff and Andreff (2009) observed that the developing markets in the world have been coming up at a quick pace, which denotes the presence of a new market for the company.
These markets are found in Asia, Latin America and Asia, where the sporting industry is being molded in order to match the sporting industry in the United States and Europe. Adidas has been monitoring the growth in the sports industry in these regions.
These regions form the newer markets for the company. In the modern times, different companies make attempts to use all the probable means to expand their market base. The continued focus on the merging markets of the company has been crucial in increasing the revenue of the company (Bajak 2010).
The continued growth in information and communication technology presents a lot of marketing opportunities for the company. As part of the market strategy initiative, the company is embracing internet marketing.
Internet marketing is one of the platforms of marketing that has proven to be quite efficient for marketing enhancement in a substantial number of companies in the world today (Yaveroglu & Donthu 2008).
As the new markets develop information and communication technologies, the company is quickly matching this pace by enhancing online retailing, besides the normal retailing in these markets. Information technology, social; media, blogs and websites, offers the company an opportunity to communicate with its customers, thereby maintaining a sound relationship with them (Shimp 2010).
Threats
As has been known for a long time, the quality of the Adidas products is accompanied by the corresponding relatively high prices. However, there is a lot of rationalization in both the sports market due to the entry of numerous small players. One notable thing is that the new players produce similar products, but at a low price.
Therefore, there is a high threat from the presence of the increased entry of substitute products in the market. The current slump down of the global economy also poses economic threats to the company. This problem is compounded by the entry of new companies in the industry, which are capitalizing on the economic situation and the desire of customers to get products at attractive prices (Newbery 2009).
In the recent times, a lot of concerns about counterfeit products have been raised by a substantial number of companies in the world. The sportswear industry is listed among the industries that are most affected by counterfeit products (Organization for Economic Co-operation and Development, 1998).
Being one of the leading companies in the industry, Adidas is not an exception. The question of counterfeit and duplication of Adidas products was raised quite long ago. As the contemporary business era is marked by volatile business activities, the company is bound to lose billions of dollars in the coming years due to the increasing availability of counterfeit products in the market.
Already, the company has lost a substantial amount of money due to duplication of its products and the marketing of such products using its brands. The efforts to counter production of fake goods have not borne positive results yet as there are cartels of businessmen in the sports industry who coordinate the business.
There are still a lot of challenges in the implementation of laws that are meant for eliminating counterfeit products from the market (Massow 2013; Jack 2008).
Internal analysis
The internal environment of any company plays a great role in increasing the efficiency of production, thereby increasing the competitiveness of the company.
The virtue of long existence in the market has aided Adidas in learning from the business environment, thereby developing strategies that have enabled it to enhance a better internal environment. The company operates within the global sportswear industry, which is considered to be very competitive (Bajak 2010).
Internal strengths
One of the main internal strengths of the company is its investment in innovation. The management of the company has realized the essence of maintaining the company in the market through the embrace of creativity. Research and development is the key to innovative technologies in the products of the company. Research and development is the key to product innovation in any given company.
R&D often puts the company in a better position to come up with newer and more exciting brands, which attract a new ray of customers. The company embraces technology in the improvement of its products in the market. Adidas was the first company to produce the first smart sporting shoe that had a microchip and a wireless mp3 player.
The aim of research and development in the company is to go beyond the fulfillment of their customer needs. Each year, the company strives to come up with at least one revolutionary technology in the market.
This presents a great opportunity for the company as it can enable Adidas to position itself in the market as a technology leader in the industry. The company embraces sustainability of the environment in its new technology by utilizing production systems that are friendly to the environment (Addidas Group 2012).
Figure 1.0 below shows the amount of money, in million Euros, that has been spent in research and development by the company for the last five years. In the graph, it is evident that expenditure in research and development has been increasing each year, which justifies the current innovative ability in the products of the company.
Figure 1.0 Research and Development expenses (million Euros).
Source: Adidas Group 2011.
As a multinational company, Adidas has firms that are spread in different parts of the world. In order to tackle the business challenges in each part of the world, the company management implements different strategies depending on the area in which each particular subsidiary is located.
This makes the company more flexible in terms of the management of employees and functions in diverse global cultures. This is a factor that boosts the ability of the company to deal with the challenges of management in different parts of the world (Solomon & Schell 2009). The management of Adidas has a global business mindset, a feature that is desired in managing multinational companies.
According to Puris (1999), the management through acquisition has helped the Adidas Group to boost the market position of the company as it increases the number of brands of the company.
The acquisition of Reebok, it is argued, has helped the company to gain a 20 percent share in the US market for which it did not have access due to the dominance of the market by competitor companies like nike and Puma (Arends & Preuschat 2007).
There is a high sense of corporate social responsibility in the company. Corporate social activities in the company are implemented in a twofold way; focus on clean technologies in the company’s products and the sponsorship of events. This has made the company to be ranked among the top 100 sustainable companies in the world.
The company has a sustainability website, where it engages audiences on matters of sustainability in production. This is one way through which the company attains a high level of publicity for their products to the wider market (Addidas Group 2008).
In the year 2012, Adidas announced massive sponsorships. The company brokered agreements with the Japan Football Association in which it will sponsor a Japan’s football team in the 2014 World Cup event.
The other sponsorship deal was made between Adidas and the Olympic committee of Australia, in which the company will sponsor the Olympic team of Australia in the upcoming Olympics event. The company has also signed a sponsorship partnership with the NBA (Addidas Group 2012).
Weakness
The main weakness of the company is that the acquisition, especially Reebok has not worked well for the company due to the low performance of Reebok, especially outside the United States.
Therefore, the company has not been able to get the anticipated return on investment from Reebok. This corporate move has not counted well with Adidas and still poses a challenge to the financial outcomes of the company (Gaughan 2011).
The company operates under a high cost structure. This limits the ability of Adidas to maximize its profits in the market. The product line of the company is also limited, which makes it hard for the company to expand business opportunities in the market. The prevailing inflationary pressure in the market is another undoing of the company since it exerts pressure on the prices of raw materials that are used by the company (Bajak 2010).
Summary SWOT
Strengths
- A high sense of corporate social responsibility and the embrace of sustainability in managing production.
- Widespread operations across the globe.
- The cultivation of strong brands in the global sportswear industry.
- Global strategy of management
- Strong performance arising from the successful participation in the 2010 FIFA World Cup.
- An intense level of adoption of integrated marketing communication practices.
- Stable financial position amidst the global economic backdrop.
- The embrace of sports technology.
Weakness
- Managing under a high cost structure.
- Poor performance of Reebok.
- Weak performance in a number of major sportswear markets.
- Manufacturing via third party.
- Changing patterns in the global consumption demands.
Opportunities
- The growth and development of the emerging markets.
- Sponsorship agreements as a benefit of corporate social responsibility.
- Growth in information and communication technology usage in the market.
- Change in consumer lifestyle, which is accompanied by the growth of the footwear market across the globe.
- The revival of Reebok.
Threats
- The growth in the production and availing of counterfeit products in the market.
- The increase in the number of substitute products from competitor companies.
- The rising cost of production materials.
- Price fluctuations in the international market.
Strategy Evaluation
As noted in the analysis of the company, it can be said that the global sportswear industry is quite competitive, which requires companies that operate in the industry to master the competitive environment (Spillan 2010). Adidas is one of the companies that have operated in the sportswear industry for an extended period of time.
While this is an advantage for the company, it does not exempt it from the competitive pressures emanating from the industry. There is a wide range of companies in the industry, some of which have operated in the industry for quite long.
Adidas can be termed as a brilliant company due to the strategies that are applied by the company. The value of a company’s strategy is often measured by the level at which they help the company capitalize on the opportunities and the elimination of the threats. Most of the strengths of Adidas resonate from the fact that the company has been able to capitalize on the opportunities that are present in the market.
These include the ability to enter the emerging markets, the use of technology in production and marketing and the embrace of corporate social activities. These strategies have been critical in countering the likely impacts of the threats that are facing the company.
Problems/ Challenges and recommendation
As observed, a number of threats remain to press down the company. These include the problem of counterfeit products. The company is yet to come up with a workable strategy for eliminating counterfeit products. However, the problem affects all the major companies in the industry and collective efforts are being made to address the threat.
The continued adoption and application of global approaches of management helps the company to attain competitive strength in the global market. The problem of performance of Reebok, which has been an impediment to the performance of the company, can be sorted through restructuring of the Reebok Brand.
Currently, the Adidas brand is seen as a Euro-sport brand. There is need to restructure the brand into both a USA-sport and the Euro-sport brand. This will enable the company to penetrate the US market.
Conclusion
As has been observed in the paper, it can be concluded that the global sport wear industry is competitive. The industry is marked by both opportunities and challenges. In spite of the challenges in the industry, Adidas remains to be a competitive player in the industry. The competitive strengths of Adidas are drawn from the managerial quality of the company.
The global inclination of management forms he main managerial strength for Addidas. Other areas of strength in the company include the embrace of technology in products and the focus on the emerging markets of the globe. The main threats to the performance of Adidas are the increase in substitutes and the amount of counterfeiting in the global market.
Reference List
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