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Student Number 31734555Surname Basu

Given name Rukmini Email Rukmini.Basu@murdochdubai.ac.ae

Unit Code BUS317Unit name Strategic Management

Enrolment mode Internal / externalDate 16th March 2015

Assignment number 3Assignment name Management Report

Tutor Alami Rachid

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Contents1.0 Executive Summary.............................................................................................................32.0 Introduction..........................................................................................................................3

2.1 Research Problem:...........................................................................................................32.2 Limitations:......................................................................................................................42.3 Data Collection:...............................................................................................................42.4 Organization of Report:...................................................................................................4

3.0 Current Company Situation.................................................................................................43.1 Past performance assessment...........................................................................................4

4.0 External, industry, competitor analysis...............................................................................54.1 External Analysis.............................................................................................................5

4.1.1 SWOT Analysis........................................................................................................54.1.2 Environmental Scan: PEST Analysis.......................................................................6

4.2 Industry Analysis.............................................................................................................64.2.1 Michael E Porter’s Five Forces................................................................................6

5.0 Internal Analysis..................................................................................................................75.1 Michael E Porter’s Value Chain......................................................................................7

5.1.1 Primary Activities.....................................................................................................75.1.2 Secondary Activities.................................................................................................9

6.0 Issue/Problem Definition...................................................................................................107.0 Development of different strategies...................................................................................11

7.1 SAVED Strategy............................................................................................................117.2 Selection of alternatives.................................................................................................12

8.0 Implementation..................................................................................................................139.0 Evaluation and control.......................................................................................................1410.0 References........................................................................................................................1511.0 Appendices......................................................................................................................16

11.1 Appendix 1: Ratio Analysis.........................................................................................1611.2 Appendix 2: PEST Analysis and SWOT Analysis......................................................18

11.2.1 PEST Analysis......................................................................................................1811.2.2 SWOT Analysis....................................................................................................18

11.3 Appendix 3: Originality Report.......................................................................................1911.4 Appendix 4: Portfolio Analysis.......................................................................................20

11.4.1 BCG Matrix..........................................................................................................2011.5 Appendix 5: Porter’s Five Forces Model.........................................................................20

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ADIDAS1.0 Executive SummaryIn this report, one will find a detailed analysis of the Number 1 sporting company Adidas.

Analysis includes internal analysis and external environmental scan determining the factors

contributing to Adidas’s success till date. Moreover, there are plenty of models applied to do

the scanning throughout the company. Then, based on the current findings, our group has

come up with several different strategies that Adidas could implement in place of few

strategies that they have been implementing for years. Among the different strategies in

place, Adidas in alliance with Nike is recommended. Lastly, based on the financial

performance of Adidas till date, a detailed ratio analysis is drawn out for the future. Also, on

the basis of financial performance in the last two years, we have drawn out some ratio

analysis to understand the financial position of Adidas today.

2.0 IntroductionAlmost everyone in this world knows the name and brand so well that they willingly want to

buy sporting equipments from Adidas. Adidas is a German multinational founded in 1948 by

one of the Dassler brothers Adolf Dassler. Rudolf Dassler is the founder of the brand name

Puma. The brothers were split during the course of events after World War 2 and this had

given rise to two of the most well known sporting brands Puma and Adidas (Anonymous,

Adidas Group AG Forum 2015, 1). Adolf started this business with the passion to provide

best athletic equipments helping athletes perform better, play better and feel better. This was

Adidas’ slogan and they strived to maintain the same by employing people who had a

passion to live in an extraordinary sporting lifestyle (AG, Adidas Group 2015, 1-2) Their

passion for sport enable them to perform at their best potential and serve customers with the

best product in line with the fashion trends followed in the market (AG, Adidas Global 2015,

1). Just with one simple objective “We strive to be the global leader in the sporting goods

industry with brands built on a passion for sports and a sporting lifestyle” Adidas has become

a major hit in the market globally (AG, Adidas Group 2015, 1-2).

2.1 Research Problem: This report aims to analyze Adidas through extensive research based on internal and external

environmental scan together with implementing few strategies that Adidas could adopt for

the problems faced by them. The overall industry is also studied in great depth to understand

the forces impacting Adidas sustaining their business in a highly competitive market.

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2.2 Limitations: The report analysis was completely based on information found through secondary research.

There are some models used in the report and the access to information for filling those

models were limited. Unfortunately, there was no scope of attaining information or facts

through primary research.

2.3 Data Collection:As mentioned earlier, the data was purely gathered from secondary research papers and

journals from cited authors.

2.4 Organization of Report:This report follows a framework of several models and information patterns. Throughout the

report, a flow of information is maintained and the link with each model to the strategies

implemented is also notified. The budget and the required ratio analysis are also provided at

the end to understand the financial position of Adidas in the market with the new alliance in

place.

3.0 Current Company Situation

3.1 Past performance assessmentCurrently, Adidas main competitor in the market is Nike whereby, its market share is

approximately 33 percent. Apart from Nike, there are likewise other competitors smaller in

size like Puma, New balance and Nike Asics. In Asia, Adidas major rival is Li Ning and it

mainly focuses on athletic shoes. Presently Adidas is signing contracts with diverse

organizations in order to offer supplements to its items. For instance, they have signed an

agreement with Samsung where they are giving out a shoe in addition to a mobile phone

offer which is a reciprocal item. Additionally the technology and development assumes a part

to give compliments to the products of Adidas. Planning events and forming social

connections are likewise there, for example, funding of football events.

Strategy

Being one of the giant companies which manufactures sports clothes and shoes, Adidas most

effective promotion strategy of its products has been to partner them with famous celebrities

as well as sports stars .This promotion method has produced a consistent wellspring of

income and sales for the organization, and customers appears to admire the quality of the

items once they realize that there is some level of relationship with influential individuals1 .

Hence, the buying of familiar brand items protects their quality and this leads to some

1 Grant, Robert M. Contemporary strategy analysis and cases: text and cases. John

Wiley & Sons, 2010.

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additional inspiration for their purchase. An alternate kind of strategy used by Adidas is the

formation of an exceptional level of client loyalty and involvement. Getting consistent client

responses is the best method to stay in front of their rivals and create and retain long-term

beneficial client relations at the minimum cost conceivable. Presently the organization has a

custom of procuring the sponsorship of diverse game events, for example, FIFA world, the

Olympic Games, and various European Games. In the past, Adidas has backed the occasion

of the Olympic Games in Beijing. Likewise, Adidas usually back various soccer groups of

Germany on the grounds that the organization origin was in Germany2.

4.0 External, industry, competitor analysis

4.1 External AnalysisThis analysis is a useful tool to assess a company’s performance itself and how well it

performs in the market considering the competition as a driving force for a company’s

motivation to perform well in the market and sustain (Sage 2014). Below, a detailed Michael

E Porter’s five Forces model will be studied to find out the external forces that drives Adidas

to perform the best in the market. Moreover, environmental scan will be enforced using

PEST and external analysis determining opportunities and threats will be done by SWOT

analysis in the Appendix 2.

4.1.1 SWOT AnalysisSWOT analysis determines a company’s internal strengths and weaknesses and external

opportunities and threats. This model is very useful to understand the wrongdoings of a

company pointing out their weak side and presenting a way by which they can overcome

their weaknesses (Olsen 2010, 1-2). The detailed analysis is presented in Appendix 2.

Adidas have the opportunity of changing their style and innovation of their product line

depending on customer preferences. As technology development is said to be one of the

drivers for change, Adidas has the opportunity to differentiate their products for customer

appeal (Woke 2013, 1-2). Depending on customer responses to a product, Adidas can expand

their limited product line with an expansion in customer base exposure.

On the other hand, customer preferences and lifestyles can pose a threat to Adidas in terms of

continuing adaptation to frequent changes (Woke 2013, 1-2). Such frequent changes in

fashion trends can be costly to Adidas for production and improvisation tactics for their

2 Piller, Frank T. "Transforming mass customization from a marketing instrument to a

sustainable business model at Adidas." International Journal of Mass Customization

(2006): 463-479.

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product categories. Competition from foreign markets, Nike and Puma influence Adidas

pricing and quality of product with them staying right ahead of the trends in the market.

4.1.2 Environmental Scan: PEST Analysis This part of analysis deals with the external environment and how each element of PEST

determines a company’s potential. This tool of analysis will help to systematically discover

and quantify the plausible factors influencing Adidas’s performance and objectives (Makos

2013, 1-2). As moving ahead in the report, one would find a detailed analysis on Adidas

presented in the Appendix below.

4.2 Industry Analysis

4.2.1 Michael E Porter’s Five Forces (Fontana 2012, 3) (Maarouf 2013, 41-42)With this tool, there is a clear understanding of where the powers lies, and act as per the

business situation. This tool helps a company to take advantage of the situation of strengths,

rectify a situation of weakness and at the same time, preventing to take wrong steps.

(Manktelow and Carlson 1996-2015, 1). The same logic is applied when it comes to analyze

Adidas in terms of porter’s five forces. For the detailed analysis, refer below to Appendix 5.

4.3 Competitor Analysis

Rivalry among the competitors in sports equipment business is very high, considering the

boom the industry has experienced in the past decade, also with the help of technology, e-

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Competitive Rivalry(Adidas and Nike are strongest rivals in the market and are competiting

over prices)(HIGH)

Threat of substitutes( Adidas does not have the fear of its customers switching to another brand)

(LOW)

Buying power of buyers(The number

of buyers in this industry is

proportionally high than the firms)

(HIGH)

Threat of New Entrants(Adidas driving away companies from entering the market by keeping controlling costs

through performance advantage)(LOW)

Burying power of suppliers(Adidas

has many suppliers of their raw materials)

(LOW)

commerce, sponsorships and gaming. Adidas faces rivalry from other sports equipment

manufacturing companies like Nike and Puma. However, the main competitor of Adidas is

Nike whether in a football ground, on racing tracks or social media. Even though Adidas give

a very tough competition to Nike, the brand in terms of market capital, brand value, nets

sales and profit, falls behind its competitor. Adidas holds a market capital of USD 22.67

billion (Badenhausen, et al. 2015, 1) while Nike possesses a market capital of USD 65.87

billion (Anonymous, Forbes 2014). The brand value of Adidas is USD 7.5 billion, with net

sales at USD 4.46 billion and profit at USD 2.19 billion. Nike on the contrary has a brand

value of USD 17 billion, net sales of USD 7.42 billion and earned a profit of USD 3.38

Billion last year (Parker 2014, 1-2). While according to latest figures, Puma has a market

capital of only USD 2.74 billion which in comparison to Nike and Adidas is very less, and

therefore both the companies tend to focus on the competition between each other (LP 2015,

1). However, it is to be noted that Puma has a rivalry to Adidas not only for the reason of

being another sports equipment manufacturer, but because of the late founders of both these

respective German brands, Rudi Dassler and Adi Dassler, once brothers, later arch rivals

(Connolly 2009, 1).This is also the reason that Puma and Adidas set to offer the same product

line in sports equipment with the main focus on footwear. Adidas uses a premium pricing

strategy for its products for the recognition of its high quality products, while Puma focuses

more on competitive pricing strategy due to being the no.3 in the competition after Nike and

Adidas (Connan 2015).

5.0 Internal Analysis

5.1 Michael E Porter’s Value Chain

5.1.1 Primary ActivitiesBy applying the value chain structure an adjacent look will be taken at Adidas’s future plan

in appeal to make sense of which activities are most huge and henceforth make broad

competitive advantage over contenders in the market.

While taking the steps from sourcing crude materials to offering the last item, Adidas

performs a set of several activities that; add value to its items, differentiates its items from

competitors and focuses on reducing expenses (cost-saving). Corporate social obligation

(CSR) all in all appears to impact generally exercises. All through the strategy Adidas

highlights on diminishing its regular impact on environment through practices, for instance,

the minimization of carrier load. Adidas hopes to make the best and most profitable

workplace worldwide is not simply reflected in its drives to propel a strong work-life

conform furthermore in its plan to make a working environment that vitalizes solidarity and

energy, engagement and achievement.

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Inbound Logistics- sourcing is continuously moving towards a local provider (Adidas AG

2014). Alongside expenses and quality, suppliers are dynamically picked by their

environmental performance (Adidas AG 2013). These procedures benefit Adidas by

decreasing delivery expenses.

Furthermore, In the Operations of Adidas’s value chain, it has been found that as of 2008,

95% of its productions had been outsourced (Adidas AG 2014). It has 1,230 independent

assembling industrial facilities in 69 countries, fundamentally China, India, Indonesia,

Thailand or Vietnam.

Adidas also, works with business accomplices who are completely dedicated to reasonable,

safe and earth sound working conditions. Collaborating methodology with key suppliers:

direction, preparing materials, specialized exhortation, trainings and workshops (Adidas AG

2008).

At Outbound Logistics, Adidas has three distinctive channels – Wholesale, Retail and E-

commerce in the form of MiAdidas (Adidas AG 2014). It manages channel synergies by

establishing best practices worldwide and focuses on controlled space: by running its own-

retail stores. Adidas has three store formats: brand centers, core stores and factory outlets

summing up to 2270 stores worldwide. These benefit Adidas as it enables high brand control

and improves customer service. Also, MiAdidas allows customers to customize cleats based

on their needs and hence benefits Adidas from reduced stock holding costs (Adidas AG

2014).

At Marketing & Sales Adidas increases the vast majority of its clients through its substantial

interest in Promoting. Offers of Adidas items are gathered in four districts around the world:

Europe/Developing Markets, North America, Asia/Pacific and Latin America. It picks up

income through advancements at world class donning occasions such Olympics, World

Container Soccer and other expert games (Adidas AG 2014). Additionally, a few

underwriting contracts with competitors including David Beckham (soccer), Kevin Garnett

and Tim Duncan (ball), and Sergio Garcia (golf) impacts shoppers to buy Adidas (Adidas

AG 2012).

In Services Adidas offers Channel to customer data and contemplations, miCoach arrange

together with miCoach application and web planning activities offers free and personalized

training (MiCoach-Adidas 2014). Digital training website giving exercise guidelines and

appeal on four key planning sections: viewpoint, nutrition, improvement and recovery. All

these services expands consumer loyalty, offers change opportunities, upgrades client's

shopping knowledge, focuses towards patterns, upgrades client's image experience and

assembles closer association with clients (Adidas AG 2014).

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5.1.2 Secondary ActivitiesGeneral Administration

Adidas seems achieving an effective planning system that offers the best potential in

addressing the overall performance, key issues and user flexibility besides system integration

and long term support. These factors appear playing an important role in enabling Adidas to

attain its competitive advantage in the sporting industry. Adidas aims to develop a long term

relationship with its diversified stakeholders. Therefore, it is fundamental to keep them in the

picture as they are an important source of funds that allow the company to improve its

business performance and sustain its development. For this reason, Adidas organizes

consultation meetings with shareholders in order to uphold collaboration and information

sharing. In addition, Adidas group has an Information technology organization that operates

globally, in which 1000 IT experts collaborate effectively with all brands and functions of the

business worldwide (Arnis 2015). This is what appears creating a digital network among

customers and employees in which consumers needs and wants are revealed constantly.

Human resource management

Adidas seems reducing time spent on the primary interviews by utilizing the video recruiting

utensil, while increasing collaboration with highly innovative recruitment agencies and

spending the extra time and money to make sure that they appoint the top talented and

competent experts for the available positions. In addition, Adidas contracts with over 400

factories in Asia in order to assemble its products (Ohannesian 2015). As it is looking to save

capital, benefitting from the low labor cost aiming to increase profit. Furthermore, Adidas is

committed to give rewards and incentives to its employees through compensations and

beneficial programs. Such as, the global bonus program “Aim2Score” that combines the

employee’s individual performance and the corporate performance, the employee profits

sharing program and other long term beneficial programs (Adidas-group.com 2015).They

also encourage their employees to acquire shares in the companies, in which they share

information with them as all other shareholders in the company. This shows that they

appreciate employees’ perception and they give them the opportunity to invest and make

profit within the organization.

Technology development

Adidas is known for its excellent and well competent personals, as they do not hire

employees unless they have a higher qualifications and technological expertise. Through the

proficiency of its personnel, Adidas group usually conducts an effective research and

development programs aiming to boost the quality of its products in the market. They also

seem to have positive collaborative relationships, in which research and development

departments work closely and effectively with other departments while initiating a new 10

product. They may even partner with other companies when they intend to attain significance

improvement in their product line. For instance, Adidas partners with BASF, the leading

chemical company in the world to launch the midsole, Adidas Boost running shoes (Knapp

2015). This boost midsole is manufactured to last longer and to maintain the same cushion

and response regardless of temperature variation. Adidas Being the first in creating such a

modern product with new advanced features is most likely to enhance its reputation among

other sporting brands in the market.

Procurement

Adidas group seems seeking a cheaper source of supply due to the commercial pressure as a

result of the wages increase in the developed countries. To minimize the dependence on a

limited number of suppliers, Adidas usually subcontract with new providers operating in less

developed countries with lower wages level in order to maintain its bargaining power against

them while stressing the focus on cost saving targeting profit increase. In addition, to

optimize quality and minimize cost, Adidas group appears mostly interested in reducing

material waste, energy consumption and chemical usage. Therefore, AG is moving toward

alternative raw material such as, the use of non-toxic material and the reuse of recyclable

plastic (Hainer 2015). Following these strategies, AG perhaps is able to save financial and

natural resources, attain efficiency in production while taking good care of the environment.

6.0 Issue/Problem DefinitionChallenges Faced

With a broad scope of product lines, the organization faces a challenge of expanding

individualization of demand. Variations in the power of purchasing of customers and having

individual item decision has made it hard for the organization to do compelling forecasting

and planning, which thus produces issues to deal with distribution and warehouse. Because

of all these issues, the organization realizes that it is crucial to reinforce or enhance its

distribution system. Currently, the regularly growing competitive environment, the securing

and dispersion of products has been fundamentally motivated by market liberalization and

globalization3.

Internal and External Analysis

The key rivalry for Adidas brands and items originates from the items and brands of Puma

3 Tomlinson, Alan. The making of the global sports economy: ISL, Adidas and the rise

of the corporate player in world sport." Sport and Corporate Nationalisms. New

York: Oxford,

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and Nike. There is no differential price advantage and in this way it is simple for buyers to

move from one item to another .As Adidas tests with new methods like "miCoach", a fresh

project for enhancing the process of training, the organization follows the pattern to

consolidate products of sports with electronic devices such as smart phones or heart-

recurrence meter. Going with this pattern and building up a right advertising procedure

implies that the company has the likelihood to improve its exchange4.

7.0 Development of different strategies

7.1 SAVED StrategyStrategy1

Adidas can remove their dog product from their product line. Adidas can divert their focus

from boxing gloves to on new sports product like Badminton.

Staging: Assuming that the market demand for the dog products will reduce in 2 years and

there will be increase in demand of badminton products.

Arenas: The products that will be removed from the product line will be the boxing gloves

and the new focus will be on badminton rackets and related accessories. The core technology

that will be used is light weight material to produce rackets to provide efficiency. The target

product segment will be athletes and sportspersons.

Vehicles: The vehicle will be licensing. Adidas will get license from Yonex to make and

develop products for them.

Economic logic: By removing the dog products the company can save their time and money

as there is no market share and growth of the product. Moving their focus on new product

line Adidas might benefit as badminton products will have better market growth and share.

Differentiators: As Yonex has well established image in the badminton segment Adidas can

benefit from it. The pricing will be high as special materials will be used to make the

products better and lighter.

Strategy2

Adidas can come into acquisition with small scale competitor like Umbro to increase their

market share.

Staging: Assuming that the barriers to entry in market will be low and will be easier for new

competitors to gain market share.

Arenas: the product category that will be focus in this strategy will be the running shoes and

market segment that will be targeted will be low income to middle class people. So that

target segment can afford the shoes. The core technology used to produce the shoe will be

cheaper raw material with better quality to make the product cheap.

4 Borowski, Arkadi. Adidas Marketing Strategy-An Overview. GRIN Verlag, 201112

Vehicles: Adidas can do an acquisition with Umbro, a small scale sports brand. Adidas can

use their core competencies to develop and produce their product

Economic logic: This acquisition will increase market share and hence will lead to profit as

they will not be producing the good but will be providing ideas and innovation. By doing this

the cost of producing will be low.

Differentiators: The price will be set low to meet the idea of producing cheaper good to make

it available to the target segment. The products will be customized and developed by Adidas

and will be according to local needs.

Strategy3

Adidas can come up with improved and innovative design for their cash cow products, i.e.

sports shoe.

Staging: To maintain the competitive advantage and strength in market. As well as to have

greater market share

Arenas: product focused is running shoe and the core technology used will be new cheaper

materials and better quality

Vehicles: internal development by improving the production process and innovative ideas

Economic logic: increasing revenue and increasing profit by reducing costs of production

Differentiators: New style and shape for the sports shoes with an increased focus on

improving brand image for sports shoes

7.2 Selection of alternativesRecommended Strategy:

Adidas, to form a legal horizontal strategic alliance with Nike for the production of

innovative garment collection. This alliance is to reduce cost and increase profit. This can be

achieved through diversifying the market segment to low income groups for the particular

product.

SAVED Strategy:

Staging: Assuming the market will grow in the next 5 years depending on the

profitability of product category Geographical expansion

Arenas:

Products: Garment Target Customers/Market Segment: low income groups/price sensitive

consumers/middle class communities Value Creation: Affordable prices for the products with no compromise on

quality Core tech. Environment friendly production processes

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Vehicles: Adidas benefiting from strategic alliance with Nike in terms of Nike’s

marketing strategy and sale of their otherwise unprofitable segment Nike to agree and utilize Adidas specifications.

Economic Logic: Economies of scale and profit maximization for that business unit Profits shared between Nike and Adidas

Differentiators:

Pricing (low) and customization of products enhancing customer base Improvement in Brand image

This strategy will have a great impact on competitive position. Till date, Adidas, Nike and

Puma were competing against each other on similar price range, but now with this strategy in

place, competition will grow more intense over pricing and quality. This strategy will

actually impact on all the basis of analysis done on Adidas in terms of bargaining power of

supplier being even lower and the bargaining power of customers being high as before. The

problem that Nike is going to face is the threat of substitutes that is customers switching their

brand. Nike will not be able to sell well in their original garments collection, but will be

counteracted by the returns they receive from this business proposition. For this business

segment, opportunities and threats will also change in terms of threat of new entrants and

customer preferences on a large scale etc.

8.0 Implementation The chosen strategy of forming a strategic alliance with Nike will only change the value

chain related to garments business unit segment. The reason behind this strategy is to

eliminate the difficulties of “problem child” product by lending out the product funding and

manufacturing capability to Nike for the low-cost product segment.

Talking about the value chain of this alliance project, this part of business unit will have its

inbound logistics within Adidas supplying with necessary materials, design components etc

for Nike to produce garments for Adidas. One of the purposes of garments not doing well in

the market could be the quality itself or the price factor. Raw materials could be accessed

from both the side suppliers as in Nike will arrange raw materials in bulk helping in cost

reduction, and Adidas suppliers providing with best environmental friendly resources.

Combined, they get access to huge amount of raw materials at low cost and best quality. In

terms of production, Adidas will do the frequent quality control and product testing to see

whether Nike is meeting their requirements. Moreover, garments will now be more attractive

and different than what it used to be previously, and for that to be implemented, Nike will

use their R&D for innovations considering pricing strategy (Doane 2007). As for the

outbound logistics, since both the companies have a good control over distribution channels,

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they could use both of their transportation facilities to minimize costs at large. Since, Nike

has better marketing strategies in place for their Just in Time Delivery system, scale

advantage, price leadership and value based pricing strategy and most importantly aggressive

marketing capacities, Nike will handle the marketing so that the product reaches out to the

large public space creating awareness convincing them to value new collection garments

(Varier, et al. 2011, 18-19).

To successfully implement the primary activities in the value chain, they need support from

the people and IT. This covers the supportive activities that include General Administration,

Human Resource Management, Technology and Procurement. This part of the value chain

will also be blended in terms of market research done, and the agreements over the

improvements made for garments. Also the people working for this project will be set out

differently, and considering this alliance will grow in the next five years depending on the

market conditions and product response from the target groups, Adidas and Nike will blend

their workforce to even greater strength to grow along with the strategy.

Since Nike will handle Adidas’s operational segment for garments; their major opponent,

they may cut on quality to make profit for themselves maintaining the same fierce

competition. One of the major costs for implementing this strategic alliance will therefore be

the alliance itself. Along with that, the cost of merging the value chain activities of garments

could be the overpricing of raw materials for different standards or differences in pricing for

suppliers of two strongest competitors may start to compete against each other.

9.0 Evaluation and control In conclusion, this report provides an explanation of why it is not only beneficial but

necessary for Adidas to collaborate with Nike. As our external and internal analysis

indicates, that despite starting first as a sports equipment manufacturer Adidas is second in

the European Market, a step behind Nike. Nike’s extensive marketing techniques help it

remain No.1 in European market. Adidas, moreover, focuses a lot more on the quality of its

finished products keeping into account the environmental impact of its activities.

In order to gain control over the market in Europe, it would be profitable and cost-saving for

Adidas to have a Strategic Alliance with Nike in order to develop its “QUESTION MARK”

product which is the sports outfits. The Alliance will help Adidas benefit from economies of

scale such as lower production cost. Also, Adidas could benefit from Nike’s marketing

tactics in order to promote the collaborated invention.

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10.0 ReferencesAdidas. 03 05, 2015. http://www.adidas-group.com/en/investors/financial-reports/ (accessed 03 11, 2015).Adidas AG . Collaborations and Memberships. 2008. http://www.adidas-group.com/en/sustainability/partnerships/collaborations-and-memberships/ (accessed Feburary 27, 2015).—. History . 2014. http://www.adidas-group.com/en/group/history/ (accessed March 03, 2015).—. MiAdidas-Customize. 2014. http://www.adidas.com/us/customize (accessed March 10, 2015).Adidas AG. Customer Service. 2014. http://www.adidas.com/us/customerservice (accessed March 4, 2015).—. Investor Relations. 2012. http://www.adidas-group.com/en/investors/overview/ (accessed March 10, 2015).—. Supply Chain Management . 2014. http://www.adidas-group.com/en/sustainability/supply-chain/supply-chain-approach/ (accessed March 1, 2015).—. Sustainability Report. 2013. http://www.adidas-group.com/en/sustainability/reporting-policies-and-data/sustainability-reports/ (accessed Feburary 10, 2015).Adidas-group.com. "Adidas AG." Rewards, 2015.AG, Adidas. "Adidas Global." Products, 2015: 1.AG, Adidas. "Adidas Group." Environmental Approach, 2015: 1.AG, Adidas. "Adidas Group." Strategy Overview, 2015: 1-2.AG, Adidas. "Adidas Group." Profile, 2015: 1-2.AG, Adidas. "Make A Difference." Adidas Group Annual Report, 2014: 1-2 192-193.Anonymous. "Adidas Group AG Forum." adidas Group AG - Company Profile, Information, Business Description, History, Background Information on adidas Group AG, 2015: 1.—. Forbes. May 2014. http://www.forbes.com/companies/nike/ (accessed March 14, 2015).Arline, Katherine. "Business News Daily." Porter's Five Forces: Analyzing the competition, February 2015: 1-2.Arnis, Matt. "nsb group." Adidas Uses Merchandise Planning to Boost Performance Across the Chain, March 2015.Badenhausen, Kurt, Chris Smith, Alicia Adamczyk, and Jason Belzer. "Forbes." Adidas, 2015: 1.Borowski, Arkadi. Adidas Marketing Strategy: An Overview. Germany: GRIN Verlag, 2011.Connan, Caroline. Bloomberg Business. February 17, 2015. (accessed march 14, 2015).Connolly, Kate. "The Guardian:Winner of the Pulitzer Prize." Adidas vs Puma:The Bitter Rivalry that Runs and Runs, October 2009: 1.Doane, Jocelyn M. Value Chain Analysis. October 28, 2007. http://www.studymode.com/essays/Value-Chain-Analysis-123861.html (accessed March 11, 2015).Fontana, Evan J. "Academia.Edu." Adidas Case Study, August 2012: 3.Hainer, Herbert. Shareholder Structure. 2015. Adidas-group.com (accessed March 11, 2015).Hayouma. "Scribd." Adidas PEST and SWOT analysis, 2014: 2.Heitner, Darren. "Forbes." Springblade Is Adidas's Single Most Important Shoes, July 2013: 1-2.Kasi. Marketing Mix. March 22, 2011. http://marketingmixx.com/marketing-basics/swot-analysis-marketing-basics/166-adidas-swot-analysis.html (accessed March 4, 2015).Knapp, Ryan. "Community." Adidas Boost Provides The Biggest Technological Advancement In Shoe Construction In Quite Some Time / Community, 2015.LP, Bloomberg. "Bloomberg." Puma Se, March 2015: 1.Maarouf, Fatme. "Slideshare." Adidas, June 2013: 41-42.Makos, Jim. "PESTLE Analysis." Understanding Pest Analysis with Definitions and Examples, December 2013: 1-2.Manktelow, James, and Amy Carlson. "Mind Tools." Porter's Five Forces: Assessing the Balance of Power in a Business Situation, 1996-2015: 1.MiCoach-Adidas. MiCoach. 2014. http://micoach.adidas.com/ (accessed March 2, 2015).Ohannesian, Jacques. Adidas AG (Germany). 2015. Www.Leads-Project.Eu (accessed March 11, 2015).Olsen, Erica. "OnStrategy." Internal and External Analysis, April 2010: 1-2.Parker, Selwyn. "World Finance:The Voice of the Market." Nike vs Adidas:A League of their Own, November 2014: 1-2.S, Abhijeet. "Management Paradise." SWOT Analysis on Adidas, November 2010: 1.Sage, Shannon. OnStrategy-Formerly My StrategicPlan. April 11, 2014. http://onstrategyhq.com/resources/strategic-planning-terms/ (accessed March 11, 2015).Varier, Abhishek, Amy Neelima, Ahmed Mostafa Avishek, Towhidur Md Rehman, Ai May Soh, and Chih-Ling Lee. "Nike:Strategic Analysis." Value Chain Activities, January 2011: 18-19.Vlasich, Sebastian S. Business Development Strategies: Building Measurable Sustainable Growth. January 11, 2012. http://wearedevelopment.net/2012/01/11/adidas-a-global-sports-strategy/ (accessed March 4, 2015).Woke, Li. "China Daily." Adidas Continues Core Business despite Challenges from 'fast fashion' brands, July 2013: 1-2.

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11.0 Appendices

11.1 Appendix 1: Ratio AnalysisCurrent and Future EstimatesNet income:

31st Dec 2013 (€ Millions) 31st Dec 2014 (€ Millions)Net income 100 176(Adidas 2015)It is assumed that the net income of the company might rise by 30% due to the new strategic

alliance strategy. There was a rise in the net income but there will be a gradual increase in

sales and operating expenses hence there will be a minor fall in percentage.

Estimated net income by end of 2015 = € 264 million

Total Asset:31st Dec 2013 (€ Millions) 31st Dec 2014 (€ Millions)

Total asset 11,599 12,417(Adidas 2015)It is assumed that the assets of the company will be steady and will have a gradual increase of

around 3% as it has already increased by 5% over last year (Adidas 2015). There will not be

much change as production of garments will be Nike and hence not much changes in

inventory and assets of the company.

Estimated total asset by end of 2015 = € 13,038 million

Return on Asset (ROA):

Current return on asset (2014) = 1.42% (176/12,417)

Future return on asset (2015) = 2.02% (264/13,038)

Average total asset 2011 (€ Millions) 2012 (€ Millions) 2013 (€ Millions) 2014 (€ Millions)

Total asset 11,237 11,651 11,599 12,417(Adidas 2015)Average total assets = (11,237 +11,651+11,599+12,417)/4

= € 11,726 million

Return on Investment (ROI):

Current return on investment (2014) = 1.5% (176/11,726)

Future return on investment (2015) = 2.25 % (264/11,726)

Owner’s Equity:2013 (€ Millions) 2014 (€ Millions)

Owner’s equity 6,694 7,415(Adidas 2015)Due to estimated low income there will be decrease in the retained earning the decrease in

equity is assumed to be by 1%.

Estimated Equity by end of 2015 = € 7489.15 million

Return on Equity (ROE):

Current return on equity (2014) = 2.37% (176/7415)

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Future return on equity (2015) = 3.52 % (264/7489.15)

Current Financial Ratios (AG, Make A Difference 2014, 1-2 192-193)

Short Term Solvency Ratios

Current Ratio: Current Assets/Current Liabilities

2014 = 1.68 (7347/4378)

2013 = 1.56 (6857/4732)

Quick Ratio: Current Assets-Inventory/Current Liabilities

2014 = 1.10 (7347-2526/4378)

2013 = 0.89 (6857-2634/4732)

Cash Ratio: Cash/Current Liabilities

2014 = 0.38 (1683/4378)

2013 = 0.33 (1587/4732)

Financial Leverage Ratios

2014 = 3.3%

2013 = (5.4%)

Asset Utilization Ratios/Turnover Ratio

Capital Intensity: Total Assets/Sales

2014 = 85% (12417/14534)

2013 = 82% (11599/14203)

Total Asset Turnover: Sales/Total Assets

2014 = 1.17 (14534/12417)

2013 = 1.22 (14203/11599)

Market Value Ratios

Price-earning/share: Price per share/Earnings per share

2014 = 21.83 (57.62/2.72)

2013 = 23.10 (92.64/4.01)

Based on the current findings on Adidas financial performance, they have done much better

in every way from what they had performed in 2013. Therefore, keeping in mind the 2014

figures, we estimate that the business alliance will further strengthen the financial

performance in 2015 and the next five years to come. The ratios above for 2015 are an

estimation keeping in mind the realistic assumption and the cost drivers influencing

performance.

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11.2 Appendix 2: PEST Analysis and SWOT Analysis11.2.1 PEST Analysis (Hayouma 2014, 2) Political

Control and monitor hazardous material to protect human health and environment

Provision of training sessions on employment standards and HR systems

Abiding by the con-current employment laws protecting the rights of employees

Economic Adidas increases the number of

employees hired each year to decrease the unemployment rates in developing countries

Adidas generally base their factories in Asia for availability of cheap labors therefore in order to reduce cost from paying wages and salaries

Social Adidas products are dedicated to all

sects and demographics ranging consumers from athletes to non-athletes

However, Adidas products have an high inclination towards sportsperson and athletes

Adidas makes fashionable products with special designs as demanded by their consumer base

Technology Adidas utilizing technologies to make

shoes with microchips and MP3 player inserted underneath

Adidas uses hot melt systems in their production system

Using of environmental friendly and recyclable packaging system

Using packaging model that are suitable for long distance travel, humid conditions and extreme climatic variability

11.2.2 SWOT Analysis (Vlasich 2012) (Hayouma 2014, 2) (S 2010, 1) (Borowski 2011, 2) (Kasi 2011)Strengths Weakness

Biggest sponsor of sports event-football

Superior pricing

Adidas brand is well recognized and reputed

Limited product line

Diverse range of products offered online

E-marketing and customer service is poor and badly functioned

Adidas has good records of financial statements

Proper retailing network is not always followed

Acquisition of Salmon Group and Reebok which used to be Adidas’s strongest rivals

Direct purchases from manufacturers often creates price differences among customers

Strong distribution channels Poor share in the US market Adidas abiding by the employment

and environmental laws (AG, Adidas Group 2015, 1)

High dependency on raw material pricing

Demographically wide-spread Fierce competition with strong competitors

Opportunities Threats Change in consumer lifestyles Competition from foreign markets Innovation and technology

development Changing in consumer lifestyles,

behavior and buying patterns (Woke 2013, 1-2)

Entering new markets New competitors entering the market Market diversification Price war between major rivals

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Enhanced geographical customer base Growing bargaining power of suppliers and buyers

Expansion of product line/service Overpricing of raw materials

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11.3 Appendix 3: Originality Report

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11.4 Appendix 4: Portfolio Analysis11.4.1 BCG MatrixSTAR QUESTION MARK?

CASH COW DOG

Stars: It is the high end and most expensive footwear Adidas has to offer. These products are

customizable and mostly worn by celebrities. (Ex: Jeremy Scott) Once people see celebrities

wear these products, they too buy them.

Cash cow: These are the biggest sellers in the market that are cheap to buy and make. For

Adidas, this product segment brings in most of the money and is used to either develop new

products or to invest in other areas of the business. Therefore, the revenue generated from

this is crucial for the business to sustain (Heitner 2013, 1-2).

Dogs: These products have a smaller share compared to the others and also have a slow

growth rate. This section of product includes accessories, and sports which Adidas is not

known for globally.

Question Marks: The ‘question marks’ of Adidas products are its shirts and garments as

they have a high market growth but the market share is very less. They require lot of funds to

improve their market share and it is uncertain whether they will grow or not.

11.5 Appendix 5: Porter’s Five Forces ModelCompetitive Rivalry: This element focuses on the number and capability of competitors in

the market (Arline 2015, 1-2). In that case, Adidas has selected number of competitors in the

market like Puma, Nike and Reebok, where Adidas has already taken over one of their

strongest competitor Reebok. Adidas and Nike are competing on these factors listed below:

• Adidas’s strongest competitor is Nike

• These two firms are immensely growing in the last two decades

• Global reach has expanded through all continents

• Online selling has reached its heights allowing them to increase sales and at the same

time keep operating costs low

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• Virtual stores for consumer convenience

• Online purchasing becoming the new trend in 21st century

Threat of New Entrants: In this element, if the market is emerging and profitable, then they

are highly likely to give a free access card for the new entrants to dominate the market

eroding the profitability. In case of Adidas, even though the market is thriving, threat of new

entrants is low because of the following reasons.

• Adidas, being a large scale firm control their costs retaining the performance

advantage over emerging competitors in the industry

• Brand identity, an immediate competitive advantage

• Selling footwear online is highly competitive, but barriers to enter in e-commerce is

low

Threat of New Substitutes: This element particularly deals with the scope of buyers finding

a substitution for their product. In this area of competitive force, if close substitutes exist in

the market, then it is likely for them to switch to another brand.

Propensity of substitutes low

• Little alternative to switch

• Not likely to switch due to performance specification of the product

Bargaining Power of Suppliers: This element shows how easy it is for suppliers to bring

the prices up for the product in the market. This factor is determined by the number of

suppliers are available for each input, the uniqueness of product/service they provide.

Many suppliers in the industry, therefore little differentiation making them non-

existent

• Adidas has significant power over suppliers

• Able to switch to suppliers cheaply and quickly due to their global network of cheap

labor on various continents

• Raw materials are easily accessible and substituted

Bargaining Power of Buyers: This element constitutes of the number of buyers easily

influencing the price of a product. This deals with the number of powerful number of buyers

in the market, and their willingness to switch to other substitutes in the market.

Proportion of buyers are more than firms

• Differentiation of brands is necessary to increase sales and market share

• Online tools help to enhance accessibility and intimacy among users. Moreover,

online buyers are price sensitive so they have low switching costs

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