Swot analysis

SWOT analysis is a framework used to assess a company's competitive position and to create
strategic planning. It stands for strengths, weaknesses, opportunities, and threats. The
SWOT analysis evaluates internal and external variables as well as present and anticipated
future situations. Strengths are what make a company stand out from the competition and
what it excels at. An organization's weaknesses prevent it from operating at its highest
potential. They are areas where the company needs to strengthen itself to stay competitive.
Opportunities are advantageous outside variables that might provide a company a
competitive edge. Threats are things that could do something bad to an organisation.

Swot analysis (Addidas)

Strength
 Brand Value: Adidas is one of the most valuable brands in sports. According to
Forbes, it is ranked at #3 position with a brand value of $12.9 Billion. In 2020, Adidas
was ranked the 51st most valuable brand in the world. 

 Diversified Portfolio: Even though the Adidas brand is restricted within the
sportswear industry, the company’s products are diversified. It offers multiple
products that are designed to cater to a wide range of sports, including footwear,
apparel, and hardware accessories. Footwear represents 53%, Apparel represents
41% and Accessories and Gear represents 6% of Adidas annual sales of € 21.2 Billion.

 Culture of innovation - innovative products are one of the driving forces behind
its ever-growing customer base. Since its founding, Adidas has prioritized the quality
of its products over everything else. In 2021, EUR 130 million was invested in R&D.

 Strong Financial Position- Adidas is among the most financially stable

companies globally. In 2021, Adidas’s currency-neutral revenue grew by 16% from
EUR 18.4 billion to EUR 21.3 billion.

 Strong & Diversified Distribution Network: Adidas has several distribution

networks, including over 2300 company-owned retail stores, over 14,000 branded
franchise stores.

 Celebrity Endorsements: Adidas has strived to maintain and enhance its

recognition as a youthful and urban brand through endorsements from celebrities.

 Strong presence on social media  

Weakness

 Expensive Products- Adidas charges a premium or high prices for its products,
which has alienated low-income consumers. Only upper- and middle-income group
customers can afford over a $100 shoe.

 Limited Product Line- Under its portfolio, which has restricted the company within
sports footwear, sports apparel, and accessories. Therefore, a decline in demand for
sports-related products can be disastrous to Adidas.

 Outsourcing -Adidas outsources the production of most of its products to 3rd

party or independent manufacturing suppliers, mainly in China, Cambodia, and
Vietnam. It has exposed Adidas to the risk of overdependence on foreign suppliers

 High attrition rate in work force – compare to other organizations in the

industry adidas has a higher attrition rate and have to spend a lot more compare to
its competitors on training and development of its employees.

Opportunity
 Growing sportswear industry- Sports and fitness have grown in popularity
with no sign of slowing down soon, which means there will be a consistent increase
in demand for sportswear products and assortments.

 Increased demand in developing countries- Improved economic situation in

developing countries has increased purchasing power and demand for premium
products. Adidas can capitalize on this by expanding into countries such as India,
where discretionary income is expected to increase by 45% by 2025.

 Product line expansion - Even though Adidas has a diversified portfolio, there is
still room for expansion of its product line.

 Potential to expand in other media- In recent years, the number of

consumers who shop online or use e-commerce sites has increased significantly.
Adidas incorporated various e-commerce such as Instagram. Adidas can replicate in
other social media platforms such as Facebook and Snapchat. Its e-commerce is
expected double to €8 billion by 2025.
.

 Technology development - Adidas announced that it will expand the product

lines using newly launched fabrics made from recycled marine plastic and polyester.
Threats

 Supplier dominance - Because of majority production being outsourced:

Suppliers have more bargaining power.

 Competition- Adidas is lost 1 position to Nike and there is regular competition

from local players, market penetration and substitutes

 Technological Advancements: The threat posed by competitors increases as

they become more technologically advanced. This implies that a competitor such as
Nike will pose a greater threat if they become technologically advanced than Adidas.

 Fake Products: According to CEO Rorsted, 10% of Adidas products in Asia could be
fake. The number and quality of fake products for premium shoe brands have
increased significantly in the recent past, which poses a threat to shoe-
manufacturing companies.
 3. CASE STUDY: ANALYSIS OF IFE, EFE, CPM MATRIX OF
ADIDAS

ABSTRACT

This study present analysing the strengths, weaknesses, opportunities, threats of Lifestyle
International Private Limited. SWOT was further used in formulating Internal factor
evaluation and External Factor evaluation.

INTRODUCTION

Internal factors are influences on a firm's performance that originate within the company, or
can be managed by the company. A company's internal environment must be identified and
evaluated as part of the strategy-making process. The corporation expects the outcomes of
the identification and evaluation to reveal the profile of the company's strategic advantage.
In order for the organization to be able to foresee business possibilities and respond rapidly
to existing business dangers.

External influences are those that come from outside the company and have an impact on
its success. External factors are crucial to consider since they can provide a comprehensive
picture of the company's prospects and risks.

SWOT analysis looks at four perspectives: strength, weakness, opportunity, and threat.
Strength is used to analyze a company's strengths, weakness is used to analyze a company's
limitations, opportunity is used to analyze environmental situations that benefit companies,
and threat is used to analye situations that are not profitable and can threaten a company.

EXTERNAL FACTOR EVALUATION (EFE)

This matrix allows companies to compile and assess the key external forces like economic,
social, cultural, demographic, environmental, political, governmental, legal, technological,
and competitive information. There are 5 steps to develop EFE matrix.

Step: 01

 List the identified external factors

 For opportunities & threats, 15-20 factors can be included.
 Opportunities are listed first follow by threats.
 Use percentages or ratios, as specific as possible.
Step: 02

 For each of the external factors, weight is assigned.

 Range: 0.0 to 1.0 (not important to very important)
 Higher weights are given to Opportunities than to Threats.
 The total assigned weights = 1.0

Step: 03

 A rate between 1 & 4 is assigned to the listed external factors.

 The rate shows the response of the company’s ongoing strategies to the factor.
 4 = the response is superior
 3 = the response is above average
 2 = the response is average
 1 = the response is poor
 Ratings = Company-based
 Weights (Step 2) = Industry-based
 Both threats & opportunities can be 1, 2, 3, or 4.

Step: 04

 Each factor’s weight X Rating = Weighted Score

Step: 05

 Total up the weighted scores for all variable = total weighted score.

Total weighted score indicator:

 Highest score- 4 (The company current strategies are effective)

 Lowest score- 1 (The company current strategies are not effective)
 Average score- 2.5

KEY EXTERNAL WEIGHT RATING

WEIGHTED
 FACTORS (0- 1) (1- 4) SCORE
EXTERNAL OPPORTUNITIES
Increase in demand for sportswear .10 3 .30
products and assortments.

Adidas has a diversified portfolio, .15 4 .60

there is still room for expansion of
its product line.

Increased demand in developing .05 2 .10

countries
Potential to expand in other media .10 2 .20
Product development with the help .20 4 .80
of technology advancement.
EXTERNAL Threats
Supplier dominance .05 2 .10

Threats from local players and .15 4 .60

competitors
The number and quality of fake .10 2 .20
products for premium shoe brands
have increased significantly

Technological Advancements .10 3 .30

TOTAL 1.0 3.2

Table 1 – External factor evaluation of Adidas

 This table shows external factor evaluation of Adidas. Various external opportunities
and external threats were noted down and weights were allotted to each of them.
Less weights were allotted to those opportunities which might take time to happen
similarly less rating were allotted to those opportunities which were given less
weights.
 At the end, the total weighted score was calculated for key external factor. Total
weighted score of key external factors of Lifestyle International Limited is 3.2. Since
it is above average score i.e. 2.5. Thus it can be concluded that the company current
strategies are quite effective.
INTERNAL FACTOR EVALUATION (IFE)
IFE (Internal factor evaluation) matrix is one of the best strategic tools to perform internal
audits of any firm. There are some important points related to a rating in the IFE matrix.
Rating is applied to each factor.

 A major weakness is represented by 1.0

 A minor weakness is represented by 2.0
 Minor strength represented by 3.0
 Major Strength represented by 4.0

Major weakness needs company attention to change into minor weakness then strength
and finally major strength. As compared to major strength minor weakness need little
efforts of the company to change it into strength. The range of rating starts from minimum
1.0 which is worst and maximum 4.0 which is the best factor of the company.

Weight
In the IFE matrix, the weight attribute reflects the relative relevance of a factor to the firm's
success in its industry. The weight ranges from 0.0 to 1.0, with 1.0 being the most
important. The sum of all assigned weights to factors must equal 1.0, or the calculation
would be incorrect.

Weighted score
The outcome of multiplying each factor rating by the weight is the weighted score value.

Total weighted score

The overall weighted score is equal to the sum of all weighted scores; the total weighted
score should be in the range of 1.0 (low) to 4.0 (high). The IFE matrix's average weighted
score is 2.5, and any company with a total weighted score below 2.5 is considered weak. A
total weighted score of more than 2.5 indicates that the company is in a solid position.

KEY INTERNAL FACTORS WEIGHTED

WEIGHT RATING SCORE
 (0- 1) (1- 4)
STRENGTH
Strong brand value .15 4 .60

Culture of innovation .10 3 .30

Strong financial position .09 3 .27

Strong & Diversified distribution .15 4 .60

network
Diversified Portfolio .08 3 .24

Weakness
Expensive Products
0.10 2 0.16

Limited Product Line

0.15 1 0.16

Outsourcing
0.09 1 0.18

High Attrition rate

0.09 2 0.10

TOTAL 1.0 2.61

Table 2 – Internal factor evaluation of Adidas

Table shows internal factor evaluation of Adidas. Various internal strengths and internal
weaknesses were noted down and weights were allotted to each of them. More weights
were allotted to strong strength which is depicting major strength of the company similarly
more rating was allotted to those strengths which were given more weights.
At the end, the total weighted score was calculated for key internal factor. Total weighted
score of key internal factors of Adidas is 2.61. Since it is above average score 2.5. So it can
be concluded that the company is in good position.
COMPETITIVE PROFILE MATRIX (CPM)
A Competitive Profile Matrix (CPM) is a strategic analysis that reveals a company's relative
strengths and weaknesses by comparing it to its competitors. Product range/quality, customer
service, brand equity/reputation, marketing innovation, management, and HR competency are
some of the important components that are evaluated. After they've been weighed, they'll be
rated for a full evaluation.
Key components of competitive profile matrix:

Weight
Once the critical success factors have been determined, they must be given a weighting from
0.1 to 1. For example, a factor given a weighting of 0.2 means that it is not a particularly
large driver of success. A rating of 0.8, on the other hand, denotes a critically important
success factor.

Weighted score
With critical success factors and their associated weightings determined, a business can now
be scored against them. Most use this simple scale:

 4 = major strength
 3 = minor strength
 2 = minor weakness
 1 = major weakness

Total weighted score

To arrive at a total score for each competitor, weighted scores are added together. The
company with the highest score is the strongest in its industry, relative to its competitors.
 Adidas Nike PUMA

CRITICAL WEIGHT RATING WEIGHTED RATING WEIGHTED RATING WEIGHTED

SUCCESS FACTORS 0.0 to 1.0 1 to 4 SCORE 1 to 4 SCORE 1 to 4 SCORE

Advertising 0.10 4 0.40 3 0.30 3 0.20

Product quality 0.08 3 0.24 4 0.32 2 0.16
Price 0.08 3 0.24 2 0.16 1 0.08
competitiveness
Sales distribution 0.06 4 0.24 3 0.18 2 0.12
Financial position 0.08 3 0.24 4 0.32 1 0.08
Customer loyalty 0.05 2 0.10 3 0.15 1 0.05
Global expansion 0.05 4 0.20 3 0.15 2 0.10
Market share 0.08 2 0.16 4 0.32 1 0.08
Brand image 0.09 3 0.27 4 0.36 1 0.09
0.10 3 0.30 4 0.40 3 0.30
Portfolio 0.08 4 0.32 3 0.24 2 0.16
diversification
Product placement 0.09 2 0.18 3 0.27 1 0.09
Research & 0.06 4 0.24 3 0.18 1 0.06
Development
Total 1.00 3.13 3.35 1.57
Table 3– Competitive profile matrix of Adidas

Table shows competitor profile matrix of Adidas. Various critical factors were identified first
and then weight was allotted and then rating was done.
CPM matrix is created below comparing the factors of the company with its two major
competitors NIKE and PUMA.
Nike has the highest weighted score of 3.35. Adidas has the weighted score 3.13 which is
above then average but not showing a great result of the company as compared to its
competitor NIKE. Hence company can formulate strategies in order to beat its competitors.

Step 2 (Matching Stage)

 SWOT Matrix

SO STRATEGIES
 Expansion strategy will allow for Adidas to grow as long as its strong brand name.
 Strong financial resource will help to increase amount of production due to increasing
demand in developing countries.
 Strong financial condition will help adidas to development of technology advancement
and its product lines.
 Due to strong distribution network and financial position increase marketing to attract
customers of developing countries

WO STRATEGIES

 Through product expansion adidas overcome from restriction of limited product line.
 Improved economic situation in developing countries has increased purchasing power
and demand for premium products. Adidas can sell their expensive premium product in
developing countries.

ST STRATEGIES

 Use a strong distribution network to reach out to customers and fight off new entrants
into the market
 Use finance to become technology advanced then competitors.

WT STRATEGIES.

 Increase spending on research and development to enable Adidas to better compete with
competition
 Provide incentives, increase engagement, or provide a better work environment to retain
talent. This will ensure that employees don’t leave and join competitors

SPACE Matrix
FS Average + ES Average => 5.5 + (-3.25) = 2.25 on Y-axis
CA Average + IS Average=> (-2.4) + 4.25= 1.85 on X axis
Coordinate (1.85, 2.25)
Conclusion – Vector point will be in the aggressive Quadrant
 +1.85, +2.25

Potential Strategy based on SPACE Matrix

1) Backward, forward, horizontal integration

2) Market penetration
3) Market development
4) Product development
5) Diversification (Related or unrelated)