Porter's Five Forces and Value Chain Analysis of H&M

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INDUSTRY ANALYSIS AND POSIBLE ADAPTIONS
Business Environment
Hewlett-Packard
LON 170927027

Contents
Introduction....................................................................................................................................2
Company background...................................................................................................................2
Porter’s 5 Forces Model................................................................................................................4
Value Chain Model........................................................................................................................7
Adaptations in accordance to the external forces.......................................................................9
Usefulness of the Porter’s 5 Forces Model................................................................................10
Conclusion....................................................................................................................................11
References:...................................................................................................................................12
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Introduction
In the modern days the organizations can get several effects from the business environment by
managing the environment the company can easily achieved their business objectives.
Nowadays, people have different perceptions of the brands and their products with increasing
costs and economic downtowns. Thus, companies need to manage their needs and demands of
the customers by managing the perceptions (Hitt, et al. 2012). With the help of the Porter’s 5
Forces model the overall external environmental factors can be identified properly. Like this the
company can develop effective business plans which can help them to sustain in the market in a
proper way. On the other hand, the company can get some benefits in their business with the
help of the overall business ideas which they can get with the help of the external environment.
This is how the company can easily get some benefits in the market of UK.
Company background
In terms of doing the study the company Hennes & Mauritz has been chosen. This is a popular
multinational retailing organization and they sales several products for men, women as well as
teenagers with the latest trends. H&M was founded by Swedish businessman Erling Persson in
1947.
H&M can be identified as the effective global company in the fashion industry. However, they
provide high-quality, products in affordable prices as well as they have their business among 50
countries. Along with this they have 4000 stores in the international market. They also have
online activities which can be helpful for them to attract the customers positively. They have
140,000+ staffs and with the help of the effective leadership and management they can manage
their activities in a proper way. H&M Group has 9 brands under their umbrella; Cheap Monday,
H&M, & Other Stories, COS, Weekday, H&M Home, Monki, Afound and Arket which are
attracting people globally. These brands have their special uniqueness that attracts people from
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all the age groups and hence helps in establishing a good market presence (Annual Report,
2017).
Sustainability Strategy
Source: [H&M Group Sustainability Report, 2017]
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Porter’s 5 Forces Model
Porter’s five forces refers to a particular tool that encompasses five external or industry forces,
which possess the potential of identifying the intensity of existing competition in that particular
industry and its degree of profitability. The five major competitive forces that affect the industry
are: bargaining power of the suppliers, bargaining power of buyers, threat of substitutes, threat of
new entry and rivalry among the existing companies in the market. As these factors can cast
negative as well as positive impacts on the any business it would not be unjustified to state that
regular analysis and monitoring of these aspects is one of the most essential tasks that must be
performed on a regular basis. In the current study the environmental factors that influence the
Apparel Retailers subsectors within the United Kingdom will be elaborated using the Porter’s
five forces model. In this context the impact on H&M, one of the famous apparel companies of
the UK will be portrayed.
Figure: Porter’s five forces
Sources: Harding, 2017 Bargaining power of the suppliers: It is often regarded that suppliers generally does not
play pivotal role in the fashion retail industry; the apparel industry of the UK is not an
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Porter's
Five
forces
Bargaining
power of
the
suppliers
Bargaining
power of
buyers
Threat of
new entry
Rivalry
among the
existing
companies
Threat of
substitutes

exception in this regard. The resources are typically bought form the suppliers of the third
world countries like China and India. Due to the abundance of the suppliers with very
little differentiation the bargaining power of them gets low. Furthermore, globalization
also accounts for the low strength of the suppliers as it provides the manufacturers ample
scope of switching between various suppliers present in the market. H&M produce their
products on their own and with the help of some traditional supplier relations they have
successfully earned a good market value and success.
 Bargaining power of the buyers: Strong bargaining power of the buyers enhances the
potential of the buyers of demanding higher product quality or lower price from the
producers of the industry. Higher quality of product raises the production cost of the
manufacturers and on the other hand, lower price leads towards generating lower
revenues for the producers (Kozlowski et al. 2015, p. 377-397). Both of these scenarios
diminish the degree of profit for manufacturers. The overabundance of retailers in the
apparel industry of the United Kingdom undoubtedly contributes to the higher
bargaining power to the buyers of the industry. Apart from that, as the switching cost is
low and availability of various fashion brands is ample, it is often witnessed that
buyers change their buying preferences and does not stay loyal to a particular company.
Majorly due to these reason the bargaining power of the buyers in the UK apparel
industry is strong, which forces companies like H&M to maintain an effective
relationship with their customers and fulfilling their demands by keeping their products
updated with the latest trends of the market.
 Threat of substitution: The threat of substitution always lurks in the apparel industry of
the United Kingdom. It generally comes from inside of the industry. As mentioned earlier
the competition in UK’s apparel industry is very intense; naturally the force of threat of
substitution is quite strong. The fashion landscape of the United Kingdom, from the low
end to the high end, has been populated by various brands (Harding, 2017, p. 20). Even
for the citizens who cannot afford luxury brands the availability of substitutes is not at all
scare. Due to this reason the switching between different brands becomes easier for the
consumers, which strengthens their bargaining power and reduces the profitability level
of the manufacturers. The major brands that can substitute the products of H&M are Zara,
Gap Inc, Uniqlo and forever 21.
 Threat of new entrants: The threat of new entrant in the apparel industry of the United
Kingdom is undoubtedly a weak force. As the fashion and apparel landscape of the
country is very densely populated it becomes very hard for a new company to make a
noteworthy entry in the market. It becomes very tough for the companies to differentiate
themselves from the existing companies of the market. Apart from that, initial investment
of money as well as time undoubtedly proves out to be barriers in entering the market.
Apart from infrastructure, investment in distribution chain, human resources and
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marketing makes the task tough for the companies to enter the new market (Michael,
2014, p. 32-45).
However, the rapid growth of the apparel industry of the UK refers that still companies
find unique ways of establishing their business and acquiring success.
 Rivalry among the existing companies: The fashion, apparel industry of the United
Kingdom is remarkable due to the presence of intense completive rivalry in the market.
The market is vastly populated with various brands with similar kinds of product
offerings, which intensifies the competitive rivalry in the market. Although fast fashion is
a comparatively new area which has not yet been populated by different brands, rest of
the market is overabundant with other companies. Brands with better brand image gets
the opportunity of charging higher price to its customers; however the force of
competitive rivalry is strong in UK’s apparel industry it even famous brands use
discounts, marketing and offers to overcome this force (Hammer and Plugor, 2016, p.
402-416). H&M is not an exception in this regard; the most famous competitors of H&M
are Gap Inc, Uniqlo, Forever 21, Zara, Tommy Hilfiger, Van Heusen and Calvin Klein.
The slow growth rate due to the recession during 2008 has also resulted in the
intensification of the competition in the market. Finally, it can be said that the rapid
change in the trend forces the company to review their products on a regular basis to
appeal to the fickle base of consumers.

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Value Chain Model
The notion of value chain refers to a particular type of business model that elucidates the full
range of activities that are needed to create a service or product. For instance, the companies that
manufacture goods, the value chain encompasses steps like procuring resources, manufacturing
and indulging into the marketing activities. The competition for exceptional products, unbeatable
prices and loyalty of the customers in the apparel industry of the United Kingdom is ever-
increasing. Naturally, it becomes a responsibility for the companies to continually check their
value chain and adjust their strategies for maximum profitability and efficiency. Being a part of
the apparel industry of the UK, H&M is not an exception in this regard. The value chain of the
company can be categorized into two parts, they are as follows:
 Primary activities: The primary activities of a value chain are majorly oriented to add
value and managing the inventory of the business. It can be further divided into five
major divisions, such as:
 Inbound logistics: After virtually designing the new product it becomes essential for
the company to receive, warehouse and manage the inventory as per the demands of
the situation. All of these activities fall under the hood of inbound logistic. H&M
being an apparel company need to procure and process raw materials such as cotton,
which they mainly import from the third world countries like India and China. The
processing involves chemical and water use, which is associated with poor working
conditions (Hammer and Plugor, 2016, p. 402-416). Moreover, there is potential risk
of forced and child labour. Due to these reasons H&M tries to accumulate as
efficiently as possible by promoting sustainable raw material choices and focusing in
100% circular ambition.
 Operations: Production of fabric and the final manufacturing of the product falls
under the operation sector of the value chain of H&M. The functions of the business
partners are closely monitored by the company. H&M does not have direct business
relationship with the mill; they work with organizations like WWF and STWI to
enhance their performances in terms of chemical use, emission of green house gas
and working conditions. Over 1.6 millions of workers work in the factories of the
business partners. The company tries to eliminate human right issues such as social
security, wages, and safety and working hours to make the value chain efficient.
 Outbound logistics: The outbound logistic refers to the process of distributing the
products to the end consumers. Outbound logistics of H&M encompasses
transportation, packaging and material handling. Although the company does not own
their suppliers they have formulated the logistic system very well. The main
distribution centre of the company is located in Germany and Hamburg. After
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warehousing the products in the distribution centres they are transferred to the stores.
Apart from that, H&M also sales their products online where products are sent to the
end customers from the distribution centres
The company believes that 2% of the Greenhouse gas emission is represented by the
transport in a garment’s lifecycle. To secure the planet form pollution 90% of the
transportation of the company is made via rail, roads and ocean.
 Marketing and sales: As the apparel industry of the United Kingdom is abundant of
various brands it becomes important for H&M to implement an adequate marketing
strategy. The target market of the company is the medium class people who do not
fantasize about different brands. The company has a huge range of suppliers and it
always buys products in bulks, which helps in reducing the final cost of the products.
The quality it provides in a comparatively cheaper rate is noteworthy and draws the
attention of the customers. Furthermore, H&M invests a huge amount of money for
the advertising purpose. It has contacts with stars like David Beckham and Rihanna,
which helps the company to establish itself as a multi-cultural company (Bush, 2016,
p. 178). Moreover, the stores of the company are located in the major cities, which
draw the attention of the customers.
 Services: Services is the last part of the value chain of H&M. It is an integral part of
any business and more so in case of clothe retailer business. H&M is known for their
skilled and professional workers. These employees of the physical stores implement
the positive atmosphere at the stores. Apart from that, the company has always been
very flexible regarding the mending of the products and the customers well-treated
even if they complain about certain products.
Secondary or supporting activities:
 Infrastructure – highly advanced with the latest inventory, transportation and production
mechanisms
 HRM (Human Resource Management)– with over 100,000 staff members company has
earned a significant market value from within and hence the HR management is effective
with the effective and attractive reward management, performance management, etc.
 Technology – highly advanced and latest machinery for the production, procurement and
other operations with the help of high-end software’s.
 Procurement – it involves the supply chain operations, storage, transportation, and
distribution systems etc. which are performed by the company effectively.
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Adaptations in accordance to the external forces
In the recent times the company needs to adapt different strategies for resolving their external
issues effectively. In this case the company has adapted different strategies for enhancing their
brand effectively and this also helps them to improve their productivity easily. H & M is running
their business successfully in this market, but in this case they need to set some goals for
sustaining in this market easily. The company has identified different threats in the external
market and then depending on this they have adapted different strategies effectively. Adapting
new strategies helps the company to resolve these issues effectively and resolving issues can help
them to gain competitive advantages over other competitors easily. However H & M is a
multinational company and they are doing their business successfully in many countries. Thus
they need to analyze the threats available in the international market for doing their business
effectively. Marketing department of this company plays a major role to adapt different new
strategies easily and this also helps them to sustain in this changing environment effectively.
Since the organization's external environment includes the dangers from the business sectors,
impacts from governmental issues, lawful components and dynamic needs, H&M, the most
conceivable and compelling adjustments that can be utilized are: Expanding the coverage of online market: The penetration of online marketing is
growing at a very rapid pace in the apparel industry of the United Kingdom. The online
channels of H&M cover only 13 of the 55 markets. In order to fulfil the demands of the
Omni-channel customers the company should formulate strategies to expand their
coverage of online market and overall sales. Promoting the sub-brands: It has been found that the apparel industry of the United
Kingdom is already saturated with various brands. Instead of collaborating with the
brands, which have limited presences in the company the company should focus more on
promoting their sub-brands to cater to a wider range of customers (Kozlowski et al. 2015,
p. 377-397). It will not only help in increasing their overall sales but also contribute to
enhance their brand image.
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 Implementing in-house manufacturing: H&M currently uses outsourcing process for
manufacturing new goods. The company collaborates with a huge range of external
suppliers and depends heavily on them regarding the quality of the manufactured
products. Apart from that, the importing of these products takes more than five to six
weeks of time to reach the warehouses of the company in Europe. This overdependence
on the external suppliers can lead the company towards it downfall. According Köksal et
al. (2017, p. 100), H&M will be liable in case any issues regarding the quality of the
products are found. The company can consider transferring their production facilities near
to their core of business. It will help the company to gain absolute control over the
functions of the business, decrease of production cost and reduction of importing goods.
Usefulness of the Porter’s 5 Forces Model
With the help of the porter’s five forces the company can effectively get overall information
regarding the external environmental factors of the business. Like this the company can get
information regarding the business. Thus, they can understand the stability of the business in the
modern market. On the other hand, it can be seen that the company also can develop their profit
margin in the competitive environment. However, in the UK market the company can get several
effective impacts on the business. The government can be supportive for the business which can
help them to sustain in the market by developing proper business plans. Like this the company
H&M has been gathering proper scope business development.
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Conclusion
After analyzing this study it can be said that H & M is a successful company and they are doing
their business in many countries. Since this is a multinational company and therefore they are
facing tough competition in the international market. However this company is facing many
threats in the external market and therefore the marketing department of the company needs to
adapt different strategies for resolving these issues effectively. Recently the company is adapting
different strategies for resolving their external issues effectively and this also helps them to gain
success in this market effectively. To impose some effective adaptations this assignment has
involved the description of the influences from the business environment rather internal or
external so that the proper information can be gathered first, and best possible recommendations
can be provided.
H&M Store Design
Source: [H&M Group, 2018]
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