Business Expansion: H&M's Entry Strategy and Growth in Chinese Market

This research paper provides an executive summary and detailed analysis of H&M's entry-level strategy in China. The report highlights the significance of partnership in facilitating H&M's successful entry into the Chinese market, positively impacting profit margins. It examines H&M's strong global position, with over 4,200 stores across approximately 62 countries. The study explores the company's international competitive strategy, organizational structure, and operational controls, including production and supply chain management. Furthermore, the report delves into H&M's human resource management practices across borders, emphasizing recruitment strategies tailored to local cultures. The paper also identifies key issues and opportunities for H&M's management, offering recommendations for improvement and business expansion within the Chinese market. The analysis includes H&M's adoption of partnership as an entry strategy, operational control through risk analysis, and the use of online distribution channels in China. The report concludes with an overview of H&M's human resource strategies, considering recruitment and cultural adaptation in both China and the US.

RESEARCH PAPER

EXECUTIVE SUMMARY
This document has kept its focus on entry level strategy of H&M that has used to enter
China. Partnership has given high range of opportunity to H&M which impacted positively on
profit margins and it has directly helped them in entering Chine market. Along with this, current
position of H&M in all over the world in strong because of its size (more than 4,200 stores in
approx. 62 nations). Lastly, decisions that has been taken by human resources of H&M totally
depends upon the area and the culture which is followed by nation.

Table of Contents
EXECUTIVE SUMMARY.............................................................................................................2
INTRODUCTION...........................................................................................................................5
Overview of company and current operating position of H&M............................................5
Review of company's international competitive strategy.......................................................6
Existing organisational design structure and control issues...................................................6
Entry strategy used to enter in other region of H&M.............................................................7
Operational control, production and distribution/supply chain management........................8
Management of Human Resources across borders.................................................................8
Identify Key issues and opportunities of H&M management................................................9
Recommendations to management for improvement...........................................................10
CONCLUSION..............................................................................................................................10
REFERENCES..............................................................................................................................11

INTRODUCTION
A research paper is being considered as a piece of academic writings that basically stays
based on original research or investigations that has been done by authors. Here, both analysis
and interpretation on research findings as well. In this research paper, organisation which has
been chosen i.e. H&M for conducting analysis on business expansion across borders. A
multinational clothing brand operating its business in around 62 countries with more that 4,400
stores. China, United States and Germany are some of main markets in which this firm has
gained good reputation. Present research paper, is going to be enclosed with current position of
H&M, competitive strategy, organisational structure, management of human resource among
border, key issues and opportunities of H&M management and lastly report will include
recommendations for further improvements for business expansion in Chinese market (Shen, B,
2014)
Overview of company and current operating position of H&M
Hennes & Mauritz AB, a Swedish international clothing-retail business organisation
known for fast-fashion clothing segment for teenagers, men, women, and for children as well.
Company is famous in all over the world named as H&M, it was found in the year of 1947 as
Hennes by Erling Persson. Apart from this, 1968 was the year when founder of this company
acquired hunting apparel retailer named as Mauritz Widforss, that took organisation to get into
the world of menswear and added them in company's product range. Just after this, company's
named got changed from Hennes to “Hennes & Mauritz”. It is having around 4,400 physical
stores among 62 different countries with approximately 132,000 efficient employees.
Organisation's head quarter is in Stockhom, Sweden and in the year of 1974, company got listed
in Stockholm Stock Exchange (Giertz-Mårtenson, I.,, 2012). Based on a report of 2015, H&M is
being considered as the second largest clothing retailer just after Inditex, as this took place
because company has kept its focus on offering right fashion to its targeted customers
considering new trends.
On the basis of current financial reports of H&M, which shows that company's current
operating position is strong enough which is helping them in expanding its operations in
countries where it is not doing business. Sales of the company got expanded by 4 percent from
AUD 36026.96 to 34642.59. Away with this, gross profit has also raised from the financial year
of 2017-2018 where it was AUD 16504.37 to AUD 16801.73. On the other hand, from year of

2016 to current company opened around 479 and just closed approximately 91 stores (Number of
stores of the H&M Group worldwide from 2009 to 2017, by selected country, 2019). This could
be considered as H&M's strong position where company is rapidly improving its image at global
level. Apart from this, in 2018 company started operating in eight new H&M online markets.
Thus, it can be said that in the end of 2018-2019 financial year H&M might have around 69 sales
markets and in which 43 would be online (Mo, 2015).
Review of company's international competitive strategy
Since H&M is performing at international level, company goes through a heavy range of
competition from many small, medium and large level of rivals in different countries that are
doing business in clothing sector. Thus, it can be said that competition level is increasing
continuously and H&M has started facing really very heavy rivalry from companies that are
doing business in same sector.
Therefore, H&M has developed an international competitive strategy which is to sell
products (clothes of every segment (men, women and kids)) relatively at low prices. The basic
reason behind this is that the company's size is larger in nature and this gives opportunity to
H&M to use low pricing approach in order to give tough fight to its competitors and is helping
company to expand their business at international level. It is being found that, size basically offer
H&M to cultivate the other competencies that this allow company to excel itself in clothing
business sector (Kotabe, M. and Helsen, K.,, 2014). With more than 4300 stores, company could
directly spread cost linked with the designs in a really very short span. This impacts positively on
performance level of the company and may lead H&M to give good competition to its rivals.
This approach has helped organisation to expand its business in China where the company now
has become a renowned brand. Chinese people (targeted customers of firm) are heavily
purchasing products and services offered by H&M because of their low prices. This impacted
positively on performance level of the company in all over world.
Existing organisational design structure and control issues
H&M basically follows functional organisational design structure in the company and
this help them in keeping things simple even in complex situations. Since the company has kept
its focus on business expansion, it cannot use a complex organisational structure like matrix as
this would lead H&M to go through a number of problems where employees may deliver
information to others (people of H&M) where it is not at all needed. On other hand, it provides

effective flow of information in both vertically and horizontally in H&M. This structure basically
manages or maintains business operations and H&M's employees might work in much more
effective or in better manner (Dawson, J. and Mukoyama, M.,, n.d.). Apart from this, the
followed structure by the company also gets restructured every quarter so that no error would
take and place. This basically leads H&M to motivate their staff and improves loyalty as well
which directly maximises the performance level and effectiveness of operations of the company.
This should encourage participations and innovation within an organisation.
On the other hand, H&M is also following an appropriate design i.e. optimal management
control system and this involves and decisions linked with an issue so that to gain in-depth
knowledge relating to the number of issues that are being faced by H&M. With the help of this,
company directly reaches to new limits through minimising the error chances and through
improvising on mistakes that took place previously. Both of the approaches followed by H&M,
has helped them in growing their business in China. Based on the analysis. China is becoming a
more and more important market for H&M and its brands, which can be seen by the rapidly
rising store number between 2010 and 2017 from 27 to 506 stores (Swoboda, B., Elsner, S. and
Morschett, D.,, 2014).
Away with this, issues that H&M faced in China related to control is that, Chinese
government has not given full access to H&M to start running their business in its full extent.
This made company to focus on partnership in order to run business successfully.
Entry strategy used to enter in other region of H&M
There are ample number of entry level strategies through which an organisation could
directly start running its business in a whole new country. Here, some of these are: direct
exporting, licensing, partnership, collaboration, green field investment and many more. But, if it
is talked about entry level strategy which was adopted by H&M to enter Chinese market, they
used partnership as entry strategy in order to perform its operations in one of the most versatile
economy (Chinese market). It is not at all easy for a company to just enter in Chinese market and
start doing business with an ease. Both government of China and local business market has kept
their belief in doing everything for their people by their own (Mohr, 2014). Thus, this approach
basically created barrier for the company like H&M and other companies that were looking
forward to expand their business. On the other hand, this entry level strategy (partnership)

adopted by H&M has made things easy for the company to expand their business in such a short
span.
This decision which was made by H&M to use partnership as entry level strategy for
business expansion in China has been really very successful in nature for organisation and led
company from 27 stores (in 2009) to 507 stores in China and is leading company to improve
profit margins in specific time frame.
Operational control, production and distribution/supply chain management
It is being analysed that in order to reduce the risk of facing issues at marketplace, H&M
basically uses risk analysis regularly for operational control. It is necessary for every company
that is dealing in clothing sector at the time of business expansion, This could basically reduce
operational risks to minimal. If it is talked about operational control, it is basically linked with
both external and internal environment, and here society is directly enhancing influence of
growing digitalisation, and this has resulted to a state where retail trade are undergoing
significant structural changes – a shift in the industry, with rapidly changing customer behaviour.
Therefore, H&M has used risk analysis approach in order to control the damage at the time of
expanding business in China (Solvell, 2015).
Away with this, major distribution channel in China which has been chosen by H&M i.e.
online where the company has partnered with Alibaba group and this has given raised profit
margins of H&M by 15% from last year. Along with this, H&M has worked hard to build strong,
long-term relations with its suppliers, based on mutual trust and transparency. This allowed them
to disclose the names, names, locations as well as some additional information of their factories
without major concerns about the ongoing competition on the best available production capacity
in clothing-retail industry. If it is talked supply chain of H&M in China, it is having many
manufacturing factories, processing and tier 2 factories (Fabric and Yarn).
Management of Human Resources across borders
HR strategies depends on organisational strategies so that growth and profitability can be
achieved. Recruitments are carried out every year so that new stores can be opened. In China
within H&M, planning and recruitment is based on policies designed by HR to recruit local
employees when stores are opened. They evaluate requirement of employees and certain criteria
is adopted by H&M on basis of working culture. Within US in H&M, employees are recruited
based on skills possessed by them whether they are local or not. HR focus on skills which are

required for effective working. In China employees are recruited who can adapt to working
environment or culture, growth and motivational framework. Basically they are individuals who
are local and can understand their working culture and conflicts do not arise due to language or
culture (Arrigo, 2018). In China H&M looks for external recruitment agencies, so that employees
can be hired who know Chinese language as well as culture of China.
This is done to avoid cultural conflicts and language conflicts which can create
miscommunication within organisation and can affect working of organisation. They do not offer
work experience and summer jobs. In US, H&M hires their employees through internal resources
advertisements are given on different portals to recruit employees. Qualifications, knowledge
and skills possessed by employees are valued. In China H&M, they focus on personal qualities
rather than their qualification. Employees must be self-driven and must be capable of direct
communication. In US H&M recruit people who are responsible and can understand their job
very well. They needs that their employees must have strong decision making with focus on
effective sales (Rushton, A., Croucher, P. and Baker, P.,, 2014).
Identify Key issues and opportunities of H&M management
As H&M is dealing in more than 63 countries, it requires to have a huge range stock to
offer customers with right fashion. But, this has been one of the basic issue for the company
because the target which organisation sets, its response never Comes nearby at the time of
performing business at a whole new place. Therefore, H&M of goods is troublesome problem
for H&M. apart from this Corporation has to sell their products in a low price it becomes vital
for if they could not sell their products as quickly as they can¼Œthat means there is not room for
the new collection. Apart from this, H&M would also may fill the gap among the company will
focus maybe consist of narrow minded people Because, chine people were not accepting the
western culture and this led whole company to go through different problems linked with the
culture. Away with this, based on the analysis there are a number of opportunities for H&M and
these are : Chinese Market Entry could diversify potential into relevant market segment, Chinese
Market could be a distribution channel for seeking new products.
H&M can promote brand level via entering Chinese market because their products are
sold to middle upper class in China, they has increased their brand level in China; Then they can
increase their brand level gradually around the world; Finally, their value that “Offer fashion and
quality at the best price” will be achieved.

Recommendations to management for improvement
With the help of above mentioned report, it is recommended that, H&M requires to
continue innovating in making clothing which can make them be well known around the world.
H&M should improve their brand level. In some extent, “best price” always be seem low price.
They should change their brand image in people’s mind to obtain the real best price. As China
has got a high subscribers rate of internet, H&M needs to open its own online shop in China.
Now, H&M has opened excessive shops in China, most of these stores got open in the core city
of China, there are many people that consist with the ability to consume H&M but they could not
buy it because they live in different cities, they need to ask friend or pay money to someone who
live in the core city to buy the products.
Away with this, it is also recommended to the company that company should start having
its own manufacturing plant in China so that to improve its existence at market of China. With
the help of this, they could start offering jobs as well to people that are looking to work with
them. Since, the company is already having a good number of stores in China. Thus, it could do
CSR activities as well in order to gain competitive advantages.
CONCLUSION
With the help of above mentioned report it is being concluded that Chinese business
market is not an easy place for a business organisation to operate business in a successful
manner. The culture of the country is totally different from any other nation; this ultimately
impacts upon strategy is made by the organisation to run the business successfully. Low pricing
strategy could help an organisation to execute plan for further expansion.

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