*Views expressed in this rep.rt are th.se .f the auth.

rs

COMMGMT 3001 Internati0nal Management III-2007 Gr0up Assignment

The Adidas Gr.up and Reeb.k: N.rth America

Auth0rs: Elizabeth Ansara Matthew L0vell Patrick ONeil Peter R0me0

Table 0f C0ntents
Executive Summary.......................................................................................3 Intr0ducti0n....................................................................................................4 Differences and Similarities between Germany and the US.......................5 G"vernment and P"litics in Germany and the US ........................................5 Law in Germany and the US ........................................................................6 Ec"n"my in Germany and the US ................................................................6 Cultural Value in Germany and the US ........................................................7 C0mpetit0rs....................................................................................................9 Nike Inc"rp"rated .........................................................................................9 Adidas ........................................................................................................10 Puma ..........................................................................................................10 Current Trends ...........................................................................................11 Structure and Operati0ns 0f Reeb0k .........................................................12 Parent Strategy ..........................................................................................12 Organisati"nal Structure.............................................................................12 Reeb"ks Fit ...............................................................................................13 Strategy......................................................................................................14 Summary ....................................................................................................15 Internati0nal Management Opp0rtunities and Pr0blems .........................16 Opp"rtunities ..............................................................................................16 Pr"blems ....................................................................................................17 C"mpetit"rs ................................................................................................17 Pr"duct Differentiati"n................................................................................18 Cultural Differences....................................................................................18 Manufacturing.............................................................................................19 S"cial Resp"nsibility ..................................................................................19 Staffing .......................................................................................................19 Rec0mmendati0ns.......................................................................................20 P"ssible S"luti"ns ......................................................................................20 The integrati"n pr"cess..............................................................................20 S"luti"n f"r perishable pr"duct issue .........................................................21 Suggested s"luti"n f"r s"cial resp"nsibility issue.......................................21 C0nclusi0n ...................................................................................................22 Reference List ..............................................................................................23

Executive Summary
The f"ll"wing rep"rt analyses the N"rth American Reeb"k subsidiary, recently acquired by the Adidas Gr"up wh"se headquarters are l"cated in Germany. In assessing the Reeb"k subsidiary we f"und that the cultural differences between Germany and the United States did n"t influence the "perati"ns and management in Reeb"ks N"rth American subsidiary as much as we first expected. If the tw" "rganisati"ns are t" succeed in the years t" c"me, the cultural differences and similarities need t" be c"nsidered and assessed f"r c""perative decisi"n making. The inv"lved c"untries have c"mparable characteristics in their p"litical structures and subsequently it has n"t adversely affected the tw" "rganisati"ns since the acquisiti"n. As Reeb"k is the third largest sp"rting g""ds c"mpany in the w"rld behind Nike, c"mbining Adidas and Reeb"k will pr"ve t" be a beneficial relati"nship. Reeb"k and Adidas retain the sec"nd and third largest market shares in f""twear in the US. It was disc"vered that the acquisiti"n was primarily undertaken with the "bjective t" "btain the largest market share "ver the current US market leader, Nike. Reeb"k ad"pts a decentralised Gl"bal Area/Ge"graphic structure whereby the N"rth American subsidiary rep"rts t" the Reeb"k headquarters in B"lt"n, England. The Adidas Gr"up "versees the "perati"ns "f the headquarters "f b"th Adidas and Reeb"k c"mpanies. The strategies "f b"th c"mpanies were aligned t" utilise each "thers strengths t" "verc"me each "thers weaknesses. This strategy c"mpliments the gl"bal area/ge"graphic structure, where Reeb"k and Adidas can pursue their individual g"als while being guided by a c"mm"n strategic directi"n. Thus, "ur rec"mmendati"n f"ll"wing the acquisiti"n is that Reeb"k sh"uld balance their str"ng brand with Adidas, each having separate identities and "wnership in different markets. The benefits "f the merger sh"uld be f"cused "n areas such as distributi"n channels, ec"n"mies "f scale and manufacturing netw"rks. With the substantial savings generated by the merger, Reeb"k sh"uld further diversify their markets and pr"ducts. 3

Intr0ducti0n
Reeb"k Internati"nal Limited "perates in the sp"rtswear industry and is a maj"r pr"ducer "f athletic f""twear, apparel and access"ries. Reeb"k was f"unded in 1895, but was recently acquired in 2006 by an"ther giant German sp"rting c"mpany, The Adidas Gr"up. The f"ll"wing rep"rt analyses The Adidas Gr"ups acquisiti"n "f Reeb"k. The first task in assessing the j"ining "f c"rp"rati"ns is t" examine the many differences and similarities am"ng the United States and Germany. The rep"rt will l""k at g"vernmental, p"litical, legal, ec"n"mical and cultural characteristics "f the tw" c"mpanies. The next "bjective is t" examine Reeb"ks t"p c"mpetit"rs in the sp"rts apparel market. It is imp"rtant t" kn"w what "ther c"mpanies Reeb"k sh"uld be b"th watching "ut f"r and learning fr"m. This rep"rt will then g" "n t" the strengths and weaknesses "f Reeb"ks "rganizati"nal structure and "perati"ns. In additi"n a descripti"n "f the Adidas Gr"ups structure and "perati"ns is analysed. It is imp"rtant t" have inf"rmati"n ab"ut b"th the h"st c"rp"rati"n and its subsidiary f"r c"mparative analysis. The final c"mp"nent "f this rep"rt discusses internati"nal management "pp"rtunities and pr"blems. Rec"mmendati"ns t" res"lve the issues discussed.

Differences and Similarities between Germany and the US

Germany and the United States are tw" very different c"untries emphasised by their dissimilarities in terms "f ge"graphics and p"pulati"n. Germany is l"cated in Eur"pe and has a p"pulati"n "f appr"ximately 82.5 milli"n pe"ple. The United States has a p"pulati"n "f "ver 301 milli"n citizens and is appr"ximately 27.5 times larger in area than Germany (The W"rld Factb""k 2007). The Adidas Gr"up began its "perati"ns with "nly "ffices in Germany. H"wever, "vertime, the c"rp"rati"n expanded by acquiring Reeb"k. In understanding h"w b"th "f these "rganizati"ns "perate, it is first imp"rtant t" analyse the differences and similarities between the United States and Germany.

G"vernment and P"litics in Germany and the US

Despite their differences in ge"graphical f"rm and p"pulati"n, The United States and Germany have s"me c"mparable characteristics. Germany is a federal republic c"nsisting "f 16 states while the United States c"nsists "f 50. Encycl"paedia Britannica "nline (2007) states that in Germany, many "f the p"litical structures were drawn fr"m the m"dels "f the United States and "ther federal g"vernments. In b"th c"untries, each state has their "wn set "f laws and g"vernment. B"th Germany and the United States are dem"cracies with the f"rmal head "f c"untry being a president. In the United States, as well as having a president there is als" the senate c"nsisting "f 100 members and the H"use "f Representatives which has 435 members. In Germany, the Bundestag exists which c"ntains appr"ximately 600 members, depending "n the electi"n results (Encycl"paedia Britannica Online, 2007).

Law in Germany and the US

The legal aspects "f the tw" c"untries have many similarities. The laws in the United States are based "n the c"nstituti"n which was written in 1787. Germany als" had a c"nstituti"n called the Grundgesetz. This t""k affect "n May 23, 1949 (Encycl"paedia Britannica Online, 2007).

Ec"n"my in Germany and the US

The ec"n"mies existing in Germany and the United States are fairly different. The US uses the d"llar as their currency while Germany uses the Eur" as its f"rmal currency. Currently, the Eur" has a str"nger exchange rate than the US d"llar. As "f 3 May, 2007, "n Yah""! Finance (2007) "ne US d"llar is equivalent t" 0.735 Eur"s. Theref"re, what happens in the German ec"n"my is crucial f"r b"th the rest "f Eur"pe and the entire w"rld ec"n"my. Thr"ugh"ut April, Germanys ec"n"my has c"ntinued t" impr"ve. Unempl"yment has declined a great deal and there are fewer than 4 milli"n Germans "ut w"rk f"r the first time since Oct"ber "f 2002 (M""re, 2007). There seems t" be n" big signs "f future tr"uble within the German ec"n"my. The US ec"n"my is the largest in the w"rld. C"untries like China and Japan are c"ntinuing t" gain ec"n"mic rec"gniti"n and the US seems t" be playing a smaller r"le as time g"es "n. Thr"ugh"ut the first quarter "f 2007, the US ec"n"my expanded at a sl"w 1.3 percent. This was the f"urth quarter in a r"w with ec"n"mic gr"wth that was just sub-par (NZ Herald, 2007). The German ec"n"my seems t" be gr"wing in strength while the United States l""ks t" be sl"wing d"wn.

Cultural Value in Germany and the US

The final c"mp"nent "f analysis between the United States and Germany are its cultural differences. Using H"fstedes value dimensi"ns, a better understanding will be gained ab"ut the tw" cultures. The first dimensi"n is p"wer distance which is essentially h"w willing the pe"ple in that culture are in accepting a pers"n that has a l"t "f p"wer and influence "ver them. The United States and Germany ranked 40 and 35 respectively (as sh"wn in the diagram bel"w). B"th c"unties ranked relatively l"w "n this scale, meaning that there is n"t a large gap between the pe"ple in charge and th"se that are n"t.
P0wer Distance 35 40 Uncertainty Av0idance 65 46 L0ng term 0rientati0n 31 29

C0untry Germany USA

Individualism 67 91

Masculinity 66 62

The sec"nd value "f H"fstedes dimensi"n is uncertainty av"idance. Germany (65) is ranked higher in this characteristic than the US (46). This signifies that Germany has a much higher desire f"r stability. Businesses in Germany are likely t" have stricter guidelines "r rules f"r things that sh"uld be d"ne than th"se in the United States. The third value is individualism verses c"llectivism. This c"mpares pe"ples preference t" care f"r "nly themself and their immediate family, c"mpared t" the n"ti"n that "nes identity is based "n gr"up membership. The United States is much m"re individualistic than Germany, sc"ring 91 c"mpared t" 67. This signifies that pe"ple in the US str"ngly believe that individual achievement is ideal. The final dimensi"n is masculinity versus feminism. Germany (66) is "nly slightly m"re masculine than the United States (62), meaning that in German s"ciety, pe"ple are m"re likely t" be assertive, materialistic and have less c"ncern f"r "thers. Due t" the similarity in sc"res, Germany and USA are n"t likely t" have a great difference in behavi"ur based "n this dimensi"n. (Deresky, 2006).

Als" "f imp"rtance is the c"mparis"n "f the l"ng term and sh"rt term "rientati"ns "f each c"untry. B"th c"untries sc"res were similar and l"w, indicating that managers use sh"rt term incentives and rewards f"r empl"yees. A sec"nd way t" assess the different cultural aspects "f Germany and the United States is thr"ugh Tr"mpenaars value dimensi"ns. B"th c"untries are very universalistic, which means they have a high sense "f "bligati"n. They rely "n laws, c"ntracts and rules. When it c"mes t" em"ti"nal "rientati"n in relati"nships, Germany is m"re neutral while the US is m"re affective. The United States is als" m"re specific when inv"lved in relati"nships whereas Germany is m"re diffusive. The final value is achievement versus ascripti"n. There are a greater percentage "f w"men and min"rities in the w"rkplace in the US than in Germany. Als", in Germany status is based less "n c"mpetency and achievements (Deresky, 2006). Having a better understanding "f the similarities and differences between Germany and the United States is crucial in assessing the Adidas Gr"up and Reeb"k in N"rth America. The l"cati"n "f the subsidiary plays a significant r"le in the "rganizati"ns c"mpetit"rs, h"w it is structured, pr"blems, "pp"rtunities that "ccur and what kind "f s"luti"ns c"uld impr"ve the c"mpany. By carefully analysing "r c"nsidering the differences in the respective cultures, pr"blems such as misc"mmunicati"n in management c"uld be easily av"ided.

C0mpetit0rs
The three largest c"mpanies in the sp"rtswear and sp"rting g""ds industry are Nike, Adidas and Puma. C"nsequently, these c"mpanies als" act as the three str"ngest c"mpetit"rs t" Reeb"k. The chart bel"w reinf"rces s"me "f the arguments and analysis that will be detailed.

Year End 2005

Empl0yees

Adidas
17,000 N". 2 gl"bal maker "f sp"rting g""ds

Reeb0k
9,102 N". 2 U.S. maker "f athletic sh"es

Nike
24,667 N". 1 gl"bal maker "f athletic sh"es

Maj0r rankings U.S. athletic sh0e mkt. share Gl0bal athletic sh0e mkt. share Annual revenue Annual net inc0me Current market cap.

8.90%

12.20%

36.30%

15.40% $7.9 billi"n $326.5 milli"n $8.9 billi"n $3.8 billi"n $192.4 milli"n $2.6 billi"n

9.60% $13.7 billi"n $1.2 billi"n $16 billi"n

33.20%

$86.92, d"wn 4% Wed. st0ck price cl0se NA $57.14, up 30% this year this year S"urces: Sp"rting G""ds Intelligence, NPD Fashi"nw"rld, the c"mpanies, Reuters, USA TODAY research

Nike Inc"rp"rated
Nike is a maj"r American supplier "f athletic sh"es (36.6%), apparel and sp"rts equipment with headquarters l"cated in Beavert"n, Oreg"n, USA. Nike pr"duces a wide range "f sp"rts equipment and is the largest sp"rtswear supplier in the w"rld, with revenue f"r the 2006 financial year t"talling $15 Billi"n. Nike has m"re than m"re than 26,000 empl"yees w"rking at "ver 500 fact"ries, which are spread acr"ss 45 c"untries. M"st "f Nikes fact"ries are l"cated in the Asia. Nike has fierce c"mpetiti"n f"rm every sp"rts brand due t" its large range "f sp"rting g""ds. F"r a l"ng time Nike had n" direct c"mpetit"rs because there was n" single brand which c"uld c"mpete directly with Nikes range "f sp"rts and n"n-sp"rts "riented gear until Reeb"k gained market share in the 1980s (Wikipedia). 9

Adidas
As discussed ab"ve Reeb"k is a subsidiary "f Adidas. Adidas is a German f"unded sp"rtswear c"mpany that is part "f the Adidas Gr"up, c"nsisting "f Reeb"k sp"rtswear, Tayl"rmade G"lf C"mpany, Maxfli g"lf balls, and Adidas g"lf. It is the sec"nd biggest sp"rtswear manufacturer in the w"rld. Since its f"rmati"n in 1949, Adidas has been the "fficial match ball supplier f"r every FIFA W"rld Cup and designs the "fficial match ball f"r every editi"n "f the event. Adidas pr"duces the kits "f s"me "f the biggest d"mestic and internati"nal f""tball teams including Real Madrid, AC Milan, Chelsea and Liverp""l, as well as 26 nati"nal teams. Adidas rep"rted revenue "f $9.32billi"n f"r the 2006 financial year.

Puma
An"ther large c"mpetit"r "f Reeb"k in the sp"rting g""ds industry is Puma. Puma is a German based multinati"nal c"mpany that pr"duces high end athletic sh"es and "ther sp"rtswear (Wikipedia Encycl"paedia). Puma is the third largest sp"rtswear manufacturer in the w"rld behind Nike and Adidas. H"wever, Puma d"es n"t c"mpare t" Nike in terms "f empl"yees with ab"ut 7,000 staff members c"mpared t" Nikes 26,000. Since 1996 Puma has expanded its "perati"ns in the United States. Puma is the main supplier "f racing sh"es f"r F"rmula One and NASCAR and had the rights "f sp"ns"ring the 2006 FIFA W"rld Cup champi"ns and the Italian nati"nal f""tball team. In February 2007, Puma rep"rted that its pr"fits had fallen by 26% t" $43 milli"n during the final m"nths "f 2006. M"st "f the pr"fit decline was fr"m higher c"sts linked t" its expansi"n and c"nsequently sales actually r"se by m"re than a third t" $630m (http://news.bbc.c".uk/1/hi/business/6375175.stm).

10

Current Trends
The str"ngest sp"rting g""ds suppliers briefly described ab"ve are all c"ntinuing t" expand b"th pr"ducti"n and sales internati"nally. It is imp"rtant t" n"te that there are s"me risks ass"ciated with m"ving business t" a gl"bal level. The "verseas markets in which all "f the c"mpanies sell their pr"ducts are subject t" the f"ll"wing risks which c"uld have a negative impact "n financial p"siti"n and business perf"rmance: changes in ec"n"mic climate legal claims inv"lving pr"perty rights negative impacts "n pr"duct and c"rp"rate image due t" the "ccurrence "f defective pr"ducts unexpected changes in legal and regulat"ry systems terr"rism, war, and "ther disrupti"ns t" the s"cial climate

(ASICS Gr"up, Summary "f c"ns"lidated rep"rts f"r the Fiscal year ending March 31, 2006) W"rking envir"nments and c"nditi"ns in "verseas fact"ries have bec"me an internati"nal issue, and sp"rting g""ds c"mpanies have been heavily criticised in the past. Ever since the Nestle and Infant F"rmula scandal in the 1970s there has been a gr"wing increase c"rp"rati"ns t" be m"re s"cially resp"nsible and give back t" the c"mmunity (R"venp"r, 1996). By learning ab"ut s"me "f Reeb"ks maj"r c"mpetit"rs, trends and p"ssible pr"blems with these trends, assessing and c"mparing the "rganizati"n as a wh"le is made much m"re effectively.

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Structure and Operati0ns 0f Reeb0k

Parent Strategy
The Adidas Gr"up has a clearly defined c"rp"rate strategy. It states Our g"al as a Gr"up is t" lead the sp"rting g""ds industry with brands built "n a passi"n f"r sp"rts and a sp"rting lifestyle. We are f"cused "n strengthening and devel"ping "ur brands t" maximise the Gr"ups perf"rmance (The Adidas Gr"up 2007). The devel"pment "f this strategy can be clearly linked t" the c"rp"rati"ns central gr"up value, "r in "ther w"rds, its missi"n statement t" be the gl"bal leader in the sp"rting g""ds industry. They are dedicated t" sp"rts and perf"rmance and are c"mmitted t" using techn"l"gy and inn"vati"n t" enhance this identity acr"ss their brands.

Organisati"nal Structure
With a specifically stated C"rp"rate Strategy, the c"mpany needs t" ensure that their "rganisati"nal structure will all"w f"r and be flexible t" this strategy being s"ught after. Their "bjectives "utlined in the c"rp"rate strategy ensure the missi"n statement will translate int" acti"n, while als" guiding and c""rdinating decisi"ns. There is n" purp"se in having well th"ught "ut strategic "bjectives, but n" structure and c"hesi"n t" attain these "bjectives (Melcrum publishing, 2006). The Adidas Gr"up c"mprises "f a f"ur pers"n executive b"ard, including "ne Chief Executive Officer and three b"ard members, each resp"nsible f"r a particular divisi"n. The c"mpany has als" established a Supervis"ry B"ard, c"nsisting "f six members representing the shareh"lders and six members representing the staff. The Supervis"ry B"ard advises and supervises the executive b"ard in matters c"ncerning the management "f the c"mpany (The Adidas Gr"up 2007). It is the r"le "f the supervis"ry b"ard t" ensure that the pathway and visi"n determined by the executive b"ard is f"rthrightly f"ll"wed by the rest "f the "rganisati"n fr"m the t"p, all the way d"wn t" th"se entrusted with manufacturing their pr"ducts.

12

The Reeb"k subsidiary utilises a Gl"bal Area/Ge"graphic structure. The Adidas gr"up c"ntr"ls the Reeb"k headquarters in B"lt"n, England. As sh"wn in the diagram bel"w, the N"rth American, Asian and Eur"pean subsidiaries rep"rt t" the headquarters in England. The N"rth American subsidiary c"nsists "f Canada, Mexic" and the USA. Within each "f these c"untries are separate departments such as marketing, manufacturing, retail and design.

13

Reeb"ks fit
Adidas has a clear missi"n t" be the leading sp"rts brand in the w"rld (Adidas Gr"up, 2007).Adidas has always been primarily rec"gnised as a leading fashi"n brand c"mpared t" Reeb"k. This is highlighted with Adidas establishing a Sp"rt Style divisi"n directed at the fashi"n c"nsci"us c"nsumer (Anniss, E.; Car"fan", J.; 2006). Reeb"ks missi"n is t" always challenge and lead thr"ugh creativity. Their strategic f"cus is t" bec"me a c"nsumerdriven brand, emp"wering individual achievement by supp"rting athletes and c"nsumers t" realise their unique dreams and g"als (Adidas Gr"up 2007). Reeb"k is an American-inspired gl"bal brand, n"t c"mm"nly linked t" being fashi"n savvy. They are built up"n a str"ng authenticity in sp"rts. Theref"re, with n" eff"rt "f c"ncealment, the Adidas Gr"up "penly states that the maj"r m"tive f"r purchasing Reeb$k was t" help the c"mpany make inr"ads in the US, a Nike d"minated c"untry. M"re than 50 percent "f the Reeb"k business is generated in N"rth America. Reeb"k's pr"ducts c"mplement Adidas traditi"nal strength in sp"rts such as s"ccer and give the German c"mpany s"me big-name basketball player pr"files (N"rt"n, K.; H"lmes, S.; 2006).

Strategy
The Reeb"k acquisiti"n is an extensi"n "f a Gr"wth/Expansi"n strategy. This "ccurs when the purchased c"mpany (Reeb"k) is c"mpletely abs"rbed as a subsidiary "f the acquiring c"mpany (Adidas Gr"up). The key r"le "f the Adidas Gr"up management n"w is t" use its kn"wledge "f their "rganisati"n and market t" define and shape this expansi"n "pp"rtunity int" a pr"fitable facet (Mishina, Y., P"ll"ck, T., P"rac, J., 2004). Furtherm"re with their intenti"n "f tapping int" the N"rth American market, the Adidas Gr"ups use "f Reeb"k can be l""ked up"n as a facet "f a multi-d"mestic strategy. This is purely f"r the fact that careful attenti"n has been paid t" cust"mising their pr"duct "fferings and marketing in acc"rdance with the l"cal resp"nsiveness in N"rth America.

14

Summary
The Adidas Gr"ups purchase "f Reeb"k N"rth America sh"wed an "bvi"us attitude t" ensuring that the C"rp"rati"ns "verall "bjectives will be achieved. With the acquisiti"n, a f"cus "n increasing the bands apparel "fferings and sharpening the brand's image has been set. This will all"w f"r an expansi"n "f gl"bal p"siti"n and gaining a br"ader presence in key markets. T" emphasize this fact, Adidas has n"w replaced Reeb"k as the "fficial apparel supplier t" the American Nati"nal Basketball Ass"ciati"n f"r the next 10 years. With the tw" c"mpanys c"mbined strengths, an aim t" widen the "rganisati"ns "verall pr"file and gl"bal d"minance is n"w m"re than ever p"ssible (Kletter, M., C"nti, S., 2006).

15

Internati0nal Management Opp0rtunities and Pr0blems

The m"st imp"rtant fact"r, in recent years, f"r Reeb"ks success in their N"rth American subsidiary is the appr"val f"r the acquisiti"n "f Reeb"k by the Adidas Gr"up. This will result in numer"us internati"nal management "pp"rtunities and pr"blems t" be faced by Reeb"k N"rth America.

Opp"rtunities
Reeb"k retains the sec"nd largest market share in the US athletic sh"e market and integrated with Adidas, wh" retain the 3rd highest market share in that industry, will pr"ve a f"rmidable c"mpetit"r f"r market leader, Nike (H"ward T., Barry K., 2005). Significant "pp"rtunities exist in Reeb"ks N"rth American subsidiary t" further expand their "perati"ns, cust"mer base and market share thr"ugh the diversificati"n "f their pr"duct lines and target markets and the aggressive pr"m"ti"n "f larger marketing campaigns. This is feasible due t" the substantial c"st savings generated by the merger, which can be re-invested int" devel"ping Reeb"ks market presence. This "pp"rtunity is reinf"rced by Adidas CEO, Herbert Hainer, wh" views the merger as a way t" fuel gr"wth rather than t" save m"ney. C"ntinued market diversificati"n and expansi"n int" internati"nal markets will find new p"tential cust"mers (Olss"n, J., 1996). Acc"rding t" Reeb"ks website, strategic and financial benefits "f the merger include an extended ge"graphic reach, a br"ader p"rtf"li" "f w"rld-ren"wned brands, enhanced Research & Devel"pment (R&D) capabilities and cutting edge techn"l"gy, str"ng "perating cash fl"ws and substantial "perati"nal synergies. Reeb"ks missi"n is t" enr"l gl"bal y"uth thr"ugh sp"rts, music and techn"l"gy, which c"mplements Adidas missi"n, t" be the leading sp"rts brand in the w"rld with a f"cus "n perf"rmance and internati"nal presence. Herbert Hainer, CEO "f Adidas, believes that the c"mplementary nature "f the

16

tw" businesses in vari"us ge"graphies, pr"ducts and c"nsumer segments pr"vides a significant "pp"rtunity f"r increased value creati"n. Reeb"k N"rth America can als" benefit fr"m sharing strengths with Adidas, where Reeb"k has been quicker t" seize "n cultural trends, like hip-h"p, but Adidas has had a str"nger traditi"n "f design impr"vements. If utilized effectively, Reeb"k can advance their existing pr"ducts thr"ugh design impr"vements, and invest in devel"ping new and market-leading inn"vative pr"ducts. H"wever, even th"ugh the c"mbinati"n "f Adidas and Reeb"k l""ks great "n paper, the merger presents many p"tential pr"blems, c"nsidering the previ"us merger failures "f Daimler-Benz and Chrysler, Quaker and Snapple and HP and C"mpaq (Bliss J., 2005). Reeb"k N"rth America faces a number "f pr"blems in managing its new p"rtf"li" and executing its new pr"ducts and marketing plans that all"w tw" big brands t" c"mplement each "ther rather than duplicate eff"rts (Bhan, N., 2005).

Pr"blems
Due t" Reeb"ks existing large gl"bal stature, their pr"blems are mainly limited t" the threat fr"m c"mpetiti"n fr"m rival c"mpanies and fr"m internati"nal managements perspectives "f the c"mpanys "perati"ns in different ge"graphical l"cati"ns acr"ss c"untries (Jac"b, L. & Herbig, P., 1998).

C"mpetit"rs
T" keep-up with the c"mpetiti"n's penetrating eff"rts will c"st a l"t "f m"ney and put a l"t "f pressure "n marketing and research and devel"pment (Olss"n, J., 1996). Reeb"k has t" exhaust c"nsiderable financial res"urces in devel"ping pr"ducts and devel"ping marketing campaigns t" attract new cust"mers and retain existing cust"mers fr"m c"mpetit"rs such as Nike and Puma.

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Pr"duct Differentiati"n
Reeb"k is c"ntinually striving t" establish pr"duct differentiati"n in terms "f brand identificati"n and the pr"duct itself fr"m its rival c"mpetit"rs. One pr"blem f"r Reeb"k is the highly perishable nature "f their pr"ducts, in particular their f""twear, which have extremely sh"rt pr"duct life styles. This may be addressed thr"ugh further internati"nal diversificati"n by manipulating the marketing "f different pr"duct niches in different nati"ns (Olss"n, J., 1996). F"r example, if the sale "f "ne Reeb"k pr"duct is declining in N"rth America, the same pr"duct may be launched in S"uth East Asia. An"ther issue facing Reeb"k is the integrati"n "f Adidas and Reeb"k brands. At this stage, Adidas and Reeb"k will c"ntinue t" have their "wn sales f"rces, distributi"n channels, marketing campaigns and brands. H"wever, acc"rding t" Steve St"ute fr"m Translati"n C"nsulting and Brand Imaging, wh" is inv"lved in current Reeb"k campaigns, he identifies that there is a p"tential pr"blem if c"nsumers see the lines as being blurred.

Cultural Differences
Acc"rding t" Jeffrey Bliss, president "f Javelin Gr"up (a sp"rts marketing firm), the German mentality "f c"ntr"l, engineering and pr"ducti"n, versus the US market-driven culture, in reality, will c"ntribute t" the merger n"t denting the market, as Nike is already t"" d"minant (Kiley, D, 2005). Alth"ugh Adidas headquarters is in Herz"genaurach, Germany and Reeb"ks headquarters in Massachusetts, United States, b"th have c"ntinued its "perati"ns since the merger. H"wever, p"tential c"nflicts c"uld arise in the management "f Reeb"k, n"w that influence can be exerted by Adidas executives. The cultural differences between Germany and N"rth America that were talked ab"ut earlier c"uld harvest internal management disputes and misc"mmunicati"n.

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Manufacturing
Reeb"ks H"ng K"ng based manufacturer, Yue Yuen Industrial H"ldings Pty Ltd (0551.HK), als" makes sh"es f"r Adidas, and c"ncern has been expressed f"r the greater demand "f ec"n"mies "f scale and p"ssible decline in "rders.

S"cial Resp"nsibility
The manner in which a c"mpany is perceived by the s"cieties within which it is based and "perates plays a maj"r part in determining whether that c"mpany is welc"med "r rejected by that s"ciety (Werther W. B., Chandler D., 2005). Unf"rtunately, Reeb"k has enc"untered public exp"sure t" vi"lati"ns "f health and safety c"nditi"ns in manufacturing fact"ries, breaching human rights and in the ign"rance "f envir"nmental sustainability f"r many years. In March 2006, "ne "f Reeb"ks bracelets was linked t" a childs lead p"is"ning death and later that year, a massive recall was initiated f"ll"wing revelati"ns that Reeb"ks childrens wind-suits were a ch"king hazard. Despite a number "f attempts t" address such pressing issues, the efficacy and "utc"mes "f such attempts is still uncertain.

Staffing
Alth"ugh it has been stated that Reeb"k did n"t anticipate significant w"rk f"rce reducti"ns, distributi"n in Reeb"k facilities in Memphis and Hebr"n will cease in 2008 and facilities in St"ught"n, N"rw""d and Spartanburg will cease in 2009, which will affect appr"ximately 375 staff (C"nr"y, E., 2007). Further w"rk f"rce reducti"ns c"uld "ccur due t" the integrati"n "f Adidas and Reeb"k distributi"n systems.

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Rec0mmendati0ns
Fr"m the ab"ve analysis, it is clear that substantial deficiencies may arise f"ll"wing the acquisiti"n "f Reeb"k by the Adidas Gr"up. There are h"wever, numer"us steps that Reeb"k and the Adidas Gr"up can make t" alleviate s"me "f these pr"blems. Seemingly, it is th"ught that enhancing Reeb"ks strengths with Adidass strengths will be the m"st beneficial rec"mmendati"n the c"mpany c"uld undertake t" increase its gl"bal p"siti"n.

P"ssible S"luti"ns
Reeb"k sh"uld c"ntinue t" c"me up with inn"vative ideas f"r advertising, including using high pr"file sp"rting athletes in the use "f pr"duct end"rsement. With such an acquisiti"n, the pr"cess "f further enhancing the Adidas brands fashi"n image as well as their "wn sp"rting market p"wer with that "f the already established Reeb"k will help in the attainment "f Reeb"ks missi"n and g"als. The c"mbinati"n c"uld be p"werful in gr"wing markets like China. Adidas is well-established in China, having set a g"al "f generating $1.2 billi"n in sales there by 2010. Reeb"k has the m"st s"ught-after Chinese athlete as a sp"kesman: the basketball star Ya" Ming. This is an example "f h"w the relati"nship between Reeb"k and Adidas can be mutually beneficial.

The integrati"n pr"cess

Careful attenti"n sh"uld be paid t" the integrati"n pr"cess "f the tw" c"mpanies. V"lker Riehm, fund manager at Activest stated that it w"n't be easy t" integrate the businesses. Adidas' f"cus is "n sp"rt, but Reeb"k's is "n lifestyle. C"nsequently the Adidas Gr"up cann"t assume that Reeb"k and Adidas cust"mers will want the same types "f pr"ducts. Thus any m"ve t" eliminate "ne style "f pr"duct c"uld result in a l"ss "f cust"mers and sales revenue.

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S"luti"n f"r perishable pr"duct issue

By diversifying int" multinati"nal markets it may be p"ssible t" pr"-l"ng the very sh"rt pr"duct life cycles. This is d"ne by manipulating the marketing "f different pr"duct niches in different nati"ns. F"r instance, if the sale "f "ne pr"duct-line is declining in the USA, the same pr"duct may be launched in S"uth East Asia. The financial strength "f the c"mpany makes it p"ssible f"r Reeb"k t" c"ntinue t" ensure market leadership with effective research and devel"pment strategies. We rec"mmend that Reeb"k c"ntinue t" invest in devel"ping and designing inn"vative pr"ducts.

Suggested s"luti"n f"r s"cial resp"nsibility issue

Reeb"k must c"ntinue t" pr"m"te and raise awareness "f such issues t" maintain and c"ntinually impr"ve their s"cial percepti"n and resp"nsibility in "rder t" warrant l"yalty fr"m its cust"mers, empl"yees, suppliers and t" c"mply with legislative regulati"ns. Reeb"k has exhausted vast res"urces in the implementati"n "f a number "f pr"grams t" pr"m"te envir"nmental sustainability, ethical business "perati"ns and minimise vi"lati"ns "f human rights. C"ntinued investment int" the devel"pment "f such pr"grams is rec"mmended.

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C0nclusi0n
Reeb"k N"rth American has a l"t t" "ffer the c"rp"rati"n. Th"ugh b"th Adidas and Reeb"k "ffer its clients sp"rts apparel, each brand has different "bjectives, target cust"mers and style. The merger "r acquisiti"n "f any c"mpany can be difficult, especially if th"se c"mpanies c"me fr"m different c"untries and are w"rld-kn"wn multi-milli"n d"llar c"rp"rati"ns. H"wever, with j"int cultural understanding, realistic g"als, and str"ng "rganizati"n, Reeb"k N"rth America can c"ntinue t" gr"w and pr"fit f"r The Adidas Gr"up, making the c"rp"rati"n its m"st pr"fitable subsidiary. F"ll"wing its acquisiti"n by Adidas, Reeb"k is in a str"ng p"siti"n t" increase its market share in N"rth America and "vertake market leader Nike. Thr"ugh effective strategic planning and the alignment "f a c"mpatible structure, Reeb"k will be able t" increase their gl"bal strength in the sp"rting g""ds industry. Reeb"k N"rth America faces many "pp"rtunities f"r diversificati"n, expansi"n and increasing their market share, but the internal management "f such pr"cesses and future gr"wth "pp"rtunities, and the res"luti"n "f the pr"blems menti"ned ab"ve, will ultimately determine its l"ng term success.

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Reference List
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M""re, M (2007) German J"bless Rate Falls in April H$ust$n Chr$nicle. Olss"n, J., 1996, Reeb"k "f America Inc. Case Study, http://www.ge"cities.c"m/TimesSquare/1848/reeb"k.html New Zealand Herald, The; (2007) US Ec"n"my Vulnerable http://www.nzherald.c".nz/secti"n/3/st"ry.cfm?c_id=3&"bjectid=10436936. Accessed 03/05/2007. Pr"blems adidas facing- Adidas Optimistic Ab"ut '06 Despite Reeb"k Obstacles. Fr"m database Reeb"k Press Release, 2007, adidas Gr$up Ann$unces C$ns$lidati$n $f adidas and Reeb$k brands US Apparel and F$$twear Distributi$n Centers int$ New US L$cati$n by Fall 2009, http://www.reeb"k.c"m/useng/ir/press/2007/Distributi"n+Centers.htm Reeb"k Press Release, Oct"ber 3, 2005, Adidas-Sal"m"n t" C"mbine with Reeb"k and Create 9 Billi"n F""tprint in Gl"bal Athletic F""twear, Apparel and Hardware Markets, http://www.reeb"k.c"m/useng/ir/press/2005/adidas.htm R"venp"r, J.L., 1996, Multinati"nal C"rp"rati"ns and the Impact "f Public Adv"cacy "n C"rp"rate Strategy: Nestle and the Infant F"rmula C"ntr"versy, Internati$nal J$urnal $f Organisati$nal Analysis, v$l. 4, n$.4, pg413 W"rld Factb""k, The; (2007) Field Listing P"pulati"n https://www.cia.g"v/cia/publicati"ns/factb""k/fields/2119.html. Accessed 03/05/2007. Yah""! Finance (2007) Currency C"nverter http://finance.yah"".c"m/currency/c"nvert?amt=1&fr"m=USD&t"=EUR&subm it=C"nvert. Accessed 03/05/2007.

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