COB 300 Integrated Study

The Supply Chain of the 2014 World Cup Soccer Ball: An Analysis
July 1, 2016

By
John Carr, Erica Gray, Caitlin Larrick, Sean Gisler, Jennifer Mandel, and Alana Buto
Introduction
The German giant, Adidas, has paved its way to a considerable market position. Its name is
found on apparel and sports equipment worldwide, and stands out as the official World Cup sponsor
for both soccer kits and the tournaments ball. Adidas profile and position in the marketplace has
helped cement that sponsorship, which led to the creation of the Brazuca ball, the official ball of the
2014 World Cup. This analysis explores Adidas Brazuca ball in the context of its relationship with
FIFA, the subsidiaries and subcontractors that produced it, three cost categories related to
production and its supply risks. From a small shoemaking operation in the family kitchen to the
official producer of the World Cup ball, Adidas supply chain has grown tremendously - which is
where this discussion turns to next.

Adidas Profile and Position in the market

Adidas has held a significant portion of the global market for sportswear and athletic
equipment for years, but often lags behind their main competitor, Nike. Adidas has been aggressive
in the pursuit of lasting growth in emerging markets such as China and seeks to increase its market
share worldwide in order to surpass its competitors.
In 2014, Adidas held 36% of the worldwide soccer equipment market, which grew to 38%
in 2015, showing that they had a significant hold in this sector. However, specific studies done by
western newspapers, The Atlas and Quartz, show that their growth, on a national scale, had not been
as significant. The chart below shows where Adidas stands in relation to other corporations in the
sports footwear and apparel sectors. Adidas strongest point is athletic equipment, specifically
soccer balls, where it is a market leader, tied with Nike throughout the world.
FIFA Membership & visibility (potential demand)
Adidas has been supplying the official match ball for the World Cup since 1970. In 2013,
FIFA formally announced an extension of their long-term partnership agreement with Adidas. They
granted Adidas the title of Official Partner as well as Supplier and Licensee rights for the FIFA
World Cup and all FIFA events until 2030. The financial details of the deal have not disclosed but
the value of the partnership agreement, according to Bloomberg, is estimated to be approximately
$350 million. Adidas presence and involvement in the World Cup greatly increases their visibility
in the soccer apparel and merchandising segments.
The 2014 FIFA World Cup attracted approximately 3.2 billion at-home viewers,
considerably increasing demand for the Brazuca ball. A marketing advantage for FIFAs partners
includes exclusive access to millions of loyal FIFA fans and their network of major business
partners. The constant visibility of the Adidas logo throughout the World Cup creates a positive
association with Europes favorite sport.
According to FIFAs website, Adidas earned its long-term partnership by continuously
creating the industrys top products and fully leveraging its outstanding portfolio of sports
marketing partners. Adidas other partnerships with professional soccer players, soccer teams,
and global companies such as Coca Cola give them a competitive advantage over other sports
marketing brands. Interconnected partnerships within the soccer industry make it difficult for
Adidas competitors to overtake their position as a World Cup partner.

Subcontractors and Subsidiaries

Adidas has built relationships with a number of subsidiaries and subcontractors as they have
continued to grow as a company. Like the majority of their competitors, Adidas outsources most of
their production to over 1200 factories (usually in countries with a significantly lower minimum
wage than Germany) because it decreases their operating costs significantly. Major subsidiaries of
Adidas include Reebok, Runtastic, Taylormade, Ashworth, and Rockport among others.
The Brazuca, the official 2014 World Cup ball, was produced almost exclusively by
Forward Sports which is a Pakistan-based manufacturing factory in Sialkot, Pakistan with over 42
million balls being produced there alone. Adidas originally employed Long Way to produce the
Brazuca, but were forced to change their supplier when Long Way was unable to keep up with the
high demand. Although this decision to switch suppliers paid off by allowing them to meet the high
demand, Forward Sports was later accused of unethical business practices such as child labor, poor
working conditions, and low wages for their workers. Many of Adidas competitors, such as Nike,
have run into this problem with their subcontractors as well, but obviously Adidas would like to
avoid these issues at all costs as it is detrimental to their public image. This is something they must
carefully examine in the future and take into consideration when choosing subcontractors with
whom they want to conduct business.

Costs
In examining the supply chain of World Cup soccer balls, one can discern three cost
categories, labor, materials, and testing, which are crucial to a balls production. It is important to
understand that in the identification of these categories, Adidas has yet to release exact numbers
related to these costs, limiting the specificity of the discussion of production costs.
Labor costs spearhead the categories discussed here for a number of reasons. Though
international laws regarding labor can vary, Adidas is still held to the standard of their own
principles. According to Adidas we are a global organization that is socially [...] responsible [and]
is financially rewarding to our employees, as well as the labor standards of their source countries.
While not necessarily quantitative, failure to follow laws or ethical practices could cost Adidas its
reputation.
The Brazuca is comprised of three major components. The first major material used is
polyurethane leather. The Brazuca has a new, unique design with six polyurethane panels that are
thermally bonded together, making it virtually waterproof. The next significant material that goes
into the Brazuca is the latex that forms the bladder. There is also an internal layer of open-cell foam
between fiber-reinforced layers. These materials were tested and determined they produced the
optimal ball.
Responding to backlash from the 2010 World Cup soccer ball, Jabulani, Adidas made sure
to put the Brazuca through extensive testing. Over the course of two-and-a-half years, Adidas
performed a wide variety of tests, including ones for aerodynamics, visibility, different playing
conditions, speed and arc. Furthermore, they cost the company a great deal of money, time, and
energy importing researchers and engineers to ensure the Brazucas success.

Supply Risks
The decision by Adidas to move production of their soccer balls to Pakistan comes with
significant supply risks, including labor, technology, the environment, and currency. As with many
consumer goods, a key element of the decision to move production to Sialkot is cheap labor. This is
risky due to the level of child labor and potential for unfair pay that exists in countries like Pakistan.
Managing this concern with high regard for ethical standards is critical.
Technological advances improves production, however factory workers have been resistant
to change. In a research group of the 35 factories, new technology was introduced but only 5 were
willing to adopt the new technology. Workers resisted the technology because they feared reduced
wages over time with the implementation of the new machines. Over time owners offered an
incentive to learn these machines and now more than half of the factories have adopted this new
technology. These types of conflicting interests are a potential recurring supply risk because having
different goals between lower level employees and top management can create a divide.
Another potential risk includes the earthquakes common to Pakistans physical
environment. Earthquaketrack.com reports that Pakistan has approximately 200 earthquakes a year.
This is risky because they could destroy the factories Adidas uses, the roads to ship those products
or the runways to export pieces of the supply chain.
Hedging US dollars is crucial to management to reduce the risk of unpredictable price
movements. Adidas released information stating that they have established a hedging system. This
system operates 24 months in advance on a rolling basis and the majority of the predicted seasonal
purchasing volume is hedged six months before the season starts.

Conclusion
 Adidas growth in market share and expansion into new segments over the past decades has
solidified its status as a major player in the sporting and apparel industry. It has used this growth to
branch out into other avenues and partnerships, including one with FIFA. With this partnership,
Adidas became the official sponsor of the FIFA World Cup and exclusive producer of the
tournaments ball. The 2014 World Cup Brazuca ball, specifically, was the most tested and
advanced ball to date which did not come without logistical challenges. Adidas supply chain from
the suppliers of rubber and inner fill, to the production facilities in Sialkot and testing in Germany
helped the company create a ball seen by billions of people worldwide. Their supply chain helped
meet consumer demand for their ball and proved successful against the myriad of risks associated
with such an intricate chain. In short, their supply chain tactics have helped them solidify their
status as an industry giant, ensuring that the largest sporting event in the world would have a ball
with which to score.
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