Globalization in International business
As a result of centuries of exploration, international cooperation and technological advances, the world is now more connected than ever. In general, globalization can be defined as an extensive network of economic, cultural, social and political interconnections and processes which goes beyond national boundaries (Yeates 2001). In itself, globalization is believed to have occurred in different stages. The world is considered to be in globalization 3.0, which is also known as the second unbundling. It is the stage where multinationals crossed borders with critical G-7 know-how, with advanced technology (World Economic Forum 2018). It has allowed for the flow of capital, human resources and information. For businesses, this has created a plethora of opportunities. Demand and supply, environmental factors, the advancement of communication technologies and the convergence of the free market economy are all factors that have led to the rise in the globalization of international organizations and businesses. International business is, therefore, cross-border transactions of goods and services taking place between individuals, multinationals or even governments.
In this report, we are going to focus on Adidas and how globalization has affected their business strategy, the advantages and the associated risks. Adidas is a large multinational corporation with its headquarters in Germany with 56,888 skilled workers. It makes shoes, clothing and accessories and has 1,333 concept stores worldwide (Statista 2020). One of the most important factors to consider is the economic factors. While Adidas is a German company, most of their products are manufactured in South East Asia. More recently, the organization is ditching China for Vietnam as it looks to source for the cheapest available labour that helps reduce the cost of manufacturing. Vietnam now produces more than twice Adidas shoes than China does. In fact, China comes in third behind Vietnam and Indonesia (Quartz 2018).
Another critical factor is the political landscape of the countries they operate in. To keep up sales and sustain its global presence, the company has to pay attention to changing trade policies and political unrest. The recent trade war between the Trump administration and China is of enormous concern to Adidas. Germany is a significant exporter, and the tariffs could cost Germany up to 20 billion Euros. In an open letter to the President, the company urged him to reconsider the taxes as they would be “catastrophic for our consumers, our company and the American economy as a whole” (Bloomberg 2019).
Adidas has promoted its brand by endorsing top athletes the world over with a particular interest in European footballers with a considerable following on social media. Their partnership with the biggest football clubs in Europe and endorsements from footballers have created significant value for the company. Adidas has a lifetime deal with Messi, and the footballer has paid back by generating $106 million from his social media interactions in the financial year 2017-18 alone (Forbes 2018).
As the world turns into a global village, the brand image is the most crucial asset Adidas have to maintain. Culture, religion and lifestyle preferences are at the centre of every strategy and decision making. The organization has to be conscious of differing beliefs without hurting their brand and as a result, their customer loyalty. More individuals are becoming health conscious, and Adidas sees an opportunity of customer influx by creating flexible footwear, apparels and other health-related accessories.
Technology can also be used to drive down costs and improve company operations by embracing innovative technology in production and using it as a competitive edge over competitors. Technology can also be used to optimize company processes such as logistics, shipment tracking, inventory management, as well as accounting systems. Data collection and analysis is another way of using technology to enhance performance measurement and customer reaction as more people post their thoughts on products online. This helps increase productivity, brand loyalty and overall market share.
As the world morphs into a global village, it brings forth many advantages, particularly for large multinationals like Adidas. Employment opportunities are considered the most crucial benefit of globalization with companies moving towards the developing countries to acquire cheaper labour. It’s a symbiotic relationship which caters to employment and income generation to the people in the host country and a source of cheap labour for the organization. Migration and movement of people have been made quite easy, and this has led to the transfer of different skilled labour the world over. Between 2000-2019 Adidas has created over 45,000 jobs in different parts of the world (Statista 2020).
The rise of international trade and convergence of the free market economy has seen a surge in intense competition as new markets open up. With internet access opening up even the remote areas universally, Adidas aims to be smarter and faster. Adidas prides itself in providing high-quality products that set standards globally. This has led to brand recognition, increased customer loyalty and consequently, high-income generation. In 2018, Adidas global net sales amounted to 21.92 billion Euros (Statista 2019).
Opportunity to partner globally and exchange ideas is another advantage of globalization. In 2019 Adidas announced a partnership with Italian luxury-goods house, Prada in a move that is supposed to shake the industry. Such partnerships minimize costs and maximize quality as each company plays to its strengths.
The risks associated with globalization are to do with information flow. Any damaging news hurts brand loyalty in a world where social media has allowed for information to travel fast within seconds. In 2018 as the world prepared for one of the biggest sporting events, the World Cup, Adidas was accused of paying poverty wages to thousands of women in their supply chain (Reuters 2018). Further back in 2014, Adidas workers in their manufacturing plants in China staged industrial action citing poor pay. These workers earned $1.16 per hour for shoes selling a hundred times as much (NBC News 2014).
Celebrity endorsements pose as much risk as the actions of the individual are reflected on the brand. With the amount of money involved in such endorsement deals, this is one of the riskiest business decisions to make. Adidas has been smart on this front there, and there is little news of their star-studded celebrities misbehaving. A move which has helped bolster customer loyalty and allowed their brand to flourish globally.
In conclusion, globalization is not a policy which can be accepted or rejected; rather, it is a fact which policymakers have to adapt to. Multinationals are having to cater to their customer needs globally and focus on making sure their brand does not lose value or market share to competitors. Governments are also having to enter into strategic partnerships with large multinational corporations by providing tax incentives and signing lucrative business agreements while safeguarding the rights of their citizens. The advantages that globalization has brought forth far outweigh the risks for a company like Adidas. This can clearly be seen from the income generated, and profits reported year on as they broke into new markets and territories. In 2019, Adidas reported a gross profit of 12.3 billion Euros which is some 10 billion more than the reported earnings in the year 2000. With the right strategy, organizations can take advantage of the opportunity globalization has brought and made more money for its investors.