REEBOK INTERNATIONAL, ltd.

by

I. CURRENT SITUATION

A. Current Performance
 International sale of the Reebok brand (footwear and apparel) were
$1.170 billion in 2001, a decrease of 0.5% from sales of $1.176 billion in
2000.
 As of December 31, 2001 the backlog of orders that management
believed to be firm (though cancellable by the purchaser) totaled
approximately $979.4 billion compared to $967.4 million as of December
31, 2000.
 High compensations of BOD – during 2001, each director receives
$25,000 annually plus $2,000 for each committee chairmanship held
$2,000 for each directors meeting and $1,000 for each committee a
meeting attended plus expenses.
 Substantial existing debt and inflation issues – during 2001 the
contribution of Reebok’s International sales decreased to $1.170 billion
from $1.176 billion in 2000. Reebok’s 2001 international sales were
adversely impacted by the weakening of various foreign currencies.
 High rate of commission – during the year, the company established an
under accrual of buying agents commission of approximately $10.6 million
was recorded in other expense.
B. Strategic Posture
1. Mission

To build the most successful sports licensing business in the world

and to create fashion, high quality products that at all time meet and
exceed consumer’s expectations.

2. Objectives
1. To displace Nike as the leading top sports and footwear brand.
2. Establish a result-oriented culture.
 3. Strengthen our management team./
4. Contemporize our products.
5. Create relevant advertising and effective retail and consumer
marketing campaign.
6. Grow quality market share.
3. Strategies
 Restructuring products creation teams through giving the needs of
the primary channels of distribution.
 Supporting the product focus through the launching of three
marketing campaigns:
i. Classic Campaign – give importance to the segment of
business.
ii. It’s a Woman World Campaign – centered on a
contemporary and inspirational message designed to attract
young women in selecting the company’s brand.
iii. The Sound and Rhythm of Sport Campaign – provide solid
marketing platform for adventurous and athletic young men.
 Create synergy between the National Basketball Association (NBA),
Women’s National Basketball (WNBA), National Basketball
Development League (NBDL) and the National Football League
(NFL).
 Initiating leadership by gaining quality market share.
 Introduction of new product to emphasize the multi-brand image of
the company.
4. Policies
 Free cash flow to grow the business and improve shareholder
value.
 Promotion of Human Rights Production Standards.
II. STRATEGIC MANAGERS

A. Board of Directors
 Paul B. Fireman
-Chairman, President, & Chief Operating Officer, & CEO
Chairman of the Board & Executive Officer
 Norman Axcelrod
-Chairman of the Board & Executive Officer
Linen ‘N Things, Inc.
 Paul R. Duncan
-Retired Executive Vice President
Reebok International, Ltd.
 Mannie L. Jackson
-Chairman of the Board & Executive Officer
Harlem Globetrotters International, Inc.
 Richard G. Lesser
-Senior Corporate Advisor & Director
TJX Companies, Inc.
 Jay Margolis
-President & Chief Operating Officer
Chairman of the Board & Executive Officer
 Geoffrey Nune
-Retired Senior Vice President & General Counsel
Millipore Corporation
 David L. Patrick
-Executive Vice President & General Counsel
The Coca-Cola Company
 Dorothy E. Puhy
-Chief Financial Officer & Assistant Treasurer
Dana-Farber Cancer Institute
  Thomas Ryan
- Chairman of the Board, President & Chief Executive Officer
CVS Corporation

B. Top Management
 Paul B. Fireman
-founder of the company
 Jay M. Margolis
-became President and Chief Operating Officer in December 2001
 Martin Cole
-previous employee of Nike
 Kenneth I. Watchmaker
-has been an Executive Vice President of the company since
February 1994 and was appointed Chief Financial Officer in June
1995.
 James R. Jones III
-has been Senior Vice President of Human Resources for the
company since May 1998
 David A. Pace
-became Senior Vice President of the company in February 2001,
having been appointed Vice President and General Counsel, and
elected Clerk, in December 1999.
 Richard Paterno
-became Senior Vice President of the company and President of
The Rockport Company in June 2001.
 Terry R. Pillow
-became President and Chief Executive Officer of Ralph Lauren
Footwear in June 2001.
III. EXTERNAL ENVIRONMENT

A. Societal Environment
1. Economic
Generally, weak economic conditions have led to fluctuations in
investor confidence, a softening in consumer demand and a retrenchment
in overall spending. Consumer spending in the United States, which
accounts for two-thirds of all economic activity, grew at a rate of just 1.0%
in the final quarter of 2002, which was down from a spending growth rate
in the fourth quarter of 2002. An economic recovery is contingent on a
variety of factors and remains uncertain. Accordingly, in 2003, Reebok
expects the market for their business to be challenging. As one of the
leading footwear companies, Reebok must maintain their image.
2. Technological
Reebok places a strong emphasis to technology and has continued
to incorporate various technologies into its footwear. It is part of a footwear
industry that is exploding with new information technologies. Reebok
International maintains this Internet site as a service to the Internet
community. Access and use of Reebok’s website are subject to the terms
and conditions set forth herein and all applicable laws. Reebok invites the
Internet user community to browse and peruse Reebok.com for the
purpose of personal entertainment, information, education, and
communication. In order to compete, Reebok must spend millions in
product research, development and evaluation.
3. Political-Legal
Reebok’s athletic footwear, apparel sales and manufacturing
operations are subject to risks of doing business abroad. Some of the
risks include: fluctuations in currency exchange rates, hyperinflation in
some foreign countries, import duties and investment regulation and other
restrictions by foreign governments. If these risks limit or prevent them
from selling or manufacturing products in any significant international
market, their operations could be seriously disrupted.
 4. Sociocultural
The footwear and apparel industry is currently subject to rapid
changes in consumer preference. Such factors include recession, inflation,
and general weakness in retail markets. Consumer demand for athletic
footwear and apparel is heavily influenced by brand image. Consumers
place an emphasis on the performance aspect of their athletic footwear.
Therefore, they must utilize current and future technology to continue to
offer performance-oriented products. Their failure to anticipate, identify
and react to shifts in consumer preferences and maintain a strong brand
image could have an adverse effect on their sales.

B. Task Environment
1. High competition between Nike, Adidas, Reebok, New balance, K-Swiss,
Timberland, Asics, Saucony, Sketchers and And1.
2. Buyers aim for high quality sportswear apparels at the lowest possible
price.
3. Quality, safety, environmental, tariffs and quotas regulations increasing.
4. Technology and materials used in manufacture are having source outside.
5. Foreign currency changes gently affect the international market.

IV. INTERNAL ENVIRONMENT

A. Corporate Structure
The corporate structure for Reebok International encompasses a team-
oriented approach to reach both long and short-term goals. The company
designs and markets their products through five major brands, which are Reebok
Brand, The Rockport Brand, Ralph Lauren & Polo Footwear, the Greg Norman
Brand, and On Field. Reebok International is a global firm that operates in 15
countries, which all have access to the Reebok product line.
B. Corporate Culture
Group oriented assignments dominate Reebok International. Although the
 company is fragmented into different employment areas, such as brand
marketing and apparel design, corporate teams are often utilized to maximize
strategic planning and potential product success. This also maintains the global
position of the firm, in that diversity within corporate teams enhances culture
specific marketing, thus increasing sales in the international market.
C. Corporate Resources
1. Marketing
a. Marketing mix included advertising (television, print, radio and
outdoor), sports endorsements and sponsorships, public relations, in-
store marketing, grassroots and use of internet.
b. Upholding marketing efforts on key athletic icons (Allen Iverson, Venus
Williams).
c. Utilizing athletic endorsement with Steve Francis and Jalen Rose.
d. Extension of its endorsement contract that cost multi-million dollars.
e. Sponsorship of Several National Olympic Committees in Russia,
Jamaica, Poland, New Zealand, South Africa, Trinidad and Tobago.
2. Finance
a. Domestic sales increases, international sales decreases.
b. Some key ratios are troubling such as the company’s overall gross
margin decreases 120 basis points from 36.7% in 2001 from 37.9% for
2000.
c. Decrease of selling, general and administrative expenses from
$915.4M to $913.9M.
d. Net interest expense decreases $4.5M.
e. Sale of $250M 20-years convertible debenture.
f. Other expense increases covering agent’s commission of $10.6M.
3. R & D
a. Process-oriented with focus on line extensions and acquisitions.
b. To characterize the needs of “y” Generation revolt.
c. Reebok seek to establish its name internationally through technology.
d. Product innovation and creation is on the list.
 4. Operations
a. Reebok core competence – dominant in the U>S market.
b. Reebok’s plants and manufacturing machineries are upgraded.
c. China, Hong Kong, Indonesia, Thailand, Taiwan and South Korea
remains as Reeboks primary sources of footwear production.
5. Human Resources
a. Approximately 6,700 employees; none were represented by labor
unions, exceptn200 employees in France who had a workers
committee.
b. No labor disputes, considered employee relations to be good.
c. Opens a child-care center for the employees.
6. Information System
a. Critical areas where Reebok maybe unwilling to commit resources
needed to stay competitive.

V. ANALYSIS OF STRATEGIC FACTORS

A. Situational Analysis (SWOT)

1. Strength

a. Quality brands

b. Reebok is established as one of the leading footwear brand.

c. Strong Human Right Codes.

d. Internationally operating.

e. Strong alliance.

2. Weaknesses
a. Lacks stable top management.
b. Poor global positioning especially against Nike.
c. Seasonality of strongest sales.
d. No single customer that accounted 10% in net sales.
 e. Backlog orders increases.
3. Opportunities
a. Development of the state of the art product development facility.
b. Promotion of product at World Cup.
c. Emphasize department store channel of distribution for running
products.
d. Use brand image and endorsements to reposition running products.
e. Integration in Korea, China and Taiwan.
f. Alliance of 201 factory direct stores in the U.S.
g. Alliance of the GSI commerce.
h. Online retail stores.
4. Threats
a. Aggressive rivals- Nike.
b. Currency fluctuations and restrictions.
c. Political instability.
d. Protest of the local suppliers.
e. New entrants.
f. Ability to keep pricing levels of products·
g. Focus on reducing manufacturing and distribution costs to keep current
pricing levels of products.
B. Review of current mission and objectives
1. Current mission appears appropriate.
2. The objectives are a lined with the company’s goal.
3. The company’s objective of displacing Nike as the leading footwear in
the market is impossible.

VI. Strategies Alternatives and Recommended Strategies

A. Strategic Alternatives
1. Direct Pressure Strategy – to established direct contract with the various
potential stores in order to reduce the accrual of buying agents’
commissions that are treated as other expense.
 a. Pros: Other expenses will decreases making the company’s net
income to increase.
b. Cons: A lot of competitive already established their presence on
many retailing stores.
2. Retrenchment – sell various subsidiaries in other countries and focus on
domestic operations.
a. Pros: Protections against currency inflation, import duties and other
entry barriers will be eliminated.
b. Cons: Reebok maybe giving up its opportunity to become a player
in the global industry.
3. Combination of Lower Cost and Differentiation Strategy – lowering the
cost of production to offer lower price without sacrificing the quality and
superior value of the product.
a. Pros: Decrease f production expenses and chance of higher sales
over competitors.
b. Cons: It’s difficult to maintain low-production cost without affecting
the product value in the long run.
B. Recommended Strategy
1. Recommend Direct Presence Strategy for 2 years in order to see the
result and then continue it if such strategy works.
2. Establish a good working condition with the owner of such stores to
upload extension of contracts.
3. Provide alternative plans in case of currency fluctuation in order to
diversify the effect.
4. Continue the Human Rights Protection Standards.
5. Strengthen the relationship between the suppliers in order to prevent
competitors from getting in the way.

6. Expand product line to improve seasonal revenue. Diversifying the

products available for sale will counteract fluctuating sales.
7. Use brand image and endorsements to reposition existing products.
Marketing should then emphasize improved brand images in promotions
 for the products. This should increase the demand for the product and
customer loyal, to improve the company’s competitive advantage.
8. Strengthen market research to anticipate consumer preferences and avoid
poor sales. This should improve the inventory turnover ratio, which
currently has a poor rating.
9. Emphasize department store channel of distribution for running products.
Having products available in more locations will increase sales.
10. Establish a slogan, comparable to Nike’s “Just Do It,” to increase
familiarity with the Reebok brands.

VII. IMPLEMENTATIONS

A. The only way to increase sales of reebok is to lessen the cost of production and
other expenses. It’s impossible to displace Nike as the leading brand however
Reebok can still be a player on the long-run as long as it will further improve the
company’s strength and will work on its weaknesses.
B. Board of Directors should own Reebok common stocks because they are
receiving high compensations and incurring expenses; imposition of such way
give initiative to the BOD to work in full force for the company’s betterment.
C. Product R & D must continue as well as the marketing techniques such as the
campaigns; prevention of backlog must be emphasized.

VIII. EVALUATION AND CONTROL

A. Reebok should strategic plan that can limit the effect of currency changes. A
contract should be made between the suppliers to prevent issues regarding
price, product quality and timeliness requirements with regard to the supplies
issues.
B. The impositions of accepted vote of agent’s commission on sales must be
implemented and agents should pursue same objective with the Reebok
Company, that is to increase sales and both will be benefited.
C. Policies and laws against backlogs should be developing to control the backlog
orders encountered by Reebok; market indicates that backlog orders affects
operation of any company that experience such.
 Business policy and strategy

Reebok international, LTD.

A CASE STUDY

SUBMITTED TO:

MRS. FRUCTOSA MAYANGGAO, MBA

SUBMITTED BY:

BANGCOLEN, CHARITTA D.

DELFIN, HYLINE d.

MALIDOM, TRICIA

PENDEW, JEMMA b.