Strategic Management Report: H&M, Severstal, and Porter's Five Forces

This strategic management report provides a comprehensive analysis of H&M's value chain, Severstal's external environment, and Porter's Five Forces within the global steel industry. The report begins by dissecting H&M's value chain, identifying primary and support activities like store operations, marketing, logistics, design, and internationalization, highlighting their impact on the company's competitive advantage and potential weaknesses. It then shifts focus to Severstal, employing the PESTLE model to examine the political, economic, social, technological, environmental, and legal factors influencing its operations. The analysis considers factors such as privatization, economic conditions, social demand, technological advancements, environmental regulations, and legal frameworks. Finally, the report applies Porter's Five Forces framework to assess the competitive dynamics of the global steel industry, evaluating the bargaining power of suppliers and buyers, the threat of new entrants and substitutes, and the intensity of rivalry among existing competitors. The report concludes by identifying core competencies for H&M and analyzing Severstal's external environment, providing insights into strategic decision-making within these firms and the broader industry context.

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H&M's Value Chain Analysis
A value chain and value systems are critical organizational facets that identify core
capabilities and competencies. These can be used to model competitive advantage or enhance the
sustainability of the already existing strategic goals. H&M's value chain consists of a stream of
activities and actors facilitating the success of the global "fast-fashion' retailer. The value chain
activities offer a direct fulfillment or imperial support to the company's core function, enabling
the eventual success. H&M's primary value chain activities include; store operations and
management, marketing and social media, and logistics: distribution, warehousing, and IT
(Johnson et al, 2017). The support activities include; buying, local production offices, and
corporate social responsibility, design, human resource management, and internationalization
and expansion.
Primary activities have a direct impact on the actualization of the firm's strategic goal.
The first activity is store operations and management (Regnér & Yildiz, 2014). H&M adopts a
store-positioning strategy for all its outlets. This principle involves the strategic placement of the
store in prime locations, viable to customers, and competitive forces. The company does not own
stores but relies on outsourcing facilities. However, the management of the rented property,
design guidelines, and display windows are central to H&M. With these, the stores are centrally
placed to attract, inspire, and allow for flexibility, attracting key markets (Capell & Khermouch,
2002). This activity is crucial to the success of the company. However, store operations and
management factors pose a weakness to the firm's overall analysis, as the outsourcing value
creates vulnerabilities for exploitation, especially by competitors (Regnér & Yildiz, 2014).
The second primary activity is marketing and social media. Social media and marketing
focus on creating a strong brand and improved market for the company's products. H&M adopts

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a unique approach to create brand awareness and market its products. This approach involves
collaboration with famous designers, style and value, and others. Other activities include long-
term advertisement campaigns and a strong social media presence (Capell & Khermouch, 2002).
Typically, this element substantiates H&M's success, as it serves as internal strength. H&M's
profitability and brand awareness are attributed to this activity. Third, there is logistics. The core
logistics activities at H&M include distribution, warehousing, and information technology. H&M
achieves its distribution margins through globally located warehouses and distribution centers.
With this model, the company achieves flexibility in restocking while acquiring economies of
scale. Logistics is a critical strength for the company. This can be occasioned by the economies
of scale, flexibility in distribution and restocking (Capell & Khermouch, 2002), and internal
management of all logistic operations by the firm.
Moreover, H&M's support services play a vital role in the success of the firm. Some of
these activities include buying location production offices and corporate social responsibility.
These activities focus on an outsourcing model to produce the required goods. H&M contracts
low-cost countries to purchase and create various fashion designs while observing economies of
scale (Regnér & Yildiz, 2014). Here, the company focuses on flexibility where methods and
production are redefined to meet changing marketing needs and production flow. Notably, the
company has various independent suppliers who are acquired on strategic partnership models.
This activity poses internal weaknesses to the firm, which might affect the ultimate competitive
advantage. However, corporate social responsibility facet has proved to be advantageous to the
firm.
Besides, there is a human resource management facet. This element involves the
management of the firm's resources through a stringent culture. H&M's culture encompasses

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professional family leadership skills, core values, and efficient practices. Some of the admirable
practices include job rotation and internal promotion (Johnson et al, 2017). Technically, the
human resource management facet is a strength to the company. Here, the company leverages
exquisite leadership skills from the family and goal-oriented leadership while adopting and
cultivating practical strategies to manage its human capital. Another support activity is design. In
design, the company adopts numerous methods to enhance the strategic development of
manufacturing procedures and styles to match a particular fashion. These activities employ
multiple production offices globally and a team of excellent designers (Johnson et al, 2017). This
group researches and integrates the latest features and trends into actual fashion clothes. The
design department is an essential success factor at H&M. This is because of the competitive
advantage acquired from this sector. Balancing the latest trends, new collections, and basic
design principles have enhanced continuous improvement at the firm.
The last support activity is internationalization and expansion (Capell & Khermouch,
2002). This venture focuses on the creation of new business ventures and outlets to reach a
global target. H&M has achieved this through continuous investment in international areas,
opening of new ventures, and employing from diverse communities. This is a vital competitive
element for the company, as it enhances the business's expansion to international consumers.
Some of the methods used include franchising.
H&M has an excellent business model, infrastructure, and competencies likely to develop
and sustain competitive advantage. Some of the critical linkages at the firm include the
following. First, product design and development. H&M's success story has a substantial
correlation with product design and development. This is because these are the underlying
processes, substantiating the production of the core product. The company has a centralized

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design process with numerous production offices and designers across the globe. (Regnér &
Yildiz, 2014) The linkage is critical, as its success or failure has a similar effect on the firm's
ultimate success. Besides, store operations have an exclusive linkage with logistics. Here,
suppliers and regional managers have an integral role in promoting the development and
distribution of required products to a particular area.
Also, the marketing and CSR facets exhibit effective linkages. Here, marketing and
branding strategies may sometimes rely on corporate social responsibility to enhance brand
awareness (Johnson et al, 2017). This is essential for new areas and regions. Besides, other
linkages include human resources and technology. Human resource management advocates for
practical values and organizational culture. These facets use technological tools to predict trends
and explore likely preferences. This is essential, as it culminates in the ultimate success of the
designed products.
Ultimately, various linkages have an exclusive effect on the determination of the core
competencies for the firm. The core competencies identified include the following. From the
design and development linkage, the design competency is evident. The design remains a pivotal
aspect of the success of the firm. This element will result in a temporary competitive advantage
as it is valuable, rare, with organizational support but has a low imitability cost (Regnér &
Yildiz, 2014). Second, the human resource and logistics linkage evidences the culture and
leadership competency. Here, all managers and personnel have to adopt the business model and
organizational values to ensure success. Culture and leadership will achieve a sustainable
competitive advantage because it is valuable, rare, costly to imitate, and has corporate support.
Also, the store concept is evident from the store management and buying requirements. The store
concept ensures customer-centered and location-convenience during the design and distribution

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of materials and products (Johnson et al, 2017). Store operations will result in a temporary
competitive advantage. This is because it has a valuable aspect, is rare, and with high
organizational support. However, the imitability rate is high. Lastly, the marketing and CSR
competency is vital for H&M. These create brand awareness and enhance interaction with visible
actors. According to VRIO analysis, this will result in a sustained competitive advantage. The
high value accorded to it, its rarity, high costs of imitation, and organizational support occasion
this.
Severstal's External Environment
The PESTLE model uses various facets to analyze an organization's external
environment. Specifically, the model reviews the political, economic, social, technological,
environmental, and legal factors in the environment. As for Severstal, the following are evident.
First, there is the political environment. The privatization of government-owned assets resulted
in foreign and direct investment (Johnson et al, 2017). This resulted in the company's
internationalization mind, which exports and oversees activities as its core focus. This political
disposition led to the acquisition and development of numerous ventures across the globe.
Policies and rules governing the steel industry provided favorable conditions for the
establishment of local and international operations.
Second, there are economic factors. Severstal leveraged the weakening US dollar during
the 2000s. This facet enhanced a direct economic impact on the company. For example, the
company leveraged the financial season to acquire global mergers and acquisitions in Russia and
China. Technically, this factor substantiated growth and development in the steel industry, as it
was characterized by increased demand for such products. Also, the right economic conditions in
2002 favored the upward shift of the company. This can be occasioned by the acquisition of

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companies. Other include the production of highly-efficient and low-cost goods with readily
available steel market.
Severstal's social factors include the ready and high demand for steel products. With
Russia and China as the core market, Severstal leveraged the high demand for such materials.
Technically, governments and societies used this material for primary developmental and
construction purposes. Also, Russia was strategically aligned with raw material, labor, and
societal support, which instituted its growth (Johnson et al, 2017). Other facets are customer
loyalty and alignment with social and cultural practices, thus pioneering in the provision of
desired services and products.
Severstal's external environment is also characterized by technological factors. For
example, the vertical integration of production technologies has a substantial impact on the firm.
Here, new technological trends occasion the deployment of current infrastructure to upscale
production speed and capacities. Severstal's access to promising technological advancements in
Russia enhanced the adoption of production efficiencies (Sainidis, 2017). Also, the increased
demand for techno-savvy products shifted the company's technical preferences. In the long-run,
these factors have promoted the resurgence and pioneering in producing technologically-fit
industrial products.
Strict environmental forces that shape processes surround every organization. For the
steel industry, associate companies must abide by the set environmental-related regulations.
Simultaneously, industry regulation demands environmental conservation during production and
usage of products, and Severstal leveraged steel for production. Steel is recyclable and very
friendly to the environment. This aligns the company with strategic development goals, which
prohibit environmental degradation and promote sustainable engineering activities. In fact, the

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company advocates for a sustainable common strategy among all steel producers. This has a
positive impact on their primary activities and internationalization and expansion goal. Severstal
is environmental-conscious, mainly through the deployment of environmental pollution-
prevention programs across its outlets.
Lastly, legal matters define the external environment. Given the global space and
leadership in the steel industry, Severstal is bound to face legal restrictions and regulations from
neighboring and partner countries. Luckily, the company leverages its good relations with Russia
and other partner states to establish seamless interactions. The company's corporate governance
and sustainability goals have enhanced inter-state collaborations and flawless interactions among
many nations. The centralized management model with broader organizational levels has
improved a one-size-fits-all strategy. Additionally, Severstal's culture, brand, and marketing
strategies have enhanced an effective legal environment (Johnson et al, 2017). Here, global
awareness and transparency within Russia improved the company's rating with local and
international standards.
Thus, Severstal has various external factors affecting its processes and productivity. The
primary element is competition. Severstal is likely to face competition from its close rivals due to
improved logistics and production models. Besides, Severstal meets stringent governmental
regulations. This hinders merger and acquisition and venturing into new regional spaces.
Moreover, the Russian steel industry is consolidated. This limits free markets and conventional
business models. Also, there is an impending threat to substitute goods. Manufacturers are likely
to replace steel with other environmentally friendly and cheap alloys like granite. Lastly, the
rapid development of steel production technology is a threat. This calls for continuous upgrades
and upscaling, which is costly.

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Porter's Five Forces Analysis: The global steel industry
Porter's Five Forces is a critical management framework that identifies business
management forces, which affect the competitiveness and ultimate success of a firm. In turn,
management uses these forces to develop intentional business strategies to mitigate potential
vulnerabilities. According to Porter's Five Forces, management can gauge its industry
competitiveness by defining the five forces. These forces are the threat of new entrants, industry
rivalry, power of buyers, power of suppliers, and threats of substitutes. Severstal's Porter's Five
Forces analysis is outlined as follows.
The first factor affecting the global steel industry is the threat of new entrants. The global
steel industry has evidenced favorable internal and external factors, substantiating the steel
manufacturers' growth. Manufacturers and other organizations in the steel industry fear the threat
of new entrants. For instance, new entrants in the market of Europe will affect the overall growth
and productivity of manufacturers in this sector (Johnson et al, 2017). For example, hyper-
competition in the global steel industry can be occasioned by various economic and external
environmental factors. The rapid changes in the industry are core competencies driving market
entry for steel producers. In 2002, for example, the industry was dominated by steel producers
from Germany, the USA, and Japan (Johnson et al, 2017). Today, the global steel industry is
characterized by new players from India, China, South Korea, and Russia.
The threat of new entrants is also attributed to the global consolidation and fragmentation
of the industry. This results in fear of numerous producers flooding the market of Europe, which
impedes overall growth and market share of market leaders such as Severstal and Arcelor Mittal

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(Sainidis, 2017). Also, the great recession and global economic downtown necessitated the entry
of new producers. This acted as a wake-up call for new investors and shareholders in the steel
industry. Such forces have a substantial impact on the entry of new producers in the market.
Resultantly, existing businesses have to share the consumer base, which reduces the profit
margins. Luckily, Severstal enjoys the Russian government's regulations of market entry. With
Russia, new entrants are limited to industries that do not affect the current market organization
(Johnson et al, 2017). Severstal can leverage these factors to establish practical cognitions and
create high costs for new entrants, hence competitive advantage.
The power of suppliers is another critical aspect of the overall growth of an organization.
The power of suppliers calls for effective management and good relations with suppliers who
enhance the production process through the supply of raw materials. The global steel industry
relies on raw material suppliers to achieve the production efficiencies that meet standard product
requirements. The majority of the steel industries maintain low rate suppliers who offer
affordable and high-quality materials (Sainidis, 2017). For example, Severstal maintains good
relations with its suppliers, occasioning the continuous supply of standard raw materials on time.
Typically, the power of suppliers can affect industry performance in numerous ways. For
instance, supplier lock-in can limit critical suppliers to serve specific firms. This would affect
productivity in the steel industry, mainly if producers relied on the supplier. Also, the global steel
industry is likely to suffer from monopolistic supplier models. Here, a particular supplier
establishes effective relations, barring organizations from accessing other suppliers. This can
result in a shortage of raw materials and other alloys, affecting steel manufacturers' productivity.
Other factors include a lack of raw materials and high costs, which can affect the production

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process. Severstal has to maintain effective relations with suppliers from all the global outlets, to
enhance a rich supply of required materials, hence productivity.
The power of buyers is another force that affects strategic management. Buyers' power
can establish a competitive advantage through a more substantial customer base. This element is
critical in the global steel industry because of vast competition. With numerous producers
providing the same products, buyers acquire a higher bargaining power. When buyers'
bargaining power is high, there is a likelihood of switching from one supplier to another. Buyers
can easily switch from one supplier to another, given the flexibility of the latter producer. This
has necessitated the high costs of products to attract and retain buyers. Also, the global steel
industry sells a more significant percentage of its products to the government (Sainidis, 2017).
The development of good reason with such government agencies enhanced the continued
commitment to buy from specific manufacturers. For example, Severstal's main buyers are the
government and Europe-based agencies (Johnson et al, 2017). Effective management and
adherence to the set legal and political standards give the company preferential treatment. Here,
Severstal has a higher rank, particularly among its buyers, hence its global competitiveness. The
buyer's power has enhanced competitiveness in the steel industry, as individual producers have to
devise ways to tackle competition, attract, and retain global buyers.
Threats of substitutes is a greater force affecting the global steel industry. With the
demand for environmental-friendly and durable engineering materials, the steel industry might
suffer huge losses. Luckily, the global steel industry has limited threats of substitutes because of
the materials' competitiveness. Steel, the widely used raw material in the steel industry, gives the
manufacturers a competitive advantage over other sectors. Steel, which is made of iron and
carbon, has a complete application in industrial production. This is a competitive facet, as the

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demand for such products promotes the growth of steel industries. Additionally, the versatility,
resilience, and recyclable properties of the alloy create a competitive advantage for the steel
industry (Sainidis, 2017). Here, consumers and large-scale buyers maintain their demand for the
product because of its striking features, which offer durability and environmental friendliness.
Also, the rapid growth of the engineering projects in many economies, which demand steel
products, set apart the global steel industry.
Lastly, industry rivalry affects the competitiveness of an industry. Here, competitors with
rival products may establish stringent marketing conditions, hindering trade, and profitability. In
Russia, for example, the government reduces the number of sectors aiming at the same customer
group (Sainidis, 2017). This strategy enhances the competitiveness of one primary sector, thus
limited industry rivalry. The global steel industry has a competitive advantage. This is because of
the worldwide demand for its products, therefore limited industry rivalry. Severstal follows a
similar model. The company enjoys the Russian government's regulations, limiting market entry
for rivals and other organizations at an already flooded customer group (Johnson et al, 2017).
These facets promote the competitiveness of the global steel industry.
Ansoff's product and market matrix: Severstal
Ansoff's product and market matrix enable managers to identify critical product and
market competencies for growth opportunities. Also, the model enhances the evaluation of risks
associated with business growth. Severstal has achieved considerable growth since its founding
ages. This can be attributed to the increased market share, global locations, product
diversifications, and profitability. Primarily, the organization has used various strategies to
acquire these margins and aim at better ones. Severstal leverages its core capabilities and