Introduction
Adidas is a global sporting gear-producing company with a long history of manufacturing and selling sportswear for different market segments worldwide. The company originated in Germany, where its headquarters are located.
However, throughout the years of its successful presence in the global sporting products and apparel market, Adidas has been practicing multiple globalization strategies. Opening factories and engaging with suppliers from North America, Asia, and Europe have been some of the most popular decisions that aligned with the organization’s expanding strategy. The most recent project that Adidas has launched is related to the relocating of its speedfactories that manufacture sporting shoes using robotics from Germany and the USA to Asia. In particular, one of the countries where a speedfactory is planned to be opened is Vietnam.
Adidas is one of the world’s leaders in producing comfortable, high-quality, professional, and affordable sportswear. Its products have been designed, produced, and distributed by means of international efforts, where headquarters, operations, and suppliers are dispersed across different countries. According to the official data available from the company’s website, it employs “over 59,000 people” from more than 100 nations (“Profile” par. 1). The two core brands of the company are Adidas and Reebok, which are led by the values of innovation, creativity, sustainability, and workplace equality.
Moreover, the company’s ‘Creating the New’ strategy encompasses speed, cities, and open source. Indeed, the organization prioritizes consumer needs and accounts for meeting them fast; it is guided by urbanization trends; and operates under the rule of innovation and continuous search for sustainable cooperation (“Strategy”). The financial performance of Adidas might be estimated as stable and growing, with 2019 indicators demonstrating this estimation. According to the company’s data, Adidas produced “over 1.1 billion sports and sports lifestyle products with independent manufacturing partners worldwide and generated sales of € 23.640 billion” in 2019 (“Profile” par. 1).
With its new project, however, the company aims at facilitating its production costs related to the automated manufacturing of sports shoes. Overall, the idea of relocating speedfactories from Germany and the USA to Asia is relevant to the current changing global economic situation and will allow Adidas to accommodate the costly smart industry operations to the demands of the market without significant losses. Despite the risks associated with international negotiations with Vietnam, operational and human resource issues, the company will benefit from the project in the long run.
Country Assessment
The currently implemented project of relocating Adidas speedfactories to Asia and to Vietnam, in particular, is influenced by several significantly important factors. These factors are conditioned by the economic, political, trading, and business functioning environment of the country. When discussing the project, Adidas’ official statement specifies that “Adidas will use its Speedfactory technologies to produce athletic footwear at two of its suppliers in Asia” (“Adidas Deploys Speedfactory Technology at Asian Suppliers by End of 2019” par. 2).
Although Vietnam is not explicitly addressed in the official statement published on the website of the organization, the reference to the Asian supplier implies that these factories are planned to be launched in China and Vietnam. These are the countries where the company has had factories for many years and continues to utilize the international workforce to facilitate economic opportunities (Harper). Therefore, since Adidas has a history of managing its operations in Vietnam, relocating speedfactories to this country might be relevant to the success of the project.
It is essential to assess the economic, political, and demographic issues characteristic of the country to understand the prospects of the project in the identified location. Vietnam is a fast-growing developing country that is currently experiencing significant political and economic restructuring. In comparison to China that has long been an economic and manufacturing leader of the world, Vietnam, together with other developing Asian countries, has become more influential and competitive due to the shift from agriculture to manufacturing, industry, and digitalization.
Indeed, according to Tran, “the economic growth in South East Asia is also expected to be stable and gradual over the next four years with an average rate of 5.2%” (17). In this regard, the expected economic growth in the country is relevant to the success of the project due to the stable conditions for investment and minimized risks associated with hectic economic development opportunities.
Another important characteristic of Vietnam that pertains to the outcomes of the project is the political situation. At present, Vietnam’s governmental policies are aimed at building a domestic economy, expanding international trade opportunities, and improving the overall social level of life quality in the state. Such a positivist direction of change in the country will benefit Adidas’ project by ensuring the improvement of the local taxation and legislation, allowing for more opportunities for international entrants.
Indeed, as stated by Tran, the fact that Vietnam is a member of the Free Trade Agreement and an updated Trans-Pacific Agreement allows for more opportunities to launch business projects on mutually beneficial terms (23). Thus, the favorable economic, trade and political conditions in the country within the framework of its newly designed national strategy for economic growth amplifies the success opportunities for Adidas’ speedfactory project.
Digitalization trends are of particular importance when it comes to country assessment for the smart industry project implemented by Adidas. Indeed, the company actively promotes the application of robotic technologies for fast, efficient, and innovative manufacturer of high-quality sporting shoes (“Adidas Deploys Speedfactory Technology at Asian Suppliers by End of 2019” par. 2-3). Therefore, the capacity of local infrastructure and technological advancement trends play a significant role in terms of the efforts and investment the company will allocate to fill the gap. As it has been briefly mentioned, Vietnam is currently pursuing digitalization policies for better economic opportunities for international cooperation (Tran 22-23).
However, the initial stage of digitalization policies and the improper readiness of this sphere to challenging tasks posed by the project might complicate the success of its implementation. Nonetheless, with a reasonable approach to workforce attracting and training, Adidas will address this minor challenge. Moreover, the opportunities for technological advancement through Adidas’ smart industry operations will benefit Vietnam’s development and might increase the likelihood of the local authorities to facilitate the project’s implementation.
The issues addressed in the context of digitalization closely connect with the demographic particularities related to prospective workers. Indeed, “skilled worker mobility is a side-policy which is not monumental but also important to facilitate integration” of the Adidas’ project to the Vietnamese environment (Tran 21). The lack of competent and skilled professionals in the field of digital engineering and robotic technology operation might impose additional risks for Adidas. Moreover, as Tran states, the legal aspects of skilled workers’ mobility “have not been liberated enough to fully meet the possibility,” which is why the project might be time-consuming and challenging in terms of human resource management (Tran 21).
However, the company’s long-term experience in the field of application of robotic technologies to sportswear manufacturing will allow for transferring the practices to the new environment. The potential of the country to succeed at meeting the company’s needs in terms of human resources is validated by the growth of the Information and Communication Technology sector in Vietnam by 26.5%, which is the highest rate among other South East Asian countries (Tran 22). Thus, the country assessment demonstrates positive prospects for the project’s success.
Project Assessment
The business project of relocating Adidas’ German and American Speedfactory technologies to Vietnam is characterized by the high costs of technology-driven manufacturing. In general, Industry 4.0, or the fourth industrial revolution, has advanced the application of robotics, as well as other highly-complex technological solutions, to manufacturing (Ilankovic et al. 19-20). The company aims at improving such processes as manufacturing, designing, quality control, maintenance, and environmental, health, and safety procedures by investing in the speedfactory project. The relocation of such advanced facilities to a more economically suitable environment will allow for reducing costs and facilitating the benefits in terms of automated manufacturing.
The Asian market is expected to be “more economic and flexible” for Adidas (Harper par. 3). Moreover, the company’s “consumers will benefit as the combination of existing technical possibilities of the suppliers, and new production methods … will allow for more variations of Speedfactory footwear models in the future” (“Adidas Deploys Speedfactory Technology at Asian Suppliers by End of 2019” par. 2). Therefore, the planned efforts are coordinated according to the improvement and efficiency opportunities within the context of the business strategy.
The mode of entry that applies to the project is a local registered subsidiary company. This mode of entry allows for opening a facility according to the legislation of the local state and benefiting from its taxation rules. Furthermore, the organization will be able to integrate local skilled workers with the relocated workforce to meet the human resource demands of the project. The strategy that Adidas is likely to use in Vietnam when implementing its Speedfactory technology project is standardization due to the already available production principles and technological tools.
Indeed, the company’s smart industry operations in Ansbach, Germany, and Atlanta, USA, have generated a well-developed system of solutions aimed at high-quality, technological, and automated manufacturing of sportswear using robotics and 4D printing technologies (“Adidas Deploys Speedfactory Technology at Asian Suppliers by End of 2019” par. 2-4). Thus, standardization will benefit the implementation process and will allow for achieving the targeted results of the project.
As for global production and supply chain issues, the relocation of the smart industry facilities and robotic technologies to Vietnam will eliminate some of the previously faced supply challenges. Indeed, since the company’s suppliers have always been located in Asia and the speedfactories in Germany and the USA, it posed some difficulties. However, now that the robotic technologies will be applied “at two of its suppliers in Asia,” Adidas will have easier access to materials and more flexibility in product design (“Adidas Deploys Speedfactory Technology at Asian Suppliers by End of 2019” par. 1). Thus, supply chain will be facilitated with the implementation of the project.
Another pivotal aspect on international expansion and locating of facilities in a foreign country is the issues associated with negotiations with local authorities. Since Vietnam is open to international cooperation and business investment under the rules of free trade agreements, the negotiations will not impose significant challenges for Adidas (Tran 21-22). Finally, in order to enhance the success of the project in Vietnam, Adidas will have to apply proper human resource management considerations. Ethnocentric staffing policy should be used to employ headquarters-based representatives of higher positions. Such an approach will allow for transferring organizational culture to the local facility, as well as ensuring standardization of the processes. The issues of power distance might be eliminated by means of proper use of technology to control the operations overseas.
Conclusion
In summation, Adidas is implementing the project of relocating its speedfactories from Germany and the USA to Asia. Vietnam, as one of the targeted countries, is a beneficial choice that introduces prospects for successful project implementation. The country’s political strategy toward international trade facilitation, economic advancement, and digitalization complement the goals of Adidas to expand its speedfactory facilities to the country.
Moreover, free trade agreements and existing suppliers of Adidas in Vietnam provide a stable basis for success. The challenging issues associated with the project implementation are the insufficient digitalization efforts in Vietnam, the lack of skilled workers capable of competing in the smart industry market, and imperfect legislation regulating skilled workers’ mobility. Therefore, it is recommended to employ an international workforce with a part of local staff eligible for training. Furthermore, leading positions should be filled applying the ethnocentric approach to ensure sustainable quality and standardization, as well as organizational culture maintenance.
Works Cited
“Adidas Deploys Speedfactory Technology at Asian Suppliers by End of 2019”. Adidas Group. 2019. Web.
“Foul Play. Sponsors Leave Workers (still) on the Sidelines”. Clean Clothes Campaign, 2018. Web.
Harper, Justine. “Adidas Shifts High-Tech Factories to Asia”. HRM Asia, 2019. Web.
Ilankovic, Nikola, et al. “Smart Factories – The Product of Indrusty 4.0.” Prosperitas, vol. 7, no. 1, 2020, pp. 19-30.
“Profile.” Adidas Group. Web.
“Strategy”. Adidas Group. Web.
Tran, Duong. Foreign Direct Investment in Vietnam and the Comprehensive and Progressive Trans-Pacific Partnership Agreement. Thesis, Seinajoki University Of Applied Sciences, 2018.