Impact Of Political And Economic Factors On Marketing Strategies: A Case Study Of Adidas In Emerging Markets (essay).

Discuss about theGlobal Marketing and International Relations .

There is a great advancement in technology with increasing globalisation that has changed the way the business operations used to occur in the past. Profitability is ensured when an organisation decides to go global. It may not happen that every business is benefiting from globalisation. While some organizations in the global market is growing healthy such as Apple, Coca-Cola, some are facing challenges in an attempt to establish business successfully in the emerging markets (Dunning, 2014). However, doing business overseas is accompanied by wide ranging challenges while marketing its products considering the legal, cultural, and ethical aspects. BRICS group of countries (Brazil, Russia, India, China, South Africa) which are considered as the largest of the world’s emerging markets (Chang, 2015). There are many other small countries growing rapidly but are presenting number of challenges for international marketers such as Japan or the USA that do not occur to the same degree in developed nations (Gilpin, 2016). The report intends to discuss the likely impacts of political and economic factors on marketing in emerging markets. The report deals with the organisation Adidas. In this context, the paper discusses the challenges faced by the organisation when marketing in the emerging markets. The paper will emphasise on the political and economic factors influencing the marketing strategies supporting with literature.  

Adidas group is the world’s leading and gigantic industry for sporting goods created by Adolph Dassler after the world war I. The business was initially started with manufacture of sport shoes. The business is reigning in London and Germany. In London Adidas has wide variety of sport products to sell out with plenty of outlets. It manufactures products for different types of sports such as Basketball, Football, Tennis, Cricket, Tennis, Cricket and swimming. To become the “leading sports brand in the world” is the company’s mission. The company’s vision is to manufacture products that enhance the life of the people. The target market of Adidas is urban youth particularly the metro cities and “competition to lifestyle” is the brand position of Adidas (Rudolph, 2016). The company’s robust marketing strategies have helped it to gain high brand loyalty from its customers.

Marketing is essential for survival of business in global market (Kotler et al., 2015). Marketing refers to the process of anticipating, identifying and satisfying the demands and requirements of the customers profitably. Adidas has extensive marketing infrastructure to reach wide range of customers. It sells its wide range of sports products and equipments in wide range in almost all the countries of the world (Cleff et al., 2013). Such marketing infrastructure is essential for expanding the market size. Giese, (2016) mentioned that the company has established an unparalleled portfolio of “promotion partnerships” with sports associations recognised internationally (Nufer & Ibele, 2015). Marketing plan can be affected by range of factors such as political, economic, social, and cultural and other external environmental factors. In this assignment we will mainly focus on the political and economic factors affecting the marketing of Adidas in emerging markets.

Effect of Political Factors on Marketing in Emerging Markets

The political factors are given lot of importance in business field. Business can be effected by government policies that is mandated to be followed by all the companies. Any upcoming legislation can affect the business operations and eventually the marketing plan. The political factor can add a major risk factor to the business according to Chattopadhyay et al., (2012). Hennart, (2012) argued that a company may be ready to tackle the international outcome of politics. For example an increase or decrease in tax can alter the pattern of demand. Gilpin, (2016) described that political factors can affect the economic condition of the business, influence the socio-cultural environment of the target market, impact the rate of new technologies emerging and its acceptance in the target market. For example, the “U.S Generation 2015” and “Route 2015” for Adidas has increased its geographic growth to tap developing market. In addition other technological innovations such as Micoach and Techfit compression jerseys have helped to improve the global market presence for Adidas. Hence, it focuses to market its products on the high potential market such as China where it has opened new 500 sales points penetrating deeper into the country’s market with low price (Nufer & Ibele, 2015).

A company’s marketing strategies are effected particularly in emerging market because of corruption level, taxation, tariffs, bureaucracy, data protection law, customer protection and e- commerce employment law, health and safety and environment laws (Chakravarti, 2013). According to Borowski, (2011) decrease in taxation increases the disposal incomes thereby increasing the buying power. In that case, sales will be high even with decrease in marketing level. For example, the Malaysian has stable political situation. The government provides incentives and other added benefits that are more than satisfying to the investors as it guarantees agreement with other popular industrialised countries. Therefore, the operations of Adidas are never effected in this country and are a good ground for flourishing or expanding the market size in Malaysia although it is an emerging market (Cuervo-Cazurra & Ramamurti, 2014). The online retailing and adoption of new technologies is slow in countries like South Africa but is fast in developed countries like US, Japan and Germany. Therefore, Adidas has slow market penetrating in South Africa where the demands remain low (Cleff et al., 2013). Owing to the corporate social responsibility, if a product causes environmental damage it is highly likely to suffer from the legal and regulatory authorities in the country the products will be marketed. Kotler et al., (2015) stated that marketing of the product are also effected with the target market’s employment law.

Effect of Economic Factors on Marketing in Emerging Markets

In 2014, Adidas has faced uncertainty in the consumer market in Russia, due to fall in the value of rouble. The start of the “Ukraine crisis” the organisation has to close some of the existing stores and open newer ones. Due to uncertainty in Russia, the company had suffered from higher marketing spending at the time of “World Cup”. It’s net income for the year was one third lower than it was estimated (Adidas scales back in Russia and issues profit warning - BBC News", 2016). Fraud is highly prevalent in small market like India. Adidas has filed a lawsuit against its managing director after uncovering the fraud (Rs 870 crores) at its local unit in Delhi. Sales figure were inflated, profits were overstated by showing more warehouses and fictitious invoices. The law proceedings in India are very slow and in addition it was difficult to reincur the total loss Rs 2,198 crore caused by scandal. This greatly affected the company’s marketing plan as it has to settle claims from 500 franchisee. Therefore, it had to go for intense marketing to drive its sales and gain competitive advantage over other sports brands such as Puma, and Nike (Gupta, 2016). On the other hand, the growth oriented policies in US positively influences the business marketing strategies (Thanh, 2014). Adidas highly invests in advertisement and in social media and has opened several stores in US due to the US government’s low interest rates. US also maintain the stable currency exchange arrangements (Nufer & Ibele, 2015). Adidas earns high profit every year in US which has flexible arrangements for internationally competitive tax and takes serious initiatives in the global value chain in terms of transparency. According to Giese, (2016) Adidas enjoys the changes in US political factors in many ways however, it has negative effect on the hiring of employees.

As per Chattopadhyay et al., (2012) the economic factors such as consumer spending pattern, employment level, country’s resources and rate of interest, inflation, exchange of currency greatly affect the marketing of the products. For example the inflation rate alters the buying power of the consumers and hinders the market penetration of the new entrants. With the increase in the inflation rate the profit making of the company decreases. Similarly the, employment level of the country effects the marketing plan.

According to Mahdi et al. (2015) the consumer spending on the product also effects the marketing plan of a business. For example, in Brazil and London the consumer spending is high for sports products therefore there is tough competition faced by Adidas. Hence, before the World Cup, Adidas being the sponsor is demanded to come up with latest technologies to gear up marketing. Among other innovations when the company unveiled its “digitally connected smart football”, it proved the brand’s dominance was going beyond apparel.

For Adidas, small market like India is challenging. In the previous calendar year Adidas raked more than Rs 18,527 crores from China alone compared to Rs 6000 crores in India total sportswear market. Japan and China are considered to be a developed market for Adidas but India being the emerging market (Lu et al., 2016). The E-commerce is growing rapidly in India’s capital city with greater internet penetration. Therefore, Adidas has widely implemented its “omnichannel strategy”providing more number product online that are not available in the local stores. Therefore, Adidas is highly spending on its online marketing strategy partnering with four leading e-retailers Jabong, Flipkart, Amzon and Myntra. Morover, in India the low space due to high crowd leads to more payment for its urban stores in India. Therefore, the high rental structure reduces the number of stores and increases more marketing on social media and television (Chakravarti, 2013).

In developing markets the size of the labour pool greatly influences the wage system. The global production of Adidas takes place 80% in Asian countries. In these countries the larger part of the job market is informal sector. Consequently huge pool of labourers is underemployed. For example in Bangladesh the total population is 160 million with annual GDP being smaller than Germany by 33 times. In this country, the 80% of the employees are recruited in informal sector. Adidas too have been claimed of poverty wages in Bangladesh and Indonesia. Therefore, it decreased the “purchasing power parity”. Hence, earning dollar in US and India is different and affects the buying power (Jolliffe & Prydz, 2015).

In Germany, Adidas has faced decline in net profit by the end of quarter by 11% in 2014 in golf division (Emmerentze, 2016). This was attributed by the negative currency effect. This was due to the continuous weakness of emerging market currencies compared with the euro--in particular the Russian ruble--and discounting and restructuring at TaylorMade-Adidas Golf. The sales increased by 9% when the currency fluctuations were adjusted. The stagnating market has greatly affected the sales profiles of Adidas at the golf division. Therefore, profit denied by the foreign exchange effects the marketing products greatly in developing markets rather than the developed markets. Despite the political instability in Russia and profit warning Adidas was confident of its marketing but the same was the condition in Malaysia, Indonesia, or India it would have greatly affected the market expansion of Adidas decreasing the sales and leading to closure of sales points ("Adidas scales back in Russia and issues profit warning - BBC News", 2016).

Conclusion

Based on the above discussion the political and economy factors greatly influence the marketing of Adidas in emerging markets. A global market faces a massive geoeconomic realignment. Therefore, multinational cooperation like Adidas has to rethink every aspect of their business. Adidas must accustom to scarcity. There is clear commencement of global shift in the “consumption patterns” from the developed to the emerging markets. According to Cuervo-Cazurra et al., (2014) for Asian consumers there is more production in Asian but not for the western ones. The consumption rebalance is in favour of emerging societies that were surviving on less. Adidas must be updated on the latest communication technology. The organisation must develop new managerial and leadership competencies in order to adept at networking to lead teams of increasing diversity. While branching into unfamiliar territories the company must seek collaborative solutions to tap the opportunities at the base of the pyramid. Adidas must take advantage of hard-working and hungry employees in Asian countries however, it must be fair with the payment system. The company must let go off the certainties and then become more accustomed with uncertainty as it is obvious to have growing fluctuations and pain to gain market supremacy (Hennart, 2012).

References

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