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Université Paris Dauphine Strategic Management Group 4 Strategic analysis of th

Université Paris Dauphine Strategic Management Group 4 Strategic analysis of the adidas AG Rebecca LANGER Marie DIBATISTA Ahmed DAMA Matthieu DORNER 1 Adidas is a German multinational company based in Herzogenaurach, Germany. It has been created in 1924 and was called Dassler Schuhfabrik. In 1949 the brand finally took the name adidas, as we know it today. Adidas is a shoes, clothing, and accessories designer and manufacturer. It is the largest sportswear manufacturer in Europe, and the second largest in the world. Adidas revenue for 2016 was listed at €19.29 billion. Adidas counted 2811 stores (concept stores, mall corners, etc.) in 2016. According to the website Statistica, the number of retail stores had dropped in 2015 but increased in 2016 with 2811 stores (concept stores, mall corners, etc.). As a sportswear company, Adidas is competing against the leisure industry in general. In the sport specific area, 50 companies are controlling more than 70% of the market. Adidas is one of these companies, and needs to adopt strategic advantages to stand out amongst many others. 2 1. Macro Economic Diagnostic In order to understand the key success factors and the threats related to the industry, it is important to proceed to an external diagnostic, also called macro-environmental diagnostic. Macro-environment refers to the demographic, economic, technological, political, and socio-cultural environment. The analysis of the environment has two objectives: the assessment of the various elements likely to affect its activity - and - the identification of environmental opportunities or threats. Political factors: There are five main criteria in the political branch of an external diagnostic: governmental pressure, governmental stability, consumer protection, monetary policy and European pressure. First of all, as every international firm selling products worldwide, it requires to follow political procedures and international trade agreements, even when selling online. Secondly, political pressure is most likely to delay product delivery and shipment. Therefore, adidas needs to assess the risk of wars, terrorism, and political stability (coups, etc) in its targeted countries. Thirdly, consumer protection is one of adidas bigger concern. Indeed, the brand decided to adopt a consumer friendly policy to ensure the health of its buyers by eliminating PVC making process. Therefor Adidas is respecting both product safety laws and consumer safety products regulations. Economic factors: Growth, interest rate, political unemployment, inflation rate, are the main concerns of the economic diagnostic. The main question adidas should be asking is where to produce and sell to ensure growth and opportunities? To be competitive, adidas needs to be as cheap as possible, especially in 3rd world countries (the level of wealth of the population being lower). As a consequence, adidas manufactures its goods in China because of labour intensivity, low cost of creation, and low monetary power. It allows the brand to be as cheap as possible. Social factors: Factors such as wealth repartition, demographic factors, age gaps, lifestyle, trends and fashion, and health are important social factors. Indeed, it is important for adidas to consider the average age of the population and the wealth repartition of its targeted country. Being a sports brand, adidas’ targeted audience is rather young, and adidas products are not cheap. So it would make no sense for adidas to concentrate its efforts in poor countries, or in old populated countries. Another example of Adidas strategy when it comes to social, is its policy in India. Cricket is worshipped in India and practiced almost as a religion. Adidas deciding to use it as a marketing campaign, taking India’s most famous player Virat Kohli as ambassador (it was true until 2017)of the brand and launching a new line of cricket equipment. Furthermore, in countries like France, the brand is using “it girls”, influential people, bloggers, Youtubers, to make sure their product will be the new trend. These people are the face of the new generation, they are invited to huge parties and events for the launching of a new product. Technological factors: To stand out amongst competition, adidas is constantly investing in R&D to find the latest trends and technologies. For example, in 2015 adidas created the Boost technology, and protected its invention with 3 patents on the SuperBoost model. These patents are the guaranty for a competitive advantage. Legal factors: Patents and more patent Adidas has ownership of intellectual properties and IP systems. They also have design patents, defending their right against copiers. The patents also serve as legal protection to end counterfeit businesses. The Adidas group supports the United Nations Declaration of Human Rights, their company policies and procedures adhere to all applicable domestic laws and are consistent with core labour principles of the International Labour Organisation (ILO). Environmental factors: Adidas is very concerned by the environment, and has developed a coherent environmental strategy for the whole adidas group. Regarding climate change issues, adidas created the Green Company Program (2008) inside a bigger program called the Environment Management System. These programs are adidas’ engagements towards a better environment. The brand is also training their suppliers in energy efficiency. Engaged in many organisations, they are a founding member of the Sustainable Apparel Coalition (SAC). 3 To complete this external analysis, it is important to deeply study the competition around adidas. The 5 forces model from Porter is a commonly used tool to analyse the competition of a business. It helps figuring the advantages and the threat of an organisation. The model is composed of 5 forces: the threat of new entry, the threat of new substitutes, competition, the bargaining power of suppliers, and the bargaining power of buyers. Threat of New Entry A threat of new entry is defined as the ease for a new business to enter a particular sector, without substantial investment. In 2015, more than 1000 independent fabrics in 61 countries were producing products for Adidas. 65 % were in the region Asia-pacific, 25 % in North and South America and 10 % in Europe, Middle East and Africa. The risk of new entrants is generally high as there are no entry barriers, but the presence of huge companies like Adidas and its competitor Nike, who own a big percentage of the market share, make it very difficult for potential competitors to invest the capital needed for advertising, Research and Development and marketing. Therefore, the threat of new entrants in the sport industry is rather low. Adidas is not facing a threat of competitors abusing the economies of scale and it is easy to access distribution channels. However, Adidas has a high risk due to its dependence on Asia. During the financial crisis Adidas, Nike and PUMA were all affected. Particularly for Adidas it was a dangerous period as it is depending a lot on Asia, where 95 % of production was outsourced. So the exchange rate caused the company to lose its profits. Competition Markets with few competitors are attractive but they might be short-lived due to its high rivalry. Indeed, the level of competition in the sector of sportswear is high. There are only few competitors. Adidas’ biggest competitor is Nike. Since 2015 and for the next 5 years, Adidas has established a new strategic plan called “Create The New”. The main objective is to invest a lot in R&D and innovation to develop new marketing and advertising strategies. Other of adidas’ competitors are Puma and New Balance, which only own a small share in the retail market. Bargaining Power of suppliers Due to the booming business of Adidas, the company has no problems to find its suppliers. This is the reason why suppliers have almost no power at all as they can’t put any pressure on the firm. However, Adidas still depends on its suppliers as it is more expensive for them to produce raw material on their own than to buy it. Bargaining Power of Buyers Sportswear is a market with mostly standardized products where the power of the consumer is relatively low. Furthermore, buyers are in general not knowledgeable about the product to make a decision, so it is not the quality but the brand that makes the difference for a large number of buyers and lead them to their decision (e.g. for Adidas or Nike). On another hand, the power of wholesalers is much bigger. As wholesalers buy in bulk, they represent an important part of Adidas revenue. And wholesalers can bargain and threaten brands to change to another competitor if their wills are not satisfied. Threat of substitute Products The threat to switch to other sport’s products is rather low as only a few brands in sportswear apparel and accessories are present on the market. The threat of substitutes is closely linked to the threat of new entrants. As we concluded before, the threat of new entrants is rather low, and so is the threat of substitutes. As a consequence, this threat does not tend to drop prices. Moreover, Adidas does not only target sportsmen, it is also a fashionable brand for trendy people. As we said before people mainly buy adidas products because of the brand and the uploads/Geographie/adidas-ag-strategic-management-insights.pdf