Corporate Strategy
Of
By: Divya MishraSchool of Management
Purdue University
Part I: NIKE INC COMPETITIVE ADVANTAGE
PART II: CORPORATE STRATEGY
SCOPE OF THE FIRM
Describe the scopes of the firm (e.g. Vertical integration, geographical, and diversification) and its
rationale (e.g. Why vertical integration: costs and benefits of vertical integration; geographical:
see chapter 15 slide on porter’s diamond model, multinational strategies etc.; diversification: see
chapter 16 slides on motives of diversification and competitive from diversification etc.). Do you
think that the firm can compete successfully in the international markets? You can use porter’s
diamond model figure
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
Corporate Strategy of Adidas Group Page 2
Product Design process in Germany based R&D Outsourced
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.
Layout of outsourcing process at Adidas Group
Product Development Process at Adidas Group
Corporate Strategy of Adidas Group Page 3
Product Design and Research &
Development
Manufacturing & Production of shoes, apparels, equipment
& accessories
Marketing and Selling of products
Germany Outsourced to Asian countries
Worldwide
PlanningDetailed
Concept DesignCost Modeling
Testing & Refinement
Final Design Production of Product
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.
Corporate Strategy of Adidas Group Page 4
Corporate Strategy of Adidas Group Page 5
Footwear Production by Region
Asia
Europe
America
75%
9%
16%
Suppliers by Region
Asia
Europe
America
82%
12%6%
Apparel Production by Region
Asia
Europe
America
Corporate Strategy of Adidas Group Page 6
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”.
Corporate Strategy of Adidas Group Page 7
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.
Corporate Strategy of Adidas Group Page 8
32%
11%24%
8%
15%
10%
Sales by Region
Western Europe
Remaining Europe
North America
Greater China
Remaining Asia
Latin America
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.
Corporate Strategy of Adidas Group Page 9
Major Locations
Europe
Adidas Group Headquarters, Herzogenaurach, Germany
Adidas International Trading, Amsterdam, Netherlands
Adidas Group Russia, Moscow, Russia
North America
Adidas North America, Portland/Oregon, USA
Reebok International Headquarters, Canton/Massachusetts, USA
The Rockport Company Headquarters, Canton/Massachusetts, USA
Reebok–Ccm Hockey Headquarters, Montreal/Quebec, Canada
Taylor Made-Adidas Golf Headquarters, Carlsbad/California, USA
Asia
Adidas Global Sourcing, Hong Kong, China
Adidas Group China, Shanghai, China
Corporate Strategy of Adidas Group Page 10
Adidas Group Japan, Tokyo, Japan
Latin America
Adidas Group Latin America, Panama City, Panama
Porter’s Diamond Model for Adidas
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.
Corporate Strategy of Adidas Group Page 11
Factor Conditions
Demand Conditions Relating & Supporting Industry
Strategy, Structure & Rivalry
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.
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
Corporate Strategy of Adidas Group Page 12
Issues in Diversification
StrategyCompetitive Advantage
Industry Attractiveness
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:
1) Growth
2) Risk Spreading
3) Value Creation
Diversification 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.
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Brand Portfolio in Adidas Group
Reebok
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.
Corporate Strategy of Adidas Group Page 14
Adidas Brand Portfolio with the sales contribution per brand
Adidas
Adidas Sports Performance
Adidas Original
Adidas Sports Style
Taylor made Adidas
Taylor made Adidas Golf
Adidas Golf
Ashworth
Reebok CCM Hockey
Rockport
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.
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Sports Apparels & Footwear
Sports equipments for different Sports
Shower Gels & Deodorant, accessories
Reebok
Brand
Training program: miCoach
Taylor-made Adidas Golf
Rockport Leather Fashion Shoes
Adidas Diversification Strategy
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
Corporate Strategy of Adidas Group Page 16
Football
Running
Basketball
Training
RESOURCES & CAPABILITIES OF ADIDAS GROUP
Identify the firm’s key resources/ capabilities. Specify the dominant logic of the firm i.e. how does
it create value (reduces transaction cost, increase competitiveness, exploit relatedness, etc)
Managing Linkages between Businesses, What Corporate Management Activities are implied by
Porter’s concepts of corporate strategy)? Specifically, what type of corporate strategy/ strategies
(corporate portfolio, restructuring, transferring skills or sharing activities) that the firm use to
create value?
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
Strategic Innovation
Integrated Research and Development
Distribution Network
Supplier relation
Efficient Employees
Good Reputation as mid-priced brand in Industry
Diverse brand portfolio (merger with Reebok)
Key Capabilities
Outsourcing Capability
Corporate Strategy of Adidas Group Page 17
Product design Capability
Supply Chain Capability
Effective Distribution Capability
Financial control
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”
Portfolio Management: Using superior information and analysis to acquiree attractive companies
at Reasonable prices Adidas has a huge brand portfolio consisting of Adidas performance, Adidas
original, Adidas style, Reebok, Taylor-made Adidas Golf, and Rockport. 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. Thus 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.
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.
Corporate Strategy of Adidas Group Page 18
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
Corporate Strategy of Adidas Group Page 19
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
Corporate Strategy of Adidas Group Page 20
Adidas
Reebok group
Taylor-made golf
Rockport leatherReebok CMM Hockey
Sharing resources
Sharing resources
Sharing resources
Sharing resources
Sharing resources
CORPORATE MANAGEMENT OF ADIDAS GROUP
Describe the corporate management of the firm: structure, systems and processes (strategic
planning, control, HR, corporate initiatives), leadership style, culture, vision/ mission etc.
Corporate Control over the Businesses and Goold & Campbell’s Corporate Management Styles:
Financial and Strategic control.
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
To lead in all areas of the sports industry
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 environment
ADIDAS ORGANIZATION STRUCTURE
Corporate Strategy of Adidas Group Page 21
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.
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.
COMPANY STRUCTURE ON BRAND BASIS
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:
Diverse brand portfolio: 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 embark upon the
opportunities from several perspectives, as both a mass and a niche player, providing diverse and
relevant products to a wide spectrum of consumers.
The diversification strategy adopted by the Adidas group is the related diversification strategy. All
Corporate Strategy of Adidas Group Page 22
CEO
Director Director Director Director DirectorChairman of Board
Vice chairman of Board
Vice chairman Employee Supervisory board
Director Employee Representative Board
Director Employee Representative Board
Director Employee Representative Board
Adidas Group
Adidas Reebok Taylor-made Golf
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.
Sustainability: Like any global business, the Adidas Group has to manage a wide-range of
commercial and competitive pressure to convey increased financial returns, growth and
profitability. At the same time the company has a responsibility towards the workers in the
suppliers’ factories, employees and also for the environment. The company tries to strike balance
between shareholder interests and the needs of employees and workers and the environment.
Thus the company makes every effort to become a sustainable company.
Expand Internationally: 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
Corporate Strategy of Adidas Group Page 23
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.
ADIDAS CULTURE
Adidas group strives to create a culture of innovation and creativity. At Adidas there is a great culture to
embrace changes. By harnessing this culture, the organization pushes the boundaries of products,
services and processes to strengthen its competitiveness and maximize the Group’s operational and
financial performance. This, in turn drives long-term value creation for our shareholders and innovative
product range for the customers.
At the same time the company is well diversified with employees from various ethnicities. There is a code
of ethics for all employees as well as suppliers in the company. There is respect and value to the
employees. Employees are crucial to the success of any organization. According to Adidas group,
achieving the objective to be the global leader in the sporting goods industry depends on the talents,
enthusiasm and engagement of the employees within the organization. At Adidas there is a climate that
celebrates diversity. The employees are rewarded in a fair way and related to their, and achievements.
Employees have a responsibility to adhere to the Employee Code of Conduct; and as an employer Adidas
takes the responsibility to ensure employee health and safety.
ADIDAS PROCESS AND SYSTEM
The system at Adidas Group consists of automated inventory control, high-tech R&D system, and automated warehouse and distribution systems.
The process at Adidas Group consists of highly innovative product design, volume manufacturing of
shoes, apparels and accessories; outsourcing for manufacturing to mainly Asian countries; innovative
marketing involving celebrities; effective IT usage to support diversification, geographical scope and
outsourcing; distinctive R&D; financial control and asset management; use of information technology in
inventory management.
ADIDAS GROUP FUNCTIONAL UNITS
Corporate Strategy of Adidas Group Page 24
Functional Units at Adidas
PART THREE: ANALYSIS AND RECOMMENDATION
Propose and support your ideas of how corporate scope, key resources, dominant logic, and/or
corporate management can enhance the competitiveness of any of the firm’s business units (or
potential business unit). For example, we can bound and identify some important linkages using
the framework below. The relationships can also be “multiple cells” e.g. the combined impact of
scope and dominant logic on firm competitive advantages. To answer this question you can begin
with developing an overall “value added” table. Then elaborate on each cell in the table. You can
start your discussion of the cells by reminding me relevant information from the sub. For
example, for cell related to competitive advantage and scope, you can remind me by writing what
the sub’s competitive advantages are Feel free to include if you can identify other dyadic
relationship. Extra points will be rewarded for that. P.S. Column 1 relates to characteristics of the
subsidiary (Sony Computer Entertainment) and the rest relates to the parent’s (Sony
Corporation).
In this question, it is assumed that if Nike and Adidas merge as partners, how can they add value to each
other and improve and add to the competitive advantage of each other. So the explanation should be seen
not for Nike or Adidas in particular but for the partnership.
Five forces & KSFs of NIKE
Scope of PartnershipKey resources &
Dominant Logic of Partnership
Corporate Management of
Partnership
1.Industry Rivalry- HIGHNIKE has grown immensely and
Nike can gain cost advantages by using Adidas’s outsourcing relationships, scale of
Nike can advantage of Adidas’s position as leading sports brand in the emerging markets to
The corporate strategy of Adidas and Nike of a diverse brand portfolio and international
Corporate Strategy of Adidas Group Page 25
Marketing Design Research & Development
Sourcing Supply Chain Management
Sale Subsidiaries
Product Creation
Manufacturing Operations & Distribution
Briefing Concept Sales
established its foot firmly in the industry. The firm is globally recognized and has a huge loyal customer population. The giant firms of the industry invest heavily in building a strong brand identity. The competition is fierce and thus the rivalry is very high
operations and sourcing of diversified products and vice versa
make a stronger presence on those markets like India & China. Since Adidas is not so premium priced like Nike, partnership will be a great scope for Nike to be more famous in those price sensitive markets
expansion will help both the firms to strengthen the roots in the sports industry and maintain the position of the two firms as leader and reducing the rivalry
2. Threat of Entrants-LOWNIKE has always striven to provide a competitive edge to foster the best possible performance in their athletes. NIKE is a fashion brand. Even being a sports brand, it attracts the sports as well as non-sports population.
Adidas has a greater market share in Asian countries like India. A partnership of Nike with Adidas will strengthen Nike’s roots more in these emerging markets
The partnership between Adidas & Nike will enhance the resources and capabilities of both companies leading to more competitive advantages to both, making the entry difficult for new entrants
The corporate strategy of Adidas and Nike of a diverse brand portfolio and international expansion will help both the firms to strengthen the roots in the sports industry and maintain the position of the two firms as leader. This will keep the threats of entrants as low
3. Supplier power- LOW
NIKE definitely has an advantage over their suppliers. Thus the suppliers are dependent on the firms like NIKE and Adidas as their means of their earnings
Nike can take advantage of Adidas outsourcing/supplier relations in the Asian countries to improve its product development in those countries. This merger will allow Nike to have more strong position over suppliers
Nike and Adidas are the leaders in the sports industry and have greater power over their suppliers. With the outsourcing capability and supplier relations, save a lot of cost and maintain power over the suppliers
The corporate strategy of Adidas and Nike of a diverse brand portfolio and international expansion will help both the firms to strengthen the roots in the sports industry and maintain the position of the two firms as leader. Both the firms are high volume production firms utilizing large amount of raw material. Thus the suppliers cannot afford to lose such big firm, keeping the supplier
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power low4. Buyer power- HIGHThe power of buyers in the footwear industry is distributed among several companies. There are a large number of buyers relative to the number of firms in this industry
The diverse brand portfolio and geographical presence in almost all countries will make them non substitutable in the domestic/international market. It will become very hard for the buyers to have a company that can fulfill their requirements as Nike & Adidas
Nike and Adidas combined resources and capabilities can lead to more product innovation. This will provide customers highly sophisticated products/services
The corporate strategy of Adidas and Nike of a diverse brand portfolio and international expansion will help both the firms to strengthen the roots in the sports industry and maintain the position of the two firms as leader. The new merged firm can provide customers highly sophisticated products/services. This might reduce the buyer power
5. Threat of Substitutes- LOWThe substitution for the athletic footwear is low, as there are little alternatives available to choose from. , there are no real substitutes for athletic footwear. And similarly there are lesser substitutes available for athletic garments
Nike can utilize Adidas’s capabilities to emerge as mid-high priced brand in price sensitive markets like Asia ,in offering products and keep away competition like Puma which is premium priced
Adidas has more store presence and online presence than Nike. Use Adidas’s resources to open new stores in locations closer to consumers
The product diversification and brand diversification strategy of both the companies offer a wide variety of sophisticated /technologically advanced products to the customers reducing the threat of substitute
Competitive Advantage of Nike
Scope of Partnership Key resources and Dominant logic of the
Partnership
Corporate management of the
partnershipBrand Recognition & Reputation
NIKE is the globally recognized brand. It is the largest seller of athletic footwear and athletic apparel in the world, with the highest sales and
Adidas group has a huge brand portfolio and brand diversification, which includes a leading sports brand Reebok. Adidas is more famous in Asian market compared to Nike. Nike
Nike can utilize the mid-high priced reputation of Adidas and Reebok and attract more customers in Asian market (Price sensitive customers). Nike can utilize the diverse brand portfolio
Both the firms have a corporate strategy diverse brand portfolio, capability to lead through innovation and international expansion. This would enhance the brand recognition and
Corporate Strategy of Adidas Group Page 27
market share can utilize Adidas’s brand reputation in these countries and enhance its recognition in the unsaturated Asian and other emerging markets
image of Adidas Group and can lead these upcoming markets
reputation of the new partnered firm
Cost Efficiency
Nike is a globally recognized brand. But compared to other firms in the same industry, it has been successful in maintaining a low cogs
Nike can utilize the outsourcing capability of Adidas and make itself more cost efficient
Nike can utilize Adidas’s supply chain capability, distribution capability in Asian market and grab these new unsaturated markets. Adidas has a better cost efficiency compared to Nike. Nike can utilize the supplier’s relation of Adidas to lower its costs of production. Adidas can also utilize the inventory management capability of Nike to save distribution cost
The corporate strategy of Nike of efficient inventory management can help Adidas to cut cost. On the other hand, Adidas flexible supply chain strategy will help Nike to cut cost and help Nike to shorten the design, development and production lead times by constantly improving the infrastructure, processes and systems
Inventory Management
Nike has a competitive advantage of high inventory turnover which is due to the deployment of IT and efficient distribution/subcontractor network of NIKE. High inventory turnover is due to the distribution capability of NIKE. The distribution capability of the company is so efficient because of the core competency of
With the help of the merger, Adidas can improve its inventory management with the help of Nike efficient distribution capability and strong IT
Nike has a stronger inventory management compared to Adidas. It is due to its effective IT and distribution capability. Here Adidas can utilize Nike’s capability to strengthen its competitive advantage
The corporate strategy of Nike of efficient inventory management and integrated IT can help Adidas to manage its inventory effectively and reduce cost. This would be very beneficial for the new partnered firm. On the other hand, Adidas flexible supply chain strategy will help Nike to cut cost and help Nike to shorten the design, development
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distribution/subcontractor network
and production lead times
Product Quality & Design
The R&D of NIKE results in the competitive advantage of innovation and high product quality. The firm has product design capability, which is due to its highly efficient integrated research laboratories. NIKE invests heavily in having researchers perform a number of scientific techniques to quantify their products
The partnership would provide Nike an opportunity to be a part of a well-diversified brand portfolio of Adidas. Nike can cultivate the Adidas-Reebok diversified brand portfolio and may become the leading brand of the portfolio
Both Adidas as well as Nike are very efficient in strategic innovation and research and development. So both can utilize the competencies of each other and excel in the industry. But since Adidas has its product design based in Germany, Nike can utilize this opportunity and design its products for European customers in Germany
The corporate strategy of both the firms is leading through innovation. The firms have the capability of integrated R&D. Thus the new merged firm will have added advantage of the innovation capability
Core competencies Nike Scope of Partnership Key resources & Dominant logic of
Partnership
Corporate Management of
PartnershipMarketing
Nike has the key success factor of distinctive marketing capability by celebrity endorsement. Marketing capability through celebrity endorsement has always been the core competency of NIKE
Advertising and marketing campaigns focus on the product quality, price and portfolio which are made possible through Adidas Group brand diversification and the wide range of products. So Nike’s position can be enhanced by the Adidas’s product scope.
Nike has the excellent marketing capability. Adidas can utilize this distinctive capability of Nike and market its products. At the same time Nike can follow Adidas in keeping marketing and promotion cost low with the help of Adidas financial control
The strategy of Adidas is to lead through which includes its excellent marketing capability. Nike also has the distinctive marketing capability strategy. This would enhance the marketing capability of the new merged firm
Information Technology
Effective utilization of Information technology in every functional area such
Due to Adidas group complex outsourcing, its geographical dispersion and its broad product and
Adidas information systems and the financial resources invested in the Nike will help the partnership in
The corporate strategy of both the firms is to lead through innovation and technological advancement. It would
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as R&D and inventory management has been a key success factor for Nike
diversified brand portfolio scope, the company needs powerful IT systems. Nike has a strong IT capability which it can share Adidas. At the same time Nike outsourcing ,diversification needs strong IT support, which can be provided by Adidas
improving the technological aspect of the company. At the same time Nike’s has powerful IT systems and strong technology can help Adidas to keep its inventory under control and improve its inventory management
help both the firms to continue the efforts in innovating and adopting advanced IT
DistributionThe efficient distribution/subcontractor network is connected to the presence of the functional areas of distribution & sale and information technology. NIKE invests in IT to keep a track of the inventory control
Large scale outsourcing capability of Adidas Group, supplier partnerships, global presence and diversified product portfolio
Both the companies have excellent distribution capability and IT resources. The merger would further strengthen their distribution capabilities leading to increased cost saving and other competitive advantages
The flexible supply chain strategy of Adidas and distinctive distribution capability of Nike will help both the firm to enhance the core competency of distribution capability
Sustainability of the Nike
Scope of Partnership Key resources & Dominant logic of
Partnership
Corporate Management of
Partnership
Product Quality
The R&D of NIKE results in the competitive advantage of innovation and high product quality. The firm has product design capability, which is due to its highly efficient integrated research laboratories. NIKE invests heavily in having researchers
The product quality of both the firms is very high because of the strong R&D. The strong brand portfolio ,brand diversification and design capability of Adidas will help Nike in sustaining the product quality and vice versa
The integrated R&D, strategic innovation of Adidas and Nike will help both the firms to maintain the high product quality compared to the competitors. It is very difficult for competitors to imitate the product quality of both the firm’s resources and capabilities. Both firms
Global outsourcing, corporate strategy of leadership by innovation ,diverse brand portfolio and flexible supply chain will maintain the product quality of the partnered company
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perform a number of scientific techniques to quantify their products
can sustain by continuously improving their capabilities and core competencies
Business Model of Nike
Scope of Partnership Key resources & Dominant logic of
Partnership
Corporate Management of
PartnershipProduct Differentiation
The generic business strategy for NIKE is a product differentiation strategy. NIKE emphasizes on the key strategy elements of branding advertising, design of products, exclusive customer service, high quality products and new product development
Nike will have an advantage of diverse product range arising from leveraging Adidas’s brand diversification and its geographical scope
Nike will be able to utilize Adidas’s diversification capability and strategic innovation strategy to excel in its product range and maintain a high operating income and profit margins
Differentiated strategy, well diversified brand portfolio initiatives to increase profit margins
Outlook of Nike Scope of Partnership Key resources & Dominant logic of
Partnership
Corporate Management of
PartnershipInternational Expansion The geographical scope
of both the companies would help each other in the partnership to grab the new emerging markets
Nike will utilize Adidas’s resources to expand operations in the international market. Since Adidas’s position is more strong in Asian countries,
Adidas corporate strategy to expand domestically as well as internationally will help Nike to expand in the new emerging international markets
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Adidas group presence would help Nike to strengthen its root into the new emerging international market
and vice versa
Brand & Product Diversification
The diversification scope of Adidas can help Nike to in diversifying its brand and differentiating its product line to the next level. Nike is already the market leader, but a merger with Adidas Group will enhance its brand portfolio more. On the other hand, Nike’s product differentiation strategy can help Adidas Group to improve the product portfolio and quality
Adidas has the key resource of product design capability, innovation capability and diversification capability. Utilization of these capabilities will help Nike to strengthen the brand portfolio and product diversification
The corporate strategy of product diversification and leadership through innovation can help the new firm arising from the merger, to be highly diversified in product offering and brand portfolio
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PART IV: VALUE CREATION
Now you have developed an overall value added relationship between the parent and the
subsidiary. Now estimate the potential value creation for the sub. First, estimate the new and
improved value drivers (as sales growth, operating profit margin, cash tax rate, proportion of net
working capital to sales, proportion of fixed assets to sales, and proportion of other long term
assets to sales) of the sub’s future free cash flows. Read file FCF drivers.doc in your Blackboard
vista. Identify which value drivers that can be improved and justify. Assume that the firm has
certain competitive advantage period and the residual value is the firm’s book value. For example
competitive advantage period of 4 year suggests that there won’t be any economic profit created
after year four. Thus, the residual value is the perpetuity value of the firm’s book value at year
four and discounted at t = 4.
The value drivers considered for the Nike Inc. in test 1, to derive the historical values and also the new
value drivers after recommending Adidas Group to be the partner of Nike Inc.
Table IV-1 Historical data of Nike Inc. in Percentage of revenues and new value driver
Value Drivers (%) 2009 2010 Average New Value Driver
Sales growth 2.98% -1.0% 1.0% 5%
Operating Profit (EBIT) 9.69% 13.06% 11.375% 16%
Taxes 24.0% 24.2% 24.1% 20%
After Tax Operating profit 7.5% 9.88% 8.69% 8%
FCF 4.36% 10.75% 7.55% 11%
Table IV-2 Historical data of Nike’s value creation before new value driver consideration
Value Drivers (%) 2009 2010 Average
Sales 19,176,100 19,014,000 19095050
Operating Profit 1,858,500 2,474,000 2166250
Taxes 469,800 610,200 540000
After Tax Operating profit 1412460 1880240 1646350
FCF 831.7 million 2045 million 1438.35 million
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Table4 IV-3 Expected data of Nike Inc. in future after proposing the new value driver with its partner as
Adidas Group
Value Drivers (%) 2011 2012 2013 2014
Sales 20049802.5 21052292.63 22104907.26 23210152.62
Operating Profit 2512850.0 2914906.0 3381290.96 3922297.51
Taxes 503380 503380 503380 503380
After Tax Operating profit 1778058.0 1920302.64 2073926.85 2239840.99
FCF 1596.56 million 1772.18 million 1967.12 million 2183.50 million
SALES:
The sales growth of Nike Inc. should be of 5% annually, which serves as a new value driver for the
company after it enters into a partnership with the Adidas Group.
JUSTIFICATION:
Like any global business, the Adidas Group has to manage a wide-range of commercial and competitive
pressure to convey increased financial returns, growth and profitability. After the global economic crises,
the Group has generated a record €12 billion in sales growing 9% currency-neutral and clearly outpacing
our major competitors Adidas Group is more successful in Asia as compared to Nike Inc. It has the growth
advantage over Nike in Asia. Asia is the most promising and fastest growing market in the world. Thus a
partnership with Adidas group will definitely help Nike to grab more market share in Asia and increase
its profitability by higher sales figure.
OPERATING PROFIT:
The historical data revel that the operating profit of Nike Inc. has grown at an average rate of
approximately 12% .Nike Inc. is one of the most technologically advanced and efficient company. The
firm has got the all the capabilities and resources to increase its operating profits with increase in sales at
an average of 16% annually.
JUSTIFICATION:
After the economic crisis and difficulties of 2009, Adidas Group has rebounded strongly in 2010. The
Group has generated a record €12 billion in sales growing 9% currency-neutral and clearly outpacing our
major competitors. Group gross margin increased 2.4 percentage points to 47.8%.
As operating profit refers to the measure of a firm's profitability that excludes interest and income tax
expenses. The profitability depends on reducing the operating costs. Adidas Group has reduced the
operating overhead – operating expenses as a percentage of sales despite marketing investments to
Corporate Strategy of Adidas Group Page 34
support its brand initiatives and portfolio. The operating margin of the firm has jumped to 7.5%. And net
income increased 131% to €567 million. The financial data shows that Adidas Group has shown
significant improvement in 2010 compared to Nike Inc. Therefore the partnership with Adidas can be
very beneficial for Nike in reducing its operating expenses and generating more operating profit. Thus
the operating profit of Nike can be expected to grow to 3922297.51million by 2014
TAXES:
The historical tax rate of Nike Inc. shows an average of 24.1%. The new value driver tax rate for Nike is
20% with the annual expense of $503380 million.
JUSTIFICATION:
The Adidas Group has its diverse operations all over the world. The firm has always followed the political
and legal regulations. There a partnership with Adidas Group might help Nike in deducting the tax rate to
20%. This would create value to the firm and will add to the wealth of the stockholders.
FREE CASH FLOWS:
The historical average FCF’s of Nike Inc. increase at an average of 7.55%. The value driver of FCF for Nike
Inc. is expected to increase with an annual rate of 11%, with the partnership with Adidas Group.
JUSTIFICATION:
“Free cash flow (FCF) represents the cash that a company is able to generate after laying out the money
required to maintain or expand its asset base. Free cash flow is important because it allows a company
to pursue opportunities that enhance shareholder value. Without cash, it's tough to develop new products,
make acquisitions, pay dividends and reduce debt”.
An increase in the FCF adds to the value of the firm. Tight working capital management and disciplined
investment activities are expected to help optimize the Group’s free cash flow of Adidas Group in future.
Favorable exchange and interest rate developments can potentially have a positive impact on the Group’s
financial results. To maximize operating cash flow generation across the organization, management of
Adidas Group operating segments and management at market level have direct responsibility for
improving operating profit as well as optimizing operating working capital and capital expenditure. To
boost the long-term performance improvements the firm has adopted a modified economic value added
(EVA) model. Therefore a partnership between Adidas Group and Nike will definitely help Nike to
increase it free cash flow and create value to the shareholders.
Corporate Strategy of Adidas Group Page 35
REFERENCES
1. Adidas Group Annual Report 2009
2. Adidas Group Annual Report 2010
3. Nike Inc. Annual Report 2009
4. Nike Inc. Annual Report 2010
5. www.adidas.com
6. www.Nike.com
7. www.Investopedia.com
8. www.Wikiinvest.com
9. www.Wikiwealth.com
10. www.financeyahoo.com
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