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Organization Change &

Submitted to:- Submitted
Lect, Maneet kaur Mam, Ravish Kr. Bajra
Roll No: - RT1809A09 10808077


The combining of two or more entities into one, through a purchase or a pooling of interests.
Differs from a consolidation in that no new entity is created from a merger.

Air India and Indian Airlines Merger eg of
“Kurt Lewin Model “

Air India is India’s national Airline. Air India’s history can be traced to October 15, 1932. On
this day J.R.D. Tata, the father of Civil Aviation in India and founder of Air India, took off from
Drigh Road Airport, Karachi, in a tiny, light single-engine de Havilland Puss Moth on his flight
to Mumbai via Ahmedabad. Air India was earlier known as Tata Airlines. At the time of its
commencement, Tata Airlines consisted of one Puss Moth, one Leopard Moth, one palm-
thatched shed, one whole time pilot, one part-time engineer, and two apprentice-mechanics. Tata
Airlines was converted into a Public Company under the name of Air India in August 1946. On
March 8, 1948, Air India International Limited was formed to start Air India’s international
operations. On June 8, 1948, Air India started its international services with a weekly flight from
Mumbai to London via Cairo and Geneva with a Lockheed Constellation aircraft. In early 1950s
due to deteriorating financial condition of various airlines, the Government decided to
nationalize air transport. On August 1, 1953 two autonomous corporations were created. Indian
Airlines was formed with merger of eight domestic airlines to operate domestic services, while
Air India International was established to operate the overseas services. The word 'International'
was dropped in 1962. With effect from March 1, 1994, the airline has been functioning as Air
India Limited. Air India's worldwide network today covers 44 destinations by operating services
with its own aircraft and through code-shared flights. Important destinations covered by Air
India are Bangkok, Hong Kong, Jakarta, Kuala Lumpur, Osaka, Singapore, Tokyo, Seoul, Dar-
es-Salam, Nairobi, Frankfurt, London, Paris, Birmingham, Abu Dhabi, Al Ain, Bahrain,
Dammam, Doha, Dubai, Jeddah, Muscat, Riyadh, Kuwait, Los Angeles, Chicago, Newark, New
York, and Toronto. Air India’s fleet consists of 38 aircrafts. These include 12 Boeing 747-400, 1
Boeing 747-400 COMBI, 2 Boeing 747-300 COMBI, 19 Airbus 310-300, and 4 Boeing 777-200
Incorporation • Established in 1953 under Air Corporations Act • Became Public Limited
Company in 1994 • Registered Office: New Delhi • Head Office: Mumbai • Authorized Capital:
Rs 500.00 Crores • Paid-up Capital: Rs 153.84 Crores Subsidiary Companies HCI Hotel
Corporation of India Ltd  Centaur Hotels at Juhu, Mumbai Airport and Rajgir Sold 
Centaur Hotel at Delhi, Chefair-New Delhi and Chefair-Mumbai Under Disinvestment

AICL Air India Charters Ltd  New Airline Air India Express set-up under AICL  All AI
Express operations carried out on B-737-800 with a current fleet strength of 12. AIATSL Air
India Air Transport Services Ltd  Incorporated in June 2003  set up to undertake ground
handling & other allied activities  being operational at all domestic airports AIESL Air India
Engineering Services Ltd  Incorporated to undertake engineering and other allied activities
 To be operational  Cabinet approval required INDIAN AIRLINES The erstwhile Indian
Airlines Limited or currently known as Indian, was India’s first state owned domestic airline.
Indian Airlines was set up under the aegis of federal Union Ministry of Civil Aviation and based
in New Delhi. Its main bases were the international airports in Chennai, Mumbai, Kolkata and
New Delhi. It has now been merged with Air India for corporate purposes, though for now,
continues to issue its own tickets. .Indian Airlines came into being with the enactment of the Air
Corporations Act, 1953. It was renamed "Indian" on December 7, 2005. Indian Airlines started
its operations from 1st August, 1953, with a fleet of 99 aircraft and was the outcome of the
merger of seven former independent airlines, namely Deccan Airways, Airways-India, Bharat
Airways, Himalayan Aviation, Kalinga Air Lines, Indian National Airways and Air Services of
India. The year 1964 saw the Indian Airlines moving into the jet era with the introduction of
Caravelle aircraft into its fleet followed by Boeing 737-200 in the early 1970. Along with its
wholly owned subsidiary Alliance Air, it flies a fleet of 70 aircraft including Airbus A300,
Airbus A320, Airbus A319, Boeing 737, Dornier Do-228, ATR-4, Airbus A319, A320 & A321.
Along with Indian cities, it flies to many foreign destinations which include Kuwait, Singapore,
Oman, UAE, Qatar, Bahrain, Thailand, Singapore, Malaysia, and Myanmar besides Pakistan,
Afghanistan, Nepal, Bangladesh, Sri Lanka and Maldives.

Indian Airlines Flight free run over the Indian skies ended with the entry of private carriers after
the liberalization of the Indian economy in the early 1990's when many private airlines like Jet
Airways, Air Sahara, East-West Airlines and ModiLuft entered the fray. The entry of low-cost
airlines like Air Deccan, Kingfisher Airlines and Spice Jet has revolutionized the Indian aviation
scenario. Indian has been a pioneer in the aviation scene in India. It was the first airline in India
to introduce the wide-bodied A300 aircraft on the domestic network, the fly-by-wire A320, walk
in flights and easy fares. It flies to 76 destinations - 58 within India and 18 abroad. It has a total
employee strength of around 19,300 employees along with Alliance Air and carries over 7.5
million passengers annually, along with Alliance Air. The main base of the Indian airlines are
Chatrapati Shivaji International Airport, Mumbai; Indira Gandhi International Airport, Delhi;
Netaji Subhash Chandra Bose International Airport, Kolkata; Chennai International Airport,
Chennai. After being granted permission from the Government of India, on 15 July 2007, Indian
Airlines and Air India merged and started to operate as a single entity. Post-merger the new
airline will be renamed as Air India. This new airline is also a member of the Star Alliance, the
largest airline alliance. The government allowed the formation of a few new limited service
airlines in the 1970s: Air Works India, Huns Air, and Golden sun Aviation. None of them had
long life spans. Around 1979, IAC dropped the word "Corporation" from its name. Britain's
Financial Times described Indian Airlines as the world's third largest domestic carrier in the

the Transferee Company). Subscribed and Paid up Share Capital of AI remains the same. 500. 10 each fully paid Rs.000/. SUBSCRIBED & PAID-UP SHARE CAPITAL AMOUNT 15. 113 Gurudwara Rakabganj Road.800/. two leading young industrialists were appointed to chair the boards of the two companies in autumn 1986.Total Rs. 36. it was increasing its capacity as part of a plan to merge Indian Airlines with Air-India. In 1987. New Delhi. (a) The Scheme proposes to amalgamate each of the Transferor Companies (viz AI and IA ) with the Transferee Company (viz. 2007 the Authorized Capital. 10 each Rs. The Certificate to Commence Business was obtained on 14 May 2007. 82.200/. 100 each Rs. the quality of its service was facing criticism.270/- As on April 1.000/. 04. National Aviation Company of India Limited has been established as a Government Company to be engaged in the business as an airline for providing air transport and allied services. Amalgamation of Air India Limited and Indian Airlines Limited with National Aviation Company of India Limited The Government of India.890/. the Issued. having its registered office at Airlines House. (Transferor No 1 Company) and INDIAN AIRLINES Ltd. 38. 99. 58. 50.180 Redeemable Preference Shares Rs. the state's international carrier. 38.Total Rs.427 Equity shares of Rs. 56. 95. National Aviation Company of India Limited is a Government Company within the meaning of Section 617 of the Companies Act. National Aviation Company of India Limited).1. SCHEME OF AMALGAMATION UNDER SECTIONS 391-394 OF THE COMPANIES ACT 1956 For the amalgamation of AIR INDIA Ltd. 2007 the capital structure of the Transferee Company is as under: Transferee Company – National Aviation Company of India Limited (NACIL) AUTHORIZED . 64.As on April 1. This Scheme proposes the amalgamation of AI and IA in the Transferee Company.ISSUED. 425.318 Redeemable Preference Shares Rs. 00. approved the merger of Air India and Indian Airlines. 1956 and is under the administrative control of the Ministry of Civil Aviation. 1000. 36. 64. on 1 March 2007. With business growing at better than ten percent a year. New Delhi 110 001. 18.e. 10 each fully paid Rs. SHARE CAPITAL 2.100 each Rs. Indian Airlines carried 10 million passengers and earned a profit of Rs630 million ($48 million). 36.200 Equity Shares of Rs. National Aviation Company of India Limited. 13. 74. which would result in consolidation of the business of all in one entity (i. SUBSCRIBED&PAID-UP SHARE CAPITALAMOUNT 43.50. 00. 113 Gurudwara Rakabganj Road.000/- ISSUED. the Issued Subscribed and Paid up Share Capital of IA remains the same As on April 1. 66. 04. 31. Transferor Company No 2 – INDIAN AIRLINES AUTHORIZED SHARE CAPITAL AMOUNT 94. a new Company viz National Aviation Company of India Limited (NACIL) was incorporated under the Companies Act.820 Equity Shares of Rs. 949. 21.1 As per the latest audited accounts on March 31. 10 each Rs. 2006 the capital structure of the Transferor Companies is as under: A.mid-1980s. 1956 on 30 March 2007 with its Registered Office at Airlines House. 432.000/. 153.74. B. (Transferor No 2 Company) with NATIONAL AVIATION COMPANY of India ltd. Consequent to the above. Neither these plans nor the new chairmen lasted very long.489 Equity shares of Rs. 2007 the Authorized Capital. 83. to be heightened by the coming entry of new carriers into the market. Transferor Company No 1 – AIR INDIA AUTHORIZED SHARE CAPITAL AMOUNT 42. National Aviation Company of India Limited (the Transferee Company) is a Company incorporated under the Companies Act 1956. 00. However. (Transferee Company) whereas. 00. 36. 36.

000/. trading style. discharge and satisfy the same. in accordance with Sections 391-394 of the Act and all other applicable provisions of law. shall be the debts. all rights and licenses relating to trademarks. privileges and any rights. copyrights. franchises.1 above in respect of such of the assets of the Transferor Companies as are movable in nature or intangible property or are otherwise capable of transfer by manual delivery or by endorsement and delivery including plant. 5. as a going concern. the same shall be so transferred or shall be deemed to be so transferred to the Transferee Company and shall upon such transfer become the property and an integral part of the Transferee Company. 00. liabilities. descriptions.Transfer of Assets With effect from the Appointed Date and upon the Scheme becoming effective. aircraft. bar codes. duties and obligations of the Transferee Company and the Transferee Company undertakes to meet. Approvals. without any further act. guarantees and other instruments of whatsoever nature in relation to the Transferor Companies. the Transferee Company had been a party or beneficiary or oblige thereto. all contracts. insurance policies. holograms. schemes arrangements. title or interest in intellectual property rights in relation to the .000 Equity Shares of Rs. rights. utility models. and whether or not provided for in the books of accounts of the Transferor Companies. benefits and interest therein. Any guarantee/letter of comfort/commitment letter given by the Government or any agency or bank in favor of the Transferor Companies with regard to any loan or lease finance shall continue to be operative in relation to the Transferee Company Contracts. shall be in full force and effect on or against or in favor of the Transferee Company and may be enforced as fully and effectually as if. assets. All loans raised and used and liabilities incurred by the Transferor Companies after the Appointed Date but before the Effective Date for operations of the Transferor Companies shall be loans and liabilities of the Transferee Company. 00. trade names. labels. technical know-how. secured or unsecured. all debts. Exemptions etc (a) With effect from the Appointed Date and upon the Scheme becoming effective. 10 each Rs. deeds. liabilities. emblems. subject to the provisions of this Scheme. instead of the Transferor Companies. color schemes. Without prejudice to Clause 3. Deeds. the same shall. agreements. if any. logos. whether disclosed or undisclosed in the balance sheet. (b) Where any of the liabilities and obligations attributed to the Transferor Companies on the Appointed Date has been discharged by the Transferor Companies after the Appointed Date and prior to the Effective Date. subject to existing charges thereon in favor of banks and financial institutions or otherwise. 10 each Rs. be vested in and / or be deemed to be vested in the Transferee Company in accordance with the provisions of Section 394 of the Act. know-how. Transfer of Liabilities (a) With effect from the Appointed Date and upon the Scheme becoming effective. together with all its properties. designs.000 Equity Shares of Rs. and items of such nature.000/. machinery and equipments. patents. indemnities.SHARE CAPITAL AMOUNT 50. (b) With effect from the Appointed Date and upon the Scheme becoming effective. bonds. such discharge shall be deemed to have been for and on behalf of the Transferee Company. label designs. and which are subsisting or having effect immediately before the Effective Date. 5. the Transferor Companies shall be transferred to and be vested in and/or be deemed to have been transferred to and be vested in and managed by the Transferee Company. duties and obligations. instrument or deed. In respect of such of the said assets other than those referred hereinabove. as the case may be and as may be modified by them. or to the benefit of which the Transferor Companies may be eligible.ISSUED. SUBSCRIBED & PAID-UP SHARE CAPITAL AMOUNT 50. without any further deed or act.

With effect from the Appointed Date and upon the Scheme becoming effective. The Transferee Company. referred to above. patents. Specifically. is imperative to improve competitiveness. or in favor of. privileges. shall stand vested in or transferred to the Transferee Company without any further act or deed. (c)The Transferee Company shall be entitled to the benefit of all insurance policies which have been issued in respect of the Transferor Companies and the name of the Transferee Company shall be substituted as “Insured” in the policies as if the Transferee Company was initially a party (d) With effect from the Appointed Date and upon the Scheme becoming effective the Transferee Company shall replace the Transferor Companies in the respective Air Services Agreements as the designated carrier of India. including specifically . respectively.the fastest growing in the world followed by China. instead of the Transferor Companies. powers. the merger will - • Create the largest airline in India and comparable to other airlines in Asia. licenses. permissions or approvals or consents required to carry on the operations of the Transferor Companies shall vest in and become available to the Transferee Company pursuant to the Scheme. the Transferee Company had been a beneficiary or oblige thereto. cargo and mail . exemption schemes. on behalf of the Transferor Companies. The Transferee Company shall. The benefit of all statutory and regulatory permissions. at any time after the Scheme becoming effective in accordance with the provisions hereof.and all rights relating thereto to the benefit of which the Transferor Companies may be eligible and which are subsisting or having effect immediately before the Effective Date. the Transferee Company had been a party or beneficiary or oblige thereto. or against. time slots (including those at foreign airports trademarks. The merger between the two state-run carriers will see the beginning of the process of consolidation in the Indian aviation space . be deemed to be authorized to execute any such writings on behalf of the Transferor Companies and to carry out or perform all such formalities or compliances. • Provide an Integrated international/ domestic footprint which will significantly enhance customer proposition and allow easy entry into one of the three global airline alliances. and may be enforced as fully and effectually as if. entitlements. all permits including operating permits. instead of the Transferor Companies. the Transferee Company as the case may be. along with a comprehensive transformation program. Indonesia and Thailand. shall be and remain in full force and effect in favor of or against the Transferee Company. With effect from the Appointed Date and upon the Scheme becoming effective. copy rights. rights. mostly Star Alliance with global consortium of 21 airlines. quotas. approvals. or consents required to carry on operations in the Transferor Companies. and may be enforced fully and effectually as if. will execute deeds of confirmation or other writings or arrangements with any party to any contract or arrangement in relation to the Transferor Companies to which the Transferor Companies are a party in order to give formal effect to the above provisions. . It will provide an opportunity to leverage combined assets and capital better and build a stronger sustainable business. and shall be appropriately mutated by the statutory authorities concerned therewith in favor of the Transferee Company. environmental approvals and consents including the statutory licenses. under the provisions of this Scheme.Transferor Companies to which the Transferor Companies are a party or to the benefit of which the Transferor Companies may be entitled /eligible shall be in full force and effect on. permissions. licenses including those relating to tenancies. if so required under any law or otherwise. any statutory licenses.licenses and permits for operating as airlines and carriers of passengers. Reasons of Merger Merger of the Transferor Companies with the Transferee Company. facilities of every kind and description of whatsoever nature in relation to the Transferor Companies.

However the merger had also brought close to $10 billion (Rs 440 billion) of debt. In addition to these synergies. to ensure that the merger pays off.86 billion. spares and other materials. • Provide an opportunity to leverage skilled and experienced manpower available with both the Transferor Companies to the optimum potential.• Enable optimal utilization of existing resources through improvement in load factors and yields on commonly serviced routes as well as deploy ‘freed up’ aircraft capacity on alternate routes. since the Government is likely to divest certain percentage of its holding in the near future. The merger had created a mega company with combined revenue of Rs 150 billion ($3. necessitated due to their combined fleet strength. Potential to launch high growth & profitability businesses (Ground Handling Services. Maintenance Repair and Overhaul etc. This worked out to be a major advantage to plan new flights at most convenient times. ($0. facilities which were usually in acute short supply. the consultant that inked the blueprint of Air India-Indian merger in 2006. This resulted in a saving of Rs1. • Provide an increased thrust and focus on airline support businesses. capabilities and infrastructure. Twenty-five months later. Revenue synergies will be driven by integration of the ‘complementary’ networks of the Transferor Companies.7billion) and an estimated fleet size of 150. Cost and capital productivity synergies will be driven by opportunities for leveraging economies of scale and opportunities for rationalizing overlapping facilities and infrastructure. It had a diverse mix of aircraft for short and long haul resulting in better fleet utilization. the Transferee Company. There were also major operational benefits as between the two they occupied a large number of parking bays and hangers. • Traffic rights .04 billion) and the new airlines will be offering more competitive fares. • The new entity was in a better position to bargain while buying fuel. flying seven different types of aircraft and thus being more versatile and utilizing assets like real estate. This.e. • Provide a larger and growth oriented company for the people and the same shall be in larger public interest. This will ensure that the merged Airlines will have enough scope for continued expansion. which is aimed at ensuring higher intrinsic value .) • Provide maximum flexibility to achieve financial and capital restructuring through revaluation of assets. The protectionism on traffic rights have another angle. had advised the Centre to integrate 748 officials up to the level of deputy general manager (DGM) within nine months of the Cabinet clearance. at several large airports in the country. Integration is incomplete Accenture. NACIL has been able to integrate 44 officials up to the level of . while improving the financial position would help position and equip the merged entity to better face the current and future challenges arising out of intense competition and declining industry profitability. • Economies of scale enabled routes rationalization and elimination of route duplication. • Provide an opportunity to fully leverage strong assets.The protectionism enjoyed by the national carriers with regard to the traffic right entitlements is likely to continue even after the merger. human resources and aircraft better. the amalgamation will also provide an opportunity to initiate a comprehensive transformation program to improve the overall competitiveness of the merged airline i.

Strong opposition from unions against management’s cost-cutting decisions through their salaries have led to strikes by the employees/ Increased Competition The flux at the top has led to delays in decision-making at a time when demand for air travel has dropped around 8-10% over the last year and competition has heated up in the sector. the combined entity has huge potential as the largest airline in one of the world’s largest and fastest growing economies. lags the industry average of 75% in 2006-07. The company’s load factor is decreasing year by year.000. is expected to rise sharply due to a grade re-alignment. like other air carriers.000 crore as working capital loans.8% in August 2007. Integration has become a tightrope walk for the management. For sure. to 13. fuelling resentment among Air India employees. Many of those appointed are from Indian Airlines. Air India’s domestic market share dropped from 19. Hit by recession NACIL.2 per cent. "It will need Rs 44. terminal services. Lower load factor could decrease the company’s margins. in 2005. Air India passenger load factor of 63. NACIL plans to induct 30 aircraft in this fiscal and another 45 by March-end 2012. Fleet Expansion NACIL's fleet expansion seems out of sync with the times." he said.2% which is more than present load factor. The national carrier’s domestic market share has been under pressure ever since budget carriers and new private airlines took wing.000 crore. the number of tickets sold in proportion to the total number of available seats. which was the company’s record. which was 23 per cent of total expenditure at the time of incorporation.06 load factor is 66. While other Indian airlines have withdrawn over a third of their aircraft orders slated for delivery in 2009. The core cost drivers - including line maintenance. Conclusion The merger of Air India and Indian is the most significant recent development for India’s aviation sector. Mutual Distrust and strong unions The distrust between the two sides of Air India and Indian Airlines is almost palpable. Managed correctly. In that month. as most airlines are actually rounding their fleet and cancelling orders for new planes.2% in February 2009. was the lowest (domestically) at 60. A NACIL board member informed that the company's total debt in the medium term is estimated at Rs 79. Global alliances will be attracted by its extensive network in an untapped part of the world (and indeed Star Alliance . NACIL's employee-to-aircraft ratio.000 crore for plane purchases. The wage bill of the merged company.executive director (ED). NACIL's load factor. It has Rs 22. according to two board members of NACIL. flight operations/ dispatches and ticket sales . Lower load factor Though the overall operating performance has been steady. when the merger took place. resulting in a surplus employee strength of almost 10.2%.The load factor difference is even greater when compared to other low fares carriers such as Air Deccan. a gauge of efficiency. This means NACIL would face a wall of debt going forward. is the highest among its peers at 222:1 (the global average is 150:1). Air passenger traffic fell for the seventh month in a row by 11 per cent year-on-year in January 2009.should have been merged first for synergies to translate into actual benefits. Air India load factor is likely to be low because of the much higher frequency operated on each route.000 crore in long term loans and another Rs 13. many jobs will become redundant when functions are unified. is hit hard by the slowdown crimping passenger and cargo traffic. ground handling.9% in January 2008 before rising to 17.

Air India will need to be privatized over the next 3- 5 years to introduce commercial disciplines. Introducing a strategic partner would ideally precede this first step. and create a footwear.00 per share. scheduled for 2008/09 would be the first step. However. Upon announcement. Reebok stock rose 30% while Adidas climbed 7%.CORE COMPETENCIES & COMPETITVE ADVANTAGE Competitive advantage is a special edge that allows an organisation to deal with market and environmental forces better than its competitors. The acquisition has prompted much discussion as to what the future holds for the sporting goods industry and its major players. and an overseas partner would require changes in the regulations which currently prohibit foreign airlines from holding a stake in Indian carriers. As stated by Herbert Hainer. the complexity of overseeing a merger taking place against such a challenging environment cannot be overstated. If Air India can successfully navigate through the next couple of years. for a total of $ due to vote on Air India’s membership later this week). albeit there was no other option. although the value that can be achieved will be highly dependent on the results from the integration process over the next 12-18 months. apparel and hardware offering that addresses a broader spectrum of consumers and demographics" (Adidas. CEO of Adidas. A partial IPO. Yet an Indian partner might raise competition concerns. we will expand our geographic reach. A Heavily debt-laden ledger will not make that process easy. 2005. "This is a once-in-a-lifetime opportunity to combine two of the most respected and well-known companies in the worldwide sporting goods industry. but would probably follow.'s stock at $59. Whereas. Together. but 2008 will be critical.8 billion. unless profitability is strong. Merger of Addidas And Reebok (pure example of “Burk Litwin” model of change) INTRODUCTION On August 3. sustainable competitive advantage is . Adidas-Salomon AG announced its plans to buy all outstanding shares of Reebok International Ltd. Athletic Wear Market Share I. particularly in North America. A primary goal of the acquisition has been to challenge industry leader Nike for a higher share of the United States sporting goods market as well as the global sporting goods it has the potential to become a major Asian airline. Ultimately.

The fact that Adidas and Reebok control such different aspects of the shoe industry will help to ensure their success. we have discovered that the importance of branding is paramount for success in this industry. we have examined the following: Through these various analyses. To fully understand how Adidas- Reebok will gain a sustainable competitive advantage over Nike. These include industrial. To better understand the advantages gained from the Adidas-Reebok merger. the situation must be looked at from several different points. customer and competitor analyses. corporate cultures. Our research also identifies the specific danger of competition between Adidas and Reebok. This distinction is essential when evaluating the acquisition and its effects. Our analysis of the Adidas-Reebok merger shows how it will gain a sustainable competitive advantage that may one day dominate the footwear industry both domestically and internationally. dealing with issues such as global positioning of companies. Adidas Core Competencies – Technology – Customer focus – Brand recognition – Supply chain – Collaboratively competitive Reebok Core Competencies – Trend Identification – Ability to market to a niche segment – Women's shoe design – Design expertise – Celebrity relationships . as well as a look at the different marketing strategies and changing marketing that is difficult for competitors to imitate. and the allocation of resources. A merger of this scale is inherently complex.

On the other hand. However. where one brand takes away the others consumer base. The key to this success is how well they identify themselves. promotions. Adidas' acquisition of Reebok will develop increased opportunities to achieve competitive advantage through branding. and technology. Furthermore. extended licensing agreements and contracts will allow the Adidas Group to sustain this advantage.Combining Core Competencies • Combine – Adidas technology with Reebok design – Adidas sports with Reebok women's market – Adidas shoes with Reebok apparel – Adidas global strength & Reebok US strength Implementation • Blending the two cultures successfully (learning to work together) • Protect the strengths of acquired company (keeping development of both organisations separate) • Maintaining both brands (keeping established market share) • Capitalising on supply chain economies of scale (suppliers. Sustainable competitive advantage cannot be reached without the successful merging of Adidas and Reebok." Hainer points out that Reebok's focused strategy is on the engagement of youth through sports. he points out. music. endorsements. distribution. channels) • Nurturing the partnership between technology and design (growing market share by combining leadership areas) Sustainable competitive advantage The athletic apparel and footwear industry emphasises branding more than any other competitive advantage. Through the use of advertisements. Adidas' . Adidas Chairman and CEO Herbert Hainer made clear that "it is important that each of these brands must retain their own identity. There is a very real danger of cannibalisation to occur between the two separate brands. and licensing agreements. is a lifestyle brand. manufacturing. the top companies in this industry have devoted much of their resources to brand recognition and loyalty. Reebok.

The new company can combine Reebok's apparel with Adidas' new addition of fashion designer Stella McCartney. It takes them about 14 days to ship from their factories in the Far East while Reebok can ship overnight.. because the increased presence further engrains the most important advantage in this industry. Reebok will benefit greatly from Adidas' distribution around the world. Catching up to Nike's huge marketing budget is a challenge. an important feature of the increasingly fast paced industry. Increasing its presence is the key to achieving sustainable competitive advantage. This innovative move shows that Adidas continues to look for new opportunities and markets in order to gain a competitive advantage. Adidas has not been able to expand because it had problems shipping goods to the United States. where Reebok already has a significant presence.S.focus is on superior technology and performance. "Adidas has positioned part of its product range in the lifestyle segment. but will also give Adidas-Reebok more power over promotions and in-store displays. Expedited research will develop higher consumer demand for innovation across all brands. Lifestyle success to an authentic company is a bonus. but the company relies on the performance market. Combined R&D is helping speed development of cutting edge technologies. coupled with a large international presence. Globally. As Hainer points out. putting pressure on Nike's R&D capabilities. SWOT Analysis Adidas-Salomon SWOT Analysis (before the merger) . while Reebok will be able to benefit from Adidas' existing distribution infrastructure in Europe. In the future. Reebok's marketing resources could increase. Reebok has an extensive line of men and women's apparel. who has created an apparel line that integrates both sport and style. In the past. The acceleration of both brands is brought about through increased operating cash flows. The Reebok brand will also gain sustainable competitive advantage through increased brand recognition. but the increased operating costs coupled with the synergies will help promote further brand recognition through marketing. brand name. Along with the increased operating capital. Coupled with the cost savings and increased cash flow." Adidas will benefit from increased distribution in North America. Adidas will be able to take advantage of Reebok's existing distribution infrastructure in the U. The addition of Reebok will enhance not only its position among the top US distributors like Foot Locker and Dick's. other synergies such as operating savings are realised.

snowboard. the company launched ClimaCool and a3 in its running shoes category.000 pairs in a3 and over one million in ClimaCool. Adidas-Salomon's brands include Adidas. which were big successes. apparel. Steady increase in sales revenues Adidas-Salomon's revenues from sales have been steadily increasing as reflected in the last five years' sales performance ending 2002. Each company brand targeted a specific market and new products were introduced based on their requirements. market-leading products and commitment to sports for meeting consumer expectations. Furthermore. marking the strongest first half year performance in the company's history. The company sold over 500. on the supply-chain side the company's commitment to reduce lead time for manufacturing footwear had enabled the company to avoid the warehousing of products. Successful new product innovations The company had consistently launched new products and this has enabled it to widen its portfolio and also enhanced its competitive position.1 billion of sales in 1998 to E6. in the basketball shoes division. Reebok. golf-related and other products. Salomon. the company reported an outstanding operational and financial performance in the first half of fiscal 2004. Strengths Leading player in the sporting goods industry The company was amongst the top players in the sporting goods industry due to its strong brands. PUMA and New Balance. This underlined the company's momentum. Such a steady growth in the company's revenue performance helped in maintaining a very good image for the company and improved investor confidence. at a certain distance. TaylorMade and others which were further strengthened by its strong commitment to product innovations. TaylorMade and others. This has helped the company achieve a greater degree of success. From E5. the performance has improved by a CAGR of 7%. with quarter on quarter sales improvements for all brands. continuous commitment to product innovation that is consumer focused. hardware.Adidas-Salomon was a leading player in the sports good manufacturing industry. the T-MAC and T-MAC were the bestselling in the US market in 2002 which has led to . essentially as a result of its strong brand image. The company has been able to achieve this steady growth in revenues due to its strong brand image. Additionally. it was mainly due to currency translations. Though sales declined by 3. Salomon. The company had market leading products and strong brand names including Adidas.5 billion in 2002. The global sportswear market (Euro 45 billion) was dominated by Adidas-Salomon and Nike and. Furthermore. and a record gross margin and earnings growth of almost 40%. The company had posted a very steady growth in its sales revenues in recent years.9% in 2003 over 2002. During 2002-2003. The company's products served many markets and include footwear. which had very strong brand name recognition in markets served.

the company used to take 120 days for producing footwear. cycling and fashion oriented products. The company's over-dependence on the Adidas brand segment. Despite a strong image for the TaylorMade and Salomon brands. basketball). while the other two contributed to the balance. In May 2004 the company introduced what the company described as the first Intelligent Shoe . The company's immense size and strong position have afforded it the opportunity to undertake global advertising campaigns with focus on TV. special handling and other such activities to reduce time taken. The campaign "Impossible is Nothing". Over-dependence on Adidas brand segment While the purchase of Salomon. Marketing strength The company had planned and implemented major advertising campaigns during 2004. These process improvements have helped the company in avoiding warehousing of its footwear products. golf. Nordic disciplines. steered the company into the equipment arena.3 billion from the Adidas brand segment in 2003. Lead time improvements The company had considerably improved the lead-time required for footwear manufacturing through lean manufacturing principles. This is because it has a very broad product portfolio. the French maker of ski and golf gear. this had been reduced to around 60 days. the shoe provided intelligent cushioning by automatically and continuously adjusting itself. by 2003. including sport performance products for athletic sports.the release of T-MAC 4 lace less footwear for 2004. Weaknesses Unfocused strategy The strategy of Adidas-Salomon was lacking focus. David Beckham (brand image. print media and outdoor advertising as well as point of sale and PR activities. Haile Gebrselassi (brand image. included top athletes from different disciplines such as Muhammad Ali and his daughter (brand image. The company's continuous commitment towards new product innovations not only improved revenues but also helped in strengthening its relationship with its customers and attracts new customers. football) and Tracy McGrady (brand image.9 billion) of its total revenues of E6. the company generated 79% ($4.called "1". they generated only about 21% of the total revenues. which . basketball. tennis. running). improved labelling. Rival Puma has demonstrated that focus can translate into a high profitability. boxing and lifestyle). Earlier in 2000. Such a reduction was made possible as a result of the company's efficient implementation of lean manufacturing principles which helped in removing non-value-adding procedures and activities.

267 million ($7. Japan and Europe in spring/summer 2005. makes the company's overall revenues susceptible to the market conditions in this segment. fan shops and college bookstores. . In September Adidas and Stella McCartney announced a long-term partnership in New York. The company also entered into a strategic agreement in June 2003 with the INTERSPORT International Corporation (IIC). significant order cancellations in the course of the first half of 2003 are evident. Iowa in June 2004. The Adidas by Stella McCartney range shows the company's willingness to innovate in the women's sportswear market.4 million). Adidas-Salomon acquired Valley Apparel Company of Cedar time . a multi-sport retailer. a decrease of 3. down 39% or E616 million versus E1. the level of borrowings was still very high.570. which were up a strong 14%. in order to strengthen its sales and distribution network.strengthen the company's sport mid- size retailers. Salomon and other products' sales. At the fiscal year end 2003 the company's long-term borrowings as a percentage of equity were very high at around 146%. Order cancellations 2003 revenue growth was substantially below the company's first impression from year-end 2002 order backlogs. department stores. 583 billion in the prior year) made but debt remained high. 523 million. The first collection was available in stores across the US. which amounted to E1. Specifically. Opportunities Strategic acquisitions and agreements The company made a few strategic acquisitions during 2004.9% against the previous years revenues that totalled E6. It offered products for running. a producer and distributor of collegiate and professional league apparel and accessories. the four year agreement will . It has a reputation of producing and delivering large quantities of apparel and branded accessories within hours of a team's victory. In early 2003. 2004 were E967 million. High level of long-term borrowings Though the company reduced its borrowings by E181 million against 2002.mainly serves the athletes' requirements. This acquisition has helped the company in offering market leading products in all the golf categories and has improved its global market share to 16% from less than 1% prior to the acquisition. As 2003 revenues growth was only 5%. casual. gym/workout and swimming as well as cover-ups. For the first time ever a high-end fashion designer had created a functional sport performance range for women. It served small. the company acquired the Maxfli brand of accessories and other golf related products from Dunlop Slazenger Group through its TaylorMade-Adidas division. such as sporting goods stores. The company achieved revenues that totalled E6. By half year fiscal 2004 strong cash flow had enabled more progress in debt reduction has been (net borrowings at June 30. 574 million. presenting the Adidas by Stella McCartney sport performance collection. Such high debt level affected investor confidence in the company and makes low-cost funding of growth plans difficult.

. production and delivery to the retail stores. which will considerably reduce the time taken and improve cost efficiency. the Sport Heritage division grew into an Euro 900 million businesses and doubled its sales from 2001 to 2003. thereby gaining a competitive edge over its peers. Adidas has a life-time agreement with Kevin Garnett (most valuable player of the NBA 2003/2004).4 million products to federations. etc. The company sponsored the World Cup in 2006 held in Germany. Sport Style and other such divisions. which has helped the company achieve faster delivery of its products to the retailers.) exceeded early revenues. Following a successful marketing campaign at the Euro 2004 Soccer Tournament in Portugal. while the balance of the time in arranging for the raw materials. This initiative helped the company in serving its customers faster. thereby reducing inventory costs. officials and others during the 2004 Olympics. During 2002. the industry faces a problem due to longer time to market. Sponsorship of these events helps the company in building its Sport Heritage. The total time taken is about 15 to 18 months of which 12 months are spent in creation of the product. A significant number of new shops did not positively contribute to earnings because the cost for new shops (of hiring of sales people and training costs etc. The company planned to reduce its production time further. the company once again expected to achieve new record sales in football during 2004. in the Winter Olympics of 2002. On the supply-chain side. Management recently explained that own retail sell-through was positive in the US in 2003 in contrast to external customers. Management expects Sport Heritage to grow again from 2004 driven by more own retail stores and no more cutting of external points of sales.Supply-chain and manufacturing initiatives The company's success in reducing footwear manufacturing time was likely to continue in the future also. Furthermore. Own retail stores In 2003 Adidas generated 9% of group revenues in own retail outlets. This will begin to level out going forward and the company will continue to open own retail shops. Adidas supplied more than 1. The company also planned to implement a new model for its supply chain. Sponsoring sporting events The company's sponsorship of major sports events brought great recognition to its products. the company sponsored over 50% of the participating athletes who won about 200 medals. volunteers. For instance. It also signed a six-year cooperative agreement with Chinese Football in June 2003. The company is therefore planning to open 15 new US shops in the coming two years and 40 worldwide. the company sponsored FIFA World Cup Championship in Korea and Japan and was acclaimed as the most visible among the brands advertised during the event and was viewed by 44 billion cumulative spectators during the course of the event.

the company's revenue generation in US dollar and other non-Euro currencies is comparatively lower. Foreign exchange fluctuations The company's manufacturing activities were mostly concentrated in China and other Southeast Asian countries. the company's revenues were significantly affected due to these adverse economic conditions. Adidas have long been one of the premium brands in sportswear and have charged accordingly. external factors can have an adverse impact on the company's stock price performance and might in turn affect its brand's value. Reebok SWOT Analysis (before the merger) . Thus. Similarly.Threats Competition Adidas operated within a highly competitive market which in many cases overlaps into other markets as sportswear retailers increasingly compete with fashion retailers. Nike and Puma made competitive levels intense. Hence. Thus. The company's traditional competitors like Reebok. while the Southeast and Middle-East regions continue to reel from political unrest. Weak global economy The GDP of European countries have grown at a negligible rate and are unlikely to improve in the near future. had increased competitive levels. but the addition of casual footwear and apparel manufacturers such as Tommy Hilfiger. though this strategy is coming under more pressure as cheaper substitute products are bought by consumers adding to problems in terms of customer retention. the Latin American markets such as Argentina and Brazil continue to witness weak economic conditions. whereas. Companies had come under increasing pressure recently from products designed for the value conscious consumer. Since most of these countries transact in US Dollars. adding a designer edge to the market. The weak performance of many companies in the sports goods industry adversely affected the investor confidence in the industry. Impact of scandals in the US and Germany Accounting scandals across industries in Germany and the US have impacted upon the company's stock performance. adverse changes in the exchange rate between US dollar and Euro had a negative impact on its overall revenues. the company incurred about 70% to 80% of its outsourcing expenditure in US Dollars.

behind Nike. Reebok had become the number two or number three brand in most of its overseas markets. followed by an effective marketing strategy which carried into 2003 and 2004. Alongside reinventing brands. During 2003/2004. Nike and Adidas.Reebok International was a major player in the sports and fitness products market. the Reebok product offerings generated healthy sell-through performance at retail. Pharrell Williams and 50 Cent. classic lifestyle apparel and performance gear for off-the-field activities. Celebrity associated sponsorships The company expanded its product offerings into more lifestyle and performance categories. While footwear is clearly its core product. The Reebok brand continued to drive sales pushing it closer to major competitors. RBK. Excellent marketing strategy The company employed a strategy of reinventing its brands in order to gain market share. Strengths Growing sales revenue As part of a strategy to grow quality market share. Reebok sponsored many top athletes in tennis. It held around 10% of the global market. compared to Nike's 34% and Adidas' 15%. introducing new product segments for both the NBA and NFL. as well as music stars Jay-Z. including NBA and NFL footwear. The company has been able to increase revenues and improve operating margins despite some challenging retail conditions in many key markets around the world in 2004. RBK and Classic. concerns were being raised over its comparative disinterest in the associated athletic apparel market. Andy Roddick and Venus Williams. the company introduced a new street inspired product collection. which is over twice the size of the footwear market." which fuses music and entertainment with sports and performance. The combination of relevant products and a new marketing campaign improved the performance of the Reebok Brand in the athletic specialty channel of distribution. In order to enhance its Reebok brand. Its main strengths lied in its size and strong brand awareness. To support the RBK product Reebok created a marketing campaign entitled Reebok's "Sounds and Rhythm of Sport. Reebok International was the second largest manufacturer of athletic shoes in the US. the company continued to invest in three key product and marketing platforms: Performance. Yao Zing's impact in the Asian market is hugely important . in 2002. Reebok has achieved positive market share comparisons in the critical athletic specialty and sporting goods channels of distribution (as of October 2004). with a particular emphasis on footwear. the company introduced new marketing campaigns to promote them.

represented around 60-70% of Reebok's business. Athletic apparel gives scope for a larger and more diverse range of Reebok. Weaknesses 'Classics' under fire The company had come under fire from its rivals in the classics department. which account for around 15% of the market. This could result in a sudden cut off in orders. was considerably lower than average. Its average price per shoe is $45. The market for women's athletic shoes is larger than that for men. keeping the market fast moving. with its innovative designs. In the past Reebok has controlled this shoe category without much competition. The apparel market was 2. Futures growth for these five brands was around 9. Danger of stockpiling products by retailers Futures. Reebok were still the market leaders in that area but the gap kept narrowing. Strong women's sector Another one of Reebok's strengths was its success in the women's sector. leaving the company with large inventories and a decrease in sales. Low market share in apparels Reebok controlled only about 1. however five of the company's brands that represent around 60% global market share could cause problems in the future. This growth was alarmingly fast.4 times larger than the footwear market. Reebok had to be careful as retailers may be ordering more than they can sell. Nike took charge there. This posed a problem when squaring up with its fierce competitor. or ordered in advance sales.5% on a dollar-weighted basis. This has been valuable to Reebok in the past. The footwear market's growth was slowing. Nike. however companies such as Nike and Adidas were coming up with their own 'classic shoes'. the women's sector was even more important. accounting for around 46% and 40% of the sector's value respectively. Reebok's market share of women's athletic shoe sales was around 35%. Opportunities Increase average shoe price Reebok's average price per shoe in athletic footwear stores. Affiliating itself to such globally renowned celebrities enhanced the company name among many different customer groups. In volume terms. compared with . and contracts with sports teams and organisations throughout the world. 46% compared to 35%. and has been boosted by its 'It's A Woman's World' marketing campaign.4% of the apparel market.

thereby presenting the Reebok Brand in a more relevant and consistent manner. As well as raising brand awareness. In 2003. That was a competitive field experiencing much slower growth than in previous years and. This campaign included television. premium products. Encourage a strong brand push in Europe The company planned to enhance its European market. hoping to increase market share by 10% to 30% by 2006. Reebok felt that it must do more to increase sales. print and in-store marketing packages. Reebok had a lot to gain from a continued investment in more technologically advanced. should this trend continue for a significant period of time. the company introduced new fashionable and technologically advanced products tied to new integrated marketing programs. which is itself partly attributable to its traditional position in the women's sector. With the company . Draw attention toward new technological developments Reebok had started developing its product to make it more modern and has invested heavily in added technology to enhance its shoes. Threats Over reliance on footwear sales Footwear is Reebok's largest division and the company relies fairly heavily on the footwear market. which utilises the athletes and the vector logo in new and creative ways. as its products and promotional efforts improve. The company took the Chinese sensation from Nike. Reebok's sponsorship deals helped the company increase its average sales price. and sales strategies across all borders in Europe. This has left an opening for the likes of Reebok to outlet average closer to $60. marketing. like most other producers. These products are supported at retail with a new performance marketing campaign. Reebok had also to be aware that the market for more expensive footwear was slowing. This branding created a real point-of-difference for its performance products and should help to generate consumer interest at point-of-purchase. particularly in the basketball arena. Exploit Nike's lack of high profile sponsorship Nike. Reebok executed unified product. Yao Ming. This was the first time in a long time that Nike did not have an eminent sports star to spearhead their marketing drive. This could ultimately force prices down. the world's most successful sportswear brand and footwear producer struggled to fill the void vacated by Michael Jordan. The company's lower than average shoe price is partly due to the high percentage of basic products sold. This left plenty of space for the company to muscle in on higher priced sales. recruiting new management talent and initiating an aggressive program to regionalise this business utilising a consistent brand image throughout Europe. These displayed an enhanced and prominent vector logo which ties back to the Professional athletes wearing the products on the field.

Diverted from historical markets Reebok's original success stemmed from the women's aerobics market in the 1980s. it had to instil confidence back into consumers that it is good at producing more than just 'classic shoes'. Reebok's women's products represent only 25% of its athletic apparel volume. it risked losses. The women's apparel sector actually accounts for around 40% of industry sales. It has since become apparent that the company has shied away from its roots. technology & innovations Weaknesses • Differing values among management • Complexity of joining two corporate cultures • Both companies belong to different countries Opportunities • Reduction in costs • Decreased competition • Cross-over promotion by sponsored athletes • Enter to new market/Segments Threats . which suggests that Reebok risked losing out in the key market that transformed them into a global company. Potentially expensive new product marketing Until recently Reebok had not focused on either the men's or the women's apparel market for several years. This process could've proven to be both time consuming and costly. Adidas-Reebok SWOT Analysis (After the merger) Strengths • More products for different customers • Increase in product line • Acclivity in market share • Now both upper and middle priced markets are reliant on footwear. Before it can build up sales significantly in this area. Patents. whereas other competitors such as Nike can fall back on their apparel division. • Shared R&D.

shopping-mall-based outlets and placing Reebok apparel and footwear in higher-end department stores and larger sporting-goods ventures. calculated as net present value. the company expects sales in 2007 to grow in the "mid-single-digit" range. The ranking is based on brand value. Indeed. Post merger performance • 7th March. SATISFACTION An annual report produced by Interbrand (2006)." But since the No. • Nike. Adidas expects its gross margin in 2007 to be between 45% and 47%. • Nike's possible acquisition of Puma. 2 sporting-goods maker announced in August. which is defined as "the dollar value of a brand. . • True to its mantra. in cooperation with BusinessWeek." Adidas Chief Executive Herbert Hainer said in a statement. 2007 -Adidas Group's motto is "Impossible Is Nothing." • As part of that move. • The company says it expects these efforts to increase sales of the Reebok brand this year in the "low-single-digit" range. it signifies the strength of the two brands. or today's value of the earnings the brand is expected to generate in the future". 69th. ranking the top 100 global brands shows that Adidas was ranked 71st and Nike 31st. and fashion brands such as Armani. thanks to "improvements in all three brand segments. CREATING CUSTOMER VALUE. Adidas and Nike are the only sportswear companies in the top 100 global brands. 31st and 30th over the same period." For the group. Adidas says it's racing flat-out to make its tie-up with Reebok a winner. and other famous faces to help launch a series of new products planned in the second quarter. The company has closed factories in Indonesia and is repositioning the Reebok brand to widen its appeal. Given that this puts both brands ahead of corporations such as Shell. It's reducing reliance on low-traffic. III. The positions of the two companies during the previous five years had been relatively stable. 33rd. and 71st between 2001 and 2005 respectively. "Our focus this year will be on getting Reebok back onto a growth track. • Danger of cannibalisation between the two separate brands.S. "It's going to take time. 2005. the company has yet to prove that the combo will work. the company is ramping up its sales and marketing efforts. with Adidas ranked at 70th. 67th. and Nike ranked at 34th. however. that it would snap up rival Reebok for $3.8 billion to gain a firmer footing in the U. Porsche. actress Scarlett Johansson. and challenge market leader Nike (NKE). Adidas has also enlisted star NFL quarterback and Super Bowl MVP Peyton Manning. 35th. but we're moving in the right direction. 68th. Burberry and Levis.

the consumer's brand loyalty would be superficial and shallow – rooted. there is the added complication of addressing social responsibility issues such as fair labour practices and safe working conditions in cultures very different from the United States. where manufacturing skills represent core competencies of the business. Consumers are much more likely to believe they get value for the money spent on Adidas-Reebok compared to Nike. And although Adidas-Reebok captures a significantly higher customer loyalty score than Nike. Unlike the food processing segment. . It is reported that academic research on loyalty has largely focused on measurement issues and correlations of loyalty with consumer property in a segmentation context. Many studies have been conducted on brand loyalty. coupled with a similar drop by Nike. After careful examination consumer non-durables report (based on the ASQ Analysis of Quality & Customer Satisfaction With Manufacturing Non-Durable Goods). we anticipate that the acquisition of Reebok by Adidas and the challenge for Adidas/Reebok—a combination of very different business cultures—would be to maintain quality as it attempts to go toe-to-toe with sales leader Nike. repeat purchase) has been measured from the behavioural aspect without considering the cognitive aspects. Nike also stumbles in comparison to Adidas-Reebok in terms of value. in these entire studies brand loyalty (e. since these issues are of growing concern to many consumers. While both companies have made strides in this area. brand loyalty is not a simple uni-dimensional concept. even if he/she is making repeat purchases. In this business environment. and the high visibility of these issues may contribute to the fact that the athletic shoes category has the lowest perceived quality score among all manufacturing non-durables. both companies are vulnerable on this score — with Nike posting the lowest and Adidas-Reebok the second lowest customer loyalty marks of any of the manufacturing non-durables companies. The acquisition was completed at the end of January 2006 without a hitch as far as Reebok's perceived quality. However. marketing and distributing global brands. but a very complex multi-dimensional concept. the athletic shoes segment's core competencies are creating. However. A company's performance in the area of social responsibility may also affect how consumers perceive the quality of the company's products. In such a case. in addition to the usual challenges of supply chain management (at which Adidas and Reebok both excel). puts Adidas-Reebok perceived quality firmly ahead of Nike. However.g. it does not clarify the intensity of brand loyalty. they have been consistent targets of critics. Manufacturing is almost entirely done by subcontractors operating primarily in countries where labour costs are low. Customer loyalty has been a major focus of strategic marketing planning and offers an important basis for developing a sustainable competitive advantage – an advantage that can be realised through marketing efforts.4% gain by Reebok that quarter. The 2. because it excludes the possibility that a consumer's attitude may be unfavourable.

Originally using third-party monitors. the market leader. The athletic shoes industry falls 1 percent to 76. Adidas-Reebok Customer Relationship Management (CRM) Adidas-Reebok new company is driving future success by engaging consumers with unique interactive product approaches and rewarding point-of-sale experiences. but they have moved in opposite directions by equal amounts this year. and quality measures. Adidas- Reebok new company contracts with 41 footwear manufacturing plants and another 543 apparel manufacturing plants. Adidas and Reebok brands must be competitive in this environment where consumers make their final purchase decisions based on availability. and Wachovia in banks. Reebok and Nike were tied in last year's measurement. The company measures its overall performance with a balanced scorecard that includes compliance measures in addition to cost. surpassed only by Google in search engines. Adidas-Reebok was the first footwear program to be accredited by the Fair Labour Association. monitoring can be a major undertaking.Nike. . but this year Reebok has a large advantage in value for the money as perceived by its customers. Consumer also can choose colour and size easily. sales. convenience and breadth of product offering. The combined brands led to a near doubling of U. delivery. • Price performance excellence Adidas-Reebok has offered discount for specific product or promotional in their website. rivalling Nike in market share. Reebok's acquisition by Adidas may have contributed to Reebok's increase in satisfaction. eBay in Internet auctions. on the other hand. has programs in place to provide oversight of working conditions and human rights issues in addition to managing supplier production quality at its contract manufacturers.S. The six point advantage Reebok enjoys over its nearest competitor is unusually large in any industry. The company has become an advocate for bringing into better alignment the codes of conduct of various compliance and monitoring organisations. the website also offer product preferences by consumer behaviour. dragged down mostly by the performance of Nike. Price increases eroded satisfaction across the industry last year. Reebok climbs 4 percent to 78. There are examples what Adidas-Reebok has done: • Product performance excellence Adidas Group website gives their potential customer possibility to zoom in on the product and also to see full information even its technology. while Nike slipped to 72. Nike now handles these functions internally. For companies the size of Adidas and Reebok.

This process is called the elicitation of a mass customisation system. Other benefits to Adidas are outlined in the box below. a design orientation. It was launched in test markets in 2001. resulting in the mass customisation product range mi Adidas. and the necessity to provide often large discounts to get rid of unwanted products. Adidas-Reebok also provide their websites with product tracking and account managing. The programme provides consumers with the opportunity to create unique footwear to their exact personal specifications in terms of fit. Adidas' management board decided to head towards mass customisation (MC). The shoes are offered in selected markets MC can be seen from the Adidas perspective as an approach to improve both its operational performance and its competitive position by providing higher customer value. most importantly. so that customer cans easily tracking their order and or review their cart. As a result. There is a tendency towards an experience economy. Consumers with increasing purchasing power are increasingly attempting to express their personality by means of individual product choice. . However. instead of made-to-stock variant production. an increasing fashion risk. This development makes forecasting and planning for Adidas more difficult than ever. an enormous supply chain complexity. is challenged by an increasing individualisation of demand. these benefits come at a cost. they can refund it and the procedure of refund is explained in their website. Adidas realised that implementing made-to-order manufacturing. • Transactional excellence Process of buying is quite easy and easy to understand by customer. instead of just listening to the customer.1990s. Adidas-Reebok gives them services to subscribe their newsletter. The result? High overstocks. and even make appointments to buy shoes. with its wide assortment of product lines. function and design in specialised retail stores or at selected events. and introduced. and. The supplier has to interact with the customer to obtain specific information to define and translate the customers' needs and desires into a concrete product specification. • Relationship excellence In managing their relationship with consumer. a new awareness of quality and functionality that demands durable and reliable products corresponding exactly to the needs of the buyer. The programme development started in the mid. From market research studies and customer surveys we know that consumers love the system. Customer can contact Adidas-Reebok through easy steps and if they aren't satisfied with the product. in 2002. However. Adidas was forced to create product programmes with an increasing number of variants. The selling process turns into a co-design process. The Adidas Group. To manage their relation with small retailer. could become a promising option to manage the costs of variant explosion and broad product assortments. as MC also brings a number of challenges. Adidas-Reebok offer "Affiliate Program" by giving them procedure to get commission in sales. on a wider scale. in many cases customers are performing this design (configuration) activity by themselves on a tool supplied by the manufacturer.

• 58% of respondents in the 25 – 34 age group believed that sports brands like Nike or Adidas offer better quality than most other clothing or footwear.4%. Between 2000 and 2004. the key findings were: • 36% of respondents believed that sports brands like Nike or Adidas offer better quality than most other clothing or footwear. . during this period. • In 2006. when asked which brands consumers had bought in the last year.2%. which grew by 10. for Keynote. the sports clothing market overtook sports footwear. One of the reasons for this is that price deflation of 13% occurred between 2000 and 2004. 39% had bought Nike. Based upon a representative sample of 1. sales of sports clothing grew 18. the overall sportswear market grew by 16. with 55% of consumers stating this. Buying behaviour A survey of consumer attitudes towards sportswear was undertaken by BMRB Access. during the late 1980's and in the 1990's. in June 2007. 44% had bought Nike. 49% of 20-24 year olds. which encouraged consumers to increase the number of garments and pairs of footwear they buy each year. In the early 1990's. Consumers of sports apparel in the US and their socio-demographic profiles The Keynote Report on the Clothing and Footwear Industry (2006) revealed that an important characteristic of sportswear consumers is the bias towards men.016 adults. and 36% had bought Reebok. ANALYSING BUYING BEHAVIOUR The sportswear market can be split into two separate markets: sports clothing and sports footwear. in contrast to most clothing and footwear markets where women spend more and buy more frequently. and 72% of 25-34 year olds. 36% had bought Adidas. and since the early 2000's. The survey also found that sports shops were used by 72% of 16-19 years olds. However. 40% had bought Adidas. the sportswear market grew rapidly. and 31% had bought Reebok. • In 2004. leisure or casual clothing or footwear was a sports shop. when asked which brands consumers had bought in the last year. This was initially passed off as a fad. The mass-market for sportswear initially developed in the 1980's with the growth of the training shoe market.9% in contrast to sports footwear. A survey undertaken by NEMS Market Research survey on behalf of Keynote (2006: 93) found that the most widely used outlet for buying sports. there has been a steady sales ratio of 70% clothing to 30% footwear in the overall sportswear market. However.

the methods employed by Adidas-Reebok to compete for customers in the industry become easily apparent. These methods can be seen as an attempt by Nike to differentiate itself from the completion. 48% had bought Adidas. the running shoe and basketball shoe combination will each satisfy a particular market segment but will have modest appeal to the other segment. On the other hand. when asked which brands consumers had bought in the last year. In contrast. Bayern Munich. In my eyes. "At the moment. can be seen in action by examining the various productions of both these companies. and 35% had bought Reebok. Nike's current endorsements lack the influence they once held with the likes of Michael Jordan. Similarly. a firm can either offer an all-purpose cross-trainer shoe or a running shoe and a basketball shoe. Reebok concentrates its efforts on a broad cost strategy approach. NHL. and the WNBA. in this market of athletic shoes. In order to make this decision. Adidas-Reebok strategy towards consumer buying behaviour In an effort to distinguish itself from the competition. 37% had bought Nike. Nike and Adidas. and AC Milan. this is the reason Nike was prepared to spend an outrageous amount of money for an 18-year-old. For example. Adidas had obtained contracts with professional European soccer clubs such as Chelsea. By utilising Porter's generic strategies framework (previously discussed).• In 1998. each company has developed exclusive relationships with highly recognisable organisations and individuals. the market is highly segmented in such a way that it is important for the three to engage in target marketing. the firms must weigh the cost of offering an additional product and the revenue generated by doing so. virtually none of the current NBA stars wear without an established superstar. Nike has innovated online purchasing by allowing customers to customise their own shoes through NIKEiD." claims Adidas CEO Herbert Hainer. Nike currently incorporates its Shox technology in many of the athletic shoes it produces. While both Nike and Adidas make use of a differentiation strategy to attract its customers. While the cross-trainer shoe has broad appeal for all consumers it does not satisfy any consumer's needs in particular. . While there are many possible avenues to exploit in terms of sales opportunities for these companies. NFL. This is the point where the particular companies must decide whether they will individually follow a niche market or a full-line strategy. Real Madrid. The differentiation strategy of the two companies. Reebok had the exclusive rights to market its products for the NBA. In addition to the Shox technology. All of Nike's past Shox shoes have had the same basic platform: a four-column Shox unit in the heel for cushioning and a mesh/synthetic upper.

or the purchase of its assets There's only one real way to achieve massive growth literally overnight. beyond the traditional users of business intelligence. IBM said the acquisition fits squarely within both its acquisition strategy and capital allocation model. But acquisition can be risky because many things can go wrong with even a well-laid plan to grow by acquiring: Cultures may clash. IBM to Acquire Cognos to Accelerate Information on Demand Business Initiative IBM (NYSE: IBM) and Cognos® (NASDAQ: COGN) (TSX: CSN) the two companies have entered into a definitive agreement for IBM to acquire Cognos. acquisition is an increasingly common way to expand. meaning that this is the most popular era ever for growth by acquisition. with a net transaction value of $4. and that's by buying somebody else's company. . 2006 that combines IBM's strength in information integration. Since 1990. and costs may skyrocket rather than fall.Acquisition Definition: The purchase of one corporation by another. content and data management and business consulting services to unlock the business value of information. will enable new business insights to be delivered to a broader set of people across an organization. Companies choose to grow by acquiring others to increase market share. key employees may leave. regulatory approvals and other customary closing conditions. Ontario. The acquisition of Cognos supports IBM's Information on Demand strategy. Acquisition has become one of the most popular ways to grow today. to obtain control of undervalued assets. It is expected to close in the first quarter of 2008. synergies may fail to emerge. through either the purchase of its shares. assets may be less valuable than perceived. Still. a cross-company initiative announced on February 16. and a myriad of other reasons. and that it will contribute to the achievement of the company’s objective for earnings- per-share growth through 2010. to achieve synergies in their operations. Canada. a publicly-held company based in Ottawa. The acquisition is subject to Cognos shareholder approval.9 billion USD. to tap well-developed distribution channels. in an all-cash transaction at a price of approximately $5 billion USD or $58 USD per share. the annual number of mergersand acquisitions has doubled. perhaps because of the appeal of instant growth. to gain access to promising new technologies. the 23rd IBM acquisition in support of its Information on Demand strategy. Integrating Cognos.

IBM Software Group. fully integrated on an open-standards-based service oriented architecture (SOA). with extensive technical integrations and eight pre-integrated joint solutions already supporting many joint customers. to lead the group. not piece parts. IBM will provide broader reach for Cognos solutions across multiple industries and geographies with a more complete set of offerings.” Together. reporting directly to General Manager. partners. Our broad set of capabilities– from data warehousing to information integration and analytics – together with Cognos. customers can turn data into actionable insight for coordinated. . With Cognos. and other middleware software. reach. Cognos. to optimize operational performance. which complements IBM's Service Oriented Architecture strategy. this combination allows Cognos customers to leverage a broader set of solutions from IBM to advance their information management driven initiatives. IBM and Cognos will expand IBM’s ability to provide customers with the right information they need when they need it.” said Rob Ashe. hardware. and world-class services to accelerate this vision. MetLife. Rob Ashe. Canadian Tire. optimize their business processes and maximize performance across their enterprises. IBM also will appoint current Cognos President and CEO.“Customers are demanding complete solutions. with minimal overlap in products. delivering the industry’s most complete. Blue Cross and Blue Shield of Tennessee. open standards-based platform with the broadest range of expertise to help companies expand the value of their information. "IBM has been providing Business Intelligence solutions for decades. We chose Cognos because of its industry-leading technology that is based on open standards.000 customers. to enable real-time decision making. such as New York City Police Department. a broad range of technology synergies. position us well for the changing Business Intelligence and Performance Management industry. information-driven decision-making to improve overall performance. Furthermore. “This is an exciting combination for our customers. “IBM is a perfect complement to our strategy. and employees. and to quickly respond to changing market demands. It provides us with the ability to expand our vision as the leading BI and Performance Management provider. The combination of IBM’s information management technology and Cognos will also help organizations discover new ways to use trusted information spread across their enterprises to identify new business opportunities and significantly reduce the expense and time required to address industry-specific business challenges.000 employees worldwide and serves more than 25. Following completion of the acquisition. IBM and Cognos have partnered for more than 15 years. focused on Business Intelligence and Performance Management. president and chief executive officer." said Steve Mills. IBM and Cognos will become the leading provider of technology and services for Business Intelligence (BI) and Performance Management. including consulting services. and Bayer UK. Cognos has approximately 4. IBM intends to integrate Cognos as a group within IBM's Information Management Software division. Cognos will also extend IBM’s reach further into the CFO office with powerful financial planning and consolidation capabilities. The acquisition of Cognos accelerates IBM’s global Information on Demand initiative to unlock the business value of information for our customers. Cognos provides the only complete BI and performance management platform. senior vice president and group executive.” Together. consistent with IBM’s approach. and has a strong history of supporting heterogeneous application environments. and the resources. Ambuj Goyal.

” “plans. such integration may be more difficult. the retention of certain key employees of Cognos may be difficult.S. the expected timetable for completing the and atwww.sedar. forward-looking statements). which will be included in a proxy circular to be prepared and mailed to Cognos shareholders over the coming weeks providing shareholders with important information about the transaction. and the other factors described in IBM’s Annual . difficulties in maintaining relationships with employees. Information About the Transaction The transaction will be completed through a plan of arrangement. Ascential Software (information integration). court approval or the regulatory approvals required for the transaction may not be obtained on the terms expected or on the anticipated schedule.sec. A material change report. Trigo (product information management). Any statements that are not statements of historical fact (including statements containing the words “believes. customers. without limitation. completion and accounting and tax treatments of the transaction. the details of which will be announced in due course. clients or suppliers) may be greater than expected following the transaction. FileNet (enterprise content management). DWL (customer information management) and Alphablox (analytics). which will require the approval of shareholders representing two thirds of the shares cast.” “expects. Cautionary Statement Regarding Forward-Looking Statements Certain statements in this communication regarding the proposed transaction between IBM and Cognos. DataMirror (changed data capture). will be filed with the Canadian provincial securities regulatory authorities and with the U.” “anticipates. benefits and synergies of the transaction.Other strategic acquisitions in support of IBM’s Information on Demand initiative include Princeton Softech (data archiving and compliance). which provides more details on the transaction. operating costs. A number of important factors could cause actual results or events to differ materially from those indicated by such forward-looking statements. Securities and Exchange Commission and will be available at www. goals or prospects constitute forward-looking statements made within the meaning of Section 21E of the Securities Exchange Act of 1934 and forward-looking information within the meaning of Section 138. including the receipt of shareholder approval. time-consuming or costly than expected. the parties’ ability to meet expectations regarding the timing. SRD (entity analytics). fluctuations in foreign currencies could result in transaction losses and increased expenses. Shareholders will be asked to vote on the transaction at a special meeting. including the parties’ ability to consummate the transaction. IBM and Cognos are subject to intense competition and increased competition is expected in the future. The transaction has been unanimously approved by the board of directors of Cognos following delivery of a fairness opinion. the volatility of the international marketplace. the conditions to the completion of the transaction.” “estimates” and similar expressions) should also be considered forward- looking statements. . customer loss and business disruption (including. future opportunities for the combined company and products and any other statements regarding IBM and Cognos’s future expectations.4(9) of the Ontario Securities Act (collectively. the possibility that the parties may be unable to achieve expected synergies and operating efficiencies in the arrangement within the expected time-frames or at all and to successfully integrate Cognos’s operations into those of IBM.

Participants in Solicitation IBM and its directors and executive officers. Information about the directors and executive officers of Cognos is set forth in the proxy statement for Cognos’s 2007 Annual and Special Meeting of Shareholders. Information about the directors and executive officers of IBM is set forth in the proxy statement for IBM’s 2007 Annual Meeting of Stockholders. which was filed with the SEC on May 24. 2007. Investors may obtain additional information regarding the interest of such participants by reading the proxy circular regarding the acquisition when it becomes available. and Cognos and its directors and executive officers. 2007 and in its most recent quarterly report filed with the SEC. 2006 and in its most recent quarterly report filed with the SEC. IBM and Cognos assume no obligation to update the information in this communication.Report on Form 10-K for the fiscal year ended December 31. may be deemed to be participants in the solicitation of proxies from the holders of Cognos common shares in respect of the proposed transaction. Readers are cautioned not to place undue reliance on these forward- looking statements that speak only as of the date hereof. . and Cognos’s Annual Report on Form 10-K for the fiscal year ended February 28. which was filed with the SEC on April 2. except as otherwise required by law. 2007.