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TITLE OF ASSIGNMENT:

ASSIGNMENT 2

REPORT

INDIVIDUAL ASSIGNMENT ADIDAS COMPANY

MULTINATIONAL COMPANY (MNC)

PREPARED BY: EMALISAYATI BINTI JAIMI

MATRIX NUMBER: 2021.4.BBA06.0001

COURSE: BACHELOR OF BUSINESS ADMINISTRATION (HONOURS)

SUBJECT CODE: DEPA 130

SUBJECT NAME: INTERNATIONAL MANAGEMENT

LECTURER’S NAME: MDM HAFSHAH SALIH

DATE OF SUBMISSION: 6TH JULY 2021

TABLE OF CONTENT
CONTENT PAGE

1.0 INTRODUCTION 1-2

2.0 IDENTIFICATION OF THE TWO SELECTED FOR

MARKET ENTRY STRATEGIES 3

3.0 MARKET: RUSSIA - 1ST MARKET ENTRY STRATEGY

3.1 BENEFITS OF LOCAL MANUFACTURING 4-5
3.2 PROBLEMS WITH LOCAL MANUFACTURING

4.0 MARKET: CHINA - 2ND MARKET ENTRY STRATEGY

4.1 BENEFITS OF EXPORTING 6-8
4.2 PROBLEMS WITH EXPORTING

5.0 CONCLUSION 9

6.0 REFERENCES 10
1.0 INTRODUCTION

Adidas is a leading international brand with origins in Germany founded by Adi

Dassler with their first shoe ‘Gebrüder Dassler Schuhfabrik’ in 1924. in 1949, Adi
Dassler registered the ‘Adi Dassler adidas Sportschuhfabrik’ and started to work with
47 employees in the town of Herzogenaurach. Although Adidas started with 47
employees in 1949 but now Adidas employs around 62,000 employees throughout
the world. Their global headquarters are in Herzogenaurach, Germany, and they
employ people from more than 100 countries. Simply based on these numbers,
Adidas is a vast and diverse organization. In 1949, Adi Dassler registered another
shoe, the 3-stripes Adidas which the one that brings a miracle and worldwide
success till now.

In the final of the 1954 World Cup they won a lot more than just a trophy in the
German national football team against the impeccable Hungarians. For centuries to
come, they would hear their incredible victory all across the world. And on football
pitches everywhere he and his founder made a household name for Adidas.
Internationally, the revolutionary boots have drawn great attention.

In 1967, the model Franz Beckenbauer, when he made his debut, became Adidas’
first piece of clothing and opened up a whole new business for a company that was
previously renowned for shoes. When the Olympic games opened in Munich in 1972,
the world turned to Germany. Just in time, Adidas presented their new logo, the
Trefoil. Today, the collection of Adidas Originals stands for street and lifestyle. Times
may change but treacherous quality always remains.

In 1978, on September 6, just before his 78th birthday, Adi Dassler died. The man
who redefined the sporting goods sector almost all by himself and raised the
standard one mile behind a thriving company. Another started with the end of one
Dassler era. His wife Käthe took over the company with her son Horst support. Three
years after his mother Käthe passed away, Horst Dassler’s sudden death in 1987
meant troubled for Adidas.

In 1990, Adi Dassler’s daughters sold their shares. The change of leadership and
doubtful strategic decision causing a record loss in 1992 after Dassler’s daughters
left the company it brought the company closer to bankruptcy. Robert Louis-Dreyfus,
the Adidas new CEO with his partner Christian Tourres, turned Adidas into a growth

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trail. After six years they come up with a new marketing slogan “we knew then, we
know now”.

After 15 years, Kasper Rorsted became the new CEO in Oktober 2016. As the
fashion and sportswear industries continue to revolutionise with fitness and health
combining in a concept of the lifestyle, Rorsted started building on the Creating the
New digital era. In 2019, Adidas celebrated the new ‘Arena’ office building. Conclude
the expansion in Herzogenaurach, Germany of its headquarters ‘the worlds of sports’.

In 2021, Adidas marks the launch of Adidas next five year strategic cycle which is
called ‘Own the Game’. the successful implementation of this strategy will improve
brand credibility, enhance consumer experience and push sustainability boundaries.

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2.0 Identification of the TWO selected for market entry strategies

In general, Adidas can implement one of four market entry strategies when entering a
new market. According to Jeannet and Hennessey (1992), as cited by Blythe (2003),
the primary market entry strategies are now divided into three major groups:
exporting, joint venture and direct investment, or strategic alliance. Exporting is
defined as selling a product in another country without committing to local production
(Burnett, 1993). Direct and indirect exporting are the two types of exporting. Joint
Ventures are formed when a foreign company joins forces with an outside partner to
share stock ownership of the new company. Strategic alliances are an emerging
method of entering a foreign market that requires more effort than a joint venture
(Burnett, 1993).

Apart from the market entry strategic choices, Adidas had also needed to determine
other factors before making a decision on which market entry strategy to use. The
factors to be considered are in summary, which country, when to enter and scale of
entry. It is important to choose a country because each country has a culture, religion
and law that are extremely important factors to consider. Some countries are very
conservative in comparison to the UK, so exporting items like clothing or alcohol may
be difficult. In other countries, the majority of the population may have specific
nutritional restrictions – for example, Hindus do not eat beef. Market research will
thus have to be carried out to ensure that people will definitely want to buy the
product sold by Adidas on the target market.

The second issue to examine is when to enter, which necessitates Adidas

determining whether or not our competitors are planning to enter the same market.
We will also need to see how successful they competitors are and follow them up on
the market. We will need to know whether we want to be the ' first to the market.'
Trying to be the "first to market" implies a significant amount of risk. Even if the
market research is good, it does not guarantee that people will purchase what Adidas
is selling. If Adidas chooses a high-cost market entry approach, it risks incurring large
investment costs and finding a suitable local partner that shares Adidas' belief that
the products supplied would flourish in the new market.

If Adidas chooses to follow the competitor into a new market, there is a potential that
local partners will be willing to join with Adidas but at the same time there is a risk
that customers loyal to their competitors brand will not buy from us.

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The most crucial consideration is the cost of entry. To enter a market on a huge scale,
you'll need a lot of money. Although this is more likely to make an impression in a
new market because it will catch the attention of both customers and local
businesses, it could be financially hazardous if Adidas items do not perform as
expected. The smaller market entry will give business owners the opportunity to learn
about the new market and limit risks but are far less likely to receive considerable
public attention.

3.0 Market: Russia - 1st market entry strategy

Having taken into account the above factors and considerations, I believe that the
choice of market entry strategy that Adidas should take in the case of Russia is by
indirect exporting that is by creating local manufacturing. The choice of indirect
exporting via local manufacturing will be more useful because it will indirectly create
more jobs for local people and this will help create a better image of Adidas as a
company and on its products.

3.1 Benefits of Local Manufacturing

The first benefit from local manufacturing is that Adidas will be able to get the raw
materials required for manufacturing from local suppliers. This will enable the supply
chain to become stable. The lead time on materials as raw materials can be acquired
locally and the company will not be disrupted by any supply chain delays such as
tariffs and custom inspections.

The option of local manufacturing also helps with quality assurance issues. The
products from Adidas that is manufactured can be easily tested for quality in order to
ensure that it meets the criteria of Adidas worldwide. Any product off the assembly
line can quickly and easily be tested for quality assurance. This hands-on approach
leads to higher quality products within a shorter product development timeline.

The 3rd benefit from local manufacturing is the savings that can be made from waste
management. Less energy will be required if our products were manufactured locally.
Products and materials won’t have to be shipped far as the market is local. Size of
minimum order can also be managed at a lower cost compared to having to make an
order from overseas. Local manufacturing don’t have the same minimum order

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requirements, so we can produce at a smaller scale and not waste materials on
excess product.

By having local manufacturing, we will be able to offer safe and fair working
conditions to our employees. Adidas being an international producer will want to
ensure that we meet all the human resource guideline of the country we operate in,
thus we only need to ensure our local manufacturer is following all current state and
federal laws governing fair labor practices.

The latest benefit for local manufacturing has come about due to the COVID-19
pandemic. For safety standards to be met and to minimize disruptions to production,
working with a local manufacturer is better. Adidas will be able to confirm that the
local manufacturer conforms with the latest health and safety protocols outlined by
OSHA of the country.

3.2 Problems with Local Manufacturing

Local manufacturing has also got quite a number of problems associated with it. The
first one is poor quality of product. Although the quality of local manufacturing has
grown a lot over the years, it is still for production challenges to be found in local
manufacturing of products. These issues stem primarily from miscommunication due
to linguistic obstacles and differences in the local time, training restrictions and
reduced technical support on site. Another problem faced by local manufacturing is
extended supply chain. Although it was thought that the supply chain lead time would
be a benefit, it sometimes may not be the case. Delays in transport and
communication can lead to increased customer lead times and incremental carrying
costs of inventory.

The fourth problem associated with local manufacturing is the increased time to
market. For instance, lets say Adidas comes out with a new pair of shoes. The time
taken to transfer the new designs to our outsource partners for manufacturing is
longer. Another important problem with local manufacturing is the fear of loss of
intellectual property. Adidas runs a risk of having its new designs of products to be
copied by either the competitor or local operator who would make fake “knock off”s to
sell in the local market.

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4.0 Market: China - 2nd market entry strategy

Having taken into account the above factors and considerations, I believe that the
choice of market entry strategy that Adidas taken in China exporting both direct and
indirect. The complexities and the vastness of the China market needs Adidas to be
more open to different choices of market strategies. Taking into account the factors
mentioned above of which country, when to enter and scale of entry. I believe that in
the case of China being a non English speaking country, the factors play an
important role. Adidas entered China market is a small scale in by selling children’s
wear in 2001 for a start and has grown from there.

The market entry strategy taken by Adidas when it entered China was direct
exporting at the beginning and Adidas still continues to do so till today. Along the way,
Adidas has started to do indirect exporting by having local manufacturing for some
portion of the business in the China market. The choice of indirect exporting via local
manufacturing has been useful and created more jobs for local people and this will
help create a better image of Adidas as a company and on its products.

The small-scale market entry in China paid off, because the brand did not sell very
much when entered the market. Adidas had seen profits dropped before the Chinese
market grew steadily. Adidas' market share in 2008 stood at 14.9 percent, but in
2009 fell to 9.6 percent. Adidas new 'Way through 2015' campaign aimed at
expanding into lower Chinese cities and opening up more stores aimed at improving
their market position. The new shops have been designed to meet various customer
needs. Another strategy was 'to sell' which meant Adidas was not only intended to
sell products to distributors but also to enable the distributors to sell products to the
consumer. All this helped to turn the tide and Adidas products became accepted on
the market. Adidas now has more than 12,000 stores spanning more than 1200 cities
throughout China.

With the expansion of Adidas operation getting larger to cater for the huge market of
China, Adidas had decided to include local manufacturing as part of the solution for
its market entry.

To date, Adidas still exports about 75% directly and 25% of its production is done
locally.

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4.1 Benefits of Exporting

Exporting means marketing and direct sales in another country of domestically

manufactured goods. Exporting is a well-established and traditional way to reach
foreign markets. Since no investment is required in foreign production facilities
because the goods will not be produced in the target country. The majority of export
costs take the form of marketing costs.

The first advantage of exports is that they are low-risk, but have substantial costs and
that there is little control over the exporter. Exporters typically have little control over
their products' marketing and distributors, face heavy transport and possible tariffs,
and are responsible for paying distributors for several services. Moreover, exports do
not provide an expensive company with experience in pursuing a competitive position
internationally and make it difficult to customize products and services to local
preferences and tastes.

The second advantage is that exportation is the easiest way to enter an international
market, and is the most likely option for companies that try to enter a new market in
other countries and begin to expand internationally.

The benefit of cost saving is another major reason why most companies expanding
operations choose exporting. The advantage of this mode of entry is that firms avoid
the expense of establishing operations in the new country.

4.2 Problems With Exporting

Although there are a lot of benefits from exporting, companies must also take into
account issues to be handled when entering a new market using exporting. The first
issue they must address is how their products are to be distributed and marketed in
the new country. They will need to establish a distribution network with local
distributors or local company. This will entail contractual agreements to be signed
and agreed upon.

The second issue that exporters needs to address is the marketing aspects of selling
the products in the new market. Adidas will need to address on labeling, packaging,
and pricing the products appropriately for the new market. Then Adidas will need to
do substantial amount of marketing and promotion in order to let potential buyers

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know of its products. Typically, Adidas will need to run advertisements, promote at
trade shows and have a local sales force looking into selling the products.

Another factor to address is the possible need to translate the product name and
descriptions into Mandarin or promote in dual language in order to penetrate the
China market. This requirement may be driven by local regulations or by the Adidas
wish to market the product or service in a locally friendly fashion. This task can be
very challenging as a small mistake in the translation could mean something else and
causing the brand name to be tarnished.

Among all the problems with exporting, the transportation costs of goods is the most
significant issue. The costs include country duty tariffs on incoming goods and
distribution costs for goods to be sold by the distributors. These will definitely effect
the company’s profit margin expected from the sales of products.

In the case of Adidas, in order to continue to ensure market growth to become double,
2400 stores nationwide, Adidas has explored to start using indirect exporting via local
manufacturing to grow the China market. At present 25% of Adidas production is
done locally and growing. Now Adidas is benefiting from both market entry strategies
when it comes to China, exporting directly and indirectly. While the benefits from both
market entry strategies are good, Adidas needs to be aware of the problems
associated with both strategies as well and how to manage them.

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5.0 Conclusion

Therefore, market entry strategies are very important towards the organizations.
Every market strategies have the good and the bad sides but the advantages will
always justify the disadvantages. Hence, market entry strategies help to improve the
businesses to grow more locally and globally. This will indirectly help the economy as
well as the people and the happy Adidas customers. This two market strategies
implemented by Russia and China both have changed the new markets and reached
their goals.

Firstly, emerging markets Russia has the potential for international brands to
succeed and also entails threats and risks. Adidas' strategy for business entry should
be very wary and similar to those previously used on the Russian market.
Type text he

Second, undoubtedly, China expects to contribute significantly to its global growth in

sales. They will indeed increase their sales from the smaller cities, as sportswear is
increasingly attracted not only to fitness, but also to casual wear on a daily basis.

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6.0 References

1. Adidas Company History. Adidas-Group.com. Retrieve from

https://www.adidas-group.com/en/group/history/

2. UKEssays. (November 2018). Adidas Market Entry Strategy. Retrieved from

https://www.ukessays.com/essays/marketing/adidas-entering-into-an-emerging-
market-marketing-essay.php?vref=1

3. Adidas in China. (June 2020). (Reaching low-tier cities with high-tier products).
Retrieve from
https://daxueconsulting.com/market-research-on-adidas-in-china/

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