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Impossible is nothing

CASE OVERVIEW
WHO IS ADIDAS?
Adidas AG is a German sports apparel manufacturer and head company of the Adidas Group which own the Following Brands Reebok sportswear company Taylor Made- Adidas golf company (including Ashworth) Rockport
Besides sports footwear, the company also manufactures other products such as bags, shirts, watches, eyewear, and other sports- and clothing-related goods. The company is the largest sportswear manufacturer in Europe and the second-biggest sportswear manufacturer in the world, with American rival Nike being the biggest

HISTORY

Adidas was founded in 1948 by Adolf "Adi" Dassler, following the split of Gebrder Dassler Schuhfabrik between him and his older brother Rudolf. They first named the brand "Dassler Shoes"

The brother had a conflict and Rudolf decides to start his own company named Puma
Registered in 1949, Adidas is currently based in Herzogenaurach, Germany, along with Puma.

HISTORY
In the year 2006, Adidas businesses were organized under three units 1. Adidas divided the brand into three main groups with each a separate focus: A. Adidas performance or Sport B. Adidas Originals or Sport style C. Style essentials - the main group with Y-3

2. Reebok 3. Taylor-made Adidas Golf.

BRAND LOGO
The company's Brand Portfolio
Sport Style Division or Three Parallel Bars The authentic foot wear for the fashion group. Uniquely inspired and linked to Sport Sport Performance Division or "Three Stripes This aim to bring great products for athletes Inspired in Sports and Womens Fitness Reebok-CCM Hokey and Rockport included in this brand

To focus on consumer that seeks performance-enhancing golf equipment. Part of this brand is Adidas Gold and Ashworth

Company highlights:

1949: The three stripes were applied to the products as registered trademark of the brand. String Innovations with molded rubber cleats. 1952: Innovation of track shoes with screw-in spike. 1954: Concept expansion of soccer shoes with screw in studs which partially credited for Germanys World Cup Championship. 1960: Adidas was the clear favorite among athletic 1963: The company began selling soccer balls 1967: The company began producing soccer athletic apparel 1970: Adidas became the leading brand of consumer jogging shoe in America. 1978: Adidas remained the worldwide leader in athletic foot wear, but the company was rapidly losing market share in the US. Adi Dassler death.

Company highlights:

1987: Horst Dassler unexpected death. 1990: Adidas has fallen to be the number eight ranking in the US andheld only 2% market share. 1993: Controlling of the company was acquired by the group of investor led by French advertising executive Robert Louis-Dreyfus were he launched a dramatic turn-around of the company. (Cutting cost, improving style, launching new models, and creating new promotional events.) 1994: Adidas increase its annual sales in US by 75% and improve its market share which made them become the third largest seller of athletic footwear in US. 1995: Outfitted 6000 athletes in the Olympic Games in Atlanta.

Company highlights:

1997: Get a celebrity endorser(Kobe Bryant, Anna kournikova and David Beckham. 1998: Acquisition of French sporting goods and manufacturers and marketer Salomon SA. The acquisition diversified the company footwear and apparel as ski equipment golf club, bicycle components and winter sports apparel. 1999: Adidas Solomon management announced that synergies from the merger would amount to less than one half of initially projected. 2000: Deyfruss step down from Adidas. 2001: Herbert Hainer was tapped as replacement of deyfruss : the company expanded into company-owned retail stores in Berlin, Tokyo, Amsterdam and Paris. 2006: The company of acquisition Reebok International

Company Mission Statement


CORPORATE MISSION STATEMENT The Adidas Group strives to be the global leader in the sporting goods industry with sports brands built on a passion for sports and a sporting lifestyle.
We are dedicated to consistently delivering outstanding financial results. We are innovation and design leaders who seek to help athletes of all skill levels achieve peak performance with every product we bring to market. We are consumer focused and therefore we continuously improve the quality, look, feel and image of our products and our organisational structures to match and exceed consumer expectations and to provide them with the highest value. We are a global organisation that is socially and environmentally responsible, creative and financially rewarding for our employees and shareholders. We are committed to continuously strengthening our brands and products to improve our competitive position.

Company Slogan

SWOT ANALYSIS:
Internal Analysis
STRENGHT: Styles are distinguished from other brand by three stripes applied to each side of the shoe. Product strongest category is soccer with market shares of 50% than Europe. Product innovation on its features and used. Asia is Adidas largest market share The upper and middle price market can be covered. Reebok and Adidas can share R nD pattents and innovations.

External Analysis
OPPORTUNITIES: Big company opportunity in North America market because it was the largest market for athletic apparel. Market for sports lifestyle apparel and footwear is growing faster. Expand fashion marketing through more fashion based endorsements rather than sports. Golf equipment selling price in Asia is higher than any place in the world.

WEAKNESSES: Adidas product small sales contribution is the street wear and lifestyle fashion Complexity of joining two corporate cultures Different values among management. (British and German)

THREATS: Declining attractiveness of the winter sports industry and integration problems between the Adidas foot wear and apparel business. Nike strong reputation in the footwear and apparel industry. Nikes growing market share in sportswear, mainly footwear The Golf equipment industry reach the maturity on product cycle.

Strategic Implication

Unrelated and Related Diversification Strategy Acquisition of Salomon SA (Related or Unrelated?)


The acquisition diversified Adidas footwear and apparel in a broader business like ski equipment golf club, bicycle components and winter sports apparel.

Acquisition of Reebok International (Related or Unrelated?)


The merger diversified the company footwear and apparel to become stronger financially And share same value chain.

Diversification
Why Adidas acquire Solomon? 1. Loius-Dreyfus see opportunities to expand into industries whose technologies and products complement Adidas present business. 2. Dreyfuss though Adidas powerful brand name it can transfer to products of Solomon to increase sales and profits of these businesses 3. He also consider all the risk related in a Single Business Strategy Acquisition of Salomon SA (Related or Unrelated?) Concept: New Industry w/ Economies of Scope The acquisition diversified the company footwear and apparel as ski equipment golf club, bicycle components and winter sports apparel.

Diversification
Why Adidas acquire Reebok 1. Herbert Heiner see it can reduce costs by diversifying into closely related businesses 2. Adidas powerful brand name can be transfer to Reebok to increase sales and profits of footwear business. Acquisition of Reebok (Related or Unrelated?)

Concept: Merger with good Strategic Fit Reebok acquisition will ask question is how well Adidas will manage its new portfolio and executes new products and marketing plans that allow the two big brands to complement each other rather than duplicate efforts.

Test of Resource Fit

Test Resource fit for the two acquisition:


Acquisition of Salomon SA - Not very good Strategic Fit
X X X X Poor Financial Fit Fails because it soaks up financial resources of Adidas AG RnD fit - Cant Directly transfer technology advancement of Adidas Supply Chain Fit - Different raw Materials needed in some of the products Manufacturing Different Assembly line required Distribution Can use same Distributor for General Sports Shop Marketing - Can use the same sales Force

Acquisition of Reebok International Very Strategic due to almost same Value Chain
R&D and Technology Fit Rbk and Adidas product Athletic Wear Supply Chain Fit Greater bargaining Power by sourcing to same supplier Manufacturing Fit Expertise in Athletic wear production can be transferred Distribution Fits Can use same distributor to access csutomer Marketing Fits Can have reduction is Sales Force

Strategic Implication

External and internal analysis: Products are innovated with differentiation to its other line of business. Asia is the strongest country in sales Less focus on improving their street wear and lifestyle fashion products Less focus on product specialization

Value Chain Activities

Supply Chain Activities

Technology And RnD

Operations

Sales and Marketing

Distribution

Customer Service

Value Chain is not Strategically Fit


Supply Chain Activities

Technology Amd RnD

Operations

Sales and Marketing

Distribution

Customer Service

Parent Company
Supply Chain Activities

Value Chain is Strategically Fit


Technology And RnD Operations Sales and Marketing Distribution Customer Service

QUESTION: 1
What is adidas corporate strategy? Was there a common strategic approach utilized in managing the companys lineup of sporting goods businesses prior to its 2005 2006 restructuring?
Has the corporate strategy changed with restructuring?

ANSWER: 1
Adidas-Salomons corporate strategy (1998 2004):
Diversified into a mix of sporting goods businesses, most of which had branded apparel among the product line. Less focus on product specialization Salomon and TaylorMade are clearly related businesses. Product development, manufacturing and assembly, and distribution activities for Salomon and TaylorMade sporting goods equipment were unrelated to the value chain activities of the athletic footwear and apparel business. Also, the value chains for each equipment business (winter sports, bicycle rims, and golf clubs) were very dissimilar. This are unrelated diversification outside the apparel and footwear operations of each business.

ANSWER: 1
Adidas post-restructuring corporate strategy (Since 2005): Adidas restructured business lineup has focused the product line on athletic footwear and apparel and golf equipment. The acquisition of Reebok also added hockey equipment and Rockport footwear, but these businesses make up a relatively minor part of Reebok Internationals revenues. The value chains of TaylorMade and CCM hockey equipment are dissimilar to that of adidas footwear and apparel businesses, the companys corporate strategy after 2006 is best described as primarily related diversification.

QUESTION: 2

What is your evaluation of adidas 1998 acquisition of Salomon SA? Did the acquisition achieve the Robert Louis-Dreyfus objective of putting together the best portfolio of sports brands in the world? What does a 9-cell industry attractiveness/business strength matrix displaying adidas-Salomon s business units look like?

ANSWER: 2
The Acquisition of Solomon did not quite prove to be a profitable move. Adidas didnt uncover the purpose of being the cash hog for Solomon. Solomon didnt deliver of what was expected during the acquisition.

To draw a 9-cell industry attractiveness/business strength matrix for adidas using rigorous methodology, we conduct industry attractiveness ratings for each of the industries in which adidas competes.

9-Cell Industry AttractivenessCompetitive Strength Matrix


Table 1 Industry Attractiveness Assessment for adidas Businesses
(Scale 1 = very low attractiveness, 5 = average attractiveness, 10 = very strong attractiveness)
Unweighted/Weighted Ratings

Attractiveness Measure
Market size and growth rate

Weight
0.20

Athletic Footwear & Apparel


7/1.4 5/1.25 5/.75

Golf Equipment
4/0.8 5/1.25 6/0.9

Casual Mens Footwear


4/0.8 5/1.25 4/0.6

Hockey Equipment
2/0.8 5/1.25 10/1.5

Industry profitability Intensity of competition

0.25 0.15

Emerging opportunities and threats 0.05 Resource requirements 0.10 Product innovation Social, political, environmental, factors 0.05 Totals 1.00 9/.45 6.75 9/.45 6.45 9/.45 5.1 9/.45 5.6 0.20 8/0.8 9/1.8 7/0.7 10/2.0 8/0.8 5/1.0 6/0.6 4/0.8 6/.3 7/.35 4/.2 4/.2

9-Cell Industry AttractivenessCompetitive Strength Matrix


Table 2 Competitive Position/Business Strength Calculations for
adidas Business Units
(Scale 1 = very weak, 5 = average, 10 = very strong)

Unweighted/weighted Strength Ratings

Strength Measures
Relative market share

Weight
0.20

adidas
6/1.2

Reebok
4/0.8

TaylorMadeadidas Golf
8/1.6

Rockport
2/0.4

CCM/Rbk Hockey
10/2.0

Marketing and promotion


Product innovation capabilities Distribution capabilities How well resources are matched to industry KSFs Brand name recognition/image Totals

0.25
0.15 0.10

8/2.0
9/1.35 9/0.9

6/1.5
7/1.05 7/0.7

10/2.5
9/1.35 10/1.0

2/.5
7/1.05 6/.6

6/1.5
6/.9 6/.6

0.10 0.20 1.00

10/1.0 8/1.6 8.05

10/1.0 6/1.2 6.25

10/1.0 10/2.0 9.45

8/0.8 7/1.4 4.75

10/1.0 10/2.0 8.0

ANSWER: 2
Upon evaluating on the data, there is a little disagreement on athletic footwear and apparel. The golf equipment rank as its most attractive industries. The data shows that hockey equipment and casual mens footwear have only a modest level of attractiveness. Due to small market size and slow growth with low profitability. The emerging opportunities are very few.

ANSWER: 2
Its quite clear from the case that adidas possessed considerable strength in its core athletic footwear and apparel business in every market outside North America Adidas nor Reebok were serious challengers to Nike in the United States or other markets in North America. Adidas was quite strong in Europe, Latin America, and Asia making it a respectable worldwide runner-up to Nike. TaylorMade-adidas Golf had a great deal of business strength, which was also the case for CCM/Rbk hockey. Rockport held only a moderate amount of competitive strength in the casual mens footwear industry.

Figure 1 Sample IndustryAttractiveness/Competitive Strength Matrix of Adidas Businesses

QUESTION 3:
Did adidas business line-up prior to the divestiture of Salomon and Mavic exhibit good strategic fit? What value-chain match-ups existed? What opportunities for skills transfer, cost sharing, or brand sharing were evident? What strategic fits will be possible once Reebok International is acquired?

ANSWER:3

We need to understand what is the strategic fit opportunities between adidas and Reebok branded athletic footwear and apparel. Based from the value chain showed earlier, the two brands have opportunities to share product development activities, contract manufacturing relationships, and international distribution channels. Ther are also strategic fit opportunities existing between Rockport and adidas athletic footwear in product design, production, and distribution. Strategic fits also exists between aadidas apparel business, Rbk, and Ashworth. The image building, sales, and marketing activities of all businesses are very similar and offered considerable skills transfer benefits across the company.

ANSWER:3
Few strategic fit opportunities in purchasing, product development, or manufacturing between Adidas apparel and footwear businesses and its sports equipment businesses (golf clubs and hockey equipment). The purchasing, product design, and production activities for hockey equip-ment and golf equipment are undoubtedly very dissimilar. Good strategic fit in distribution and sales and marketing between golf equipment and golf apparel and between hockey equipment, hockey skates, and hockey apparel. We agree brand sharing opportunities existed for TaylorMade golf equipment, Adidas branded golf apparel and footwear, and Ashworth golf apparel. Customer service activities of these business groups could respond to retailer queries concerning equipment or apparel.

ANSWER:3

Adidas have great difficulty combining customer service activities for businesses with no common retailers (i.e. mens casual footwear, hockey equipment retailers, golf equipment retailers, and traditional sporting goods retailers Strategic fit between adidas core athletic apparel and footwear business and the divested Salomon winter sports business have few potential strategic fits existed. The greatest opportunities to share costs or transfer skills between the business units were related to apparel design and manufacturing. Adidas was likely able to use common contract manufacturers to produce both athletic apparel and ski apparel.

QUESTION: 4

Has adidas business line-up exhibited good resource fit between 1998 and 2007? What have been the financial characteristics of its major business segments during that time period? Which businesses might have been considered cash hogs and cash cows?

Table 3 Selected Financial Ratios for Adidas, 1998 2005

2005

2004

2003

2002

2001

2000

1999

1998

Gross Profit Margin

48.2%

48.0%

44.9%

43.2%

42.6%

43.3%

43.9%

41.9%

Operating Profit Margin

10.7%

10.0%

7.8%

7.3%

7.8%

7.5%

9.0%

8.2%

Net Profit Margin

6.4%

5.6%

4.1%

3.5%

3.4%

3.1%

4.2%

4.0%

Return on Assets

N/A N/A

N/A N/A

N/A N/A

N/A N/A

N/A N/A

N/A N/A

N/A N/A

N/A N/A

Return on Equity
N/A N/A N/A N/A N/A N/A N/A N/A

Debt to Assets
N/A N/A N/A N/A N/A N/A N/A N/A

Current Ratio
N/A N/A N/A N/A N/A N/A N/A N/A

Inventory Turnover

N/A Not available. Calculated from case Exhibits 1 and 3.

ANSWER: 4
Table 3 will note that adidas gross margins, operating profit margins, and net profit margins have all declined since its restructuring began in 2005. The companys current ratios for 2006 and 2007 seem to indicate that Adidas has ample liquidity, but we accounts receivable and inventories made up 77% and 74.6% of its current assets in 2006 and 2007, respectively. The company has also unimpressive inventory turns of 3.5 and 3.3 in 2006 and 2007, respectively.

Table 4 Operating Profit Margins by Adidas Business Segment, 1998 2005

2005

2004

2003

2002

2001

2000

1999

1998

Adidas

11.8%

10.9%

7.4%

6.7%

7.3%

8.4%

9.7%

9.5%

Reebok

--

--

--

--

--

--

--

--

TaylorMade-adidas Golf

7.1%

7.6%

10.5%

10.5%

11.6%

10.0%

9.2%

7.6%

Salomon

--

1.4%

5.3%

5.7%

8.8%

8.7%

5.5%

1.2%

Table 5 Operating Profit as a Percentage of Operating Assets for Adidas Business Segments, 1998 2005

2005

2004

2003

2002

2001

2000

1999

1998

Adidas

27.4%

27.0%

16.8%

15.0%

18.0%

17.1%

21.7%

23.8%

Reebok

--

--

--

--

--

--

--

--

TaylorMade-adidas Golf

7.2%

7.8%

17.1%

17.1%

19.9%

20.1%

19.2%

20.2%

Salomon

--

1.8%

6.7%

6.7%

9.3%

10.8%

6.0%

1.0%

ANSWER: 4
In this adidas athletic footwear & apparel and TaylorMade Golf are the financial strength of the portfolio. From Table 4. The operating profit margins of both business units during 1998 - 2004 exceeded that of the Salomon business unit in each year except 2000 and 2001. In addition, the operating profits as a percentage of operating assets for the adidas unit and TaylorMade unit were much better than that of Salomon in all years between 1998 and 2004. Y The exception of Salomons performance in 2004, Reeboks operating profit margins are no more attractive than those recorded by Salomon. The financial ratios shown in Table 5 provide further evidence that neither Salomon nor Reebok are strong resource contributors to adidas. Reeboks poor performance is largely responsible for the companys overall decline in profit margins since 2005.

Cash Cow and Cash Hog 1998

Cash Cow and Cash Hog 2005

Table 6 Estimated Cash Flow For Adidas Business Units, 1998 - 2005

Adidas

2005

2004

2003

2002

2001

2000

1999

1998

Operating Profit + Amortization and depreciation - Capital expenditures


Estimated Cash Flow Reebok Operating Profit + Amortization and depreciation - Capital expenditures Estimated Cash Flow

693 69 138
624

564 56 85
535

365 56 63
358

343 63 84
322

352 57 113
296

391 52 93
350

431 45 105
371

412 48 102
358

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-----

-----

-----

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TaylorMade-adidas Golf Operating Profit


+ Amortization and depreciation - Capital expenditures Estimated Cash Flow

50
13 17 46

48
11 9 50

67
9 12 64

74
7 49 32

63
6 16 53

44
4 12 36

30
4 10 24

20
2 16 6

QUESTION: 5
Based on your analysis of adidas-Salomon businesses, did the 2005 restructuring make sense? Does it appear the acquisition of Reebok International will produce positive results for shareholders? What strategic actions should adidas CEO Herbert Hainer initiate to improve the company s financial and market performance now that the restructuring is nearing completion?

ANSWER: 5

The divestiture of the Salomon winter sports and Mavic bicycle components businesses was a good decision. The two businesses offered little strategic fit beyond what was possible in apparel and was a drag on earnings. There are also on the ability of the Reebok International acquisition to improve the companys poor performance in the North American marketplace for athletic footwear. Reebok branded footwear gave the company a combined market share of approximately 21% in North America, there was little evidence that the acquisition helped adidas close the competitive gap with Nike. The Reebok acquisition was intended to address the companys weakness in the mens basketball category of the North American athletic footwear market but Reebok was no stronger in the basketball category than adidas. Reeboks strength in footwear markets focused on beginning runners and womens casual shoes contributed to its low profit margins because of the likely strong price competition in those segments.

ANSWER: 5

We also recommend to allow Adidas and Reebok to match Nikes 36% market share in North America. Position Adidas as a technology leader and Reebok at lower price. This will likely increased sales in international markets because they increase in market segment of Mid-To0High price segment. Support growth in international markets, by expansion of company-owned retail stores in Latin America, Eastern Europe, and Asia.

ANSWER: 5
Adidas towork diligently to capture expected costsharing benefits between Adidas and Reebok operations of 105 million. Integration efforts should also apply to Rockport, CCM/Rbk Hockey, and Ashworth business units. The must find ways to Blend the two companies distinctly different cultures and leadership styles (German and English)

ANSWER: 5
The company must also give TaylorMade Golf adequate investments to maintain technological leadership in the golf equipment industry. Innovation is a strength of the business and must remain a central element of its strategic approach to competition. The company must also move to capture strategic fit opportunities existing between adidas Golf apparel and Ashworth apparel operations. Adidas management continue its exit from the golf ball segment of the golf equipment industry with the divestiture of golf balls segment.