Under Armour Exam Case Study PDF

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PESTEL The analysis of the current position of Under Armour in the light of future changes in the external global environment and it's internal resource capabilities; it will be done layering from the macro-environment to the organisation's market. Starting from a broad view of the macro environment of the firm, a PESTEL analysis could be useful to identify the general environmental factors that impact the organisation. For that, it is necessary to take in count that Under Armour is a company operating in 13 countries, so it is affected not only by its current domestic country situation but also by the situation of the countries where its activities take place. However, The United States, as it represents the 93 percent of the sales, is the main country to focus for the analysis because of its significant impact on the company's revenues. Politically is a stable country, with not essential factors threatening the company situation. However, the current economic downturn could stop it continuously rate of growth from its first year's revenue of $17 thousand to its $606 million in sales revenue in 2007, which represent a 133 percent compound annual growth. Economic recession effects such as inflation or a decrease on the disposable incomes of its consumer can also force the company to restructure its current corporate strategy of low diversification that makes the company highly dependent upon premium priced products. This strategy of offering closely related, non-essential products, also represent a risk as it is subject to the fashion whims of its customers. Analysing the sociocultural aspect of it macro environment, Under Armour is very dependant on the loyalty it creates over its products. Its products represent high-quality accompanied by the high price. They are also focused on performance by truly regulating the athlete's body temperature, rather than following fashion trends and customers demands. That's why any cultural change that can lead to variations on the fashion trends or the customer’s requests can directly affect the sales of the company if it affects their perception of the high priced products of Under Armour. Also, it appears to be a trend that sales are higher in the third and fourth quarters of each year, aligning with the football and basketball seasons and the traditional holiday gift-giving season in the United States, threatening with inventory and distribution costs. In the technological aspect, as the company do not operate in the high tech industry is not necessary to deeply analyze it, and also the case study doesn’t give any further information about that. Otherwise, as mentioned before, Under Armour is a company operating, not only in the US but in 13 other countries. As a multinational corporation, it is primarily concerned with the government relations and the future policies of individual country governments. It has running plants -Under Armour's products are manufactured overseas in China- and subsidiaries - foreign licensing distributors and retailers-

among many different countries with different political systems, sociocultural characteristics and economic situations. The convergence of the global markets is a favourable situation for Under Armour international strategy expansion. Firstly, because its products transcend cultural differences regardless of nationality; and secondly, because performance sports apparel appears to transcend any jingoistic trends and exporting does not require an in-depth knowledge of local customer service. Not needing to face high levels of local responsiveness with profoundly different needs, wants, expectations or requests, suppose one of the reasons that explain how the company has been able to increase revenues from foreign sales other than Canada a rate of a 100 percent per year and are expected to grow at even more quickly. Supporting that with some evidence from the case study, it is showed in Exhibit 3 how the sales from other foreign countries other than Canada have increased from 5,503 thousand to 20,762 thousand in three years from 2005 and 2007. Operating internationally also leads a company to look for cost advantages of its global operations. The international penetration started in 2006 was emphasised with the opening of a European headquarters, opened to manage sales and distribution channels. Also, the company, with the aim of decreasing production costs to maintain cost competitiveness with other industry competitors such as Nike or Adidas, outsource it's production processes to overseas countries such as China. This kind of international operations leads the company to be aware of labour and exchange rates and policies, as well as about the political and economic stability of foreign countries, to both benefit from the cost advantages, and also be prepared to different scenarios that can affect its future international situation. Lastly, the outsourcing of the production processes risks the company to face imitation. Under Armour does not have a patent on any of the materials used in its products. This situation supposes to be concern about the patent policies both in the domestic country and foreign country. We can sum this analysis pointing out the main opportunities and threats facing the company. First of all, with the current convergence of the markets and the transcendence of cultural differences of its products, gives Under Armour the opportunity to have a comfortable international penetration in foreign countries in the socio-cultural aspect. In addition, its current high loyal domestic country's market ensuring financial stability, as the sales from the US market still represents the most significant part of its revenues - $562.439 out of $606.561 on 2007 -, also help to invest in the international expansion of the company. To face the seasonality of its domestic market, Under Armour have the opportunity to increase if efforts on its baseball product line to improve the sales balance and reduce the seasonal variability. Nevertheless, the current strategy of low diversification on high priced apparel and gear products, threats the company to suffer a decrease in its sales due to the economic downturn. Although, the recent incorporation of a shoe line, represents a diversification opportunity that can help in this situation.

Finally, the international expansion threats with facing with big competitors such as Nike and Adidas, and due to the lack of patents, the apparition of imitators from the licensing agreements. Additionally, some of its supplies are commodities and thus are subject to price fluctuations.

FIVE FORCES The impact of these general forces tends to surface in the more immediate environment through changes in the competitive forces on organisations. An important aspect of this is for most organisations will be competition within their industry or sector. The analyse the industry layer of the Under Armour environment, will go through by identifying the sources of competition; the dynamics of competition and hypercompetition; and finally the strategic groups. The Porter's five forces framework helps identify the sources of competition in an industry or sector, which are the threat of entrants, the barging power of suppliers and customers and the threat of substitutes. When Under Armour first entry the US market, it found itself operating in a highly competitive industry where the dominant competitors have significant breadth of market coverage. Facing the entry of the apparel industry, Plank firstly had to deal with barriers to entry such as the capital required for entry, the access to distribution, expected retaliation, experience and economies of scale. The already established companies such as Nike or Adidas, have been advertising and building distribution channels, marketing agreements, and recognition for many years. Starting an apparel company suppose a significant investment at the beginning. For making Under Armour a reality, Plank had to invest more than $60.000. Manufacturing in his grandmother's basement, without the capability of developing economies of scale. With no other channel of distribution than his car taking his shipment from Baltimore where it was produced to Moundsville to the FedEx office. With retailers already selling competitors products and with any experience in the apparel industry. Anyhow, by focusing on the value-add of its products, it overtakes all these entries and become a "real player in the industry." Now, one of its primary threats it is the threat of substitutes. Under Armour is a company that has built loyalty around its brand, which helps to sustain its high priced products related to its high quality. That is following its strategy of differentiation, offering products that supply the need for a shirt that regulates athletes body temperatures, lending to improve performance. No other sports apparel company seems to supply this market niche, and that is one of the reasons of Under Armour success on the industry. However, it has to face to the substitution of need. While Under Armour products respond to performance needs, apparel from Nike or Adidas is more related to trend and fashion needs, that can affect Under Armour's sales if that becomes the main need of the global market. Also, because of the economic downturn, changes in the customer's disposable income can lead to generic substitution, where they may prioritise more elemental needs.

Since it has become a multinational company, and due to its current size, Under Armour is also under the power of buyers and suppliers. Because of the large number of retailers and subsidiary distributors available on the market, the buyer's power is not enough to threaten the company. Also, there is no evidence in the case study to support that possible situation. Otherwise, because the 75 percent of the fabric used to the production of Under Armour's products come from only six suppliers, that lend the company to a weak position relative to its suppliers. These wider competitive forces impinge on the direct competitive rivalry between the organisation and its most immediate competitors. These are, according to the case study: Nike, Adidas, Columbia Sportswear and SportHill. They can be differentiated into two strategic groups, the leaders and the followers. Nike and Adidas represent the two most prominent sport apparel manufacturers and are the leaders in the industry. Also, regarding the product diversity, the geographical coverage and the market segments served, detailed on the case study, they represent the major competitors for Under Armour. Nike is the leader in the athletic shoes, representing a key competitor on the new shoe line of Under Armour launched in 2006. On the other hand, Adidas represent the biggest competitors on the European market. Both also, are conceived by the customers as innovative and high-quality products, coinciding with the image Under Armour is selling to its customers. In addition, its bigger size compared to Under Armour and its huge revenues, allow them to have intensive marketing and advertising campaigns. Columbia Sportswear and SportHill also represent major competitors to Under Armour, but it market segmentation differs from the others and doesn't affect directly to the Under Armour targets. Columbia Sportswear is more specialised apparel for skiing, snowboarding, hunting, fishing, hiking and camping. SportHill, on the other hand, is more specialised on cold weather track gear. Under Armour, on his behalf, have segmented on apparel, footwear, accessories, and licensed products; focused on performance. However, apparel is dominant with an 84 percent of total sales, and men's apparel made up the "lion's share" of Under Armour's business. Anyhow there is a lack of hyper-competition in the industry, so Under Armour doesn't have to deal with continuously aggressive and dynamic movements by competitors. This slow-moving environment gives Under Armour the opportunity to build and sustain competitive advantages that are difficult to imitate. To sum up the implications of these sources of competition, let's exhibit the opportiunities and threats of Under Arbour on the apparel industry. It first opportunity is to use its high differentiated product among its competitors, for entering international markets. It helped the firm on entering the market in the past by supplying a market niche and creating loyal customers around the brand, which help to defend the company sales against competitors on the same domestic market's segments; and it can help it now on other foreign markets. However, it also represents one of the organisation's threats as the fact of depending mostly on these premium-

priced products, threat to lose sales when customers preferences changes among its disposable income towards needs or generic substitutors. Other company's opportunity and related on how it faces the big advertising and marketing of its main competitors, is the desire of athletes and movie studios to use Under Armour's products, which leads to a lower-cost, more efficient, grass roots ad campaigns. That's how Under Armour achieve to appear in cable shows nearly 3000 times more than any other company. Its position towards its suppliers represents its main threat, as it is vulnerable to be forced to accept higher prices for its supplies. Other weakness is its dependence on the US market, with a weak position in other countries regarding its major competitors. Also its small size compared with its direct competitors threats its expansion.

VALUE CHAIN The analysis of the internal situation is meant to respond how an organisation can build and improve its resources, capabilities and core competencies to create superior value for its customers. This analysis starts by identifying the resource audit of the organisation; analyse the value chain to found out the competence and capabilities of the company and finally use the value chain linkages to identify which is the competitive advantage of the business. The high-quality perception of the brand is the result of an innovative and unique product made by high-tech fibres that wicked away moisture, keeping athletes cool, dry and feeling "light", all of that improving the athlete's performance. That's possible with the combination of great tangible and intangible resources. In its tangible resources, it can be outlined its current strong financial situation result of having become one of the greatest companies in sports apparel. Also, the technology within its products is also an important tangible resource, but the lack of patents on any of the materials used in its products threat with the apparition of companies stealing its know-how and introducing imitations on the market. This know-how represents one of its more significant intangible resources combined with the reputation and culture developed around the brand. This reputation has been achieved thanks to developing a twofold marketing strength. First, its products have proven to be so effective that professional athletes want to use them; and second, Under Armour has become a master of product placement in movies, Tv shows, and video games. These give a word-of-mouth advertising based on the willingness of customers to buy Under Armour's products because they have value in it. As important as the reputation, and related with it, is the loyalty constructed around the company by its customers, result of the excellent experience perception received by them. That suppose another significant intangible resource for the company. The intangible resources of Under Armour represent its unique resources, as they are better than competitors and difficult to imitate. These resources result, also, in core competences as they allow the company to develop activities and processes that critically underpin its competitive advantage. That is how the reputation around the brand permits saving costs on marketing, as movie studios and athletes ask for wearing its products, allowing the company to be the most appeared apparel company on cable shows. Also, the loyalty of customers surrounding the brand, consequence of the reputation, ensures domestic sales against other apparel companies. These core competencies ultimately enable the firm to outperform its rivals by creating a high-priced premium product which margin is supported by the customers due to its reputation for high quality. Under Armour core competences are also explained thanks to how the firm linkage its organisational activities together, so they are helping to deliver the same customer

value. These linkages are analysed through the value chain within the company. Starting with its primary activities, due to there is not enough evidence of significant inbound logistics, operations activities and service, the analysis will be focused on the outbound logistics, marketing and sales. The firms has worked on creating good outbound logistics by basing its sells on its website as well as being present on retailers all over the countries it operates. Also, it has achieved efficient operations and outbound logistics by leveraging its licensing partners, which allows the firm to provide a wider range of branded products to its customers, reinforcing the brand and generating revenue without having to develop capabilities in these adjacent product categories. Licenses through the operation processes guarantee the customer value by ensuring that the products are aligned with its brand and quality expectations. Also, the firms developed a new SAP system, improving the inbound and outbound logistics by giving the company the ability to add products to its list of offerings, as it allows it to manage more diverse inventory and ship it directly to distributors. Marketing and sales were one of the core competences of the firm, helping on sustain the customer value. Athletes are a valuable marketing resource for the firm, as the don only volunteer to wear its products but also want to. That's why the company signed a five-year partnership agreement with Cal Ripken, sponsors recreational teams and major youth tournaments as the Under Armour All-America high school football and lacrosse games; and also initiated other sponsorships that help get its name out in public, such as the Baltimore Marathon. These primary activities are linked to support activities, continuing the value chain analysis. All these activities help to create a quickly earn loyalty after the customer has had one or two good experiences with their purchase, what ends up creating customer value and brand reputation. The differentiation strategy that leads to this results, its achieved by innovation through, primarily, the value chain activities of technological development and procurement. Those are the support activities that have helped to create the SAP system improving the inbound and outbound logistics, as well as procuring great production operations that enable the firm to offer its high-quality products. The human resource management has also helped to improve the primary activities. Hiring executive with experience in international business as Peter Mahrer and opening European headquarters to manage sales and distributions enable a better outbound logistics and sales. All of this is sustained by a solid firm structure headed by a strong leader as Kevin Planck and its culture of making a great product, tell a great story about the product, service the business, and build a great team. The internal analysis can be sum up by pointing out the main strengths and weaknesses of the firm. First of all, its major strength is its differentiation on a highquality premium product, which has been the base of the firm's reputation and customer's loyalty, deriving on developing core competence on its marketing and

sales activities. Another strength is its core competence linking the procurement and technology development support activities to its primary activities of inbound, operations and outbound logistics of its value chain, resulting in the creation its product. Leveraging its licensing with partners for providing more products, and taking advantage of its license for distribution, allows the company to save costs, representing another key strength. On the other hand, its main weaknesses is i...