Context of Business: Impact of External Environment, Leadership Style, CSR and Brexit and Covid-19 on H&M

This report evaluates the influence of external environment on H&M's practices, suitable leadership style, CSR responsibilities and process of H&M along with the influence of Brexit and Covid-19.

CONTEXT OF BUSINESS

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................2
MAIN BODY..................................................................................................................................2
1. Impact of external environment factors...................................................................................2
2. Suitable leadership style..........................................................................................................3
3. Corporate Social Responsibilities of H&M.............................................................................5
4. Impact of Brexit and Covid – 19.............................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES..............................................................................................................................10
1

INTRODUCTION
Context of Business i.e. the different strategies and practices that a business uses to perform
its operations and generate profits often influence their overall performance (Song and et.al.,
2019). H&M is one of the leading fashion retailers operating globally and having number of
stores. This report will evaluate the influence that external environment has over H&M’s
practices by using Pestle analysis. Further report will evaluate different leadership styles
identifying the most suitable one for H&M. CSR responsibilities and process of H&M along
with the influence of Brexit and Covid 19 will also be evaluated and steps taken by H&M will be
discussed in last.
MAIN BODY
1. Impact of external environment factors
H&M, it being a global organisation, is directly influenced by the trends and practices that
are prevalent in the external market. Pestle analysis can be used to identify how different factors
regulating the external environment influence the strategies formulated by H&M (Phan, 2021).
Political Factors: Political stability indicates a stable and measured growth of the industry.
H&M being a global organisation has its franchisees in the entire world. This influences their
profitability because every country’s stability is not consistent especially economies such as
Lebanon, Turkey etc. However, UK has been showing stability even post Brexit indicating a
strong growth market for its industries. Political factor therefore acts as a threat for growth for
H&M depending on stability.
Economic Factors: The pricing policies of H&M are directly influenced by the inflation rates
and currency fluctuations of different economies (Ullah, 2021). Since Covid- 19, the sales have
been influenced heavily in almost every industry. However, H&M by focusing on online sales
strategy was able to bridge up the intensive losses to an extent. In UK, the inflation rate has been
stable and the consumer buying behaviour has also improved post covid. Hence, economic
environment poses opportunity for H&M.
Social Factors: People are becoming increasingly aware of the company’s focus on
sustainability and their focus on different social groups. Trends indicate that youth focuses on
following whatever their idols, mainly celebrities endorse. H&M imposes upon the women
empowerment aspect robustly and they have engaged an extensive portfolio of celebrities in their
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advertisements. Hence social factors pose a number of opportunities for H&M to grow and
develop.
Technological Factors: In the fashion industry, technological advancements are a constant
process where regularly there are some or other new improvements in the overall supply chain.
UK also incorporates and leads such advancements in their industries (Ahmed and et.al., 2020).
H&M has heavily integrated technology with their logistics, supply chain and production
processes which have yielded long term benefits for the company. Hence integration of AI
creates opportunity for H&M to take advantage of this factor and gain benefits.
Legal Factors: Companies have to ensure compliance of laws in whichever country they are
operating which often makes it difficult. While operating in different companies, there are often
conflicting policies but companies have to ensure that they are complied with. For H&M this
factor acts as a threat because company has regularly been involved in activities which are not
entirely illegal but still do not stand approved in legal respect (Pandey and et.al., 2020). The suits
filed have been several and hence H&M needs to ensure that their policies respect the legal
aspects of different countries.
Environmental Factors: Fashion industry has undoubtedly highest environmentally taxing
requirements which create excessive pollution and are under constant scrutiny. Reusing and
recycling the products is one of the key strategies that was promised by H&M. the company has
been given high rankings in terms of their sustainable policies thus indicating that they can
develop this factor as an opportunity to create goodwill and loyalty for the company.
2. Suitable leadership style
Leadership is all about an ability that help an individual in order to influence and guide the
followers of the members so that they help a business to meet the defined aim. There are
different styles adopted by the company in accordance with their organizational culture which
include autocratic, democratic, affiliative, Laissez-Faire etc. This in turn assist to create a better
outcome and improve the performance so that it employees can share their views with people
and improve the brand image (Budur and Poturak, 2021). The leader of H&M uses democratic
leadership style which in turn assist to create a better outcome because it helps to attract the
employees and increase the employee involvement within a firm in order to improve the business
performance. Baloyi (2020) explained in their study that the leadership style in which members
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of a group participate in a decision making process so that company can make employee
motivated and raise the business performance. Also, with the help of this style, the employee
engagement can be improved and generate a better outcome so that the range of ideas can be
provided that raise the business performance. For example, leader of the company adopt this
style that helps to raise job satisfaction among employees and improve the brand image. That is
why, H&M deal at different locations and this in turn there is a need to involve the employees at
the different situation in order to get better outcome.
The chosen leadership style also help the company to invite employees to involve within
a decision and represent the company at different level. Raupu and et.al., (2021) examined in
their study that by fostering feelings of involvement and inclusion team members of the company
can be feel motivated and raise the business performance as well. As H&M already have
democratic leadership style in which they keep encouraging the employees to present the
creative ideas and improve the business performance. With the help of this leadership style
company can solve the problem and generate better solutions so that the brand image of the
company can generated. Also, the chosen leadership style for H&M is also helpful for the
company because it help to provide the flow of ideas freely and this lead the group in an
effective manner so that effective guidance can be offered (Al-Heneiti and Irtaimeh, 2021). That
is why, it can be stated that with the help of effective democratic leadership style, company can
raise the performance of employee and improve the productivity of a business as well.
For example, when H&M wants to change the organization structure so leader wants to
discuss the same with the employees in order to make decision and create a better outcome. This
in turn assist to improve the performance of the company so that effective outcome can be
generated (Buba, Chitumu and Ibrahim, 2018). With the help of taking views from people and
then make decision accordingly will help to create a better outcome and improve the
collaboration. Another example, when a company wants to implement new promotional tool in
the market and this can be possible only when the business have leaders and they consult with
the employees in order to implement the best outcome so that company can promote themselves
effectively. With the help of democratic leadership style, company can implement the best
outcome and this in turn assist to generate a better outcome because employees can understand
the business performance and their importance for the senior management (Baloyi, 2020).
Therefore, a leadership style always help the company to meet the business objectives and it
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create a better outcome only when the suitable leadership style has opted. This in turn shows that
the company need to involve the leaders and employees for making effective decision.
Overall, it can be stated that with the help of effective leadership style, company can
adjust the better outcome and when the group members are involved then it lead to make better
ideas and provide more creative solutions in order to understand the problem in an effective
manner. Similarly, H&M is also uses the same in order to create a better outcome and generate a
strong performance for the business. Thus, businesses need to be manage and involve the
employees for their decision making process which in turn assist to create a better outcome and
making them more likely to generate a better end results in a near future that helps to create a
better outcome.
3. Corporate Social Responsibilities of H&M
Corporate Social Activity is the management concept where company integrate social and
environmental concerns so that the business operations can interact with their stakeholders.
It is all about to better serve the society as a whole and it improve its public image and
relations. So that it creates a better outcome for the business performance and sustain brand
image. H&M is a clothing company with 60,000 employees and being a global brand image,
it has been identified that it has provided the best to the company in order to make effective
steps. Also, the company has actively chosen to communicate their social responsibility
information with the help of websites (Tomaszewska, 2021). The information about CSR is
also provided much space as information to investors such that from 2007, H&M has also
decided to align with CSR activities in order to create a better outcome for the welfare of
society. The biggest motivation factor is risk management that helps the company to
function well and also improve the business performance as well. Moreover, it has been
identified that it will focus upon the livelihood enhancement and empowerment for the
women and girls so that it assist to generate a better outcome and improve the business
performance.
In order to increase the training efforts within a company, it has been identified that H&M
also focused upon the training for factory workers and therefore to increase the awareness of
rights among factory workers this help to create a better outcome and generate a best
outcome. Also, to drive forward the development at company’s suppliers at the time of
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H&M, it focuses upon the company’s legal rights and this causes positive impact over the
business performance. Therefore, company need to provide better services to the company’s
employees so that they can make effective actions in order to improve the business
performance (Jiang, 2022). The company also focus upon environmental issues and to solve
the same, it has also focuses on the cotton because it wants actively contributing to reducing
the environmental impact of cotton growing. The main focus is to promote organic cotton
growing by contributing to increased demand and also improve the cotton growing as well.
As a result, company main focus is to produce organic cotton and its main intention is to
gradually use more organically grown cotton without any use of chemical pesticide and
synthetic fertilizer. Bleaching, dyeing and washing the fabrics required large quantities of
water and energy which in turn affect the environment and that is why, H&M actually
focused upon the products manufacturing that do not affect the environment and to
contribute cleaner fabric production, company actually encourage fabric dyehouse in order
to make environment protect from any fault (Chan and et.al., 2020). Another CSR activity is
included the expansion of eco-labelling which also contribute its best in order to improve the
business performance and environment as well. Hence, carbon di-oxide is another CSR
activity which in turn help the company to make decision for the welfare of a firm and
company also make initiative in order to reduce the number of gases towards an
environment. There are 3 sales countries which in turn assist the business to generate an
electricity so that they make decision and improve the business performance. Like, Germany
UK and USA that account for nearly half i.e 47% of H&M electricity consumption and 2/3
i.e. 67% of company’s electricity that related to carbon dioxide emission. Hence, it can be
stated that H&M focus upon the environment and this in turn assist the business to create a
better outcome.
However, company also focused upon the society and environment which is turn attract the
people. It is so because now, people considered or preferred those companies who actually
uses CSR activity which entails that only earning is not considered as a key factor for the
business (Kwon and Lee, 2021). Also, a business who is committed to the CSR which
means that it improve the world that is more likely to attract talent and also shows that
employees make social responsibility so that they can be more productive and generate a
positive work environment for employees. Also, it has been identified that with the help of
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effective outcome and complied with CSR activities, company can manage the work and
this in turn help the business to make effective efforts and increase the customer retention.
That is why, adopting CSR activities will help the business to create a better outcome and
sustain the brand image at global level.
4. Impact of Brexit and Covid – 19
Brexit and Covid- 19 affected the entire economy of UK heavily creating a double loss for
the companies especially in terms of labour who were majority of migrant labour from EU.
Brexit raised the risks of significant price rises and delays in the supply chains for which the
management of H&M was aware but not prepared (Huaranga, 2020). Despite company’s efforts
to optimise the supply chains, making huge investments in order to integrate AI which could
digitalise things making process shorter and focus on transformational leadership, there was
significant drop in their profits. Although the sales of the company were still on a rise, they were
not able to generate profits. The uncertainty of the market trends, increase in competition due to
reduction in mark prices by other fashion retailers were some of the most prominent negative
aspects of Brexit. Another major factor for H&M to control its market is by presenting weather
appropriate clothing but due to slow and uncertain supply chains, they were not able to generate
profits based on this aspect (Mahoney and Kearon, 2018). However, the management of the
company was positive that where their peers were filing for bankruptcy, they were still able to
show a positive movement in sales indicating that they must be doing something right. There
sales rose by 8% in the first quarter and then by a lower percentage of 2% (H&M boss cautions
on Brexit ‘risks’, 2019). US and UK are two of the most prominent markets of H&M through
which company was able to keep its sales positive but the cheap pricing led to downfall in the
profits.
Similarly Covid- 19 pandemic also brought a lot of challenges and changes for the company.
The sales of the company were again influenced heavily where throughout 2020, i.e. from week
12 to 20; they were at -34% sale values which was a situation of drastic loss for the company
(IMPACT OF COVID-19 ON H&M, 2020). The offline stores were shut down globally and
along with the entire economy, H&M was also facing the effects of pandemic. However, this was
not the only challenge as company, due to constraint in financial resources has to readjust its
focus on many of their key strategies such as their sustainability initiatives which they have been
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able to successfully execute. Also, post pandemic, the management of H&M recognised a radical
shift in the preferences of the customers as well, and the things they preferred to buy included
mostly loungewear, pyjamas and comfort clothing (Kim and Woo, 2021). The occasional wears,
party wears, formal wears etc. saw a steep decline and accordingly company had to mould their
supply chains as well.
However, irrespective of Brexit or Covid- 19, company was able to reorganize their
strategies so that they could get back to their market position.
 To counter the negative effect of loose supply chains during both Covid and Brexit, they
integrated agility in their systems and supply chain making them more flexible, faster and
able to deal with changes in the customer preferences and requirements. The long term
relationships with their suppliers, loyalty and transparency in their working helped them in
gaining the trust of the suppliers and this ultimately led to them meeting customer demand
more quickly, efficiently and satisfactorily.
 Transitioning quickly from heavily offline based system to properly functioning online
platforms was another the key strategy that H&M adopted to counter the effect of Covid on
declining sales. They used SEO’s, visual search features etc. which helped them in gaining
quickly on the sales. Although the sales figure was still negative but this helped them in
controlling the drastic decline that was arising (Dung, 2020).
 Post Brexit, the lack of labour was affecting H&M but they were quick to bridge this gap by
engaging more in exports and doing intensive hiring operations in UK. Although the gap is
still significant yet, their strategy of having premises in every country has helped them in
maintaining their staff strength even in these difficult times.
 Another key strategy adopted by them to meet effects of Covid was to focus on Gen Z
shoppers by including practices such as launching second hand collection, in store recycling
practices and using organic materials. This has helped them in developing habit of conscious
consumption and enables millennials who are ardent followers of this habit to shop guilt free
in fast fashion retail industry.
CONCLUSION
Based on the analysis done above, it can be concluded that H&M is indeed a leading fashion
retailer because of its quick decision making, development of strategies relevant with the
changing trends and customer satisfaction as key motive. Through pestle it was concluded that
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only political and legal factors acts as threat for the company and rest all help in fostering the
growth of H&M. It was also concluded that company utilised democratic leadership style in their
operations helping them in taking decisions that were understood and appreciated by employees
as well as management. Further it was also concluded that company has been working towards
betterment of CSR polices regularly where key issues such as women empowerment,
improvement of living status, reduction in the wastage etc. are key objectives. Lastly, Brexit and
Covid- 19 pandemic analysis helped in concluding that despite the slowdown and challenges that
these presented, H&M was able to bridge up to those by developing relevant and quick strategies
showing that their research regarding ongoing industry practices and trends is very sharp helping
them to be in a profitable situation overall.
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Ullah, N., 2021. Fast-Fashion Labels Industry: Strategy Evaluation of H&M.
Online
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<https://www.drapersonline.com/news/hm-boss-cautions-on-brexit-risks>
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