STRATEGIC MANAGEMENT ANALYSIS THE SPORTS EQUIPMENT INDUSTRY AND ADIDAS AG Table of Contents: Introduction.

2 The Sports equipment industry.2 Aims and Objectives2 Key terms in strategic management.3 Strategists.3 Vision Statements..3 Mission Statements3 External Opportunities and Threats.3 Internal Strengths and Weaknesses / Internal Assessments...3 Strategic Management Analysis of Adidas..4 PESTLE Analysis3 Porters Five Forces Analysis.6 Value Chain Analysis8 Market Segmentation Analysis9 Adidass Current Strategies11 The Presentation of Route 2015.11 Strategic Fit Analysis12 SWOT Analysis13 Reference14

INTRODUCTION
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Adidas AG is a German-based company involved in the manufacture of sports apparel. Other than sports footwear, Adidas AG is also involved in the manufacture of shirts, bags, eyewear, watches, and other clothing-and sportsrelated products. The company is the leading manufacturer of sportswear in Europe. Globally, it comes second after Nike, the American-based rival company (Bloomberg, 2008). The Sports equipment industry Sports equipment is a general term for any objects for sport or exercise; it includes balls, exercise equipments, flying discs, footwear, clothing, protective equipment, goals, nets, vehicles... The sports equipment industry shows fast growing in past decade or so, the reasons behind that can be either of these: - Commercialisation of sport and massive marketing campaigns with top sportsmen as advertising models; - High-speed everyday routine of people in the developed countries and the healthy life style urge which brings more and more people to sport;
- The new technologies and materials used in sports shoes, clothes and

accessories turn it more into a fashion, than necessity. AIMS AND OBJECTIVES This paper analyses the market environment and the strategic position of Adidas AG in the world of the sports equipment industry. A Market Environment Analysis is evaluation of the conditions in the market environment of the sports equipment industry in their wider macro environment in which Adidas AG operates. The Adidas Strategic Analysis is the evaluation of the resource capability of Adidas; it highlights its threshold and unique resources, and its core competences. The Strategic Fit Analysis is an evaluation of the strategies Adidas AG uses to highlight its strengths or weaknesses to perform better in the market. KEY TERMS IN STRATEGIC MANAGEMENT

The strategic management process is based on the belief that organization should continuously monitor internal and external events and trends so that timely change can be made as needed. The rate and magnitude of changes that affect the organization are increasing dramatically. To survive all organizations must be capable of identifying and adapting to change. Strategists are the individuals who are most responsible for the success or failure of an organization; they are the individuals who form the companys strategies and they have various job titles, such as chief executive officer, president, and owner, chair of the board, executive director, chancellor, dean, or entrepreneur. Strategists help an organization gather, analyse, and organize information; evaluating the corporate and divisional performance, identifying emerging market opportunities, business threats, and are developing creative action plans. Vision Statements Many organizations nowadays are developing a "vision statement" which answers the question, what do we want to become?. Developing a vision statement is often considered the first step in strategic planning, preceding even development of a mission statement. Mission Statements are enduring statements of purpose that distinguish one business from other similar firms. A mission statement identifies the scope of a firm's operations in product and market terms. It is addressing the basic question that faces all strategists: What is our business?. External Opportunities and Threats refer to any changes in economic, social, cultural, demographic, environmental, political, legal, governmental, technological, and competitive trends and events that could significantly benefit or harm an organization in the future. Internal Strengths and Weaknesses / Internal assessments are an organization's controllable activities that are performed especially well or very poorly in the management, marketing, finance/accounting, production/operations, research and development, and computer information systems activities of a business. Identifying and evaluating organizational strengths and weaknesses in the functional areas of a business is an essential strategic-management activity.
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STRATEGIC MANAGEMENT ANALYSIS OF ADIDAS To fulfil the aims and the objectives defined earlier, in this paper will be used most of the major tools used in business: PESTLE analysis Porters Five Forces analysis Value chain analysis Market Segmentation analysis Adidass Current Strategies SWOT analysis

PESTLE analysis Political - Adidas was accused of paying its employees as low as less than $3 especially in the nations where production is carried. Other political accusation is breaking International Labour Organizations requirements and standards. ILO advocates for the basic working conditions and rights to all employees in a workplace. For example, the company does not allow labor unions participation and strikes as witnessed in one of the factories in Indonesia in 2005 were members were fired after participating in a strike (Oxfam Australia, 2007). Economic - As a world leader, Adidas commands nearly a quarter (22 %) of the worldwide athletic footwear and apparel market. In the race to be the world leader in sports apparel, Adidas trails behind only Nike, which holds a worldwide market share of 33%, but its rich legacy and focus on innovation, in addition to a new guiding strategy that perfectly blends marketing and technology can help them sprint ahead of Nike and grab the lead in both the American and emerging markets of Asia and Latin America. Adidas group margins increased in 2010 from 45.4% in 2009 to 47.8% despite the macroeconomic challenges (Adidas Group, 2010). However the consumer spending has been low because of the increased unemployment. Despite the weak economic conditions, Adidas performance was better in 2010 compared to 2009 (Adidas Group, 2010). For example, Adidas Group revenues grew to
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11.990billion compared to 10.381 billion in 2009 (Adidas Group, 2010) can be attributed to the increase in Adidas product consumption in the emerging markets. Social - people around the world are becoming more health conscious especially those from the rich families leading to high consumption of sporting equipments. For example, the consumption has increased by 11% in 2010 (Bloomberg Business Week, 2011). This could have been the reason why the sales in North America have increased by 13% and a market group increase by 12% (Adidas Group, 2010). Other Adidas programs like MiCoach which is used for physical fitness program has also attributed to the increase in sales (Borowski, 2011). Technological - Adidas success is steeped in the laurels and ethic of its founder. When Adolf Adi Dassler, a veteran of World War I and founder of Adidas Group, began producing shoes out of the scarce materials available in Germany after World War I, he had a simple vision for his company: provide athletes with the best suited pair of shoes for their respective sport. He followed up on his simple vision of producing the best shoes with three guiding principles: To produce the best shoe for the requirements of the sport, To protect the athlete from injury, To make the product durable and able to withstand the extreme conditions of sport. Legal - Adidas AG brands are usually based technological design and innovation which is prone to counterfeiting. To avoid and reduce losses associated with counterfeiting, Adidas invests heavily in legal protection (Adidas Group, 2010). For example, the company works law enforcement officers and authorities to protect its intellectual and property rights (Adidas Group, 2010). This has increased the seizure of counterfeit Adidas sportswear and apparels. For instance, in 2009, more than 8 million Adidas Group counterfeit products were seized all over the world (Adidas Group, 2010). Environmental- Every company is now becoming conscious of the environment, the climate change, the CO2 emissions Adidass aim is to
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reduce energy use by 20%, which will cut carbon emissions by 10% (Adidas Group, 2011). Adidas has been in the forefront to sustain the environmental risks associated with the manufacturing sector of the company (Adidas Group, 2009). PORTERS FIVE FORCES analysis

Adapted from Porter, 1991 Nike is the largest rival of Adidas in both market penetration and market control. According to Doigiamis and Vijayashanker (2009) Nike has 33% of the market share. Other rivals to Adidas are Puma and Fila. However, despite the huge rivalry in the sportswear and apparel industry, Adidas has been has to retain its second position. Despite the high level of rivalry, Adidas controls the golf industry sportswear through the production of the Taylor Made - Adidas Golf (Adidas Group, 2010). Adidas is faced with threats from perfect substitutes from its rival manufactures like New Balance, Asics, Puma, and Nike (Adidas Group, 2010). However, because the companies operate under oligopoly market structure, the prices are not likely to be more from one another. This has ensured consumer loyalty. The substitutes are 78% from the apparel market and 18% from local and small rivals like Li-Ning of China (Doigiamis & Vijayashanker, 2009) Because of the many barriers posed by the industry, Adidas faces low threat from new entrants. This is because of the huge economies of scale
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required to manufacture, distribute, and research and development among others (Doigiamis & Vijayashanker, 2009). Before entering the apparel industry is required huge capital to establish factories and other infrastructure. However, new entrants like Li-Ning control 36% of Chinas market after the leader Nike. A lot of bargaining power is carried out by customers given that they can choose to buy Adidas rival products (Doigiamis & Vijayashanker, 2009). Given that the sports apparel lacks compliments, then the bargaining power of customers is always high. Because of the high customers bargaining power, the sales of Adidas increased by 9% in 2009 (Doigiamis & Vijayashanker, 2009). Adidas is always on its move to make sure it satisfies its consumers through the production of high quality products. Adidas suppliers bargaining power is very high (Doigiamis & Vijayashanker, 2009). This is because of the sourcing companies are based in Asia and other pacific nations. For example, China is the largest supplier of Adidas with a share of 27% (Adidas Group, 2010). With increase in the number of suppliers from the Asia and other nations it means that their supplier bargaining power has increased.

VALUE CHAIN Analysis

Adopted from Stabell & Fjeldstad, 1998 Adidas has a diverse value chain which includes innovation, design, marketing, development, sourcing, operations, sales. The inbounds involve the product production and manufacturing which carried in more than 1230 factories which manufacture products in 69 countries (Adidas Group, 2011). More than 50% of the manufacturing is carried in China and Asia and the products sold in Europe, Asia, US, and Latin America. Outbound logistics are carried through a well-developed distribution and dispatch network (Adidas Group, 2010). Marketing and sales activities are carried out depending on the market segmentation to meet the consumers needs and expectations. For example, some of the channels used to advertise Adidas products are through the use of stores, internet websites, television channels, and through sponsorships (Adidas Group, 2010). The developed products are then positioned in the various strategic positions targeting the readily available markets. Some of the areas where the products are positioned include the retail and the wholesale stores. This two are strategically positioned to attract the maximum number of customers based on the demand in the markets. Other than the major technical activities, the value chain is also characterized by administrative activities like financing, information management, retail and wholesale back office activities, and foreign operations financing among other supportive activities (Adidas Group, 2010). More than 42,541 employees are managed by the human resource department and
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offering any support to the employees to ensure effective and efficient production process (Adidas Group, 2010). The major focus of the production and development is to ensure that competitive products are produced which include customized footwear and designers (Adidas Group, 2010). MARKET SEGMENTATION analysis Adidas operates under an oligopoly market structure, which means there are few sellers in the sportswear industry like Nike, Puma, Asics, Columbia Sports, and Li-Ning. It is also characterized by barrier entry because of the high capital required at entry level. It entails large economies of scale which is a characteristic of an oligopoly (Ghai, Gupta, 2002) The market of Adidas is segmented based on potential customers, behavioral, demographical, geographical and social economic features (Borowski, 2011). For example, Adidas sells more sportswear in North America region. Adidas has expanded its market share to emerging markets like China, Japan, Latin America, Asia, and India (Adidas Group, 2010). It has been operating in these new segments by targeting the wealth families. The major segments of Adidas are the sports style and sports performance (Adidas Group, 2010). Adidas operates under several strategic groupings like the premium price strategy which specializes in footwear, apparel, and fashionable items (Adidas Group, 2010). Another strategy that has been employed is the Reebok excessive discounting aimed at increasing sales. For example, in 2009 the Reebok had 19.45% net sales, Reebok-CCM Hockey 8% and Rockport 12% worldwide (Adidas Group, 2010). In the emerging markets strategy, the company targets wealthiest segments selling under the premium prices. Other brands used as a strategy include the Taylor Made - Adidas Golf which targets the golf markets in North America (Adidas Group, 2010). Adidas depends heavily on outsourcing for its manufacturing and production lines. This is because the Asian countries are low wage production economies which are cost effective compared to home production and manufacturing. For example, 67% of the plants are located in Asia where 90%
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of the production process is done manually (Borowski, 2011). This has assisted Adidas in making numerous profits because of the low production costs incurred 2010). On the other hand, Adidas distinctive resource has been being an active player in the sponsorship of games in North America, Europe, and other countries. The sponsorship of games in the emerging nations by Adidas in Asia has led to an increase in sales by 24% (Adidas Group, 2010). The acquisition of Reebok by Adidas can be categorized as a threshold resource. This is because the company had net sales of 12% in 2010 Reebok sales (Adidas Group, 2010). Adidas Group, the worlds second largest producer of sporting apparel has had a long and rich legacy of producing some of the highest quality and most technologically innovative sporting equipment particularly footwear. Champion athletes and sports teams trust the three stripes as for helping them to achieve outstanding performance when they need it most. Many of Dasslers original shoes were design for soccer and track & field, two popular sports in Europe at the time. The reputation and size of Dasslers company grew quickly. By the mid 1930s, Dasslers company employed over 100 people and had a reputation of making some of the worlds best sports shoes. The 2005 purchase of Reebok, another leader in athletic footwear, is beginning to show signs of paying off in the race with Nike especially in many emerging markets. Furthermore, Adidas is beginning to grow its image as a general footwear and apparel manufacturer which greatly helps in the race. For over 80 years the Adidas Group has been part of the world of sports on every level, delivering state-of-the-art sports footwear, apparel and accessories. Today, the Adidas Group is a global leader in the sporting goods industry and offers a broad portfolio of products. Products from the Adidas Group are available in virtually every country of the world. Our strategy is by having its production in Asia. The production and the manufacturing facilities are also located near raw materials (Adidas Group

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simple: continuously strengthen our brands and products to improve our competitive position and financial performance. (Adidas AG corporate website) The Adidas Group has divided its operating activities into three reported segments: Wholesale, Retail and Other Businesses. -The Wholesale segment comprises the Adidas and Reebok business activities with retailers. -The Retail segment comprises the own-retail activities of the Adidas and Reebok brands. -The financial results of Taylor Made-Adidas Golf, Rockport, Reebok-CCM Hockey and Other Centrally Managed Brands are aggregated under Other Businesses. In 2010, sales and profitability of the Adidas Group grew in all segments. Adidass Current Strategies

Source: www.adidas-group.com The Presentation of Route 2015 In November 2010, the Group unveiled its 2015 strategic business plan named Route 2015. This plan is the most comprehensive the Adidas Group has ever prepared, incorporating all brands, sales channels and Group functions globally. The Group targets a compounded annual earnings growth rate of 15% and aims to reach an operating margin of 11% sustainably by 2015 at the latest. (Adidas AG, 2011) Strategic Fit Analysis
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The distinctive resources and the core competences of Adidas form a unique competitive advantage which can be used in the competitive market environment to increase market share. The company can take this advantage and increase its markets to other Asian emerging economies. This can be supported by the competent team of Adidas to increase performance in new markets (Adidas Group, 2010). The political problems like labor laws regulations and working conditions complains can be addressed by the legal experts or avoided through closer adherence to the laws (Adidas Group, 2011). Adidas faces a threat from new entrants in the industry especially the LiNings from China which plays a competitive role in the Asian markets. The company needs to double its brand awareness to gain a huge market share (Adidas Group, 2010). This can be achieved sponsorship to create a brand name and improve its image. It can also use its innovative capabilities to develop a more competitive brand. Brand added value can be achieved through the increased much investment and use of research and development capabilities. The application of both the innovative capabilities and the research and development capabilities can lead to the development of quality and competitive products. Lastly, the weakness can be converted into strengths and the threats into opportunities to link the competences and resources for competitive advantage (Adidas Group, 2010).

SWOT analysis
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Strengths Adidas listing as a stock corporation means that the company can benefit from adjusted capital (Borowski, 2011). This has enabled investment of additional capital in effective and innovative technologies. Being the second largest manufacturer of sporting wear after Nike has made it possible to produce highly competitive sporting wear. Through the sponsor of numerous sports in the world, Adidas has been able to improve its brand and image (Borowski, 2011). It has been able to host Paralympics and sports and in 2012 Adidas will be the official sportswear partner of the Olympic games and the Paralympics in London (Borowski, 2011). Adidas has 169 subsidiaries in the world which means that it has a diversified market for its products in different segmented markets (Borowski, 2011). Opportunities Adidas has collaborated with new techniques such as MiCoach that is useful training program (Borowski, 2011). This has the capacity of creating a new market share through the program. Through the sponsoring of sports and teams, Adidas will continue to enjoy customer loyalty as many teams will continue to use its products. Because of the changing lifestyles and the health consciousness, many people will adopt healthier lifestyle in the world. This offers perfect market opportunities for Adidas to sell sportswear to many people and sports clubs.

Weaknesses After the acquisition of Reebok International ltd by Adidas in 2006, the company has not been fairing on well since. During the 2007/2008 financial crisis, the company received low orders (Borowski, 2011). In 2009 Reebok lost 20% of the market share in North America and a two digit deficit in the European and the Asian markets (Borowski, 20011). Adidas has low quality manufacturing facilities. For example, its production is carried out in low wage countries like Asia where it is impossible to manufacture quality products. For example, 67% of the plants are located in Asia where 90% of the production process is done manually (Borowski, 2011). This lowers the degree in which high quality sporting wear can be manufactured because of low mechanical involvement.

Threats The financial market crisis has led to increase in oil prices and inflation level which translates into the increase in the costs of raw materials (Adidas Group, 2010). Since the raw materials are outsourced from different parts with different exchange rates level, the macro-economic changes are likely to affect the operations of Adidas. These threats have the capacity of reducing the profitability of Adidas (Berger, 2008). The emergence of counterfeit products in the market will affect the sales of the Adidas sporting wears.

Reference:

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