H&M Analysis

Topics: Strategic management, Cost, Costs Pages: 14 (3296 words) Published: September 20, 2014
1. Question 1
Evaluate the external environment in which H & M operates in. 1.1. PESTEL Analysis
1.1.1. Political
As companies begin to expand globally, it needs to understand the laws of each country. Since each country regulations are different, its needs to take special consideration before entering and investing into a new market in order to prevent violating any of them. This is especially true when regulations involving imports and exports are affected. While the restrictions of goods shipments may not be a major concern, selection and switching of suppliers relating to manufacturing and outsourcing can greatly affect profit margins, production costs as well as other incentives in different areas. Moreover, laws governing corporate social responsibility like minimum wages, child labour and other environmental issues affect organisational growth. 1.1.2. Economic

Due to inflation, the rising costs of raw materials like cotton are felt globally. This in turn forces manufacturers to increase their production cost and future affecting potential profits globally. As international trade liberalises, the demand for suppliers and manufacturers in low-wage countries increases and completion between fashion retailers intensifies. In-addition, the recent economic crisis has affected consumer spending patterns, forcing organisations to push their retail prices low to meet consumers' lower spending power. 1.1.3. Social/Cultural

Different cultures have different fashion senses, likewise while consumers in Europe like Sweden embraces 'fast Fashion', Customers in Asia for example Singapore adopts fashion at a slow pace. To understand 'local fashion', most companies depend on home grown designers or in-house sales employees to pick up the latest treads to redesign their products. Moreover consumers globally are growing more conscious about the environment, which encourages the production of environmental friendly/sustainable products. 1.1.4. Technological

As technology develops, consumers are getting more informed of their purchase choices. Today most every individual are able to access the web to gather information, meet friends as well as purchase online. Hence it is not surprising that companies are upgrading their websites to gain attraction. To stay ahead, some companies are employing the latest IT systems to improve operation effectiveness and efficiency. For example, advance logistics capabilities allows organisations to control inventories better and reduce wastage, due to effective information sharing as well as proper empolyee training. 1.1.5. Environmental

With the growing need to embrace green culture, consumers are more self-aware about their needs and would prefer to purchase from companies that are environmentally friendly and socially responsible. 1.2. Porter’s 5 Forces Analysis

1.2.1. Threat of entrants (Low)
Viewing from a Global perspective, it will be difficult for new entrants to gain huge economies of scales without investing huge initial investments, which includes inventories, start up fund and cost for advertising, research and development expenses, etc. Large international incumbents like Zara, Gaps and H&M had already established strong footholds in multiple countries and with many years of experience to deter new comers. Moreover new entrants will expect retaliations from financially strong incumbents in events like price wars. Being in the fashion industry also makes it difficult for new organisations to differentiate their products. Although access to distribution channels have eased due to information technology advancement, most of the good ones would already have been contracted by bigger competitors. Therefore, I would conclude that threat of entrants is low for H&M. 1.2.2. Power of buyers (High)

The bargaining power of buyers considered high because there are multiple alternatives like Zara, Gap, UNIQLO, etc. Moreover there is little or no switching cost involved when selecting...


References: Johnson, G. (2014). Exploring Strategy. 10th ed. Harlow [u.a.]: Pearson.
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