MBA622 PROJECTADIDASBy

Sheetanshu D Gupta

Atul Nipane

Pranjal Agarwal

S Sajin

Sandeep Kumar Attree

Tusheet Shrivastava

Yash Sidana

Mission• To be the best sports brand in the world• Never equate quantity and quality• Meeting demands and needs of athletes• Leveraging opportunities across the brand portfolio

• Distinctive Competency• Fit the exact needs of athletes• Moisture management, thermal insulation, weather protection,

ease of movement and safety

Company History – The Initial Stage• Adolf and Rudolf Dassler set up a handmade shoe company in the

name Dassler OHG1924• First production facility is leased and is called “Dassler Brothers

Sports Shoe Factory”1927• Production facility is bought1930• Introduction of tennis shoes1931• Second production facility is bought in the center of Herzogenaurach1938• Adolf and Rudolf part ways – Adolf sets up Adidas while Rudolph

goes on to set up Puma1948• Adidas shoots to fame in Helsinki Olympics1952• Germany wins Football World Cup wearing Adidas shoes1954

The Growth• 1956 – Horst Dassler moves to a prominent role in the

company• Sets up production facilities in France and further expansion in

Germany

• Adidas begins production of balls and apparel – tracksuits• Adidas brand dominates the Olympic Games from 1960 to

1976 – majority of athletes wear Adidas products• Large number of sports celebrities endorse Adidas

products• Adidas also introduces fashion brands - expansion

Instability• 1978 – Adolf Dassler dies• 1984 – Kathe Dassler dies• 1987 – Horste Dassler dies

• 1987 marked the beginning of a period of serious instability and financial trouble

• 1990 – Bernard Tapie acquires company on money borrowed from Credit Lyonnais in an attempt to rescue it• Moved production to Asia in order to exploit cheap labor

• 1992 – Credit Lyonnais takes over Adidas as Tapie is unable to pay interest

Strategy till now• Prospector approach• Focus on manufacturing – everything is manufactured in

house• No change despite tough competition from Nike and

Reebok• Till 1993 – ignored market changes and took a

conservative course• Lost market share to Nike – innovative aggressive marketing and

products• Market share fell from 70% to mere 2%

• Slow to respond to issues of corporate responsibility – code of conduct not well defined

• Factories are worst in the industry

1993• February – Adidas acquires Sports Inc – a US based sports

marketing company• April – Robert Dreyfus takes over Adidas

• Turnaround in strategy• Focus shifted from MANUFACTURING to MARKETING• Shut down almost all the company’s high cost factories in Germany and Austria• 80% footwear is outsourced throughout Asia, North Africa and Southern Europe• Reduced capital requirement, lower wages, more focus on core competencies• Unsuccessful fashion brands were divested – focus shifted to Athletic

Performance brand• Product line streamlining

• 1994 – company showed profits• 1995 – company goes public

Related Diversification• 1997 – Adidas acquires French sports equipment group

Salomon S.A. – becomes Adidas Salomon• $ 1.5 billion• Product base now included

• Ski gear• Golf products• Bike components

• Adidas also acquires TaylorMade – a golf goods manufacturer – also had product innovations in golf

• June 1998 – Adidas adopts a code of conduct and an internal monitoring system

New Global Business Strategy – 2000

• Shifting brand positioning through a revolutionary three divisional structure

• Integrate US organization into Adidas global marketing structure

• Allow aggressive expansion in business

• Vertical Integration – acquired long time Danish distributor Sportsgoods A/S – improve position in Denmark

• Making the Supply Chain a Competitive Advantage• Improve “end to end” supply chain solutions• Optimize partnerships with raw material suppliers, manufacturers and

retailers• Improve performance and lower cost

Business level strategy• Forever Sport Division

• Target athletes who want the highest level of functionality in their sport• Performance driven rather than image driven

• Original Division• Target Consumers who want to buy products exclusively for leisure usage• Differentiation strategy – three product segmentations –

• Re-introduced – Limited volume remakes of classic products• Re-interpreted – Original authentic sports wear with updated colours, materials and

details• Re-designed – Inspired by old Adidas originals in craftsmanship and style, but put in

today’s fashion context

• Equipment Division• Multi-functional sports products with cutting-edge designs – for the prestigious

consumer• House of innovation – contemporary, meaningful, aggressive and exciting

Production• 80% production is outsourced• Southern European sites – faster delivery and stock

turnover outweigh high labour costs• Production in Asia – e.g. China – through contract

manufacturers – exploit low labour costs – relatively high distribution cost

Manufacturing Units• Knit bottomsVillanueva, Honduras

• Knit and woven top and bottomsPuerto Cortes, Honduras

• Knit tops and bottomsJakarta, Indonesia

• Woven bottomsTangerang, Indonesia

• Outerwear, tricot tops and bottomsSeberang Prai, Malaysia

• Outerwear, woven and knit tops and bottomsPahat Johor, Malaysia

• Knit tops and bottomsJohor, Malaysia

• Outerwear, warm-ups, woven bottomsPenang, Malaysia

• Jersey knit products, fleeceTamaulipas, Mexico

• Outerwear, woven tops and bottomsTaipei, Taiwan

• Knit tops and bottomsBangkok, Thailand

• Outerwear, knit and woven topsNonta, Thailand

• Rain jackets and pants, parkasPhiladelphia, USA

• Knit tops and bottomsCalifornia, USA

Organizational Structure

Total Market Share before merger

Merger with Reebok• August 2005- Adidas-Salomon AG announced plans to acquire Reebok at an

estimated value of $3.78 billion.

• At the time, Adidas had a market capitalization of about $8.4 billion, and reported net income of $423 million a year earlier on sales of $8.1 billion. Reebok reported net income of $209 million on sales of about $4 billion.

• Purpose – both companies competed for No.2 and No.3 positions following Nike.

• In US, Adidas was perceived to have good quality products that offered comfort whereas Reebok was seen as a stylish or hip brand.

• Adidas focused on sport and Reebok on lifestyle.• Clearly the chances of competing against Nike were far better together than

separately.

• For a successful merger, the challenge was to integrate Adidas’ German culture of control, engineering, and production and Reebok’s US marketing-driven culture.

Merger with Reebok• Adidas have long been one of the premium brands in sportswear and

have charged accordingly• This strategy is coming under more pressure as cheaper substitute

products are bought by consumers adding to problems in terms of customer retention

• By merging with Reebok, it aimed to go into the mid-range market as well

• Reebok's strengths was its success in the women's sector• The market for women's athletic shoes is larger than that for men, accounting for

around 46% and 40% of the sector's value respectively• In volume terms, the women's sector was even more important, 46% compared

to 35%• Reebok's market share of women's athletic shoe sales was around 35%• Boosted by its 'It's A Woman's World' marketing campaign

Challenges of the Merger• Adidas and Reebok have decidedly different corporate

cultures• Adidas’ corporate culture is very similar to their view on athletics; they

are very serious and rigid in their attitudes.• Reebok is much more laid back. Even though their employees work

long hours, tension is reduced by the laid back atmosphere and company fitness center.

• Global Location• Reebok is located in Canton, Massachusetts, while Adidas’

headquarters are located in Herzogenaurach, Germany.• Adidas will continue to be more popular in Europe than in America,

while at the same time Reebok will continue to have greater popularity in America than in Europe.

• Can act as a synergistic advantage

Geographic Distribution

Adidas Reebok

Comparison of strategies• By utilizing Porter’s generic strategies framework, the methods

employed by Adidas, Reebok, and Nike to compete for customers in the industry become easily apparent.• Both Adidas and its competitor Nike make use of a differentiation strategy to

attract its customers• Reebok concentrates its efforts on a broad cost strategy approach

• In response to Nike’s recent innovations, Adidas has spurred its differentiation strategy by offering a products that are truly unique• E.g. Adidas_1, is known as the world’s first intelligent shoe, offering the optimal

amount of cushioning by mechanically adjusting the sole every four steps

• Reebok, has maintained itself as a corporation with a cost leadership strategy in mind• They aim to offer an affordable shoe endorsed by rappers and various athletes,

targeting the urban youth demographic

Advantages of Merger• Adidas-Salomon AG Chairman and CEO Herbert Hainer said

“The brands will be kept separate because each brand has a lot of value and it would be stupid to bring them together. The companies would continue selling products under respective brand names and labels.”

• The acceleration of both brands is brought about through increased operating cash flows

• Along with the increased operating capital, other synergies such as operating savings are realised

• Catching up to Nike's huge marketing budget is a challenge, but the increased operating costs coupled with the synergies will help promote further brand recognition through marketing.

Advantages of Merger• In the past, Adidas has not been able to expand because

it had problems shipping goods to the United States• It takes them about 14 days to ship from their factories in the Far

East• On the other hand Reebok can ship overnight

• As such, Adidas will be able to take advantage of Reebok's existing distribution infrastructure in the U.S.

• Similarly, Reebok will be able to benefit from Adidas' existing distribution infrastructure in Europe.

Synergies• Idea sharing across markets and geographies• Capitalize on Reebok's skills and know how to accelerate

Adidas position in North America• Benefit from Adidas expertise in Europe and Reebok's in

Asia• Benefit from Reebok's expertise in Women's segment• Capitalize from Reebok's skills in sport lifestyle and

leisure• Bigger combined R&D spend• Transfer of skills and technical and managerial know-how• Relationship with teams and athletes

Horizontal Integration

Decrease in Inventory

Decrease in borrowings

SWOT Analysis – SummaryStrengths• More products for different customers• Increase in product line• Acclivity in market share• Both upper and middle priced markets are covered.• Shared R&D, Patents, technology & innovations

 • Weaknesses• Differing values among management • Complexity of joining two corporate cultures• Both companies belong to different countries• Dependence on third-party manufacturing

 • Opportunities• Reduction in costs• Decreased competition• Cross-over promotion by sponsored athletes• Enter to new market/Segments

 • Threats• Nike• Danger of cannibalisation between the two separate brands• Counterfeit products

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