Following a stint as CFO for K-Mart’s international business in Puerto Rico, Erick Haskell was lured to China in 2007 to perform the same role at Jia Shijie (Homeworld), a Tianjin-based hypermarket with ambitions to sell shares on the stock market. After the company was acquired by Shenzhen-based CRC, Haskell joined Adidas as its China CFO. Haskell spoke to CHINA ECONOMIC REVIEW about his experiences as a manager for both a Chinese firm and a global sporting powerhouse.
Q: What are some of the differences you noticed when you made the transition from Jia Shijie to Adidas China?
A: The business environments at Jia Shijie and Adidas China were similar in that both companies’ businesses had been growing at over 50% for several years. The big difference is that at a local Chinese company there’s no global headquarters or global support function. Growing at that rate requires huge financial resources and support. While I was at Jia Shijie there was neither of those. What’s different at Adidas is the presence of a massive infrastructure of a global multinational company. Of course, there’s a flip side. When you’re a local company without that global infrastructure you can make decisions a lot more quickly. But on balance it’s easier to manage the growth when you have a multinational structure.
Q: Did it surprise you to find Adidas China facing many of the same struggles as a local company?
A: It did, but when you look at the underlying reasons, it’s not that surprising. When a company is growing this quickly, the people and processes often don’t keep up with the rate of change. When I arrived at Adidas, the financial organization, system and processes were still in place for a much smaller company. Adidas China had become very large but the financial organization within the company hadn’t been able to keep up with that.
Q: What challenges do Chinese companies face in becoming global players like Adidas?
A: Many of these local companies are dealing with an enormous amount of domestic growth, so to put international expansion on top of that is a huge challenge, one that many companies, both local and multinational, are simply not prepared to deal with. These companies have to build a suitable business infrastructure before they expand internationally, either through investing internally or through acquisition. Obviously, a company also has to build a capable management team with experience in international expansion. Then there is the financing structure. From what I’ve seen, the local companies that get into trouble are the ones that grow too quickly and don’t have a handle on their financial resources. Management and financing have to be at an international standard if you want to expand internationally.
Q: What lessons do you have for Western managers working either for Chinese companies or multinationals in China?
A: Most importantly, Western managers need to be prepared to spend a significant amount of time teaching and training here. If the task is clear and the employees are trained properly, China might have the best workforce in the world. But many industries in China are still quite young. The country’s modern retail industry is barely a decade old, so you don’t have managers with deep experience. As a result, you have to spend a lot of time, effort and money on teaching and training. For example, not long after joining Jia Shijie I noticed that a lot of the reports I was getting from my staff contained basic spreadsheet errors. I found a qualified Microsoft trainer and had him give my department weekend training in Excel. When I walked into the room that weekend I was astounded. There were two people sharing every seat and computer, most of whom I didn’t even recognize. Word had spread through the company that this training was being offered and people from other departments had come in to participate. Afterwards, the skill levels went up dramatically. What became clear later was that there was also a huge unforeseen payoff from the training – it built an enormous amount of loyalty among the staff to me as a foreign manager. It was really through this training that I built a strong bond with my team.
Q: Moving along to Adidas, in which area is the company seeing the fastest growth and what’s driving it?
A: We’re seeing growth in a couple of key categories, especially in our basketball business, which can be put down to the popularity of the sport in general as well as the NBA taking off in China. Adidas is the global sponsor of the NBA so we’re seeing strong growth for our NBA-licensed products. This is driven not only by the popularity of the NBA, but the popularity of individual stars, the most notable of whom is Yao Ming, who falls into the Adidas Group as a Reebok athlete. The other growth area is running. We are seeing the emergence of a fitness culture here and running is a huge part of that. We’ve been doing a lot of educational programs to teach people the importance of using proper gear, both shoes and apparel.
Q: How has Adidas had to alter its business in order to be competitive in China?
A: The first adjustment is in the product itself. We have a design center in Shanghai – one of four global centers – so we actually develop apparel for the local market. One of the ways we’ve changed our products is simply doing an Asian fitting. But there are other alterations too. Chinese consumers like their apparel to have big and bold graphics, so we have a local team making changes in color or design to fit consumer tastes. The other key change is on the operational side. The sporting goods environment in the US and the rest of world is very different from China. In the US, you go to large sporting goods stores, but those don’t really exist in China. They haven’t been successful because the shopping environment is dominated by large department stores. Adidas China is very different from Adidas in the rest of the world in that we have these stand-alone shops. At the end of 2008, we’ll have 5,000 stand-alone shops in China compared to 4,000 at the end of 2007.
Q: How does Olympic sponsorship affect your China strategy?
A: The Olympic sponsorship is a key part of our strategy. The goal is to use the Olympics as a platform from which to become the leading sports company in China this year.
Q: Have you seen any direct benefits from the sponsorship?
A: It’s difficult to directly measure the effects of Olympic sponsorship. But we track the recognition of the brand as an Olympic sponsor, and there’s a very high recognition that Adidas is a sponsor and a very measurable association of Adidas with the Olympics. To the extent that the Olympics build a sports culture in China and Adidas is linked to the Olympics, it creates a strong platform for our products.