Corporate Social Responsibility for Adidas - Case Study Example

Corporate Social Responsibility for Adidas Introduction Social corporate responsibility focuses on incorporating and promoting ethical-oriented activities especially in profit making organisations. According to the CEO of Adidas, succeeding in business involves more than just money; it involves fair treatment of employees, suppliers and their employees, being straight with their partners and supporting local communities. Adidas Group is a German Multinational Corporation dealing with designing and manufacturing of sports products such as shoes, clothing and accessories. Adolf Dassler founded Adidas in 1924 and registered it in 1949 (Peng, Chen & Narain, 2007). The company occupies more than three hundred offices in their production sites and distribution centres worldwide. The sustainability report of 2013 reveals that the company has made several steps towards improving environmental footprint in addition to achieving considerable savings in energy, water, paper use, and minimised waste and carbon emissions. Adidas Group had created employment for 50,728 employees through expansion of own retail store bases and manufacturing units. The line of business for Adidas is sport products. The sustainability report of 2013 focuses on the company’s social and environmental performance with a little emphasis on financial/economic performance. Financial/Economic Performance During the financial year ending December 2013, Adidas had 3,927,515 EUR thousands in fixed assets and 2,693,262 EUR thousands in current assets (Adidas Group, 2014). There was an improvement in fixed assets from the previous year by 31,017 EUR thousands. Net assets for the company amounted to 1,234,253 EUR thousands. However, current assets decreased by 363,991 EUR thousands. The decrease would have been caused by the company converting some of their current assets into fixed assets. The company’s equity was 2,489,386 EUR thousands (Adidas Group, 2014). In 2013, Nike’s total assets amounted to $17,584,000. This is equivalent to 16,421,597.24 EUR. Nike has outdone Adidas because Adidas supplies to countries characterised by weak exchange rates. Additionally, the market for golf equipment that constitutes the company’s major supply has weak markets in most countries. Adidas sales decreased from 2,004,541 EUR thousands in 2012 to 1,952,467 EUR thousands in 2013 (Adidas Group, 2014). Consequently, net income decreased from 503,505 EUR thousands in 2012 to 100,023 EUR thousands in 2013. The company may have decided to reduce most of their liabilities, which decreased from 3,991,772 EUR thousands to 3,806,716 EUR thousands. As at the end of the year, Adidas dividend per share was EUR 1.50. The share capital entitled to dividend was EUR 209,216,186.00 per no-par value share and the number of ordinary shares was EUR 209,216,186.00 (Adidas Group, 2014). For a growing company like Adidas, this dividend is worthy consideration. One major observation with Adidas Group is that they do not reveal most of their financial aspects. For example, the company’s sustainability report did not have any financial statements for analysis. This necessitated seeking alternative sources of information of the company, which also did not have much of the information about the company’s financial performance. Adidas uses the German Commercial Code; the code permits companies to combine certain items in balance sheets and income statements, which are then disclosed and explained separately. Social Performance Adidas is concerned with the increased fire outbreak cases particular the collapse of Rana Plaza, which occurred in April 2013 (Adidas Group, 2014). The company, therefore, recognised the necessity of reviewing the safety of their suppliers in Bangladesh. Adidas recognises that if a fire outbreak occurs in one of their branches, the entire company is affected. Supplies will be disrupted, leading to widespread implication on the company’s profitability. The company, focusing on improving productivity, commissioned an independent structural engineering company to visit the eight factories supplying for Adidas group to ensure that they have all the necessary requirements to ensure safety of workers. Systems for addressing complaints about human rights are critical in companies focusing on corporate social responsibility. Adidas strives to know areas of operation where they have negative impacts on employees, customers, and workers (Trost, 2013). Infringing human rights has implications on company caused by reactions that characterise humanity to these implications. This is why Adidas launched the improved Third-Party Complaint mechanism in November 2013 (Adidas, 2014). The company’s Third-Party Complaint Mechanism aims investigating and resolving complains in more robust and transparent ways. When complains are handled effectively, the company will increase its potential to inspire trust and confidence among public members. The benefit of customer having confidence and trust in Adidas company is that profitability and shareholder value will increase. Human rights, as emphasised by Adidas, has the potential for enhancing the company’s image with consequent increase in profitability. Adidas recognises the power of fair play in business performance. In Adidas’ fair play policy, the company focuses on ensuring sports activities are enjoyed on their own sake while considering fairness, ethics, and respect for the company’s competitors. Using the Fair Play Framework of 2013, Adidas appreciates the relevance of policies, regulations, tools and processes that help the company in enhancing timely prevention, detection and response to compliance violations. Compliance issues have serious effects on company performance; hence, the necessity of maintaining compliance across all operations is critical in the modern era characterised by several regulations intended to protect consumers. The company has established a local network of compliance officers who reports all suspected cases noncompliance so that the company can investigate and appropriate action taken. The contact person of the network is the Works Council or Chief Compliance Officer (Fisk, 2010). Instituting such a critical office in the organisation is an evidence of the company’s seriousness towards ensuring fairness. To strengthen the network, the company has established toll-free Fair Play Hotmail and Fair Play Email, which are available 24/7. Recognising and fair treatment of displaced workers is the topmost priority of Adidas. Gamble, Peteraf and Thompson (2015) assert that during organisational changes and closure of businesses, several people are victimised through loss of jobs and displacement. According to Fisk (2010), it is necessary to treat the affected workers with dignity and fairness. The unethical closure of business in Tangerang, Indonesia caused a lot of displacement for workers. Adidas Group spent $525,000 in humanitarian aid and placement services for affected workers in 2013 (Adidas Group, 2014). The union of workers and the affected workers reported their appreciation to fulfilling of the company’s promise. The settlement is believed to have a real impact on lives of workers. According to the principles of corporate social responsibility, any business endeavour should be dedicated towards improving the lives and welfare of humanity. The recognition of employer health remains the key consideration of Adidas Group. The company created a Health Management department and integrated it into the department of human resources with the goal of creating sustainable health community. Adidas Group achieves this by providing employees with support and resources meant to help them achieve and maintain a healthy lifestyle (Peng, Chen & Narain, 2007). Adidas integrated the health management team with other organisational functions concerned with creating a healthy Adidas community. Adidas launched World of Kids day care in September 2013 with the aim of ensuring workers stay healthy and motivated. Kids, according to the company, need to socialise as they grow up. Adidas World of Kids day care accommodates 110 kids (Adidas Group, 2014). The main activities carried out include movement, dance, music, natural sciences, and art. The centre fosters learning through collaboration among the children and their parents. Adidas has also established a large gym and an indoor playground, which provides avenues for employee interactions/socialisation. Environmental Performance Adidas recognises widespread environmental harm caused by its production activities. Contemporary customers in the developed world have become conscious the environment and enlightened on the ramifications caused by environmental pollution. Thus, they only buy and use goods and services that are produced using environmental-friendly processes. The need to minimise these environmental ramifications constitutes the priority in the company’ environmental conservation endeavours. The management accepts the fact that the company’s production processes are perilous to the environment; environmental performance of the company is based on the extent to which Adidas is striving to minimise its consequences to the environment and ability to reduce the amount of natural resources in its production processes. Adidas DryDye tee-shirt won industry award in 2013 (Gamble, Peteraf & Thompson, 2015). This is one of the indications of the company’s efforts towards minimising environmental ramifications caused by industrial production. Initially, the company was using comparatively large amount of water, energy and chemicals. This was highly detrimental to the environment since it was over-exploiting natural resource, over-using energy, releasing too much chemicals to the environment. Adidas DryDye technology received outdoor industry award for its Spring/Summer 2014 Terrex swift DryDye teeshirt (Adidas Group, 2014). The reason for this widespread recognition was because the Terrex Swift DryDyre tee-shirt had high ecological and sustainable features, which are the basis of the award. According to the sustainability report, the company usually takes 25 litres of water to dry tee-shirt; however, the DryDye technology has eliminated the need for water in the dying process (Adidas Group, 2014). This saves water used in the production of tee-shirts by 25 litres per tee-shirt. Compared to conventional fabric dyeing, the DryDye technology reduces the amount of energy and chemicals used in the production by 50% each. This reduction is largely saving since it minimises the amount of inputs in the production process. Currently, the company has used more than 2 million yards of DryDye fabric; this number of yards can save more than 50 million litres of water, which is really saving in terms of natural resources. The company recognises that environmental footprint constitutes the fundamental causer of pollution. Samples given out prospective buyers cause a lot of environmental degradation. To reduce environmental degradation, Adidas introduced virtual images to sell-in their products to our markets instead of creating physical samples. The company reduced the number of physical samples to 1.5 million between 2011 and 2013 (Adidas Group, 2014). Reducing physical samples also minimises environmental degradation through saving water, energy and greenhouse gas emissions caused during the production of samples. Transportation process also causes a lot of pollution, which is reduced through minimised environmental pollution because only few samples need to be transported. Adidas designed a low-waste initiative; the aim of the initiative was to maximise performance while minimising waste. The initiative made great progress during the year 2013. Adidas Group might have recognised that their production processes are characterised by excessive emission of pollutants for air, water and land. The company decided to respond to this through producing footwear fewer parts, recycled materials, and maximum pattern efficiency. Adidas Group created a collection of clothing for both men and women with more than 95% pattern of efficiency (Adidas Group, 2014). In order to eliminate environmental impact, Adidas use squares and rectangles in recycled polyester. The polyester is paired with stretchy inserts with the aim of guaranteeing a high performance fit. Sourcing most of the cotton as Better Cotton is a remarkable step by the company is the greatest milestone towards enhancing sustainability of the raw material. Adidas sourced 23% of all cotton as Better Cotton in 2013 and plans to achieve 40% and 100% in 2015 and 2018 respectively (Adidas Group, 2014). The benefit of sourcing better cotton is that it discourages organic production that is harmful to the environment. According to Adidas, the objective of the Better Cotton Initiative constitutes reducing use of pesticides and promoting efficient use of water, crop rotation and efficient conditions of work. Adidas cites a recent research carried out by the Sustainable Trade Institute; findings from the study revealed for those farmers licensed for Better Cotton, the Better Cotton Initiative has reduced water use by 20% and pesticide use by 67%, leading to increased farmer profitability (Adidas Group, 2014). Adidas promote the Better Cotton Initiative by allocating more volumes to suppliers operating within the Better Cotton region. This kind of allocation attracts more farmers into the initiative because they want to have larger volumes ordered for. This is why Adidas significantly exceeded their target of 15% and achieved 23% in using Better Cotton. Adidas strives to eliminate the environmental footprint from the suppliers’ sites too. The company has encouraged Framas to develop a new heel counter material as opposed to thermoplastic rubber whose prices have been significantly rising over time (Adidas Group, 2014). Thermoplastic rubber has replaced the virgin polystyrene component of the compound with recycled polystyrene from food packaging. The company, therefore, promotes the 3R strategy of environmental conservation. The 3R’s stands for Reduce, Recycle, and Re-use. Using thermoplastic rubber will reduce 1,500 tonnes of the waste product from landfill sites. This implies that Adidas has saved the environment destruction that would have been caused by 1,500 tonnes of waste products. Adidas launched a green company initiative in 2013. This was one of the company’s strategic initiatives for reducing environmental footprint of their own sites. The core objective of the green company was to extend the environmental management systems to more sites (Trost, 2013). This was planned to be achieved through funding innovative projects leading to reduction carbon. The Green company initiative has received a certification from the international standard ISO 14001. By 2013, Adidas had achieved certification in 12 of their centres. Adidas targets to reduce the environmental footprint of Information Technology infrastructures in 2015 by 20%. This target, according to Adidas Group (2014), will be achieved by ensuring that 80% of their computers have green power management options, reduce the energy consumed by PCs by 20%, request for proposals to evaluate green performance of vendors, and virtualise services and consolidate data centre. Minimised pollution effects enable the company to build a good public image and gain trust by the customers and the government. Conclusion Competitor companies in the sport industry are posing cutthroat competition to Adidas. Inter-comparison with Nike and intra-comparison with the year 2012 reveals that Adidas’ financial performance seems to be lower than expected. However, the Chief Executive Officer has the vision of achieving the best in the industry and has promised to continue seeking additional local and cross-border markets to increase customer share and improve value for shareholders. Adidas has been recognised for widespread involvement in social and environmental activities with the aim of improving lives and welfare of humanity. The environment where the company operates has been the major focus since company owners recognise environmental ramifications caused by their production activities; hence, they have accepted responsibility for the environment. The management should maximise on markets where exchange rates are favourable and seek more markets in the countries characterised by stable rates of exchange. This will increase customer base and profitability with consequent improvement in customer value. Reference List Adidas Group (2014). Financial Statements of Adidas AG for the Year Ended December 31, 2013. http://www.adidas-group.com/en/investors/financial-reports/ Adidas Group (2014). Sustainability Progress Report 2013. http://www.adidas-group.com/media/filer_public/2014/04/14/2013_sustainability_progress_report_fair_play_final_en.pdf. Fisk, P. (2010). People, planet, profit: How to embrace sustainability for innovation and business growth. London: Kogan Page. Gamble, J., Peteraf, M. A., & Thompson, A. A. (2015). Essentials of strategic management: The quest for competitive advantage. New York, NY: McGraw-Hill Education. Peng, Y., Chen, J., & Narain, S. (2007). Adidas. Singapore: Page One. Trost, E. (2013). Social media marketing in BRIC countries: Examining case studies of BMW, Adidas and NIVEA. Berlin, LT. Read More