Adidas International Market Entry Strategy Analysis

Company Background

Adidas was founded in Herzogenaurach, a town in Mittelfranken, north of Nürnberg and not far from Erlangen, where the company remains headquartered today. It was established by brothers Adi and Rudolf Dassler, who eventually had a falling out — Rudolf went on to found Puma. Adidas has since grown into one of the leading designers and marketers of sports apparel, footballs, and other related items. The company operates globally, posting revenues of nearly €20 billion and profits of €0.72 billion in 2015 (Adidas 2015 Annual Report).

Adidas competes against Nike, Reebok, Puma, and several other brands in this space. Major product lines include footwear, apparel, and footballs. Adidas sponsors a wide range of athletes and athletic clubs as a core part of its marketing strategy. Broadly, this industry is characterized by incremental changes to basic product designs, a strategic emphasis on marketing and distribution spending, and companies that employ a global strategy — selling in essentially the same way in each country where they operate.

There are a few key ways in which this global strategy manifests. When Adidas and its competitors seek endorsement opportunities, they typically target global platforms: football stars and clubs represent the best opportunities, but other major club sports and the Olympics are also prime sponsorship vehicles. Adidas and its competitors seek to differentiate through branding and to win markets through superior marketing and distribution. Consequently, market entry anywhere in the world will necessarily focus on distribution and marketing. Production does not change significantly, but the company must choose between global and local marketing approaches depending on the context.

The Industry

The global athletic footwear and apparel industry is highly competitive and very large. A handful of dominant companies occupy the top tier, but a number of local companies also operate in most markets. In most countries, the typical structure places global brands — Nike, Adidas, Reebok, Puma, and others — at the high end of the market. These companies sell high-quality, well-designed goods at premium prices, and carry with them a degree of prestige derived from marketing investment. The remainder of the market is often filled with discount brands, usually local, that are produced in the same countries but to a lesser standard, lack high-end design, and are sometimes made with cheaper materials. These companies seek to capture share at the low end of the market.

It is worth noting that in the world's major economies there is relatively little room for discount brands, since the vast majority of consumers can afford the premium global offerings. The premium global brands compete intensely around the world. They dominate the developed world, where competition can be severe because the market is essentially a zero-sum game, aside from incremental economic growth. The developing world presents an entirely different competitive dynamic. Premium global brands not only compete with each other for share, but also work to grow the overall size of the market. Success in these countries is therefore not just about winning against other global brands — it is about tapping into the country's underlying economic growth. The economic growth potential of a given market is thus one of the key variables Adidas considers when making a market entry decision. The competitive landscape is also relevant, though less so than in the developed world.