Individual Assignment

Name: Arthur Leong Meng Shann (TP025619) Intake: UC2F1307AF {FI} Module: Business Analysis (BM052-3.5-2-BAS) Lecturer Name: GOH YANG HUAN

Due Date: 21 October 2012

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ANSWER 1,
A-General Environment Analysis: In order for a firm to effectively compete in an industry, an analysis of its particular Industry must be taken. This is prepared to give the company with an explanation of the elements in society that effect the industry and the direction managers must take to implement appropriate strategies to survive. General environment analysis consists of four primary factors (PEST), which are political, economic, socio-cultural, technological,

1- Political Factors: Adidas must be aware of the political condition in any country in which it wants to operate its business; As if the situation is not stable in that country it will affect the operation of Adidas. According to the Economist Intelligence Unit the political situation in Malaysia is stable and this makes it a good ground for any global company to operate its business (Ecoggins, 2011), Also the Malaysian government offers a lot of incentives and advantages for the investors like; the investments guarantee agreements with most major industrialized countries. These agreements guarantee that except for public purposes, Malaysia will never expropriate or nationalized property without prompt and adequate compensation. (Malaysia Manufacturers Directory & Trade Portal, 2011)

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2- Economic Factors: As we know Malaysia was one of the countries which did not get much affect by the economical crisis and that is because of the wise control from Bank Negara Malaysia, as the interest rate is controlled and stable (Ministry of Finance Malaysia, 2011). Another economic factor to be considered by Adidas in Malaysia is taxation as it provide a lot of incentives like; Investment Tax Allowance, Reinvestment Allowance, Incentives for High Technology Industries and Incentives for Strategic Projects and Incentives for the Setting-up of International/ Regional Service-based Operations.

3- Socio-cultural Factors: In Malaysia there is a wide selection of people from different social backgrounds, Malaysian society can be divided into three main cultures, as there is a Malay which are the major by 67.4% of the whole population, a Chinese 24.6%, an Indian 7.3% and others 0.7% according to Mr. Tan Sri Nor Mohamed Yakcop the minister in the prime minister's department the population of Malaysia is 28.3 million at the end of 2010 as 51.5% are males and 48.5 are females (The Star, 2011). Adidas need to be careful of some important things like peoples religion, culture, education levels, population, gender, age distribution, buying habits and lifestyle, so that their products cater for all these different religions and cultures.

4-Technological Factors: As Internet is becoming the biggest library of information for the buyers. Emerging as the most powerful selling tool, internet business offers cost effective ways for any businesses to market their products or services. It also offers free transactions and a measureless of information are available which keeps the customers coming back for more and more. In Malaysia 64.6% of the population in the year 2010 are internet users. (Internet Usage Stats, 2010) As the government works to improve it especially the speed as it has being ranked as one of the top 50 countries that have the highest average connection (Royal Pingdom, 2010). Example is UNIFI which is one of the internet providers in Malaysia offers a high speed broadband which reach 20 Mbps and also a very easy & simple way for installation which makes internet in Malaysia available for all. UC2F1307AF[FI] Page 3

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B-Industry Analysis: Understanding the industry environment as a part of the external influences is an important step towards proper strategy formulation. The industry environment has more direct impact upon an organization than the external environment as a result of the nature of competition. Competition within an industry among a group of companies leads to Competitive actions and competitive responses that affect the strategic position of a Particular organization and the profit potential for the industry as a whole, Michael Porters Five Forces Model would conduct the environmental analysis.

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1-Threat of new entrants: The threat of entry by new competitors in the sporting apparel products industry is considered to be low, as new entrants must overcome the barriers before they can compete in the market. At this time, there is no real threat of new entrants into the market and this is due to two factors; The first is; Adidas is a global brand with strong brand equity, distribution channels and a very long history in such products, which make it more trusted by customers according to their experience in this field. The second factor that slows the entry into this market is the fact that many of the larger firms like Nike, Adidas, Reebok (owned by the Adidas group), Fila etc operate under the strategy of acquiring new entrants in the market. This makes it very difficult for smaller entrants in the market to effectively compete and grow within the market. There is always the fear that the smaller firm will be overtaken by one of the larger competitors in the industry.

2-Bargaining power of buyers: The power of buyers in the sporting apparel industry is moderate to high due to huge number of buyers, which means that Adidas must market products effectively. Competitors for Adidas products come from rival manufacturers such as Nike, Puma. The price differential between those manufacturers is not big thus buyers can simply change from one product to another. The buyers are ready to spend more money with the belief that they can get a higher quality and more durable shoe that can be used in different playing conditions. So, consumers are looking to buy quality with a good price. In addition to large rivals competitors for Adidas products especially in the apparel market come from smaller and more localized companies around the world just like China but most of them are much less in quality . The Power of buyers can be determined by supply vs. demand and number of buyers as the price sensitivity affects the demand.

3-Bargaining power of suppliers: Supplies required by the sports companies can be found simply and the bargaining power of suppliers is low. Large number of the suppliers actually becomes dependent on big companies like Adidas as they use their services continuously ,company like Adidas is consider as perfect

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customer for the suppliers therefore they wont bargain it and if they does Adidas will find a lot of suppliers who wish to supply Adidas with their products.

4-Threat of substitutes: Buyers' propensity to substitute is low. Substitutes for sporting apparel products are low because there are little alternatives to switch, some substitutes for sporting apparel products could be boots, sandals, dress shoes or bear feet. Consumers are not likely to substitute due to the performance requirement of the product. For example, a football player would not wear sandals to play soccer. Therefore, there is no real substitute for sporting apparel products. 5- Competitive Rivalry The sporting apparel market is very high when it comes to competitive rivalry and that is because the differentiation between the products sold between customers is little another reason is the same size of the competitors e.g. Nike, as mostly they have similar strategies. They engage in online selling which allow them to increase the sells with minimum cost of operation.
Figure (1) Porters Five Forces Model

Factor Threat of New Entrants Bargaining power of buyers Bargaining power of suppliers Threat of Substitute Products

Description Strong presence of the brand and distribution channels. Customers already loyal to Adidas. Huge resources required of new entrants. Huge number of buyers Buyers have access to more information Buyers more conscious of their spending Ease in switching suppliers if necessary Suppliers are dependent on Adidas No alternatives to switch.

Impact

LOW

HIGH

LOW

LOW

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Competitive Rivalry All competitors have global reach like internet and E-commerce. Competitors have similar strategies. Competitors are approximately the same size of each Other. HIGH

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ANSWER, 2
Resources: They can be divided into two types:

1-Tangible Resources: Tangible resources are assets that can be seen and quantified. The four types of tangible resources are financial, organizational, physical and technological. (Michael A. Hitt, R. Duane, 2010).

1.1-Financial resources (STRONG):

The financials reports of Adidas shows a healthy performance in the present, Financial Highlights (IFRS) 2012 Operating Highlights ( in millions) Net sales 14,883 EBITDA 1,445 Operating profit 1,185 Net income attributable to shareholders 791 Balance Sheet and Cash Flow Data ( in millions) Total assets 11,651 Inventories 2,486 Receivables and other current assets 2,444 Working capital 2,504 Net borrowings 448 Shareholders' equity 5,304 Capital expenditure 436 Net cash generated from operating activities 942 Per Share of Common Stock () Basic earnings Diluted earnings Operating cash flow Dividend Share price at year-end UC2F1307AF[FI] 2011 13,322 1,199 953 613 Change 11.7% 20.6% 24.4% 29.0%

11,237 2,502 2,431 1,990 90 5,137 376 809

3.7% (0.6%) 0.5% 25.8% 397.7% 3.3% 15.4% 16.7%

3.78 3.78 4.50 1.35 67.33

2.93 2.93 3.86 1.00 50.26

29.0% 29.0% 16.7% 35.0% 34.0% Page 8

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Source: Adidas website Annual report 2012

Income Statement Evolution:

BNA & Dividend:

Operating profit:

Income Statement Evolution:

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Source for all: http://www.4-traders.com 1.2-Organizational Resources (STRONG):

The merger of Adidas with Reebok is one of the organizational resources which improves the performance of Adidas, As in the 3rd of Aug 2005 Adidas decided to buy Reebok for 3.1 billion euros( David Kiley 2005), Adidas got a lot of benefits from this merger :

Increase in the production line, Activity in market share Share Reebok, Patents, technology & innovations Reduction in costs Decreased competition Cross-over promotion by sponsored athletes Enter to new markets

1.3-Technological Resources (GOOD):

Technological advances will have an affect on Adidas. Therefore Adidas need to be updated to new technology, which may speed up the production line & save energy. Because if they werent aware of new technology, they will lose a lot of customers due to other firms becoming more efficient and gaining more of the market share thats why Adidas entered to the e-commerce for marketing its products and make it much easier for the customers as simply buyers can go UC2F1307AF[FI] Page 10

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through Adidas website and have look to the products, new designs, colors and all they need that they would like to buy, this has helped to increased the sells of the products. (Adidas, 2011)

1-4 Physical Resources: Adidas facilities are located throughout Europe, Asia, Middle East and South America with thousand of stores. The locations are geographically dispersed which works well in its mission to be a really a global company. The production facilities are located close to the raw materials suppliers. In general, the industries are located further from most customers, resulting in higher distribution costs. (Adidas, 2011)

2-Intangible Resources: Intangible resources include assets that typically are rooted deeply in the firms history and have accumulated over time. The three types of intangible resources are human, innovation, and reputation. (Michael A. Hitt, R. Duane, 2010).

2.1- Human Resources (STRONG): Currently Adidas has 46,306 employees which have been chosen due to their high qualification and experience. They have a core value of honesty, competitiveness, teamwork & high ethical value. Adidas has identified that in order to achieve the goal to be No.1 in the world in selling the sport goods will depends on the talents, enthusiasm and dedication of the employees. Adidas uses various methods like; continues training for the employees. Adidas has executive and supervisory board. The executive board is composed of four members who reflect the diversity and internationality of the Group. Supervisory board made by six members that representing the shareholders and six members that representing the employees. (Adidas, 2011)

2.2-Innovation Resources (STRONG): As Adidas has a team of professionals to come up with new innovations to improve the performance of their products like The Smart shoes which was a great innovation as they add a UC2F1307AF[FI] Page 11

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microchip inside the shoes which stores the data and helps the users to analyze their personal performance. As soon as the users of these shoes have finished playing, the boots will transmit the data via wireless to their computer, phone or tablet. It records the speed; distance traveled and top speeds as well as monitoring everything they do at one second intervals. (Mike Hanlon,
2005).

2.3- Reputation Resources (STRONG): Adidas is one of the leading producers of apparel products in world. It has been ranked as one of the top 350 admired companies all over the world (CNNMoney, 2011). It has sponsored a lot of a very important sport activities & events like World Cups, Olympics. This year also Adidas will be one of sponsors in London Olympics 2012 & also Euro 2012 which will be hosted by Poland and Ukraine. The company has also received a lot of awards from the entire world. (Adidas, Awards & Recognations, 2011)

Capabilities:

Capabilities are the firms capacity to deal with resources that have been purposely integrated to achieve the preferred end state. They appear over time through complex interactions among tangible and intangible resources,
Income before taxes in millions (Adidas report)

Adidas focused on the customer satisfaction, it invests a lot in the products developments and

researches in order to provide the customers with the best and modern apparels. Furthermore, Adidas gain a great benefit over the competitors because of the Innovative nature of the product which makes Adidas appear to be the leader in athletic footwear. As many athletes demand a product that can give both monitoring and performance improvement capabilities, they believed that Adidas is the best brand in providing a product that can do both. This brings a positive feedback as when more athletes find they perform better with Adidas smart shoes, it will make others to buy Adidas products, In the end all of this can provide much higher revenue and market share in sports that Adidas already leads and in sports where Adidas get less revenue and UC2F1307AF[FI] Page 12

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market share. They have good financial resources which in my opinion will allow them to increase their place more in the market share if this money has been right invested.

Distinctive Competencies:
Adidas quality, great brand reputation and the customer loyalties are the main distinctive competencies; Adidas created a special line which is focused on satisfying the functional needs of the athlete and uses the best materials which helped in rejuvenating the Adidas brand in Malaysia. It offered moisture management, thermal insulation, weather protection, ease of movement, and safety, helping the athlete gives the best performance. The older generation of Adidas brand purchasers has the power to influence their children - part of the new generation of Adidas loyalists. In addition, by marketing different and new modern types of shoes to this market, these existing customers continued to be loyal to Adidas brand. Being part of the most famous sport participation gives them also good reputation because professional players only use the good quality product in order to win the game example: Messi the most famous football player and the winner of the best player in the world prize use to wear Adidas shoe.

Competitive Advantage
Competitive advantage is the ability of one organization to outperform other organizations because it produces desired goods or services more efficiently and effectively than its competitors Jones, G. (2010).From the analysis above shows that Adidas have competitive advantage on resources. With this advantages Adidas will be allowed to run more project and invented new product which delighted by customer.

ANSWER, 3

Competitive Position:

The Adidas Group is the market leader in numerous countries and the second market share in the world. This strong competitive position provide the company with many advantages in terms of worldwide brand visibility, market power and the ability to effectively expand its position in emerging markets. As a result of Adidas strong partnership range and marketing hard work, UC2F1307AF[FI] Page 13

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clients around the world are highly aware of its brands. This makes the demand for its products more stable when compared to smaller competitors. Hence, many retailers consider Adidas products as core to their offering. The Adidas Group can therefore compete more successfully for shelf space.

Source: http://www.wikinvest.com/image/Footwear_market_shares.PNG

2010 net sales by region(Adidas report performance)

Slow Market Growth :

The market is experiencing a slowdown in sales growth because the products has achieved acceptance by most of the prospective buyers, In my opinion even Adidas is growing but we cant say that its market growth is rapid especially when we consider in our opinion their huge resources & when we compare it with their competitors who have similar or maybe less in some resources but they growing rapidly. We can notice from the figures provided in the previous UC2F1307AF[FI] Page 14

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question that the growth is moving slow that is less than 10% except for the year 2010 and this due to the World Cup in South Africa as people tends to buy more sport products then the other years. Thus I put Adidas Company in the 4th quadrant of Grand Strategy Matrix:

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1-Related Diversifications Strategy:

The start of using this strategy was on 1997 when Adidas acquired the Salomon Group for $1.4 billion; Salomon group is sports equipment manufacturing company that originated in France. The second merger and the most important was with Reebok on 2005 for $3.8 billion this merger did a shaking in the sport apparels market as the share prices of both the companies recorded an increase on the day they announced the deal, the share price of Adidas increased by 7.4% from 147.52 on August 02, 2005 to 158.45 on August 03, 2005 on the Frankfurt stock exchange while Reebok's share price at the New York Stock Exchange rose to $57.14 on August 03, 2005, an increase of 30% over the August 02, 2005 share price of $43.95(AdidasHistory,2011). Adidas found that its goals will accomplished by joining with Reebok as a replacement for competing each other, as Nike was the common strong competitor for both of them. This merging is considered as related diversifications strategy were the companies are alike in many ways. Both had a reputation of using cutting-edge technologies to produce innovative products. But the merger helps in spreading and selling the products in places where they had not made a mark as individual brands. And will return a lot of benefits to Adidas in improving its product and the position of the market share because Reebok got some core competencies like; Designing women shoe.

http://www.casestudyinc.com/case-study-adidas-reebok-merger

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2-Unrelated Diversifications Strategy:

Adidas has entered through a new market by making a strategic partnership with Coty in 1985to produce a line of fragrances. The products are for men and women and often featuring a sporty name and bottle design. Coty was created in Paris in 1904 by Franois Coty who is qualified with founding the modern fragrance industry. Today, Coty Inc. is a recognized leader in worldwide beauty with annual net sales of $4 billion. Because of this strategic partnership Adidas has also become a leader in the male fragrance market, and a key player in the personal care arena especially for males. Adidas fragrances and body care products brand have achieved a great success and are marketed under in more than 82 countries. (Coty, 2011)

http://www.logotypes101.com/files/300/e0be733b75e57a7bacccc0cab28231f9/lrg_Coty_Beauty.gif http://www.giftstoindia24x7.com/diwali_gifts.aspx?proid=GTI3687&CatId=849

3-Joint ventures Going up against Nike and the Apple iPod partnership, In 2008 Adidas and Samsung announce their strategic partnership; the two companies announces producing mobile phone that works with the Adidas shoes and apparel to plan, track and motivate users in training This partnership creates complements for Adidas apparel and footwear as miCoach - a real-time training system included in a mobile phone, designed to motivate, inspire and enable athletes at all levels to reach their training goals. It is the most advanced interactive training system by collecting and turning personal data into individual training statistics based on ones fitness level and detailed goals. (Stuart Miles, 2008).

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ANSWER, 4

1-Risks from losing the brand Image: As one of Adidass distinctive competencies is the that its products has good image in customers eyes but being in the top doesnt mean that you wont drop ,as success is not only being in the top but how to maintain this good image & position, For example one of issues that might distort Adidas brand image is the news and reports which says that; Adidas is using the Kangaroo leather in shoe production and the reason behind that is because it is thin and strong, (PAUL PREIBISIUS , 2011) such news distorts the image of Adidas in the society & lead to problems with the environmental campaigners, as a result this will effect the sales of Adidas products. Recommendation: Adidas must do the required researches to find different materials and alternatives which can replace animals material, for example artificial materials. Also to develop a system to provide credible assurances that leather used in Adidas Group products is free from kangaroos leather and any other animals that are threatened by extinction.

2- Limitation of E-commerce: Adidas has entered through this type of commerce as I mentioned in the technological resources but it didnt improve this important service especially people are looking for the easy and simple way to buy products nowadays. Customer can go through Adidas website to look for the products bit they have to collect the product and pay it though Adidas branch, this is one of the weakness that Adidas has compared to Nike the first competitor to Adidas, As Nike provide customers with more e-commerce services. Recommendation: Adidas should work on this point and to improve it, for example Adidas can invent a website which customer can customize the design of the product and can pay it online and have delivery services. An example that has succeeded in this area is Dell as its no.1 in Malaysia because of its superior service not only quality. In return, Adidas may have feedback on this because it could help them to reduce operating cost and have more customers.

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3-Less attention on women products & market: Adidas is focusing on men products more than women, in my opinion this is a strategic issue which causes Adidas reduces their profit benefits. As in Malaysia women represent 48.5% of the population (The Star, 2011) therefore they cant be ignored by a company like Adidas, In addition women are getting a bigger influence in all buying decisions and shows more interest for sports. Recommendation: Adidas should make women an obvious target by their advertisements, As its the best tool to create relations with a brand and to make Adidas products more interesting to them because they are more vulnerable to advertising than men, But to reach out to women and to achieve success, Adidas needs to follow the market development so that their advertisement can be adapted to the "modern" woman, like to develop new product that are stylish with attractive designs , I recommend to look for a partnership from one of the big fashion companies that already has a good experiences in the new women fashion designs just same like what they did with Coty to produce the Adidas fragrances.

4-Price of the products: Adidas efforts have been focused on high level society as still its product are quite expensive especially when we talk about the majority in Malaysia that have a limited income and cannot buy Adidas products because of its price and they prefer to buy other brands as the market is full of cheaper products such like those products which are imported from countries like China, even though they are low quality but still people will prefer to buy it rather than Adidas shoe. This in my opinion causes the company to lose a lot because price is an important point that influences customer decision. Recommendation: As cost is still important issue to many consumers in markets such as country like Malaysia, Adidas should first develop a low-price shoe meant for the middle consumer. For example it can market the Reebok brand as a high-quality but low-priced product. As its better to sell so many stocks with fewer prices than selling few stocks with high price. Therefore; Adidas must see much potential in the lower price points and plan to meet the needs of those markets. UC2F1307AF[FI] Page 19

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S.W.O.T Analysis:

Strength
Brand recognition and reputation Strong control over its own distribution channel In many invents is the biggest sponsor Strong management team

Weaknesses
High prices in some products E-commerce is limited Low concentration in Female products

Opportunities
Increase in female gender in athletics and sport. web development and improving e-commerce

Threats
Negative image created because of different reasons. Increase in the Price of Raw materials Global economic crisis Nike market share is growing more than Adidas

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References:
Ecoggins (2011). Malaysia Political and Economic Outlook for 2011 and Beyond. [ONLINE] Available at: http://ecoggins.hubpages.com/hub/Malaysia-Political-andEconomic-for-2011-and-Beyond. [Last Accessed 29 December 2011].

Malaysia Manufacturers Directory & Trade Portal (2011). Guidelines on Foreign Investment. [ONLINE] Available at: http://e-directory.com.my/web/sw-investorinfoguidelines.htm. [Last Accessed 29, December, 2011].

Ministry of Finance (2011). Economic Report 2010/2011. [ONLINE] Available at: http://www.treasury.gov.my/index.php?option=com_content&view=article&id=1712%3 Alaporan-ekonomi-20102011&catid=73%3Asenarai-laporanekonomi&Itemid=174&lang=en. [Last Accessed 29, December, 2011].

Bank Negara Malaysia (2011). G E N E R A L I N F O R M A T I O N. [ONLINE] Availableat:http://www.bankinginfo.com.my/_system/media/downloadables/bnm_eng.pdf. [Last Accessed 29, December, 2011].

The Star (2011). Malaysias population at 28.3 million. [ONLINE] Available at: http://thestar.com.my/news/story.asp?file=/2011/7/30/nation/9205408&sec=nation. [Last Accessed 29, December, 2011].

Internet Usage Stats (2010). Internet Usage Stats and Marketing Report. [ONLINE] Available at: e.g. http://www.microsoft.com. [Last Accessed 29, December, 2011].

Royal Pingdom (2010). The REAL connection speeds for Internet users across the world (charts). [ONLINE] Available at: Emerging.com [Last Accessed 29, December 2011].

David Kiley (2005). Reebok and Adidas: A Good Fit. [ONLINE] Available at: http://www.businessweek.com/bwdaily/dnflash/aug2005/nf2005084_8340.htm. [Last Accessed 1 1 2012].

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Michael A. Hitt, R. Duane, (2010). Strategic Management: Competitiveness & Globalization, Concepts. 1st ed. Ireland: Robert E. Hoskisson available at: http://books.google.com.my/books?id=aVnhnRh2NWEC&pg=PA79&dq=tangible+and+ intangible+resources+of+a+company&hl=en&sa=X&ei=QP3_TpC4E4n4rQfehPUE&v ed=0CEEQ6AEwAw#v=onepage&q&f=false

Mike Hanlon (2005). Adidas launches adidas_1, the World's First Intelligent Shoe. [ONLINE] Available at: http://www.gizmag.com/go/3810/. [Last Accessed 1 1 2012].

CNNMoney (2011). WORLD'S MOST ADMIRED COMPANIES. [ONLINE] Available at: http://money.cnn.com/magazines/fortune/mostadmired/2011/top350/ . [Last Accessed 1 1 2012].

Coty (2011). Adidas. [ONLINE] Available at: http://www.coty.com/#/brands/browse. [Last Accessed 3 1 2012].

Stuart Miles (2008). Samsung and Adidas unveil miCoach fitness mobile phone. [ONLINE] Available at: http://www.pocket-lint.com/news/13226/samsung-micoachadidas-fitness-phone. [Last Accessed 9, 1, 2012].

PAUL PREIBISIUS (2011). Stop Killing Kangaroos for Shoe Leather. [ONLINE] Available at: http://forcechange.com/7755/stop-killing-kangaroos-for-shoe-leather/. [Last Accessed 5 1 2012].

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