Adidas 2005 Annual Report Download - page 111

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External Risks
Macroeconomic Risks
Growth of the sporting goods industry is correlated to gen-
eral economic growth. Therefore risks arise from economic
downturns. To reduce the related risks, a key element of our
Group’s strategy is to associate our brands closely with major
sporting events such as the 2006 FIFA World Cup™ or the Bei-
jing 2008 Olympic Games which create predictable demand
less sensitive to macroeconomic influence.
Industry Risks
The global sporting goods industry differs regionally in struc-
ture, maturity and level of competition. In Europe and North
America, the sporting goods industry is relatively mature and
marked by retail consolidation. As a consequence, adidas
growth is largely derived by gaining market share from com-
petitors. The largest retail chains have considerable purchas-
ing power which puts pressure on our margins. The Group
also faces the risk of discount retailers, who are increasingly
entering especially the sports apparel market which has low
entry barriers in these regions. To create demand, assure
high price points and sustain high margins going forward,
we differentiate ourselves by positioning adidas as being
the industry’s innovation leader and having high credibility
among athletes. In some Asian markets and Latin America,
the sporting goods industry is still in its development stage.
In these regions, distribution channels are less developed and
trends can be more volatile.
Regulatory and Political Risks
As our business processes span numerous countries, we are
constantly exposed to the risk of import duties or customs
tariffs, import restrictions and other trade restrictions. Our
Group has mitigated this risk by developing strategic rela-
tionships with suppliers operating in multiple countries. As
a result, we are able to shift production to other countries
while maintaining a consistently high level of delivery perfor-
mance (see Global Operations). Protectionist efforts such as
the recent introduction of custom tariffs and import restric-
tions in Argentina and Brazil could negatively affect sales.
Our Group mitigates this risk by closely following regulatory
actions, local production and regionally balancing sales. In
certain Asian countries, the flow of apparel goods is subject
to high customs barriers. Due to this fact, the adidas Group
operates numerous decentralized warehouses and multiple
ports throughout Asia. In countries with considerable politi-
cal risk, we minimize our asset and cash exposure wherever
possible.
Legal Risks
Finding solutions for various legal matters in numerous
countries entails risk for the Group, especially in the for-
mulation of contracts, the resolution of legal issues and the
taking of legal action. The Group is also exposed to the risk
of claims and litigation from infringement of trademark and
patent rights. We therefore carefully research new products
and product names to identify and avoid potentially conflicting
rights of third parties. Furthermore, as a popular consumer
brand with technological and design innovation as defining
characteristics, adidas is a frequent target for counterfeiting
and imitation. To mitigate the resulting risks of loss of sales
and damage of reputation, adidas utilizes extensive legal pro-
tection (generally through registration) and works together
with law enforcement authorities, investigators and lawyers.
Our strategy is to give priority to action against more signifi-
cant counterfeit operations such as manufacturers and dis-
tributors. We also take measures to control production with
authorized suppliers. During 2005, the Group seized more
than six million counterfeit products worldwide.
External Risks
Macroeconomic risks
Industry risks
Regulatory and political risks
Legal risks
Social and environmental risks
Natural risks
Financial Risks
Currency risks
Interest rate risks
Investment risks
Financing and liquidity risks
Strategic Risks
Portfolio risks
Brand image risks
Research & development and product quality risks
Own-retail risks
Personnel risks
Operational Risks
Sourcing risks
Customer risks
IT risks
Corporate Risks Overview
Risk Management Principles and Process
External Risks
Risk Report