Extraction of Raw Materials

(Photo retrieved from http://www.adidas-group.com/en/sustainability/products/materials/#/sustainable-better-cotton/ )

For a manufacturing company, the extraction of raw materials is a very significant step in the commodity chain. Extraction of raw materials is the process that a company chooses, communicates, and partners with the local suppliers of origin components for its products. For Adidas, they use natural fibers like cottons, leather, synthetics, recycled polyester, recycled rubber, and wool in footwear production. So they gather those materials from other countries. Most of the factories that deal with raw materials are located in Asia, countries like Pakistan, India, Indonesia, and Vietnam.

There are several reasons to explain why most of the raw materials are extracted from those countries. First, those are developing countries. Developing countries are less industrialized as developed countries. So agriculture still is an important industry, probably largest in those countries. And because of agriculture needs lots of labor, the birth rates in those countries are relatively high. For instance, the birth rate for Pakistan is 25, 20 for India, 19 for Indonesia, 13 for United States, and 1.4 for Japan (per 1,000 population). With sufficient labor, the cost of labor is relatively low in those countries. Sourcing in those countries can help Adidas reduce the cost of labor for planting, fertilizing, and collecting raw materials. Second, those countries are located in the tropics. The weather there is very helpful for growing plants like cotton. Those countries both abound in those raw materials. Based on the demand – supply theory that if supply is larger than demand, the price will fall. So sourcing in those countries instead of planting them in German, Adidas have saved lots of money.

(Photo retrieved from http://www.adidas-group.com/en/sustainability/products/materials/#/sustainable-better-cotton/ )

It’s a win-win relationship for Adidas and those suppliers. Developing countries have low employment rate. With the help of multinational cooperation like Adidas, the demand of crop and labor will increase significantly, which will expand the size of their agriculture industry. Moreover, Adidas brings new technology into those countries as well. They have a program named “Better Cotton”, which require less water, fewer pesticides, promotes better working conditions for the farmers, and preserves the quality of the fiber. This program is better for the people who produce it, better for the environment, and better for the sector’s future. The Adidas group sourced more than 23% of their cotton as Better cotton in 2013, and they have committed to source 100% of cotton in their products as Better Cotton by 2018. Because of this commitment, the working conditions in Brazil, Mali, Pakistan, and India have improved a lot. And with the new technology, the productivity, quality, and environmental friendliness have developed.

Here is the map which shows where does this activities happen:

Map link: https://www.google.com/maps/d/edit?mid=z7uh5gJjyJ2w.k7DPtpsf6Tz0