Although the main employees who broke the rules have left, investigations into compliance with employees and suppliers are still ongoing. In the first quarter of 2024, Adidas Greater China achieved revenue of 900 million euros, an 8% increase year-on-year, and achieved growth for four consecutive quarters.
On June 26th, according to Caixin, Adidas China announced the results of the investigation into the reported case involving executives in the marketing department. The meeting minutes showed that there was evidence that an employee had violated the company's relevant code of conduct in dealings with the local supplier and had left the company. In addition, a senior management member in the marketing department failed to meet the company's expectation of leadership in shaping mutual respect and trust. Both employees have left the company for violation of company rules.
According to insiders, even though the main violating employees have already left the company, investigations into compliance involving employees and suppliers are still ongoing. Adidas China expressed that it highly values the report received and has activated internal and external professional organizations to conduct a thorough investigation. With a zero-tolerance attitude toward noncompliant behaviors, Adidas is committed to building a winning culture that shapes the value orientation in the China market.
Regarding the prolonged negative feedback generated by the internal management issues, the person in charge of Adidas China stated, "this incident will not affect our confidence and determination in any investment and input in China. We will continue with the planned market activities and event support. Together with our partners, we will continue to serve athletes and consumers. At the same time, we will further strengthen our internal control system and compliance management system to do better in compliance, communication, and other aspects."
According to anonymous sources, several senior employees of Adidas China collectively wrote and released a report on bribery, workplace bullying, and management confusion involving top executives. The letter exposed a large amount of corruption and a long duration, severe infighting in the office, and widespread suppression of workplace bullying- all contrasting sharply with Adidas' image of an open, inclusive company it worked hard to create.
According to the report, Adidas China's marketing department has significant resources and budget to improve brand awareness and sales operations. In 2023, the total annual budget for the department's business was 250 million euros (approximately RMB 1.944 billion), which will be allocated toward brand activation, sports marketing, retail marketing, and trade conferences.
Judy, the senior vice president of the Adidas China marketing department was revealed to be ordering subordinates to take kickbacks in brand image marketing, sports marketing, and supplier purchasing. These includes but are not limited to, selecting media channels based on the kickback ratio provided by advertising companies and advocating the publication of the false data analysis report to the public; using personal resources to deceitfully sign contracts with cooperation stars and KOL to obtain company budgetary expenses; and accepting significant bribes in collaboration with external suppliers.
Although corrupt practices did not result in a direct blow to Adidas China's overall revenue and net income, concerns arise among the general public as the whistleblowing indicated that the level of corrupt practices has been happening among many executives for several years. The whistleblowing mail listed Judy's predecessor, dismissed due to corruption, and the former purchasing director, who was also dismissed due to corruption.
Adidas China has not announced who will take over marketing functions in the China market since the incident.
As Adidas' key strategic market, Adidas actively expanded their presence in the China market in recent years, and their brand popularity began to rise. In Q1 of 2024, the Adidas Greater China area generated a revenue of €900 million, a YoY growth of 8%. The continuous growth in the China market became the critical supporting element for the global growth of the company. Adidas head-office has mentioned many times that a more independent China market team can bring more favorable tails for overall performances.
On the other hand, according to the financial report of 2023, Adidas' global revenue was 21.427 billion euros, the same as 2022, and a net loss of €58 million, the company's first annual loss in over 30 years. In Q1 of 2024, Adidas' global revenue began to recover, with a YoY growth rate of 8%, achieving a net income attributable to shareholders of €170 million, a turnaround from last year's loss to profit.
This event has not affected Adidas' investment and determination in any aspect in China, and it will continue to prioritize the China market in its global strategy.
Therefore, Adidas has a lot to pay attention to in their management as they continue to expand in China while adhering to global rules.
In the first quarter of 2024, Adidas' revenue in Greater China reached €900 million, an 8% YoY growth. The China market has achieved continuous growth in the past four quarters and has become an important support for Adidas' corporate growth. The Adidas head office also indicated on numerous occasions that a more autonomous Chinese market team is more beneficial to its overall performance and growth.
Compared to that, while not directly impacting Adidas China's overall revenue and net income, the reported internal corruption involving Adidas executives has persisted for years, thereby raising concerns in the market. The report mentioned that the former market marketing vice president was dismissed due to corruption, and the former procurement director was also dismissed for corruption.