Analysis of H&M's Strategic Foresight and Competitive Advantage

The provided assignment is an analysis of H&M's strategic foresight and competitive advantage. It includes a detailed examination of various research papers related to strategic management, stakeholder utility functions, and competitive advantage. The analysis focuses on how H&M applies these concepts to maintain its position as a leading fast fashion retailer. The study also examines the company's use of sustainable supply chain management, corporate image, and customer satisfaction strategies to drive growth and competitiveness in the market.

Running Head: Corporate Strategy
H&M
Corporate Strategy

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Table of Contents
Introduction......................................................................................................................................2
Strategic Issues................................................................................................................................3
Macro Environmental Factors (PESTLE)....................................................................................3
Porter’s five forces.......................................................................................................................4
Internal factors.............................................................................................................................6
Factors of competitive advantage....................................................................................................6
Porter’s generic strategy adopted by H&M.................................................................................8
Competitive Strategy.......................................................................................................................9
Strategy Improvement................................................................................................................10
Conclusion.....................................................................................................................................12
References......................................................................................................................................13

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Introduction
Hennes & Mauritz (H&M) is a Swedish multinational apparel manufacturing and distributing
company. It is majorly known for its fast-fashion apparels for women, men, children as well as
for teenagers. It was founded in 1947 and it is headquartered in Stockholm, Sweden. Company is
operating from approximately 4500 stores in more than 62 countries and expanding its stores in
other parts of the globe constantly. More than 150,000 employees are working with H&M
Company across the globe and this has helped the company to acquire second position across the
globe in terms of largest global retailer of apparels. Parent company of Zara i.e. Inditex which is
a Spain-based company stands on the peak position in the fashion industry. In order to expand
organizational presence, organization also sells its products through online shopping websites in
more than 33 countries. Success and growth of the organization could be estimated by its
effective strategic management. Strategic management is the process under which various
strategies are being constructed with the view to execute organizational functionalities in an
effective manner. Apart from this, another objective behind developing strategies is to uplift
organizational performance so as to gain competitive advantage in the target market as well as to
acquire a decent market share in the global market.
In relevance with the strategies, companies also need to bear challenges and issues which come
along with them. In this report, strategic issues will be discussed in relevance with the second
largest apparel brand in the global market. Along with this, key success factors will be discussed
through which organization is able to gain adequate competitive advantage in the market. The
last part of the report will focus over the effectiveness of organizational competitive strategies in
relevance with the strategic issues and as per the evaluations, recommendations will be given.

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Strategic Issues
There are numerous issues faced by H&M in their daily operations. Some of them are change in
the customers’ tastes, preferences, choices, etc. Apart from these issues, changes in the macro
and micro environmental factors also affect organizational performance. In order to overcome
from these issues as well as to gain competitive advantage in the target market, it is necessary for
the organization to develop appropriate and effective strategies. Development of strategies
should include assessment of the issues and competitor’s effectiveness and their strategies.
Following are the main strategic issues faced by H&M:
Macro Environmental Factors (PESTLE)
Political: As H&M is performing its operations at international level, thus, the company is
supposed to consider every country’s rules, regulations and laws in order to perform its
operations in an effective manner. Apart from the policies, rules and regulations, governments
could also impose overnight policies through which organizational business may get affected.
Thus, considering all these aspects, it is required for the management of H&M to develop their
strategies in such a manner so that political factors does not affect organizational performance
the desired goals and objectives could easily be attained (Yu & Shi, 2013).
In order to reduce cost of production, H&M outsourced manufacturing of their apparels to
Bangladesh due to cheap labour and raw material costs. But due to weak economic conditions in
Bangladesh, they do not have many measures in relevance with workplace safety. In 2006,
various incidents occurred in Bangladeshis’ factories under which approximately 1100 people
were died and amongst those factories, one of those factories was producing H&M’s apparels.
Due to this incident, organizational goodwill decreases and this affected their revenues and
profitability. From that incident, organization has taken and promoted various measures in
relevance with workplace safety. Along with this, to uplift their declined image in the market,
organization adopted effective measures (Thompson & McLarney, 2017).
Economic: Economic factors such as inflation rate, interest rates, exchange rates, economic
conditions of countries, etc. As H&M is engaged in various parts of the globe, thus, managing
their operations as per the different economic conditions in different countries becomes a bit

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difficult task for the organization. Due to expansion at large scale, organization is not able to
maintain same prices for their products in every country and these results in the fluctuations in
their performance. Also, import duties, taxes, and various laws in relevance with the import and
export varies in every country which makes bit difficult for the organization to source at
catalogue price (Vecchiato & Roveda, 2010).
Social: Socio-economic factors such as changes in the customer’s preferences, latest fashion
trends, products manufactured by competitors and other social aspects have a huge impact over
the organizational performance. In relation with these factors, organization is required to develop
effective strategies through which desired goals could be developed. Apart from this,
organizational management is also required to adopt appropriate measures through which their
dynamic strategies could be developed. With the help of dynamic strategies, organization would
be able to perform its operations in effective and desired manner (Turker & Altuntas, 2014).
Technological: H&M stands on the second position in the global fashion industry. In relevance
with maintaining the same sort of performance, it is required for the organization to get updated
in relevance with the technological aspects. This is necessary for staying updated in regards with
the fashion, new trends on the basis of seasons. H&M offers unique collection to its customers
on the basis of season, thus segregating the apparels as per the different categories and for
launching the products online also requires involvement of effective technological factors.
Legal: It is necessary for every organization and its related parties like suppliers, distributors,
etc. to adopt appropriate laws and regulations of the relevant countries in which they operate.
This is necessary for making operations effective and result oriented. In relevance with these
laws and regulations, H&M’s requirements should also be considered. Laws which company
needs to adhere are child labour, criminal laws, workplace safety, etc. (Thomassey, 2010).
Porter’s five forces
This is another strategic issue for H&M because factors of Porter’s five forces are linked with the
competitive strategy and competition could affect the organizational performance in all manners.
Following are certain elements of Porter’s forces:

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Threat of new entrants: New entrants could affect organizational performance because they
will provide apparels at reduced prices as compared to the prices charged by H&M. Apart from
this, it is easy to enter into apparel industry because only certain amount of capital is required to
open a new store. H&M has developed extensive and effective image in the fast-fashion apparel
industry, thus, it is required by H&M to develop appropriate strategies as defensive techniques so
that the acquired position could be maintained along with maintaining the demand of their
products (Amatulli, Caputo & Guido, 2011).
Threat of Substitutes: Inn relevance with the apparel industry, substitutes does not carry much
weightage. This is because if an individual is adhered towards branded cloths, he will not be able
to switch towards local or unbranded cloths. Thus, the impact of substitutes is very weak over the
performance of H&M. However, management of the organization is required to adopt certain
strategies through which quality of their products could be improved constantly. Along with this,
launching new products as per latest trends is also necessary in order to provide huge product
offerings to the target audience and to maintain an effective image in the target market
(Bhardwaj & Fairhurst, 2010).
Bargaining power of suppliers: Suppliers play crucial role in the success and failure of an
organization. In order to maintain an effective place in marketplace as well as to uplift
organizational performance in the market, it is necessary to make and maintain appropriate
relations with the suppliers. This is necessary to produce effective and qualitative goods within
the time and customer’s requirements could also be fulfilled within the time frame only
(Fleisher, 2015).
Bargaining power of buyers: Switching costs is very low and in the fashion industry, price
factor plays vital role. In order to attract more customers as well as retain existing customers,
organization is required to adopt adequate pricing strategies, product differentiation strategies,
etc. through which difference could be made between the company’s and its competitor’s
products (Guercini & Runfola, 2010).
Industry Rivalry: Due to high number of firms available in fashion industry, industry rivalry is
quite intense. Primary competitors of H&M are Zara, Oysho, Massimo Dutti, Pull & Bear, etc. In
order to maintain an effective image amongst the competitors, organization is required to adopt

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appropriate strategies in relevance with attaining its desired goals as well as to acquire
competitive advantage in the marketplace. Improving quality of the product, enhancing product
offerings as well as by reducing the prices of the finished goods, organization could gain
competitive advantage along with the attainment of its desired goals and objectives (Cortez, et.
al., 2014).
Internal factors
Apart from the external macro environmental factors and external industrial factors which lead to
strategic issues for the organization, another strategic issue which affects organizational
performance is internal factors of the industry or internal environmental factors. In terms of
internal environmental factors which affect H&M’s performance are its customer’s needs, their
choices, preferences, latest fashion trends, their competitors, their products and the forces applied
by them to acquire market in their favour. Foremost, factor which carries huge weightage
amongst them is the customer’s requirements. Being a part of the apparel industry, it is required
for the H&M to produce cloths for their target market as per their requirements as well as by
considering all relevant factors such as demand of latest trends, customer’s products and
strategies implemented by them to win the market. In order to gain competitive advantage in the
target market along with the development of an effective image in the target market, it is
necessary to adopt appropriate strategies so that the internal environmental factors of the
organization could be dealt in positive manner (Caniato, et. al., 2012).
Factors of competitive advantage
Success of H&M can be attributed to their ‘fast-fashion’ model. Definition of fast fashion is the
thought of moving huge volume products from manufacturing area to the store from it can be
bought by consumers in a very short time period. H&M’s fast-fashion model is capable enough
to gain determine its target demographics’ needs and implementation of appropriate and relevant
strategies to make required changes in its supply chain. Business model of Swedish brand is
distinct and fast fashion is not isolated to H&M. H&M’s operations are quite unique and distinct
from its competitors because it does not produce products in-house, they outsource its production
to various parts of the globe. Majorly European and Asian countries are given the contracts for
producing apparels for H&M. Their business concept is unique and believes in delivering

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qualitative and fashionable products at best prices to its target demographics (Battaglia, et. al.,
2014).
In relevance to this, H&M’s primary objective is to increase its market presence in the
international market by increasing the number of stores by 10-15% every year along with
enhancing their revenues from every store. Major factor through which they are able to provide
qualitative fashionable apparels at best prices to its customers are:
 Less middlemen
 Purchases in large quantities
 Good and in-depth knowledge regarding latest fashion trends and design
 Decision of purchasing the right product from right market
 Awareness regarding minimising cost at every stage
 Having adequate sources for distribution (Grant, 2016).
(Source: FIBRES & TEXTILES, 2007).

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H&M is continuously increasing its market share and since last five years, approximately 75%
stores, 100% turnover and nearly 260% profitability after tax have been increased. In relevance
to the organizational success, following are certain crucial factors:
 Constant level of new products: H&M is known for introducing new designs and
unique styles in their apparels. Their main strategy is to delight the customers by
introducing fast-fashion apparels. As per the latest trend followed by H&M, their primary
attempt is to bring new products in front of its target demographics every month. On an
average, H&M’s products take approximately 30 days to sell out and this time period is
decreasing rapidly which is a positive indicator of organizational success and growth
(Shen, et. al., 2012).
 Adequate strategy for discounting: Company’s discounting approaches are different
from its competitors. On an average, H&M’s mostly 24% products are sold through
discounts and promotions. H&M uses to sell its products on discounted rates every
month, thus, its customers waits for that period (Amatulli & Guido, 2011).
 Focusing on core customers: Their core customers are female because approximately
57% of its product offerings include womenswear. Rest of their product offering includes
men wears and children wear.
 Consistency in price architecture: H&M and its competitors’ price vary. In order to
enhance organizational efficiency, management has adopted adequate cost leadership and
product differentiation strategy. This has helped the organization to provide its
customer’s unique and effective apparels at low costs (Porter, 2011).
Porter’s generic strategy adopted by H&M
Primary objectives of H&M are to enhance its productivity, profitability, gain competitive and
technological leadership. Amongst the four generic strategies described by Porter, H&M has
adopted cost leadership and product differentiation strategy for developing and maintaining
unique image in the target market. H&M uses to sell its products at fewer prices as compared to
its competitors and this is due to adaptation of cost leadership strategy. Under this strategy,
organization reduces its cost of production by cutting unnecessary costs so that the final prices of
the products could be decreased. Another alternative for this is to decrease the profit margins so

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that finished good’s prices could be maintained. H&M with this strategy also set high entry
barriers for the competitors (Kim, et. al., 2012).
Apart from cost leadership strategy, organization has also adopted product differentiation
strategic order to support its primary generic strategy. Generic strategies are essential for the
organizational growth and success along with attaining adequate goals and objectives. In terms
of product differentiation strategy, H&M produces unique and distinct products from its
competitors by adding unique measures as well as by making them customer centric. For making
its products distinct from its competitors, organization has adopted adequate strategies and
measures so that their products could stand out from the competitors. As there is low profit
margin being cost leader, H&M is very focused on growth, expansion and increase of market
share (Lo, Yeung & Cheng, 2012).
Competitive Strategy
In order to gain competitive advantage in the international fast fashion industry, management has
proposed cost leadership and product differentiation as the primary and supportive generic
strategies. These strategies are adopted by the management as per the assessment of
opportunities available in the market and by taking consent from stakeholders of the
organisation. In relation to this, organization has adopted SAFe criteria for evaluating the
suitability, acceptability and feasibility of their applied strategies (Harrison, Bosse & Phillips,
2010).
Suitability: While evaluating suitability of the adopted competitive strategy by H&M towards its
stakeholders and business environment, it was observed that cost leadership strategy is capable
enough to address key opportunities and other all constraints faced in a competitive and dynamic
business environment by the organization (Scholes, et. al., 2014).
Acceptability: Before application of every strategy within the workplace, it is necessary for an
organization to take consent from its stakeholders. Stakeholders of an organization include
investors, shareholders, directors, employees, and all other members who carry a certain level of
interest within the organization and in its practices. Primary concerns of stakeholders are
estimating level of risk comes along with the strategy implemented by the organization and

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returns over their investments. In relation to this, organization needs to take consent from all of
its stakeholders or from the majority of the stakeholders so that the strategies could be able to
fulfil its stakeholder’s and organizational objectives (González‐Benito & Suárez‐González,
2010).
Feasibility: This is the last element of SAFe criteria and under this; selected strategy by the
organizational management should be evaluated on certain basis. The major elements which
should be considered before application of the competitive strategy are:
 Proposed strategy will work in practice?
 Can strategy be financed?
 Existing skills of employees will be suitable for the strategy or they will require
additional training measures?
 Resources required for application of the strategy will be obtained or integrated?
By considering these elements of adopted cost leadership strategy, organization needs to design
all relevant practices so that the desired goals and the objectives could be attained (Nandakumar,
Ghobadian & O'Regan, 2011).
Strategy Improvement
 Logical Incrementalism: It is a management philosophy under which strategies adopted
by the organization do not come into existence on the basis of one time decision rather it
depends upon various small decisions. Thus, in relevance with the adopted strategy by
the H&M, management should take small decisions in relevance with the strategy by
experimenting and learnings of experienced candidates of the organization. This will help
the organization to gain its desired goals and objectives (Lu, et. al., 2011).
 Acquire unique resources: Unique resources for H&M could be inventing new style in
apparels, improvising their existing products and promoting them at large scale in order
to enhance the demand (Rudes, et. al., 2012).
 Improvisation in CSFs: Organizational current success factors needs to be improved in
relevance with the opportunities available in the business environment. Success factors
needs to be focused so that the organizational efficiency could be improved (Molina,
Faulks & Frencken, 2015).

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Conclusion
From the aforesaid information, it can be concluded that strategies plays crucial role in terms of
attaining the desired goals and acquiring an effective position in the target market. In this report,
H&M’s strategic management concept has bene discussed under which strategic issues have
been evaluated which affects organizational performance. The report concludes strategic
concepts implemented by the organization with regards to the accomplishment of task. Cost
leadership and product differentiation strategies have been adopted as intensive growth strategies
so that the strategic and other key issues could be addressed. Intensive growth strategies adopted
by the organization is also effective in enhancing its capabilities in order to acquire the position
and maintain that acquired position. In the last, certain strategic improvements have been given
with regards to improvise the performance of the organization.

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Appendix
Annual Report of H&M, 2017

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(Source: H&M Annual Report, 2017).