STRATEGIC MANAGEMENT ANALYSIS

THE SPORTS EQUIPMENT INDUSTRY AND ADIDAS AG

Table of Contents:
Introduction………………………………………………………………………………………………………….2
The Sports equipment industry……………………………………………………………………….2
Aims and Objectives……………………………………………………………………………………………2
Key terms in strategic management………………………………………………………………….3
Strategists……………………………………………………………………………………………………….3
Vision Statements…………………………………………………………………………………………..3
Mission Statements…………………………………………………………………………………………3
External Opportunities and Threats……………………………………………………………….3
Internal Strengths and Weaknesses / Internal Assessments….…………………..3
Strategic Management Analysis of Adidas………………………………………………………..4
PESTLE Analysis………………………………………………………………………………………………3
Porter’s Five Forces Analysis………………………………………………………………………….6
Value Chain Analysis………………………………………………………………………………………8
Market Segmentation Analysis………………………………………………………………………9
Adidas’s Current Strategies…………………………………………………………………………11
The Presentation of Route 2015………………………………………………………………….11
Strategic Fit Analysis………………………………………………………………………………………12
SWOT Analysis………………………………………………………………………………………………13
Reference……………………………………………………………………………………………………………14

INTRODUCTION
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 Adidas AG is a German-based company involved in the manufacture of
sports apparel. Other than sports footwear, Adidas AG is also involved in the
manufacture of shirts, bags, eyewear, watches, and other clothing-and sports-
related products. The company is the leading manufacturer of sportswear in
Europe. Globally, it comes second after Nike, the American-based rival
company (Bloomberg, 2008).
The Sports equipment industry
Sports equipment is a general term for any objects for sport or exercise; it
includes balls, exercise equipments, flying discs, footwear, clothing, protective
equipment, goals, nets, vehicles...
The sports equipment industry shows fast growing in past decade or so,
the reasons behind that can be either of these:
- Commercialisation of sport and massive marketing campaigns with top
sportsmen as advertising models;
- High-speed everyday routine of people in the developed countries and
the ‘healthy life style’ urge which brings more and more people to sport;
- The new technologies and materials used in sports shoes, clothes and
accessories turn it more into a fashion, than necessity.

AIMS AND OBJECTIVES

This paper analyses the market environment and the strategic position of
Adidas AG in the world of the sports equipment industry.
A ‘Market Environment Analysis’ is evaluation of the conditions in the
market environment of the sports equipment industry in their wider macro
environment in which Adidas AG operates.
The ‘Adidas Strategic Analysis’ is the evaluation of the resource
capability of Adidas; it highlights its threshold and unique resources, and its
core competences.
The ‘Strategic Fit Analysis’ is an evaluation of the strategies Adidas AG
uses to highlight its strengths or weaknesses to perform better in the market.
KEY TERMS IN STRATEGIC MANAGEMENT

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 The strategic management process is based on the belief that organization
should continuously monitor internal and external events and trends so that
timely change can be made as needed. The rate and magnitude of changes
that affect the organization are increasing dramatically. To survive all
organizations must be capable of identifying and adapting to change.
Strategists are the individuals who are most responsible for the success
or failure of an organization; they are the individuals who form the company’s
strategies and they have various job titles, such as chief executive officer,
president, and owner, chair of the board, executive director, chancellor, dean,
or entrepreneur. Strategists help an organization gather, analyse, and organize
information; evaluating the corporate and divisional performance, identifying
emerging market opportunities, business threats, and are developing creative
action plans.
Vision Statements Many organizations nowadays are developing a
"vision statement" which answers the question, ‘what do we want to become?’.
Developing a vision statement is often considered the first step in strategic
planning, preceding even development of a mission statement.
Mission Statements are enduring statements of purpose that distinguish
one business from other similar firms. A mission statement identifies the scope
of a firm's operations in product and market terms. It is addressing the basic
question that faces all strategists: ‘What is our business?’.
External Opportunities and Threats refer to any changes in economic,
social, cultural, demographic, environmental, political, legal, governmental,
technological, and competitive trends and events that could significantly
benefit or harm an organization in the future.
Internal Strengths and Weaknesses / Internal assessments are an
organization's controllable activities that are performed especially well or very
poorly in the management, marketing, finance/accounting,
production/operations, research and development, and computer information
systems activities of a business. Identifying and evaluating organizational
strengths and weaknesses in the functional areas of a business is an essential
strategic-management activity.
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STRATEGIC MANAGEMENT ANALYSIS OF ADIDAS
To fulfil the aims and the objectives defined earlier, in this paper will be
used most of the major tools used in business:
• PESTLE analysis
• Porter’s Five Forces analysis
• Value chain analysis
• Market Segmentation analysis
• Adidas’s Current Strategies
• SWOT analysis

PESTLE analysis
Political - Adidas was accused of paying its employees as low as less than
$3 especially in the nations where production is carried. Other political
accusation is breaking International Labour Organizations requirements and
standards. ILO advocates for the basic working conditions and rights to all
employees in a workplace. For example, the company does not allow labor
unions participation and strikes as witnessed in one of the factories in
Indonesia in 2005 were members were fired after participating in a strike
(Oxfam Australia, 2007).
Economic - As a world leader, Adidas commands nearly a quarter (22 %)
of the worldwide athletic footwear and apparel market. In the race to be the
world leader in sports apparel, Adidas trails behind only Nike, which holds a
worldwide market share of 33%, but its rich legacy and focus on innovation, in
addition to a new guiding strategy that perfectly blends marketing and
technology can help them sprint ahead of Nike and grab the lead in both the
American and emerging markets of Asia and Latin America. Adidas group
margins increased in 2010 from 45.4% in 2009 to 47.8% despite the
macroeconomic challenges (Adidas Group, 2010). However the consumer
spending has been low because of the increased unemployment. Despite the
weak economic conditions, Adidas performance was better in 2010 compared
to 2009 (Adidas Group, 2010). For example, Adidas Group revenues grew to
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€11.990billion compared to €10.381 billion in 2009 (Adidas Group, 2010) can
be attributed to the increase in Adidas product consumption in the emerging
markets.
Social - people around the world are becoming more health conscious
especially those from the rich families leading to high consumption of sporting
equipments. For example, the consumption has increased by 11% in 2010
(Bloomberg Business Week, 2011). This could have been the reason why the
sales in North America have increased by 13% and a market group increase by
12% (Adidas Group, 2010). Other Adidas programs like ‘MiCoach’ which is
used for physical fitness program has also attributed to the increase in sales
(Borowski, 2011).
Technological - Adidas success is steeped in the laurels and ethic of its
founder. When Adolf ‘Adi’ Dassler, a veteran of World War I and founder of
Adidas’ Group, began producing shoes out of the scarce materials available in
Germany after World War I, he had a simple vision for his company: provide
athletes with the best suited pair of shoes for their respective sport. He
followed up on his simple vision of producing the best shoes with three guiding
principles:
- To produce the best shoe for the requirements of the sport,
- To protect the athlete from injury,
- To make the product durable and able to withstand the extreme
conditions of sport.
Legal - Adidas AG brands are usually based technological design and
innovation which is prone to counterfeiting. To avoid and reduce losses
associated with counterfeiting, Adidas invests heavily in legal protection
(Adidas Group, 2010). For example, the company works law enforcement
officers and authorities to protect its intellectual and property rights (Adidas
Group, 2010). This has increased the seizure of counterfeit Adidas sportswear
and apparels. For instance, in 2009, more than 8 million Adidas Group
counterfeit products were seized all over the world (Adidas Group, 2010).
Environmental- Every company is now becoming conscious of the
environment, the climate change, the CO2 emissions… Adidas’s aim is to
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reduce energy use by 20%, which will cut carbon emissions by 10% (Adidas
Group, 2011). Adidas has been in the forefront to sustain the environmental
risks associated with the manufacturing sector of the company (Adidas Group,
2009).

PORTER’S FIVE FORCES analysis

Adapted from Porter, 1991

Nike is the largest rival of Adidas in both market penetration and market
control. According to Doigiamis and Vijayashanker (2009) Nike has 33% of the
market share. Other rivals to Adidas are Puma and Fila. However, despite the
huge rivalry in the sportswear and apparel industry, Adidas has been has to
retain its second position. Despite the high level of rivalry, Adidas controls the
golf industry sportswear through the production of the Taylor Made - Adidas
Golf (Adidas Group, 2010).
Adidas is faced with threats from perfect substitutes from its rival
manufactures like New Balance, Asics, Puma, and Nike (Adidas Group, 2010).
However, because the companies operate under oligopoly market structure,
the prices are not likely to be more from one another. This has ensured
consumer loyalty. The substitutes are 78% from the apparel market and 18%
from local and small rivals like Li-Ning of China (Doigiamis & Vijayashanker,
2009)
Because of the many barriers posed by the industry, Adidas faces low
threat from new entrants. This is because of the huge economies of scale
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required to manufacture, distribute, and research and development among
others (Doigiamis & Vijayashanker, 2009). Before entering the apparel industry
is required huge capital to establish factories and other infrastructure.
However, new entrants like Li-Ning control 36% of China’s market after the
leader Nike.
A lot of bargaining power is carried out by customers given that they can
choose to buy Adidas rival products (Doigiamis & Vijayashanker, 2009). Given
that the sports apparel lacks compliments, then the bargaining power of
customers is always high. Because of the high customers bargaining power,
the sales of Adidas increased by 9% in 2009 (Doigiamis & Vijayashanker,
2009). Adidas is always on its move to make sure it satisfies its consumers
through the production of high quality products.
Adidas suppliers bargaining power is very high (Doigiamis &
Vijayashanker, 2009). This is because of the sourcing companies are based in
Asia and other pacific nations. For example, China is the largest supplier of
Adidas with a share of 27% (Adidas Group, 2010). With increase in the number
of suppliers from the Asia and other nations it means that their supplier
bargaining power has increased.

VALUE CHAIN Analysis

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 Adopted from “Stabell & Fjeldstad, 1998”
Adidas has a diverse value chain which includes innovation, design,
marketing, development, sourcing, operations, sales. The inbounds involve the
product production and manufacturing which carried in more than 1230
factories which manufacture products in 69 countries (Adidas Group, 2011).
More than 50% of the manufacturing is carried in China and Asia and the
products sold in Europe, Asia, US, and Latin America. Outbound logistics are
carried through a well-developed distribution and dispatch network (Adidas
Group, 2010).
Marketing and sales activities are carried out depending on the market
segmentation to meet the consumers’ needs and expectations. For example,
some of the channels used to advertise Adidas products are through the use of
stores, internet websites, television channels, and through sponsorships
(Adidas Group, 2010). The developed products are then positioned in the
various strategic positions targeting the readily available markets. Some of the
areas where the products are positioned include the retail and the wholesale
stores. This two are strategically positioned to attract the maximum number of
customers based on the demand in the markets.
Other than the major technical activities, the value chain is also
characterized by administrative activities like financing, information
management, retail and wholesale back office activities, and foreign operations
financing among other supportive activities (Adidas Group, 2010). More than
42,541 employees are managed by the human resource department and

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offering any support to the employees to ensure effective and efficient
production process (Adidas Group, 2010). The major focus of the production
and development is to ensure that competitive products are produced which
include customized footwear and designers (Adidas Group, 2010).

MARKET SEGMENTATION analysis

Adidas operates under an oligopoly market structure, which means there
are few sellers in the sportswear industry like Nike, Puma, Asics, Columbia
Sports, and Li-Ning. It is also characterized by barrier entry because of the
high capital required at entry level. It entails large economies of scale which is
a characteristic of an oligopoly (Ghai, Gupta, 2002)
The market of Adidas is segmented based on potential customers,
behavioral, demographical, geographical and social economic features
(Borowski, 2011). For example, Adidas sells more sportswear in North America
region. Adidas has expanded its market share to emerging markets like China,
Japan, Latin America, Asia, and India (Adidas Group, 2010). It has been
operating in these new segments by targeting the wealth families. The major
segments of Adidas are the sports style and sports performance (Adidas
Group, 2010).
Adidas operates under several strategic groupings like the premium price
strategy which specializes in footwear, apparel, and fashionable items (Adidas
Group, 2010). Another strategy that has been employed is the Reebok
excessive discounting aimed at increasing sales. For example, in 2009 the
Reebok had 19.45% net sales, Reebok-CCM Hockey 8% and Rockport 12%
worldwide (Adidas Group, 2010). In the emerging markets strategy, the
company targets wealthiest segments selling under the premium prices. Other
brands used as a strategy include the Taylor Made - Adidas Golf which targets
the golf markets in North America (Adidas Group, 2010).
Adidas depends heavily on outsourcing for its manufacturing and
production lines. This is because the Asian countries are low wage production
economies which are cost effective compared to home production and
manufacturing. For example, 67% of the plants are located in Asia where 90%
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of the production process is done manually (Borowski, 2011). This has assisted
Adidas in making numerous profits because of the low production costs
incurred by having its production in Asia. The production and the
manufacturing facilities are also located near raw materials (Adidas Group
2010).
On the other hand, Adidas distinctive resource has been being an active
player in the sponsorship of games in North America, Europe, and other
countries. The sponsorship of games in the emerging nations by Adidas in Asia
has led to an increase in sales by 24% (Adidas Group, 2010). The acquisition
of Reebok by Adidas can be categorized as a threshold resource. This is
because the company had net sales of 12% in 2010 Reebok sales (Adidas
Group, 2010).
Adidas Group, the world’s second largest producer of sporting apparel
has had a long and rich legacy of producing some of the highest quality and
most technologically innovative sporting equipment particularly footwear.
Champion athletes and sports teams trust the three stripes as for helping them
to achieve outstanding performance when they need it most.
Many of Dassler’s original shoes were design for soccer and track & field,
two popular sports in Europe at the time. The reputation and size of Dassler’s
company grew quickly. By the mid 1930s, Dassler’s company employed over
100 people and had a reputation of making some of the world’s best sports
shoes.
The 2005 purchase of Reebok, another leader in athletic footwear, is
beginning to show signs of paying off in the race with Nike especially in many
emerging markets. Furthermore, Adidas is beginning to grow its image as a
general footwear and apparel manufacturer which greatly helps in the race.
„For over 80 years the Adidas Group has been part of the world of sports
on every level, delivering state-of-the-art sports footwear, apparel and
accessories. Today, the Adidas Group is a global leader in the sporting goods
industry and offers a broad portfolio of products. Products from the Adidas
Group are available in virtually every country of the world. Our strategy is

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simple: continuously strengthen our brands and products to improve our
competitive position and financial performance.“ (Adidas AG corporate website)
The Adidas Group has divided its operating activities into three reported
segments: Wholesale, Retail and Other Businesses.
-The Wholesale segment comprises the Adidas and Reebok business
activities with retailers.
-The Retail segment comprises the own-retail activities of the Adidas and
Reebok brands.
-The financial results of Taylor Made-Adidas Golf, Rockport, Reebok-CCM
Hockey and Other Centrally Managed Brands are aggregated under Other
Businesses. In 2010, sales and profitability of the Adidas Group grew in all
segments.

Adidas’s Current Strategies

Source: www.adidas-group.com
The Presentation of Route 2015
In November 2010, the Group unveiled its 2015 strategic business plan
named “Route 2015”. This plan is the most comprehensive the Adidas Group
has ever prepared, incorporating all brands, sales channels and Group
functions globally. The Group targets a compounded annual earnings growth
rate of 15% and aims to reach an operating margin of 11% sustainably by
2015 at the latest. (Adidas AG, 2011)
Strategic Fit Analysis

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 The distinctive resources and the core competences of Adidas form a
unique competitive advantage which can be used in the competitive market
environment to increase market share. The company can take this advantage
and increase its markets to other Asian emerging economies. This can be
supported by the competent team of Adidas to increase performance in new
markets (Adidas Group, 2010). The political problems like labor laws
regulations and working conditions complains can be addressed by the legal
experts or avoided through closer adherence to the laws (Adidas Group, 2011).
Adidas faces a threat from new entrants in the industry especially the Li-
Ning’s from China which plays a competitive role in the Asian markets. The
company needs to double its brand awareness to gain a huge market share
(Adidas Group, 2010). This can be achieved sponsorship to create a brand
name and improve its image. It can also use its innovative capabilities to
develop a more competitive brand. Brand added value can be achieved
through the increased much investment and use of research and development
capabilities. The application of both the innovative capabilities and the research
and development capabilities can lead to the development of quality and
competitive products. Lastly, the weakness can be converted into strengths
and the threats into opportunities to link the competences and resources for
competitive advantage (Adidas Group, 2010).

SWOT analysis
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Strengths
Adidas’ listing as a stock corporation means that the
company can benefit from adjusted capital (Borowski,
2011). This has enabled investment of additional capital in
effective and innovative technologies. Being the second
largest manufacturer of sporting wear after Nike has made
it possible to produce highly competitive sporting wear.
Through the sponsor of numerous sports in the world,
Adidas has been able to improve its brand and image
(Borowski, 2011). It has been able to host Paralympics
and sports and in 2012 “Adidas will be the official
sportswear partner of the Olympic games and the
Paralympics in London” (Borowski, 2011). Adidas has 169
subsidiaries in the world which means that it has a
diversified market for its products in different segmented
markets (Borowski, 2011).
Opportunities
Adidas has collaborated with new techniques such as
‘MiCoach’ that is useful training program (Borowski, 2011).
This has the capacity of creating a new market share
through the program. Through the sponsoring of sports
and teams, Adidas will continue to enjoy customer loyalty
as many teams will continue to use its products. Because
of the changing lifestyles and the health consciousness,
many people will adopt healthier lifestyle in the world. This
offers perfect market opportunities for Adidas to sell
sportswear to many people and sports clubs.
Reference:
13
Weaknesses
After the acquisition of Reebok International ltd by Adidas
in 2006, the company has not been fairing on well since.
During the 2007/2008 financial crisis, the company
received low orders (Borowski, 2011). In 2009 Reebok lost
20% of the market share in North America and a two digit
deficit in the European and the Asian markets (Borowski,
20011). Adidas has low quality manufacturing facilities. For
example, its production is carried out in low wage
countries like Asia where it is impossible to manufacture
quality products. For example, 67% of the plants are
located in Asia where 90% of the production process is
done manually (Borowski, 2011). This lowers the degree in
which high quality sporting wear can be manufactured
because of low mechanical involvement.
Threats
The financial market crisis has led to increase in oil prices
and inflation level which translates into the increase in the
costs of raw materials (Adidas Group, 2010). Since the raw
materials are outsourced from different parts with different
exchange rates level, the macro-economic changes are
likely to affect the operations of Adidas. These threats
have the capacity of reducing the profitability of Adidas
(Berger, 2008). The emergence of counterfeit products in
the market will affect the sales of the Adidas sporting
wears.
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