Nowadays globalization is developing rapidly; more and more companies establish their subsidiaries in the foreign countries. Many organizations have presence all around the world. This process has either advantages or disadvantages; however, companies receive mostly positive outcomes of globalization, such as access to the new markets and outstanding talent, outsourcing of production and R&D, learning the experience of the foreign colleagues, and etc. This reported is devoted to identification of the ways of international business strategy’s improvement for Adidas Company.
Globalization
Globalization has made significant changes of the world economy. It foresees the following aspects:
Nations differences: the competitive advantage can be reached due to the differences in exploitation related to the output and input market from foreign countries; the low-wages countries are most suitable for such purposes.
The source of the competitive advantage is the scale economies in case the company is able to implement its activities configuration that permits the lowest cost for every operation;
The scope economies are available in case the resources necessary to sell or to manufacture a product in a state can be utilized for the same goal in the other goods case, originating from other states (Diaconu, 2012, p. 145).
Taking into account the assumed resources, the risk and objectives, a company may select among the four strategies types: multidomestic, national, transnational or global strategy (Diaconu, 2012, p. 149). The strategy of Adidas is global.
The development should lead to the improvement in the people’s living conditions; however, although there was a tremendous economic growth during the recent 50 years, the process of development has not been the same in the different states. Globalization that took place in the last XX century’s quarter has brought unprecedented challenges and created unparalleled possibilities for development. The recent 25 years have experienced a significant growth in economic inequalities accompanied with the gap of income between poor and rich states, between poor and rich individuals in the countries (Nayyar, 2000). Thus, many countries remain poor and offer cheap resources for the developed states and multinational companies.
Overview of Adidas
Adidas Group was established in a small Bavarian town in Germany. Following first steps in wash kitchen of his mother, Adi Dassler founded in 1924 the “Gebrüder Dassler Schuhfabrik” and started implementing his idea to manufacturing best possible products for athletes (KINETICS, 2015, p. 170).
In 1949 Adi Dassler at the age of 49 started the activity again, established the “Adi Dassler Adidas Sports Schuhfabrik” and began working in the town of Herzogenaurach with 47 employees. Nowadays, Adidas is a public global organization and is among the largest brands of sports equipment in the world. The company has a strong brand with its logo of three stripes recognized globally (KINETICS, 2015, p. 170).
The product portfolio of the company is vast, offering state-of-the-art sports clothing and footwear, as well as accessories e.g. watches, eyewear, bags, and other equipment and goods related to sports. Having more than 46,000 employees in different countries, the Adidas Group possesses about 170 subsidiaries such as TaylorMadeAdidas Golf, Reebok, CCM-Hockey and Rockport. The headquarters of the company are situated in Herzogenaurach, Germany. The Adidas’s revenue in the third quarter of 2014 made EUR4.118 billion (KINETICS, 2015, p. 170).
Adidas uses as suppliers private contractors in countries with low wages e.g. Thailand, China, and Indonesia, and therefore, they have a significant power over these manufacturing locations and may switch between them easily. Consumers in the industry of footwear have power as it is possible for them to switch easily between brands for some reasons like new style, higher quality, better price, and etc. But the clients can lose such power in case they are loyal to some specific brand and buy solely its products (KINETICS, 2015, p. 170).
Adidas Strategies
Adidas follows the strategy of broad differentiation. The strategy’s corporate level focuses on trying to manufacture new services and products, enhance innovation with the purpose to stay competitive. Sales Strategy & Excellency team started working in 2014 in order to help all markets worldwide. The multi-brand portfolio of the company provides them with a significant competitive advantage. The global function of sales was divided into two units, retail and wholesale, that served different needs of these both models of business. It was done with the purpose to sustain their long run strategy on the corporate level so that such units could make efforts to bring as much success as possible to the company (AG Strategy-overview, n.d.).
Adidas allocated its investments in the best distribution and marketing channels in various states by evaluating critically the buying behaviors of the consumer and their permanent struggle to keep prime space on shelf. The company has also started using e-commerce with the purpose to become even more successful and reach more clients. The Adidas group’s corporate culture encourages innovation. The culture of the company makes employees create products that are significantly innovative and use the newest technologies. In order to be a sustainable organization Adidas keeps the good balance between interests and needs of shareholders and its employees’ concerns, their supplier factories’ workers and the environment (Mahdi, Abbas, Mazar, & George, 2015, p. 171).
Business Model of Adidas
Business model of Adidas is focused on innovative products’ creating in order to meet the needs of consumers. The company tries to show its value by manufacturing a product line of high performance based on the consumers and athletes’ specific needs rather than investing into endorsements to the existing products. Also it concentrates on quick creation and production of product by improving continuously the systems, processes, and infrastructure. The company’s ambition is to create the experiences of best branded shopping at all touch points for consumers. Such approach has pushed investors from different countries to purchase common stock of Adidas and the organization has demonstrated continuous increase. Each company’s structure of public ownership has been a sustaining growth’s integral part for many years (Mahdi, Abbas, Mazar, & George, 2015, p. 172).
Structure of the Supply Chain
Most of the production of Adidas Group is outsourced. The company cooperates with over 1,000 independent manufacturers globally that produce their products in 61 states. The company has a multi-layered global supply chain with numerous different business partners’ types, some of which are factories that are contracted directly, others are not.
The major five countries per region in 2015 (by supplier sites number) were as follows:
Asia: Korea, China, Vietnam, Japan and Indonesia;
The Americas: Brazil, United States, Canada, Mexico and Argentina;
EMEA: Turkey, Germany, Italy, South Africa and Spain ("Supply Chain Structure", 2016).
Recommendations for International Business Strategy Improvement
Even though Adidas is one of the best performing companies in the world, there are still some aspects of its operation that can be improved.
Emerging Markets Focus
According to Dogiamis & Vijayashanker (2009), emerging markets in Latin America and Asia may provide Adidas with a significant competitive advantage. By the moment Adidas has the leading position in markets like Japan and India and also shares leadership in China with Nike. Growth of sales in Latin America has been crucial in 2007 Adidas experienced an increase of 38% in sales. One of the ways, by which Adidas may gain a competitive advantage in emerging markets, maybe prevention of these markets’ external competition by creating strategic partnerships with domestic manufacturers with the purpose to control the competitive strengths of the local producers. The company can interact with domestic producers in order to get some important information regarding the work of these foreign markets (Dogiamis & Vijayashanker, 2009, p. 13).
Also, emerging markets offer a new channel of marketing for the company. It is recommended for Adidas to work in China with Yao Ming (local superstar in basketball), who is cooperating with Reebok to create a new basketball shoes’ line particularly for basketball players from China. It can also be recommended for Adidas to work on local youth leagues’ developing for sports like running, basketball, football, and soccer to enhance sport’s popularity locally. Even though it might not directly increase the quantity of buyers for the products of Adidas, it creates interest of youth in such kinds of sports and promotes the name of Adidas (Dogiamis & Vijayashanker, 2009, p. 13).
Marketing Focus on Key Products at Large Sporting Events
Many of the significant marketing efforts of Adidas have been concentrated on large sporting events sponsoring hoping that the clients will notice the brand at such events; however, this promotion strategy does not offer significant profits. By means of marketing at large events of sporting only its name, the company fails to target directly the client that will know only the brand. The author recommends for Adidas as it has exclusive rights for numerous leagues and sports teams outfitting except for the rights of sponsorship, the company can promote its products at such events by equipping one of the strong participating teams. In case the team wins, the company can inform spectators immediately about the shoe by Adidas that the winning team wore and associate victory’s part with the products of Adidas (Dogiamis & Vijayashanker, 2009, p. 14).
In order to get market share and be the leader of the athletic footwear worldwide the company should follow the innovative strategies. Sportsmen that need footwear that contributes to better performance will consider Adidas to be the capable brand that will improve reputation of the company. The Reebok’s rebranding may enable Adidas to achieve a competitive advantage in the market that is not taken by Nike yet, the market of casual footwear. Also, the casual footwear market entry, accompanied by more marketing of goods for women by empathizing on shoes created for active lifestyle will make possible for Adidas and Reebok Group to become more successful than Nike in the market segment for women in that Nike does not participate. According to the authors, by means of emerging markets focusing and trying to establish relationships with domestic producers in addition to athletic footwear developing for local preferences and tastes, Adidas may gain and keep a much bigger market share in comparison with Nike and other competitors (Dogiamis & Vijayashanker, 2009, p. 14).
Outsourcing Focus (Production and R&D)
Outsourcing has become a significant aspect in the globalization’s public discourse. This process is now the major globalization critics’ target and one of the most used defense by globalization’s defenders (Nelson, 2005, p. 1). Wide-spread outsourcing is changing production relations and business models in the areas of advanced production (Cusmano, Mancusi, & Morrison, 2007, p. 19).
Adidas can focus on enhancing of outsourcing of production and R&D. Nowadays, not only manufacturing facilities, but also outstanding talent is available in the foreign low-wage countries. Moreover, foreign professionals can help Adidas to adjust its products to the needs of the consumers in certain countries and regions.
Conclusions
The report has analyzed current international business strategy of Adidas and proposed some areas for improvement, such as: emerging markets focus, marketing focus on key products at large sporting events, and outsourcing focus on either production or R&D. The above-mentioned improvement may enhance the profits and overall performance of the Group.
References
Cusmano, L., Mancusi, M., & Morrison, A. (2007). Globalisation of production and innovation: How outsourcing is reshaping an advanced manufacturing area. DIME Working Paper, 19. Retrieved from http://www.dime-eu.org/files/active/0/CusmanoWP2007-14.pdf
Diaconu, L. (2012). BUSINESS STRATEGIES OF THE MULTINATIONAL CORPORATIONS. CES Working Papers, 145-149. Retrieved from http://ceswp.uaic.ro/articles/CESWP2012_IV2_DIA.pdf
Dogiamis, G. & Vijayashanker, N. (2009). Adidas: Sprinting Ahead of Nike. BEM, 13-14. Retrieved from http://www.mcafee.cc/Classes/BEM106/Papers/2009/Adidas.pdf
Mahdi, H., Abbas, M., Mazar, T., & George, S. (2015). A Comparative Analysis of Strategies and Business Models of Nike, Inc. and Adidas Group with special reference to Competitive Advantage in the context of a Dynamic and Competitive Environment. International Journal Of Business Management And Economic Research, 6(3), 170-172. Retrieved from http://www.ijbmer.com/docs/volumes/vol6issue3/ijbmer2015060302.pdf
Nayyar, D. (2000). GLOBALIZATION AND DEVELOPMENT STRATEGIES. UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT, iii. Retrieved from http://unctad.org/en/Docs/ux_tdxrt1d4.en.pdf
Nelson, D. (2005). Outsourcing and the Political Economy of Globalization: A Discussion Note. University Of Nottingham, 1. Retrieved from https://www.princeton.edu/~hmilner/Conference_files/Globalization/nelson.pdf
Supply Chain Structure. (2016). Adidas-group.com. Retrieved 7 July 2016, from http://www.adidas-group.com/en/sustainability/supply-chain/supply-chain-structure/
