Adidas corporate strategy (Revised)

Corporate Strategy Of By: Divya Mishra School of Management Purdue University SCOPE OF THE FIRM VERTICAL INTEGRATION STRATEGIES (EXISTING MARKET/ DIFFERENT STAGE OF PRODUCTION) A vertical integration strategy describes “The degree to which a firm owns its upstream suppliers and its downstream buyers” (Blackwell Reference Online, Vertical Integration Strategy). The purpose of vertical integration is to increase the control of the stages of development. In the early beginnings Adidas produced all the shoes and apparel on its own. Through the huge expansion in the last decades Adidas does not produce all their apparel on its own. Today Adidas owns 9 own factories where it produces some of its products. Further, it has around 615 main suppliers from all over the world. Production is in Europe (27%), Asia (51%) and America (22%). Adidas has now switched from its past vertical integration strategy to the outsourcing in production and manufacturing. Most of the products of the company like sports shoes, apparels, accessories and equipment are manufactured in the Asian countries. The reason for outsourcing the manufacturing is the lower cost of raw material and labor in Asian countries. In 1993, Adidas moved its production overseas to Asia in order stay competitive in the industry. Even though Adidas has outsourced its production and manufacturing but the design and development process of all the products is still based in Germany. The Challenge due to Outsourcing The Adidas product line includes more than 20,000 items, from soccer and inline skates to outdoor jackets and snowboards, with thousands of product variations. To keep up with market demand and competition, the company changes its product range twice a year. The change in the product range depends more often on the availability of the new technologies and the also on the product range and technology of the competitors. Adidas also designs products for local, vertical and niche markets. Developing this complex mixture of products means the design studios and development departments are working at full capacity and under enormous competitive pressure. Once the designs of the products are created, managing the production is the next significant and often more complex step. The design and development process of all the products is based in Germany. Adidas has 900 active suppliers worldwide and more than 90 percent of the company’s products are produced in outsourced manufacturing locations around the world, especially in Asia. With such a large amount of manufacturing outsourced, communication between designers, suppliers and manufacturers is critical. Outsourced to Asian countriesWorldwideGermanyMarketing and Selling of productsManufacturing & Production of shoes, apparels, equipment & accessoriesProduct Design and Research & DevelopmentLayout of outsourcing process at Adidas Group Product Development Process at Adidas Group OutsourcedProduct Design process in Germany based R&D Production of ProductFinal DesignPlanningTesting & RefinementCost ModelingDetailed Concept Design Benefits and Concerns of Outsourcing Benefits Cost Saving: There can be significant cost savings when the business functions are outsourced. Raw material cost, labor cost, employee compensation costs, office space expenses and other costs associated with work space or manufacturing are eliminated. Focus on Core Business: Outsourcing allows firms to focus on their expertise and core business. When organizations go outside their expertise, they get into business functions and processes that they may not be as well-informed and educated about .This could potentially take away the firms from their main focus resulting in low value creation. Utilization of new Resources and Capability: Outsourcing helps the firms to utilize the new resources and capabilities of country they are trading in. Sometime the firms learn and adapt to the new core competencies. Operational Efficiency: Outsourcing gives an organization exposure to vendor specialized systems. Concerns Product Quality or Service Risk: Outsourcing can lead to compromises in product /service quality due to lack of necessary resources and competencies. Organizational Knowledge: An outsourced employee may not have the same understanding and passion for an organization as a regular employee. Labor laws & Regulations: Different countries have different laws and regulation for labor, which may be different and difficult to follow. Employee& Public Opinion: There can be negative perceptions with outsourcing and the sympathy of lost jobs. Outsourcing of Footwear production by region Supplier distribution worldwide Outsourcing of Apparel production by region GEOGRAPHICAL SCOPE Adidas AG is a German sports apparel manufacturer and parent company of the Adidas Group selling its products in more than 150 countries around the world. Adidas is a multinational company because aside from its main parent headquarters Herzogenaurach, Germany, it has set up regional headquarters in other countries, such as United States of America, China, Indonesia, Great Britain, Middle East and so on. Such a globalized company has profound effects on the company itself and the host countries. Adidas Inc. is a marketer of sports apparel and athletic shoes. The German manufacturer, through its marketing strategy which rests on a favorable brand image, has evolved into a large multinational enterprise. “For over 80 years, Adidas has been part of the world of sports on every level, delivering state of-the-art sports footwear, apparel and accessories. Today, Adidas is a global leader not only in the shoe industry, but also in the sporting goods industry. Shoes from the Adidas are available in virtually every country of the world. A strong advertising and public relation events makes Adidas as a worldwide recognized brand and it would be more sustainable in the world market. The company is the largest sportswear manufacturer in Europe and the second biggest sportswear manufacturer in the world, to its US rival Nike. But it still has the largest international portfolio of sport ambassadors. In conjunction with providing performance products, Adidas recognizes that consumers make purchase decisions based not only on brand but also on availability, convenience and extensiveness of product offering. As a result Adidas has been refining its distribution proposition, concentrating on expanding its own outlets or ‘controlled’ space and improving retail relationships. There are now over 1000 Adidas stores around the world offering sports apparels, shoes and equipment to the athletes and non-athletic customers. Global Strategy In simple words global strategy is “treating the world as a single market and selling, marketing and distributing the standard products and services worldwide” At more sophisticated level global strategy is “Strategy that recognizes and exploits linkages between countries”. The Benefits of Global Strategy for Adidas Cost Economies from Scale and Replication: Accessing global scale of economies in purchasing, manufacturing, product development and marketing. Replicating knowledge assets. This helps to improve the quality of products and processes primarily by simplifying the manufacturing, product development, purchasing and so on. The high quality products promote the brand recognition globally and increase the customer preference. Serving Global Customers: Sports is the most common fitness and recreational activity for people of any country. Adidas is the manufacturer and marketer of sports apparel and athletic shoes. So there is a requirement of sportswear, sports shoes as well as sport equipment for the people. The requirement creates an attractive market for Adidas to sell its products to the customers in different countries. Thus globalization strategy is beneficial for both the ends-company as well as customers. For the company geographical expansion creates new opportunities and attractive market. The customers on the other hand receive the products and services as per needs, wants and desires. Exploiting National Resources: A company achieves its competitive advantage by utilizing its resources and capabilities to the fullest. The resources and capabilities may be available to the company in one country or in different countries. When an organization expands its boundaries beyond the international borders, it finds an attractive market and profitability by selling goods as well as new resources and capabilities. Global strategy provides the management with a greater capability to respond to the worldwide opportunities. Thus with globalization Adidas finds options for manufacturing, purchasing, product development at a lower operational cost. Learning Benefits: Accessing and integrating knowledge from multiple locations Competing Strategically: Global strategy helps in exploiting global strength to win local wars. Global coordination is necessary to monitor and respond to the competitive threats in foreign and domestic market. Global strategy helps Adidas to compete with its chief rival Nike in local wars. By the graphs it is clear that Adidas is geographically present in many countries of Asia, Europe and America. Adidas has sales in Asia, Europe and America. The Adidas Group sells products in virtually every country around the world. As of December 31, 2010, the Group had 169 subsidiaries worldwide with its headquarters located in Herzogenaurach, Germany. The Adidas Group has also assembled an unparalleled portfolio of promotion partnerships around the world, including sports associations, events, teams and individual athletes. Major LocationsEuropeAdidas Group Headquarters, Herzogenaurach, GermanyAdidas International Trading, Amsterdam, NetherlandsAdidas Group Russia, Moscow, RussiaNorth AmericaAdidas North America, Portland/Oregon, USAReebok International Headquarters, Canton/Massachusetts, USAThe Rockport Company Headquarters, Canton/Massachusetts, USAReebok–Ccm Hockey Headquarters, Montreal/Quebec, CanadaTaylor Made-Adidas Golf Headquarters, Carlsbad/California, USAAsiaAdidas Global Sourcing, Hong Kong, ChinaAdidas Group China, Shanghai, ChinaAdidas Group Japan, Tokyo, JapanLatin AmericaAdidas Group Latin America, Panama City, Panama Porter’s Diamond Model for Adidas Factor Conditions Demand ConditionsRelating & Supporting Industry Strategy, Structure & Rivalry Factor Conditions: Porter emphasizes the role of specialized resources many of which are home grown rather than endowed. Germans are very devoted towards their own brand. The brand recognition of Adidas in home country can be associated to the loyal nature and attitude of Germans. The resource constraint may encourage the development of substitute capabilities. Related and Supporting Industries: According to Porter, for each industry, closely related industries are sources of critical resources and capabilities. Adidas is a German brand in sports shoes and apparel industry. Germany is also famous for its designer fashion clothes and accessories like Hugo Boss, Helmut Lang, Karl Lagerfeld, Chanel and Fendi. Chanel and Fendi may not be German, but they do have famous German designers behind the scenes. Adidas success can be can be related to the available resources and capabilities of the related fashion industry. Demand Conditions: Demand conditions in the domestic market provide the primary driver of innovation and quality improvement. Adidas preeminence in sports shoes and apparels is supported by the love and passion for soccer among Germans. Adidas market share in the sports industry can be much related to the enthusiasm for soccer in Germans and their one of the best soccer team in the world. Strategy, Structure and Rivalry: National competitive performance in particular sector is inevitably related to the strategies and structure of firms in those industries. The domestic competition plays a very important role in driving innovation, efficiency, and the upgrading of competitive advantage. Adidas’s excellent performance in the sports industry can be related to its competition and rivalry with other domestic companies like Puma Brand. The competition to excel in the industry, led to the competitive advantage of high product quality and innovation for Adidas. DIVERSIFICATION STRATEGY FOR ADIDAS Diversification (new products/ new markets) Diversification is also a growth strategy. “The purpose of diversification is to allow the company to enter lines of business that are different from current operations”. (Thomas, Joe, Diversification Strategy) This means that companies try to sell new products to new markets. The basic issue in diversification strategy is the degree of the industry attractiveness and the competitive advantages which companies can possess being in the industry. Industry Attractiveness Issues in Diversification Strategy Competitive Advantage Diverse brand portfolio of Adidas Consumers want choices and options in every product and service they use. Whether it is the athlete looking for the best possible equipment, or the casual consumer searching for the next fashion trend, Adidas is inspired to develop and create experiences that engage consumers in long-lasting relationships with the brands. To maximize the consumer reach, Adidas has embraced a multi-brand strategy. This approach allows Adidas to tackle opportunities from several perspectives, as both a mass and a niche player, providing distinct and relevant products to a wide spectrum of consumers. In this way, each brand is able to keep a unique identity and focus on its core competencies, while simultaneously providing Adidas with a broad product offering, increasing its leverage in the marketplace. The motives of diversifications are: ,[object Object]

Value CreationDiversification Strategy for Adidas The diversification strategies adopted by Adidas are concentric and horizontal diversification strategies. Adidas wants to enlarge its markets and is searching for new ways to expand its business. In January 2010 Adidas introduced the miCoach interactive training system guide. The program miCoach is available over the Adidas website. Customers can choose between different training plans such as de-stress or learn how to run. It can be described as horizontal diversification because Adidas now offer a service “personal training “which is unrelated to their core business of manufacturing and marketing sports shoes , apparels and equipment. The miCoach pacers that it sells can be seen as concentric diversification because pacers that measure your heart rate are related to sports and sports apparel. Adidas’s concentric diversification can be seen in the deodorant and shower gel that Adidas is selling at drugstores and supermarkets. Adidas focuses on different growth strategies to gain market share and increase sales and revenue from every country it is doing business. It focuses on product extension to improve its product assortment. Adidas is a well-established brand and consumers trust the products and services of this brand. A lot of people all around the world are fascinated by sports. Adidas can also sell healthy drinks and juice to support a healthy sport-oriented life style. Brand Portfolio in Adidas Group Adidas Adidas Sports PerformanceAdidas OriginalAdidas Sports Style Taylor made AdidasTaylor made Adidas GolfAdidas GolfAshworth Reebok CCM Hockey Adidas Brand Portfolio with the sales contribution per brand Reebok Rockport Sharing Resources The diversification strategy adopted by the Adidas group is the related diversification strategy. All the brands under the Adidas group are engaged in the production of related products like sports shoes and apparels, sports equipment, accessories like glasses, eye pieces and bags. The biggest advantage for Adidas group from the related diversification is the sharing of resources and capabilities between various brands. The size of the whole corporation is very large. It is not possible for all the brands under the Adidas group to share every resource. Every brand under Adidas group has its own key resources to excel. Like within the Adidas brand, the resources are shared between Adidas Performance, Adidas Style and Adidas Original. Similarly there is resource sharing between Reebok group and Reebok CMM hockey. Although the some of the resources are decentralized like R & D, but still there is some extent of resource sharing. Economies of Scope An economy of scope is defined as reduction in the long-run average and marginal cost, due to the production of similar or related goods or services where the provision of one product reduces the cost of the other product. The cost of producing multiple products simultaneously is often less than the costs associated with producing each product line independently. Adidas is into the production of sports related products like sports shoes, apparels, sports equipment, accessories, fitness services and so on. The diversification strategy adopted by the Adidas group is the related diversification strategy. All the brands under the Adidas group are engaged in the production of related products like sports shoes and apparels, sports equipment, accessories like glasses, eye pieces and bags. The biggest advantage for Adidas group from the related diversification is the sharing of resources and capabilities between various brands. Adidas’s management structure, administration systems, research and development, marketing capabilities, manufacturing and distribution capabilities are very effective in carrying out functions for more than one product. Warehouse facilities may be used to maximum advantage by storing a range of the company’s product lines. Adidas Diversification Strategy Shower Gels & Deodorant, accessoriesRockport Leather Fashion ShoesTaylor-made Adidas GolfTraining program: miCoachSports Apparels & FootwearSports equipments for different SportsReebokBrand TrainingRunningBasketballFootball AdidasFootwear, Apparel, AccessoriesReebokFootwear, Apparel and Accessories Tailor-Made-Adidas GolfGolf Equipment: Metalwoods, Irons Putters, Golf Balls, Footwear, Apparel and Accessories RockportDress, Casual and Outdoor Footwear, Apparel and AccessoriesCCM-HockeyHockey Equipment and Apparel RESOURCES & CAPABILITIES OF ADIDAS GROUP The resources and capabilities are the key driving forces for a company to achieve its competitive advantages. Adidas utilizes its key resource and capabilities to create value and performance excellence. The resource and capabilities of Adidas are: Key Resources/Core Competencies ,[object Object]

Integrated Research and Development

Good Reputation as mid-priced brand in Industry

Diverse brand portfolio (merger with Reebok) Key Capabilities ,[object Object]

Effective Distribution Capability

Diversification Capability The key issue for any firm is to value creation. The value to a firm is created by utilizing the resources and transferring capabilities. The capabilities possessed and generated by the firm leads to the competitive advantage and key success factor. The value creation by Adidas can be explained by the “Porter’s Concept of Corporate Strategy” ,[object Object]

Ensuring Cost Competitiveness/Restructuring: As part of this priority, Adidas focuses on optimizing product creation through a more efficient cost selection process. This is achieved by the company by outsourcing its manufacturing to the Asian countries where the cost of labor as well as the material is low compared to European and American countries. This, coupled with increased automation in manufacturing, enhances the productivity, shorten lead times and improve overall quality. These improvements are expected to enhance profitability for the firm and ensure that Adidas provides to its consumers with the best value proposition in the industry.

The Profitability Management department assumes a central role in realizing cost competitiveness by driving the strategic costing efforts and optimizing the buying strategies. This includes monitoring macroeconomic trends, to identify the future impact on product costs as well as the ongoing financial assessment of the Adidas Group’s supply base.

Adidas creates value by efficient monitoring of business unit performance. The various business units at Adidas are very integrated and coordinated. There is communication at all the levels in each business unit.

Sharing Resources: The corporate strategy of “sharing resources” helps Adidas the most in adding and creating value to the company. Adidas has a diverse brand portfolio and broad product range. The resources of the Adidas create the competitive advantage to the company. Adidas has the key resources of strategic innovation, integrated R&D, Distribution network, supplier relation, volume manufacturing, efficient employee and reputation within industry. The different business units of the Adidas Group like Reebok, Taylor-made golf and so on, share operational resources and functions like sales and distribution, manufacturing facilities to create value, performance excellence and innovative product offering.

Research and Development and supply chain are the greatest strengths for Adidas. Creating innovative products to meet the shifting needs of athletes and consumers is critical to drive brand perception. As a result, research and development (R&D) is a keystone for the success of Adidas business. Adidas invests substantial resources into developing and commercializing new technologies as well as brand new design thoughts, in order to best fulfill the unique needs of the consumers worldwide. The research and development process is driven by teams of employees with diverse professional backgrounds.

R&D within the Adidas Group follows a decentralized approach. But at the same time the fundamental and biomechanical research, is shared across the Group. In line with its unique positioning, each brand runs its own research, design and development activities. But there is a degree of sharing R&D in each brand. The teams generally have either a category or a technology focus. R&D is not a separate organizational entity, but is closely integrated with the sourcing, design and product marketing functions.

The key resource of efficient employees is shared among various brands under the Adidas group. The sourcing team together with the material team, within product development works closely with the suppliers to identify innovative materials as well as integrate cost and production process aspects into the development phase.

To solidify Adidas Group position as a leader in technology and innovation, the Adidas Innovation Team is responsible for the ongoing development of new technologies and concepts in all key product categories. he team is divided into groups that focus on apparel, footwear and hardware, within which there are individual product focus categories like basketball, football (soccer), American football or cross-category project areas such as intelligent products or energy management systems (cushioning technologies).

The size of the whole corporation is very large. It is not possible for all the brands under the Adidas group to share every resource. Every brand under Adidas group has its own key resources to excel. Like within the Adidas brand, the resources are shared between Adidas Performance, Adidas Style and Adidas Original. Similarly there is resource sharing between Reebok group and Reebok CMM hockey. Although the some of the resources are decentralized like R & D, but still there is some extent of resource sharing.The diversification strategy adopted by the Adidas group is the related diversification strategy. All the brands under the Adidas group are engaged in the production of related products like sports shoes and apparels, sports equipment, accessories like glasses, eye pieces and bags. The biggest advantage for Adidas group from the related diversification is the sharing of resources and capabilities between various brands. Below is the pictorial representation of sharing of resources in Adidas Group Resource Sharing Sharing resourcesSharing resources Reebok group Sharing resourcesSharing resourcesSharing resourcesAdidasTaylor-made golfRockport leatherReebok CMM Hockey CORPORATE MANAGEMENT OF ADIDAS GROUP At the heart of Adidas culture ADIDAS MISSION Mission of Adidas Global is to be the best sports brand in the world offering the best products and services. Adidas aims to come up as a socially and environmentally responsible organization that embraces creativity and diversity and reward its employees and shareholders.ADIDAS VISION ,[object Object]

To develop the market for sports goods and services

To be perceived as the leader of sports products/services in the industry

Be the company teams, associations, athletes, customers, consumers want to be associated with

Set standards of the sports industry

To consistently deliver outstanding financial results

Be the place where people want to work, recognized for its employees’ development and working environmentADIDAS ORGANIZATION STRUCTURE At Adidas the structure of the organization is very well defined. There are different functional departments such as marketing, production, R&D, customer services, operations, distribution, and human resource with clearly defined jobs at all levels. CEO Chairman of BoardDirectorDirectorDirectorDirectorDirector Director Employee Representative BoardDirector Employee Representative BoardDirector Employee Representative BoardVice chairman Employee Supervisory boardVice chairman of Board The CEO is at the top position in the Adidas. Then there is an executive board consisting of four members who reflect the international character of the group. Each board member is responsible for at least one major function within the group. Then there is a supervisory board consisting of 12 members. Adidas GroupCOMPANY STRUCTURE ON BRAND BASIS ReebokTaylor-made GolfAdidas COMPANY STRATEGY AT ADIDAS The goal of Adidas Group is to be the leader of the sporting goods industry with brands built upon a passion for sports and a sporting lifestyle. In order to achieve the goal a profound understanding of the consumer and customer is essential. To anticipate and respond to the needs of the customer, Adidas Group continuously strive to create a culture of innovation and creativity to embrace changes. The ability to embrace changes strengthens the competitiveness and maximizes the Adidas Group’s operational and financial performance. This, in turn, drives long-term value creation for our shareholders. The strategies of the company are: ,[object Object]

The diversification strategy adopted by the Adidas group is the related diversification strategy. All the brands under the Adidas group are engaged in the production of related products like sports shoes and apparels, sports equipment, accessories like glasses, eye pieces and bags. The biggest advantage for Adidas group from the related diversification is the sharing of resources and capabilities between various brands.

Focus on High potential markets and channels: Adidas Group, targets the leading market positions in all markets. However the company has prioritized its investments in those markets which offer the best medium- to long-term growth, productivity and profitability opportunities. In this respect, Adidas Group continue to place a significant emphasis on expanding the growth activities in the emerging markets, particularly China, India and Russia, as well as building market share in underpenetrated markets such as the United States.

Creating a flexible supply chain: The objective of Adidas Group is to meet the demand of its customers by ensuring product availability in the correct size and color. It also aims to provide the game-changing technical innovations and the latest high-end fashion product of the highest quality and standards to its customers. A key strategic priority of the company is to shorten the design, development and production lead times by constantly improving the infrastructure, processes and systems. By effective information sharing from point of sale to source and vice versa, Adidas’s operations strive to connect and integrate the various elements of supply chain, to enable quick response to shifting consumer trends and choices.

Leading through Innovation: One of the core competencies of Adidas Group is its strategic innovation and creativity. Therefore, the Group aims to generate at least one new meaningful innovative improvement per year. Technological evolution and cutting-edge design in products is essential to achieving sustainable leadership in the sports and apparel industry. At the same time, there is a continuous process of enhancing services for the customers and implementing more efficient and effective internal processes at the company.

Adidas corporate strategy (Revised)

Recomendados

Recomendados

Más contenido relacionado

Último

Último (20)

Destacado

Destacado (20)

Adidas corporate strategy (Revised)