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Adidas AG Market Analysis

Adidas AG was established in 1924 by Adolf Dassler to design and manufacture footwear, and sportswear. The company also manufactures sports equipment and toiletries. The company has its headquarters located in Herzogenaurach, Germany. Approximately 27,000 people are employed by the company worldwide. The company has dominated the European market; and globally, it is the second largest sportswear company after the Nike Company. Adidas Company started from a humble beginning, such that Dassler operated business from his mother’s kitchen. Afterwards, his brother joined and they expanded the company. Today, Adidas is a globally recognised company. Different products are offered in the market, and the management of the company continues to develop technologies of innovating new differentiated products and marketing system (Aaker, 2011).
The slogan of the company is “Impossible is Nothing.” The mission statement of Adidas is becoming the best sports brand world-wide. As such, the company aims to provide the best quality products to its customers. The vision of the company is “Passion for sport.” This means that the company supports all types of sports in various countries. The objectives of the company are: to innovate and design products to help athletes achieve their potential, to be conduct business while environmental and social responsibilities, and to reward employees for their creativity. The company strengthens its brands continuously to maintain a high competitive position in the global markets (Siemers, 2011).
Task A: Market Environment Analysis
PESTEL Analysis
Political Factors
Understanding the political environment in Germany and other countries where the company operates is important because controversial policies can negatively affect the performance of the company. Germany has a stable political and democratic system, and this provides a good environment for conducting business. Elections are done after every 4 years in Germany and this makes it impossible to introduce, and successfully implement controversial policies. The Germany government provides subsidies to companies established in low employment regions (Gerry, Scholes & Whittington, 2008).
Economic Factors
The interest rate in Germany fluctuates, and has been increasing over the years. This may affect the demand for Adidas products because they are price-elastic. Increase in interest rate will cause the company to increase the prices, and this may affect the market demand for its products. Inflation rate has been low and well contained. The government has established monetary and fiscal measures to regulate the rate of inflation. The tax system of Germany favours businesses because they are not oppressive. The direct and indirect taxes favour businesses. In addition, tariffs are regulated to improve international trade of the country with other country. The favourable tax system, low interest rate and low inflation rates have provided citizens of the country with enough Personal Disposable Income (PDI). However, the global economic environment is turbulent, and many countries were affected by the financial crisis of the year 2008 (Dawes, 2009).
Social Factors
Germany has a wide range of cultures because it has hosted people from different countries and racial backgrounds. The lifestyle of people all over the world has encouraged the use of Adidas products; for example, sporting, body-building exercises and others. The buying culture of people globally has changed, and the use of Internet to buy products is being adopted. Most people in developed and developing countries have adopted the culture of buying shoes frequently. This offers Adidas with more market capacity. There are no different consumer behaviours among different religious and gender groups (Dawes, 2009).
Technological Factors
Adidas has adopted modern technologies in the production and marketing systems. With the wide spread of the Internet, the company has applied e-marketing to promote its products. Learning consumer behaviour has also been possible by using the Internet. The use of technology has made it possible to improve the quality of its products. Product differentiation has also been possible because the company has adopted better system production (Motion, Leitch & Brodie, 2003).
Environmental factors
The use of animal by-products to make most of the products of Adidas makes it impossible for the company to run out of raw materials. However, the use of synthetic materials is cheaper, and the company should develop strategies which are eco-friendly to manufacture its products from different materials. However, the company will incur more costs in maintaining standards for ensuring that they operate in eco-friendly environments (Dawes, 2009).
Legal factors
Complying with legal systems of various countries has been a basic requirement for Adidas. Various legal provisions have been put in place to ensure fair trade (Dawes, 2009).
Porter’s Five Forces analysis
Bargaining power of customers
There is high bargaining power of the buyers because the industry is experiencing a scenario whereby retail chains, for example Wal-Mart, are developing more power on the items sold to consumers. In addition, some retailers and vendors are consolidating their businesses to improve their bargaining power. This provides such companies with more bargaining power because they buy in bulk (Michael P, 1985). Products in the industry are price elastic, and Adidas should respond to the prices of similar products in the market. Most consumers in the industry follow brand image. Adidas has a high level of consumer loyalty, and this places the company in a better competitive position in the international market (Miller, 2010).
Bargaining power of suppliers
Suppliers have a low bargaining power in the industry. Raw materials in the industry are readily available, and there are many suppliers. Resources are cheap, and this provides the suppliers with less control on the pricing of the factors of production (Lussier & Kimball, 2009).
Rivalry among competitors
There is very high rivalry among companies in the industry. Fierce competition among companies such as Adidas, Puma, Nike and others is being experienced in the industry. The industry has reached its maturity, and there is no more growth or introduction of new strategies that can be experienced (Deephouse, 1999). Therefore, companies compete to achieve market share in the industry. Companies use non-price competitive strategies to sustain themselves in the industry. An example of non-price competition is differentiation of various products to attract more consumers. Industry consolidation is also causing rivalry among competitors in the industry, for example, Adidas and Reebok merged their businesses to improve their competitiveness in the global market (Lussier & Kimball, 2009).
Threat of new entrants
There is a low threat of new entrants because there are many barriers of entry into the industry. Operating a company in the industry is capital intensive, and this restricts investors with few resources. The industry is sensitive to consumer brand loyalty. Most of the companies in the industry have a strong brand loyalty, and this has been achieved by operating in the industry for a long period of time. This makes it impossible for new companies to be easily accepted by the customers in the market (Kim, Nam & Stimpert, 2004). In addition, the players in the industry use economies of scale to sustain their businesses in the market. There is also need to conduct research and development in the industry, and this is very costly. The industry is in a phase of consolidation, such that various companies are creating mergers and acquisitions. This is making it impossible for single investors to penetrate the industry (Lussier & Kimball, 2009).
Threat of substitutes
Threat of substitutes is low because there are many other types and brands of shoes. In addition, there are other sport apparels in the market. The two diagrams below show the industry analysis and the position of Adidas in the industry (Lussier & Kimball, 2009).
Source: Adidas Group (2011)
TASK B: Strategic Analysis
Threshold and distinctive resources and competences
Adidas has core competencies in providing athletes with sportswear. The company has been preferred by most sports clubs in the world. In addition, individual sports people prefer having contracts with the company. This has made the company to have a higher sales volume because most of consumers are loyal. The company has obtained this core competence from its emphasis on quality provision (Maler, 2011).
Adidas has technological competence in that it has the ability to develop the best quality products. The company employs qualified professionals to carry out research concerning the products and market changes. As such, the company designs and manufactures products according to the needs and demand of the consumers. This has made it possible for the company to provide superior quality products to its consumers. This has also enabled Adidas to customise its products. The diagram below shows an example of a customised product of the company (Maler, 2011).
Source: Maler (2011)
The company has distinctive resources in innovation. This is exemplified by the availability of a strong R&D department which is made up of top scientists. The team of scientists conduct research concerning the products and market behaviour. This has made the company to develop market oriented products. In addition, the company is able to detect changes in lifestyle, tastes and preferences of its customers. As such, the company is able to manufacture products according to the prevailing market conditions. Through the innovative marketing system of the company, customers can specify the design of their own shoes. This has been made possible by the establishment of online design. The diagram below shows a customer being guided on how to select a shoe design (Maler, 2011).
Source: Maler (2011)
Adidas has a strong brand name in the global markets. This has been a core competence because customers have developed a good public image about the company. The company has sponsored sports, and this has improved the market image of the company. In addition, the company has a strong company logo which helps customers easily identify its products. The logo is unique and cannot be confused with any other (Aboulian, 2008). The figure below shows the company logo for Adidas.
Source: Aboulian (2008)
The merger between Reebok and Adidas was a core competence to the two companies in that access to American, German and other markets globally was made easier. The merger also brought about the introduction of innovative technologies to the two companies. Adidas established the merger to improve its market access to the foreign markets. This improved the performance of the company, and it was able to achieve better market position. The merger was aimed at overcoming the strong competitiveness of Nike in the global markets. The strategy has been successful because the two companies have more sales (Aboulian, 2008).
VRIN Framework
Valuable: Adidas has implemented strategies to improve efficiency and effectiveness in the production and marketing systems. This has increased the value of the company. Adidas prefers offering quality products to providing quantity. Quality is the key word applied in the activities of the company. This has been achieved by employing professional and skilled employees. This has increased the value of the company (Morris, Snell & Wright, 2005).
Rare: The valuable resources of Adidas are available to other companies in the industry. Competing firms can access skilled and professional employees from the international labour market. Other resources and competitive advantages such as efficiency and effective strategic management can be accessed by other companies in the market. However, obtaining high consumer loyalty depends on the performance of the company and the relationship of the company with its customers. Most of the companies in the industry have not been able to win consumer loyalty in the market. However, Nike challenges Adidas in winning consumer loyalty in the global markets (Morris, Snell & Wright, 2005).
Imperfectly imitable: The products of the company are imitable. History has it that many counterfeit products are being manufactured in the global markets. The design of the products of Adidas is not ambiguous, and it is possible to imitate. The activities of the company are not socially complex; and it is possible to conduct the social responsibility activities that Adidas has adopted (Fong, 2008).
Non Substitutability: In the industry, the resources used are readily available and imitable. There are strategically equivalent available resources in the global market. This makes it possible to substitute the raw materials used in the manufacturing process. Other companies have been using poor quality materials to manufacture similar products. This has made it possible to offer similar products at a lower price (Morris, Snell & Wright, 2005).
Value chain analysis
The value chain of Adidas is based on the dimensions of systems, people and processes. This allows a proper mix of strategies to be applied in the organizational processes (Schmitz, 2005). The company strives to promote human value by improving the living standards of its employees, and promoting the lifestyle of its consumers. Various processes are involved in managing resources to achieve the highest quality products at minimal costs. The systems of the company have been established to ensure that there is smooth operation of activities. The systems of the company link people and processes (Taylor, 2005).
TASK C: Strategic Fit Analysis
Swot Analysis
Strengths
Adidas has a leading position in the market globally. A wide variety of products are offered to the global market. The company has experienced successful global operation by acquiring companies in other countries and by marketing its products to various countries in the world. After acquiring Reebok, Adidas was able to spread its operation in the US market and other markets internationally. The figure below shows the global position of Adidas compared to other companies in the market (Borowski, 2011).
Source: Burmann & Arnhold (2008)
The company employs extensive marketing system to achieve total consumer loyalty for its products. For example, the company sponsors sports in various countries; it also makes contracts with sports people and conducts its online business among other marketing strategies. Adidas has also opened retail stores as well as franchised stores (Borowski, 2011).
The company has established contracts with various sport clubs and individuals; and this has made it have a large market for its products. Some of the sports individuals with a contract with Adidas are David, Beckham, Kevin Garnett, Tim Duncan, Ian Thorpe, Maurice Greene and Gebreselassie among others. The teams supplied with kit wear by Adidas are Real Madrid, Yankees, AC Milan and Bayern Munich among others. This paper has focussed on Adidas by conducting the PESTEL analysis, swot analysis, market environment analysis and strategic fit analysis (Borowski, 2011).
Adidas has diversified its operations geographically by opening subsidiaries in Europe, Asia, the US, and other countries. This has helped reduce many risks associated with concentrating marketing in specific areas. Additionally, the company has been able to exploit many opportunities in various global markets (Borowski, 2011).
Adidas enjoys high consumer loyalty for its products. Many people admire the products of the company. This has placed the company in a better competitive position in the international markets (Datamonitor, 2007).
Weaknesses
Adidas has been having poor margins compared to the industry average. For example, in the period 2002 to 2006, the operating margin was 8.1% while the net profit margin was 10.3%. The industry average was 16.2% operating margin and 10.3% net profit margin. Comparatively, Nike had 12.3% operating margin and 8% net profit margin during the 2002-2006 financial period. This has resulted from the poor efficiency in the operations of the company (Borowski, 2011).
In addition, the company experiences low inventory turnover compared to the industry. For example, during the fiscal year 2006, the company had inventory turnover ratio of 3.9 compared to the industry figure of 8.4. The company has maintained a high level of inventories. This means that the company has poor inventory management system. This has affected the competitiveness of the company in the market (Borowski, 2011).
Adidas has poor return on assets (ROA) and returns on investments (ROI). Reebok has underperformed in the global markets despite the heavy investment the company had put in researching the product’s design and market position (Datamonitor, 2007).
Opportunities
Adidas has opportunities in establishing sponsorship agreements with various sports teams and sports individuals. People have realised the importance of sports, and the number of sports teams and clubs are increasing each day. In addition, there are many popular sports individuals who would wish to have sponsorship with unique companies (Berger, 2008).
People are adopting healthier lifestyle in the world. This has resulted into the need to participate in sports and other body building activities. This creates opportunities for selling sportswear to more people and sports clubs (Berger, 2008). The footwear market is growing each day. It is also important to mention that these products are consumable, and consumers will still need them after a short period (Datamonitor, 2007).
Threats
The cost of raw materials is increasing with the increase in inflation and the rising oil prices. The raw materials are obtained from various countries and most of them have been affected by inflation, global financial crisis and other economic challenges. This creates a threat to the company by reducing the profits made by the company (Berger, 2008).
Counterfeit products are being introduced to the market, and this is affecting the sales of the company. Many governments have been unable to regulate the black markets, and this has resulted into the introduction of counterfeit products in the market. Fighting against this vice also creates more costs to the company (Borowski, 2011).
Legal risks are being experienced by the company, especially the environmental ethics compliance, international trade and other risks associated with global marketing (Borowski, 2011). Adidas experiences competition, both locally and globally. In the international markets, companies like Nike, Puma and others have a great impact on the performance of the company. The number of new companies being established in the industry continues to increase (Datamonitor, 2007).
Recommendations
With the increasing competition in the industry, it is important for the company to improve its research on the changing consumer demand. In addition, the company should continue to differentiate its products so that consumers can have a wide variety of products to select from. This will help improve consumer loyalty of consumers in the global market. The management of the company should improve inventory and assets management to ensure that Adidas is strategically placed in the industry. The company should liaise with legal stakeholders to eliminate the counterfeit products sold in the market. The company should continue to sponsor sports and other activities to improve its public image globally. This will help improve brand loyalty of the company.

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