Strategic Analysis of H&M: Internal and External Factors

This report provides a comprehensive strategic analysis of H&M, a multinational clothing retail company. It begins with an introduction to strategic management and H&M's background, including its global presence and fast-fashion model. The report then delves into an external analysis of the fashion clothing industry using the PESTLE framework, assessing political, economic, social, technological, environmental, and legal factors. An internal analysis is conducted using SWOT analysis to identify the company's strengths, weaknesses, opportunities, and threats. Strategic options are explored through the Ansoff matrix and Porter's Five Forces model, evaluating market penetration, market development, product development, diversification, and competitive forces. The report concludes with a strategy selection, justification, and future recommendations for H&M, offering insights into its strategic direction.

Strategic Management

Table of Contents
INTRODUCTION...........................................................................................................................3
Strategic background of H&M.....................................................................................................3
External analysis of the fashion clothing industry.......................................................................3
Understanding internal strategic capabilities...............................................................................5
Strategic options...........................................................................................................................6
Strategy selection and justification..............................................................................................8
Future recommendations..............................................................................................................9
CONCLUSION................................................................................................................................9
REFERENCES................................................................................................................................1

INTRODUCTION
Strategic management is the process of planning, analysing, monitoring and assessing all
the needs of the organization so, that organizations can achieve the objective. They are having
financial as well as non financial benefits. H&M is a multinational clothing retail company. It is
founded in 1947 by Erling Persson. It is famous for the fast fashion clothing for men, women and
kids. Company has its presence in 74 countries with more than 5000 stores across the globe.
Company also gives the online shopping facility. As a clothing retailer it is on second position
globally. This report will discuss the background of the company and the external and internal
strategic tools used by the company. Further it will evaluate strategic options and strategy
selection and justification with recommendations.
Strategic background of H&M
H&M are putting their efforts and want to acquire large customer base across the globe by
opening many outlets and giving the facility to customers of online shopping and installing
virtual try-ons within stores etc. Company came up with the new strategy and showed interest in
investing in digital platforms because company knows that nowadays digital is on boom so
taking advantage of this. They are even using digital marketing for marketing their products.
Traditional marketing techniques are now use less by the company (Pan, Chen and Zhan, 2019).
They have established e-stores in various countries. On the latest they are focusing on their
previous operating structure and planning related to products and modification of products to
earn higher profits. They are doing research and development about what is the customer
demand for clothing. Company less follow their old branding techniques and switched to new
techniques. They are also fulfilling social responsibility by concerning about environment
because company believes that to gain successful organization they have to think better for the
society. Company carried out certain campaigns related to save environment. They focus on
doing less wastage and pollution. The quality of their clothes are best with low cost as compare
to their competition.
External analysis of the fashion clothing industry
To do the analysis and proper understanding of macro-environment of company PESTLE
analysis is applied and discussed

PESTEL
Political factors- H&M is a multinational company, so they have to face various political factors
and guidelines so that they can operate in different countries. Every country have the set policies
and impose several taxes which company have to follow. For e.g. in one of the gulf countries
company has to accept dealership so that they can operate in that country because they have such
guidelines in which they don't allow any of the foreign company to carry their business
independently. In some area they don't start with their manufacturing units, which is the issue for
the company. So if they want to do business in such regions where they directly can't do business
then they have to consider local and regional business for their help.
Economic factors- Brexit is the main reason for the monetary fluctuations in the organization
because of this, market of the united states increase the charges on trading goods as a result
company's operational costs increased which force them to sell their products on high prices
causing effect on the overall sales. As H&M is the multinational company so fluctuations in rate
of currency can lead to huge loss for the company. Recently the rate of dollar decreases and
company exports material from Asian countries which had done in dollars by which company
incur losses. With the change in time customer's purchasing power has also increased with the
increase in their income now they are purchasing more luxurious products also along with the
basic products. Changing in the economies of scale also can affect business operations. Company
have to follow labour laws of every country which varies from country to country.
Social factors- Consumers are very active and aware nowadays, and they purchase products
from the brands who consider social responsibilities important and also who provide good
quality products. People keep an eye on very company and noticing their moves before spending
their money on purchasing the product. H&M knows this very well and do timely social
activities like environment conservation, water conservation and give pollution free space to the
society. They do research on the demand of customers and their preferences. They do
advertisement on TV and on social media to attract more crowd. They also provide discounts and
coupons to their customers so that they become happy and buy more products.
Technology factors- Company very well know about the importance and benefits of the
technology. So they came up with mobile application and online shopping platforms which allow
the consumers to do online shopping from anywhere in the world. They also maintained there
website in such a way so that they can attract many customers. By doing research company came

to know that today's generation are more comfortable to buy products online rather than visiting
physical stores. So with the help of experts they came up such app which have all the advanced
features and user-friendly for customers. H&M came up with concept of reward points which
customer will get after some amount of purchase which will be redeemed by the customers in the
future. Innovative technology are adopted by the company like data analytics which can improve
efficiency. Company educate their customer and increase the importance for online platforms.
Environment factors- Company takes major steps to protect the environment. Environmental
factors are very important for the company to consider. They use biodegradable packaging
material and also use such materials which can be easily recyclable. They also came up with the
concept in which they ask their buyers to bring their own shopping bags or providing them such
bags which is made up with cloth or paper. They update their fashion range and use their old
stock to create the new one. Consumers are aware about these factors which are scarcity of raw
materials and pollution in the environment. Consumers now demanding eco-friendly products.
Climate and changes in weather also affected clothing needs of the customer.
Legal factors- Hennes & Mauritz are very well aware and active about the rules and regulations
applied by the countries. By some countries laws which are made by them are very strict that
sometimes they become barrier for the company to earn large profits but still company never
tried to break any law and follow unethical practices. Company should come up with the risk
management programs which can protect the company from any future risks and conflicts
because these issues can hurt brand image of the company. H&M follows all the laws and
legalities regarding labour laws they do not hire child worker and give their employees safe and
hygienic working environment. For foreign companies some countries have very strict working
rules and regulations by which they try to protect the interest of local businesses.
Understanding internal strategic capabilities
To examine the internal strategic capabilities SWOT analysis are done.
SWOT
Strength- They deal in various products which include footware, beauty products, clothing,
accessories etc. They do research and expanded their business by introducing home décor
products which are candles, flowers, frames etc (ÖNEREN, ARAR and YURDAKUL, 2017).
Their biggest strength is that they offer wide variety and good quality of products at reasonable

price than their competitors. Company has its presence globally so consumer can get its products
easily. This brand is known as a valuable brand because they have customer centric approach.
Company have strong online channels. They have large presence on online and provided online
platforms on which customer can do online shopping. Their supply chains are very efficient.
Weakness- Company do not have its own production units, so they contact different suppliers
and manufacturers for raw materials. This is the major weakness because they have to depend on
other party to fulfil the orders. If any problem occurs in those units that will bring headache for
the company because they have to face delay in the delivery of raw materials. They deal in
fashion industry where now and then consumer's demand changes with change in fashion, so
they have to higher designers which will bring different designs, for that they charge high salary.
For promoting one of the product they follow racism which brought criticism for the company.
Opportunities- Every organization are expanding their businesses at online platform because
they know that they can generate big revenue from that. It is the time for H&M, also to expand
more at online platforms which will lower the operating expenses and allow company to gain
large buyers. Company major do their online sale from their own website only they should
collaborate more with other e-commerce platforms which will help to attract large crowd
globally. In developing countries they should focus more because the purchasing power of
consumers are increasing more there with the time. Company can do merger with different
companies so that they can enter in different markets easily and can start their business.
Threats- Company is facing high level of competition from the other big brands like zara etc.
Company like zara have big customer base and are very popular within people. Products are
easily copied by fake manufacturing firms which is considered as the biggest threat for the
company as people can get copy of the outfits in cheap prices. After the coronavirus situation
transportation charges are increased which caused heavy loss for the company and affects its
revenue. Changing rapidly of the fashion industry caused threat, they can even decrease the sales
which will impact on profits (Matovic, 2020). With the increase in the cost of raw material and
labour, profits of the company is decreasing. Trade tariffs are the biggest barrier for the company
in making profits.
Strategic options
Ansoff matrix have four dimensions which are-

Market penetration- Market penetration which means to bring existing products in the existing
markets. To attract more customers H&M market their products in such a manner that they
motivate customer from them so that they buy more products. Many small companies are
purchased by the company so that they can increase their market share.
Market development- Market development means selling existing products in new markets.
Company has explored many new markets (Durand, Grant and Madsen, 2017). Entering into the
new markets can incur high expenses because company have to do marketing for their products.
In their distribution channel they had entered online sales. Company understood that through
online sales they are making good profit because they are trending now-a-days.
Product development- Product development means selling new products in the existing
markets. By doing market research, company launch products with new styles, designs, colours
etc. They evaluate market trends and customer needs before launching any new product in the
market.
Diversification- Diversification means launching new products in new markets. H&M can do
diversification in various manner (Zhao and et.al., 2017). It can do the establishment of textile or
cotton mill by establishing such units they no longer have to be dependent on other party for the
supply of raw materials.
Porter's five forces model which is used as a strategic options by management. It has five
aspects-
Threat of new entrants- To restrict the new entrants company uses cost effective strategies.
Economies of scale sometimes bring advantage to the company. Customer retention is easily
done by the company by introducing innovative and unique products in the market.
Bargaining power of suppliers- Company has its presence in many location due to which they
have multiple suppliers. They buy raw material at low costs because their supply chain
management is very good.
Bargaining power of buyers- By providing unique, innovative and good quality products to the
customer H&M has created its brand loyalty (Lynch, 2018). Low income buyers are attracted by
them because they sell cost effective products.
Threat of substitute products-Their prices are low as compare to their competitors and
company focus on giving innovative and good quality products to their customers.

Rivalry among existing firm- By doing market research they had targeted new customers.
Company provide good quality of products at reasonable price which separate them from its
competitors.
Horizontal and vertical integration are two ways through which company can do expansion-
Horizontal integration- In horizontal integration competitor's customers are taken by the
company. This is good for those companies who are already established and having good
customer base, but they aim to increase more customer base so that they can earn more profits.
Through mergers or purchasing other companies, horizontal integration can be done. Purchasing
other companies will also decrease competitors from the market (Ethiraj, Gambardella and
Helfat, 2016).
Vertical integration- Vertical integration is also known as the competitive strategy in which
company has the control on many stages in the production and distribution process of the
product. Company takes vertical integration so that they can have control on the supply of the
raw materials so that its product can be manufactured. Forward integration, backward integration
and balanced integration are the types of vertical integration.
Strategy selection and justification
H&M should choose Porter's five forces model because application of this model will help the
organization to take good strategic decisions. By using this model company can determine
industry relations, evaluate competitors and can take better entry and exit decisions. Company
sell good quality of products at the reasonable price through which they are able to attract large
customers. Its innovative and unique products has created the brand loyalty. Company has
adopted cost effective strategy through which customer retention has become easy for them.
Company having best supply chain management by which they buy raw materials at low costs.
This model can also help the company in the decision-making (Trigeorgis and Reuer, 2017).
Company will face less threat with the new companies because entry in the market will require
fulfilling strict rules and regulations which are lethargic and time-consuming. H&M has also
strong research and development team who collect the feedback from the customer and launch
innovative products in the market. The services which are provided by the company is better than
compare to their rivalry company. They know the customer value and maintain the long term
customer relationship. To check its feasibility company should do cost-benefit analysis.

Future recommendations
H&M can do diversification in sports apparel and clothing because nowadays people are very
health conscious, so they are more into sports activities so by introducing this company can make
good profit. Another suggestion will be company can also do diversification of its business into
cotton or textile mill (Hitt and Duane Ireland, 2017). By doing that they no longer depend on
other party for the supply of raw materials, and they can even supply their materials to the other
retail companies.
CONCLUSION
In this report it is discussed the strategic management of the organization. It has
determined interior and exterior components of the company and how these factors influence the
business environment. Further this report evaluated the tools and techniques which will help the
organization to run smoothly and also help them to achieve the organizational objectives. It is
also observed that company has adopted digital marketing and online platform selling method
which is very helpful for the company because online shopping is trending now-a-days, which is
helping company to earn good profit on them. Report also gives the justification for the selected
suitable strategy which will be beneficial for the organization and also advised the future
recommendations that company can adapt to become more successful.

REFERENCES
Books and journals
Das, M.P., 2017. SWOT analysis of micro, small, and medium enterprises in rural society: A
study conducted in the Ganjam District of Odisha. International Journal of Scientific
Research and Management. 5(8). pp.6569-6575.
Durand, R., Grant, R.M. and Madsen, T.L., 2017. The expanding domain of strategic
management research and the quest for integration. Strategic Management Journal. 38(1).
pp.4-16.
Ethiraj, S.K., Gambardella, A. and Helfat, C.E., 2016. Replication in strategic
management. Strategic Management Journal. 37(11). pp.2191-2192.
Hitt, M. and Duane Ireland, R., 2017. The intersection of entrepreneurship and strategic
management research. The Blackwell handbook of entrepreneurship. pp.45-63.
Lynch, R., 2018. Strategic management. Pearson UK.
Matovic, I.M., 2020. PESTEL Analysis of External Environment as a Success Factor of Startup
Business. ConScienS, p.96.
ÖNEREN, M., ARAR, T. and YURDAKUL, G., 2017. Developing competitive strategies based
on SWOT analysis in Porter’s five forces model by DANP. Journal Of Business
Research-Turk. 9(2). pp.511-528.
Pan, W., Chen, L. and Zhan, W., 2019. PESTEL analysis of construction productivity
enhancement strategies: A case study of three economies. Journal of Management in
Engineering. 35(1). p.05018013.
Trigeorgis, L. and Reuer, J.J., 2017. Real options theory in strategic management. Strategic
Management Journal. 38(1). pp.42-63.
Zhao, E.Y. and et.al., 2017. Optimal distinctiveness: Broadening the interface between
institutional theory and strategic management. Strategic Management Journal. 38(1).
pp.93-113.
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