Read the Case and answer the questions below

Globally$-$integrated enterprises: the case of the sportswear industry

Is sportswear a global industry?

The first sports shoe companies originated from around $1900$ and sales boosted with the marketing of

sports personalities from the $1970$s onwards. Nowadays, the market is dominated by about eleven

international sports brands, including Adidas, ASICS, FILA, Kappa, Lotto, Mizuno, New Balance, Nike,

Puma, Speedo and Umbro. Most companies focus not only on footwear, but increasingly also on related

markets like apparel, fashion and sports accessories. In the $1980$s and $1990$s marketers like Nike and

Reebok took the branding concept one step further by staying clear of both factories and actual stores;

their profitability derived solely from promotional schemes based on carefully crafted $$lifestyle

brands$$ associated with their products. Nowadays, every brand name corporation involved in the

sportswear sector uses outsourcing. Nike CEO, Phil Knight, stated:

There is no value in making things anymore. The value is added by careful research, by innovation, and

by marketing. Still, it is a public secret that the net profits of the biggest shoe manufacturer, Yue Yuen,

and the biggest apparel agent, Li Fung, exceed those of many brands. The total global sports market size

was estimated to be $$235$ billion in $2005,$ with $$103$ for the sports apparel segment $($NPD Survey, $2006).$

North America accounted for the largest portion of sales, with $45$ percent share of the global market.

While Asia was the largest market based on population, the continent only registered $19$ percent of

global sports sales, behind Europe at $30$ percent. This market volume was generated over the entire

value chain of the sportswear market. According to Appelbaum and Gereffi this value chain generally

consists of the following sequence: consumers, retail outlets, trade companies $($in and outbound

logistics$),$ brands $($R&D$,$ designing, marketing$),$ agents, manufacturers $($spinning$,$ weaving, knitting,

cutting, sewing, buttonholing, ironing, finishing$)$ and raw material networks.

The outsourcing resulted in a situation where nowadays $95$ percent of US athletic footwear is imported

from low$-$wage countries and $60$ percent of sports apparel for the US market comes from East Asia. It is

important to differentiate between the supply chain for athletic footwear and garments. Over $90$ percent

of all athletic footwear is produced in three countries: China, Indonesia and Vietnam. Production takes

place by subcontractors employing usually between $5,000$ to $10,000$ employees. The big exception is the

Yue Yuen company, originally based in Taiwan, with about $250,000$ employees with sales standing at

$2$

US$$35$ billion in $2005$ more than any of the brand companies. Production in the supply chain for

apparel is often closer to its core market because of shorter lead times. Production for the European

market takes place mainly in Eastern Europe, Turkey and North Africa, while production for the US

market is mainly in Central America and East Asia. For apparel the production is dispersed over a large

area among many small suppliers $$ including many home workers $$ giving rise to agents who manage

the production process. The biggest agent is Li & Fung Limited, a company originally based in China,

with sales of US$$8\mathrm{.}7$ billion in $2006,$ employing $12,000$ people acting as agents to coordinate the

production of about one million workers.

All in all, both the demand and supply side of the sportswear market is becoming more and more global.

Although the production is integrated locally, the choice of location and links with other parts in the

value chain are truly global. Furthermore, it is no longer only brand companies who can function as a

leading company in the supply chain. Also retailers and big manufacturers control access to major

resources and generate a significant part of the profitable returns. In Table III the main characteristics of

a globally$-$integrated enterprise are compared with the characteristics of the sportswear sector.

a$)$ International operations require managers to be involved in a large variety of negotiations.

Assuming you are the Global Manager at Umbro, advise the management on how to ensure

quality from unknown suppliers. $(8$ marks$)$

b$)$ You have been appointed as the global manager of Umbro footwear. Illustrate how you will

exploit global sourcing opportunities in managing Umbro in Kenya. $(10$ marks$)$

c$)$ It is important that Umbo knows its capabilities that can lead to competitive advantage in a highly volatile

environment due to Chinese products and increased costs due to global fluctuations. Illustrate five

capabilities that Umbro can utilize to be supreme in the sports wear global industry. $(12$ marks$)$