Adidas Generic Strategy - Case Study Example

Topic: ADIDAS GENERIC STRATEGY (Name) (Institution) 8th April, 2008 (Course) (Tutor’s Name) Executive summary Adidas Company was established in 1924 and is the world’s second largest company in the world in the manufacture of sportswear. The company has transcended all odds to expand its operations in almost all parts of the world. Most of the mature markets for its products are in Asia and North American region. Technology has greatly helped the company in achieving its main objective of being the best company in customer satisfaction through enhancing rapid response to customer’s claims. The company operates both in the economic as well as the political arena. Both of these environments have effects on the companies operations which either interfere or promote the development of the company operations. The company has different brands for its products which are tailored to meet the diverse requirements of its customers, for example, there are products which are manufactured for various games such as football, netball, volleyball, cricket, hockey, tennis, running and they all suit the games they are used to play. Introduction Adidas is the largest manufacturer of sports wear in Germany. It is also the second largest company in the world among the sportswear companies. It was established in 1924 by Adolf Dassler who was later joined by his brother Rudolf Dassler which was transformed into Dassler Brothers Shoe Factory and it performed well in its initial years of operations because 200,000 were sold every year before the world war two erupted. The company split in 1948 because of the misunderstanding that came between the two brothers and each one of them formed his company with similar operations. Rudolf formed the Puma Company and Adolf remained with the original Adidas. The company formalized its registration under the name Adidas AG in 1949.The company witnessed a period of trouble which followed the demise of Horst Dassler who was Adolf Dassler’s son. As a result the company was bought in 1989 by Bernard Tapie who was a French industrialist. He bought the company for 1.6 billion francs which is estimated to be currently 243.918 million franc. Tapie managed this because he was famous in rescuing bankrupt companies and his reputation was well known by all the financial institutions that funded him to purchase Adidas. Following purchase of the company Tapie decided to relocate its production activities to Asia and hired the famous American pop singer and song writer Madonna to promote the companies products. Failure to pay interest for his loan caused Tapie to mandate the Credit Lyonnais bank to sell the Adidas Company. The company was sold in 1993 to Robert Louis who was a close friend of Tapie for a higher mount of 4.485 billion francs rather than 2.85 billion that Tapie owed the bank. Robert became the CEO as well as the president of the company and owned the Plympique de marselle football team which was owned by Tapie until 1993.Towards the end of 1997, Adidas AG purchased the Salomon Group which was a company that specialized on the production of ski wear. Following this acquisition the corporate name changed from Adidas AG to Adidas-Salomon AG.A. Series of forward acquisitions followed with the purchase of Taylormade golf and the maxfli companies in early 1998. More integration came in 2004 when the top English designer Stella McCrtney entered into a joint venture with Adidas which became a long term agreement and corporation between the two companies. The company introduced its first technology in the production of its shoes when it utilized a microprocessor in its production. The company's dubbed the shoes “the world's first intelligent shoe”(Graham, 2004). Products and services Adidas has a wide range of products which includes shoes that can be used in basketball, baseball, running, soccer, tennis, training and cycling. About 12 brands have been designed purposely for playing baseball and this include, Excelsior 5 TR, Diamond King TPU Mid, Diamond King TPU low, Excel IC Pro Low, Diamond King Metal Low, Excel IC Pro Mid, Diamond King Metal Mid, Excelsior 5 Low and the Pure Hustle. The shoes designed for basketball include the TS Lightswitch Gil Channel Zero, Moss wood, TS Lightswitch Gil Hibachi, 2G’08, Elemental 4 Motion 2 TD, the Elemental 4 Motion 2 TD and many other shoes used for basketball. The popular brands for playing tennis include Barricade IV, Barricade 5, a3Accelerator, Barricade 2 Mid, Barricade II, ClimaCool Feather 3,ClimaCool Boom 2,Tirand 3, Response +3 among many other brands of tennis shoes. Several brands have also been established for soccer and these include,RB619 TUNIT, Paydirt 2 D,Grid Iron 7 D Mid,RB619 Fly, Pro Intim D Mid, Scorch 7 Fly Mid, University 3 Low, Scorch 7 Field Turf Mid,RB619 MD, Pro Intim D Mid and several others designs of soccer shoes. Those that have been designed for rugby players include, Rugby Regulate 3 Low, Rugby Regulate 3 Mid, Rugby Flanker 3 and several other designs suitable for playing rugby. Among the popular wrestling designs include, Tyrint 3, Mat Hog and the AdiStrike. There are several new arrival brands which include Predator Absolion PS TRX AG, Telstar 2 TRX FG, Absolado PS TRX FG,AS 1,Fast AS Low, Yorrissage 2,Grid Iron 7 D Mid, Elemental 4 Motion 2 TD, Tellex Low GTX, Stabil 7, F30.8 TRX FG and the F30.8 TRX SG. The designing of the company’s products is done putting into consideration gender needs which has enabled the company to come up with Adidas shoes for male, female and Kids. Women shoes range from sandals that have been designed to be used during the summer seasons to those that can be used in playing different games (Naeim, 2006). For example, adiZero CS, Supernova Cushion 7 and the adiZero Tempaya are some of the shoes that have been designed for various games. Popular shoes that have been designed to be used by women when playing football include, Superstar 2G and the TS Championship Tennessee Lady Vols. Women running shoes include the Megabounce 2008,ClimaCool Gazelle CC, Supernova Cushion7, Megabounce+NeoStar, Boston, Duramo, Microbounce DLX 2008,Boreal Trail and the adiStar Control 5.Designs for women soccer shoes include, Absolado PS TRX TF, Matteo 8 TRX FG and Matteo 8 IN. Women shoes designed for playing volleyball include, Stabil 7,Vuelo ClimaCool and the Top Vuelo ClimaCool. Those that are specifically designed for women tennis players include, ClimaCool Divine 2, a3 Prevail, ClimaCool Ivy 2, Nastase Millennium and the Smith Hardware IV. The women shoes designed for training include, Sahira, Microbounce+TR ADL,Classic Cheer, Jhana Luxury, Calo, Lakano,a3 Nenglo 2,LS-Move,Lightster,Amala Luxury and the LS-Move. Shoes designed for kids are divided into two, that is, for girls, for infants and those of boys. Superstar 2G Ultra is a shoe design that is specifically designed for young girls and it can be used for multiple functions. Other products in this category are girl’s sports clothes such as the adiSport Top and the Playground Capris. Political arena The policy of the company is to protect the health of the human beings by monitoring hazardous substance that may be detrimental to the health of the human health. It also strives to protect the environment by eliminating the making of the PVC and finding substitutes such as ethyl vinyl, polyurethane, thermpoplastic rubber and the silicones. This is in adherence to the Kyoto protocol of environmental conservation. It also ensures that its employees according to the set regulations are well taken care of and the human resource systems safety and health are observed in the company. The company also strives to protect the rights of its employees by observing and following the set employment laws. The company's operation has also met different challenges and difficulties that emerge from the political arena. The politicians have been in the fore front increasing minimum wages for the employees in different companies in their respective countries. For example, the government of Indonesia through its ministry of manpower increased the minimum wage from Rp 4.800 to Rp 6.000.This new regulations did not augur well with the company's objectives because the condition of the shoes industry in that country was at recession. The company feared that if the new regulations are implemented then many of its factories in the country would automatically close down and followed with the consequences of losing the working fields. The political system has been in the fore front targeting the shoe industry which they claim that it has neglected its workers health and work environment. Many laborers are said to be in bad health which causes sickness and fainting due to long hours of working and only two companies are said to have polyclinics. The rest of the shoe companies Adidas included are said to provide only pain relief medicine. The politicians have continuously agitated that workers in the cutting departments of the company suffer from severe cuts because no safety devices are provided to them. They are said to frequently suffer from skin and eye irritations. The company is also accused of practicing child labor in its various departments. The 75 labor interviewed, the interviews explained that working at the shoe factory is quite tiresome but because the children have got various needs in their lives as well as in their families they are forced to stay in the company to get financial support. As a result the children frequently fall ill and are dismissed from work. The new measures that have been put in place by various countries in curbing this practice have come with harsh penalties which have affected the operational of the company in many countries. For example, in some countries the company once found practicing child labor is forced by the laws to educate that child until he/she completes education. As a result the company has found itself suffering from bearing unnecessary cost because of dishonesty of some employees who show fake document that they are adults but once employed they get the real documents to prove they are children hence demanding to be educated by the company Economic arena The company's economic arena is divided into Macro as well as the socioeconomic environment. This revolves around the tax reforms, currency exchange rate and the interest rate changes which are very crucial factors in determining the production capacity of the company. These factors provide good opportunities for company's optimization and they are useful as potential opportunities which help the company cut the non-operating expenses. Potential markets are also adequately researched on and more attention directed to those markets. For example the most potential markets which are of great interest to the company are Russia, India and China. Sales are projected to increase by 30% in these emerging markets within a period of five to ten years which is viewed as a value above the average GDP. Contributory factors to this are raising middle class people, demographic trends, rising real incomes and also rates of employment increase. The company's extensive distribution network, leading position as well as the excellent sponsoring partnerships, to breach the gap between demand and supply the company manufactures enough shoes and other sport wears putting into consideration the extent to which the different products are demanded. Where the distribution channels remain underutilized the company uses its retail activities in order to capture growth in those emerging markets. During the first years of integration the company has adopted vital steps such as acquiring the production rights in markets such as China, Russia, Slovakia, Czech Republic and Turkey. Some popular games such as golf have also accelerated the demand for the company products. The accessibility to golf by many high and middle level class people has spurred an increase in demand of the golf shoes and clothing. Due to poor health resulting from obesity and aging population more resources are being channeled by governments in curbing this extra burdens in more mature markets such as the North America and the Western Europe (Warren,2001). Issues and programs such as Personal Health Investment Today have risen both in the media and among the general public. As the society strives and is encouraged to stay health sports are inevitable. The company sees this as a good opportunity for providing shoes and other sport clothing’s which can be used by those aspiring to stay healthy during their training sessions. Women are deemed to be the best customers for the company's products because the women sports segment is the fastest growing segment. They account for half of the spending on athletic footwear. They are also key decision makers in men’s purchases of sports apparel, children and women. Reebok has a leading market position in aerobic especially with the women footwear. The collaboration of Adidas with Yohji Yamamoto and Stella McCartney has made the Adidas Company build a strong recognition in its two lucrative sports segment specifically for women which are, designer fashion products and sport specific performance. More women participation in lucrative games such as golf has made the company move an extra mile into introducing shorter shafts and lighter weights shoes which are designed to be used by women. The characteristics of the market such as authenticity, individuality and style have enabled the company broaden its products to meet these needs. The company's human resource department strives to get the best people to employ because individual contribution is perceived as an important step into advancing to greater heights. As a result the company seeks for talented people who are able to work to minimize cost and maximum profitability of the company. Putting in mind the fact that the company is exposed to global marketplace potential and significant growth rate is necessary for the company to compete adequately. Its key rivals builds on its weakness and they are able to penetrate into emerging markets with minimum difficulties. As observed by Garry (2001) the company employment strategy all over the world is therefore directed to getting the best people who can close all loopholes that exist in the company. Focus on kids is the main agenda in the company's production line in the medium term. The Asian markets and the northern American markets are the two key areas where kids’ shoes are in high demand and expansion into those markets is quite necessary. Specific products that address key needs of the children have been designed so as to increase a catch in those markets. With the recent partnership of Reebok, Adidas and the primier toy as well as other entertainment companies such as Hasbro and Mattel high chances of creating innovative products for young consumers have been established. The company has expanded its branches into the grass roots in order to capture a greater share of the markets in the kids segment and ensuring also that the company establishes an early association between sports and its brands at an early age. This is because children in sports are still a future target group for many sports brands. Expansion into emerging market categories where the company's brands have been not adequate represented is another opportunity the company seeks to address. Out door, skate and sport fusion are emerging categories of sports which are rapidly growing where the company is intensifying its efforts. The out door activities which include hiking, walking, trail running and free running are some of the best categories of sports where the company is also putting more effort in order to come up with products suitable for this activities. Since only 10% of these categories of sports have been exploited the company has a potential of moving forward through utilizing full power and capabilities for design teams and development. Running categories still has a potential of growing further because running population is changing with high rates of growth among being in the older as well as the female athletes. Running is being done by many people for various and different reasons such as stress reduction, weight loss and participating in running competitions. Demand for apparel and functional footwear is expected to hike in the sports largest product category. Through being innovative pipeline there are high chances of outperforming market growth and increasing the market share. The running market will be exploited fully in a more useful way using the multi brand approach, which is the tailoring brand to effectively meet the diverse consumer base. Presentation of brands at the consumer point of sale is an important step forward into achieving the key objectives of ensuring the company's products compete effectively with other companies’ brands. This is viewed as a way of not only increasing efficiency and profitability but also enhancing bond with the consumers. Using closer cooperation significant improvement in marketing and in store experience for the company's products can be achieved. Establishing partnerships with INTERSPORT, JJB and Dicks sporting Goods which builds shop-in-shop format is crucial in ensuring that the company's products are well exposed to the customers. This is also important because the company can be able to get first hand information and feed back from the customers about its products quality. This method of market penetration is vital especially in markets that have been occupied by price as well as markets that lack product differentiation. Premium partnerships are vital to demonstrating credibility, authenticity and also in supporting innovation. An enviable partnership which includes major events such as Beijing Olympics 2008, UEFA EURO 2008, FIFA WORLD Cup 2010 and partnerships with other leagues such as NHL, NBA, MLS and NHL as well as partnership with world soccer famous teams such as the Chelsea FC, FC Bayern Munich, Real Madrid is such a good step in helping the company market its products not only in Europe, but also in other major market segment that have been under exploited. Future revenue generation of the company is made simple through the broad platform of partnerships which provide the company with important predictability as well as visibility approaches for future potential markets. The company is in high gear seeking unique and positive partners who have high visibility and can showcase its brand values with key consumer groups. This is projected to increase the company's indirect and direct return on investment. The company is also in the process of establishing strategies for cost optimization necessary to improve profitability. Since cost control and cost optimization are crucial in achieving return on investment and profitability levels the company is striving to ensure that its profit margins are above or at par with its competitors. This can only be achieved through reduction of working capital, optimizing cost drivers and enhancing profitability. The supply chain being an important segment of the company need to be made efficient and complexity reduced to optimize the cost base (Lamont, 1996). Social arena Adidas has been in the forefront in corporate social responsibility. It has been involved in numerous undertakings all aimed at ensuring that the social life of its employees and the community as a whole is improved. This is done through construction of schools, sponsoring the lever but needy students, lending a hand in times of famine and other natural catastrophes. The goal is to give back to the social community what they have given to the company’s Legal arena Due to the increased nature of its activities the company has found itself crossing roads with several groups and individuals who feel oppressed by the company’s operations. As a result the company has lost millions of dollars in compensation terms even though some occurrences are due to the negligence of the people seeking compensating. This and many more have made the company to establish a strong legal department which rises against any accusations or against its operations. This is done through seeking legal evidence of the accusations leveled against the company and in the recent years the company has managed to cut its costs from compensation by a greater margin. Technological Arena The company has faced various challenges because they needed to reduce the time that customers took to make claims and also for their requests to be addressed. The inferior technology that the company has been using has posed a great challenge to the company's giant operations because the customer service department lagged behind in processing claims as well as too much paper work and this resulted into inefficiency in managing work flow processes. The manual work consumed a lot of time and became extremely difficult to track customer records. The records that required confidentiality were not properly kept which caused a great concern for the department of legal affairs in the company. A lot of money was lost on claims which resulted from improper record keeping. The other challenge was the transformation of the company's large volumes of the company's written data into electronic format. The company began utilizing the Global 360 Enterprise in early 1996 which was perceived as an important step in customer service department in order for transition into microfiche from paper work. The implementation of the Global 360 made clearance of documents faster and users located documents instantly which went along way into increasing productivity. Currently the Global 360 technology is providing the company with management solution and it has also enabled the company's different departments to get interconnected thus saving time for communication between different departments. The main goals of this new technology are getting real time access to files belonging to the customers, streamlined processes of efficient work in the organization, ensuring cost savings in claims and credit management, faster processing of claims, elimination of paper based indexes and files and finally faster access to documents. There has been considerable achievements that has been noticed in using this new technology such as improved and increased customer response duration, automatic as well as seamless process management, reduced time for claims, reduced cycling time, simple integration with other solutions of the enterprises, increased and efficient productivity and work flow, consolidated invoicing as well as simplicity in integration of legacy records to the BPM system and finally the costs of doing business has been greatly reduced using this new technology (Jay, 2000) Strengths, weaknesses, opportunities and threats facing the company The strengths of Adidas Company include the sponsoring of big events, it has a strong managerial team, and it has a diversity of goods and services which are can be accessed through the web, it also has a strong control over its distribution channel, brand reputation and recognition and it has no bad reputation about child labor. However the company has also weaknesses such as high prices for its products in some parts of its market, the sale directly to the consumer sometimes raises conflicts with its resellers, the use of e-commerce is limited in the United States and finding customers online becomes a hard task. The company has several opportunities which include the collaboration with retailers so that its products can be sold in shops, there is another opportunity of outsourcing the e-commerce and web development to a third party developer and another opportunity is the fact that women participation in sports has significantly increased. There are threats that Adidas company faces which include the strong reputation the Nike Company holds especially in the apparel and footwear industry, the damaged reputation of the company by Kobe Bryant in the sexual assault case, challenges brought by export/import duties and increased prices of raw materials. Resources and capabilities of the company The leaders in the company have adopted the democratic style of leadership as well as authoritarian style of leadership which is necessitated by the giant nature of the company’s operations. It has a supervisory and an executive board. The executive board is composed of four members who come from various cultural diversity which reflects the diversity in the international market. Supervisory board is composed of six members who represent shareholders in the employee’s conferences. The company has resources that range from well qualified and skillful human resource to scarce physical resources that it uses in the manufacture of its products. Most of the resources are imported from other countries. The major source of its resources is the United States with least resources coming from Africa. The company has numerous capabilities. Its Group Global Operations segment coordinates the commercialization, development, distribution and manufacturing of its products and contributes a lot in improving the company's supply chain. Independent suppliers manufacture the company's products especially those located in Asia. High product quality is the key to global operations as they also strive to optimize the supplier network in order to raise cost efficiency in the whole supply chain. Reebok integration into the company's supply chain has raised the leverage and the buying power which are important in driving significant cost savings. Speed to market, flexibility, quality and deliver performance remains the high priority of the company. Nearly 100% of the company's products are produced by independent manufacturers. These independent manufacturers are provided with key specifications for delivery and for production so that they produce products which are in line with the company's mission. In the year 2006 alone the company was able to work with approximately 547 independent manufacturers excluding Reebok. 66% were from Asia, 15% in the American regions and 19% were located in Europe. Of the 66% located in Asia 39% were located in China. To ensure that products meet the quality standard required the company maintains strict inspections and control procedures in all its supply chains. A part from this the company strives to adhere to the environmental and social standards in all its supply chains. The main competitors of the company are Nike and PUMA which capitalize on the main market segments that are not yet exploited by the Adidas Company. Though the products are designed to serve similar purposes Adidas products are unique in quality and they are more sought by many consumers. PUMA has recently set its foot in the Asian market to try and out do Adidas. The company is using forward acquisition strategy and mergers with the local companies to ensure that it exploits effectively the markets in that region. Through its announcement that it had struck a deal into acquiring Reebok in August 2005 for 3.8 billion dollars the company remains in the forefront of many of its competitors in the shoe and clothing production (Laura, 2003). Conclusion The company has a great potential of penetrating the emerging markets because most of the famous soccer clubs and running associations have partnered with the company to ensure that its products are well marketed all over the world. Through its effective and efficient supply chain the company has been able to advance its network of operations in the most difficult and competitive markets. Its diverse range of product make the core competitive strategy the company has used to be able to acquire new markets for its products. As a result the company has partnered with independent manufacturers who in one way or the other have necessitated the rise in demand for the company’s products. Due to this the most important segments of the market have been adequately exploited. References Garry, A.(2001). Adidas and transnational corporations, (Colorado: Giulianotti press). Paul, D. (2002).Political environment surrounding Adidas, (Rutledge, Rutledge publishers.) Clara, I. (2005).Adidas and Nike comparison, (Curitiba: Ashgate publishers). Naeim, H. (2006).Adidas sports shoes and core competitors, (Arado: Abougomaah publishers). Laura, P. (2003). Corporate environment of Adidas, (Wokutch: Greenwood publishers) Graham, J. (2004). Marketing strategy and positioning, (London: Oxford University press.) Janet, B. (2007). Sports management techniques, (London: Prentice hall.) Jay, J. (2000). Increasing competitive environment in the Adidas company, (London: Oxford Press) Lamont, C. (1996). Implications of economic and political environment on Adidas operations, (Island: Island publishers.) Robert, D. (2000). Dynamic management environment of Adidas company, (Heinaman: Heinemann publishers.) Warren, J. (2001). Global marketing management, (London: Prentice hall.) Read More