Political Analysis
The recent change in government in 2012 and an increase effort to fight corruption will ensure political stability and a favourable environment for Adidas to grow in (VOA News). As the government plans to correct China’s unbalanced economic growth and income disparity, this will be an opportunity for Adidas to expand in a politically stable environment. Also, the continued reduction on import duties of leather in China will maintain competitiveness of China as a manufacturing base (Free Press Release). However, there are also some threats for Adidas expanding into China. The updated labour law as of 2012 may lead to higher cost of operations in China both in terms of manufacturing and sales as outsourced workers are given the same pay as regular workers. Also, the trade tension on EU and China on other products (e.g. solar) could affect the relationship of EU and China and that could negatively affect the image of ADidas in China as a European company.
Sociocultural Analysis
China is the most populated country in the world with around 1.3 billion people according to a July 2012 estimate (CIA Factbook). Adidas’ target market in this country is mainly the youth market with 33% of the population that are below 24 years. This large target market provides a huge opportunity for growth and for Adidas to expand internationally. At the beginning of 2012, city-dwellers have outnumbered the rural people for the first time (BBC News). This makes way for rising consumer spending power, as people living in the city are more likely to buy Adidas products than those in rural areas of China. Moreover, the rising living standards pushes consumers to aspire for foreign brands such as Adidas. There is also a strong culture to promote sporting excellence, for example the Olympics being a huge global sporting event, where Adidas can easily promote its goods to a larger market. However, there are several threats that come with expanding internationally to China. Firstly, the rising amount of counterfeit consumer goods serve as a large threat to Adidas. In 2011, more than 12 million counterfeit Adidas products were counted worldwide (BBC news). Since many of these fake products are manufactured in China, this serve as a threat as it is difficult for Adidas to personally control these illegal trades and tracking them down is even more difficult. This also damages Adidas’ reputation as people who do not know which products are fake may perceive Adidas for having bad quality products. Next, outsourcing manufacturing in China risks quality issues and environmental concerns. Due to China’s manufacturing of cheap and poor quality goods as well as people’s concerns about how these manufacturers are destroying the environment, this creates a bad brand image for Adidas which in turn will be detrimental for sales.
Evaluation
Adidas’ strategy in China is to widen the brand beyond just shoes and clothing. In the next two years, Adidas is planning to have more segmented shops in its 7000 China-based stores, meaning to offer different range of products in different shops. According to this PEST analysis, I do not think that Adidas should change its international marketing strategy. In the article from the Wall Street Journal, Mr. Quan says that Adidas is “by far more youthful, fresh and fashionable than any of the other sports brands.” Since China’s youth market is a large portion of the population, it is a good strategy for Adidas to expand into China. As for battling counterfeit products, Adidas makes use of extensive legal protection and works closely with law enforcement authorities to limit counterfeit products. According to the Adidas website, the company assessed the “potential risk of counterfeiting to negatively impact their forecasted financial contribution” as low.
Works Cited
http://www.bbc.co.uk/news/world-asia-pacific-13017877
https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html
http://www.bbc.co.uk/news/business-18508071
http://www.voanews.com/content/china-promises-improvements-as-congress-opens/1615289.html?utm_content=socialflow&utm_campaign=en&utm_source=voa_news&utm_medium=twitter
http://www.free-press-release.com/news-2012-china-new-leather-industry-products-import-and-export-tariffs-dynamic-1353641047.html
http://www.chinadaily.com.cn/business/2012-08/07/content_15649838.htm
http://blogs.blouinnews.com/blouinbeatbusiness/2013/02/21/an-unwanted-trade-war-heats-up-between-the-e-u-and-china/
http://online.wsj.com/article/SB10001424127887324034804578345741263753994.html?mod=googlenews_wsj
http://www.adidas-group.com/en/investorrelations/corporate_governance/risk_management/risks_external/default.aspx
The recent change in government in 2012 and an increase effort to fight corruption will ensure political stability and a favourable environment for Adidas to grow in (VOA News). As the government plans to correct China’s unbalanced economic growth and income disparity, this will be an opportunity for Adidas to expand in a politically stable environment. Also, the continued reduction on import duties of leather in China will maintain competitiveness of China as a manufacturing base (Free Press Release). However, there are also some threats for Adidas expanding into China. The updated labour law as of 2012 may lead to higher cost of operations in China both in terms of manufacturing and sales as outsourced workers are given the same pay as regular workers. Also, the trade tension on EU and China on other products (e.g. solar) could affect the relationship of EU and China and that could negatively affect the image of ADidas in China as a European company.
Sociocultural Analysis
China is the most populated country in the world with around 1.3 billion people according to a July 2012 estimate (CIA Factbook). Adidas’ target market in this country is mainly the youth market with 33% of the population that are below 24 years. This large target market provides a huge opportunity for growth and for Adidas to expand internationally. At the beginning of 2012, city-dwellers have outnumbered the rural people for the first time (BBC News). This makes way for rising consumer spending power, as people living in the city are more likely to buy Adidas products than those in rural areas of China. Moreover, the rising living standards pushes consumers to aspire for foreign brands such as Adidas. There is also a strong culture to promote sporting excellence, for example the Olympics being a huge global sporting event, where Adidas can easily promote its goods to a larger market. However, there are several threats that come with expanding internationally to China. Firstly, the rising amount of counterfeit consumer goods serve as a large threat to Adidas. In 2011, more than 12 million counterfeit Adidas products were counted worldwide (BBC news). Since many of these fake products are manufactured in China, this serve as a threat as it is difficult for Adidas to personally control these illegal trades and tracking them down is even more difficult. This also damages Adidas’ reputation as people who do not know which products are fake may perceive Adidas for having bad quality products. Next, outsourcing manufacturing in China risks quality issues and environmental concerns. Due to China’s manufacturing of cheap and poor quality goods as well as people’s concerns about how these manufacturers are destroying the environment, this creates a bad brand image for Adidas which in turn will be detrimental for sales.
Evaluation
Adidas’ strategy in China is to widen the brand beyond just shoes and clothing. In the next two years, Adidas is planning to have more segmented shops in its 7000 China-based stores, meaning to offer different range of products in different shops. According to this PEST analysis, I do not think that Adidas should change its international marketing strategy. In the article from the Wall Street Journal, Mr. Quan says that Adidas is “by far more youthful, fresh and fashionable than any of the other sports brands.” Since China’s youth market is a large portion of the population, it is a good strategy for Adidas to expand into China. As for battling counterfeit products, Adidas makes use of extensive legal protection and works closely with law enforcement authorities to limit counterfeit products. According to the Adidas website, the company assessed the “potential risk of counterfeiting to negatively impact their forecasted financial contribution” as low.
Works Cited
http://www.bbc.co.uk/news/world-asia-pacific-13017877
https://www.cia.gov/library/publications/the-world-factbook/geos/ch.html
http://www.bbc.co.uk/news/business-18508071
http://www.voanews.com/content/china-promises-improvements-as-congress-opens/1615289.html?utm_content=socialflow&utm_campaign=en&utm_source=voa_news&utm_medium=twitter
http://www.free-press-release.com/news-2012-china-new-leather-industry-products-import-and-export-tariffs-dynamic-1353641047.html
http://www.chinadaily.com.cn/business/2012-08/07/content_15649838.htm
http://blogs.blouinnews.com/blouinbeatbusiness/2013/02/21/an-unwanted-trade-war-heats-up-between-the-e-u-and-china/
http://online.wsj.com/article/SB10001424127887324034804578345741263753994.html?mod=googlenews_wsj
http://www.adidas-group.com/en/investorrelations/corporate_governance/risk_management/risks_external/default.aspx