Reebok 2014 Annual Report Download - page 167

Group Management Report – Financial Review
163
2014
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03.5
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adidas Group
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2014 Annual Report
Risk and Opportunity Report
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Strategic Risks
Strategic Risks
Macroeconomic, socio-political and regulatory risks
Growth in the sporting goods industry is highly dependent on consumer spending and consumer
confidence. Economic downturns and socio-political factors such as military conflicts, civil unrest,
nationalisation or expropriation, in particular in regions where the Group is highly represented,
therefore pose a significant risk to the Group’s business activities and top- and bottom-line
performance. In addition, substantial changes in the regulatory environment (e.g. trade restrictions,
social security systems, minimum wages, tax legislation, economic and political sanctions, etc.)
could lead to potential sales shortfalls or cost increases.
To mitigate these macroeconomic, socio-political and regulatory risks, the Group strives to balance
sales across key global regions and also between developed and emerging markets. We also
continuously monitor the macroeconomic, political and regulatory landscape in all our key markets
to anticipate potential problem areas, so that we are able to quickly adjust our business activities
accordingly upon any change in conditions. Potential adjustments may be changes in product
prices, closures of own-retail stores, more conservative product purchasing, tight working capital
management and an increased focus on cost control. In addition, by building on our leading position
within the sporting goods industry, we actively engage in supporting policymakers and regulators
to liberalise global trade, curtail trade barriers and proactively adapt to significant changes in the
regulatory environment.
Risks related to risk and control environment
Failure to identify and actively manage substantial risks and to implement and maintain adequate
internal controls across the Group could result in incorrect decisions, higher costs, compliance
violation and fraud and also cause reputational damage. Inadequate design, implementation and
maintenance of the compliance management system may result in insufficient prevention and
detection of, as well as response to, compliance violations and unethical behaviour. This could trigger
fines or penalties, increased cost and management liability as well as reputational damage for the
Group. Furthermore, a lack of documentation, training and enforcement of policies, processes and
procedures could result in a lack of risk awareness among the Group’s employees and facilitates
improper behaviour and compliance violations.
In order to adequately manage these risks, we continuously review and further develop our
Group-wide risk management system, compliance management system and internal control
network. In addition, we maintain a Global Policy Manual that illustrates all relevant Group policies
and is freely accessible to all employees via the Group’s intranet. This is supported by regular
employee training (e.g. Code of Conduct, anti-trust, workplace safety, etc.). We also document
key business processes to create transparency and enable the implementation of proper control
mechanisms.