Universit Paris

Dauphine
Strategic Management Group 4

Strategic analysis of the adidas AG

Rebecca LANGER
Marie DIBATISTA
Ahmed DAMA
Matthieu DORNER

Adidas is a German multinational company based in Herzogenaurach, Germany. It has been created in 1924 and
was called Dassler Schuhfabrik. In 1949 the brand finally took the name adidas, as we know it today. Adidas is a
shoes, clothing, and accessories designer and manufacturer. It is the largest sportswear manufacturer in Europe,
and the second largest in the world. Adidas revenue for 2016 was listed at 19.29 billion. Adidas counted 2811
stores (concept stores, mall corners, etc.) in 2016. According to the website Statistica, the number of retail stores
had dropped in 2015 but increased in 2016 with 2811 stores (concept stores, mall corners, etc.). As a sportswear
company, Adidas is competing against the leisure industry in general. In the sport specific area, 50 companies
are controlling more than 70% of the market. Adidas is one of these companies, and needs to adopt strategic
advantages to stand out amongst many others.

1. Macro Economic Diagnostic

In order to understand the key success factors and the threats related to the industry, it is important to proceed
to an external diagnostic, also called macro-environmental diagnostic. Macro-environment refers to the
demographic, economic, technological, political, and socio-cultural environment.
The analysis of the environment has two objectives: the assessment of the various elements likely to affect its
activity - and - the identification of environmental opportunities or threats.

Political factors:
There are five main criteria in the political branch of an external diagnostic: governmental pressure,
governmental stability, consumer protection, monetary policy and European pressure.
First of all, as every international firm selling products worldwide, it requires to follow political procedures and
international trade agreements, even when selling online. Secondly, political pressure is most likely to delay
product delivery and shipment. Therefore, adidas needs to assess the risk of wars, terrorism, and political
stability (coups, etc) in its targeted countries. Thirdly, consumer protection is one of adidas bigger concern.
Indeed, the brand decided to adopt a consumer friendly policy to ensure the health of its buyers by eliminating
PVC making process. Therefor Adidas is respecting both product safety laws and consumer safety products
regulations.

Economic factors:
Growth, interest rate, political unemployment, inflation rate, are the main concerns of the economic diagnostic.
The main question adidas should be asking is where to produce and sell to ensure growth and opportunities? To
be competitive, adidas needs to be as cheap as possible, especially in 3rd world countries (the level of wealth of
the population being lower). As a consequence, adidas manufactures its goods in China because of labour
intensivity, low cost of creation, and low monetary power. It allows the brand to be as cheap as possible.

Social factors:
Factors such as wealth repartition, demographic factors, age gaps, lifestyle, trends and fashion, and health are
important social factors. Indeed, it is important for adidas to consider the average age of the population and the
wealth repartition of its targeted country. Being a sports brand, adidas targeted audience is rather young, and
adidas products are not cheap. So it would make no sense for adidas to concentrate its efforts in poor countries,
or in old populated countries. Another example of Adidas strategy when it comes to social, is its policy in India.
Cricket is worshipped in India and practiced almost as a religion. Adidas deciding to use it as a marketing
campaign, taking Indias most famous player Virat Kohli as ambassador (it was true until 2017)of the brand and
launching a new line of cricket equipment. Furthermore, in countries like France, the brand is using it girls,
influential people, bloggers, Youtubers, to make sure their product will be the new trend. These people are the
face of the new generation, they are invited to huge parties and events for the launching of a new product.

Technological factors:
To stand out amongst competition, adidas is constantly investing in R&D to find the latest trends and
technologies. For example, in 2015 adidas created the Boost technology, and protected its invention with 3
patents on the SuperBoost model. These patents are the guaranty for a competitive advantage.

Legal factors: Patents and more patent
Adidas has ownership of intellectual properties and IP systems. They also have design patents, defending their
right against copiers. The patents also serve as legal protection to end counterfeit businesses. The Adidas group
supports the United Nations Declaration of Human Rights, their company policies and procedures adhere to all
applicable domestic laws and are consistent with core labour principles of the International Labour Organisation
(ILO).

Environmental factors:
Adidas is very concerned by the environment, and has developed a coherent environmental strategy for the
whole adidas group. Regarding climate change issues, adidas created the Green Company Program (2008)
inside a bigger program called the Environment Management System. These programs are adidas
engagements towards a better environment. The brand is also training their suppliers in energy efficiency.
Engaged in many organisations, they are a founding member of the Sustainable Apparel Coalition (SAC).

To complete this external analysis, it is important to deeply study the competition around adidas. The 5 forces
model from Porter is a commonly used tool to analyse the competition of a business. It helps figuring the
advantages and the threat of an organisation. The model is composed of 5 forces: the threat of new entry, the
threat of new substitutes, competition, the bargaining power of suppliers, and the bargaining power of buyers.

Threat of New Entry
A threat of new entry is defined as the ease for a new business to enter a particular sector, without substantial
investment. In 2015, more than 1000 independent fabrics in 61 countries were producing products for Adidas.
65 % were in the region Asia-pacific, 25 % in North and South America and 10 % in Europe, Middle East and
Africa.
The risk of new entrants is generally high as there are no entry barriers, but the presence of huge companies like
Adidas and its competitor Nike, who own a big percentage of the market share, make it very difficult for potential
competitors to invest the capital needed for advertising, Research and Development and marketing.
Therefore, the threat of new entrants in the sport industry is rather low. Adidas is not facing a threat of
competitors abusing the economies of scale and it is easy to access distribution channels.
However, Adidas has a high risk due to its dependence on Asia. During the financial crisis Adidas, Nike and PUMA
were all affected. Particularly for Adidas it was a dangerous period as it is depending a lot on Asia, where 95 %
of production was outsourced. So the exchange rate caused the company to lose its profits.
Competition
Markets with few competitors are attractive but they might be short-lived due to its high rivalry. Indeed, the
level of competition in the sector of sportswear is high. There are only few competitors. Adidas biggest
competitor is Nike. Since 2015 and for the next 5 years, Adidas has established a new strategic plan called Create
The New. The main objective is to invest a lot in R&D and innovation to develop new marketing and advertising
strategies. Other of adidas competitors are Puma and New Balance, which only own a small share in the retail
market.
Bargaining Power of suppliers
Due to the booming business of Adidas, the company has no problems to find its suppliers. This is the reason
why suppliers have almost no power at all as they cant put any pressure on the firm. However, Adidas still
depends on its suppliers as it is more expensive for them to produce raw material on their own than to buy it.
Bargaining Power of Buyers
Sportswear is a market with mostly standardized products where the power of the consumer is relatively low.
Furthermore, buyers are in general not knowledgeable about the product to make a decision, so it is not the
quality but the brand that makes the difference for a large number of buyers and lead them to their decision
(e.g. for Adidas or Nike).
On another hand, the power of wholesalers is much bigger. As wholesalers buy in bulk, they represent an
important part of Adidas revenue. And wholesalers can bargain and threaten brands to change to another
competitor if their wills are not satisfied.
Threat of substitute Products
The threat to switch to other sports products is rather low as only a few brands in sportswear apparel and
accessories are present on the market. The threat of substitutes is closely linked to the threat of new entrants.
As we concluded before, the threat of new entrants is rather low, and so is the threat of substitutes. As a
consequence, this threat does not tend to drop prices. Moreover, Adidas does not only target sportsmen, it is
also a fashionable brand for trendy people. As we said before people mainly buy adidas products because of the
brand and the trend around it, so buying a cheaper substitute makes little sense for adidas fans.

1. Internal Diagnostics

Adidas has recently seen huge successes and a larger share of the market, nearly doubling its market share from
2016 to 2017, due to its successful strategies that are because of what is achieved internally. According to Adidas
group, they have exceeded their Original plan of Creating the new, which was aimed to achieve sustainable and
profitable growth by crucially increasing brands attractiveness.

Strategic Competences
Adidas has a focus on the idea of having a broad and wide range of products to suit all markets.
They do this by investing heavily into R&D to find and meet new markets. As innovation is often key to a success
of a business, Adidas made this one of their core strategies. They introduced miAdidas, a form of mass
customisation, where consumers could customise their own shoes. This gave them a competitive advantage at

the time as it engaged with the customers on a stronger level. Due to the development and distribution of several
apps adidas improved the accessibility for customers, allowing them to increase their companys desirability. As
a result of this and many other competences, Adidas were able to hit the record $1 million mark in 2016.

Value Chain analysis
Primary activities:
Using an efficient supply chain management, considered as a World Class Supply chain which included selection
of business partners who best suited their targets for success, Adidas could produce enough products at low
costs that are distributed efficiently and effectively. This was done through Factories in Asia, an area known for
low cost supplies and operations. Heavy marketing techniques were also used to allow it to grow in terms of
market share, with the use of celebrity endorsement being one of them. David Beckham, Lionel Messi and
Pharrell Williams are examples of this. Moreover, its development and integration of its retail and online
operation enabled customers to test out and shop for products, as well as communicate to employees with ease.
Support Activities:
As mentioned earlier, Adidas technology and product research and development allowed them to create a
modern approach to customisation and modern models of football shoes, for example. They introduced a policy
for its R&D team and other units who are expected to produce at least one Innovation per year. Their HRM team
carefully selects and train highly skilled employee while contracting external factories in Asia allowing them to
reduce costs while assembling its product line.

VRINE model: Value, Rarity, Inimitability, Non-substitutability and Exploitability
Valuable- Due to its efforts in innovation, Adidas increased their value by constantly following and setting trends.
Moreover, its celebrity endorsement added value to the product as consumers could relate with their favoured
artists. They also had strong diversification capability, where they collaborated with to produce products not
within their expected range, for example the Adidas Headphones (Collaboration with Sunshiner).
Rare- Adidas produced unique items through the incorporation with BASF to integrate boost cushioning into its
product line, mainly with shoes. This gave them an advantage over many competitors and allowed them to
compete with its main Rival, Nike. However, this doesnt make them entirely rare as any company can partner
with other businesses, or take advantage of alliance prospect to diversify their line.
Inimitable- As it has a few unique selling points (boost technology), their products and companys agenda as a
whole has become inimitable. Their unique collaboration with Kanye west has also been very successful as it
became a trending topic because of its integration with the streetwear and hip hop which are todays biggest
trends.
Non-substitutable- As diversification is an important resource to have, along with innovation, its said that it is
non-substitutable. However, this also depends on the loyalty of the customer and other external factors such as
the state of the economy which would in turn effect consumer choice.
Exploitable- It is clear that Adidas have exploited the market by being heavily involved with innovation. Thanks
to Boost, in 2016 Adidas prospered in gaining substantial market share, mainly in the footwear market.

2. SWOT

Due to the very strong global market position and high market share the biggest weakness is the competition.
The international sport goods market is shared between less than ten big manufacturers so the biggest threat
to adidas would be an emerging new brand. Since adidas has more than 90% of its manufacturing outsourced
they are highly dependent on suppliers.

Our recommendations for adidas would be: Concentrate on improving and innovating products, the sports
market is a very fast developing market, new sports and trends emerge very quickly. Identify market dynamics
and change accordingly. For example as other competitors have also done in the past, we recommend adidas
sponsor sport teams and create specialised sports wear for trend sports and emerging sports. Long term
recommendations would be, to increase R&D since technological advantage usually attracts high performance
athletes.

Literature:

Adidas Group a: Link (https://www.adidas-group.com/de/service/faq/)
Adidas Group b: Link (https://www.adidas-group.com/en/group/history/)
Adidas Group c: Link (https://www.adidas-group.com/en/sustainability/compliance/environmental-
approach/#/green-company/)

Adidas Group d: Link (https://www.adidas-group.com/en/group/strategy-overview/)

Adidas AG, Fiscal Year Report 2016
Porteranalysis: Link(http://www.porteranalysis.com/porters-five-forces-model-of-adidas/)

Statista, Adidas Report 2016