Strategic audit of Asics Corporation - Research Paper Example

? Strategic audit of Asics Corporation [Insert and Unit] Strategic audit of Asics Corporation Introduction After the First World War, a Mr Onitsuka Kihachiro started a small business; Panmure company to make basketball shoes in his Kobe hometown, and quickly gained popularity in manufacturing sports equipment. The 1966 Mexico design is among the most noteworthy designs by Onitsuka. The company merged with JELENK and GTO to form ASICS corp. in 1977 and has grown from strength to strength over the years. A strategic audit refers to the scrutiny and reviewing of the strategic management processes that a company employs. It entails evaluating a corporations’ performance measured against its overall corporate (and business) strategy. Companies initiate strategic audits in situations where there is a disparity between its corporate performance and its strategic corporate goals. The corporate and business performance of a corporation is affected by both internal and external factors as well as the activities of competitors within the same industry. A strategic audit is an important tool for company managers and boards to pinpoint problems and hurdles preventing the achievement of their corporate strategic plans. This paper will evaluate the corporate performance of Asics Corporation by appraising the external factors, internal factors, the industry it operates in and its competitors. It will also draw conclusion and strategic recommendations based on the analysis done. Literature review Institutions are unable to discharge their corporate governance duties effectively until the boards concerned fully take ownership of the organizations’ strategy by conducting thorough audits much in the same way that financial audits are done (Rabate, 2007). Strategic audits are therefore indispensable tools for helping management and boards make competent and sound decisions about the firm in order to achieve its strategic plans. The performance of an organization in achieving its corporate plans are affected by both internal dynamics such as management, business strategies and key decisions for instance on production methods. External factors that include economic, political, and environmental as well as demographics affect the company’s performance. In evaluating internal factors, the age of the firm, its production processes and competencies, strategy, competencies and strategies in marketing and its management will be the centre of focus. This will be done using business tools of SWOT analysis and PESTEL analysis. SWOT means Strengths, Weaknesses, opportunities and Threats and evaluates both the internal and external environment in which a firm operates. SWOT utilizes an integrated approach in auditing a firm and is one of the most useful and widely used tools to evaluate an organization logically, and if properly used is an important strategic planning tool (Ferrell & Hartline, 2008). External PESTEL on the other hand stands for Political, Economic, Social, Technological, Environmental, and Legal factors as they affect an organization and this mainly evaluates a firms’ external operating environment (Lorat, 2005). Political factors affecting Asics Operating globally in different political environments requires Asics to adapt and abide by business and corporate regulations in countries it has presence in like North America and Europe. These are in terms of taxes to be paid and business regulations. Economic factors affecting Asics Foreign exchange fluctuations greatly affect Asics financial performance, for instance in 2008, its third quarter performance was lower than expected due to large swings in foreign exchange rates. This for instance saw its shares falling by 15 percent (Hall, 2008). The global financial crisis saw its 2010 earnings and revenue fall compared to 2009, after a three-year period of steady rise in revenues (“Financial Times”, 2012). Social factors The world’s populations are beginning to put greater effort into their health and fitness, spawning a new running boom that has created and will continue to create a big market for sports goods and equipment. Asics can take advantage of this to expand its other business lines especially apparel which is still small compared to rivals like Nike (“Aviva”, 2012). The fitness ‘boom’ witnessed in the past decade should continue and this has been responsible for Asics impressive revenues especially from running shoes as its shoes are given good reviews for their quality, comfort, and durability. That the world’s middle aged people who are in the middle economic class is increasing provides an opportunity for Asics to increase its luxury product lines. Technological factors Asics adopted the PML suite in its systems in the USA to reduce the time products take to the market, lower costs of production and improve the quality of its products. The system will improve efficiency and quality and reduce the use of manual systems in its production processes (Woodard, 2012). It has a state of the art research and development facility in Europe, the US as well as in Japan, which are responsible for its high quality innovative products. Environmental factors affecting Asics In its corporate social responsibility, Asics continues to advocate for environmental responsibility. It has initiated environmentally responsible programs like resource and energy conservation, use of eco friendly materials and processes in its production and implementation of environmental management standards based on the ISO 14001 standards in 2009 (Sano, 2009) for Japan and the same award for its European unit. It has an environmental policy that among others is designed to reduce its adverse environmental impacts, use green products in its product offering; accounting for 25 percent and reduce emissions. Legal factors Asics has to comply with employment laws and regulations in all the countries it operates in. this has led it to enact codes of conduct and ethics that prohibit the use of child labor in any of its facilities and by any of its suppliers Internal Asics began in 1949 as Panmure Co. and grew steadily in volumes and stature; merging with JELENK and GTO in 1977, to form Asics Corp. It has been know as a producer of quality sports goods and shoes. Due to a long history in sports and leisure goods production and experience in the industry, it is able to perform well in terms of sales, profitability, and revenue. Their shoes for instance which are made with Gel technology have received rave reviews and been praised for comfort and durability by users. Asics shoes are rated as being much better than one of their biggest competitors’ Nike in terms of quality of build, comfort, and durability. The Asics shoes do not cause blisters or adjust the structure of the foot, but conform to the feet’s’ natural structure. This is important in preventing long-term leg damage and injury (“Nike vs. Asics, 2012”). Their running and training shoes have been described as ‘amazing’ and this enabled them get the contract to kit the Australian cricket team, replacing Adidas (Tom, 2011). ASICS focuses on three business lines of sports lifestyle products, athletics sports business and health business Production processes and competencies enable a firm to make a wide range of products, build reputation for instance for quality and specialty products and brand loyalty, and lower the costs of production and operations, which all improve the firms’ competitiveness (Conant, Mowka and Varadarjan, 1990, as cited in Acar, 1993). They have a high-tech research and development at its Kobe institute of sports science and are responsible for its revolutionary technologies like the gel Kayano Asics shoes and the Asics Gel Nimbus. Asics management has for instance adopted the PLM suite in full (Lawson fashion lifestyle product management) to reduce Asics’ products time to market, lower costs of production and improve quality. The system will do away with ad-hoc and manual systems; create continuity in how the company works internally with the areas of design, sourcing, and streamline and improve manufacturing (Woodard, 2012). The management at Asics is pragmatic and forward thinking with employee development programs that enhance innovation and high quality production techniques. The management uses technology to a great deal to minimize costs and maximize revenue by adopting the latest technologies. Marketing at Asics is streamlined with different divisions, both local (Japan) and overseas having their own marketing systems. The company uses its endorsements by leading sports personalities to gain brand positioning. Asics monitors discussions on its Tiger brand on social networking sites to position and improve its products. Its sponsorship of major teams like the Australian cricket team gives it a lot of publicity. Asics strategy; the company has come up with a five year plan for growth dubbed ‘AGP (ASICS Growth Plan)’ 2015 and will form the impetus for its intended global growth with a target of net sales (consolidated) of $ 5 billion annually. The organizations’ philosophy because of the new strategy is structured as ‘ASICS SPIRIT’ in the whole group. The company in its new plan includes its code of conduct and values were added to its founding policy, corporate vision, philosophy, and its challenge plan to form an integrated vision. The overall vision for its employees is to act with the customers’ interests being the central guiding factor and is implementing a strategy of creating quality lifestyles by using intelligent sports technologies. It also aims to provide innovative products that add value to the customers’ life and needs while its organizational strategy is that of an established global organization. ASICS has a target, in its policy of revenues exceeding $ 5 billion annually, ROA (returns on assets) of 8 percent or higher, ROE (return on equity) of 15 percent or higher with operating incomes upwards of 10 percent. SWOT analysis of ASICS Strengths A long history of being in the same business giving it unparalleled experience and skills. Strong growth in revenues especially between 2007 and 2009; its revenues grew by 4.9 percent in 2011 over 2010 from $ 2.75 billion to $ 2.88 billion with net income growing at a remarkable 32.7 percent from $ 102 million to $ 141 million for the same period. Strong global brand, which ranks at fourth in terms of brand strength and ninth in terms of revenue. Highly inventive and low cost production systems and models Quality durable products that has received wide positive reviews Global presence with streamlined management style Visionary management that emphasizes innovation Strong performance in both fashion and sports brands Opportunities Develop new overseas markets based on its quality products Diversify product portfolio to include fitness gear Enter new and emerging or growing markets like China, Brazil Increased interest in fitness particularly running should give it an advantage in the ports shoe business Develop its apparel products portfolio Weaknesses Small product range/ portfolio Weak performance in the apparel sector and lags behind the leaders; Nike and Under-Armor by a wide margin (“Asics America’s Nobuo”, 2008) Threats Expansion by its main rivals Low sales volume (a tenth) compared to the market leader, Nike Small product range/ portfolio Strong yen against the dollar makes its exports from Japan expensive in the world market Natural disasters like earthquakes for instance the 2011 earthquake greatly affects its operations in Japan Susceptibility to global financial crises for instance in 2010, its revenues fell as well as income due to the global financial crisis The industry Asics operates in Asics operates in a highly competitive and challenging industry with many established names and brands like Nike, Adidas, and Reebok that are global. Even in its home country Japan, it faces competition from its main rivals Mizuno and Descente. For instance, despite being a major global brand ranked fourth in terms of brand strength, its revenues are still low compared to the market leader Nike. Its income for instance is just about the same as Nike’s advertising budget. The global demand for sportswear goods, which generally have a ‘middle point’, price; not too cheap or too expensive; is growing and is setting the pace for apparel products. An increased awareness on health and fitness has spawned a fitness culture creating demand for sports goods. The demand for sports shoes and sportswear has been on the increase for the last decade and is expected to continue growing in the near future. This should create a greater market for Asics. Consumerism and a changing sportswear industry in which new concepts are being witnessed is the new concept in sportswear. People are becoming more conscious of their health with longevity in good health a primary concern for many (Jenvey, 2011). Most people buying sports shoes for instance do not buy them for running or engaging in any sports but buy them for lifestyle purposes. Seventy percent of athletic footwear is bought for everyday use, casual use or for leisure; like going to the mall or taking a causal leisurely stroll (“Clean clothes campaign”, 2004). The trend is global with a survey done in the UK showing that only 20 percent of buyers of athletic footwear actually use them for athletics or other sport. The main market leader, Nike, is responsible for the new trend where sports shoes are viewed as items of fashion and lifestyle and was the first sportswear company to make its shoes in Asia as well as being the pioneer in advertising and marketing athletic sports shoes. This business plan has been adopted by most sportswear manufacturers where apart from producing specialized shoes for professional athletes and hobby athletes, a majority of their products are geared towards the majority who use them as leisure goods or as fashion statements (“Clean clothes campaign”, 2004). Firms are now focused on marketing and branding of sportswear and this has seen competition intensify with innovations also being made. The global sports equipment, foot wears and apparel is worth approximately $ 280 billion. Asics enjoys a 3 percent market share in the USA, same as PUMA with Nike enjoying 39 percent and Adidas 14 percent, in the athletic footwear segment. In Europe, Asics enjoys a 6 percent market share with Nike taking 34 percent, Adidas 29 percent and PUMA 11 percent. In Asia, Asics has a 9 percent market share with Nike taking 32 percent, Adidas 26 percent and PUMA 7 percent. In the apparels line, Asics has negligible market share in the US, Nike has 7 percent, Adidas 5 percent. In Europe, Asics still has negligible market share with Nike enjoying a 10 percent market share, Adidas 14 percent and PUMA 4 percent. In Asia, Asics has a 3 percent market share; Nike has 10 percent, Adidas 15 percent and PUMA 4 percent. This shows that Asics still has a lot ground to cover to reach the levels of its two main competitors; Nike and Adidas. It has performed particularly poorly in the sports apparel segment in the US and Europe. Asics has performed fairly well financially as shown in the table below in terms of performance ratios and revenues   ASICS Industry comparison Return On Assets 6.00% 6.01% Return On Capital 8.29% 8.30% Return On Equity 10.38% 10.37% Gross margin 43.73% 43.70% Current Ratio 2.8x 2.95x Quick Ratio 1.6x 1.7x Revenue 4.11% 4.30% Book value 5.37% 5.42% Its ratios and key performance indicators are not far off from the industry average. Its profitability and revenue for instance increased by 4.4 percent in 2011 over 2010, while net income increased by 32 percent for 2011 over 2010. This shows that its strategic plans, corporate strategies, and business practices are working and has seen it realize growth in revenue and profits. Asics External factors Analysis Summary (EFAS) Strategic external factors Weight Rating Weighted score Comments Opportunities New overseas markets 0.10 3 0.3 Should seriously expand Product diversity 0.05 4 0.2 Should diversify, not very urgent New emerging markets (Asia) 0.10 4 0.4 Is a priority to raise revenue Fitness boom 0.15 4 0.6 Should take advantage to raise revenue and market share Apparel product line 0.10 4 0.4 Focus on increasing this segments market share Threats Rivals expansion 0.05 3 0.15 Take this as a challenge to improve Foreign exchange fluctuations 0.10 4 0.4 Crucial, Asics should have overseas productions and shield against forex fluctuations Low volumes 0.10 3 0.3 Should increase revenues with regard to Nike Susceptibility to global financial changes 0.15 4 0.6 Crucial, as recessions for instance greatly affects its performance Natural disasters 0.10 3 0.3 Diversify suppliers to outside Japan Total weighted score 1 3.65 Asics Internal factors Analysis Summary (IFAS)   Weight Rating Weighted Score Comments Strengths         Strong financial performance 0.15 4 0.6 Need to continue good performance strong global brand 0.15 4 0.6 Focus on marketing apparrel International presence 0.05 2 0.1 Consider emerging markets Quality and brand reputation 0.15 4 0.6 Maintain brand reputation Visionary leadership 0.1 3 0.3 Keep being pragmatic Global presence 0.1 3 0.3 Consider wider Asian market           Weaknesses         Small product range 0.15 4 0.6 Should urgently diversify portfolio Weak apparel performance 0.15 4 0.6 Strengthen apparel division Total weighted score 1   3.7   Asics Strategic Factor Analysis Summary (SFAS)   Weight Rating Weighted Score Comments Good financial performance 0.25 5 1.25 Should increase profitability and revenue Brand reputation 0.15 3 0.45 maintain brand presence Customer satisfaction 0.25 5 1.25 Keep up, very important Innovation 0.2 4 0.8 Crucial to beat competitors Technology 0.15 3 0.45 Crucial in cutting costs Total weighted score 1   4.2   Conclusion Asics is a sports manufacturer based in Japan with a 63-year history in the business. A strategic audit of Asics shows that it is a company with sound financial management and strategy. The company has a strategy for expansion to increase revenue, profit, and performance in its five-year plan “AGP 2015” where it aims at raising revenues to at least $ 5 billion annually. With its current performance, it is on its way to either achieving or surpassing its five-year target as it achieved a 4.9 percent revenue increase in 2011 over 2010 from $ 2.75 billion to $ 2.88 billion with net income growing at a remarkable 32.7 percent from $ 102 million to $ 141 million. Its visionary leadership and modern management has helped it perform well financially by adopting technologies that lower costs, reduce their product time to market and enhance efficiency. It is ranked fourth in terms of global brand strength, and ninth in terms of performance. Asics has the advantage of people commenting on the quality and durability of its products; some say they are better than Nike is. This indicates customer satisfaction and should be maintained or improved. The current industry trends are guided by consumerism with sports shoes and apparel regarded; and used more for leisure, fashion or casually and not for active sport for instance athletics. The industry has experienced a boom particularly in the last decade and this is set to continue. Recommendations Asics is not at all doing well in apparel sales particularly in the US and Europe. It should take advantage of the boom in fitness and sports goods industry to develop and strengthen its apparel division and brand. It should take steps to shield itself against foreign exchange fluctuations by having production facilities in markets of operation and sourcing for materials locally (within areas of operations). It is doing a commendable job on environmental policy but should consider having ‘green’ buildings that use solar and other renewable energies only. Asics should take advantage in the sports equipment, shoes, and apparel boom and concern for health to develop other products for instance fitness equipment. The company should also diversify as a way to improve revenue and market share. It should also market aggressively and target the growing Asian middle class with its apparel products marketed as lifestyle products. Asics also needs to venture into emerging markets like South Africa, Brazil, and Russia as these present an excellent opportunity for growth References Acar, A. (1993). The impact of key internal factors on firm performance: An empirical study of small Turkish firms Journal of Small Business Management, 31(05), Retrieved from http://www.questia.com/googleScholar.qst?docId=5000253391 Asics America’s Nobuo Oda (2008, July). Performance sports retailer, 6-7 Retrieved from http://www.sportsonesource.com/news/psr/downloads/psr08/PSR_0807low.pdf Asics corp. (7936: Tokyo). (2012, April 18). 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Strategy audit: a critical boardroom tool Retrieved from http://www.corporate-value.com/ideas/cva_ideas_strategy_audit.asp Sano, T. (2009) Promoting environmental protection programs Retrieved from http://www.asics.com/responsibility/preservation1 Woodard, R. (2012, Jan 18). Us: Asics opts for Lawson PLM solution. Retrieved from http://www.just-style.com/news/asics-opts-for-lawson-plm-solution_id113248.aspx Read More