Question-   Business Environment Analysis - Adidas

Solution-

 

BUSINESS ENVIRONMENT ANALYSIS

 

 

Political

Economic

Socio-cultural

 

1

Bureaucracy:

Inside the EU, there is not much change on the bureaucracy between states.

Macroeconomic

Consumption patterns:

Half of the Irish people buys often from foreign retailers. (Statista, 2016)

 
  • The inflation rate has followed quite similarly the EU´s rate.
  • The interest rate has been at 0% since 2016, while the ECB´s key rates have been around -0.50
  • exchange rates of EUR (1€ to X:
    • USD 1.17361 (USA)
    • GBP 0.913435 (US)
  • Euro is one of the most stable currencies
  • Employment rate: higher than the EU avg. (65,7%) (Trading Economics, 2020)
  • Economic growth follows the EU´s average. (€67931 per capita)
  • Consumer confidence is a bit lower than in EU average.
 

2

In 2019 their corruption rate was the 18th best of the world. (Transparency International, 2020

Income distribution:

in 2016, 62.6% of Irish households had incomes less than €60,000 in year.

 

3

Ireland´s value in Political stability index was 1.03 points in 2018. World´s average -0.05 points, The EU average 0.69 points. (The Global Economy, 2020)

Lifestyle and fashion changes:

Irish lifestyle is really sport related.

The Fashion in kind of old school.

(Ireland Property Guides, 2020)

 

4

Ireland follows mainly the EU´s economical treaties

Ireland was 3th at the HDI Index in 2019

(Human Development Reports, 2020)

 

5

There are not any notable business influencing pressure groups, mostly political.

Cultural norms:

Sport is popular and widespread. The most used language is English.

 

6

Ireland has over 50 funds and supports for businesses

(ThinkBusiness.ie, 2020)

Microeconomic

Ireland is known for being multi-cultural environment

(Social Justice Ireland, 2020)

 

COSTS:

  • Labor: average €30,90/h.
  • Energy: One of the most expensive areas of the EU€0.09-€0.14/KWh (EU average €0.08-€0.10)
  • Logistics: Mid-high compared to other EU countries.
  • Office space in Dublin /m² (2018): rental: mid-high.

Construction costs: very high

(National Competitiveness Council, 2019)

  • Competition: Nike and New Balance have already plenty of stores in Ireland
  • The market structure for Adidas: Monopolistic competition; Many sports/fashion clothing brands, no barriers to entry.
 

7

Ireland has the 4th best tax policy in the world for corporates. (The World Bank, 2020) For corporates: 12,5%-33%. For worker avg: 25,9% (Taxing Wages, 2020) (Chambers and partners, 2020)

Diversity issues:

Irish people have more negative attitude to immigration than in EU.

(IHREC, 2018)

 

8

Trade barriers:

Ireland is part of the EU´s trade system. The Brexit will have a negative impact on the trades.

Social mobility Index:

Ireland was 15th European country in 2020

(World Economic Forum, 2020) 

 

 

Technological

Legal

Environmental

 

1

Emerging technologies:

Ireland has the Europe´s largest start-up summit (TECHBBQ). (Irish Tech News, 2020)

Discrimination laws:

The Equal Status Acts was established to reduce discrimination on offering services and products, accommodation and education. (IHREC, 2018)

Pollution:

On the traffic centers the air quality is not great but the overview is better than in EU avg. (European Environment Agency, 2020)

 

2

Technology transfer:

The state has invested a lot to the Technology Transfer Office (KTI, 2020)

Consumer laws:

Mix of Irish and European legislation.

Waste and recycling management:

Recycling rate was 64% in 2018. (epa, 2020)

 

3

Communication:

Ireland is considered being the hub of ICT (IDA, 2020)

Antitrust laws:

Made to ensure fairness and freedom.

Legalities may differ from the laws of the EU

Energy availability:

The electricity costs are one of the most expensive compared to EU

 

 

 

 

 

 

Adidas SWOT analysis

Strengths

Opportunities

  • Adidas is the 3rd most valuable brand in sport ($6.8 Billion) (Forbes, 2020)
  • High tendency to invest on high quality and developing new products (Business Strategy Hub, 2019)
  • They have a wide product mix, with clothing, footwear, wide selection of sports apparel and hardware (ADIDAS, 2020)
  • Teens and young adults favor Adidas over other sport brands. (Entsight, 2020)
  • Adidas has a great balance of the manufacturing and distribution processes, as they work with the key substances of the supply chain.
  • One of the most financially stable companies in the world with stable net sales growth.
  • Very wide and spread distribution network all around the world.
  • Effective and prominent marketing strategy; international sponsorships, athlete sponsorships and celebrity approval.
  • The very high growth of online commerce and online marketing, especially on social media. (Digiday, 2019)
  • The still on-going fitness boom intensifies the selling of sport clothing.
  • Technological development on materials and manufacturing methods can give Adidas advantage over its competitors. (Retail, 2019)
  • Increasing demand on high quality sports products because of the economic growth. (Businessline, 2019) (Chinadaily, 2019)
  • Expanding their product mix to other sports and types of clothing and apparel.
  • Reusability of the shoes, if Adidas can manufacture their shoes out of one reusable material. (Adidas, 2020)

 

Weaknesses

Threats

  • Outsourcing supply chain decreases Adidas´s authority and decision-making power, when they have to rely on foreign suppliers. (Reuters, 2019)
  • Transition to investing more on premium products may estrange the lower income customers.
  • Adidas has only two brands on their product line, Adidas and Reebok. They both focus on sports clothing.
  • Adidas have only a little celebrity endorsement security on their products, compared to their competitors. (Pestle analysis, 2019)
  • Online advertisement and globalisation has increased the competition on the industry. (Statista, 2020)
  • Because of the lack of their vertical integration, the biggest suppliers might get too much bargaining authority.
  • Adidas lost their three-stripe trademark and is now more exposed to others imitation. (The Guardian, 2020)
  • Competitors might invent new technological advantages and lower the customer base of Adidas.
  • China is the second largest market and one of the biggest manufacturer areas for Adidas. The trade borders between US and China are a huge threat for the whole supply chain.
  • Global economic recessions (for example COVID 19) affects negatively on their net sales.

 

 

Combining both analyses

 

The PESTLE analysis is more about Ireland and what is the key points to check and observe before deciding if it is reasonable for Adidas to expand there. The SWOT analysis is more about Adidas as a company. By matching the key structures of both analyses and preparing to handle the weaknesses and the breaking points of the expansion, it reduces a lot of the risks.

 

 

 

 

 

The key internal and external factors about Adidas and Irish market.

 

 

By analyzing the target market and the Adidas´s potential, there is many things that need to be considered before the possible expansion. It is truly important to focus on the both internal and external factors.

                    

The external factors are something that the company need to more or less adapt, because they are usually things that affects the company´s business, but the company cannot influence on them. In this case, these factors can be divided to political, economic, socio-cultural, technological, legal and environmental.

The key political factors that affects adidas are tax policy, business fund and support by the government or other organisations and Brexit. For corporations the Irish tax policy is one of the best in Europe. It should help Adidas´s profitability in Ireland. Also, there are over 50 different fund and supports just to help companies do their business. The most possible negative political factor is the UK´s resigning from the EU (Brexit). The Brexit might lead into trade barriers and reduce the labor from UK to Ireland.

The economic factors that affect Adidas the most, are the interest rates, the microeconomic costs and the already existing competition. The interest rates of Ireland have been 0.50% percent higher than the EU average since 2016. The difference is not much but it can affect the customers confidence and therefore the sales of Adidas. The microeconomic costs such as labor and energy, logistic and office space costs are higher than the EU average. The higher fixed costs decrease the potential profit. The existing competition is mostly focused to Nike and New balance. In country like Ireland, where sports are part of the culture, there are a lot of demand for sport clothing and accessories.

Socio-cultural factors in Ireland, such as the sports-oriented people, trust of foreign companies and the households´ averagely mid-high incomes are all things that have a positive effect on Adidas´s business.

The Irish technological development is one of the most predominant in Europe. With the Adidas´s willing to develop new technological methods of manufacturing, Ireland could be a great place for Adidas to do the research.

The legal and environmental factors that restricts or defines the ways of doing business in Ireland is quite similar to other EU countries.

 

The internal factors can be also divided to strengths, opportunities, weaknesses, and threats. These factors are things that the company can try to affect, by marketing and decision- making.

         There are some strengths that Adidas can benefit especially in Irish market. According to Entsight, Irish teens and young adults prefer Adidas over other sport brands. In Ireland, the age structure is optimal for Adidas, because the quantity of teens and young adults is increasing at least for the next 10 years. When the both target market and the company desire for developing new things, it facilitates Adidas to achieve the new innovations and materials they seek for. The wide distribution network that Adidas has, might benefit them on the otherwise so expensive logistic costs.

         The Irish sport culture and the on-going fitness-boom gives Adidas a great opportunity expand their product mix to other sports, for example, to Gaelic games, where there is only one significant equipment seller. The Irish fan culture and the pride of their successful athletes would be a great chance for Adidas to increase their sales in Ireland by sponsoring some of their best athletes. The on-going pandemic has raised the unemployment and therefore there are more employees available.

         The weaknesses that Adidas may need to overcome are the lack of vertical integration and thin brand selection. The lack of the vertical integration means that Adidas have outsourced most of their distribution network and manufacturing to other companies and therefore they are prone to bargaining by the biggest distributors and manufacturers. Adidas has only two brands under their product line, Adidas and reebok. They both focus on sport-oriented clothing and sports equipment. Negative associations to Adidas as a brand and decreasing interest in sports would be crucial for the company, because their brand mix is so narrow.

         The Irish activity on researching new technology can be a threat to Adidas, because there already existing competitors might have a technological advantage or are releasing some new materials or technics that give them an advantage over Adidas.

 

Adidas has already a certain formula on expanding to new countries. The key points shown above are something that need to be considered on the decision-making process specifically before expanding to Ireland.

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