IBM 4711 International Strategic Management Under Armour: Working to Stay on Top of Its Game Perform a STEEP analysis to understand the general environment facing Under Armour. How will the firm be affected by external factors? Ans. Each factor under STEEP analysis giving Under Armour more information about how company should adapt itself, in order to be survived in the market. Let’s see the effects of these external factors to the company’s strategies each by each. Social factor Demographics Gender : affects the designs for both male and female customers (e. . apparel for women) Age Structure : affects design, sizes, and features for different age distribution(e. g. youth) Lifestyles Types of sports : affects designs of products for different types of sports and different level of players Climates : affects different performance features of products, for example, shoes and apparels Economical factor Technological factor Degree of economic risk associated with premium price (Downturn economy), affect in declining net sales and encouraging the company to use conservative approach
Rapid change and innovation of technology, affects company by continuous improving product innovation, procurement and production process Political & Legal factor Intellectual property rights law and regulation of the countries in global market very vary, affecting the company to consider their unprotected intellectual property issue. Use Porter’s Five Forces Model to analyze the apparel, footwear, and equipment industry in the US. Given this analysis, is the industry attractive or unattractive? Ans.
First, The threat of the entry of new competitors (High) due to •Total U. S. performance apparel business is dominated by existing brand ex. Under Armour, Nike and Adidas. The loyalty for existing brand is quite high while there’s high initial investment required as well. For The bargaining power of suppliers (High) as company heavily rely on relative few third party suppliers. Moreover, the intellectual property right owns by suppliers, not unique to us. Therefore, the switching cost is very high. Thus, company has weak position related to suppliers.
For The bargaining power of buyers (Moderate) as there’re many choices available for customers, but somehow they are loyalty to Under Armour brand. Thus, the bargaining power is moderate. Also, they don’t have only individual customers, but also as a team or making contract that make switching cost not too low or too high as well. For The threat of substitute products (Moderate to High) due to some brand loyalty and differentiation, the switching cost is moderate. By the way, there are many famous brands those sell similar product lines existed in the industry. Thus, the threat of substitute product to Under Armour is quite high.
For The intensity of competitive rivalry (High), there’re many strong existing brands and some smaller brands as competitors in the industry. Given this analysis, this industry is unattractive because of intensive competition and high cost of initial investment requirement. Who are Under Armour’s main competitors? How do they measure up against these competitors? Ans. There are three main competitors in the market. First of all, Nike – which has strong budget part, hasrelationship with 700 factories in 52 countries, so low cost achievable but customers are still willing to pay at premium price.
Providing High quality and innovative products. Secondly, Adidas/Reebok – the second largest athletic apparel manufacture, acquisition many small companies, no need to start up from zero. Also, it can access market bases and technology. Thirdly, Columbia Sportswear – one of the largest manufacturers and sellers of outdoor apparels with innovative and high-quality products. To measure up against these main competitors, Under Armour utilizes their capabilities and core competencies which will be further discussed in the next question. What are Under Armour’s main capabilities?
Do they have a core competence? Ans. The Main capabilities of Under Armour are their unique team driven management style, ability to create the product innovation, rapid response to customers, developing the effective marketing techniques, building effective operation network and distribution channel, and having good customer relationship management. While Core competencies are considered to be their “Product innovation and differentiation”. Create a SWOT analysis to understand Under Armour’s strengths and weaknesses. Does Under Armour have a sustainable competitive advantage?
Is so, what is the source? What about Under Armour’s evolution and current business strategy may pose problems going forward? Ans. For SWOT analysis, Strengths – Efficient operation & distribution network – Net revenue increase continuously year by year – Unique features and product innovation – Effective marketing communication – Strong term management (long relationship) – Rapid respond customers’ needs “Of course we make that! ” – Good management of unique team driven style – Strong and Outstanding in apparel product than competitors Be able to expand business by using licensing (because no need to waste the recourses to operate Miscellaneous product by itself) – Good experience CEO for international division – Take lesser time to make loyal customer Weaknesses Heavy reliance on suppliers and manufacturers Weak financial support No intellectual property right in technology, fabrics and process owned by supplier a adverse affect in L-T sustainability Low diversification Opportunities Threats Emerging global trend for performance apparel (being more universal product) Sports are still in booming period
The desire of athletes and movie studios to use Under Armour’s products leads to a lower-cost, more effective, grass roots ad campaign. Downturn economic declines net sales Under Armour products heavily rely on the fashion whims of its customers Be diluted easily. (due to competitive sport industry, the brand can be diluted if stops innovating the products) Swing raw material prices Fluctuated availability of the raw materials Sustainable competitive advantage : Brand loyalty and management style Under Armour’s evolution and current business strategy may pose problems going forward?
Since the evolution of the company, Under Armour rapidly expands their business while some internal problems still exist. For example, unprotected intellectual property right issue and supplier relationship management. Also, the current business strategy was focusing on marketing, international expansion, product differentiation, and other expenses while they have weak financial management. These will certainly pose future problems to the company. What is Under Armour’s business-level strategy? Is the strategy appropriate to offset the forces in the industry?
Do you recommend any changes and/or foresee any challenges? Ans. Their business-level strategy is differentiation strategy. The competitive scope is broad and focusing on differentiating product from other competitors. In our opinion, this strategy may be appropriated for current situation because there still have untapped markets and the competitors still overlook these untapped opportunities as well. However, these untapped markets may be pursued by some companies in the future and Under Armour will lose the benefit. Therefore, we recommend the company to target both focus and broad markets within this industry.