Strategic Ait of Adidas Group - Essay Example

THE SPORTS EQUIPMENT INDUSTRY Name Course Name and Code Instructor’s Name Date Introduction Sport Equipment Industry is one of the most lucrative industries in the world; sporting activities are on the rise and hence the need of more enhanced sporting equipments. The adidas Group is the second largest producer of sporting apparel in the world having a rich legacy of manufacturing high quality and technologically sound sporting equipments footwear in particular. World sports leading teams have trust in the adidas brand as it has helped them to achieve subsequent outstanding performance at times when they need it most. Across the globe, adidas commands approximately 22% of athletic footwear and apparel market second to Nike, which has 33% market share (Gay, 2010). With the current focus on innovation coupled with strategic marketing strategies, adidas will considerably expand its world market share. This paper seeks to discuss adidas group market environmental analysis together with its strategic analysis in order to understand the Sports Equipment Industry. Consequently, the paper will discuss the strategic fit of adidas Group by providing a comprehensive SWOT analysis. The adidas Group Market Environmental Analysis External environmental forces can affect an organization in a myriad of ways; understanding these forces helps an organization to tailor its activities in a manner that harnesses its competitive activities. External forces are factors outside the company that influence the manner in which firms in the same industry compete (Haberberg, et al, 2001). Owing to these facts, it is imperative for business organization to inherently understand these dynamics of its industries and markets for them to compete effectively in the marketplace. With regard to this, in order to understand adidas Group market environment, PESTEL and Porter’s five forces and how they affect the company will be discussed. The adidas Group PESTEL analysis Political Turbulent political atmospheres always have greatest impacts on all business and adidas Group is no exception. Countries within which the company operates have considerably favourable political environments that have allowed the company’s operations to thrive. In Germany, UK, France and the US for instance, have stable governments with trade laws that protect private businesses hence it is unlikely for them to introduce new controversial policies which may affect the company (Gay, 2010). The company also embraces protection and support of the rights of its employees by strictly following the current employment laws. With regard to this, the company is less likely to face economic strike threats from trade unions and other civil rights organizations. Economical The adidas Group is a multinational company, and like any other multinational, the company is likely to be affected universal economic meltdown (Haberberg, et al, 2001). However, in order for adidas to maintain good economic relations in countries within which it operates, the company helps to decrease unemployment by increasing its employees at its terminal factories. Since the initiation of the euro currency in 2002, exporting business is cheap and hence facilitating the company’s cross-border business. Labour salaries in some European countries like Germany and France are extremely expensive; owing to this, the company has relocated most of its production activities to Asia where labour is considerably less expensive. Social Adidas products must be produced in line with the different social backgrounds of its customers; for instance, the age, race, religion, culture and educational levels must be taken into consideration (Luffman, et al, 1996). Consequently, the focus should be on athletes and people who like sports. During product promotions, all these social aspects must be taken into consideration for the company to increase its market share. Technological Technological integration in sporting equipments has a direct impact on the company’s business. The adidas Group is amongst the technologically sound companies; for instance, the company manufactured the world’s first smart shoe whereby a microchip was implanted together with a wireless mp3 player. The company also uses advanced technology that is environmental friendly and safe by using the heat-activated adhesives (Kippenberger, 1998). Consequently, the technological advances in sportswear are moving towards perfection such that that comfort for sportsmen is being taken into consideration. With regard to these, adidas need to align it production with the latest technology to make sure that it maintains its competitive advantage and market share (Wheelen & Hunger, 1998). For instance, relationship marketing will help the company produce more customized products thus enhancing its revenues in the end. Environmental The primary source for football boots is animal hides, although the source is unlikely to run out, it can lead to potential conflict with environmental activists. Given this fact, it is important that adidas research for different materials other animal hides (David, 2010). In the same line of argument, most of adidas production plants are located in less economically developed countries like Indonesia, Vietnam and China that have poor working conditions coupled with low pay (Porter, 1998). This is dangerous to the company as the company might get bad publicity thus impacting negatively on the company’s business (David, 2010). Legal Like any other multinational, adidas is obliged to beware of the legal aspects associated with sportswear industry. In order to ensure compliance to the rules and laws set by the industry, the company must produce high quality products using quality materials and by trained and qualified personnel .(Wheelen & Hunger, 1998). Company’s marketing strategies should be socially and morally sound while representing the true product description. Consequently, the company must make sure that customers have sufficient knowledge about their products as required by the Trade Description Act. Porter’s five forces Rivalry There is high rivalry among the existing competitors in the sports equipment industry. Major competition comes from Nike. Due to this competition, competing firms have managed to expand their operations across the globe. Using e-commerce and the internet, online selling has enlarged the firm’s market capture and hence increasing sales while minimizing on operational costs. In this respect, these firms have websites containing virtual stores that are highly convenient to customers (Porter, 1980a). Currently customers across the world have access to high-speed internet and hence online purchasing is the current shopping trend. New entrants The barrier for new entrants into the market is very low; with regard to this new firms can enter into the industry at considerably low costs .(Wheelen & Hunger, 1998). The sports equipment industry is large with high numbers of retailers and thus switching costs for consumers is low and can occur frequently with regard to customer preferences together with other factors that affect consumer-buying decision. However, adidas is an established firm and hence can control their costs more effectively; they an advantage over emerging competitors in the sports equipment industry. For instance, their daily online promotion updates attract online shoppers. The company has also exclusively differentiated its products within the industry; their brandy identity has enhanced competitive advantage. Substitutes In sports equipment industry, the buyer’s propensity to substitutes is very low; this is mainly because there are few athletic footwear alternatives that that athletes can switch to. Consequently, in this industry specific sports equipment is designed for a specific sport and for specific performance and hence customers are unlikely to switch to substitutes (Porter, 1980a). For instance, a basketball player cannot wear football boots to play basketball; for this matter, there are no real substitutes that exist for athletic footwear. Buyer bargaining power The sports equipment industry has a high number of customers as compared to the number of firms and hence the buyers bargaining power is high. In this respect, adidas group must persistently promote their products through marketing while differentiating its brands against competitors for the firm to increase its sales and market share (Porter, 1980b). For instance, using the online marketing tools will enhance the customer accessibility. Supplier bargaining power Suppliers in this industry are many and thus there is virtually minimal differentiation amongst them and hence making their bargaining power to be non-existent. The raw materials mainly used in the industry are leather, rubber, and cotton, which are abundantly available in the market thus making firms in the industry to have power over their suppliers. Further, firms can switch between suppliers quickly and at low cost (Porter, 1980b). Market segmentation Sports equipment industry market can be divided into the following segments: Geographic; firms target densely populated geographic areas specifically urban and sub-urban cities. Demographic; with regard to this, sports equipment firms target individuals of ages between 15 and 35 years whose income levels are approximately middle class, the target social classes are particularly, upper middle, lower upper, and upper class. Their products also target people of all genders. Behavioural; the target here are athletes, gym regulars, sports enthusiasts, and image seekers Psychographic: here firms target experiences, achievers, image drivers, and strivers (David, 2010). Strategic analysis of adidas Group Threshold Resources These are the capabilities needed for an organization to meet the necessary requirements to compete in a given market and achieve parity with competitors in that market. Adidas group has the following threshold resources (Adrian, 2010). These may include: Large capital base: the company commands a huge capital base that has helped it to substantially invest heavily in the sports and equipment industry. For instance, the company is ranked second in the industry (Sanderson, 1998). Due to these, the company is able to widely market is products across the globe thus gaining new customers and maintaining existing ones. Consequently, large capital base has helped the company to acquire latest technology to innovate and manufactures products that match customer needs. Technology: the company has invested heavily in technology, for instance, through embracing technology the company markets its products online. Customers can access the company website navigate through the virtual store and place orders. This has increased company’s market capture thus increasing it market share (Sanderson, 1998). Raw materials: the raw materials are readily available and hence the company can acquire at favourable prices. The industry has many suppliers as compared to the firms available in the industry thus general production is low across the industry. Labour: Adidas Company has its production firms situated in developing countries where there is cheap labour. With regard to this, the final operation costs are subsequently cheap thus enhancing the competitive advantage. The company is also customer focused: in this case, the company is strictly inclined towards producing customized products to meet consumer demands. Adidas Company has a strong brand; adidas is globally recognized and hence has a wide market. High marketing strength; the company has a strong marketing strategy that promotes and markets its products across the globe. The major advertising campaigns launched by the company have considerably increased the company’s size and its strong market position globally. Distinctive Resources These are those resources that critically underpin competitive advantage of the firm and that other companies cannot imitate or obtain (Adrian, 2010). In this regard, the acquisition of Reebok, which had high levels of consumer loyalty particularly among female consumers, is something that no other competing company will ever achieve (David, 2010). Lead time improvements; the company has improved lead-time required for manufacturing footwear through lean manufacturing principles. In this regard, product production time has been highly reduced thus increasing the overall company productivity. The supply chain: adidas has a complex supply chain, which provides consumers with customized products only found in specific retail stores or at selected events. Competencies The company operates in a stiff competitive environment and for it to gain and maintain competitive advantage with larger market share position; adidas has the following key competencies: Multi-brand approach; generally there is a natural limit that a brand can achieve because of the vast tastes and expectations of a highly fragmented consumer market (Alvesson & Deetz, 2000). The multi-brand approach initiated by adidas group has provided the firm with a broad competitive advantage with diverse additional commercial opportunities. In this respect, adidas has many products brands including three stripped adidas, adiPRENE, adiPRENE+, adiZero, and Torsion (David, 2010). This has leveraged the power of adidas brand in a precise and meaningful way, thus utilizing the combined strength of each brand to gain higher market position while covering diverse consumer needs, price points and demographics. Broader distribution; adidas has a close cooperation with retailers and hence has significantly improved the in-store experience for its products. For instance, the company has established shop-in-shop formats with JB and Dick’s sporting goods, and also it has retail partnership with INTERSPORT in order to maximize their dominance in the market (Alvesson & Deetz, 2000). Consequently, these operations are effective particularly in markets that are dominated by price and lack of product differentiation. Cost Leadership; after the acquisition of Reebok, adidas created significant opportunities to reduce and optimize costs through scale benefits, back office consolidation and combined capital expenditure planning. The company has improved lead time in product manufacturing this has led to high rate of productivity. In addition, the innovation strategy has made it possible for the company to launch between 600 to 800 new designs in every six months. While focusing on customer requirements, the company has managed to meet consumer demands thus increasing its competitive advantage over its competitors. Adidas value Chain Adidas Company has a strategy that is focused towards significantly improving their environmental footprint. The company’s value chain has three dimensions; people, processes and systems. In these regard, the company has lean process; it has eliminated all non-value adding tasks in the organization; the company has refocused experts on key tasks. Consequently, the company has built integrated processes and systems landscape across the value chain. In addition, the firm has harmonized business processes and related systems solutions across divisions and brands (Alvesson & Deetz, 2000). The key facets of value chain re-engineering are marketing, which deals with business process assessment; operations, which is focused towards fast and lean creation, and virtualization. SWOT analysis Strengths The adidas Group is among the leading players in the industry due to its strong brands, market-leading products, and committed to sports to meet customer expectations. Steady increase in revenues; the company has managed to achieve this due to its strong brand image, continuous and persistent commitment to product innovation that is consumer focused (Trevor & Milena, 2007). Successful new product innovation; the company has consistently launched new products thus enabling to widen its portfolio while enhancing its competitive position. Lead time improvements; the company has improved lead time required for manufacturing footwear through lean manufacturing principles (Trevor & Milena, 2007). High marketing strength; the major advertising campaigns launched by the company has considerably increased the company’s size and its strong market position globally. Partnering with world leading football associations like FIFA and UEFA, events e.g. FIFA world cup, UEFA, and EURO Championship, and UEFA Champions League; national federations like Germany, Spain, Russia, and Argentina; Leagues like major soccer leagues in the US; clubs such Chelsea FC, Liverpool FC, Real Madrid, and AC Milan (Alvesson & Deetz,2000). The company has a wide range of products including, shirts, shoes, bags, balls, etc that can be found on the company’s website. Has a large capital base Effective marketing strategy Strong online presence Strong brand Strong international operations Strong distribution chain Weaknesses Unfocussed strategy; the company has broad product portfolio comprising of sport performance products for athletic sports, basketball, golf, tennis, cycling, and other fashion oriented products. The company produces high quality products thus adidas product prices are very high hence locking out many potential buyers (Gay, 2010). Adidas online marketing is limited to US and some specific areas in Europe while the rest of the world have no access to this opportunity. The company’s customer care centre is consistent coupled with limited centres to support customers. With this regard, the adidas face massive problems specifically in virtual markets where its range is also limited. High cost structure Overpricing Low quality products and services Limited product line (Gay, 2010) Opportunities Strategic acquisitions and agreements; in 2004, adidas and Stella McCartney a high-end designer entered a long-term partnership. Consequently, the company acquired Valley Apparel Company of Cedar Rapids a producer and distributor of collegiate and professional league apparel accessories. Supply-chain and manufacturing initiatives; the reduction in company’s footwear manufacturing time, will help the company to meet faster delivery of its products to retailers thus reducing inventory costs. Sponsoring sporting events, the company supplied a substantial number of products to federations, volunteers, and officials during 2004 Olympics (Gay, 2010). The sponsorship of such a major sports event resulted into great recognition of the company’s products. Own retail stores; the creation of company’s own retail outlets will increase the revenues while reducing distribution costs. Threats High competition from Nike, Reebok, and Puma is likely to reduce the company’s income as customers may resort to competitors’ products that are lowly priced given the fact that adidas products are extremely expensive. Foreign Exchange fluctuations; the manufacturing activities of adidas are mainly concentrated in Asia, in this regard the current fluctuations and devaluation of the dollar is likely to negatively impact the firm’s operations (Trevor & Milena, 2007). Weak global economy; economic growth in most European countries has grown at negligible rates and the situation is predicted to continue. The weak economic conditions in South America particularly in Argentina and Brazil together with the political unrest in the Middle East will considerably impact adidas marketing operations (Trevor & Milena, 2007). Conclusion Adidas’ is focused towards being the leading sports brand in the world. The most significant strength that the company has to achieve this goal is its brand’s broad and unique product portfolio that spans from apparel and footwear for professional athletes to premium fashion. From the above company environmental analysis, it is evident that adidas has managed to address multiple consumer needs, while exploiting market opportunities from various angles. For instance, the company’s commitment to product innovation together with its rich world heritage differentiates the brand from its competitors thus providing a solid platform for the company’s future growth. The adidas Group is the second largest producer of sporting apparel in the world having a rich legacy of manufacturing high quality and technologically sound sporting equipments footwear in particular. World sports leading teams have trust in the adidas brand as it has helped them to achieve subsequent outstanding performance at times when they need it most. Using its key competencies adidas can significantly enhance its dominance in the universal market thus improving its overall market position. For instance, multi-branch approach, broader marketing strategy, reduced lead time, and customized brands are essential in significantly increasing adidas market share. 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