Internal and External Environment - Case Study Example

Internal and external environment Contents Internal Environment- Definition 3 Effect of internal environment on business 3 Effect of internal environment on Adidas Marketing 3 External business environment- Definition 4 Effect of external environment on business 4 Effect of external environment on Adidas Marketing 5 Details about Adidas 5 Examples of environmental impact on business 6 Examples of environmental impact on Adidas Marketing 6 Annotated Bibliography 8 Reference List 10 Internal Environment- Definition Internal environment are those internal factors, which can be controlled and altered by the business. It includes managerial policies, business objectives, organizational departments, employee and management, brand image, management-labour relationships, corporate image, physical resources such as, available infrastructure, top management’s thinking and vision, research activities and infrastructure, working conditions, commitment and morale of human resource and financial resources within the organisation. These internal factors can be categorized under 5 Ms available within the organization, which are material, money, man, management and money (Jain and Trehan, 2008). Effect of internal environment on business While internal business components are under the business’s control, their overall influence is critical in determining success or failure of an organisation. For instance, committed and skilled employees will result in enhanced business performance. On the other hand, dissatisfied workers and employees will lead to high attrition, loss of reputation and brand image, lower efficiency, strike and slump in performance. Internal environmental approaches such as, value chain analysis, help in diagnosing valuable departments and functions within the organisation, which can be further capitalised for gaining competitive edge (Boone and Kurtz, 2011). The top management of a business is responsible for studying and forecasting changes in external environment and prepare the organisation’s internal strengths and opportunities for positive impact. Innovative development and research activities can provide sustainable competitive advantage and enhance market share. Availability of financial and physical resources ensures that business is risk free during important corporate decisions such as, acquisitions, takeovers, shut down of specific business arm and product and service launch. Sufficient capital also assures continuous promotional and research activities (Jain and Trehan, 2008). Effect of internal environment on Adidas Marketing Adidas is a global manufacturer of sportswear and associated accessories. The corporate values of the firm are focussed on customer satisfaction. The overall objective is to be a global leader in innovation and design. So, goals and vision of Adidas affect its internal hiring activities, recruiting best talents and experienced professionals across for different functions. For maintaining a positive and long-term management-labour relationship, Adidas maintains standard labour policies, including high wages and standard work hours. Adidas is associated with numerous sports such as, football, cricket, rugby and gymnasts (Adidas, 2014a). As such, the company internal advertisement and promotional strategies are heavily influenced by company values. For instance, the company has appointed brand ambassador for each strategic business unit. Furthermore, the corporate image of Adidas being a sports-oriented company influences its decisions regarding marketing, operations and target markets (Smith and Westerbeek, 2004). The company’s mid and low range products will be more acceptable in emerging and developing nations such as, China and India, compared to developed nation such as, US and UK. External business environment- Definition External environment are those aspects that surround a business and are generally not controlled by the same. These external environments are factors providing opportunities or posing threats to the business. External environment includes micro or operating environment and macro or general environment. Micro external environment constitutes a firm’s immediate environment such as, marketing intermediaries, public, customers, competitors and suppliers. On the other hand, macro environment include demographic, economic, technological, natural, cultural and political (Jain and Trehan, 2008). Effect of external environment on business An organisation’s success greatly depends on its knowledge about external environment as well as adaptability to environmental changes. For instance, many organisations are highly dependent on suppliers. Thus, having control over suppliers and appointing reliable suppliers ensures maximum profitability and risk reduction. Similarly, customers demand and purchase patterns keep on changing and it is critical for a business to keep a continuous check on them for greater customer satisfaction and subsequently higher revenue and profits. Businesses are heavily dependent on market intermediaries such as, brokers and agents, helping to gain new customers (Smith and Westerbeek, 2004). They also serve as a link between the company and the final customer, thereby assisting in distribution, selling and promotion of services and goods. Similarly, understanding and acknowledging the general environment where the business is operating such as, economics, political and social, is essential and these factors drive consumers along with their purchase patterns and demand (Boone and Kurtz, 2011). Effect of external environment on Adidas Marketing Various external environmental factors affect marketing strategies and decision making processes at Adidas. For instance, political conditions such as, taxation, real estate policies and speed of government in facilitating foreign business, determines Adidas’s business in numerous countries. Social factors, such as, concentration of consumers with sports preference and expenditure in sports equipments and apparels, play a critical role in deciding the segregation of business. For instance, majority of the UK’s population is football fans, so are people from major European nations such as, Germany, France and Italy (Hamilton and Webster, 2012). Hence, the company’s corporate strategies such as, new market and product launch, expansion of business or establishment of subsidiary, depend upon the social factors. Similarly, economic factors such as, cost of living, wages and labour laws and per capita income of different regions, also determine the level of penetration in that specific nation (Hamilton and Webster, 2012). For instance, majority of the manufacturing facilities of Adidas are located in developing nations owing to cheaper labour costs, less management of working conditions and higher working hours compared to that in developed nations (Adidas, 2014a). Details about Adidas Adidas is a global manufacturer and distributor of sports apparel, shoes and accessories. It is based in Germany and was started in the year 1948 by Adolf Dassler (Adidas, 2014a). At present, the company has more than 50,000 employees and serves through 170 subsidiaries across the globe (Adidas, 2014b). Herbert Hainer is the current CEO and Igor Landau is the chairman of Adidas (Adidas, 2014a). As a result of its enormous brand value and reputation worldwide, the company faces a huge pressure of meeting requirements and demands of its stakeholders while keeping the financial resources intact. Major strengths of Adidas include a strong footprint in retail marketing, huge promotional success during numerous games such as, FIFA and early entry into emerging markets. The company’s revenue for the year 2012 was 34.48 billion Euros (Adidas, 2014b). After Nike, Adidas is the second largest manufacturer of sportswear in the globe (Adidas, 2014a). Also, it is largest manufacturer of sports apparel in Europe and Germany. The company has also been involved in numerous environmental and CSR related activities such as, climate control, pollution control, reduction of carbon footprint and providing education for the underprivileged. Revamping of Nike and rise in promotional activities of Puma have intensified competition for Adidas. In addition, Adidas suffers from cannibalization as Reebok is also a potent competitor of Adidas in the sportswear business (Adidas, 2014a). Examples of environmental impact on business Any change in the internal or external environment may alter functioning and strategic decision making process of a business. These changes may give opportunities to one department or company, while posing threat to others (Hamilton and Webster, 2012). For example, the general agreement on services and trade implemented in the year 2005 in India. While the agreement provided opportunities for big pharmaceuticals such as, Ranbaxy, smaller companies were pushed towards closure. For instance, Disney had to restructure its entire customer response process as a result of the overwhelming customer response. Furthermore, the company launched a strategic website meeting majority of the customer’s requirements. Subsequently, for ensuring proper and long-term customer satisfaction, the internal department was supported with the addition of a new IT division, overlooking operations and transfer of information. With the objective of enhancing productivity and competitiveness of employees, MNCs such as, Nestle, have been providing opportunities for higher studies such as, MBA and PhD, to its employees. Similarly, improvement in economic policies and legislations in developing nations such as, India, China and Indonesia, has compelled various multinationals such as, Nestle, P&G and Reckitt, to launch its business in these countries. Also, companies such as, KFC and McDonald’s, had changed their product portfolios while establishing business in India due to cultural differences (Boone and Kurtz, 2011). Examples of environmental impact on Adidas Marketing Since its inception, marketing and corporate decisions of Adidas are being affected by numerous internal and external environmental factors. For example, early rivalry with Puma had forced Adidas to change its corporate strategies. During the initial stages, Puma’s market footprint was stronger in Europe and UK compared to Adidas. So, Adidas started penetrating into emerging and developing nations, acquiring a first mover advantage. Similarly, political conditions in China are at present affecting Adidas’s overall business in the country. The company is highly dependent of third party manufacturers. Hence, Adidas has very little control over quality of its products manufactured in Asian nations such as, China (Adidas, 2014b). Numerous incidents have revealed compromised quality of its products, especially due to inadequate working conditions and under-skilled workers. The business objective of Adidas is targeting young consumers of the age group 16-24 (Adidas, 2014b). As a result, the company has been involved in hiring celebrities who are famous among youth such as, David Beckham, for endorsing its products. Furthermore, strong momentum has been observed in emerging markets across Europe and Latin America. Consequently, internal strategies such as, distribution and supply chain, have started to develop in these regions. The company has been using numerous strategies and developmental activities to train its employees. For satisfying its diverse consumers, Adidas have expanded product portfolio covering new products such as, bags, sunglasses, socks and other sports related accessories (Adidas, 2014a). Annotated Bibliography Jain, T.R. and Trehan, M., 2008. Business Environment. New Delhi: FK Publication. The book explores the business environment influencing contemporary business. Two major subjects, which were studied from the book, were internal environment and external environment of business. The internal business environment included factors such as, company mission and vision, employees, innovative and creative activities. Similarly, external business environment talks about factors such as, political, environmental, social, technological and demographic factors, customers, suppliers and other market intermediaries, influencing company’s operations. Boone, L.E. and Kurtz, D.L., 2011. Contemporary Business. New York: John Wiley & Sons. Contemporary business is based on new-age business practices and strategies used in modern world. The face of contemporary business is changing and focus is shifting from marketing to brand building and establishing relationships. Smith, A. and Westerbeek, H., 2004. The Sport Business Future. New Jersey: Palgrave Macmillan. The sports business future focuses on external impact of various sports on culture, environmental and society and how negative effects can be minimised. It is basically thrusting on controlling the external environment. For instance, motor sports and water sports result in high air and water pollution, respectively. As a result, it is imperative for organisation to use their resources and capabilities to make sure that the environmental impact is minimised. One of the major solutions provided in the book is maintaining and managing a green sports business. Hamilton, L. and Webster, P., 2012. The International Business Environment. Oxford: Oxford University Press. The international business environment concentrates on impact of globalisation and relation business environment on companies, especially those operating in various global locations. Analysis of global industries suggests that there is a rise in retail and automobile companies because of rise in per capita income, especially in developing and emerging nations. Also, socio-cultural, legal and political environments of nations have heavy influence on overall marketing and promotional decisions of multinational firms. Adidas, 2014b. Adidas first quarter 2014 results. [pdf] Adidas Group, Available at: < http://www.adidas-group.com/media/filer_public/2014/05/06/press_release_q12014_en.pdf> [Accessed 14 May]. Adidas first quarter results showed a 22 percent increase in the retail sales. The company has been focussing on its internal as well as external environmental factors so as to assess and utilise them for maximum revenue and long-term profits. While operating margins and gross margins have slumped compared to previous year, overall sales have been growing at a rate of 5 percent annually. Adidas, 2014a. Group Strategy. [online] Available at: < http://www.adidas-group.com/en/investors/strategy/group-strategy/> [Accessed 14 May]. The group strategy of Adidas aims at building a global brand inspired by innovation and company’s heritage. The various external and internal strategies of Adidas include establishing long-term value to shareholders, diversified brand portfolio, innovation, flexible and efficient supply chain, developing sustainability through employee engagement and long-term strategic goals. Reference List Adidas, 2014a. Group Strategy. [online] Available at: [Accessed 14 May]. Adidas, 2014b. Adidas first quarter 2014 results. [pdf] Adidas Group, Available at: [Accessed 14 May]. Boone, L.E. and Kurtz, D.L., 2011. Contemporary Business. New York: John Wiley & Sons. Hamilton, L. and Webster, P., 2012. The International Business Environment. Oxford: Oxford University Press. Jain, T.R. and Trehan, M., 2008. Business Environment. New Delhi: FK Publication. Smith, A. and Westerbeek, H., 2004. The Sport Business Future. New Jersey: Palgrave Macmillan. Read More