1. 1
ELECTRONIC
ASSIGNMENT
COVERSHEET
Student Number 31734555
Surname Basu
Given name Rukmini
Email Rukmini.Basu@murdochdubai.ac.ae
Unit Code BUS317
Unit name Strategic Management
Enrolment mode Internal / external
Date 16th March 2015
Assignment number 3
Assignment name Management Report
Tutor Alami Rachid
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Contents
1.0 Executive Summary............................................................................................................ 3
2.0 Introduction......................................................................................................................... 3
2.1 Research Problem: .......................................................................................................... 3
2.2 Limitations:..................................................................................................................... 4
2.3 Data Collection: .............................................................................................................. 4
2.4 Organization of Report: .................................................................................................. 4
3.0 Current Company Situation ................................................................................................ 4
3.1 Past performance assessment.......................................................................................... 4
4.0 External, industry, competitor analysis............................................................................... 5
4.1 External Analysis ............................................................................................................ 5
4.1.1 SWOT Analysis ....................................................................................................... 5
4.1.2 Environmental Scan: PEST Analysis....................................................................... 6
4.2 Industry Analysis ............................................................................................................ 6
4.2.1 Michael E Porter’s Five Forces................................................................................ 6
5.0 Internal Analysis ................................................................................................................. 7
5.1 Michael E Porter’s Value Chain ..................................................................................... 7
5.1.1 Primary Activities .................................................................................................... 7
5.1.2 Secondary Activities ................................................................................................ 9
6.0 Issue/Problem Definition .................................................................................................. 10
7.0 Development of different strategies.................................................................................. 11
7.1 SAVED Strategy........................................................................................................... 11
7.2 Selection of alternatives................................................................................................ 12
8.0 Implementation ................................................................................................................. 13
9.0 Evaluation and control ...................................................................................................... 14
10.0 References....................................................................................................................... 15
11.0 Appendices...................................................................................................................... 16
11.1 Appendix 1: Ratio Analysis ........................................................................................ 16
11.2 Appendix 2: PEST Analysis and SWOT Analysis ..................................................... 18
11.2.1 PEST Analysis ..................................................................................................... 18
11.2.2 SWOT Analysis ................................................................................................... 18
11.3 Appendix 3: Originality Report ...................................................................................... 19
11.4 Appendix 4: Portfolio Analysis ...................................................................................... 20
11.4.1 BCG Matrix ......................................................................................................... 20
11.5 Appendix 5: Porter’s Five Forces Model........................................................................ 20

3. 3
ADIDAS
1.0 Executive Summary
In this report, one will find a detailed analysis of the Number 1 sporting company Adidas.
Analysis includes internal analysis and external environmental scan determining the factors
contributing to Adidas’s success till date. Moreover, there are plenty of models applied to do
the scanning throughout the company. Then, based on the current findings, our group has
come up with several different strategies that Adidas could implement in place of few
strategies that they have been implementing for years. Among the different strategies in
place, Adidas in alliance with Nike is recommended. Lastly, based on the financial
performance of Adidas till date, a detailed ratio analysis is drawn out for the future. Also, on
the basis of financial performance in the last two years, we have drawn out some ratio
analysis to understand the financial position of Adidas today.
2.0 Introduction
Almost everyone in this world knows the name and brand so well that they willingly want to
buy sporting equipments from Adidas. Adidas is a German multinational founded in 1948 by
one of the Dassler brothers Adolf Dassler. Rudolf Dassler is the founder of the brand name
Puma. The brothers were split during the course of events after World War 2 and this had
given rise to two of the most well known sporting brands Puma and Adidas (Anonymous,
Adidas Group AG Forum 2015, 1). Adolf started this business with the passion to provide
best athletic equipments helping athletes perform better, play better and feel better. This was
Adidas’ slogan and they strived to maintain the same by employing people who had a
passion to live in an extraordinary sporting lifestyle (AG, Adidas Group 2015, 1-2) Their
passion for sport enable them to perform at their best potential and serve customers with the
best product in line with the fashion trends followed in the market (AG, Adidas Global 2015,
1). Just with one simple objective “We strive to be the global leader in the sporting goods
industry with brands built on a passion for sports and a sporting lifestyle” Adidas has become
a major hit in the market globally (AG, Adidas Group 2015, 1-2).
2.1 ResearchProblem:
This report aims to analyze Adidas through extensive research based on internal and external
environmental scan together with implementing few strategies that Adidas could adopt for
the problems faced by them. The overall industry is also studied in great depth to understand
the forces impacting Adidas sustaining their business in a highly competitive market.

4. 4
2.2 Limitations:
The report analysis was completely based on information found through secondary research.
There are some models used in the report and the access to information for filling those
models were limited. Unfortunately, there was no scope of attaining information or facts
through primary research.
2.3 Data Collection:
As mentioned earlier, the data was purely gathered from secondary research papers and
journals from cited authors.
2.4 Organizationof Report:
This report follows a framework of several models and information patterns. Throughout the
report, a flow of information is maintained and the link with each model to the strategies
implemented is also notified. The budget and the required ratio analysis are also provided at
the end to understand the financial position of Adidas in the market with the new alliance in
place.
3.0 Current Company Situation
3.1 Past performance assessment
Currently, Adidas main competitor in the market is Nike whereby, its market share is
approximately 33 percent. Apart from Nike, there are likewise other competitors smaller in
size like Puma, New balance and Nike Asics. In Asia, Adidas major rival is Li Ning and it
mainly focuses on athletic shoes. Presently Adidas is signing contracts with diverse
organizations in order to offer supplements to its items. For instance, they have signed an
agreement with Samsung where they are giving out a shoe in addition to a mobile phone
offer which is a reciprocal item. Additionally the technology and development assumes a part
to give compliments to the products of Adidas. Planning events and forming social
connections are likewise there, for example, funding of football events.
Strategy
Being one of the giant companies which manufactures sports clothes and shoes, Adidas most
effective promotion strategy of its products has been to partner them with famous celebrities
as well as sports stars .This promotion method has produced a consistent wellspring of
income and sales for the organization, and customers appears to admire the quality of the
items once they realize that there is some level of relationship with influential individuals1 .
Hence, the buying of familiar brand items protects their quality and this leads to some
1 Grant, Robert M. Contemporary strategy analysis and cases: text and cases. John Wiley &
Sons, 2010.

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additional inspiration for their purchase. An alternate kind of strategy used by Adidas is the
formation of an exceptional level of client loyalty and involvement. Getting consistent client
responses is the best method to stay in front of their rivals and create and retain long-term
beneficial client relations at the minimum cost conceivable. Presently the organization has a
custom of procuring the sponsorship of diverse game events, for example, FIFA world, the
Olympic Games, and various European Games. In the past, Adidas has backed the occasion
of the Olympic Games in Beijing. Likewise, Adidas usually back various soccer groups of
Germany on the grounds that the organization origin was in Germany2.
4.0 External,industry, competitor analysis
4.1 External Analysis
This analysis is a useful tool to assess a company’s performance itself and how well it
performs in the market considering the competition as a driving force for a company’s
motivation to perform well in the market and sustain (Sage 2014). Below, a detailed Michael
E Porter’s five Forces model will be studied to find out the external forces that drives Adidas
to perform the best in the market. Moreover, environmental scan will be enforced using
PEST and external analysis determining opportunities and threats will be done by SWOT
analysis in the Appendix 2.
4.1.1 SWOT Analysis
SWOT analysis determines a company’s internal strengths and weaknesses and external
opportunities and threats. This model is very useful to understand the wrongdoings of a
company pointing out their weak side and presenting a way by which they can overcome
their weaknesses (Olsen 2010, 1-2). The detailed analysis is presented in Appendix 2.
Adidas have the opportunity of changing their style and innovation of their product line
depending on customer preferences. As technology development is said to be one of the
drivers for change, Adidas has the opportunity to differentiate their products for customer
appeal (Woke 2013, 1-2). Depending on customer responses to a product, Adidas can expand
their limited product line with an expansion in customer base exposure.
On the other hand, customer preferences and lifestyles can pose a threat to Adidas in terms of
continuing adaptation to frequent changes (Woke 2013, 1-2). Such frequent changes in
fashion trends can be costly to Adidas for production and improvisation tactics for their
2 Piller, Frank T. "Transforming mass customization from a marketing instrument to a
sustainable business model at Adidas." International Journal of Mass Customization
(2006): 463-479.

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product categories. Competition from foreign markets, Nike and Puma influence Adidas
pricing and quality of product with them staying right ahead of the trends in the market.
4.1.2 Environmental Scan: PEST Analysis
This part of analysis deals with the external environment and how each element of PEST
determines a company’s potential. This tool of analysis will help to systematically discover
and quantify the plausible factors influencing Adidas’s performance and objectives (Makos
2013, 1-2). As moving ahead in the report, one would find a detailed analysis on Adidas
presented in the Appendix below.
4.2 Industry Analysis
4.2.1 Michael E Porter’s Five Forces
(Fontana 2012, 3) (Maarouf 2013, 41-42)
With this tool, there is a clear understanding of where the powers lies, and act as per the
business situation. This tool helps a company to take advantage of the situation of strengths,
rectify a situation of weakness and at the same time, preventing to take wrong steps.
(Manktelow and Carlson 1996-2015, 1). The same logic is applied when it comes to analyze
Adidas in terms of porter’s five forces. For the detailed analysis, refer below to Appendix 5.
4.3 Competitor Analysis
Rivalry among the competitors in sports equipment business is very high, considering the
boom the industry has experienced in the past decade, also with the help of technology, e-
commerce, sponsorships and gaming. Adidas faces rivalry from other sports equipment
Competitive
Rivalry(Adidas and
Nike are strongest
rivals in the market
and are competiting
over prices)
(HIGH)
Threat of substitutes( Adidas does not
have the fear of its customers switching
to another brand)
(LOW)
Buying power of
buyers(The number
of buyers in this
industry is
proportionally high
than the firms)
(HIGH)
Threat of New Entrants(Adidas driving
away companies from entering the
market by keeping controlling costs
through performance advantage)
(LOW)
Burying power of
suppliers(Adidas has
many suppliers of
their raw materials)
(LOW)

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manufacturing companies like Nike and Puma. However, the main competitor of Adidas is
Nike whether in a football ground, on racing tracks or social media. Even though Adidas give
a very tough competition to Nike, the brand in terms of market capital, brand value, nets
sales and profit, falls behind its competitor. Adidas holds a market capital of USD 22.67
billion (Badenhausen, et al. 2015, 1) while Nike possesses a market capital of USD 65.87
billion (Anonymous, Forbes 2014). The brand value of Adidas is USD 7.5 billion, with net
sales at USD 4.46 billion and profit at USD 2.19 billion. Nike on the contrary has a brand
value of USD 17 billion, net sales of USD 7.42 billion and earned a profit of USD 3.38
Billion last year (Parker 2014, 1-2). While according to latest figures, Puma has a market
capital of only USD 2.74 billion which in comparison to Nike and Adidas is very less, and
therefore both the companies tend to focus on the competition between each other (LP 2015,
1). However, it is to be noted that Puma has a rivalry to Adidas not only for the reason of
being another sports equipment manufacturer, but because of the late founders of both these
respective German brands, Rudi Dassler and Adi Dassler, once brothers, later arch rivals
(Connolly 2009, 1).This is also the reason that Puma and Adidas set to offer the same product
line in sports equipment with the main focus on footwear. Adidas uses a premium pricing
strategy for its products for the recognition of its high quality products, while Puma focuses
more on competitive pricing strategy due to being the no.3 in the competition after Nike and
Adidas (Connan 2015).
5.0 Internal Analysis
5.1 Michael E Porter’s Value Chain
5.1.1 Primary Activities
By applying the value chain structure an adjacent look will be taken at Adidas’s future plan
in appeal to make sense of which activities are most huge and henceforth make broad
competitive advantage over contenders in the market.
While taking the steps from sourcing crude materials to offering the last item, Adidas
performs a set of several activities that; add value to its items, differentiates its items from
competitors and focuses on reducing expenses (cost-saving). Corporate social obligation
(CSR) all in all appears to impact generally exercises. All through the strategy Adidas
highlights on diminishing its regular impact on environment through practices, for instance,
the minimization of carrier load. Adidas hopes to make the best and most profitable
workplace worldwide is not simply reflected in its drives to propel a strong work-life
conform furthermore in its plan to make a working environment that vitalizes solidarity and
energy, engagement and achievement.

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Inbound Logistics- sourcing is continuously moving towards a local provider (Adidas AG
2014). Alongside expenses and quality, suppliers are dynamically picked by their
environmental performance (Adidas AG 2013). These procedures benefit Adidas by
decreasing delivery expenses.
Furthermore, In the Operations of Adidas’s value chain, it has been found that as of 2008,
95% of its productions had been outsourced (Adidas AG 2014). It has 1,230 independent
assembling industrial facilities in 69 countries, fundamentally China, India, Indonesia,
Thailand or Vietnam.
Adidas also, works with business accomplices who are completely dedicated to reasonable,
safe and earth sound working conditions. Collaborating methodology with key suppliers:
direction, preparing materials, specialized exhortation, trainings and workshops (Adidas AG
2008).
At Outbound Logistics, Adidas has three distinctive channels – Wholesale, Retail and E-
commerce in the form of MiAdidas (Adidas AG 2014). It manages channel synergies by
establishing best practices worldwide and focuses on controlled space: by running its own-
retail stores. Adidas has three store formats: brand centers, core stores and factory outlets
summing up to 2270 stores worldwide. These benefit Adidas as it enables high brand control
and improves customer service. Also, MiAdidas allows customers to customize cleats based
on their needs and hence benefits Adidas from reduced stock holding costs (Adidas AG
2014).
At Marketing & Sales Adidas increases the vast majority of its clients through its substantial
interest in Promoting. Offers of Adidas items are gathered in four districts around the world:
Europe/Developing Markets, North America, Asia/Pacific and Latin America. It picks up
income through advancements at world class donning occasions such Olympics, World
Container Soccer and other expert games (Adidas AG 2014). Additionally, a few
underwriting contracts with competitors including David Beckham (soccer), Kevin Garnett
and Tim Duncan (ball), and Sergio Garcia (golf) impacts shoppers to buy Adidas (Adidas
AG 2012).
In Services Adidas offers Channel to customer data and contemplations, miCoach arrange
together with miCoach application and web planning activities offers free and personalized
training (MiCoach-Adidas 2014). Digital training website giving exercise guidelines and
appeal on four key planning sections: viewpoint, nutrition, improvement and recovery. All
these services expands consumer loyalty, offers change opportunities, upgrades client's
shopping knowledge, focuses towards patterns, upgrades client's image experience and
assembles closer association with clients (Adidas AG 2014).

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5.1.2 Secondary Activities
General Administration
Adidas seems achieving an effective planning system that offers the best potential in
addressing the overall performance, key issues and user flexibility besides system integration
and long term support. These factors appear playing an important role in enabling Adidas to
attain its competitive advantage in the sporting industry. Adidas aims to develop a long term
relationship with its diversified stakeholders. Therefore, it is fundamental to keep them in the
picture as they are an important source of funds that allow the company to improve its
business performance and sustain its development. For this reason, Adidas organizes
consultation meetings with shareholders in order to uphold collaboration and information
sharing. In addition, Adidas group has an Information technology organization that operates
globally, in which 1000 IT experts collaborate effectively with all brands and functions of the
business worldwide (Arnis 2015). This is what appears creating a digital network among
customers and employees in which consumers needs and wants are revealed constantly.
Human resource management
Adidas seems reducing time spent on the primary interviews by utilizing the video recruiting
utensil, while increasing collaboration with highly innovative recruitment agencies and
spending the extra time and money to make sure that they appoint the top talented and
competent experts for the available positions. In addition, Adidas contracts with over 400
factories in Asia in order to assemble its products (Ohannesian 2015). As it is looking to save
capital, benefitting from the low labor cost aiming to increase profit. Furthermore, Adidas is
committed to give rewards and incentives to its employees through compensations and
beneficial programs. Such as, the global bonus program “Aim2Score” that combines the
employee’s individual performance and the corporate performance, the employee profits
sharing program and other long term beneficial programs (Adidas-group.com 2015).They
also encourage their employees to acquire shares in the companies, in which they share
information with them as all other shareholders in the company. This shows that they
appreciate employees’ perception and they give them the opportunity to invest and make
profit within the organization.
Technology development
Adidas is known for its excellent and well competent personals, as they do not hire
employees unless they have a higher qualifications and technological expertise. Through the
proficiency of its personnel, Adidas group usually conducts an effective research and
development programs aiming to boost the quality of its products in the market. They also
seem to have positive collaborative relationships, in which research and development
departments work closely and effectively with other departments while initiating a new

10. 10
product. They may even partner with other companies when they intend to attain significance
improvement in their product line. For instance, Adidas partners with BASF, the leading
chemical company in the world to launch the midsole, Adidas Boost running shoes (Knapp
2015). This boost midsole is manufactured to last longer and to maintain the same cushion
and response regardless of temperature variation. Adidas Being the first in creating such a
modern product with new advanced features is most likely to enhance its reputation among
other sporting brands in the market.
Procurement
Adidas group seems seeking a cheaper source of supply due to the commercial pressure as a
result of the wages increase in the developed countries. To minimize the dependence on a
limited number of suppliers, Adidas usually subcontract with new providers operating in less
developed countries with lower wages level in order to maintain its bargaining power against
them while stressing the focus on cost saving targeting profit increase. In addition, to
optimize quality and minimize cost, Adidas group appears mostly interested in reducing
material waste, energy consumption and chemical usage. Therefore, AG is moving toward
alternative raw material such as, the use of non-toxic material and the reuse of recyclable
plastic (Hainer 2015). Following these strategies, AG perhaps is able to save financial and
natural resources, attain efficiency in production while taking good care of the environment.
6.0 Issue/Problem Definition
Challenges Faced
With a broad scope of product lines, the organization faces a challenge of expanding
individualization of demand. Variations in the power of purchasing of customers and having
individual item decision has made it hard for the organization to do compelling forecasting
and planning, which thus produces issues to deal with distribution and warehouse. Because
of all these issues, the organization realizes that it is crucial to reinforce or enhance its
distribution system. Currently, the regularly growing competitive environment, the securing
and dispersion of products has been fundamentally motivated by market liberalization and
globalization3.
Internal and External Analysis
The key rivalry for Adidas brands and items originates from the items and brands of Puma
3 Tomlinson, Alan. The making of the global sports economy: ISL, Adidas and the rise of the
corporate player in world sport." Sport and Corporate Nationalisms. New York:
Oxford,

11. 11
and Nike. There is no differential price advantage and in this way it is simple for buyers to
move from one item to another .As Adidas tests with new methods like "miCoach", a fresh
project for enhancing the process of training, the organization follows the pattern to
consolidate products of sports with electronic devices such as smart phones or heart-
recurrence meter. Going with this pattern and building up a right advertising procedure
implies that the company has the likelihood to improve its exchange4.
7.0 Development of different strategies
7.1 SAVED Strategy
Strategy1
Adidas can remove their dog product from their product line. Adidas can divert their focus
from boxing gloves to on new sports product like Badminton.
Staging: Assuming that the market demand for the dog products will reduce in 2 years and
there will be increase in demand of badminton products.
Arenas: The products that will be removed from the product line will be the boxing gloves
and the new focus will be on badminton rackets and related accessories. The core technology
that will be used is light weight material to produce rackets to provide efficiency. The target
product segment will be athletes and sportspersons.
Vehicles: The vehicle will be licensing. Adidas will get license from Yonex to make and
develop products for them.
Economic logic: By removing the dog products the company can save their time and money
as there is no market share and growth of the product. Moving their focus on new product
line Adidas might benefit as badminton products will have better market growth and share.
Differentiators: As Yonex has well established image in the badminton segment Adidas can
benefit from it. The pricing will be high as special materials will be used to make the
products better and lighter.
Strategy2
Adidas can come into acquisition with small scale competitor like Umbro to increase their
market share.
Staging: Assuming that the barriers to entry in market will be low and will be easier for new
competitors to gain market share.
Arenas: the product category that will be focus in this strategy will be the running shoes and
market segment that will be targeted will be low income to middle class people. So that
target segment can afford the shoes. The core technology used to produce the shoe will be
cheaper raw material with better quality to make the product cheap.
4 Borowski, Arkadi. Adidas Marketing Strategy-An Overview. GRIN Verlag, 2011

12. 12
Vehicles: Adidas can do an acquisition with Umbro, a small scale sports brand. Adidas can
use their core competencies to develop and produce their product
Economic logic: This acquisition will increase market share and hence will lead to profit as
they will not be producing the good but will be providing ideas and innovation. By doing this
the cost of producing will be low.
Differentiators: The price will be set low to meet the idea of producing cheaper good to make
it available to the target segment. The products will be customized and developed by Adidas
and will be according to local needs.
Strategy3
Adidas can come up with improved and innovative design for their cash cow products, i.e.
sports shoe.
Staging: To maintain the competitive advantage and strength in market. As well as to have
greater market share
Arenas: product focused is running shoe and the core technology used will be new cheaper
materials and better quality
Vehicles: internal development by improving the production process and innovative ideas
Economic logic: increasing revenue and increasing profit by reducing costs of production
Differentiators: New style and shape for the sports shoes with an increased focus on
improving brand image for sports shoes
7.2 Selection of alternatives
Recommended Strategy:
Adidas, to form a legal horizontal strategic alliance with Nike for the production of
innovative garment collection. This alliance is to reduce cost and increase profit. This can be
achieved through diversifying the market segment to low income groups for the particular
product.
SAVED Strategy:
 Staging:
 Assuming the market will grow in the next 5 years depending on the
profitability of product category
 Geographical expansion
 Arenas:
 Products: Garment
 Target Customers/Market Segment: low income groups/price sensitive
consumers/middle class communities
 Value Creation: Affordable prices for the products with no compromise on
quality
 Core tech. Environment friendly production processes

13. 13
 Vehicles:
 Adidas benefiting from strategic alliance with Nike in terms of Nike’s
marketing strategy and sale of their otherwise unprofitable segment
 Nike to agree and utilize Adidas specifications.
 Economic Logic:
 Economies of scale and profit maximization for that business unit
 Profits shared between Nike and Adidas
 Differentiators:
 Pricing (low) and customization of products enhancing customer base
 Improvement in Brand image
This strategy will have a great impact on competitive position. Till date, Adidas, Nike and
Puma were competing against each other on similar price range, but now with this strategy in
place, competition will grow more intense over pricing and quality. This strategy will
actually impact on all the basis of analysis done on Adidas in terms of bargaining power of
supplier being even lower and the bargaining power of customers being high as before. The
problem that Nike is going to face is the threat of substitutes that is customers switching their
brand. Nike will not be able to sell well in their original garments collection, but will be
counteracted by the returns they receive from this business proposition. For this business
segment, opportunities and threats will also change in terms of threat of new entrants and
customer preferences on a large scale etc.
8.0 Implementation
The chosen strategy of forming a strategic alliance with Nike will only change the value
chain related to garments business unit segment. The reason behind this strategy is to
eliminate the difficulties of “problem child” product by lending out the product funding and
manufacturing capability to Nike for the low-cost product segment.
Talking about the value chain of this alliance project, this part of business unit will have its
inbound logistics within Adidas supplying with necessary materials, design components etc
for Nike to produce garments for Adidas. One of the purposes of garments not doing well in
the market could be the quality itself or the price factor. Raw materials could be accessed
from both the side suppliers as in Nike will arrange raw materials in bulk helping in cost
reduction, and Adidas suppliers providing with best environmental friendly resources.
Combined, they get access to huge amount of raw materials at low cost and best quality. In
terms of production, Adidas will do the frequent quality control and product testing to see
whether Nike is meeting their requirements. Moreover, garments will now be more attractive
and different than what it used to be previously, and for that to be implemented, Nike will
use their R&D for innovations considering pricing strategy (Doane 2007). As for the
outbound logistics, since both the companies have a good control over distribution channels,

14. 14
they could use both of their transportation facilities to minimize costs at large. Since, Nike
has better marketing strategies in place for their Just in Time Delivery system, scale
advantage, price leadership and value based pricing strategy and most importantly aggressive
marketing capacities, Nike will handle the marketing so that the product reaches out to the
large public space creating awareness convincing them to value new collection garments
(Varier, et al. 2011, 18-19).
To successfully implement the primary activities in the value chain, they need support from
the people and IT. This covers the supportive activities that include General Administration,
Human Resource Management, Technology and Procurement. This part of the value chain
will also be blended in terms of market research done, and the agreements over the
improvements made for garments. Also the people working for this project will be set out
differently, and considering this alliance will grow in the next five years depending on the
market conditions and product response from the target groups, Adidas and Nike will blend
their workforce to even greater strength to grow along with the strategy.
Since Nike will handle Adidas’s operational segment for garments; their major opponent,
they may cut on quality to make profit for themselves maintaining the same fierce
competition. One of the major costs for implementing this strategic alliance will therefore be
the alliance itself. Along with that, the cost of merging the value chain activities of garments
could be the overpricing of raw materials for different standards or differences in pricing for
suppliers of two strongest competitors may start to compete against each other.
9.0 Evaluationand control
In conclusion, this report provides an explanation of why it is not only beneficial but
necessary for Adidas to collaborate with Nike. As our external and internal analysis
indicates, that despite starting first as a sports equipment manufacturer Adidas is second in
the European Market, a step behind Nike. Nike’s extensive marketing techniques help it
remain No.1 in European market. Adidas, moreover, focuses a lot more on the quality of its
finished products keeping into account the environmental impact of its activities.
In order to gain control over the market in Europe, it would be profitable and cost-saving for
Adidas to have a Strategic Alliance with Nike in order to develop its “QUESTION MARK”
product which is the sports outfits. The Alliance will help Adidas benefit from economies of
scale such as lower production cost. Also, Adidas could benefit from Nike’s marketing
tactics in order to promote the collaborated invention.

15. 15
10.0 References
Adidas. 03 05, 2015. http://www.adidas-group.com/en/investors/financial-reports/ (accessed 03 11, 2015).
Adidas AG . Collaborations and Memberships. 2008. http://www.adidas-
group.com/en/sustainability/partnerships/collaborations-and-memberships/ (accessed Feburary 27, 2015).
—. History . 2014. http://www.adidas-group.com/en/group/history/ (accessed March 03, 2015).
—. MiAdidas-Customize. 2014. http://www.adidas.com/us/customize (accessed March 10, 2015).
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11.0 Appendices
11.1 Appendix 1: Ratio Analysis
Current and Future Estimates
Net income:
31st
Dec 2013 (€ Millions) 31st
Dec 2014 (€ Millions)
Net income 100 176
(Adidas 2015)
It is assumed that the net income of the company might rise by 30% due to the new strategic
alliance strategy. There was a rise in the net income but there will be a gradual increase in
sales and operating expenses hence there will be a minor fall in percentage.
Estimated net income by end of 2015 = € 264 million
Total Asset:
31st
Dec 2013 (€ Millions) 31st
Dec 2014 (€ Millions)
Total asset 11,599 12,417
(Adidas 2015)
It is assumed that the assets of the company will be steady and will have a gradual increase of
around 3% as it has already increased by 5% over last year (Adidas 2015). There will not be
much change as production of garments will be Nike and hence not much changes in
inventory and assets of the company.
Estimated total asset by end of 2015 = € 13,038 million
Return on Asset (ROA):
Current return on asset (2014) = 1.42% (176/12,417)
Future return on asset (2015) = 2.02% (264/13,038)
Average total asset
2011 (€ Millions) 2012 (€ Millions) 2013 (€ Millions) 2014 (€ Millions)
Total asset 11,237 11,651 11,599 12,417
(Adidas 2015)
Average total assets = (11,237 +11,651+11,599+12,417)/4
= € 11,726 million
Return on Investment (ROI):
Current return on investment (2014) = 1.5% (176/11,726)
Future return on investment (2015) = 2.25 % (264/11,726)
Owner’s Equity:
2013 (€ Millions) 2014 (€ Millions)
Owner’s equity 6,694 7,415
(Adidas 2015)
Due to estimated low income there will be decrease in the retained earning the decrease in
equity is assumed to be by 1%.
Estimated Equity by end of 2015 = € 7489.15 million
Return on Equity (ROE):
Current return on equity (2014) = 2.37% (176/7415)

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Future return on equity (2015) = 3.52 % (264/7489.15)
Current Financial Ratios (AG, Make A Difference 2014, 1-2 192-193)
Short Term Solvency Ratios
Current Ratio: Current Assets/Current Liabilities
2014 = 1.68 (7347/4378)
2013 = 1.56 (6857/4732)
Quick Ratio: Current Assets-Inventory/Current Liabilities
2014 = 1.10 (7347-2526/4378)
2013 = 0.89 (6857-2634/4732)
Cash Ratio: Cash/Current Liabilities
2014 = 0.38 (1683/4378)
2013 = 0.33 (1587/4732)
Financial Leverage Ratios
2014 = 3.3%
2013 = (5.4%)
Asset Utilization Ratios/Turnover Ratio
Capital Intensity: Total Assets/Sales
2014 = 85% (12417/14534)
2013 = 82% (11599/14203)
Total Asset Turnover: Sales/Total Assets
2014 = 1.17 (14534/12417)
2013 = 1.22 (14203/11599)
Market Value Ratios
Price-earning/share: Price per share/Earnings per share
2014 = 21.83 (57.62/2.72)
2013 = 23.10 (92.64/4.01)
Based on the current findings on Adidas financial performance, they have done much better
in every way from what they had performed in 2013. Therefore, keeping in mind the 2014
figures, we estimate that the business alliance will further strengthen the financial
performance in 2015 and the next five years to come. The ratios above for 2015 are an
estimation keeping in mind the realistic assumption and the cost drivers influencing
performance.

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11.2 Appendix 2: PEST Analysis and SWOT Analysis
11.2.1 PEST Analysis (Hayouma 2014, 2)
Political
 Control and monitor hazardous
material to protect human health and
environment
 Provision of training sessions on
employment standards and HR
systems
 Abiding by the con-current
employment laws protecting the
rights of employees
Economic
 Adidas increases the number of
employees hired each year to
decrease the unemployment rates in
developing countries
 Adidas generally base their factories
in Asia for availability of cheap
labors therefore in order to reduce
cost from paying wages and salaries
Social
 Adidas products are dedicated to all
sects and demographics ranging
consumers from athletes to non-
athletes
 However, Adidas products have an
high inclination towards sportsperson
and athletes
 Adidas makes fashionable products
with special designs as demanded by
their consumer base
Technology
 Adidas utilizing technologies to make
shoes with microchips and MP3
player inserted underneath
 Adidas uses hot melt systems in their
production system
 Using of environmental friendly and
recyclable packaging system
 Using packaging model that are
suitable for long distance travel,
humid conditions and extreme
climatic variability
11.2.2 SWOT Analysis (Vlasich 2012) (Hayouma 2014, 2) (S 2010, 1) (Borowski 2011, 2)
(Kasi 2011)
Strengths Weakness
 Biggest sponsor of sports event-football  Superior pricing
 Adidas brand is well recognized and
reputed
 Limited product line
 Diverse range of products offered online  E-marketing and customer service is poor
and badly functioned
 Adidas has good records of financial
statements
 Proper retailing network is not always
followed
 Acquisition of Salmon Group and
Reebok which used to be Adidas’s
strongest rivals
 Direct purchases from manufacturers
often creates price differences among
customers
 Strong distribution channels  Poor share in the US market
 Adidas abiding by the employment and
environmental laws (AG, Adidas Group
2015, 1)
 High dependency on raw material pricing
 Demographically wide-spread  Fierce competition with strong
competitors
Opportunities Threats
 Change in consumer lifestyles  Competition from foreign markets
 Innovation and technology development  Changing in consumer lifestyles,
behavior and buying patterns (Woke
2013, 1-2)
 Entering new markets  New competitors entering the market
 Market diversification  Price war between major rivals
 Enhanced geographical customer base  Growing bargaining power of suppliers
and buyers
 Expansion of product line/service  Overpricing of raw materials

19. 19
11.3 Appendix 3: Originality Report

20. 20
11.4 Appendix 4: Portfolio Analysis
11.4.1 BCG Matrix
STAR QUESTION MARK?
CASH COW DOG
Stars: It is the high end and most expensive footwear Adidas has to offer. These products are
customizable and mostly worn by celebrities. (Ex: Jeremy Scott) Once people see celebrities
wear these products, they too buy them.
Cash cow: These are the biggest sellers in the market that are cheap to buy and make. For
Adidas, this product segment brings in most of the money and is used to either develop new
products or to invest in other areas of the business. Therefore, the revenue generated from
this is crucial for the business to sustain (Heitner 2013, 1-2).
Dogs: These products have a smaller share compared to the others and also have a slow
growth rate. This section of product includes accessories, and sports which Adidas is not
known for globally.
Question Marks: The ‘question marks’ of Adidas products are its shirts and garments as
they have a high market growth but the market share is very less. They require lot of funds to
improve their market share and it is uncertain whether they will grow or not.
11.5 Appendix 5: Porter’s Five Forces Model
Competitive Rivalry: This element focuses on the number and capability of competitors in
the market (Arline 2015, 1-2). In that case, Adidas has selected number of competitors in the
market like Puma, Nike and Reebok, where Adidas has already taken over one of their
strongest competitor Reebok. Adidas and Nike are competing on these factors listed below:
• Adidas’s strongest competitor is Nike
• These two firms are immensely growing in the last two decades
• Global reach has expanded through all continents
• Online selling has reached its heights allowing them to increase sales and at the same
time keep operating costs low

21. 21
• Virtual stores for consumer convenience
• Online purchasing becoming the new trend in 21st century
Threat of New Entrants: In this element, if the market is emerging and profitable, then they
are highly likely to give a free access card for the new entrants to dominate the market
eroding the profitability. In case of Adidas, even though the market is thriving, threat of new
entrants is low because of the following reasons.
• Adidas, being a large scale firm control their costs retaining the performance
advantage over emerging competitors in the industry
• Brand identity, an immediate competitive advantage
• Selling footwear online is highly competitive, but barriers to enter in e-commerce is
low
Threat of New Substitutes: This element particularly deals with the scope of buyers finding
a substitution for their product. In this area of competitive force, if close substitutes exist in
the market, then it is likely for them to switch to another brand.
 Propensity of substitutes low
• Little alternative to switch
• Not likely to switch due to performance specification of the product
Bargaining Power of Suppliers: This element shows how easy it is for suppliers to bring
the prices up for the product in the market. This factor is determined by the number of
suppliers are available for each input, the uniqueness of product/service they provide.
 Many suppliers in the industry, therefore little differentiation making them non-
existent
• Adidas has significant power over suppliers
• Able to switch to suppliers cheaply and quickly due to their global network of cheap
labor on various continents
• Raw materials are easily accessible and substituted
Bargaining Power of Buyers: This element constitutes of the number of buyers easily
influencing the price of a product. This deals with the number of powerful number of buyers
in the market, and their willingness to switch to other substitutes in the market.
 Proportion of buyers are more than firms
• Differentiation of brands is necessary to increase sales and market share
• Online tools help to enhance accessibility and intimacy among users. Moreover,
online buyers are price sensitive so they have low switching costs