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Competition and competitive markets are common in every industry. Especially since Globalization is influencing our economy, companies need to stay competitive in order to survive against new rising competitors, which are basically rooted in the Middle East Asia. Analyzing own strengths and weaknesses and capturing new opportunities or avoiding threats, are one of the most important factors for reaching this goal. This paper is dealing with the German apparel “Adidas”, which is one of the world’s largest manufacturers for sportswear and sport utilities. But why are they one of the leading global players in this certain industry? There are some key factors, which influenced their worldwide success. A part of different departments, e.g. : research and development, human resources and in-and outbound logistics, which are working together in a fluent way, elements like customer relationship management and brand recognition are the main drivers for capturing new customers and the retention of regular customers. The intention of this dissertation will be, to explain Adidas’ internal strategies and the construction of their individual competitive advantage.
One important basis for this competitive advantage is the “resource based view model“.The resource-based view as a basis for a competitive advantage of a firm lies primarily in the application of the bundle of valuable intangible and tangible resources at the firm’s disposal. (Crook, T. R., et. al., 2008). In this scientific paper, I will conduct an internal organizational analysis of the firm. I will figure out how and why Adidas is one of the most important companies in its industry and will identify their success.
2. General Information and Organizational Structure
The Adidas AG (Adidas Group) is a German multinational corporation, which designs and produces sportswear, accessories and sport utilities. The company is based in Herzogenaurach, Bavaria, Germany. The corporation basically consists of three companies, “Adidas”, the brand itself, “Reebok sportswear” and “Tailor-made-Adidas Golf Company”. Reebok is a subsidiary of Adidas since 2005 and also a manufacturer of athletic shoes, clothing and accessories. “Tailor-made-Adidas Golf Company” designs and markets all products which are related to Golf. The Adidas group is the largest sportswear producer in Germany and Europe and the second manufacturer in the world, right behind “Nike”. The company was founded in 1924 as the “Gebrüder Dassler Schuhfabrik”, but was officially registered in 1949 by Adolf Dassler, after the split of “Gebrüder Dassler Schuhfabrik” between him and his older brother Rudolf. One of the most important competitors of Adidas was and still is, “Puma”, which was established by his brother Rudolf Dassler in 1949.
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 vision of the Adidas Group is to be the leader in the sportswear industry, with sub-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 satisfy the needs of the customers it is essential to build a strong customer relationship in order to understand their buying behavior (AdidasGroup, 2013). Adidas´revenue in 2012 was listed at 14.488 billion euros and profit was listed at 1185 million euros. In 2010, Adidas worked with 1,236 independent factories, in 69 countries. 69% of these factories where located in Asia and the rest in Europe and the U.S. 27% of the Asian factories are based in China. In 2006 the sales of Adidas´ in the Asian regions and in the emerging countries (South Korea, Romania, Russia, Croatia, and Brazil etc.) increased up to 147,8%. (Annual Report 2012, 2013)
3. Resource Based View
3.1. Tangible/Intangible Criteria
In every business are many types of resources and assets. Some resources are clearly visible and tangible and others may not. The Resource Based View is a device to assess the amount of tangible and intangible resources, in order to capture possible capabilities with the goal, to build a sustain competitive advantage. The device is differentiating between intangible and tangible resources. Intangible resources are skills, services, corporate reputation or knowledge a firm can provide. The collective knowledge of a firm’s workforce represents a tremendous resource. Intangible assets are difficult to quantify in financial terms and often impossible to sell. Education and experience are the main drivers for the knowledge of a corporate workforce, and grows within the structure of a particular industry. Tangible resources are known as raw materials, products or workforce. Corporations that are committed in primary resource extraction have holdings of very tangible goods or resources and often own the land outright on which their resources are located or manufactured (Freiling, J., 2001).
Furthermore, but less a tangible resource, the corporation owns the rights to the coal, oil or any other raw material, that is located on public land. In both cases, the resource is a physical reality, more or less tangible and the value of which can be financially determined by observing the going market value of a certain good. Regarding “Adidas”, as one of the most important global players in their industry, it is also possible to distinguish their resources. Adidas is holding more than 50.000 employees, all over the world into their workforce. CNC machines are used in the assembly line for the mass production of shoes, which is more or less their cash cow and keeps them successful. The Research and Development departments are equipped with CAM. Software’s for creating cutting edge designs. The main manufactories are located in Vietnam and China and the bases for the organization are based in Portland, Oregon (U.S) and in Herzogenrauch, Bavaria (Germany) (AdidasGroup, 2013). Patents, partnerships, sponsorships and cooperation’s with universities are intangible assets, which Adidas owns.
Especially in times where raw materials and resources are gaining more and more value, companies need to use their assets and resources in the most efficient way, in order to stay competitive. These opportunities are called “capabilities”. Capabilities can be described as organizationally embedded non-transferable firm-specific resources. (Crook, T. R., et. al., 2008). Capabilities can be divided into distinctive and threshold capabilities. On the one hand, Threshold capabilities or resources are fulfilling the general criteria a firm has to provide, in order to survive on the market. Regarding our example of Adidas, the threshold criteria for their certain industry are buildings, land, workforce, several departments and outsourced manufactories. But on the other hand, there are distinctive capabilities, which should not just keep the company alive, but deliver a competitive advantage. (Porter, M.E.1980).
Also known as core capabilities, distinctive capabilities are the talents and unique elements that are embedded within the organization. These essential characteristics are considered highly preferred, since they provide the business with what it needs to be competitive in the marketplace and also provides the firm a competitive advantage. Therefore distinctive capabilities are generating the core competencies of an organization and are the key driving forces for a company to achieve its competitive advantages. Adidas utilizes its key resources and capabilities to create value and performance excellence. Distinctive capabilities that Adidas holds are e.g., Special R & D departments and correlations (universities), sponsorship agreements (FIFA/ NBA) , diversified operations, network and portfolio, good reputation as mid-priced brand in the industry, distribution network and strategic innovation. (AdidasGroup, 2013).
3.3. Value Chain Analysis
Understanding what a particular business or firm is all about, it is necessary to analyze the specific activities the company is going through in their daily work process. The competitive advantage is build up on added values the enterprise is giving their products. Michael Porter´s “Value Chain” is modeling a chain of different activities, companies are performing in order to deliver and provide valuable products or services. Porter is differentiating between primary activities and supporting activities. Primary activities are more or less focusing on generating profit margin and to exceed the cost structure of particular products. These activities are mainly enabled by supporting activities, which are industry-specific (Daft, L.R., 1983). By sourcing the activities, process flows can be mapped and can be used to isolate specific activities, in order to decrease the cost structure. Focusing back on Adidas, the company is separating their activities as following; in-/ and outbound logistics, operations, marketing and sales and services as primary activities. Supporting activities in their key industry are; procurement, research and development and human resource management. Value chain analysis examines business’ units and examines how products pass through the chain, in order from inbound logistics to service, market & sales and other sections. The information provided shows where in the chain products are slowed or altered from the intended design or its usage.
4. Competitive Advantage
One of the most important goals of Adidas has been, to develop a strong competitive advantage, in order to stay successful and survive against the large number heavyweight competitors. The industry, in which Adidas interacts, is characterized by a set of many specific features. The extreme rivalry between Adidas and its competitors, Nike, Puma or New Balance is higher than ever before. Nevertheless, most of these brands outsourced their production and re-defined themselves as brands or marketing organizations. Despite the fact that Adidas currently ranks right behind Nike in the segment of sports shoes and sportswear market, Adidas still has been a successful business enterprise right from the beginning of their establishment by Dassler in 1945. The encouragement and application of a spirit of constant and updated technological innovation and excellence has resulted in generating such a powerful competitive advantage for Adidas that its market opponents find it hard to beat. The high performance, market orientation, technological development and brand promise, created the expected value for customers. Especially the company’s policy and corporate culture, that includes providing their customers with the necessary technological applications, in order to meet and satisfy the full needs of their end-consumer. (Kumar, V. & Reinartz W. 2012).
Ultimately, this translates to tailor-made performance products for individual customers. Tailor-made is concentrating on especial product line and a particular market segment. Therefore technological superiority of its products is the primary factor of market penetration for Adidas. Nevertheless, an intense and targeted marketing mix and strategy is the second most important key driver of success. An important fact and promotional tool for products has been, to integrate celebrities and professional sport idols into their marketing mix. This strategy seemed to be very successful and generated a steady source of profit and sales. Consumers appreciated and enjoyed the emotional experience, to share the same daily products with their idols or people, who are influencing them. Furthermore, Adidas is following the main rules of Customer relationship management. Feedback from regular customers and surveys about particular products or advertisements created a high level of customer involvement and loyalty, what turned out to be the most effective strategy. These methods and tools helped Adidas to develop and build a long-term profitable customer relationship.
5.1. SWOT / TOWS
During the economic crisis in year 2009, many companies and enterprises suffered turnover, profit and had to restructure their business. Many different factors were key drivers for this crisis, but not successfully adapted strategies regarding supply and demand. Consultants, who are analyzing and advising enterprises, implement different methods and tools, in order to improve the client’s business. One of these powerful tools is the SWOT- Analysis. But what is SWOT? How should companies or consultants use this tool, in order to succeed? And the most important question is, is Adidas using or ever used this methods, if yes how did they? SWOT is expecting from its users to examine, internal strengths and weaknesses of their business and to summarize external opportunities and threats, in order to develop new strategies for improvement. (Böhm, A., 2008). After developing these ideas, the proper implementation of them is important as well as the examination itself. The TOWS-matrix ore the TOWS-analysis involves the same basic process of listing strengths, weaknesses, opportunities and threats like the SWOT analysis is claiming from its users. But furthermore the TOWS analysis is a tool that enables managers to take advantage of opportunities and minimize threats by exploiting strengths and overcoming weaknesses.
In case of Adidas the strengths are mainly, their strong brand value as one of the most successful brand, a strong and proven marketing strategy, networks and strong franchising, their leading position in the industry as one of the largest player in the industry, diversified operations in different parts of the world and the most important strength is their competitive pricing. But the enterprise has also some weaknesses. Some of the weaknesses Adidas might has to struggle with are the bad performance of Reebok in non US markets, stiff competition and similar big brands which means customers have high brand switching, high cost structure and the dependency on sport industry/athletes/sponsorships (Borowski, A. 2011). External factors are including the threats and opportunities. Increasing prices for raw materials, forged product-imitation and the tough competition in the sector with Puma and Nike are the key threats, which could menace Adidas (AdidasGroup, 2013).
It is possible to use strengths to avoid threats and to capture opportunities, with the help of the TOWS-matrix. Therefore strategies, which Adidas could use in order to capture opportunities and avoid threats could be, to use diversified operations in different parts of the world and strong brand recognition for sponsorships in growing markets and the well-considered usage of celebrities (not just for advertisement, also for opening private sport academies). To minimize internal weaknesses by capturing opportunities, the enterprise should keep their focus on their strong and proven marketing strategy, networking and their strong franchising, in order to stay competitve and build close long-term customer relationships (Borowski, A. 2011). A part of that, the acquisition of competitors could decrease cost structure and rivalry within the industry and safe their status quo for the future.
“Adidas, Deutsche Telekom, Infineon: German Equity Preview”. Bloomberg L.P. 16 January 2008. Retrieved on 15th of March from http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ah3ZhaeNWMdM&refer=germany AdidasGroup, (2013) Retrieved on 18th of March from http://www.adidas-group.com “Annual Report 2012”. Adidas. Retrieved on 10th March 2013 from http://www.adidas-group.com/en/investorrelations/financial_data/default.aspx
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