H&M's International Growth: Competitive Strategy Analysis

This report provides a comprehensive analysis of H&M's international expansion strategy. It begins with an overview of the company, its current operating position, and its competitive strategy, emphasizing its focus on high production volume, low costs, and fast fashion. The report examines H&M's brand and trust, human capital, and financial assets, highlighting its marketing, supply chain management, and design capabilities. It then delves into the company's matrix organizational structure, entry strategies, operational control, and supply chain, including its reliance on contract manufacturing and centralized operations. Furthermore, the report assesses H&M's human resource management practices across borders, its commitment to ethical practices, and its key issues and opportunities for management, including attracting new customers, supply chain management, and sustainability concerns. The report concludes with recommendations for improvement, emphasizing the need to maintain its competitive advantage in the face of challenges from competitors such as Zara.

H&M Expansion
H&M Internationalisation and Expansion
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H&M Expansion
Abstract
The study focuses on the international growth of the world’s third-largest retailer by sales, H&M.
The organization has grown into a profitable force and has pioneered the global apparel market
by offering clothing which is reasonably priced and high fashionable. The paper will examine the
various strategies capabilities of the company which has helped it to build the competitive
advantage. As the position of the company is being challenged by its key competitors, there is a
need to evaluate the sustainability of the competitive advantage and to assess the international
growth of the company. In order to assess the international growth strategy of the company, the
paper will discuss on the issues and will provide the quality recommendations for the
improvement.
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Table of Contents
Abstract............................................................................................................................................1
Introduction......................................................................................................................................3
Company Overview and Current operating position...................................................................3
Review of H&M’s International Competitive Strategy...............................................................4
Existing organizational design structure and control issues........................................................6
Entry Strategies used by H&M....................................................................................................7
Operational Control, Production and Distribution/Supply Chain................................................7
Management of Human Resources across borders......................................................................8
Key issues or opportunities for management...............................................................................9
Recommendations......................................................................................................................11
References......................................................................................................................................12
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Introduction
Company Overview and Current operating position
H&M (Hennes & Mauritz) is a creative and design-driven global company which offers a wide
range of fashion at an affordable price. The history of the organization begins from establishment
of Hennes women’s clothing centre started by a salesman from Vasteras (Sweden) named Erling
Persson in 1947. In 1974, it was seen that H&M was listed on the Stockholm Stock Exchange.
Since then, the organization has expanded their business to the European markets along with
sales of cosmetics. In 2006, a designer collaborations was started by the company with Karl
Lagerfeld in the US store. In the same year, H&M started a major expansion of online and
catalogue sales. Since then, the organization has been continuously expanding its business to
Oceania, Asia and South America and is considered as one of the largest fashion companies in
the world and includes six independent brands, namely, H&M, Monki, COS, Cheap Monday,
Weekday and Other Stories (H&M., 2017).
Current operating position
The organization has been offering shopping experience across 3,388 stores worldwide in the 55
global markets. After its expansion in the Middle East and Asia and the launch of its brand like
Monki, COS, Cheap Monday and Weekday, the company was ranked as the twenty-first most-
valuable global brand in 2009 and 2010 by the branding consultancy Interbrand and was
considered as the highest-ranked retailer in the survey. By the end of 2011, H&M started
operated 2,325 stores and by 2012 it expanded to 2,629. The company opened its 3,000th store in
Chengdu, China in September 2013.
According to the H&M Annual Report 2015 (H&M., 2017), the company owns a total of 3,924
stores in 61 markets and has e-commerce in various countries, giving a strong global position to
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the company. As per the reports, the organization collected a sales including VAT which totalled
to over SEK 210 billion and saw an increase in local currencies by 11 percent and 19 percent in
Swedish kronor during the financial year 2014. Further, the profit after financial items amounted
to SEK 27,242 million.
Review of H&M’s International Competitive Strategy
H&M chases the long term strategy which combines the business model that is distinctive and
which provides the organization a sustained position in the international Apparel Market. The
company focuses on high production volume with low input cost and mostly offers updated
trends in all its stores within a month of latest designs. The strategic capability is concerned with
the competences and resources that are employed by the company to offer value to its customers.
The international strategy formation of H&M includes three dimensions: Brand and trust, Human
Capital and Financial and other physical assets.
 Brand and Trust: There is strong awareness about brand and its ethical practices and
emphasis over usage of natural resources. Also they are planning to improve their conditions
of working in certain countries like Bangladesh.
 Human Capital: the spirit of H&M involves seven ingredients to improve the efficiency of
operations like- Belief in people, unity, improving on continuous basis, open minded ad
straight forward, leadership, simplicity, cost awareness. Also the organization operates on a
Non-hierarchical style of management and provides a culture which is participative,
responsibility delegation.
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 Financials and Other tangible assets: This brand is worth $16 billion and is earning a total
revenue of more than $20 billion. The stores are leased which have the access and flexibility
to shift to prime locations.
The brand consists of various strategic capabilities which are very important for sustained
competitive advantage like marketing (which includes collaborating with renowned designers,
campaigning for long term benefits and making its presence in social media), Supply chain
management (which includes centralized mechanism, innovative infrastructure, and flexibility in
purchasing) and Design (which includes responding quickly to trends, minimum time for
marketing and centralized mechanism) (Hill, A., & Brown, S., 2007). Due to efficient
configuration of resources and strong culture of corporate and capability that has been developed
in decades, it can be indicated that the organization will be able to maintain the competitive
advantage on which the Leaders of H&M intent to capitalize and also keep in pace with its
competitors like Zara. H&M always commit to deliver quality and fashion at best price as they
treat their customers as friends. The brand believes in long term compliance and cooperation
with their suppliers, strive for sustainability, follow no tolerance policy for corruption and
strictly comply with laws and taxation policies (Johanson, J., & Vahlne, J.-E., 1977).
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Existing organizational design structure and control issues
The organization has a matrix organization and therefore all those present in the executive
management are made responsible for the work present within their respective functioning area
in individual country along with being highly efficient. This has been presented with the vertical
arrows presented above. The managers of the respective country are given the responsibility of
profitability and sales in their country and therefore have all the roles and responsibilities of all
the functions present within their operations (presented by the horizontal arrows). The
organization has divided itself into various regions on the basis of the number of stores present in
each region.
The H&M group does not own any factories and is solely dependent on its independent
suppliers. Their products are manufactured by around 820 independent suppliers using their local
production offices in Europe and Asia. This creates an issue of controlling the procedures and
therefore requires the company to continuously review their production capacity and
geographical locations. Although the company considers it of its utmost important to make sure
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that all the products are of high quality and produced under good working conditions (H&M
Annual Report 2015).
Entry Strategies used by H&M
The majority of the clothes line being sold in H&M stores are produced in Europe, Asia and
Northern Africa, specifically India, Pakistan, Egypt, China, Bangladesh and Turkey. While
considering the expansion of the organization in order to maximize its financial capabilities, the
company should outsource its production so as to achieve benefits from a lower cost of labour
and manufacturing devices. The company has been using the contract manufacturing as their
market entry strategy for outsourcing all of their manufacturing operations and production. The
organization operated on its own as a single-brand retailer and therefore complies with the FDI
or Foreign Direct Investment regulations as an entry mode in some countries. In the nutshell, all
the stores of H&M are run by the organization itself and sometimes it collaborates with the
franchising partners as well (Meyer, K., 2002). And in 2016, the organization entered the market
of Cyprus, New Zealand and Puerto Rico.
Operational Control, Production and Distribution/Supply Chain
The business model of organization is based on shortening of the lead time between the design
and availability of the store for the product. According to Runfola & Guercini (2012), the
company focusses on cost, speed and styles. H&M is seen to supply small quantities of the new
trends various times in a month to the stores. Further it combines the regular deliveries of the
orders with a cost-conscious strategy from design to production and distribution of its apparel.
Most of their operations are centralized to the Stockholm office.
Among all these, one is the buying department consists of 100 buyers. The new collections and
new fashion lines are also created in Stockholm by 150 designers. National offices of the most of
retailer's sales market help the head office in Stockholm in detecting new tendencies. By street
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spotting and focus groups, the employees of the national offices are discovering the current
trends. The two major annual collections and multiple smaller collections are launched
throughout the year by H&M with the guidance by these trends. Major collections are launched
during the start and fall of spring. Previous year sales and customer demand in the market
influences the fresh trend. Therefore, stock management and inventory are integrated operations.
H&M developed an advance, IT platform, in-house, common to all shops, that is enabling an
efficient inventory management (H&M, 2014). Distribution and transport are outsourced to a
third party provider. H&M outsource its product to European, Asian and African markets (low-
cost labor markets) and H&M are known not to manufacture any products. Worldwide, H&M
has around 800 independent suppliers. A vital part of the fashion industry is supply chain
structure, the retailers outsource its production on using the middlemen and speed up the time to
market. The company keeps a quick product turnover in the shops because of its offer-follow-up-
system and efficient supply chain. Six weeks to six months is the varied lead time of the product,
for high fashion apparel, this is the shorter lead time (H&M, 2015).
Management of Human Resources across borders
Currently, H&M is operating in 33 countries and has expanded its business to new shops in
various countries where they are not present currently. The organization uses its HR policy and
procedures while it opens a new store and recruits the employees locally. The organization uses
the practice of job rotation and location movement of the employees from one place to another
on the basis of internal recruitment (promotions). This policy of the organization helps the
people from various cultural backgrounds to come together under the same team and to manage
the team in an efficient manner is highly important for the organization. The HR strategy of the
company does not have a rigid procedure and therefore H&M has adopted the corporate culture
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of the company with respect to the individuals. The Annual report of the company states that
(H&M, 2015):
1. For meeting the expectations of the company as an attractive employers, the organization
has been developing equal rights, global guide lines on diversity and against
discrimination.
2. The organization aims to become a good employer and therefore it includes the countries
whose rule, regulations and laws fall short of their personal requirements. They have
designed all their activities on the basis of the individuals and have applied all the aspects
of fair wages, freedom of association and working hours so as to provide the opportunity
for growth and development within the company.
3. The company has developed a positive experience of constructive and open dialogue with
the trade unions and therefore H&M welcomes the relations of all sorts. The company
has collaborated on their staffing issues by signing agreement with UNI (Union Network
International), EWC (European Works Council). (Sustainable Report, 2008). Therefore in
order to execute their strategy towards continuous international growth and expansion
along with maintaining their organizational culture, it has established all the right kind of
HR practice which contributes to the overall successful management of the Human
Resources across the borders.
Key issues or opportunities for management
The key issues or opportunities for management has been presented as given below:
1. Constantly Attracting New Customers: The organization has been pursuing the cost
leadership/ differentiation strategy. The organization presents its clothing at a low price
as compared to its rivals. Therefore, it has been successful in attracting the younger
generation but it does not produce enough product lines for the corporate ladies.
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Therefore it becomes difficult for the company to attract customers from other
generations.
2. Dealing with Resources Changes: H&M has been intending to gain sustainable profits in
the long run owning to the changes in resources and economic status. Therefore every
organizational change must be suitable to the environment change. Some of these
problems for the company are climate change, wages of the suppliers, working
conditions.
3. Global Strategy Problem: The Company aims to centralize as well as tailor their product
strategy so as to fit into the US markets. The company has also been headed for the
upscale malls along with downtown centers and also decided to open smaller local stores
for itself. But H&M has been facing issues by not meeting the expectations of the
customers in all the respective individual markets. Furthermore, the company is finding it
difficult to ensure high social as well as environment standards in various regions like
overtime and fair wages despite of its best policies (H&M, 2011, “Conscious Actions
Sustainability Report”).
4. Outsourcing Strategy: In order to satisfy the fast changing preferences among the
customers, there is a need for a short life cycle in the fashion industry. But sometimes,
the organization takes a relative longer period of time for outsourcing strategy and it
becomes impossible for the company to respond to the changes. Another problem is
optimization of the multiple product lines. Due to high volume of suppliers, costs and
control quality the company has been facing challenges. Furthermore, the outsourcing is
seen to entail unique transaction costs, such as contracting, searching, controlling, and
sometimes re-contracting (Quinn & Hilmer, 1995).
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Recommendations
Upon entering the foreign apparel market, the company can make various decisions which
also includes the decisions on whether it can enter the market through franchising, joint
ventures or directly. The organization should have full national support and H&M can even
gain a better knowledge of the international market and the preferences of the customers by
setting up their stores as the franchises.
Further, in order to eradicate all the future issues, H&M should make sure that it presents a
clear and exhaustive franchise agreement. The organization should re-check the international
market franchisee for making sure that the company does not ignore any hidden legal
liabilities which were involved while entering into business with selected franchisee. In order
to expand its business, H&M can partner with the local franchising company of the particular
company. The company can strategically use their already set up production plants in
partnership with their new local franchising company, if possible in that region. This will
help the company to increase the likelihood of its success.
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