PEST Analysis of Adidas

by charanchahallivecouk (student)

Pest Analysis

Political: Adidas should be aware of the political state in the UK and all other countries that they operate in. This is because if the government for the country there operating in is unstable then this may have a bad effect on Adidas decision making. However in the UK there is political situation in which Adidas can depend on. This is down to the fact that there is a democratic situation which Adidas can capitalise on. Because there is a democratic government it means that they are highly unlikely to make any drastic changes which will drastically affect Adidas. This is because if any major changes are made by the acting party then the public may oppose to these change which will eventually lead to the party being voted out at the next election. This means that Adidas now have a firm base that they can begin to work on.

The government, in most cases, tend to give companies funding if they set up a factory in a high area of unemployment. An example of this is when Sony set up a factory in Cardiff. However I don’t believe this would be beneficial for a company such as Adidas as the products that they produce don’t need workers that are highly skilled so they tend to manufacture their products outside of the UK where there is no minimum wage. The minimum wage is quite a major restraint for Adidas in the UK as they can’t acquire labour at a similar price to what they could if they manufacture their products abroad. There is however a problem with this as Adidas have to pay a rather large cost to transport all goods to the UK. The UK government could put in a system where they don’t allow big companies such as Adidas to import the volume of goods they import. This would eventually lead to a tough decision for Adidas as they would have too either have to sacrifice the opportunity of cheap labour or they could lose sales in the UK.

This is highlighted especially with the new changes that have raised the minimum wage to the living wage. This will mean that a percentage of Adidas profit is going to be used to fund the wages for employees in the UK.

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Economics: Adidas however are majorly affected by the economy in the UK. This is because of the interest rate and its flexibility. Currently is 4.5% however 3 months ago it was 4.25%. This shows that the interest rate constantly fluctuates and can make it harder for Adidas to plan ahead in terms of spending of their budget. Also if the interest rate continues to increase then this means that people will tend not to spend as much as it will be more beneficial to save instead of spend. This has a negative affect because there will be a lot of money in the economy making goods seem cheaper however it will eventually it will lead to increase in inflation. This is why it’s essential for interest rates to stay stable. If interest rates continue to increase it could mean that Adidas may have to drop their prices in order to lure customers into buying their products instead of spending.

As a company that operates in more than one country Adidas help out countries massively to decrease the levels of unemployment. This is because every year Adidas take on new employees due to the fact that Adidas is slowly but surely becoming the biggest sportswear company in the world. They also contribute to the GDP and economy of a country. This is because of all the products made and sold in the UK contribute and boost the GDP and Adidas make a large amount of their sales in the UK. Also of all the products sold Adidas customers pay VAT which means the money goes into the government. Also out of all the revenue made in the UK stores Adidas must pay taxes which is a large amount as they earn a lot of money. The economy is also a major factor too Adidas because if there is a recession then this will mean that less people have the money to buy products from Adidas which could result in a major loss in revenue for Adidas. This could eventually lead to Adidas not having enough funding to continue running stores and factories in the UK. This would negatively affect the economy due to the fact that more people would be unemployed meaning they cannot afford to spend money leaving some business without the vital capital they need.

Social:

Social is a part of Adidas factors that has heavily been criticised as of late. This is because of the countries that they get their products produced in and their workers conditions. This has come under a lot of media scrutiny due to the fact that their workers are protesting. For example in Thailand there was a sweat shop where the wage was £0.95 a week. This raises a lot of moral questions because you cannot live on a wage like this. It was also recognised by an employee who received his wage slip and then realised that Adidas had been underpaying their social security contributions. An account from inside the factory suggested that it wasn’t the employees who were disgruntled it was the supervisors which is highly unusual. The Guardian interviewed a worker and found out that pregnant women were usually pushed out of work and fired so one women had to abort her baby just too keep her job. This is a very sincere issue that needs to be addressed by Adidas as a company of its size, there shouldn’t be any issues like this. There was also a report from Thailand of child labour being used to produce their products. This is because not a lot of skill is required to produce a shoe or any other garments so Adidas can get their products produced at a really cheap price meaning that the gross margin would be extremely high. Human rights watch contacted 3 companies and 1 of them was Adidas. There has been campaign sites like that are trying to get people to campaign and strike against Adidas. I believe that this should be a major concern for Adidas due to the fact that they make huge profits so if they paid their workers in foreign countries a living wage then it could lead to issues about workers right being diminished.

Technological:

The advance in technology is will have a major effect in the production of Adidas’ products. This is because of the technological advances in items such as machinery. If they didn’t upgrade their machinery it could mean that Adidas eventually start to fall behind other rival companies because they can’t be as innovative as the other companies. It can also speed up production, save energy and cut labour costs. It can also mean that Adidas can produce products of a higher quality meaning there will be more customer satisfaction.

There has already been evidence of advance in Adidas’ technology in the form of their sportswear which removes sweat from the body and restricts it. There has also been an advance in football boots as they are producing boots that allow you to kick the ball harder, with more precision and swerve. Adidas must ensure they keep up with technology to better their position in the market for sportswear.

Another Technological factor which had been embraced well by the likes of Adidas and Nike is the internet. For example Adidas have introduced a new system where a customer can customise can change and modify all aspects of the footwear they are going to buy. This is a major advance in technology and is an appealing aspect for potential new customers. Customers can also buy Adidas’ products on the internet meaning that they can buy products from the convenience of their own home.

http://www.theguardian.com/world/2015/mar/12/marks-and-spencer-gap-h-and-m-adidas-cambodian-factories-workers-rights