Strategic Management Report: Patagonia's European Expansion Strategy

This report provides a comprehensive strategic management analysis of Patagonia, a US-based outdoor lifestyle clothing company. It begins with a critical analysis of the external environment using PESTLE and industry competition using Porter's Five Forces, highlighting the high competition within the outdoor clothing sector. The report then delves into Patagonia's resources and competencies, assessing its competitive advantages using the VRIN framework, emphasizing its environmentally friendly practices and use of organic cotton. The current mission statement is evaluated, and a reframed statement is proposed to support growth and expansion strategies. A SWOT analysis is conducted, and recommendations are made to adjust the current business-level strategy, suggesting cost leadership and diversification to facilitate expansion into the European market. The report concludes with a summary of findings and strategic recommendations for Patagonia's continued success and growth in a competitive global market.

Running head: STRATEGIC MANAGEMENT
Strategic Management
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Table of Contents
Introduction......................................................................................................................................3
1. Critical analysis of external environment and industry competition within the outdoor lifestyle
clothing industry..............................................................................................................................3
1.1 External Environment analysis..............................................................................................3
1.2 Industry competition analysis................................................................................................5
2. Critically discuss Patagonia’s resources and competencies that can be utilized in competitive
advantage.........................................................................................................................................7
2.1 Organisational Resources......................................................................................................7
2.2 Organisation Competency Analysis......................................................................................8
2.3 Competitive advantage of Patagonia.....................................................................................9
3. Critically evaluate the Patagonia’s current mission statement to support its and growth and
expansion strategy. Reframe the mission statement for a new strategic change...........................11
3.1 Mission Statement of Patagonia..........................................................................................11
4. Construct a SWOT analysis of Patagonia and recommend changes to its current business
level strategy..............................................................................................................................12
4.1 SWOT analysis....................................................................................................................12
4.2 Corporate strategies of Patagonia........................................................................................13
Conclusion.....................................................................................................................................15
Reference List................................................................................................................................16

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Executive Summary
This report sheds light on the strategic management and initiative of the organisation Patagonia.
Patagonia works in outdoor sports clothing and headquarters of the organisation is in California.
Patagonia wants to expand its business in the European sector. This report highlights the external
environment of outdoor clothing industry through PESTLE analysis and industry competition
has also been analysed through Porter's Five Forces analysis. Competition is high in this industry
and Patagonia believes in environmentally friendly business. They deliver the quality product
and they use organic cotton. Resources and competencies of the organisation have been reviewed
in order to understand the competitive advantage of the organisation. VRIN framework has been
used in order to judge the competitive advantage. The mission statement of the organisation does
not highlight the grown and expansion, therefore, a mission statement has been suggested.
Finally, SWOT analysis has been conducted and corporate strategy has been reviewed. Two
changes have been mentioned cost leadership and diversification in order to expand into the
European market.

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Introduction
Strategic management is the process for an organisation in formulation and
implementation of the strategies. An organisation sets the strategies based on the resources and
competencies it has (Bohlouli et al. 2017). In this report, strategic management of Patagonia will
be highlighted with analysis of outdoor lifestyle industry. Patagonia is US-based outdoor
lifestyle fashion clothing and sports clothing company. The scope of the study is to explore the
strategic management initiatives of Patagonia and functional management policies of the
organisation. In the first part of the report, external environment and industry competition of the
organisation has been conducted. In addition, resources and competencies of the organisation
have been produced. Moreover, the mission and vision statements of the organisation Patagonia
have been evaluated. Finally, a SWOT analysis has been conducted with current business level
strategies with recommending changes of it.
1. Critical analysis of external environment and industry competition within the outdoor
lifestyle clothing industry
1.1 External Environment analysis
PESTLE analysis
Political:
Patagonia provides special consideration towards the environmental factors and
environmental issues are associated with the political bodies. This organisation is trying to
expand the business in European sector and the recent Brexit issue can create a problem for
them. The factors of EU policies and political stability in Europe can impact on the business.

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Level of corruption and intellectual property protection of European countries are important
factors for Patagonia. Industrial safety, taxation and employee safety issues are to be followed.
Economic:
Macro-environmental factors of the business in economic contexts are saving rate,
inflation rate and interest rates in European contexts can create an issue for the business of
Patagonia. In recent time, European outdoor clothing is flourishing as exchange rate and
infrastructure quality are good (Plank 2016). In most of the European countries, aggregate
demand and aggregate supply are the factors to be followed and GDP is going high in a
European context.
Social:
US-based company Patagonia has been trying to enter European market and European
people's demographic factors are different from the US. The preference and brand awareness are
different in Europe as well as class structure and hierarchy in society. European people provide
importance in leisure interest and attitudes (Proctor 2014). The organisation uses social policies
to support the initiatives to repair and extension of the life of existing products.
Technological:
In recent time, technologies play disrupting role in all industry. In outdoor clothing, the
manufacturing process is getting change with marketing. Moreover, in transportation in the
supply chain of the Patagonia has been changing the technological issues. Patagonia needs to
consider the competitors' technological specification in the industry, technologies can impact
product offering and it can impact on value chain as well.

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Environmental:
Patagonia has a strong set of values in their strategies and mission. The organisation has
environmental values and it is offering the products that are environmentally friendly. Moreover,
the organisation is using green supply chain. The firm does Common Thread Recycling
Programme to reduce the environmental impact (Rousseau and Vranken 2013). The organisation
does not want to harm the environment for any unnecessary reason and it is using organic cotton
as well.
Legal:
Patagonia needs to follow the anti-trust law in the irrespective countries they are planning
to invade. Moreover, the laws regarding employment and exporting should be followed.
Copyright and patent related issues must be solved by the management. The environmental laws
and Health and Safety of the employees must be carefully managed.
1.2 Industry competition analysis
Porter’s Five Forces Analysis
Industry rivalry In the US market, Patagonia has three major
competitors and they are North Face, Timberland and
Low Alpine, these are from VF Corp. organisation. The
organisation is planning to enter European context and
the competition in the European market is also high.
Patagonia can face the challenges from Eagle, Lafuma
and Quechua, Columbia, REI and Solomon. Therefore,
the organisation is in the highly competitive sector and
High

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it has been following higher cost operation process for
its environmental policies in the supply chain,
production and logistics.
Threats of new
entrants
20 Years before, an organisation like Patagonia could
not be imagined as the business style of environment-
friendly way might not be needed (Svedlund et al.
2016). Therefore, the competitive advantage of the
business is not in endangered. In recent time, the new
entrant in the business has been seen in fashion or
sports clothing industry as the example of the business
could be Quechua, it is ranked 7th in global perspective
in the selling of outdoor clothing. Most of the
organisations are starting their subsidiaries in European
sector also.
Medium
Substitutes In outdoor clothing, this brand produces sports
products for Nordic Skiing, fly fishing, mountain
climbing, trekking and snowboarding. The clothes
offered by Patagonia are perfect; however, the trend of
the clothing has been changing always. Patagonia does
not need to go compete with all brands associated with
sports clothing.
Medium
Bargaining power
of customers
The customers in this industry are unique and the
organisation meets the specific criteria of the
Medium

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customers. Therefore, the customers are the lovers of
the outdoor sports and customers are loyal to the
organisation (Tansey et al. 2014). The range of the
customers for the organisation is small and Patagonia is
innovative and they attract the customers by quality
products.
Bargain power of
suppliers
Patagonia has almost 160 suppliers of raw materials in
the US and the management wants to trust and mutual
governing in this respect. The organisation has cut its
profit by assigning itself to take raw materials of
organic cotton suppliers. Patagonia gives 10% turnover
prices to R&D to improve quality of the products.
Low
Table 1: Porter’s Five Forces
(Source: Self-developed)
2. Critically discuss Patagonia’s resources and competencies that can be utilized in
competitive advantage
2.1 Organisational Resources
Physical Resources
Physical resources of an organisation are tangible resources and this type of resources can
be touched (Tarhini et al. 2015). In addition, physical resources valuable assets and Patagonia
has it headquarter in California. They have their own supply chain; moreover, they have

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manufacturing process. Physical resources of Patagonia include buildings, trucks, machines,
equipment for manufacturing production. Raw materials of the organisation are physical
resources.
Financial Resources
Patagonia has been observing growth in the market and it will grow in the market to
cover up £396m annual turnover globally. Gross margin of the organisation was 50% average
between 2010 and 2015. In the last year, Return on Assets was 8% and Return on Equity was
9.6%. Moreover, Return of Revenue touched 8.1% last year (Patagonia.com 2017). The
organisation is expecting a high sales growth in the US market and they are expecting to
continue their sales in the European market as well. Gellert, the CEO expected that the 20% of
the total revenue should from the European section.
Human Resources
Patagonia organisation values the honesty and integrity in the workplace and they recruit
mainly the skilled employees. However, in case, any issue occurs, the management asks the local
administration to check the problem. In addition, the number of people in the organisation
working is not much; it is 1000 employees (Patagonia.com 2017). The management is trying to
recruit more people to the retail stores in the US. Moreover, in the UK, they make a partnership
with the retail stores in selling their products. In this section, they start recruiting sales
executives.
2.2 Organisation Competency Analysis
Core competency and Threshold competency

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Core competencies of an organisation must fulfil three major criteria, it provides access
to most of the products, it must contribute it the consumers’ benefits and it must be difficult for
the competitors to imitate the products in the market (Akkermans et al. 2013). Patagonia sells the
outdoor products for the sports lover and they have to compete with competitors in the US and in
the global market. However, the core competency of the organisation lies in the materials they
are using. As the organisation uses environment-friendly products, it would be difficult for the
competitors to copy the idea from them. Patagonia is doing well in the US and in Japan market.
However, they are trying to enter the European market with the same products line as they think
the market has billion-dollar potential. Competencies of Patagonia are doing the penance in
society, clean up own act, support civil democracy and influence other companies (Armstrong
and Taylor 2014).
As stated by Gerve and Zhang (2017), threshold competencies mean the basic
knowledge, self-images, skills, traits and social role of an organisation that is necessity in order
to do a work. Moreover, without these competencies, the quality of the products and the
performance may get decreased. Patagonia is doing the business in outdoor clothing on certain
sports and VF Corp. is the competitors in this market. However, Patagonia’s environmental
strategy is new in the market that would make them standalone in the global market as well.
2.3 Competitive advantage of Patagonia
VRIN framework
Competency Valuability Rarity Imitability Non-
substitutability
Competitive
advantage
Physical Yes No No yes Competitive

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resources Parity
Financial
resources
Yes Yes No Yes Temporary
competitive
advantage
Human
resources
Yes No No No No
competitive
advantage
Core
competencies
Yes Yes Yes No Competitive
advantage
Threshold
competencies
Yes Yes No Yes Temporary
competitive
advantage
Table 2: VRIN analysis of Patagonia
(Source: Self-developed)
The major goals of the organisation are to use environmentally sustainable methods in
using resources and Patagonia uses organic cotton and less damaging dyes and fabrics. In
capabilities of the organisation, they strive to less consume and appeal to ‘dirtbags'. Patagonia
takes Product Life Cycle initiatives, 1% of the planet and they donate the revenue of the
organisation and it is the leader in recycling and sustainability (West et al. 2017). Patagonia took
the risks 20% company’s stake in order to be an organic company and invested heavily in R&D.
In addition, competitive advantage lies in the expansion strategy in the European market and
Patagonia sold 8% more organic products over competitors in US market.

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3. Critically evaluate the Patagonia’s current mission statement to support its and growth
and expansion strategy. Reframe the mission statement for a new strategic change
3.1 Mission Statement of Patagonia
Figure 1: Mission Statement of Patagonia
(Source: Patagonia.com 2017)
The mission statement of Patagonia clearly talks about environmental protection and
sustainability. Patagonia's values reflect the idea that the organisation started by a band of surfers
and climbers. The product design of the organisation is the sign of utility and simplicity.
Patagonia believes that they are making pollution as a by-product, therefore they took a pledge to
use recycled polyester and organic cotton. The core values of the organisation are environmental
sustainability and product quality that help the organisation to be in the market for than 30 years.
The main mission of the organisation is to make the best products for the environment; however,
the expansion of the business is missing. The business should make a profit and it is needed to
increase sales as well. The organisations try to introduce new products and expand the business
in the different market as well. Developing new market segment and move into different
geographical segment need strategies from management (Tansey et al. 2014). Global market
provides rising consumers and changing of business climate, however, Patagonia needs to follow
the uniqueness itself being environment-friendly. Patagonia does not take the expansion into the