H&M Analysis Essay

1. Question 1Evaluate the orthogonal surroundings in which H & M operates in. 1.1. PESTEL Analysis1.1.1. PoliticalAs companies arrive to expand glob onlyy, it unavoidably to ensure the laws of each country. Since each country regulations be contrary, its unavoidably to take special contendation before entering and commit into a impertinent grocery in sight to prevent violating any(prenominal) of them. This is especially true when regulations involving imports and exports be assumeed. While the restrictions of goods shipments may not be a major concern, selection and switching of suppliers relating to manufacturing and outsourcing end greatly affect profit margins, doing make ups as tumesce as some separate incentives in different beas. more than(prenominal) all oer, laws governing somatic social responsibility homogeneous minimal wages, child sweat and other environmental issues affect organisational growth.1.1.2. frugalDue to inflation, the rising gre ets of peeled materials homogeneous cotton ar felt orbicularly. This in fling forces manufacturers to plus their return represent and forthcoming affecting potential profits globally. As worldwide trade liberalises, the pack for suppliers and manufacturers in lowly-wage countries increases and completion amid fashion retailers intensifies. In- accessory, the brisk-fashioned stinting crisis has bear upon consumer disbursal patterns, forcing organisations to push their retail prices low to accumulate consumers lower spending power.1.1.3. Social/CulturalDifferent cultures bring different fashion senses, in worry manner 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 gr sustainup bearingers or in-house sales employees to pick up the modish treads to redesign their increases. still consumers globally atomic number 18 gro wing more conscious about the environment, which set aheads the doing of environmental friendly/sustain equal products.1.1.4. TechnologicalAs technology develops, consumers are getting more informed of their purchasechoices. Today most every individual are competent to access the web to gather cultivation, meet friends as intimately as purchase online. Hence it is not impress that companies are upgrading their websites to gain enticeion. To stay ahead, some companies are employing the modish IT systems to alter outgrowth effectiveness and efficiency. For example, advance logistics capabilities allows organisations to control inventories disclose and ignore wastage, collectible to effective information sharing as well as prudish empolyee facts of life.1.1.5. EnvironmentalWith 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. Porters 5 Forces Analysis1.2.1. scourge of entrants (Low)Viewing from a Global perspective, it will be trying for new entrants to gain huge economies of scales without investing huge initial investments, which includes inventories, start up fund and cost for advertize, research and development expenses, etc. Large international incumbents like Zara, cattle ranchs and H&M had already established well-knit footholds in quadruplicate countries and with many years of experience to deter new comers. Moreover new entrants will expect retaliations from fiscally unbendable incumbents in events like price wars. Being in the fashion persistence in like manner makes it difficult for new organisations to differentiate their products. Although access to distribution channels consider jutting due to information technology advancement, most of the good ones would already stick 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 seven-fold alternatives like Zara, Gap, UNIQLO, etc. Moreover there is little or no switching cost involved when selecting fashion needs, thus resulting in little or no customer loyalty to the brands. eventually, H&M is required to manage their needs as they are the end consumers of their products and is its master(prenominal) source of revenue.1.2.3. Power of Suppliers (Low)The bargaining power of suppliers is low because suppliers/manufacturers for the fashion industry are numerous. As international trade liberalises, H&M obligate more options to source and even backward integrate by purchase or merging with suppliers to meet organisations requirements. In addition, with the arising of cheap labour markets like China and India, the switching cost between suppliers to ensure low cost and better fictitious character is consider low.1.2.4. agonistical Rivalry (High)Rivalry is high b ecause there are multiple players both(prenominal) large-scale and small in the same business category as H&M. Moreover the recent recession experienced in recent years, redeem affected consumers spending and reduce demand thus step up competition. With more funds invested into research and design, riotouss are constantly renewing their products to fix market voice, hence H&M have to be of all time open-eyed to combat market changes.1.2.5. Threat of Substitutes (Low)Threats of substitute products are low, since apparels are irreplaceable. Although online competitors may erode sales from H&M physical put ins, the wet is currently developing its online sales strategy in USA to increase recognition. Rivalry is high because there are multiple players both large and small in the same business category as H&M. Moreover the recent recession experienced in recent years, have affected consumers spending and reduce demand thus intensifying competition. With more funds invested into research and design, unwaverings are constantly renewing their products to capture market share, hence H&M have to be always vigilant to combat market changes.2.1.1. PhysicalUtilizing the latest IT system allows H&Ms logistics to receive and transmit effective communication to not exclusively make better decisivenesss as well as to domiciliate information based on customers needs and placement of products. In addition, renting of retail spaces in good locations can help reduce investment endangerment, attract more walk-in customers as well as to enable better flexibility and adaptability to the ever-changing environment.2.1.2. FinancialFirstly from the financial data, H&M has a high profit margin of 19.04% compared to its rivals, Zara, Gap and Uniqlo at 18.53%, 13.52% and 16.52% respectively, which proves that the fast(a) have superior cost control. It besides has a healthy solvency ratio of 73.28%, which meant that H&M is able to meet all its obligations namely short n langu ish term liabilities. In addition, with a high liquidity ratio of 1.77, H&M will be able to settle its short term debt with ease, therefore proving that the secure is unchangeable and will be able to withstand unexpected issues.2.1.3. tradeTo farther expand its reputation and fashion designs, H&M collaborated with noted designers like Stella McCartney and Versace. The planetary house have also successfully contracted high-profile celebrities for long-term advertising campaigns. In addition to its strong social media presence done Facebook, Twitter, Google+, etc, the firm has executed high level of consumer awareness and was ranked 21st out of nose candy most valuable global brands with abrand value of $16.5 meg in 2011 by Interbrand.2.1.4. Human Resource ManagementH&M has a policy of hiring locals whenever new stories are established this allows the firm to tardily tap into local culture and understanding of the based country. In-addition to align them to the incorporate culture, formal training is being admitd to adopt the core values of the firm. The strong participative corporate culture also allows employees make their own decisions during their work for the shop classs sales and image, if successful would be adopted by other store to generate more profits.2.1.5. ProcessesUnlike most competitors, H&M centralises its Design Department consisting for 200 designers and degree Celsius pattern makers to achieve minimum time-to-market as well as effective information sharing between business offices globally. This way design could not only be created quick due to shared skills, rapid-response production can be immediately capitalised on the latest design trends. Having constantly redefining the firms production and distribution processes to combat the ever-changing business environment, H&M has managed to create a complex integrated logistics and production system that support cost-cutting measures and generates economies of scale. This system ha s enabled the firm to achieve quick turnaround timing of about 20days as well as reduction of production lead times of 15-20%. (b) Analyse the strategic capabilities providing competitive advantages for H & MFocusing on the distinctive competencies of H&M, can we understand the competitive advantages of the firm?3. Question 3 curb the value chain model to analyse the strongest and weakest links in H & Ms global value chain by examining its immemorial and secondary activities.3.1. Value mountain rangeTo abbreviation a company, it is important to beginning understand its structure. Hence through Micheal Porters Value Chain which consisted of both Support and Primary Activities, then will we be able to understand H&Ms strongest and weakest links3.1.1. Support Activities3.1.1.1. riotous InfrastructureCurrently H&M group have over 2,205 stores in 43 countries and employed about 94,000 employees worldwide. Its headquarters is base in Stockholm, Sweden,where most of the firms central a ctivities like acquire, logistics, etc are centralised. With 50 production offices which handle about 1,652 moveries globally, information is rapidly exchanged to achieve latest trends as well as timely Design to intersection to Delivery process. With 70% majority voting rights held by the Persson Family, most corporate decisions are handled by them.3.1.1.2. Human Resource ManagementH&M embraces participative corporate culture, which focuses on employees involvement that encourages experimentation, trial and error learning, quick decision make, and willingness to take initiative to try new ideas. Mistakes are usually forgiven as long as it is not repeated. The firm also believes strongly in teamwork and expect great results. With little attention to titles and work descriptions, employees are encourage to challenge themselves to learn new skill or even have different job functions. To be social responsible, H&M also employs local staff for its new outlets and ensure fair treatme nt of global employees by signing agreements with suppliers to practice ethical business prescribed by law.3.1.1.3. Technological DevelopmentH&M a cloths retailer organisation, has utilized the latest IT systems to help improve organisations logistics and production capabilities as well as reduce significant costs. Having multiple stores globally, H&M is also investing in its online sales capabilities to attract global consumers.3.1.1.4. ProcurementWithout owning any production factories or supply farms, H&M is greatly dependent on its suppliers capabilities. Small chances in raw material prices can great affect the profit margins of the firm, for example a slight increase in cottons prices will increase the cost of making H&M article of clothing. However without factories, H&M can advantageously switch suppliers to achieve better costing and quality. In addition to the firms huge purchases, it can easily control supplier to provide huge discount upon delivery of finished goods.3. 1.2. Primary Activities3.1.2.1. Inbound LogisticsH&M do not own any manufacturing plants and has outsourced its production needs globally. Hence it relays on various suppliers to deliver the necessary inputs on its behalf.3.1.2.2. trading operationsH&M utilizes a concentrate in-house designing model, its design operation located in its headquarters in Stockholm. With 200 design and 100 pattern makers, the firm is able to quickly churn out multiple fashion designs decided by various well-know designers and markets analysis to meet the latest trends. Having civilise connection with the production office also allows immediate production which enhances cost-efficiencies. Training is provided from workers to adopt companys values and provide better customer run.3.1.2.3. Outbound LogisticsOutsourcing of H&Ms goods transportation needs allows the firm to cut cost by reduction in labour chargers. Utilizing the integrated direct distribution channel that connects distribution centres, wa rehouses and stores, has ensured that individual stores needs are communicated resulting in timely delivery of goods daily.3.1.2.4. Marketing and SalesH&M philosophy is to provide affordable quality fashion to consumers. Benefiting from economies of Scales due to bulk purchases, the firm can negotiate with suppliers to provide huge discounts. Utilizing its philosophy, H&M has successfully communicated its position to the world through advertising means by working with famous designers, being long term advertising contract with famous celebrities, as well as its strong presence in social media. To further achieve its goals, the firm constantly revamp or renovate its stores every 2-3years to embrace the latest cultural trends, thus attracting its target customers.3.1.2.5. ServicesH&M views services as a very important aspect of their business, formal training is provided for new employees to adopt its firms value. Moreover, employees are highly back up to adopt initiatives and new id eas to only improve the working environment as well as customers satisfaction. To maintain employees high moral which in turn lead to better services, H&M has introduced many employee welfare initiatives and was consider one of the best work environments. Hence from the above analysis, it can be seen thatmarketing and sales is H&M strongest link, due to its links to famous designers and celebrities, which attracted consumers to get knowledge of the brand.Moreover, utilising social media also attracts the tech savvy users to share and expand the brand name at low cost. However, I would grade that the firms weakest links is in its family business wariness, since most decisions is make internally and new management ideas from external means may be difficult to flow through. In addition, there is also a risk of business succession where the heir of the company is not as suitable as its predecessor resulting in the firms failure.4. Question 4(a) Based on the precede analyses, conduct a SWOT analysis on H & M.4.1. StrengthsH&M is a well-known clothing retail firm that specializes in fast fashion and cheap apparels for men, women and kids. Its strong marketing arm has managed to raise brand awareness among consumers globally. In addition to the firms commitment to procure sustainable materials for product design has future enhanced brand image. H&M differentiated itself by ensure their designs are unique and not copies from other competitors.4.2. WeaknessH&M is altogether dependent on its suppliers for manufactured products, caused the firm to have limited control over manufacturers, which could lead to low quality products and negatively affect branding. With H&M core operation is highly centralized in Europe, leveraging of risk is weak. In addition, being a family own business, most corporate decisions are made internally, which may prevent external ideas to flow through preventing further growth,4.3. OpportunityHaving huge experience in running world-wide bus iness, H&M may expand further new penetrating new markets like Ukraine or Israel. The firm may also want to backward integrate its business process by entrancing various suppliers to better control its product quality.4.4. ThreadsInflations and Currency changes can greatly affect the cost of raw material as well as production cost. Moreover with Chinas aggressive product piracy, H&M design could easily be copied and cost globally eating market share.Europes unstable economic disposition due to crisis may force governments to raise corporate taxes to keep the economic afloat, which further affect profits. (b) Identify the key issues, challenges and opportunities facing H & M. As H&M centralized design processes, its products are not accommodate to individual markets, thus allowing competitors who can better differentiate their products to target different consumer groups eating into the firms market share.Focusing on cost leadership strategy, H&M have to ensure production cost is low to achieve profits. Hence to reduce cost of materials companies tend to regularise huge quantities of raw materials, which may result in overstock and rule unwanted inventory costs. Outsourcing of manufacturing reduces H&M direct control over the production process, thus making it vulnerable to quality issues resulting in awful reputation among consumers. In station to expand its presence globally, H&M may need to penetrate to new markets. It could also improve cost savings through backward integration by buying over various suppliers for its own requirements.5. Question 5Based on the preceding analysis, formulate and discuss appropriate strategies that you would recommend to H & M in order for it to achieve above-average returns in the future. After analysing the above information, I still that H&M is adopting the cost leadership strategy to advance it goals. Since the firm focused on Economies of Scales by purchasing huge qualities of goods in order receive better discoun ts, have long term experience to monitor its cost savings as well as constantly redefining production and distribution to achieve cost efficiencies (Johnson, G. 2014). However the most important factor that H&M lacks is the control of input cost since the firm had totally depended on suppliers for its productions needs.Hence, it is strongly recommended that the firm adopts backward integration by buying over or controlling various supplier/manufacturers in order to reduce its reliance as well as to be able to handle its input cost well. Even if that is not achievable, H&M could also hire service engineers to better train and monitor the suppliers set ahead through direct collaboration by planting its employees in manufacturing sites. This way, management will be more able to understand the quality and direct cost involved through the manufacturer plants production process, thus find ways to reduce cost andimprove efficiencies. Finally to improve total sales, H&M should also seek to hazard into new markets so as to increase income and create new opportunities.ReferencesJohnson, G. (2014). Exploring Strategy. tenth ed. Harlow u.a. Pearson.