Answers to Questions
- For the corporation that has acquired another company, merged with another company, or been acquired by another company, evaluate the strategy that led to the merger or acquisition to determine whether or not this merger or acquisition was a wise choice. Justify your opinion.
For this corporation, I choose the company Adidas. Adidas is the second largest athletic corporation in the world after Nike, another global sportswear company. In 2005, Adidas merged with another US corporation, Reebok. The effect of the merger was as clear as daylight. Nike had a market share of 36.3% in 2005 and Adidas had a paltry 8.9%. That changed with the merger of the two companies because it increased market share of Adidas to 21.1% in the US alone, and increased the stock price of Reebok by 30%. The market appreciated the combination of the two most recognized sporting brands in the world and posted a serious threat to market leader Nike, because of the improved coverage of both brands geographically and demographically. A merger between the two became a mutually beneficial activity. Adidas and Reebok were able to integrate their competitive advantages, corporate cultures, market intelligence and mass appeal into a seamless organization that was able to compete at a higher level. The companies had to agree on a post-merger strategy to be able to compete in recognition of how the companies are performing in the market, their resources, their individual goals, and the different opportunities that were available then.
Because both companies are consumer goods companies, the most obvious strategy that should be undertaken by both companies is “Brand Management”. According to Article Base (2010), this is the best approach for ensuring that the merger between Adidas and Reebok will work. Brand management is defined in Wikipedia (2013) as the function of communication that analyses and plans on how to position a particular brand in the market. Brand management seeks to cultivate a relationship with the target users of the brand. Aspects of brand management include aspects such as price, the general appearance of brands and related products, packaging and other aspects of the brand such as the intangible aspects of the brand (i.e. environmental friendliness, highest possible quality, timeliness, etc.) which are also of importance to the market. In the sports apparel industry, brand management ensures that a particular brand and its line of products sustain its market share. The use of brand managers, such as key sporting figures is an age-old tool that helps transfer some of the characteristics of the sports personality to the brand. The photo below of Adidas endorser and NBA star Derrick Rose of the Chicago Bulls is an example of one brand management techniques that sporting companies use.
Figure 1 Brand Management Image (from TheWindyApple.com)
Article Base further analyses the merger of Adidas and Reebok in terms of core competencies and what combining these competencies mean to both companies.
The successful merger of Adidas and Reebok is shown in the availability of both brands today. Both brands are still visible which according to Kiley (2005) meant that both brands were able to preserve their individual identities and presumably their corporate cultures to both protect their interest and further their merged goals. The brand management approach thus has been the retention of both brands and their identities.
What has given both companies greater value is the fact that they both now enjoy the efficiencies that each one brings to the table. For example, Adidas had poor market penetration in the US and the merger with Reebok gave Adidas the market push it needed to gain market shares. Reebok benefitted from Adidas providing its design and research expertise that it has gained in its many years of existence. Adidas also provided Reebok access to international markets that would have been otherwise very difficult for Reebok to penetrate. Taken together, the companies have generated new brands such as the more street-wear line called RBK for Reebok, has moved its production facilities in lower waged production centres, and have enjoyed the supply efficiencies of Adidas to reduce costs and improve profitability. Analysts call the merger nothing short of a block-buster with both companies benefitting immensely and immediately from the merger. According to McCarthy and Grant (2005) the impact of the merger is so widespread that both companies have gained marketing, sales, supply and management efficiencies because of the merger. It is therefore conclusive that the merger between Adidas and Reebok and the ensuing strategy for sustaining the merger is logical for both companies
- For the corporation that has not been involved in any mergers or acquisitions, identify one (1) company that would be a profitable candidate for the corporation to acquire or merge with and explain why this company would be a profitable target.
It is very difficult to find a US company that operates only in the US and has no acquisitions. Jo-Ann stores out of Hudson Ohio are one of those. Already part of the Forbes top 100 list, Jo-Ann Stores, Inc., founded in 1943 by German immigrants Hilda Reich and Berthold Reich is not one of the largest specialty retailers of crafts and fabrics in the US. The company did make acquisitions but only smaller companies before that complemented its line of business. Now in the big leagues, the company is poised for growth through acquisition, after successfully buying out its debt thus becoming one of the largest privately held corporations in America.
Jo-Anne stores is a specialty market that could acquire other companies in the retail or fashion industry. One is Charming Shoppes, a specialty company that markets to plus sized women. This company out of Philadelphia has clothes positioned in over 2000 retail stores in the US but has since become a business failure. This company can be acquired by Jo-Ann for Jo-Ann to use as the vehicle for integrating its fabric business with retail clothing business, similar to an upstream integration of businesses.
- For the corporation that operates internationally, briefly evaluate its international business-level strategy and international corporate-level strategy and make recommendations for improvement.
Based on the SWOT analysis presented above, it is clear that the companies have only one threat which is the cannibalization of the market. There are also several weaknesses of the merger but these weaknesses are not categorically insurmountable. Thus the business-level strategy is to merge and retain the identities of both brands and create synergies that would help both brands to be more competitive. This has been the key business level strategy of the companies with Adidas retaining the higher end, more technically inclined market segment and Reebok retaining the lifestyle market.
On an international front, the cultural integration should be the primary corporate level strategy. Mergers and acquisitions normally are hampered by cultural integration, as what has happened for example in other high profile mergers such as Cadbury and Kraft Foods. With Adidas and Reebok, the integration of both global operations should be made to ensure that there is very little resistance to the merger and that cross-cultural cooperative platforms are quickly established.
- For the corporation that does not operate internationally, propose one business-level strategy and one corporate-level strategy that you would suggest the corporation consider. Justify your proposals.
Since both Jo-Ann and Charming Shoppes are in the US, they are geographically related making the idea of a merger logical for both. A business level strategy that these companies can undertake is the joining of the joining of the vendors and shipping requirements to produce lower costs that would enable the companies to be profitable. This is because the companies would utilize the same framework for operation such as transportation, logistics and warehousing and the volume handled by these key elements would increase making the unit costs lower. In addition, a corporate level strategy for both could be the move to other upstream businesses such as design and other markets since both are in the fashion industry and both have intimate knowledge about the markets where each operates.
References
Articlesbase. 2010. Adidas - Reebok Merger. Retrieved from http://www.articlesbase.com/marketing-articles/adidasreebok-merger-1983240.html
Kiley, D. 2005. Adidas – Reebok: A Good Fit. Bloomberg Business Week. Retrieved from http://www.businessweek.com/stories/2005-08-03/reebok-and-adidas-a-good-fit
McCarthy, M. and Grant, L. 2005. Adidas-Reebok Merger Lets Rivals Nip at Nike’s Heels. USA Today. Retrieved from http://usatoday30.usatoday.com/money/industries/manufacturing/2005-08-04-adidas-1b-cover-usat_x.htm
Mind Tools, 2013. SWOT Analysis. Retrieved from http://www.mindtools.com/pages/article/newTMC_05.htm
