Addidas

Unit Code Unit Name Assignment Weightage Marker Range 8 - 10 4-7 0-3 Range 8 - 10 4-7 0-3 Range 15 - 20 7 - 14 0-6 Range 15 - 20 7 - 14 0-6 Range 18 - 25 10 - 17 0-9 Range 7 - 10 0-6 Range 0-5

Name Keshan Kumar S/O Thanagopai Gu Yudie Wong shi min Sherly Dwi Putri

BUS317 Strategic Management Group Case Report 25% Frankie Yee

Student ID 32179082 32179378 32368487 32351603

Environmental Analysis (General) 10%

Thorough PEST undertaken; key environmental forces and trends identified; comprehensive evaluation of opportunities and threats Adequate PEST - some key forces and trends identified, others overlooked, resulting in incomplete opportunity and threat evaluation Poor PEST - key forces and trends overlooked, descriptive in nature, lacking analysis; opportunity and threat evaluation is poor. Environmental Analysis (Industry) 10% Industry power analysis is comprehensive and persuasive; major driving forces and key trends; comprehensive evaluation of opportunities, threats and industry attractiveness relative to the firm identified. Industry power analysis is adequate, with some driving forces missed; somekey trends are identified; evaluation of opportunties, threats and industry attractiveness relative to the firm is satisfactory.

Marks !

7.5 Marks !

8.5

Industry power analysis is weak with major factors missing; few industry trends identified; evaluation of opporotunities, threats and industry attracytiveness relative to the firm is poor/absent. Environmental Analysis (Internal Evaluation) 20% Clear description of organisation's competencies and capabilities constructed from application of appropriate tools (value chain, functional analysis) Organisation's capabilities and competencies are outlined but the basis is vague as the tools are not applied well. Organisation's capabilities and competencies are vague and unclear; tools are poorly applied or absent Analysis, Argument & Strategy Formulation (20%) Sharply focussed diagnosis of strategic issues and key problems ; reached logical, insightful and well substantiated conclusions; reasonable alternatives generated and conform to SAVED Major strategic issues and key problems identified but with lack of clarity and focus; conclusions are generally logical and substantiated in fact; some alternatives generated do not follow logically from the analysis; SAVED described. Significant strategic issues and key problems overlooked; conclusions are not logical and/or not substantiated in fact; alternatives do not relate to the problems identified; SAVED not conformed to general and industry analyses weak Recommendations & Implementation (25%) Recommendations follow logically from the analysis and well justified; Key value chain activities are identified for action during implementation (what change is needed?) Recommendations are reasonable, generally follow from the analysis and are adequately justified;only some value chain activities are identified for action during implementation (what change is needed?) Recommendations are not sound; value chain activities for change are not identified (what action is needed?) Presentation of paper & Quality of research (10%) Wide range of relevant and reliable literature utilised to support argument; Vocubulary, fluency and clarity of expression; Proper referencing conventions followed.

Marks !

18 Marks !

17.5

Marks !

23

Marks !

Drew on marginally relevant and reliable literature; Referencing is weak

8.5 Marks

Budget (5%) The budget presented is based on realistic assumptions and consideres the major cost drivers.

Total (100%) Total (25%)

!

3.5

86.5 21.6

BUS 317 Strategic Management Strategy Plan-Adidas Group

LECTURER: Mr Frankie Yee

STUDENT:

S

Table of Contents Page Executive summary 1. Introduction 1.1 Company Profile 1.2 Current situations 2. Environmental Analysis 2.1 External Environmental Analysis (PEST) 2.2 Internal Environmental Analysis 2.2.1 Past financial performance assessment and implication 2.2.2 Value Chain Analysis 2.2.3 Boston Consulting Group and implication 3. Industry Analysis 3.1 Key Success Factors for Adidas 3.2 Porter’s Five Forces 3.3 Competitors Analysis TOWS matrix 3.3.1 Form Competition Analysis 3.3.2 Strategic Group Analysis 3.3.3 Implication of Stragegic Group Analysis 3.4 TOWS matrix 4. Objectives for Adidas 5. Recommended strategy 5.1 International Coporate Strategy 5.1.1 AVDSE (SAVED framework) 5.1.2 Selection Criteria for Strategy 5.1.3 Revamped Value Chain Analysis 6. Evaluation and Control 6.1Balanced scorecard and Budgeting 7. Conclusion 8. References

3 4 4 4 5 5 6 6 6 9 10 10 11 12 12 13 13 14 15 16 16 16 21 22 23 23 24 25

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Executive Summary: Strategic management enable organisation to achieve and maintain advantage in competition. This report aimed to propose strategic plan for Adidas in order to assist business to move towards a long-term objectives while contributing to short-term decision making and gather general interests. The increasing demand for fitness and health, provide opportunities for Adidas to extend its existing market and move forward to other new markets. Moreover, the strong financial power enables Adidas to merger and acquisition other brands, for example Reebok thus create new product lines and make brand differentiation. In this report, strategic analysis covered both internal and external perspectives. PEST and TOWS framework evaluated the external environments, where internal environments were analysed by adopting value chain, Boston Consulting Group model and past financial assessments. Competitor’s analysis with the Porter’s five forces identified competitor’s performances that Nike is the biggest competitor; Puma, New Balance and Under Armour are smaller competitors. Strategic formation concentrated on international expansion; budgeting was made separately for each forecast for the future benefits and costs. For achieving and sustaining strategic competitiveness, balance scorecard was used to evaluate and control the strategic implementations. Adidas recognises passion as the core that encourage to continuous innovation and improvement while being highly customer focused and offer eco-products for sports and sporting life. Adidas is projected to take over Nike’s first position in the sector for the long term.

A good executive summary

3

1.Introduction 1.1

Company Profile

Adidas AG (Adidas) is the largest sportswear manufacture in Europe that started out as a small family business during the 1920s in Germany and it was later officially founded by Adolf Dassler in 1948 (Daly, 2014). Over the years, it has successfully become to the second largest sportswear manufacturer around the world behind Nike. In order to extend marketing, the company has merged other multiple brands, for example Reebok (Smit, 2008).

1.2 Current situation

About Adidas

Brand Mission Brand values Focus areas New sales in 2013

Key strategic pillars

Opportunities Challenges

Adidas Sport Performance: offering products that make athletes perform better. Adidas Sport Style: it is defined as the “Future of Sports-wear” which positioning statement is “style your life”. Adidas Originals: the authentic, iconic sportswear label for the street with philosophy is “Celebrate Originality”. To be the leading sports brand in the world. Authentic, passionate, innovative, inspirational, committed, honest. Football, Basketball, Running, Training, Outdoors, Adidas Originals, Adidas NEO label, Customisation, Interactive. €14.49 Billion " Gaining sales and market share with key growth categories such as running and basketball within Adidas Sport Performance. " Leading the industry in the fields of customisation and interactivity across categories. " Expanding Adidas Sport Style in the fast-fashion business with the Adidas Neo label. " Acquisition of companies adding product differentiation to Adidas. " Fitness and health trend is increasing. " Competing with Nike in US marketing driven culture. " The intensive changing demands and requirements for products to be eco-friendly. Source from: (Scherer, 2007)

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2.Environmental Analysis

A good PEST analysis, beautifully presented.

2.1 External Environment Analysis External environments involve with several factors, which can dramatically influence business strategy (Dess at el, 2008). PEST (Politics, Economy, Social, Technology) analysis will identify the external factors that affect surrounding business environment of Adidas. Political

Implication

Economical

! !

! ! ! ! ! ! ! !

Implication

Socio – cultural

! !

! ! ! ! !

! Implication

Technological

Implication

! ! ! ! ! ! ! !

German government intervenes the supply of raw materials. Trade conflict arises when Germany and European countries continue to struggle in the battle for raw materials with China (Tomlinson, 2005). US Government is considering deducting the tax rates for imported footwear (Lian & Tong, 2008). As the largest sourcing country, increasing labour costs in China threaten Adidas. Adidas under risk to be boycotted by China. Reformation of the tax rates in US increases the chance to extend US market. Decreased consumer spending due to Europe’s economic crisis (Davis, 2014). Increasing unemployment rate. China’s total salaries would rise by 9% over the next 2 years (Tomlinson, 2005). Decreased competitiveness of Adidas’ merchandise due to production becomes more expensive. Consumers spend lesser on non – essential goods such as sportswear. Adidas will continue to suffer the consequences of economic crisis as Europe makes up 1/3 of sales growth. Increasing attention on fitness and health (Blaise, 2006). Global consumer cultures are emerging (Jonson, 2008). Environmental organisations and eco-customers demand eco-friendly products. The requirement of sustainable business base on triple bottom line (Brammer, Rayton & Millingto, 2007) Increasing travel and improved communications have contributed to a convergence of tastes and preferences in a number of product categories (Opoku & Akorli, 2009) New opportunities for Adidas to produce sporting goods and service which suitable for fitness. Increasing environmental sustainability standards of raw materials used and manufactory process. Increasing innovation ability in order to fulfil changing demands. Innovatory new technology used to product designing (Law et al, 2004). Increasing usage of Internet. New form of promotion strategy (Orlik, 2014). Adidas should combine the best materials with latest technology together to manufacture products, which make customers perform their best. Influences from social media for example, Facebook being the most popular social networking site and best online marketing platform. Adidas can get feedback from customers faster. 5 Improve advertisement, distribution and online shopping.

2.2 Internal Environment Analysis 2.2.1 Past financial performance assessment and implication Through assessing past financial performance of Adidas to measure its current financial health and sustainability.

Source: Calculation based on Adidas Annual Report 2012 & 2013

Years Current Ratio Quick Ratio Debtor Collection (Days) Creditor Collection (Days) Stock Turnover (Times) Leverage ROCE Return on sales Gross profit to sales

2013

2012

1.45 0.72 44.04 89.74 2.87 2.12 23.6% 5.43% 49.3%

1.57 0.77 41.63 86.23 3.13 2.20 19.3% 3.53% 47.7%

Liability

Profitability

" Current ratio indicates Adidas’ ability to

" The increased number of Return on

pay debts over the next accounting year. A

Investment, Return on sales and Gross

slight decrease of current ratio could be

profit to sales are the indicators of healthy

caused by the growth of cash outflow,

financial

which

incremental profits.

may

expended

on

purchasing

position,

which

result

of

inventories or expended the Days Sales " Adidas 2013 financial report has illustrated

Outstanding. " Current ration locates between 1.5~3.0

that the financial performance in third

healthy

quarter was negative, however, in the

power.

fourth quarter had a strong sales and

Adidas had dropped from that region in

profitability growth. It attributed to the

2013; however, the figure still maintains

coming event - 2014 World Cup, which

above 1.0, which means Adidas has no

created a lot of opportunities and profits to

problems dealing short run obligations.

sporting goods industry.

presents

that

company

business

and

strong

has

financial

2.2.2 Value Chain Analysis The value chain analysis contributes to identify both primary and secondary activities, which can develop company’s competitive advantages while also making vale to customers (Kaplinsky, 2000). By identifying the value chain listed below, it can clearly find out two core competencies that Adidas has – Technology and Procurement.

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Outbound Logistics

!

!

Marketing Sales

and

!

!

!

Distribute products with a strong focus on controlled space, including: Own-retail business, e-commerce, Shop-in-Shop, Joint ventures with retail partners, mono-branded franchise stores, co-branded stores with sports organizations and other brands. Set up “Integrated distribution roadmap” program.

" Create a high level of brand control. " The distribute channel-focused approach has established strong market positions globally, deepening and expanding cooperation with leading wholesale partners, operating one of the biggest mono-branded store chains in Adidas industry and becoming a significant e-commerce player with one consistent global platform. " Reduce the number of lost customers and to increase sales. " Ensure that the products stay competitive at the point of sale. " Attack more customers from different segmentations.

Sell products in virtually every country of the world. The group has set up an unparalleled portfolio of promotion partnerships with international recognized sports associations (e.g. UEFA, FIFA, NBA, NFL, and NHL). Henceforth, commercials, ads, apps for smartphones, product placement, sponsorships for athletes and sport events (e.g. Berlin Marathon 2011) are implemented. The group is using adapted pricing strategies, which is depending on which market they are operating in.

" Enhance its reputation of environmentally sound factory operations. " Position itself as the sustainable business operators. " Ensure the high quality of products. " Create the strong relationship with supplier.

Sustainability

! !

" Decrease transportation costs. " Decrease the production costs.

Organized

Operations

!

A specified inbound logistic chain for moving raw materials and unassembled goods insider the company. Purchase and manufacture the products at same place. Normally, at the developing countries like China with cheaper price. Establish “Workplace Standard”. Working closed with suppliers: " Checking the rules are followed. " Selecting new suppliers. " Rewarding good performances. " Taking action over poor performance. " Providing information for worker. " Working with Licensees.

Imitability

!

Rareness

Inbound Logistics

Value Created Value

Strategy

Value Chain Activity

‫ݲ‬

X

X

X

√

√

X

X

X

√

X

X

X

√

X

X

X

√

√

√

7

Service

!

! !

Procurement

!

Encourage customers to create personal account, based on the information and purchase history to offer future favourite production information. Allow customer e-shopping and offer free deliver services. Offer pre-ordering and special ordering.

" Building trust and understanding relationship with customers will maintain customers’ loyalty. " Taking advantages of online-shopping to fulfil consumers’ behaviour.

Using global and multi-layered supply chain with several types of business partners.

" Adidas influences in terms of social and

environmental compliance is linked to the strength of its partnerships, and is often proportional to the scale and stability of the orders placed with its suppliers.

Technological development

!

Continentally development.

!

Corporate with Germany government and join manufacturing of innovative products program.

Human Resource management

! !

Employee-oriented leadership Talent Management strategy focuses on developing the old employees and give them opportunities to their career. Remuneration based on market requirement and performance level. Motivating employees by gave the bonus. Long-term incentive programmes: encourage senior manager achieve financial and compliance target. Work-life balance concept.

" Talent workers maintain and recruitment directly influences the competitive power of company. " Employee branding impacts on future recruitment and organization image.

As global brand, Adidas has separate Supervisory Board based on the different regions. Decentralization is adopted by the Adidas. Distinct identity of range of brands and manage separately.

Better understanding of regional business.

! ! !

!

Firm infrastructure

!

! !

implementing

research

and

" Saving cost by enhancing production effectiveness. " Contribute to environmental friendly thus increase the reputation of branding.

√

√

X

X

√

√

√

√

√

√

√

√

√

√

√

√

√

X

√

√

√

X

√

√

√

Allow global expansion. Focused to meet the needs of a specific sector within the sport market and maximize the impact with consumer.

8

6.873

5.813

1.806

Footwear

Apparel

Hardware

€ in million

Sales

Hardware

Apparel

12

17

15

No. of direct competitors

Footwear

1.806*, 1.080, 605

5.813*, 5.246, 1.170

11.184, 6.873*, 1.403

1.7

1.11

0.6

Relative market share

footwear

once

was

the

top

to

support

Adidas’

large

size

performances or enter other new markets.

action either to improve its existing market

" For long-term success, Adidas must take

business.

enough

category but the position is not strong

" Apparel and hardware located at cash cows

47% of the total revenue.

this product category as it is still contributing

advantages. And it is impossible to abandon

dog, due to loss of strong competitive

attractive products now is turning out to be

however,

" In short term the business still gains profits

6%

10%

5%

Forcast annual growth rate

Source from: (Adidas Group, 2013), (Nike, 2013) and (Puma SE, 2013)

Sales of the largest firms in the sector (€ in million)

2002). The table below considers three products’ lines of Adidas.

share of the product from the competitors; it also divides products into cash cows, stars, problem child and dog (Lakhani et al.,

final strategic objective effectively. BGC generally positions products either base on the rate of growth of the market or the market

BCG as a ‘ portfolio techniques’ assists managers in locating resources among organisation businesses in order to achieve

2.2.3 Boston Consulting Group (BCG) and implication

9

3.Industry Analysis Industry analysis concentrates on economic, political and market factors, which can impact the development of industry.

3.1 Key Success Factors for Adidas Key Success Factors (KSF) decides the success of an organisation through correctly identifying available resources to achieve strategic goals (Wu, Tand and Shyu, 2010). Besides, KSF assist management in identifying future direction to keep competitiveness in order to sustain in market challenges (Bullen & Rockart, 1981).

Success Factors

Quality Control

Industry Descriptions

Partnership

Sales and Marketing

" Branding recognised

Financial

Corporate Governance

Adidas’s Descriptions

" Need for testing examined by licensees. " Safe, reliable and " Expertise in sports reputable products technology. " Bound relathionship with partners, which is valuable, hard to substituted.

Strategic Location

Source from Adidas Group

" Strange relathionships with partners for example, made alliance with FIFA since 40 years ago. " Mass social media appearances. " Effectve promotion strategy " Refined distribution channels and expanded more than 1000 outlets. " Sponsoring with sportsmen/women to attract public focus.

" Economies of scale " Mass location. " Ability to reach out " Central districts. to more customers " Strong sustainble " Sustainability financial assets. " Position itself as sustainable business. " Corporate Social " Adidas almost uses non Responsibilities – polluting materials and processes.

Sustainability

√

√

√

√ √

√ 10

3.2 Porter’s five forces Porters five forces Model is powerful tool to determine the attractiveness that an organisation has. It contributes to identify the current advantage position while also locating the position that organisation is moving on (Porter, 2008). This model includes five components, which are listed down below. It clearly illustrates Adidas’ positions as: " High Rivalry among competitors " Low Threat of New Entrants " High Threat of Substitute Products " Low Supplier Power

" High Buyer Power Five-Forces Model of Competition on Adidas Threat of entrants: Barriers to entry Can entrants gain economies of scale quickly? Can entrants climb the experiences curve quickly? Do entrants have a differentiated product? Are the capital requirements to enter the industry low? Do customers incur a low switching cost? Can entrants gain easy access to distribution channels? Do entrants have non-size related advantages? Supplier power Are supplier’s small and many in number? Are suitable substitute products available? Do supplier has a few buyers? Can Adidas succeed in the market place without the suppliers’ product? Can Adidas switch to another product easily? Is it difficult for supplier to integrate forward in to the Adidas’ industry? Buyer Power Do buyers purchase a small portion of an industry’s total output? Are buyers’ purchase constitute an insignificant portion of Adidas’ annual revenues? Do buyer incur a high switching cost when switching to another product? Is it difficult for buyers to integrate backward into the Adidas’ industry? Threat of substitutes Do buyers of these substitute products face high witching cost? Is the substitute product’s quality and performance worse than the existing product? Industry rivalry Are there few competitors or are the competitors of unequal size? Is industry growth high? Are fixed and storage costs low? Are there differentiation opportunities or high switching costs? Are the strategic stakes low? Are exit barriers low?

High √ √ √ √ √ √ √ High

High √ √ √ High √ √ High √ √ √ √ √ √

Low

Low √ √ √ √ √ √ Low

√ Low

Low

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3.3 Competitor analysis 3.3.1 Form Competition Analysis Competitors

Level competition

Strengths

Implications

Weaknesses

Brand competition Nike is one of the most widely known companies in the world with its trademark “swoosh” is one of the most instantly recognizable corporate symbols in history.

!

!

Puma uses cutting edge designs to attract new buyers and stand out from the crowd of competitors.

!

Puma’s advertising ! strategy and promotional ! strategies are far less resulting in the brand ! not be as projected to consumers as Adidas.

!

Those brands are more adoptive by national customers. The price is more affordable.

!

Low brand recognition in international market. Low quality resource and out-date designing.

!

Brand recognition

Innovational products

Its reputation for exploiting inexpensive and child, labor in the Asian factories where its products are manufactured.

! ! !

Focus on customer orientation. Put more attention on diversity cultures. Hold more events and get customers involved with. Carrying on R&D to explore new design. Take advantage from the latest technology. Better understand customers’ demands and market trends.

Industry Competition

!

!

! !

Correctly position Adidas branding. Producing new products with national culture features.

Form Competition ! ! ! !

Fashion and modern features. Cheaper prices. Wider products lines. Successful promotional strategies.

! ! ! !

Not suitable for sporting activity. Easily become outdate. Low quality Limited targeting groups.

!

!

!

Emphasize the function of Adidas’ products. Identify the correct target segmentation. Improve promotional strategy.

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3.3.2 Strategic Group Analysis

International

Nike Adidas

Forever 21

Puma

H&M

National

Li-Ning Under Armour

Regional

Local Narrow

Wide Market Segment

A very good environmental analysis so far far. Well done done. 3.3.3 Implication of Strategic Group Analysis Adidas is the market challenger and in order to be the number one sports apparel brand, it needs to continue producing innovative products and be prepared to deal with threatens from competitors. Sports have gained more importance than before. For example, Singapore has been promoting citizens to maintain healthy lifestyle and to facilitate that the government has been building stadiums and swimming pool in neighbourhood hubs (Dogiamis & Vijayashanker, 2009). There should be increased demands that users demand for sports apparel. Adidas has to position itself correctly and set right targeting groups. Furthermore, Adidas needs to create its own uniqueness in the sports apparel and lead in developing products that are innovative. 13 1

Similar or better products with lower prices offered by competitors ! Affected market share due to pirated or fake imitations ! The marker for sports apparel and footwear had declined in 2009.

!

WT Strategies

Building higher understanding demands then introduce them the brand.

WO Strategies

consumer loyalty through customers’ culture and get them involved and the value and unique of

14

Repositioning Adidas branding and Restructuring Adidas in order to move it emphasizing on environmental friendly in beyond “Euro-sport” and enter other order to recreate or increase its value in national markets. consumers’ mind.

ST Strategies

! Broad Differentiation.

Business growth in new markets through applying technologies. For example, Adidas in medical industry, which enhance devices to enable paraplegics Enrich product lines.

SO Strategies

Generates over 60 new designs every ! year Adidas has sponsorship agreements for major sports events across the globe Strong partnership !

External Threats

!

!

!

External Opportunities

3.4 TOWS matrix

! ! ! ! !

Vendor and manufacturer fail to achieve and maintain high manufacturing standards. Easily changeable consumer loyalty due to intense competition Outsourcing 97% of its global production to third party manufacturer which make the consumers question its product quality

Internal Weaknesses

High brand reorganization ! Over 2400 stores worldwide High level brand control ! Innovative R&D department Owns Reebok, Rockport and Taylor Made ! ! Large geographical foot print in diverse markets

Internal Strengths

Market Positioning

Recognising brand with social corporate responsibility.

!

To ensure cost competitiveness.

To modernize the group infrastructure.

!

!

Operations

To ensure that the brands seize market and category opportunities.

Branding

Reebok: establishing Reebok as the leading fitness brand.

strong momentum of Adidas Originals.

business with the Adidas NEO label and maintaining the

Adidas Originals & Sport Style: expanding in the fast-fashion

running and basketball categories.

Adidas Sport Performance: gaining sales and market share in the

operating margin of 11%.

earnings at a compound annual growth rate of 15% and to reach an

Growing bottom line faster than the top line therefore, grow annual

within the five-year period.

Total Group sales achieve 45% to 50% on a currency-neutral basis

!

!

!

!

!

!

Finance achievement

Short-term objectives (1-5 years)

Relevant and Time-bound) method.

!

!

!

!

!

to take the country to the next level in terms of innovation.

15

Fitting into ‘High-Tech Strategy 2020’ the German national plan

manufacturing processes and innovative products.

Combining state-of-the-art information technologies with

Technology

To become the global leader in the sport goods industry

Market Positioning

investments worthwhile for consumers.

Yield healthy, sustainable development through making

Becoming a top retailer within the world.

Sales

Long-term objectives (6-10 years)

Below table illustrates the long-term and short-term goals for Adidas based on the SMART (Specific, Measurable, Achievable,

4. Objectives for Adidas

5.Recommended Strategy Adidas must leverage on its core competencies and differentiate itself from other competitors so that become the market leader. In order to move toward to final objective, this report proposals: !

International Corporate Strategy: Adidas has powerful financial resources to implement international expansion. With goal to increase profits and market shares, International Corporate Strategy has advantages of better understanding local cultures, political and legal systems while also minimizing linguistic barriers (Dess et al., 1995).

5.1 International Corporate Strategy 5.1.1 AVDSE (SAVED Framework) Reduced trade barriers and government cooperation for production have increased globalisation as a result of intense rivalry among market. Although the annual report shows that Adidas gathers profits and has large geographical footprints in markets, however, the major amount of profits were gained from Europe and China, which means there are more regions that are not fully developed. Especially, countries are driven by American cultures and prefer Nike branding. In order to increase market shares and compete with Nike, Adidas should consider assessing potential markets where Adidas has not performance dominantly yet. " Arenas Market selection determines the best regions to further develop and Arenas can assist to identify those locations by adopting General Electric Model (GE). GE model provides direction regarding resources allocation and opportunities available in markets. This report takes four steps format GE model, which are: Step 1: Identification of Strategic Business Unit (SBU) Base on the geographic position, there are seven SBUs identified to measure, which are Asia (exclude China), China, North America, South America, Europe, Africa and Oceanic.

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Product or service uniqueness Brand recognition Market share growth Customer loyalty Relative cost position Production capacity Product quality Record of innovations Distribution network R&D performance Management

Market size Pricing trends Market Growth Intensity of the competition Overall risk in the industry Ability to differentiate Technology requirement Emerge requirement

Criteria

Asia

China

Europe

North America Factors that affect market attractiveness Large Large Large Large Upward Upward Downward Downward Increase Increase Decrease Maintain Medium High High High Low Low Medium Medium Low Low Medium Medium High Medium High High High High Medium High Factors that affect business strength High Low Low Low High High High High High High Medium Low High Low High Low Medium Low High High Medium High Medium Medium High Medium High High High Medium High High High High Medium Medium High Medium High High High Medium High High Medium High Medium Low Medium High Medium Medium Medium Medium Medium

Large Downward Maintain Low Medium Medium Medium Medium

South America

Medium High Medium Low Medium Low Medium High Medium High High

Large Maintain Increase Medium Low Medium High High

Oceanic

Step 2: Determination of SBUs’ position on the basis of factors that measure Market Attractiveness and Business Strength

High High Low Low Low High Low Low Low Low Low

Large Maintain Maintain Low High High Low Low

Africa

17

Step 3: Ranking SBUs Invest to Build Oceanic

Build Selectively

Build selectively Other Asia counties

Develop Selectively South American Europe

Limited expasion Africa

Protect Refocus China

Harvest

Diverst

Medium Low

Competitive Attractiveness

High

Invest for Growth North American

Strong

Medium

Low

Business Strength

Step 4: Implementation North American, Oceanic and other Asia counties excluding China are identified as fast growing SBUs. However, North American will be targeted as first priority where has high profitable market and worth to take further R&D. Especially, the US within that region has the strongest purchasing power and there is emerging trend of fitness and health, which will create demands of sports products. Therefore, Adidas needs to concentrate on North American for future investment. China, Europe and South American still remain value for developing. However, rather than put those regions at priority to grow, they should adopt selective investment that depends on local management and corporate capabilities. Africa should have minimization of invest unless there is good reason or special event that create valuable opportunities to enter that market. 18

Strategic alliances

Acquisition

Joint Ventures

Licensing

Exporting

Mode

High financial return. Limited financial exposure. Sharing risks Permission to enter markets.

Quick access to new market. Totally control of resource and decision making rights.

Sharing risks. Permission to enter international markets.

!

!

! !

!

! !

!

!

No requirements of facility needed. Economies of scale can be used.

!

Advantage

!

!

! !

!

!

!

!

! !

!

Interest conflict between two parties. Limitation of intergradation.

High cost Create problems of integration and coordination.

Loss of control and quality of services. Create potential competitors. Confliction of two parties’ interests. Lack of intergradation.

Create dependence on intermediaries. Transportation costs. Low level of involvement.

Disadvantage

several options listed down in the table below:

! !

!

!

!

!

!

!

!

!

Through acquiring local brand for example, American brand Under Armour. Adidas can directly gain profits from it without over considering business culture. Acquisition assists to market penetration, especially for those regions slowly adopt foreign brand. Adidas can access market quickly and get return from investment. It also has similar advantages like acquisitions. Besides, two companies share resource and technology can create new ideas and extend product lines thus make they become more competitive.

It will take long time to make public recognise the new brand. It will reduce Adidas branding value.

Country like America has set importing policy in order to protect local business. Adidas have to pay extra tax for exporting products, which will affect the price. American culture resists adopting European product; especially when they have local brand Nike as a stronger substitution. It is important for Adidas to find right partner to licence within a local situation. The long distance control may result of unqualified services that will damage Adidas branding.

Application

19

YES

YES

No

No

No

Adopt

Vehicle considers the method used to achieve the international strategy. And in order to extend overseas markets, there are

" Vehicle

" Differentiators:

Porter’s generic strategies

Adidas should position itself at Broad Differentiation:

Uniqueness Perceived by the customer er

!

A broad cross-section of the market

Basis of Competitive Advantage !

Ability to offer buyers something attractively different from competitors.

Strategic Target

Strategic Target

Product Line # !

Many product variations, wide selection Emphasis on differentiating features

Low cost position

Industry wide

Overall Differentiation tion n cost leadership

Particular Segment Only

Focus Strategic Advantage

Keys to sustaining the strategy: ! !

Concentrate on a few key differentiating features Stress constant innovation to stay ahead of imitative competitors

" Staging and Economic Logic Activities

Timeline

Budget (€ Billion)

Identify the partners and build up relationship

By 2015

5

Selecting management working with partners

By 2016

0.02

Recruiting staffs and retraining exiting staffs to adopt diversity cultures

By 2016

0.03

Working toward hybrid products based on local features

By 2017

0.5

By 2018

0.01

By 2019

3

By 2019

2

Total

15.6

Monitoring the process of strategy and make the next short term decision Ongoing Branding Campaign to raise awareness of Adidas Continuously R&D process in order to trace the latest demands and technology

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5.1.2 Selection Criteria for Strategy Adidas’ next movement will be in line with its objectives meanwhile also considering the risks and required resources to implement future strategy. Criteria for International Corporate Strategy to succeed: !

Continentally research and fully understand US external business environments and customers’ demands.

!

Incrementally develop internal business structure so that to better cooperate with local alliances.

!

Transfer customers’ perspective from European brand to ‘US-European’ brand thus minimizes the resistance to adopt foreign products.

!

In short term, be able to survive in highly competitive market.

!

In long term, be able to acquire customers and compete with Nike. Adidas will implement International Corporate Strategy and enter US market first. When the

brand is successfully adopted by US public, Adidas should continually push their brand to other markets that were suggested to selective investment in the earlier stage of the report, such as Asian and Oceanic countries therefore, to be ahead of Nike.

Excellent. It would have been perfect if the group had actually discussed about the criteria in selecting the mode of entry rather than just listing out the advantages and disadvantages.

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!

regions instead of China.

Select suppliers from either America or Europe

!

result of downszing and internal restrcture. Appropriate

Approprately manage restrenchment

!

Procuremnt

cause culture conflict between two companies and also

Improve the diversity management.

!

cheap products.

22

American match chinese factories with low quality and

Removing image of “Made in China” due to the majory

manage is necessary to retain talented workers.

market by aqusition or strategy alliance, which may

Improve the information sharing system.

!

There is a high prosibility that Adidas will enter US

Infrastructure

!

Through coporation with vendors it will increase the

instituation and EA inc, etc.

Implement incremental development.

shopping and enhance customers satisification.

us sports clubs, event organisations, gym & traning

target segementation beyond Adidas supporters.

product change policy will create convenient on e-

Build strong relationship with local vendors, such

The emerge of technology usage enable customers to

Reduce inventory costs.

Reduce the transportation costs.

shop online rather than visiting retail shops. Proporate

!

!

!

!

the product change policy.

Reinforce online shopping channel and redesign

implemented Just-In-Time inventory strategy.

accurancy of future forecasting so that it is

Through marketing research to increase the

American countries.

cheaper resources, such as Moxico or other South

Manufacture products in nearby places with

Value created

!

!

!

!

!

Strategy

Firm

Logistics

Outbound

Logistics

Inbound

activity

Value Chain

The current value chain of Adidas needs to be modified therefore to support proposed strategy.

5.1.3 Revamped Value Chain Analysis

growth

Learning and

Internal process

Customer

Financial

Perspectives

and Norton, 1996).

Turnover rate. Average length of service % Management position from different groups.

Create leadership excellence Employees satisfactions Create an attractive work environment. Diversity management.

! ! ! !

! ! !

Standard lead time % Change in cost of sale % Increase in R&D expenses Number of product launch ! ! ! !

! !

% Increase of new customers through registration % Repeated sales through database and survey % Increase sales from both new and old customers ! ! !

Attract new customers Ensure customer retention Increase customer satisfaction Increase demands Reduce product and supply chain cost. Reduce standard lead times for footwear and apparel. Increase number of new designs. Increase quality of designs.

! ! ! ! ! !

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Operating Margin Operating Expenses Gross Margin New income attributable to shareholders as a percentage of new sale

! ! ! !

Creating long- term value Being a sustainable company Revenue growth Increase share value

Strategic Controls

! ! ! !

Strategic Objectives

comparing Adidas strategies with its objective and based on the results to improve internal systems and external outcomes (Kaplan

sheet as a tool to measure Adidas performance more than financial perspective. It contributes to attain a sustainable business by

identify how the business is preforming, also indicating the reasons that causes certain performances (CICEI, 2014). Balance score

Since Adidas company operates in a dynamic environment, control and measurement becomes an important process to

6.1 Balanced Scorecard and Budgeting

6. Evaluation and Control

7. Conclusion In the processes of strategy management, environment analyses are implemented by applying BCG model to identify the business environments, which assists in suggesting strategy plans for Adidas in order to enhance its competitive advantages. Meanwhile, value chain aids to find out Adidas’ core competencies and key success factors. Besides, TOWS model recognises the advantage that support business prevision; and those disadvantages hinder the business to achieve its final objectives. Strategy formation conducts international corporate strategy that suggests entering US market and selectively invests in other Asian and Oceania countries. Ultimately, financial budgeting is set for forecasting possible future costs while evaluation and monitoring are necessary to identify and response external environment changes therefore balance scorecard is adopted in the end of report.

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