Adidas' Foreign Investment Plan in Hungary: Business Environment Analysis

This study analyzes Adidas' foreign investment plan in Hungary, including objectives, background of the organization, market structure, and analysis of the business scenario. It also includes a PESTLE analysis of the Hungarian market and a Porter's five forces analysis of Adidas' competitive environment.

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BUSINESS ORGANISATIONS AND ENVIRONMENTS IN A GLOVAL CONTEXT
Name of the student
Name of the university
Author note

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Table of contents
1. Introduction....................................................................................................................2
2. Background of the organization.....................................................................................3
Market Structure................................................................................................................7
3. Background of the business environment...................................................................10
4. Analysis of the business scenario...............................................................................14
5. Conclusion...................................................................................................................15
Reference list and Bibliography.......................................................................................17
Appendix..........................................................................................................................21

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1. Introduction
The term foreign investment indicates the process in which the process of capital
flow can be maintain between two or more countries. The foreign investment denotes
that the foreign organization has strong roe in management as a part of investors (Tang
and Tan 2015). In this study, Adidas, which is popular sportswear manufacturing global
brand has decided to enter in the Hungary market. Before entering in the foreign
market, it has become necessary for the company to analyze the external environment
of the country. Adidas has developed its strong brand image in the global market and
more than 50 countries it has expanded its business. With increasing business
opportunities in the Hungary market, the company has decided to expand its business
in Hungary market for enhancing its customer base.
Objectives of Adidas in Hungary market
The objectives of Adidas in market in Hungary are as follows:
 To expand its customer base by entering in the Hungary market.
 To highlight different key factors that can drive the growth of Adidas in
Hungary market by analyzing both the external and the internal market
opportunities
 To increase the revenue of the company by 12% of current revenue with
incoming 4 year from the hungry market.
 To shed light on the organizational popularity, its expansion and
competitors in global market.

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 Using analytical tools like Porter’s five forces and Pestle analysis to
measure the current condition of the foreign market.
 To critically analyze different statistical data, charts and graphs related to
the unemployment rate, GDP per capita, Age-sex ratio, earning and
revenue record of the company have been highlighted trough this study.
 Development of feasible foreign investment plan for achieving the
objectives and goals
2. Background of the organization
Adidas is a Germany based organization, which was established in 1924 by Adolf
Dassler (Careers.adidas-group.com 2018). The company had its headquarters in
Herzogenaurach, Germany. The company is known for manufacturing and designing of
clothes, accessories and shoes. The products served by the companies are sportswear,
toiletries, sports equipment and footwear. Adidas group comprises of brands such as
Reebok, Runtastic and Taylormade. The company has expanded its business in all over
the world by introducing the combination of innovation and production. It has
established strong image in the market with standard quality of products and innovative
designs. In the initial stage, Adidas was an ordinary shoe factory and was run by the
Dassler brother. In case of business expansion, different popular events such as
Olympic, FIFA and UEFA have been sponsored by the company (Careers.adidas-
group.com 2018). Adidas has developed its business in near about 55 nations. In every
year near about 900 million sports lifestyle and sports products are being produced by
the company (Careers.adidas-group.com 2018).
Legal forms

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General policies
The account establishment policies are different in different countries. Obeying
the domestic law is being considered as the first business obligation. On the other hand,
minimizing the cost is another important policies in the business.
Industrial and employment relation
Adidas follows the employment standard in the workplace. The organization has
contributed in child in the labor abolition process (Stavseng and Handy 2018). Adidas
focuses of promoting co- operation and consultation between the employees and
employers in the workplace. On the other hand safety and occupational safety is being
maintained in the workplace.
The code of conducts are being maintained by adidas, which is called as
‘Standards of engagement’. In the SOE, the issues regarding the core labor standard
is being maintained. Analyzing the wages structure of Adidas it can be said that the
workers are being pad for every ball (Berge and Gaede 2017). In the words of Moreno-
Munoz et al. (2017), reasonable working hours is being maintained and the middleman
of the business gets paid 10% of in each kit. In case of internal structure of the
company, it is true that due to lack of monitoring process the benefits and wages
regarding challenges have become major concern for the company. By recognizing the
business practices of Adidas, it has been identified that in case of maintaining the buyer
and seller relationship, adidas arrange different events in every four year.
Financial performance

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Figure: Adidas earnings and revenue record
(Source: Careers.adidas-group.com 2018)
In the financial statement of adidas, the cash flow statement of the company has
been analyzed. In the year 2017, the revenue of the company has increased 12% than
the previous year. It has been identified that the gross margin of the company has
increased 2.4pp to 50.4%. In case of operating margin, it has been identified that in the
year 2017, it has reached 2.7 pp to14.0 %. After the brad development initiative near
about 13% of the sales has been increased. In this study, the financial performance of
Adidas has been examined from 2007 to 2017, in the diagram it is shown that the
gradual financial growth. In the annual report of Adidas, it has been identified that the
growth rate has increased 16% where the sales of the company shown € 21.218 billion.

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The company has earned the Net income of €1.430 billion in 2017. The Capital
expenditure of the company reached €900 million (Adidas-group.com, 2018).
Figure: Target- result and outlook of adidas in 2017
(Source: Adidas-group.com, 2018)
In the year 2017, the company has targeted for increasing its sales for 12 % to
14%. At the end of the year, it has been identified that it has reached 16%. It is true that
the Company has aimed to increase its sales 10% with incoming 2018. In case of
analyzing the Net income of the company, it has been identified that target for 2017 was
12% to 15% where it has reached 31%. After adopting different cost control initiatives,
the study has identified that the target expenditure was €1.1 billion, where the
expenditure was €752 million (Adidas-group.com, 2018). Analyzing the entire financial
performance of the company, it can be said that it will be easier for Adidas to enter in
the Hungary market.
Overseas operation

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In the words of Gratton and Kokolakakis (2018), Adidas has established its
strong image in the global market. In 55 countries the company h expend its business.
In Africa, there are 24 factories of Adidas and 18 factors of Adidas is in South Africa. In
Asia, Adidas has large numbers of factories in different countries. It has been identified
that near about 27% of all organizations’ factories are in China. In India, it has 99
factories and in China It has 337 factories. In Philippines and Pakistan, it has 10 to 60
factories. After the year 2010, large numbers of factories of Adidas have been
established in Europe. In between the year 2008 to 2010, it has established 9 factories
in Finland. In America, there re total numbers of 215 Adidas factories (De Mooij 2018).
Analyzing the legal form of the company, it has been identified that Adidas is a sole
trader organization, where proper employment standard is being followed (Oecd.org,
2018).
Market Structure
Figure: Market structure

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(Source: Heritage.org 2018)
The country has been progressing in all its macro factors which has increased
the freedom of the economy by 0.9 percent. Hungary is less developed that the other
countries in the region where trade contributions mainly to the gross domestic product
of the country. The sports apparel and goods industries have also grown significantly in
past few years but there are large number of smaller players in the market which acts
as substitutes for larger companies.
Major competitors
In Hungary market 3KO KFT and Hervis are the major competitors of Adidas.
3KO KFT is a sports product selling organization, which is trio of three professionals
(3ko.hu 2018). The aim of this organization is to introduce technological innovation in
sports industry. On the other hand, Hervis is an Australia based sports product selling
store. Analyzing the financial growth of the company, it has been identified that in the
year 2015, the company has increased its sales 10.3%. Hervis has opened total
numbers of 27 stores in Hungary market.
Porter’s five forces
Adidas is one of the famous brands in fashion industry. In the current business
scenario, increasing growth opportunities in the industry, the numbers of competitors in
the market have also increased. Using the Porter’s five forces analysis the competitive
environment of the company has been analyzed.
Situation Analysis
Bargaining power Suppliers play an influential role in Adidas growth. It cannot be

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of suppliers denied that large portion of the product materials are being
outsourced by the company. In this situation the bargaining
power of the suppliers is low. In the current business industry with
increasing numbers of suppliers is the major opportunity for the
company. On the other hand, due to popularity of Adidas, the
suppliers do not want to lose the opportunity to supply materials
in this company. The availability of the large number of suppliers
in the industry makes the bargaining power of the suppliers quite
low.
Bargaining power
of the buyers
In case of Adidas, the bargaining power of the buyers is
moderate. In case of gaining the competition, adidas provides
good quality of products with innovative design. In the competitive
market with Puma and Nike, the ranges of the products are being
fluctuated. In case of surviving in the market, Adidas has
established strong brand image with loyal customers, which has
maintained its moderate bargaining power for the suppliers.
Threat of
Substitute
Threats of substitute products is moderate for Adidas. It is true
that the numbers of competitors of Adidas are very low because
of its strong brand image and target market. In this situation, the
company has gained the customers’ attention with standards
quality of products and design. As the target market of the
company is upperclassmen people, in this case if the local
organization will try to manufacture the substitute products, it will

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not be beneficial for those.
Threat of new
entrants
Due to cheap labor cost in Hungary, the manufacturing cost in
this country is very low. In this situation it becomes easier for the
new organizations to enter in the market. Therefore, it can be
said that in the Hungary market the threats of new entrants is
high for Adidas.
Competitive
rivalry
Level of competitive rivalry for adidas is truly high. The major
competitors like Puma and Armor are tough competition for the
company with similar target market. In case of Hungary market
3KO KFT and Hervis are the competitors for Adidas.
(Created by author)
3. Background of the business environment
Hungary is in central Europe and it is surrounded by Slovakia border in the north,
Serbia in south, Slovenia in the west, Romania in the east and Austria in the southwest.
Near about 93,030 square km with estimated population of 9,787,905, Hungary is being
considered as the 57th largest economically stable country in the world (refer to
Appendix 1). Its large numbers of population and economic popularity attracts large
numbers of organizations to invest in this country. On the other hand, it cannot be
denied that with increasing educational opportunities in the county, people have
become more conscious regarding the consumption rate. Not only the educational
opportunities, but also the technological advancement has been accepted by the
population. Due to such opportunities business environment of the country is flourishing,

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In case of entering in the Hungary, the business environment of the country can
influence indirectly the business revenue of the company. In order to highlight the
market expansion, PESTLE analysis on Hungary market has been done.
Political situation:
Analyzing the political situation in Hungary, it has been identified that Hungary
has turned up as nationalist country. However, it is true that the country is not politically
stable. As a part of Europe the political influences have been shown in this country.
Due to this reason the rate of resentment and unemployment have been increased
4.2% (Data.oecd.org, 2018). In case of entering in the Hungary market, the political
situation can be major complication for Adidas.
Economic situation:
Hungary has a growing economic structure with GDP of 130 billion dollar.
Analyzing the rate of employment in Hungary, it has been identified that total 4.2 % is
unemployed in this country. On the other hand, per capita GDP rate is 27196 US$ in
2018 (Tradingeconomics.com 2018). It cannot be denied that the government started
contributing in industrialization in this country. Net national income in this country is
20685 US dollar/ capita (Data.oecd.org 2018). On the other hand, private flow in this
country has started increasing. In this economic situation, it will be easier for Adidas to
expand its business.
Rate of unemployment is an important key driver in business growth. In the
report of 2017, it has been identified that the rate of unemployment in Hungary is 4.2%
(refer to Appendix 3). Analyzing the reports of last few years, it has been identified that

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with increasing economic opportunities and educational facilities, rate of unemployment
is gradually decreasing (Data.oecd.org, 2018).
In this study, the GDP per capita income rate of the population also been
analyzed. It has been identified that in the year 2017, GDP per capita was 14224.846
$US, which is quite impressive (refer to Appendix 2). In case of Adidas, the target
market is Upper lass brand conscious people, therefore, it can be said that it will be
beneficial for the company to sustain in the Hungary market.
Inflation is being measured through Customer price Index. Depending on the
annual growth of a country, the CPI index can be influenced. In the year 2017, the
inflation rate was 2.83% of the annual growth (refer to Appendix 4). Therefore, it can be
said that Hungary can be suitable for Adidas to expand its business. The inflation rate in
2014 and 2015 wear -0.23% and -0.06%. In the year 2016, it reached 0.39% (refer to
Appendix 5).
Social situation:
Economic situation in a country highly contributes on the social status. It is true
that due to increasing economic opportunities such as increasing per capita income, the
social standard and demands of the customers have changed. On the other hand,
due to increasing government initiatives towards business development, it can be
assumed that social status of the company will be in favorable condition for Adidas.
With increasing job opportunities in the market the social structure of this country
has been changed. The rate of dependent population has decreased as well as the
independent population rate has increased. In the Age-sex pyramid of Hungary, it has

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been identified that contribution of both female and male population in the GDP is truly
appreciable. Therefore, it can be assumed that it will bring the business opportunities
and uninterrupted labor flow for Adidas in Hungary market. Near about 93,030 square
km with estimated population of 9,787,905, Hungary is being considered as the 57th
largest economy in the world (Bouzarovski and Tirado Herrero 2017).
Technological situation:
After the introduction of globalization technological advancement and demand of
innovation in the business sector have increased. Analyzing the technological situation
in Hungary, it has been identified that it contributes 1.2 % in the GDP of this country.
Internet facilities are available in 82.4% houses. Therefore, it can be said that it will be
easier for Adidas to introduce its product and services through internet. Therefore, it can
be said that technological situation Hungary is in favorable condition for Adidas.
Legal Situation:
Legal situation in a country has higher level of contribution in the trade industry.
Foreign investment as well as competitive policies are being developed depending on
the legal situation. In case of Hungary, it has been identified that by following the
European regulations and foreign investment policies Hungary is the wonderful country
for business development. Hence, it will be easier for Adidas to enter in the market.
Environmental situation:
The waste management regulation is strictly being followed in this country. The
government has developed various policies in terms of decreasing the rate of the
company, which has created pressure on the existing organizations regarding the

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maintenance of the waste management policies. It is true that Adidas is involved in
different environmental sustainability programs, hence, it can be said that the
environmental situation in Hungary is in the favorable condition for the company.
4. Analysis of the business scenario
Opportunities Threats
 The economy of Hungary is
growing in nature due to the low
inflation rate in the country. Adidas
can capitalize on the market
economy to target consumers with
higher disposable income.
 Technological infrastructure of the
country is high and the use of the
social media to increase their
brand awareness is a key
opportunity. This is due to the fact
that the cost of online marketing is
quite low and can be effectively in
countries like Hungary.
 The recent trade development
between both the countries have
provided better opportunities in the
 The company faces major threats
from the competitors in the market
which consists of both local and
global competitors.
 However, the political instability of
the country is another threat that
company has to face.

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market.
Market attractiveness
The stable trade relationship between Germany and Hungary is the most
attractive feature due to the low barriers to entry for the companies. The economy of the
country has been growing with significant reduction in the inflation rate which makes the
market quite attractive. However, the competition from both local and global companies
are quite high in the market, therefore, Adidas will have to develop effective strategies
for catering the consumers and gaining the market share.
5. Conclusion
In this study, it can be concluded that due to growing financial status of Adidas, it
will be easier for the company to enter in the Hungary market. As the company aims to
enter in the Hungary market for increasing its business revenue, in this situation, the
existing competitors like Doro can create challenges for the company. Examining the
growth opportunities in Hungary market, it can be said that it will be easier for the
company to enter in the market. Highlighting the report of 2017, it has been identified
that rate of unemployment rate and inflation is low in Hungry, therefore, it can be
assumed that in the coming years, Adidas will not face any labor supply related issue.
Hence, it can be concluded that the country will be suitable for Adidas to achieve its
business goals.

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Appendix
Appendix 1
POPULATION SIZE IN 2017
Figure: Age-sex pyramid in Hungary in 2017
(Source: Populationpyramid.net, 2018)
Appendix 2
GDP/GNP PER CARPITA 2017

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Figure: GDP per capita in Hungary in 2017
(Source: Data.worldbank.org, 2018)
Appendix 3
UNEMPLOYMENT LEVEL FIGURE 2017
Figure: Rate of unemployment in Hungary
(Source: Data.oecd.org, 2018)
Appendix 4
INFLATION RATE FIGURE 2017

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Figure: Inflation rate
(Source: Data.oecd.org, 2018)
Appendix 5
Figure: Inflation rate of last few years
(Source: Data.oecd.org, 2018)

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