Managing Reebok Term Paper

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Managing Reebok

History of Reebok

The company of Reebok started in England in around 1890 to provide shoes which could help athletes run faster. The cleated running shoes were developed by Joseph William Foster and he had then started a company to make hand-stitched athletic shoes for the runners of that time. The enterprise continued in that manner and started with the name of Reebok International due to the starting of a new company by the grandsons of JW Foster. The name was taken from the name of an African gazelle. The company came to USA in 1979 when Paul Fireman bought an exclusive license for distribution of Reebok in North America. From the beginning itself, the products were the most expensive, and were being sold for $60 a pair even in 1979. The sales increased over time, and became $1.3 million in 1981, and then the production capacity of the plant in UK was exceeded.

This led to a tie up with Pentland Industries, who are a British shoe distributor to establish a production facility in Korea. For $77,500 Pentland got 56% of the Reebok stock. This was also the time that aerobic dancing became popular as a fitness craze and there were no shoes available for women. The situation was taken advantage of by the company and it started a product for that market. Then it came out with the 'Freestyle' line of shoes and the sales of the company boomed from $3.5 million in 1982 to $3.6 billion by 1997. Then the two companies of Reebok USA and Reebok International merged into Reebok International. At this time four million shares were offered to the public, and this also permitted Pentland to become a major shareholder, though the CEO and Chairman's position continued with Paul Fireman. The money collected was used for financing the growth of the company.

What are the industries and Reebok's management strategies and trends for the last two years?

The company has internally viewed the present position and has outlined fourteen difficulties that they are likely to face in the future. The company's business was viewed to be subject to the economic conditions in the major markets of the company. The conditions reflected unlimited recession, inflation, a general weakness in retail markets and downward trends in consumer purchasing powers and resultant brand preferences. This situation was accentuated by the events of 9/11 and the generally weak economic conditions have led to lower confidence among investors, a lowering of demand from consumers and thus a reduction in spending. There were hopes however that the economies of UK, Europe and Asia / Pacific regions will help in the improvement of the situation. This has made the company feel that the outlook for business was uncertain. The other point to worry was that the total market for athletic footwear and apparel was highly competitive, and the important considerations by the customers was of price, quality, design, brand name, marketing and promotion and the capacity of the company to meet delivery commitments to retailers.

Some of the competitors had more financial powers and this also hurts the company. Where the market has matured, further growth may be practically impossible to achieve. For Reebok, the sales increased by 4.5% to $2.993 billion from the previous figure of $2.865 billion. There was an adverse effect on sales due to the fact that foreign currencies weakened against dollar. At the same time, the decrease was mainly in the Asia Pacific region, as there was an increase in all other regions for the company in U.S., Europe and Latin America. Thus the sales performance of the company for 2001 can be described as being good. This becomes clearer when we see that the sales of other companies showed a downward trend. The sales of Rockport declined by 5.4% overall and the domestic sales decreased by 9.0%. The sales of Ralph Lauren decreased in 2001 by 8.8% from the previous year's figures. Thus it is clear that there was a general decline in footwear sales in all three divisions of the company. The entire general decline had been anticipated.

What are Reebok's and the industry's management competencies?

One of the major problems faced by Reebok and its competitors was due to the continuous increase of the list of banned substances in consumer products. Reebok had taken aggressive action to meet these specifications. Yet, the changes had been made so rapidly that at certain points Reebok had products in distribution that were not in line with the latest directives of the EU. This sort of situations was causing some amount of disruption in sales. This had also contributed to a drop in sales, but competition was being affected similarly. The management was also aware of the rejection by direct consumers of products due to reasons of environment, health and human rights. This happens to some specific products, and the products would have to be withdrawn from the market. While the management of Reebok have been competent enough not to have such rejection of its products, yet, the management was keeping a close eye on the possibilities. The possibilities of such action against the company do not seem any more likely than that of its competitors.

What are Reebok's and the industry's strategies for labor relations?

The company has not faced a labor relations problem, though as of 31st December 2002, the company has 6,700 employees. None of these employees have a union except 200 employees in France who have a worker's committee. Till date the organization has not suffered a major interruption of business due to labor disputes and it has considered its labor relations to be good. The situation is however different in the factories abroad where most of the products are manufactured. This has caused some difficulties to Indonesia, where the footwear exports have come down to $1.5 billion from the previous year's figure of $2.2 billion. This country had been producing 38% of the footwear for Nike, which is the leader of the market in USA. As in the case of Nike, Reebok had also stopped supplies from that country and this had stopped 5,400 workers from their jobs. When compared to 6,700 employees this is a large number. The image of the company is however of being a supporter of human rights and this has been so since 1988 when Amnesty International asked for sponsorship from Reebok for its Human Rights Now World Tour. This program was seen by millions of people in 23 cities in four continents. The tour also featured artists Peter Gabriel, Bruce Springsteen, Sting, Tracy Chapman and Youssou N'Dour. Thus Human Rights are good publicity for the company.

What are Reebok's and the industry's strategies for social responsibility?

The definition of social responsibility is probably observed in the insistence by the company to compel its agents and manufacturers of Reebok products to observe the Reebok Human Rights Standards. This sets down certain acceptable factory policies and procedures about the conditions in the workplace. The company has a global monitoring system to check whether these are being observed or not. They also have a program to provide technical assistance for improving air quality in factories producing its footwear. There was also an effort to implement worker communication system so that conflicts in the factory could be resolved. Another incidence was in Pakistan, where Reebok insisted on stopping the use of child labor through production at a central point under proper supervision. This permitted the Reebok soccer balls to be sold with a guarantee that they were free of child labor. The company has also set up a child care center near its world headquarters with a total capacity for 72 children. Is this a strategy for social responsibility?

How do Reebok and the industry compare and contrast in the areas mentioned above?

Well that is very difficult to say as there are no clear incidences about the competitors except one, Nike. There is a clear mention that the share of Indonesia in manufacturing of Nike products has come down from 39% to 30%, whereas the share of production of Vietnam has gone up to 15% from 2%. This is viewed as the 'flying geese' theory of development which says that less developed countries gradually go up the production hierarchy when they industrialize. Yet the situation of Reebok in Indonesia was not much better, and the Reebok factory was also closed. There were public comments that the workers in Reebok factory earn less than $1.5 a day. One would just like to say that probably the situation in all factories of the industry is the same, and there is not much care about human relations in this industry.

What is the significance of the comparisons made?

The comparisons made above are based on facts, and that is quoted here, so one can say that it is the truth. The problem is that the companies concerned have to realize the implications of the steps that they take. There is…

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