Featured Image Caption: Adidas International Strategy
Part of Adidas’s international strategy is the horizontal integration of companies. The aim of such a collaboration is the realisation of economies of scale (Anh V et al., 2009).
Through the acquisition of companies in the same business area, a targeted attempt was made to increase market share and improve sales (we have accepted all of this factors while doing this market research report). The horizontal integration offered Adidas the perfect opportunity to close the resulting gap with its American competitors, Nike, and to generate knowledge growth about markets and consumers through already established companies.
According to Bartlett and Beamish (2014), Adidas’ approach is typical for western companies that use collaborations to avoid large investments and minimize the risks and costs of entering new markets. Nevertheless, companies must bear in mind that horizontal integration always involves certain risks (Faulkner et al., 2012). This is can be illustrated by the acquisition of the French company Salomon Group from Adidas in 1997 (purchase price: DM 2.4 billion).
The goal of the M&A with the Salomon Group was to increase sales, especially in the winter sports sector. Contrary to expectations, the integration did not deliver the expected synergies and Adidas sold the Salomon Group for €485 million in mid-2005 (Steger et al. 2007). Ultimately, the project failed because of the gloomy sales opportunities for the entire ski industry and the poor chemistry between the two CEOs (Jung, 2016).
Porter (1990) points out that cooperation partners must be selected specifically and selectively, otherwise, in most cases, they represent only a short-term solution to the problems. According to Lucks and Meckl (2002), M&A only has a positive effect on industrial companies after several years, so companies should define their long-term goals. According to Porter (1990), the goal should be to enhance home-based capabilities with the help of foreign companies.
An example of a successful M&A is the merger of Adidas with the US group Reebok. Reebok perfectly complemented Adidas’ international profile. The merger has improved Adidas\’ presence in the North American market, which accounts for almost half of global sporting goods sales (Tran, 2005).
A major goal of M&A processes is the realization of value creation potential, which can be realized through cooperation between two companies. The intensity of the integration of the affected companies can be determined by the criteria “organizational autonomy” and “strategic interdependence” (Haspeslagh & Jemison, 1991).
In their integration approach model Haspeslagh and Jemison described four possible integration approaches. The Adidas Reebok merger is characterised by a high demand for both organisational autonomy and strategic interdependence.
It was important for Adidas that each brand could concentrate on its core competencies and retain its unique identity (Holtbrügge and Hausmann, 2017). For example, in addition to the headquarters of both companies, the R&D centres were each independently managed (Holtbrügge and Hausmann, 2017).
Other areas that do not promise any integration benefits are continued separately as far as possible. The M&A of Adidas and Reebok was primarily about the transfer of intangible resources such as knowledge and relationships.
This enabled both companies to learn from each other’s R&D expertise. Adidas had developed state-of-the-art technologies such as Adidas_143, A3®44 and ClimaCool45, whereas Reebok, on the other hand, had product innovations including the Pump 2.046 and DMX47 (Rygl et al. 2006). In addition, the merger enabled both companies to concentrate on new sports areas in which the other partner was already represented.
As part of its strategy, Adidas has built a strong network in football and the Olympic Games, while Reebok was particularly strong in American sports such as NFL and NBA. In addition, they both benefited from each other’s strong distribution networks, Adidas from the one in America and Reebok from Adidas global network (Adidas, 2005).
Another goal was to consolidate the supply chains of both companies (Adidas, 2006). Thus, the M&A enabled significant cost savings as well as revenue and profit growth through a more complete coverage of all consumer segments.
According to Haspeslagh and Jemison (1990), only through strategic interdependence and a symbiosis of the two parties is transfer between the different companies possible. Therefore, in the best case, companies should strive to dissolve the existing boundaries (Todeva and Knoke, 2005).
By Carol James
who is a writer & editor at Primetimeessay(.)com. She is an experienced and reliable academic writer with impeccable proficiencies in writing professionally sounding and acceptable academic works including articles, research papers, research proposals, literature reviews and other relevant academic papers. Carol graduated from the philological faculty with honors, professionally engaged in journalism, and writes articles on various topics. She studies business on specialized courses and successfully implements knowledge in projects.
Do you enjoy writing and have something interesting to share?
You are at the right place. Inspiring MeMe is the world's fastest growing platform to share articles and opinions. We are currently accepting articles, blogs, personal experiences & tips and would love to have you onboard.