Adidas 2003 Annual Report Download - page 99

CONSUMER PREFERENCES AND BRAND IMAGE /// The
success of the Group depends to a large extent on the image
of our brands and our capabilities to market products that
meet consumer preferences. In this context, we face a stra-
tegic risk which, among others, is addressed by careful long-
term strategic marketing planning including thorough market
research in the areas of design, quality, image and pricing.
adidas-Salomon puts significant efforts into the development
and enhancement of industry-leading performance technolo-
gies and trend-setting designs.
MARKETING INVESTMENTS /// The successful launch of new
products and the continuous strengthening of brand image
require considerable expenditure for marketing and advertis-
ing. The impact of campaigns and sponsorship contracts
depends on a variety of sometimes non-controllable factors
such as the success of individual athletes or clubs. In order
to address this risk, adidas-Salomon works with top-tier
marketing and advertising agencies for a thorough cost/
benefit evaluation of major campaigns and sponsorship
agreements.
PRODUCTION AND SUPPLY /// The vast majority of adidas-
Salomon products are manufactured by independent factories
in accordance with our technical material and design specifi-
cations. The reliable performance of these suppliers in
terms of timely delivery, quality and pricing is vital for the
success of the Group. In order to control this potential risk,
adidas-Salomon employs more than 100 quality control
officers who monitor supplier standards (see Sustainability).
Among others, detailed material cost and manufacturing
process analyses are performed to ensure competitive sourc-
ing costs. Regular benchmarking reviews address perfor-
mance variances between factories.
PRODUCT SOURCING /// Most of the production facilities of
the Group’s suppliers are located in the emerging markets of
Asia (see Global Operations). As a result, adidas-Salomon is
exposed to risks associated with business activities in these
countries. Among others, this includes changes in duties,
tariffs or currency exchange rates, or trade restrictions, quotas
and political instability. In order to avoid over-dependency on
individual suppliers or countries adidas-Salomon maintains
relationships with a number of production partners in different
countries. As a result of this strategy, adidas-Salomon was
able to successfully manage the 2003 SARS crisis in Asia
without any major negative impact on the Group’s financial
results.
CURRENCY /// Most of the Group’s currency risks result from
the fact that approximately 70 to 80% of our sourcing is done
with suppliers that are primarily located in the Far East and
the products are invoiced mainly in US dollars. However, since
our sales to customers are denominated primarily in euro
and other currencies (such as the Japanese yen and British
pound), the Group is exposed to the risk of exchange rate
movements. Further, the Group has started to protect future
royalty income in foreign currencies. Natural hedges are used
in the management of currency risks wherever possible. In
order to further mitigate this exposure, the Group hedges
foreign currency risks for typically up to 15 to 18 months in
advance, including forward contracts, swaps and currency
options or combinations of currency options. Treasury man-
agement at adidas-Salomon is strongly centralized at the
Group headquarters.
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adidas SPORT HERITAGE ///
ORIGINALS BAGONA BAG