Harvard Case - adidas Russia/CIS and the Russian Crisis: Retrench or Double Down (A)
"adidas Russia/CIS and the Russian Crisis: Retrench or Double Down (A)" Harvard business case study is written by Carlos Cordon, Benoit Leleux, Beverley Lennox. It deals with the challenges in the field of Operations Management. The case study is 15 page(s) long and it was first published on : Sep 14, 2016
At Fern Fort University, we recommend that Adidas adopt a strategic retreat from the Russian market while simultaneously exploring opportunities for expansion in other emerging markets within the CIS region. This approach balances the immediate risks of operating in Russia with the potential for long-term growth in a region with a burgeoning middle class and a growing appetite for athletic apparel and footwear.
2. Background
Adidas, a global sportswear giant, faced a critical decision in 2014 following the annexation of Crimea and the subsequent imposition of Western sanctions on Russia. The company had a strong presence in Russia, generating significant revenue and employing hundreds of people. However, the political and economic turmoil created a volatile environment, raising concerns about the sustainability of its operations.
The case study focuses on the key protagonists:
- Roland Auschel, the CEO of Adidas Russia/CIS, who must navigate the complexities of the crisis and make a crucial decision for the company's future.
- Herbert Hainer, the CEO of Adidas AG, who must weigh the global implications of the situation and provide strategic guidance to Auschel.
3. Analysis of the Case Study
The case study can be analyzed through the lens of strategic management, focusing on competitive strategy, international business, and risk management.
Competitive Strategy:
- Porter's Five Forces: The case highlights the intense competitive landscape in Russia, with strong local brands and international competitors vying for market share. The political and economic instability further intensifies competition, creating a challenging environment for Adidas.
- Competitive Advantage: Adidas's competitive advantage lies in its global brand recognition, innovative product development, and strong distribution network. However, these advantages are threatened by the volatile market conditions in Russia.
International Business:
- Political Risk: The annexation of Crimea and the subsequent sanctions significantly increased the political risk associated with operating in Russia. The potential for further escalation and economic instability posed a serious threat to Adidas's operations.
- Economic Risk: The Russian economy was already facing challenges before the crisis, and the sanctions further exacerbated the situation. This created significant economic risk for Adidas, impacting its profitability and long-term sustainability.
Risk Management:
- Scenario Planning: Adidas needed to develop different scenarios for the future of Russia, considering various political and economic outcomes. This would help them assess the potential risks and opportunities associated with each scenario.
- Risk Mitigation: Adidas could mitigate risks through a combination of strategies, including diversifying its operations, hedging against currency fluctuations, and building strong relationships with local partners.
4. Recommendations
Strategic Retreat from Russia:
- Phased Withdrawal: Adidas should implement a phased withdrawal from the Russian market, starting with a reduction in its retail presence and a gradual closure of non-core operations.
- Asset Sale: Consider selling its existing assets in Russia to a local partner or a strategic investor who can navigate the complexities of the market.
- Focus on Brand Protection: Maintain a strong brand presence in Russia through online channels and partnerships with local distributors, ensuring continued brand awareness and customer engagement.
Expansion in Other CIS Markets:
- Market Research: Conduct thorough market research to identify promising growth opportunities in other CIS markets, such as Kazakhstan, Ukraine, and Belarus.
- Strategic Partnerships: Establish strategic partnerships with local distributors and retailers to leverage their expertise and market access.
- Tailored Product Development: Adapt product offerings to meet the specific needs and preferences of consumers in each target market.
5. Basis of Recommendations
- Core Competencies and Consistency with Mission: The strategic retreat aligns with Adidas's commitment to responsible business practices and its desire to avoid operating in a politically unstable environment. Expanding into other CIS markets aligns with its global growth strategy and its focus on emerging markets.
- External Customers and Internal Clients: The decision to withdraw from Russia prioritizes the safety and well-being of its employees and minimizes reputational damage. Expanding into other CIS markets allows Adidas to continue serving its customers in the region while diversifying its risk profile.
- Competitors: The strategic retreat allows Adidas to focus its resources on markets with greater growth potential and less political risk. Expanding into other CIS markets allows it to compete effectively against local and international brands in those regions.
- Attractiveness: The decision to withdraw from Russia is a difficult one, but the potential for long-term growth in other CIS markets outweighs the risks associated with remaining in Russia. This strategic shift allows Adidas to optimize its resource allocation and achieve sustainable growth.
6. Conclusion
The decision to retreat from Russia while exploring opportunities in other CIS markets represents a strategic balancing act for Adidas. It allows the company to mitigate the risks associated with operating in a volatile environment while capitalizing on the growth potential of the region. This approach demonstrates a commitment to responsible business practices, a focus on long-term sustainability, and a willingness to adapt to changing market conditions.
7. Discussion
Alternatives:
- Maintaining Operations in Russia: This alternative carries significant risks, including potential political and economic instability, reputational damage, and operational challenges.
- Complete Withdrawal from the CIS Region: This option would be a significant strategic shift, potentially impacting Adidas's market share and brand recognition in the region.
Risks and Key Assumptions:
- Political and Economic Instability: The political and economic situation in Russia and other CIS markets is inherently volatile and unpredictable, posing a significant risk to Adidas's operations.
- Market Entry Costs: Expanding into new markets requires significant investment, including market research, infrastructure development, and marketing campaigns.
- Consumer Preferences: Adapting product offerings to meet the specific needs and preferences of consumers in each target market requires careful market research and product development.
8. Next Steps
- Develop a Detailed Exit Strategy: Define a clear timeline and plan for withdrawing from the Russian market, including asset disposal, employee relocation, and brand protection strategies.
- Conduct Comprehensive Market Research: Identify promising growth opportunities in other CIS markets, including market size, consumer demographics, and competitive landscape.
- Establish Strategic Partnerships: Secure partnerships with local distributors and retailers to leverage their expertise and market access.
- Develop Tailored Product Offerings: Adapt product offerings to meet the specific needs and preferences of consumers in each target market.
- Monitor Political and Economic Developments: Continuously monitor the political and economic situation in Russia and other CIS markets to assess potential risks and opportunities.
By taking these steps, Adidas can navigate the complexities of the Russian crisis and position itself for long-term growth in the CIS region.
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Case Description
The case series is based on extensive interviews with key executives at adidas Russia/CIS in charge of implementing the radical IT, supply chain and omnichannel initiatives that transformed adidas Russia/CIS from one of the poorest performers to the new standard within the Group. The initiatives included pioneering the rollout and implementation of key new technologies such as click-and-collect, ship-from-store, endless aisle and RFID - all of this in the face of the massive economic crisis that embroiled Russia. With some 1,200 company-owned stores - the Group's largest direct retail footprint globally - adidas Russia/CIS was critical to the financial success of the Group as a whole. The case provides an opportunity to discuss the key challenges in the rollout and implementation of cutting-edge IT, supply chain and omnichannel initiatives in one of the most challenging retail and logistics environments, i.e. Russia during the latest economic crisis.
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