RI Y5 Term 3 Worksheet 2 for session 2&3 (students) 2023

1 Raffles Institution H2 Economics 2023 Remedial Worksheet 2 & 3 Case Study 1: Merger Extract 1: Nike will be facing a pumped-up rival When Herbert Hainer sat down for a drink with Paul Fireman during the Athens Olympic Games last summer, the conversation drifted, as it often does with people in the athletic -shoe trade, to the vast American market, which is dominated by Nike. "We talked about what's good, what's bad," said Hainer, the chief executive of Adidas-Salomon, of the chat with Fireman, the chairman of Reebok International. "There was a natural sympathy between us." On Wednesday, that sympathy gave birth to a $3.8 billion deal, in which Adidas of Germany will acquire Reebok, creating a formidable competitor to Nike for the first time in more than a decade. With sales of $11 billion, and a glittering roster of endorsement contracts, ranging from Allen Iverson and the National Basketball Association to David Beckham and World Cup soccer, the merged company will be close to Nike in size and arguably more powerful in its links to star athletes and teams. "It's been like Snow White and the three dwarves," said John Horan, publisher of Sporting Goods Intelligence, referring to Nike's competition with Adidas, Reebok, and another German company, Puma. "What Adidas has done is to become the clear No.2 in the U.S. market." Shares of both companies surged, with Reebok's stock rising some 30 percent, to $57.25 a share. The jubilant investor reaction bewildered some analysts, who noted that the cost savings and additional sales generated by the merger were likely to be modest. Adidas and Reebok will continue to have their own sales forces, distribution channels, marketing campaigns, and brand identities. "There is very little in the way of old-fashioned synergies," said Gavin Finlayson, an analyst at Commerzbank in Frankfurt. Hainer said he viewed the merger as a way to fuel growth rather than save money. Adidas and Reebok, he said, complement each other: Reebok has been quicker to seize on cultural trends, like hip -hop, while Adidas has had a stronger tradition of technologica l innovation. That combination could be powerful in growing markets like China. Adidas has a well-established presence in the Chinese market, having set a goal of generating $1.2 billion in sales there by 2010. But Reebok has the most sought - after Chinese athlete: the basketball star Yao Ming. Adidas, Hainer said, will use its sales network in China to help Reebok use its star to the greatest effect. Even after the merger, Nike, which has sales of $12.2 billion, will have the largest market share in the United States, at 36.3 percent. But Adidas's share will jump to 21.1 percent, from 8.9 percent. And in global market share, the gap between the two wil l be narrower: 32.9 percent for Nike versus 26.3 percent for Adidas -Reebok, according to Horan. Size will also give Adidas leverage in dealing with powerful retail