PRESENTED BY:NOORSEHA , FARAH DAHLIA

FARAHIYAH, ZEPHANIA THAISAYI OPATI

SUMMARY• Adidas AG’s corporate strategy is to try and take over the number one

position from Nike as the leader of the global sporting goods industry. Its strategy was acquisition that would build up its capacity and capabilities and position it with greater power of bargaining, with suppliers, acquire economy of scales, wide distribution network, and variety of products and economies of scope.

These are the highlights of the company:• 1998 -acquisition of French sporting goods manufacturer and marketer

Salomon SA• 2005-Adidas management divested all of Salomon’s winter sports and

bicycle components brands to Amer Sports Corporation for €485 million. • In 2006- it acquired the Reebok branded athletic footwear and apparel,

which designed, marketed, and sold Rockport footwear, Greg Norman apparel, and CCM hockey equipment.

• Whether acquisition will help Adidas to increase shareholder value?

HISTORY• 1949-The foundation: 'Adi' from Adolf and 'Das' from Dassler.

• 1950s- The 'Miracle of Bern’: Germany battle Hungary with a competitive advantage. They are wearing Adidas soccer boots which for the first time feature removable studs.

• 1960s- Adidas manufactures equipment for what some consider "fringe sports". Unconventional high jumper Dick Fosbury launches himself up and over in Adidas footwear.

• 1970s-The “Adidas" team wins: Crowning moment: Franz Beckenbauer, the "Kaiser", raising the World Cup in victory salute. Germany had just beaten Holland 2-1 in the 1974 final.

Contd….• 1980s-The transition: After Adi Dassler's death, Adi's wife

Käthe, his son Horst, and his daughters carry on the business.• 1990s-New management: Under the CEO Robert Louis-

Dreyfus, Adidas is moving from a manufacturing and sales based to marketing company.

• 1995- Adidas goes public: Flotation of the company on the Frankfurt and Paris Stock Exchange.

• 1996- A splendid year: Provide 6,000 Olympic athletes from 33 countries.

• 1998- Adidas-Salomon AG: Adidas AG acquires the Salomon Group with the brands Salomon, TaylorMade, Mavic and Bonfire in December 1997.

Contd…• 2000-New management: The new management initiates an

ambitious Growth and Efficiency Program. Major sports events eg. the European Soccer Championship EURO 2000™, the Olympic Summer Games.

• 2005-Sale of Salomon: The Salomon Group (including Salomon, Mavic, Bonfire, Cliché and Arc’Teryx) is being sold to Amer Sports in October 2005. They are focusing in the athletic footwear and apparel market as well as the growing golf category.

• 2006-Adidas-Salomon AG acquires Reebok : The closing of the Reebok transaction on January 31, 2006 marks a new chapter in the history of the Adidas Group.

VISION

Strives to be the global leader in the sporting goods industry with sports brands built on a passion for sports and a sporting lifestyle.

MISSION• Continuously strengthen our brands and products to

improve our competitive position and financial performance:

Adidas-Footwear, apparel, accessories

Reebok-Footwear, apparel and accessories

TaylorMade-adidas -Golf Equipment: metalwoods, irons putters,

ADIDAS GROUP BRANDS

ADIDAS’ CORPORATE STRATEGY

Acquisition Salomon SA

(1998)

• diversified it beyond •footwear and apparel and into ski equipment,

golf clubs,bicycle components, and winter sports apparel.

• focused on extending its leadership in product innovation, creating a differentiated image for the products offered by each of its three business segments, expanding controlled retail space through its network of company owned stores, and achieving efficiencies in its global supply chain process and activities.

DivestitureSalomon’s winter sports

and bicycle components business

(October 2005)

•

• to Amer Sports Corporation for €485 million.

• The divestiture of Salomon’s winter sports and bicycle components business would make TaylorMade Golf the lone business retained from the company’s 1998 acquisition of Salomon SA

• Adidas-Salomon’s shareholders approved a resolution to change the company’s name to Adidas AG.

Acquisition Reebok

International Ltd. (2006)

• Announce in August 2005 that it would acquire Reebok International Ltd. for €3.1 billion.

• the final component of a restructuring initiative that would focus the company’s business lineup primarily on athletic footwear and apparel and golf equipment by 2006.

• Adidas as a technologically superior shoe designed for serious athletes

• Reebok would be positioned as leisure shoe that would sell at middle price points.

• Adidas divested the Greg Norman golf apparel line shortly after the completion of the Reebok acquisition.

• In 2008, Adidas’s businesses were organized under three units based around the company’s core brands which are Adidas, Reebok, and TaylorMade-Adidas Golf.

ADIDAS AG’S EXTERNAL CONSIDERATION

• The outlook for the company with its present product/market/customer and strategic direction– Besides sports footwear, the company also produces other products

such as bags, shirts, watches, eyewear and other sports and clothing related goods.

– The company’s 1998 acquisition Salomon SA diversified it beyond footwear and apparel and into ski equipment, golf clubs, bicycle components, and winter sports apparel.

– Reebok's focused strategy is on the engagement of youth through sports, music, and technology

– Adidas' focus is on superior technology and performance, coupled with a large international presence. Adidas has positioned part of its product range in the lifestyle segment, but the company relies on the performance market. Lifestyle success to an authentic company is a bonus.

• Adidas will benefit from increased distribution in North America, where Reebok already has a significant presence. The addition of Reebok will enhance not only its position among the top US distributors, but will also give Adidas-Reebok more power over promotions and in-store displays.

• Reebok has an extensive line of men and women's apparel. The new company can combine Reebok's apparel with Adidas' new addition of fashion designer Stella McCartney, who has created an apparel line that integrates both sport and style. This innovative move shows that Adidas continues to look for new opportunities and markets in order to gain a competitive advantage.

• The Reebok brand will also gain sustainable competitive advantage through increased brand recognition. Globally, Reebok will benefit greatly from Adidas' distribution around the world. Coupled with the cost savings and increased cash flow, Reebok's marketing resources could increase.

New customer groups and geographic markets should

the company get in position to serve • The sportswear market can be split into two separate markets:

– Sports Performance Group and – Sport Style Street wear/life style fashion group

• The mass-market for sportswear initially developed in the 1980's with the growth of the training shoe market.

• The worldwide sales of athletic apparel and footwear for athletes and those drawn to sport-inspired products totaled nearly $125 billion in 2007.

• The annual growth rate for the global athletic footwear and apparel industry had slowed from 6.8 percent in 2005 to 3.3 percent in 2007.

• At about $42.5 billion, North America was the largest market for athletic apparel and footwear but its 3 percent annual growth rate was greater than only Europe’s 2 percent annual growth rate among all developed and emerging markets for athletic apparel and footwear.

• Markets in Eastern Europe, south and Central Asia, and China grew at rates of 20 percent, 13 percent, and 15 percent, respectively, between 2006 and 2007.

Emerging market opportunities the company ought to pursue

• Eastern Europe– Sales had grown by as much as 50 percent annually in Rusia and other former Soviet

states such as the Ukraine, Armenia, and Belarus to give it a 2-to-1 margin over runner-up Nike

– Adidas management expected Rusia to become its largest and most profitable market in Europe by 2010.

• Asia – was projected to become Adidas’s largest market overall within the near term because

of the strong demand for athletic footwear and apparel in Asia country markets.– Asia up more than two-thirds of the world’s population in 2008 and was projected to

grow from 3.2 billion people in 2008 to 3.6 billion people by 2028.

• Women– There is also a new trend in consumer behavior and women are getting a bigger

influence in all buying decisions and more and more companies realize this and redirect their advertising towards women. This, as well as their increased interest for sports, should make women an obvious target for Adidas-Reebok and their advertising.

ADIDAS AG’S INTERNAL CONSIDERATION

• Company ambitions– The company’s corporate strategy since 2008 was focused

on extending its leadership in product innovation, creating a differentiated image for the products offered by each of its three business segments, expanding controlled retail space through its network of company owned stores, and achieving efficiencies in its global supply chain process and activities.

– Going into 2009, there were signs that Adidas AG’s corporate strategy were bringing about the hoped-for improvement in the company financial performance.

Present business generates sufficient growth and profitability to please shareholders

• During the first six months of 2008, corporate revenues increased by 12 percent, with sales for the Adidas business unit growing by 16 percent and sales at TaylorMade-Adidas Golf growing by 11 percent.

• Sales at Reebok declined by 2 percent during the first six months of 2008. The revenue growth and cost savings resulting from the Reebok integration allowed Adidas AG’s gross margin and operating margins to improve by 2.5 percentage points and 1.1 percentage points, respectively, during the first half of 2008.

• Earning per share increased by 25 percent during the first half of 2008, the company’s improvement in free cash flow allowed the company to buy back nearly 7.7 million shares at an average price of €41.35 per share.

• According to the financial summary for Adidas AG from 1998 until 2007, the dividends per shared was also keep increasing year by year from €0.21(1998) until €0.50 (2007).

Company resource strengths and its ability to add new products and get into new businesses.

• Reebok have a loyal following among women participating in general fitness training, walking, and aerobic.

• In 2008, Adidas management had chosen to use the Reebok brand of athletic footwear to focus on beginning and recreational runners and women athletes participating in running, aerobics, walking, and training.

• The company developed a variety of new styles and color combinations that were intended to appeal to women– partnership with the Avon Walk around the World for Breast Cancer

charitable organization to increase awareness of the Reebok brand among women.

Company stretching its resources too thin by trying to compete in too many product categories

or market arenas, some of which are unprofitable

• Reebok – At the time of its acquisition by Adidas, the Reebok brand had suffered from a poor

reputation for quality, innovation, and styling. Thus, Adidas management had also undertaken efforts to improve Reebok’s image in men’s sport with endorsements from such professional athletes as Peyton and Eli Manning, Allen Iverson, Yao Ming, David Ortiz, and Vince Young.

– Beginning in 2008, the company increased Reebok’s distribution network to include a greater number of large sporting goods stores and department store.

• TaylorMade-adidas Golf– In 2008, TaylorMade was the largest seller of drivers, fairway woods, and hybrid clubs.

TaylorMade also produced and market a line golf balls but had not achieved any significant market success in the product category.

Successful new product innovationsFor Adidas AG, each business unit was expected to develop at least onemajor product innovation per year in each product category.

• In 2008, TaylorMade Golf introduced its r7 CGB Max Limited driver, which incorporated nine movable weights and interchangeable shafts allowed golfers to make adjustment to the club that could produce more than 1,000 different ball flight trajectories.

• In 2007, the Adidas athletic footwear and apparel division introduced its innovative SuperNova and Response running shoe families and a StellaMcCartney gym and yoga Apparel collection.

• Reebok’s major product launches in 2007 included its Trinity KFS III running shoes and Reebok Edge uniform systems for hockey. The company also improved the comfort of its Rockport footwear collection in 2007 by incorporating its Torsion system developed for Adidas running shoes.

Financial Objectives • According to the financial summary for Adidas AG from 1998 until 2007,

the company financial performance was reported a good signs, which increased from €5,065 (1998) to €10,299 (2007).

• Beside that, the dividends per shared was also keep increasing year by year from €0.21(1998) until €0.50 (2007).

• The Reebok acquisition increased the company’s revenues from €5.8 billion in 2005 to €10.1 (approximately $13.3 billion) in 2006 and bought it closer to Nike, which ended fiscal 2006 with total revenues of $14.9 billion by year-end 2007

• Adidas management expected that the Reebok acquisition would boost 2008 revenues by an additional €250 million.

• Going into 2009, there were signs that Adidas AG’s corporate strategy were bringing about the hoped-for improvement in the company financial performance.

• During the first six months of 2008, corporate revenues increased by 12 percent, with sales for the Adidas business unit growing by 16 percent and sales at TaylorMade-Adidas Golf growing by 11 percent. Sales at Reebok declined by 2 percent during the first six months of 2008.

• The revenue growth and cost savings resulting from the Reebok integration allowed Adidas AG’s gross margin and operating margins to improve by 2.5 percentage points and 1.1 percentage points, respectively, during the first half of 2008.

• Earning per share increased by 25 percent during the first half of 2008, the company’s improvement in free cash flow allowed the company to buy back nearly 7.7 million shares at an average price of €41.35 per share.

Strategic Objective• Adidas AG management expected the company to winning China market to become the

company’s second largest market after the United Stated by the end of 2008.

• The integration of Adidas and Reebok supply chain activities was expected to result in cost saving of €105 million by year-and 2008 and contribute to improvements in both the company’s gross margins and bottom lines.

• The company's continuous commitment towards new product innovations not only improved revenues but also helped in strengthening its relationship with its customers and attracts new customers.

• Efficient supply chain management was critical to Adidas’s profitability because of the importance of getting new styles to market quickly and because of importance of low cost manufacturing.

• Adidas kept its production costs low by outsourcing more than 95 percent of its production requirements to contract manufacturers located throughout Asia. In 2005, the company launched an initiative called World Class Supply Chain to improve coordination with its contract manufacturers, get new products to market more quickly, and lower costs.

S.W.O.T ANALYSISStrength• In many invents is the biggest sponsor• Strong management team• Brand recognition and reputation• Diversity and variety in products offered on the web (footwear, apparel, sporting equipment, etc.)• Strong control over its own distribution channel• No bad reputation like child labor or environment pollution• In the Soccer industry, Adidas has a stronghold

Contd…

Weaknesses• High prices in some products• E-commerce is limited to USA• The direct sale to consumers is creating

conflicts with its own resellers• Online customer service not "helpful" or easy

to find

Contd…Opportunities• Increase female participation in athletics Adidas by Stella McCartney• Collaborate with other online retailers to offer Adidas products• Possibility of outsourcing the web development and e-commerce to

a third party developer Threats• Nike's strong reputation in the footwear and apparel industry• Negative image created by the sponsored athletes (i.e. Kobe Bryant

and his sexual assault case)• Increase in the Price of Raw materials• Continuing challenges in import/export duties

PEST ANALYSISPolitical• control and monitor hazardous substance to

protect human health and environment • manage and monitor SARS in Asia factory• protects and supports the rights of its employees

by following all the current employment laws

Economic• decrease unemployment by increasing the

number of employees every year

Contd…

Social• products are always in fashion with unique design• focus on sports and athletics enthusiast

Technology• maker of world’s first smart shoes - microchip and

wireless mp3 player inside shoes• efficient production

FIVE FORCES ANALYSIS• Threat of New Entrants

High due to the large economies of scale needed for manufacturing, distribution, research and development, and other operations.

• Threat of SubstitutesSubstitutes for Adidas products come from rival manufacturers such as Nike, Puma, Asics, and New Balance. In addition to large rivals, substitutes come from smaller and more localized companies around the world.

• Bargaining Power of BuyerCustomers carry large bargaining power as they can always threaten to buy rival products. Switching costs are typically very low due switch to a rival’s products if the rival offered trendier or hotter product.

Contd…• Bargaining Power of Supplier

The suppliers’ bargaining power is high as well, since Adidas makes contracts with famous athletes or teams (such as Chelsea FC, Liverpool FC, NY Giants, LA Lakers, David Beckham), to promote and advertise its products.

• Intensity Rivalry between Existing Competitors Adidas largest rival is sporting apparel giant Nike, which controls over 36% of the worldwide market for athletic shoes. In addition, other much smaller rivals in the United States and Europe include Puma, Asics, and New Balance. In China, Adidas faces competition from Li Ning, China’s biggest athletic shoe manufacturer.

NEW STRATEGIES• Work to Rebrand Reebok Image

-Reposition itself in the casual footwear and active footwear market -consider opening Reebok retail outlets that market Reebok as highly fashionable or begin marketing Reebok at more upscale department stores.-Reebok should make sure it maintains a very high level of quality and durability of its shoes.

• Focus on Emerging Markets-Emerging markets in Asia and Latin America -For local market Eg. forming strategic partnerships with local apparel manufacturers in attempt to control local manufacturers’ competitive strengths.

• Focus marketing efforts at large sporting events on key products-Market its shoes at the events by providing one of the championship teams with its products. If the team wins, Adidas should immediately inform spectators about the Adidas shoe that the winning team used and attribute part of the victory to the Adidas shoe.

VALUE CHAIN • Adidas, Salomon and TaylorMade are related

businesses.• The product development, manufacturing and

assembly, and distribution activities for Salomon and Taylor Made sporting goods equipment unrelated

• the value chains for each equipment business (winter sports, bicycle rims, and golf clubs) were very unrelated.

• Even though the value chains of TaylorMade and CCM hockey equipment are dissimilar to that of Adidas’ footwear and apparel businesses, the company’s corporate strategy after 2008 is best described as primarily related diversification

Few Brands Many Brands

Low Reputation /Perform

ance HighM

AP A

PPLI

CATI

ON

STRATEGIC FIT • Contract manufacturing relationships, • International distribution channels. • Product design, production, and distribution. • Brand building, sales, and marketing activities• Purchasing, • Product development, • Share costs or transfer skills.

Any improvement

• the company’s poor performance in the North American marketplace for athletic footwear.

• there was little evidence that the acquisition helped Adidas close the competitive gap with Nike.

• The Reebok acquisition was intended to address the company’s weakness in the men’s basketball

CONCLUSION• 2003,5years had adidas’ earnings per share enjoyed in

1997. • Stock price failed to return to its 1998 trading range until

2004. • Reebok acquisition increased revenues from €5.8 billion

2005 to €10.1 ($13.3 billion) 2006 to Nike, $14.9 billion. • Adidas revenues grown to €10.3 billion 2007 and Adidas

expected that the Reebok acquisition to boost 2008 revenues by €250 million plus .

• Adidas possessed strong footing outside US , but neither Adidas nor Reebok were serious challengers to Nike in the United States or other markets in North America

• Strengthen marketing activities in USA

Cntd...

• In 2008 the combined market shares of Reebok and adidas were 15 points less than Nike’s 36% market share in North America. However, adidas was quite strong in Europe, Latin America, and Asia—making it a respectable worldwide runner-up to Nike..

RECOMMENDATION

• The company’s wanted to position Adidas as a technology leader and Reebok at lower price points has increased sales in international markets are more likely to produce overall sales gains. In international markets, they should continue

• should argue for the expansion of company-owned retail stores in Latin America, Eastern Europe, and Asia.

• Company work diligently to capture expected cost-sharing benefits between Adidas and Reebok operations thus by Integration efforts should also apply all the business units.

• It should chisel its innovation is strength of the business and move to consolidate areas where there are strategic fit opportunities. A reduction in good in stock can liquidate cash would free up additional capital to make strategic investments necessary to close the gap with industry leader Nike.