MBA622 PROJECT

ADIDAS
By
Sheetanshu D Gupta
Atul Nipane
Pranjal Agarwal
S Sajin
Sandeep Kumar Attree
Tusheet Shrivastava
Yash Sidana
Mission
• To be the best sports brand in the world
• Never equate quantity and quality
• Meeting demands and needs of athletes
• Leveraging opportunities across the brand portfolio

• Distinctive Competency
• Fit the exact needs of athletes
• Moisture management, thermal insulation, weather protection,
ease of movement and safety
Company History – The Initial Stage
1924 • Adolf and Rudolf Dassler set up a handmade shoe company in the
name Dassler OHG

1927 • First production facility is leased and is called “Dassler Brothers

Sports Shoe Factory”

1930 • Production facility is bought

1931 • Introduction of tennis shoes

1938 • Second production facility is bought in the center of Herzogenaurach

1948 • Adolf and Rudolf part ways – Adolf sets up Adidas while Rudolph
goes on to set up Puma

1952 • Adidas shoots to fame in Helsinki Olympics

1954 • Germany wins Football World Cup wearing Adidas shoes

The Growth
• 1956 – Horst Dassler moves to a prominent role in the
company
• Sets up production facilities in France and further expansion in
Germany
• Adidas begins production of balls and apparel – tracksuits
• Adidas brand dominates the Olympic Games from 1960 to
1976 – majority of athletes wear Adidas products
• Large number of sports celebrities endorse Adidas
products
• Adidas also introduces fashion brands - expansion
Instability
• 1978 – Adolf Dassler dies
• 1984 – Kathe Dassler dies
• 1987 – Horste Dassler dies

• 1987 marked the beginning of a period of serious instability and

financial trouble

• 1990 – Bernard Tapie acquires company on money borrowed

from Credit Lyonnais in an attempt to rescue it
• Moved production to Asia in order to exploit cheap labor

• 1992 – Credit Lyonnais takes over Adidas as Tapie is unable to

pay interest
Strategy till now
• Prospector approach
• Focus on manufacturing – everything is manufactured in
house
• No change despite tough competition from Nike and Reebok
• Till 1993 – ignored market changes and took a conservative
course
• Lost market share to Nike – innovative aggressive marketing and
products
• Market share fell from 70% to mere 2%
• Slow to respond to issues of corporate responsibility – code
of conduct not well defined
• Factories are worst in the industry
1993
• February – Adidas acquires Sports Inc – a US based sports marketing
company
• April – Robert Dreyfus takes over Adidas

• Turnaround in strategy
• Focus shifted from MANUFACTURING to MARKETING
• Shut down almost all the company’s high cost factories in Germany and Austria
• 80% footwear is outsourced throughout Asia, North Africa and Southern Europe
• Reduced capital requirement, lower wages, more focus on core competencies
• Unsuccessful fashion brands were divested – focus shifted to Athletic Performance
brand
• Product line streamlining

• 1994 – company showed profits

• 1995 – company goes public
Related Diversification
• 1997 – Adidas acquires French sports equipment group
Salomon S.A. – becomes Adidas Salomon
• $ 1.5 billion
• Product base now included
• Ski gear
• Golf products
• Bike components
• Adidas also acquires TaylorMade – a golf goods
manufacturer – also had product innovations in golf

• June 1998 – Adidas adopts a code of conduct and an

internal monitoring system
New Global Business Strategy – 2000
• Shifting brand positioning through a revolutionary three
divisional structure
• Integrate US organization into Adidas global marketing structure
• Allow aggressive expansion in business

• Vertical Integration – acquired long time Danish distributor

Sportsgoods A/S – improve position in Denmark

• Making the Supply Chain a Competitive Advantage

• Improve “end to end” supply chain solutions
• Optimize partnerships with raw material suppliers, manufacturers and
retailers
• Improve performance and lower cost
Business level strategy
• Forever Sport Division
• Target athletes who want the highest level of functionality in their sport
• Performance driven rather than image driven

• Original Division
• Target Consumers who want to buy products exclusively for leisure usage
• Differentiation strategy – three product segmentations –
• Re-introduced – Limited volume remakes of classic products
• Re-interpreted – Original authentic sports wear with updated colours, materials and details
• Re-designed – Inspired by old Adidas originals in craftsmanship and style, but put in today’s
fashion context

• Equipment Division
• Multi-functional sports products with cutting-edge designs – for the prestigious
consumer
• House of innovation – contemporary, meaningful, aggressive and exciting
Production
• 80% production is outsourced
• Southern European sites – faster delivery and stock
turnover outweigh high labour costs
• Production in Asia – e.g. China – through contract
manufacturers – exploit low labour costs – relatively high
distribution cost
Manufacturing Units
Villanueva, Honduras • Knit bottoms

Puerto Cortes, Honduras • Knit and woven top and bottoms

Jakarta, Indonesia • Knit tops and bottoms

Tangerang, Indonesia • Woven bottoms

Seberang Prai, Malaysia • Outerwear, tricot tops and bottoms

Pahat Johor, Malaysia • Outerwear, woven and knit tops and bottoms

Johor, Malaysia • Knit tops and bottoms

Penang, Malaysia • Outerwear, warm-ups, woven bottoms

Tamaulipas, Mexico • Jersey knit products, fleece

Taipei, Taiwan • Outerwear, woven tops and bottoms

Bangkok, Thailand • Knit tops and bottoms

Nonta, Thailand • Outerwear, knit and woven tops

Philadelphia, USA • Rain jackets and pants, parkas

California, USA • Knit tops and bottoms

Organizational Structure
Total Market Share
before merger
Merger with Reebok
• August 2005- Adidas-Salomon AG announced plans to acquire Reebok at an
estimated value of $3.78 billion.

• At the time, Adidas had a market capitalization of about $8.4 billion, and reported net
income of $423 million a year earlier on sales of $8.1 billion. Reebok reported net
income of $209 million on sales of about $4 billion.

• Purpose – both companies competed for No.2 and No.3 positions following Nike.

• In US, Adidas was perceived to have good quality products that offered comfort
whereas Reebok was seen as a stylish or hip brand.
• Adidas focused on sport and Reebok on lifestyle.
• Clearly the chances of competing against Nike were far better together than
separately.

• For a successful merger, the challenge was to integrate Adidas’ German culture of
control, engineering, and production and Reebok’s US marketing-driven culture.
Merger with Reebok
• Adidas have long been one of the premium brands in sportswear and
have charged accordingly
• This strategy is coming under more pressure as cheaper substitute
products are bought by consumers adding to problems in terms of
customer retention
• By merging with Reebok, it aimed to go into the mid-range market as
well

• Reebok's strengths was its success in the women's sector

• The market for women's athletic shoes is larger than that for men, accounting for
around 46% and 40% of the sector's value respectively
• In volume terms, the women's sector was even more important, 46% compared to
35%
• Reebok's market share of women's athletic shoe sales was around 35%
• Boosted by its 'It's A Woman's World' marketing campaign
Challenges of the Merger
• Adidas and Reebok have decidedly different corporate
cultures
• Adidas’ corporate culture is very similar to their view on athletics; they are
very serious and rigid in their attitudes.
• Reebok is much more laid back. Even though their employees work long
hours, tension is reduced by the laid back atmosphere and company
fitness center.

• Global Location
• Reebok is located in Canton, Massachusetts, while Adidas’ headquarters
are located in Herzogenaurach, Germany.
• Adidas will continue to be more popular in Europe than in America, while
at the same time Reebok will continue to have greater popularity in
America than in Europe.
• Can act as a synergistic advantage
Geographic Distribution

Adidas Reebok
Comparison of strategies
• By utilizing Porter’s generic strategies framework, the methods employed
by Adidas, Reebok, and Nike to compete for customers in the industry
become easily apparent.
• Both Adidas and its competitor Nike make use of a differentiation strategy to attract
its customers
• Reebok concentrates its efforts on a broad cost strategy approach

• In response to Nike’s recent innovations, Adidas has spurred its

differentiation strategy by offering a products that are truly unique
• E.g. Adidas_1, is known as the world’s first intelligent shoe, offering the optimal
amount of cushioning by mechanically adjusting the sole every four steps

• Reebok, has maintained itself as a corporation with a cost leadership

strategy in mind
• They aim to offer an affordable shoe endorsed by rappers and various athletes,
targeting the urban youth demographic
Advantages of Merger
• Adidas-Salomon AG Chairman and CEO Herbert Hainer said
“The brands will be kept separate because each brand has a lot of value
and it would be stupid to bring them together. The companies would
continue selling products under respective brand names and labels.”

• The acceleration of both brands is brought about through

increased operating cash flows
• Along with the increased operating capital, other synergies
such as operating savings are realised

• Catching up to Nike's huge marketing budget is a challenge,

but the increased operating costs coupled with the synergies
will help promote further brand recognition through marketing.
Advantages of Merger
• In the past, Adidas has not been able to expand because
it had problems shipping goods to the United States
• It takes them about 14 days to ship from their factories in the Far
East
• On the other hand Reebok can ship overnight

• As such, Adidas will be able to take advantage of

Reebok's existing distribution infrastructure in the U.S.

• Similarly, Reebok will be able to benefit from Adidas'

existing distribution infrastructure in Europe.
Synergies
• Idea sharing across markets and geographies
• Capitalize on Reebok's skills and know how to accelerate
Adidas position in North America
• Benefit from Adidas expertise in Europe and Reebok's in
Asia
• Benefit from Reebok's expertise in Women's segment
• Capitalize from Reebok's skills in sport lifestyle and
leisure
• Bigger combined R&D spend
• Transfer of skills and technical and managerial know-how
• Relationship with teams and athletes
Horizontal Integration
Decrease in Inventory
Decrease in borrowings
SWOT Analysis – Summary
Strengths
• More products for different customers
• Increase in product line
• Acclivity in market share
• Both upper and middle priced markets are covered.
• Shared R&D, Patents, technology & innovations
 
• Weaknesses
• Differing values among management
• Complexity of joining two corporate cultures
• Both companies belong to different countries
• Dependence on third-party manufacturing
 
• Opportunities
• Reduction in costs
• Decreased competition
• Cross-over promotion by sponsored athletes
• Enter to new market/Segments
 
• Threats
• Nike
• Danger of cannibalisation between the two separate brands
• Counterfeit products
THANK YOU