Adidas Pestel Analysis

Pestel Analysis

Political

Adidas need to be aware of the political state of the UK, the same for the all other countries where they have bases. As if the government is unstable, or there are any controversial policies, they may have a bad affect on Adidas.

There is a stable political situation in the UK, as it has a democratic government, a democratic government is one that is decided, by people voting on who they want to run the country. This means that if a dictatorship was to emerge and started making decisions that the public didn't agree with they would simply be voted out at the next election. This is good for Adidas when operating in the UK, as it is fairly unlikely that the government would suddenly introduce any controversial policies. This will be good for my product as it gives it firm ground to work on.

There are elections every four years in the UK, with the next one in May 2005. This keeps everything functioning properly within the UK, as the government aren't very likely to introduce any controversial policies, as they would be voted out at the next election. This is good for Adidas, as it means that the government aren't very likely to introduce any drastic policies, which may affect them.

The government also offers subsidies if organisations set up factories in areas of high unemployment, such as the north east of England and south Wales. An example of this is Sony setting up a factory in Cardiff. However, I don't feel this would benefit Adidas, as there aren't any advanced skills required for manufacturing football boots, and would therefore be a lot cheaper for Adidas to manufacture their products in countries outside of the UK, where there is no minimum wage.

The minimum wage is quite a major constraint for Adidas in the UK, as this means they can acquire labour at nowhere near the cost they could in countries where there is no minimum wage. If Adidas could acquire labour at the same cost as they do in other countries, this would allows Adidas to cut out the transport costs of moving the produce to the UK, and could be spent on funding new products such as my own.

If the UK government were to put a quota on Adidas products imported, only allowing a certain amount of Adidas products to be brought into the country each year. Adidas could overcome this by situating a factory in the UK, eliminating the quota, as if the products were being produced in the UK, there would be no need for produce to be imported from other countries. This wouldn't be good for Adidas as they would either have to sacrifice their cheap labour, or sacrifice sales by abiding to the quota, either way losing money. This would have a bad affect on my product as Adidas would have less money to promote it.

If the UK government were to assume a more market economy, where producers make goods in order to make a profit, and the state intervenes very little, meaning no state benefits, doctors' fees and dentist fees. This would have a mixed affect on Adidas, as the working class would have less money to spend on products like football boots, as they wouldn't have previously being paying high taxes, and these relatively low taxes will be replaced with large fees, as nothing is provided free by the state; this would have a bad affect on Adidas as they would lose sales from this area of the market. However, the more upper class people would have more money to spend, as fees they have to pay would not be as much as the taxes they are used to paying and therefore would have more money to spend on products like football boot, meaning Adidas would receive a greater profit intake form this area of the market. Overall, I feel this odes not affect Adidas too much as the decrease in sales from the working class would be balanced out by the increase in sales from the higher class.

Economic

Adidas are also affected by the state of the economy in the UK. The interest rate in the UK is currently 4.25%, however it was 3.75% around 6 months ago, and is probably rising to 4.5% in the near future. This shows that the interest rate is not very stable and will make it hard for Adidas to plan ahead in terms of budget.

Also, if the interest rate is too high and keeps rising, then the demand for products will fall, as it makes saving more attractive, and borrowing more expensive. Whereas if the interest rate is too low, people are encouraged to spend, as saving isn't attractive. This means that there is more money going round in the economy and makes goods seem cheaper, this is bad for the economy as it causes inflation to increase. This is why it is important that the interest rate is stable. The UK's interest rate isn't very stable at the moment because it is quickly increasing, meaning that it may affect Adidas in regards to their sales. This helped me decide on my pricing strategy of competitive pricing, where I set my price in line with my competitors', as if their products are selling, then there must be people willing to pay that amount for a similar product. However, if the interest rates continue to rise, this will make saving more attractive and spending less attractive, therefore I may have to reduce the price of my product to encourage more sales. If sales drop there will be two options for me in terms of promoting my product; I could cut down the amount of promotions used to sell my product, to maximise my profits; or I could invest more money to promote my product more and hopefully gain more sales. Before the interest rates rise even more I will research into new, cheaper materials to use on my product, which will function the same as the current materials used. Therefore, if interest rates rise and there are less sales made at the current price, I can make a larger number of sales by lowering the price of my product, and with the cheaper materials, it will allow me to make the same profits. Due to high interest rates, sales may drop, so I will be making my product widely available to maximise sales, these places including high street sports shops, the Internet and mail order catalogues. This will allow the product to be available to a large amount of people and anyone that wants the product, will be able to buy it easily with no hassle.

Due to the UK's interest rate rising quickly, there isn't much inflation of prices within the UK, meaning that Adidas will be able to purchase their goods at a cheap price. However, sales will drop, as customers will be tempted to save rather than spend. Also, other counties from which Adidas get their raw materials may have prices that fluctuate