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Strategy Report

Contents
Executive Summary ................................................................................................................................ 4
1. Strategic Analysis ............................................................................................................................... 5
1.1. External Analysis .......................................................................................................................... 5
1.2. Internal Analysis ........................................................................................................................... 7
1.3. Organizational Analysis ................................................................................................................ 9
1.4. International Analysis................................................................................................................. 11
2. Identification of Key Strategic Issues............................................................................................... 12
3. Future Strategic Options .................................................................................................................. 14
4. Strategy Evaluation and Selection ................................................................................................... 18
5. Justification of Recommendations and Action Plan ....................................................................... 23
References ............................................................................................................................................ 26
Appendix............................................................................................................................................... 27

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Executive Summary
Founded in the 1947 in Sweden, H&M is today one of the biggest fashion retailers in the
world. In a fragmented and mature market like the fast fashion industry, H&M has been the
leader and has been gaining market share and high revenues. Its success is due to its unique
ability in managing the value chain to lower the costs and to its network of suppliers and
fashion designers that allow the brand to differentiate from competitors. The company has
been a family business since the beginning, and during the time it kept following the
principles and culture that are the basis of its organizational structure. In fact, in spite of the
high internationalization and the impressive growth of the company during these years,
H&M has not changed its spirit and keeps offer the customers fashion and quality at the
best price. The following report aims to analyse the company and suggest future strategies.
The analysis found four key strategic issues that the company should consider:
-

Unexploited opportunities to improve the cost/value advantage

Opportunity to leverage resources and capabilities to grow

Opportunity to develop the offer of products

Risk that the culture of the organization is not long appropriate

In order to address those issues, the company is recommended to pursue the following
strategies:
Short term:
-

Market development

Franchising

Long term:
-

Market penetration

Related diversification

The first part of the report will analyse the company from different points of view (market,
resources, organizational and international). The second part will identify the strategic
issues the company is facing. The third part will list several options of strategies that H&M
could pursue, while the forth part will evaluate and select the best strategies. Finally, the
last part will suggest the action plans to implement the chosen strategies.
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1. Strategic Analysis
The strategic analysis will be conducted on the external, internal, organisational, and
international levels. The analysis has been conducted by using theory concepts and tools
that can be found in the Appendix, while the following tables will summarise the
conclusions of the analysis and will list the strategic issues identified.

1.1. External Analysis


The external analysis focuses on the environment in which the company operates. The
industrys features, the market segmentation and the competition will be analysed on order
to find relevant strategic issues that H&M should consider for the development of the next
strategies.

Strategic Analysis

Summary Conclusions from

Strategic Issues Identified

Strategic Analysis
PESTEL

The most important parts of the

(Appendix A)

analysis are the Economic and the

to overcome the rising

Social ones, because they can affect

production costs in Asia, the

more than others the profitability of

crisis of Euro and the rising price

the industry

of the cotton

Need to lower the cost in order

Unexplored segments of the


markets due to change in
demography and societal
concern

B
V

Porters 5 Forces

The industry is attractive, but the

(Appendix B)

competition is very high (easy to

to the high diversity of

enter, hard to compete)

competitors

Need to neutralize the rivalry due

EV - 5 Forces

The most important change is

(Appendix C)

technological. There is an increasing

through the internet (direct

use of the internet to shop and share

online sales, less expensive

trends and opinions, and there are

online campaign)

improvements and development of


new materials for clothes

Opportunity to lower the costs

Opportunity to differentiate the


product by using new materials

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Strategic groups analysis

In the strategic group graph, brands

(Appendix D)

belonging to H&M are only

strategic groups (narrow market

positioned in the medium-low

segmentation)

Opportunity to expand in other

price/quality variable and in the


medium-broad market segmentation
variable.

Individual competitor analysis

The main competitors (Inditex, Gap

(Appendix E)

and UNIQLO) have different

competitors superiority in brand

resources and capabilities from H&M

image (Gap), low price (UNIQLO)

and follow two different strategies:

and fashion (Inditex)

UNIQLO is a best-value provider,

It is important to overcome the

Risk of tough competition with

while Inditex and Gap follow a

UNIQLO because the company

differentiation strategy

will probably expand in the


western countries and it targets
the same segment of the market

Customer analysis and

In the market there are several

segmentation

segments, and the offer of low cost

(Appendix F)

products appears to meet the

market of family (low cost)


-

demand for all of them.

Key success factors (KSF)

Key success factors in the industry

(Appendix G)

are: speed of response to changing


fashion, style of the products,

Opportunity for the segment

Opportunity for the segment


market of teenagers (specialist)

Need to improve the brands


reputation

reputation of the brand, quality of

Need to improve the quality of


materials

materials, low cost manufacture

Economic features of the

The growth of the market is slow,

Possibility of vertical integration

industry (industry DNA)

and while the capital required to

Possibility of innovation in

(Appendix H)

enter the market is low, the

materials for clothes

resources needed to compete are


high. Therefore it can be assumed
that companies that are unable to
compete will be forced to exit the
market in the future

The main challenge that H&M faces is the rivalry. In fact, according to the external analysis
the market is highly competitive, with high buyer power (Marketline, 2013). The reasons are
the nature of the market (fragmented) and the fact that H&M is losing its first mover
advantage, since the fast-fashion industry is becoming mature and more companies can
follow the same best-value strategy. However, the external analysis also revealed some
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opportunities to lower the costs and to enter in new markets/segments, and therefore
achieve higher profits and market share.

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1.2. Internal Analysis


The internal analysis shows the resources and capabilities that belong to H&M and that the
company can use and develop in order to compete with other firms. The following table will
list the summary of the analysis and the strategic issues identified.

Strategic Analysis

Summary Conclusions from

Strategic Issues Identified

Strategic Analysis
Historical analysis

H&M enjoys the first move

(Appendix I)

advantage in the fast fashion

suppliers as long-term strategic

industry. The main feature of its

partner could bring some

products is the cheap and chic

benefits (financial and social)

Possibility that having more

principle: the firm can assure low


price because of a unique efficient

value chain and fashion because it


employs some of the best designers.
During the years H&M uses a

B
V

strategy of developing resources


according to its growth

Resources analysis

The most important resources for

(Appendix J)

H&M are financial and human. On


the financial point of view, the

Possibility of more investments


because of high revenues

Risk of high turnover in the

company can rely on a strong

human resource because of non-

financial position that can allow

conventional system without job

more investment. On the human

descriptions and titles

resource side, the selection of


H&Ms employees is based on
personality rather than qualification
and this makes the resource more
difficult to replicate

RIAS and core competences

The most important competences for

analysis

H&M are the brand reputation and

relationship with the network of

the architecture of network.

suppliers and designers

(Appendix K)

Moreover, the fields in which the

Possibility to strength the

Possibility to improve the

company has the main competences

distinctive design of the products

are operations (because of its

in order to further differentiate

efficient value chain) and product

H&M from competitors

design (because of the capability of

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use distinctive features in the


product)

VRIN analysis for sustainability

The company has already exploited

(Appendix L)

its main resources and capabilities

name further by entering new

(brand name and reputation,

markets

network of suppliers and designers,

Possibility to exploit the brand

Possibility to expand the social

location and social media presence).

media presence by beginning

However, among all its resources

collaborations with fashion

and capabilities only brand name

bloggers

and reputation cannot be imitated


and therefore appear to be
sustainable

Strategic flexibility and

The firm targets the same segments

competitive positioning analysis

of its competitors, but compared to

advantages in segment markets

them the product is less

before H&Ms entry

(Appendix M)

differentiated in term of quality and

Risk that competitors gain

Opportunity to overcome the

price. However, H&M exploited

distribution channel catalogue

more distribution channels and

because of cost and the

invest more in promotion

increasing use of the internet

Value chain analysis (including

H&M successfully developed an

cost/value drivers)

efficient value chain that keeps the

chain in order to low the costs

fixed costs extremely low. The most

further

(Appendix N)

important activities are:

Possibility to change the value

Risk that the human resource

procurement, design, warehouse,

system without job titles and

sales

description causes lack of


responsibility and high turnover

The internal analysis revealed that H&Ms main resources and capabilities are the brand
image and reputation, the highly-efficient value chain, and the network of suppliers and
designers. However, competitors have their own resources and capabilities that can
represent a danger for H&Ms leadership in the industry. The analysis also revealed some
opportunities that the company could consider in order to improve its position in the
market.

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1.3 Organizational Analysis


The organizational analysis identifies the importance that each stakeholder has for the
company, the ethical issues that the firm faces and the culture and value on which the
company is based.

Strategic Analysis

Summary Conclusions from

Strategic Issues Identified

Strategic Analysis

Stakeholder analysis

The stakeholders that have more

(Appendix O)

power and interest in the company

agree with the companys

are: groups of pressure and

strategies and are not satisfied

government (keep satisfied), and

with the little power they have

customers, manager and major

shareholders (key players)

Risk that shareholders do not

Opportunity to be proactive with


some groups of pressure

Culture analysis

H&Ms organizational structure is

(Appendix P)

based on two different cultures: the

flat organization system would

management levels share a task

not be accepted in non-

culture, while the stores personnel

Scandinavian countries

follow a personal culture. This

(risk of high turnover and lack of

system suits the companys values

responsibility)

Risk that the culture based on a

and history, and it could be identified


as Scandinavian culture

Business ethics and CSR analysis

The company does not face serious

(Appendix Q)

or urgent ethical issues. However,

ethical issues (wage levels,

some low costs strategies could

pollution and fuel waste) benefits

increase the profit and the brand

the company

Possibility that solving some key

image

H&Ms organizational structure and culture is strongly related to the Scandinavian spirit.
This is one of the companys distinctive features but it could also become a problem in other
countries where the culture is different.
The fact that H&M is a family business could be a problem for the other shareholders
because they do not have decisional power.

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Finally, the organizational analysis found that even if the company is not involved in any
urgent ethical issue, there will be the possibility to be a proactive company by anticipating
the stakeholders concerns.

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1.4. International Analysis


The international analysis studies the strategies that the company pursues in its expansion
to other countries. Some of the tools used are the host market entry analysis and the
standardization/adaptation analysis, which help to better understand the rationale behind
the companys choices.

Strategic Analysis

Summary Conclusions from

Strategic Issues Identified

Strategic Analysis

I
N

International business strategy

H&M follows a broad standardized

analysis

differentiator strategy: it serves

adapting the products further,

several segments in several countries

according to the taste of each

without adaptation of the products

country

(Appendix R)

Possibility to gain more profit by

and strives to gain differentiation


from its competitors

Host market entry mode analysis

The company entered in almost

every regions of the world with


greenfield investments and

Possibility to increase the


number of franchises stores

Possibility to enter more markets

Possibility to adapt the products

franchising. H&M is planning to enter


in two markets in South America,
two in Europe and two in Asia.
However there are no plans to enter
big markets such as Australia and
South Africa

Standardization / adaptation

H&M pursues a standardization

analysis

strategy (a part from the adjustment

according to the taste of the host

of the size in Asia). This allows the

market

firm to be cost-efficient; however,


since H&Ms business is based on
design and suppliers rather than
production, the costs in adapting the
products would not be excessive

The international analysis found that H&M follows a broad standardized differentiator
strategy. However, there would be possibilities to adapt the products further in order to
better meet the demand in host countries.

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2. Identification of Key Strategic Issues


The external analysis identified several threats that H&M is facing and unexplored
opportunity for the firm. However, some of the strategic issues can be considered belonging
to the same area and they can therefore be consolidated (see Appendix R).
The following issues are the ones that the analysis found to be the most important to the
company and for its future strategies:
Long Term

Short Term
- Unexploited opportunities to improve the
cost/value advantage

- Opportunity to develop the offer of products

- Opportunity to leverage resources and

- Risk that the culture of the organization is not

capabilities to grow

long appropriate

- Risk that shareholders do not agree with the

- Possibility of more investments because of high

companys strategies and are not satisfied with

revenues

the little power they have

- Possibility that solving some key ethical issues

High Urgency

Low Urgency

(wage levels, pollution and fuel waste) benefits the


- Opportunity to be proactive with some groups of

company

pressure

- Need to improve the brands reputation

The rationale behind the choice of the key strategic issues is whether the identified issues
are urgent or not. Then, they have been divided according to the time that the company
needs to address them.
In the case of the short term strategic issues, the justification is the risk or the missed
opportunity for the company if it will not solve them. Solving the first issue is essential,
because H&Ms strategy is based on low cost yet differentiation, and the opportunities that
the company could exploit by improving the cost/value advantage must be considered as a
key resource for H&M to increase its competitiveness. Similarly, the company should stretch
its resources and capabilities by following growth strategies. This would increase the size of
the company and it would mean more global presence, with the opportunity to gain profits.

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Similarly to the short term key strategic issues, the strategic issues that need a longer term
to be addressed have been chosen over the other issues because they would have more
impact on the company if they will be solved. There are opportunities to change the
product but time is needed to develop strategies and maybe technologies. Therefore, even
if this issue can affect the companys future, it will take longer time to be solved. A problem
related to the companys growth is the risk that the organizational culture is not long
appropriate. According to the organizational analysis, there is the risk that it could create
higher turnover and lack of responsibility in countries other than Scandinavian; however,
the culture can be considered as difficult to change, therefore H&M would need more time
to address this issue.
To conclude, four key issues have been identified that the company should address. The two
short-term issues are opportunities to increase the cost/value and to leverage resources and
capabilities. The two long-term issues are the opportunity to develop new products and the
risk that the companys culture is no long appropriate. The next section of the report will list
some strategic options that the company could consider to address the key strategic issues
found.

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3. Future Strategic Options


The company has several options to attempt at the solution of the strategic issues. In the
following paragraphs the strategic options related to each issue will be presented and
clarified.

1. Unexploited opportunities to improve the cost/value advantage

Levels of strategy

Strategic option 1

Strategic option 2

Manage cost drivers

Manage value drivers

Business

Business

Specific level 1

Consolidation strategy

Market penetration

Specific level 2

Franchising,

Internal development

Broad level

internal development
Functional and supporting

Exploit online marketing

Increase online sales

Increase franchising

Eliminate the catalogue as


distribution channel

Increase of the number of long-term


suppliers

Strength the relationship with famous


designers

Start collaboration with fashion


bloggers

Improve the brand image by being


proactive with ethical issues

Both of the strategies recommended to solve the first issue are based on the business
strategy of the best-value provider. Since H&Ms success comes from the offer of fashion at
the lowest price, the hybrid strategy could be considered as a distinctive capability that the
company should exploit. For this reason it is essential to lower the costs yet to keep the
product differentiated from the competitors. In order to do so, two different strategies can
be employed. The consolidation strategy would allow the company to save resources and
increase the efficiency of the value chain. The methods are the franchising, that would
appear more suitable for the companys culture and would require less investment, and the
internal development of different distribution channels (from catalogues to online sales)
and online marketing. The market penetration strategy would add value (or perceived
value) to the product and the brand image by employing more famous designers, strength
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the relationship with suppliers (in order to gain higher-quality items at a reasonable price),
start collaborations with fashion bloggers top increase the companys presence on the web
and give the image to be a firm commits in the social concerns.

2. Opportunity to leverage resources and capabilities to grow

Levels of strategy

Strategic option 1

Strategic option 2

Enter new markets and segments

Focus on the companys personal style more


than copying fashion

Broad level

Business

Business

Specific level 1

Market development

Market penetration

Specific level 2

Internal development

First mover strategy

Functional and supporting

Enter new markets

Target plus size

campaigns for the importance of

Target environmental-concerned

personal style rather than fashion

customers
-

Target families by providing

Change the key success factors with

Development of more distinctive style


in product design

classical style

The external and internal analysis found several opportunities that the company could
exploit to gain market share and increase the revenues. The first option is the market
development. H&M could enter new markets that are similar to the markets in which the
company already operates, such as South Africa, Australia and South American countries.
Moreover, the company could target more segments by offering plus size clothes, more
collection like the Conscious Collection for the environmental-concerned customers, and
classical style clothes for families. The second option is the market penetration. Since one
of H&Ms capabilities is the ability of design products according to the companys own style,
some campaigns that attempt to change the key success factors of the apparel industry
from fashion to personality would benefit H&M over its competitors. At the same time, the
company should develop its distinctive style in order to differentiate itself from competitors.

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4. Opportunity to develop the offer of products

Levels of strategy

Strategic option 1

Strategic option 2

Strategic Option 3

Develop new materials

Diversify into new products and

Adapt the products according to

through strategic alliances

industries

the taste of the host market

Business

Corporate

International

Specific level 1

Product development

Related diversification

Transnational strategy

Specific level 2

Strategic alliances

Horizontal integration

Internal development

Broad level

Functional and supporting

Produce clothes

with innovative
materials
-

Produce clothes
with recyclable

Extend the range of

Develop different styles

products to cosmetics

according to the host

Enter the home textile

markets preferences

industry
-

Offer sport apparels

materials

Keep the costs low by


choosing suppliers close
to the host countries

H&M has unexploited opportunities to further develop its products. In order to do this,
three strategies can be pursued. By differentiating the products through the product
development, the company can be innovative in the materials that its suppliers will use to
produce clothes. The research and development of the new fabrics could happen through
strategic alliances with firms that operate in the chemical and textiles industries (C. Bowman
and D. Faulkner, 1997). The second possible strategy is the diversification in related
industries such as cosmetics, home textiles and sport apparels. The last option is the
transnational strategy. It involves the change of the international strategy from broad
standardized differentiator to broad adaptive differentiator and it would result in a
customisation of the products according to different markets. This strategy also includes the
opportunity to switch to suppliers closer to the host countries so that the higher costs of the
missed economies of scale are compensated with the lower costs of logistics.

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5. Risk that the culture of the organization is not long appropriate

Levels of strategy

Strategic option 1

Strategic option 2

Increasing the percentage of franchising

Adapt the organization to the culture of the host

over the stores in host countries

country

International

International

Franchising

Internal development

Broad level
Specific level 1
Specific level 2
Functional and supporting

Increase the franchises in the

Develop the task culture to adjust the

host markets with culture

problems of the personal culture in the

different from Scandinavian

stores
-

Provide description of jobs in countries


with culture different from
Scandinavian

The options to solve the last key strategic issue are two, both to be pursued at an
international level. The option of franchising would increase the autonomy that the stores
already have and this would allow the managers of each store to deal with the employees in
a non-standardised way, according to the culture of the country. The internal development
would instead keep the decisions more centralised, and the company itself would decide
how to adjust the system so that it is efficient in each country. The managers can adjust the
organisational system by developing a task culture where it would be more appropriate
than a personal culture, or by providing the descriptions of jobs so that the more clarity
helps the employees to deal with their tasks.

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4. Strategy Evaluation and Selection


After having found some strategies the company could pursue, the following analysis will
assess each option by using the SAF criteria, in order to define whether they are suitable,
acceptable and feasible.
KSI

Strategic choices

Suitability

Acceptability

Feasibility

In a context of
economic crisis and
high competition, the
The strategy would

shareholders could

The R&Cs already exist, only

allow H&M to better

accept to cut the costs

need to implement online

Consolidation

manage its value

further

sales and switch from rented

strategy

chain, by saving

(+)

stores to franchising

resources

Risk that the franchise

(+)

(+)

will not follow the

Unexploited

companys culture

opportunities to

(-)

improve the

The suppliers would

cost/value
advantage

Market penetration

The strategy would

have interest in long-

leverage H&Ms

term agreements

resources and

because they would

capabilities

have security in the

(+)

future business with

The strategy requires high

The long-term

H&M

investment because of

relationship with

(+)

famous designers

suppliers can result in

Stakeholders would

(-)

better deals and

have interest in the

convenient

companys

agreements for H&M

commitment in ethical

(+)

issues
(+)

Two directions have been found to solve the first strategic issue. The first one
(consolidation) appears to be suitable because it would exploit the companys opportunities
and therefore the issue would be solved. It could also be feasible because it would not need
any new competence or resource (neither financial). However, it is only partly acceptable

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because even if the shareholders could agree, there would be the risk that the franchise
stores do not suit the companys culture and this could result in losing the brand image.
The second direction to be examined is the market penetration. The strategy appears to be
suitable to address the issue and acceptable from stakeholders, but the feasibility is limited
by the financial investment required to collaborate with famous designers.
Between the two directions just analysed, the most suitable for H&M is the market
penetration. It would allow the company to stretch its resources and capabilities to gain
market share in the countries in which it is already present, being more competitive.

KSI

Strategic choices

Market
Opportunity to

development

Suitability

Acceptability

Feasibility

The strategy

The strategy is risky,

Need of resources (financial

addresses the issue

therefore it could not

and non-financial) to enter

identified

be accepted by

new markets and target new

(+)

shareholders

costumers

(-)

(-)

leverage resources
and capabilities to

The strategy could

It could be accepted by

Need of financial resources

grow

give H&M competitive

shareholders because it

to invest in the strategy

advantage because it

would increase the

(-)

is based on its

brand image

Need of implement

resources and

(+)

resources and capabilities

Market penetration

capabilities

through design development

(+)

(-)

The two directions that H&M could pursue to address the second issue are market
development or market penetration. Both options are suitable, but market development
appears a risky strategy that could not be accepted by shareholders. On the other hand,
market penetration could be accepted because it could increase the brand image. However,
both strategies need massive financial and non-financial resources to be implemented.
The recommended strategy is the market development, because it needs less resources and
capabilities comparing to market penetration.

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KSI

Strategic choices

Product
development

Suitability

Acceptability

Feasibility

Risks of strategic

Find a company that is

The strategy would

alliances can be a

willing to collaborate in R&D

help the company to

reason for shareholders

of new materials can be

solve the issue

to not agree

difficult

(+)

(-)

(-)

Stakeholders would

Opportunity to

Related

develop the offer of

diversification

products

accept the strategy,

The strategy requires high

The strategy would

because suppliers could

financial investments and it

help the company to

provide more products

could involve more

solve the issue

and shareholders could

competition in the industries

(+)

gain more if the

the company will enter

company grows

(-)

(+)

Transnational
strategy

The strategy would

the suppliers could not

In order to implement the

partly help the

accept if the company

strategy resources and the

company to develop

has to switch to

change of the value chain are

the offer of products

suppliers that are

required

(-)

closer to the host

(-)

countries
(-)

In order to exploit the opportunity to develop the offer of its products, H&M could follow
three different strategies. The product development is suitable but maybe not acceptable
from the shareholders because it involves the alliance with another company. Moreover,
the difficulty in finding the ally for researching and developing new materials makes this
strategy little feasible.
The second strategy is the related diversification. This is a corporate strategy that would
solve the issue identified and that would probably be accepted by the stakeholders because
while the suppliers could expand their business with the company with related products, the
shareholders would gain more dividends if the company grow. However, this option
requires high financial investments and the entry in new industry could be risky because
H&M does not know the market and the competition can be higher.
The last option is the transnational strategy. This option appears to solve only partly the
problem because is more focused on the adaptation of the existing products according to
the taste of the host markets. Moreover, the suppliers could not accept it since according to
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this strategy H&M should switch from the current suppliers to other closer to the host
countries in order to keep the costs low. Finally, the feasibility is not sure because the
strategy involves the change in the value chain and high financial resources.
The best option for H&M therefore appears to be the related diversification. This strategy
would allow the company to enter new industries and therefore exploit its brand image and
power to get better prices on the new products.

KSI

Strategic choices

Suitability

Acceptability

Feasibility

The shareholders could


not accept it because

The company already has

The strategy could

the company could lose

resources and competences,

solve the issue

the control of the

no financial resources

(+)

stores

needed

culture of the

(-)

(+)

organization is not

Risk that stakeholders

Franchising
Risk that the

long appropriate

Internal
development

The strategy could

believe that the change

The change requires long

solve the issue

of culture does not suit

time and resources and

(+)

the company

capabilities

(-)

(-)

The company has two choices to address the risk that its culture is not long appropriate. The
first is to implement the franchising. H&M has already some franchise stores but by
increasing the number in the countries that do not have a Scandinavian culture, the
company could manage the employees in a more efficient way. This strategy could
nevertheless not be accepted by the shareholders, because the franchising system does not
guarantee the control of the stores. However, this strategy could easily be pursued by H&M
because the company already has resources and capabilities and there is no need to
financial investments.
The second option is the organic growth or internal development. H&M should change its
culture in the environments in which it is a problem (high turnover, lack of responsibility).
The strategy addresses the issue but there is the risk that it would not be accepted by
stakeholders because the culture of the company can be considered as one of its distinctive

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resources. Moreover, the change of culture would require long time and resources and
capabilities.
The recommended strategy is therefore to implement the franchising, so that in every
country the managers of the stores could adapt the organization system to the culture of
the country.

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5. Justification of Recommendations
and Action Plan
After having analysed all the options that H&M could consider, in the following paragraphs
the recommended strategies will be presented and specified into the long-term and shortterm periods.
The recommended strategies for the short term period (1-2 years) are market development
and franchising.
-

Market development
This option has been chosen because it is a growth strategy that would allow H&M
to employ its resources and better manage its cost/value activities by entering new
markets and segments, perhaps before competitors.
The required finance to enter new countries and target new segments is massive,
but the company own enough resources and capabilities.
The level of risk is acceptable because the expected result is that the company will
gain profit from expanding the business.
This strategy would probably be accepted by H&Ms stakeholders because it would
result in further expansion for the companys business.

Time frame

Action plan
- Research on opportunity in new markets (South America, South Africa, Australia)

Month 1

- Target plus size


- Target environmental-concerned customers
- Target families

Month 3

- Research suppliers for new market segments

Month 5

- Design the products for the new segments

Month 6

- Open stores in new countries


- Offer collections for new segments in the stores

23 | P a g .

Franchising
The franchising strategy has been chosen because it appeared to be the easiest way
to adapt the organizational culture to the host countries culture. Store managers
already have franchising-mind behaviour and therefore the implementation of the
strategy should be easy.
Moreover, this strategy would not require financial resources, while the company
already has resources and capabilities for franchising.
Franchising has some positive outcomes such as the low risk and the low costs (S.
Price, 1997); however, some stakeholders could not accept to adapt the companys
culture to the host countries.

Time frame
Month 1

Action plan
- Research on countries which cultures do not fit the companys organizational
principles

Month 2

- Distribute franchising licences

Month 6

- Monitor the results of the new franchises

The recommended strategies for the long term period (2-5 years) are related diversification
and market penetration.
-

Related diversification
The strategy of horizontal diversification has been chosen because it allows the
company to grow further and exploit its brand image (J. N. Kapferer, 2012).
In spite of the high capital and skills required, this strategy could be accepted by
shareholders because the growth of the company will raise the dividends.
However, the risk of this direction is the higher competition in related industries.
This strategy would also solve the strategic issue possibility of more investments
because of high revenues.

Time frame

Action plan

Year 1

- Create a networks of suppliers for providing cosmetic, sport apparel and home
textiles

Year 2

- Start offering the new products in the shops to monitor the customers response

24 | P a g .

Year 3

- Implement the offer, advertise the products and eventually create specialised stores

Market penetration

The market penetration strategy has been chosen because it would leverage H&Ms
resources and capabilities and increase the companys market share and brand image.
The required finance to collaborate with famous designers is justified by the return of
investment, and the company would be able to use its own financial resources rather than
debts.
However, stakeholders would agree with the strategy because it would make the company
growth and it is not risky.
This strategy would also solve three more strategic issues:
-

Possibility that solving some key ethical issues (wage levels, pollution and fuel waste)
benefits the company

Opportunity to be proactive with some groups of pressure

Need to improve the brands reputation

The strategy can be implemented during a period of four years, because the building of
networks and brand image require long term projects.

Time frame
Year 1

Action plan
- Increase of the number of long-term suppliers
- Strength the relationship with famous designers

Year 2

- Start collaboration with fashion bloggers

Year 3

- Develop a campaign to increase the awareness of the brand

Year 4

- Be proactive with ethical issues

By implementing the recommended strategies, H&M will be capable of growing and


successful compete worldwide without changing its distinctive principles and value.

25 | P a g .

References
-

Barney, J. B. Firm Resources and Sustained competitive Advantage, Journal of


Management 17 (1991): 99120

Bowman, C. and Faulkner, D. (1997) Competitive and corporate strategy, Times


Mirror International Publishers, London

Ginter, P. and Duncan, J. (1990) Macro-environmental analysis for strategic


management, Long Range Planning, 23(6): 91 100

Kapferer, J. N. (2012) The new strategic brand management, CPI Group, Croydon (5th
ed.)

Marketline (2013) Global - Apparel & Non-Apparel Manufacturing. Available:


http://advantage.marketline.com.ezproxyd.bham.ac.uk/Product?pid=MLIP10090008&view=d0e39 [Accessed on: 10 April 2014]

McDonald, M. and Dunbar, I. (2010) Market segmentation. How to do it and how to


profit from it, Goodfellow Publishers, Oxford (4th ed)

Oktemgil, M. (2014) International Business Strategy, University of Birmingham

Porter, M. (1985), Competitive advantage. Free Press, 1230 Avenue of the Americas,
New York, United States of America.

Porter, M. (2008), The five competitive forces that shape strategy, Harvard
Business Review, Vol.86(1), pp. 78-93

Price, S. (1997)The franchise paradox, Redwood Books, Trowbridge

Regnr P. and Yildiz H. E. (n.d.) H&M in fast fashion: continued success?, Stockholm
School of Economics

26 | P a g .

Appendix
Appendix A. PESTEL Analysis
Political

Recent trade agreements within Asian countries would simplifier the export
from suppliers to new markets in the same region

Raise of taxation in some European countries could affect the demand in those
countries

Economic

Crisis of Euro can result in decrease of sales in the European Union

Raise of production costs in Asia could lead to increase the price of the
products or to change the suppliers

Raise of price of cotton can result in whether the raise of the price of products
made of cotton or the use of less expensive materials

Social

Ageing and obesity in Western countries can change the demand, creating new
segments of the market

Awareness in safe and natural materials and in environmental issues can either
create new segments of the market and raise the cost of the product

Globalised and multicultural society allow the company to produce


standardised products, resulting in lower costs

Technological

Massive use of the internet can be an opportunity for new kind of


advertisement and for developing e-commerce

Development of new materials would help to create segment-oriented


products

IT systems could help the company to enter in new markets and to have a
more efficient value chain

Environmental

Pollution and waste policies can raise the production costs for the company

The production cost can decrease by using recycled materials and new energy
sources

Legal

Stricter legislation on labour and working condition in developing countries


could raise the cost of the production

Safety legislation in developed countries could demand higher quality in


materials and dyeing process

27 | P a g .

Appendix B. Porters 5 Forces Analysis


5 Forces
Supplier power LOW

Treat of entry MODERATE

Analysis
-

Low production costs for suppliers

Low differentiation between suppliers

High competition between suppliers

Small size and high concentration of suppliers

Low switching costs, but risk of more extended supply chain

High ability for firms to integrate suppliers vertically

Low capital requirement

High economies of scale

Cost advantage is not absolute (quality and brand image are also
important)

Low differentiation between products offered

High access to distribution channels

Low government and legal barriers

Low retaliation by established producers

Treat of substitute LOW

Real substitute products for clothes do not exist

Buyer power MODERATE

Buyers are price-sensitive

Low competition between buyers

Small size, low concentration of buyers (individual, retailers)

Low switching costs from a brand to another

Low buyers information

Low buyers ability to backward integrate

High concentration of competitors

High diversity of competitors

Low product differentiation

Low excess capacity, low exit barriers

High cost conditions

Industry rivalry HIGH

28 | P a g .

Appendix C. EV Forces Analysis


Driving Forces (EV)

Impact on 5 Forces

Slow growth of the market

Harder competition, thus higher buyer power

Increasing globalisation in taste for fashion

Lower switching costs of suppliers, that results in lower


supplier power

Changes in the use of product: people wear clothes

Increasing differentiation and therefore lower buyer

to be fashion

power

Technological change: use of the internet to shop

Increase of demand and thus lower buyer power

and share trends and opinions


Entry of the Japanese UNIQLO

Higher rivalry, higher buyer power

Technological change: Improvements and

Higher supplier power because only a few suppliers can

development of materials

provide the new materials

Marketing innovation: raising importance of fashion

Advertisement is less expensive and can reach more

magazines and fashion blogs

consumers. As a result the buyer power is lower but, at


the same time, the competition with other brands is
stronger

People are concern about environment and labour

Opportunity for further differentiation or focus on new

rights

segments of the market, and thus lower rivalry

29 | P a g .

Appendix D. Strategic Groups Analysis


The strategic group analysis shows the different markets in which companies operate within
an industry. The following matrix has been made by using two variables: price/quality (from
the lowest to the highest) and market segmentation (from the brands that appeal to a broad
market to the brands that focus on niche markets). It can be noticed that brands belonging
to H&M (underlined) only occupy positions in the medium-low price/quality variable and in

High

the medium-broad product range variable.

Luxury brands, broad


market segmentation:
Louis Vuitton, Chanel,
Armani

Luxury brands, narrow


market segmentation:
La Perla, Gucci Kids

Medium price and


quality, medium
market segmentation:
Old Navy, Massimo
Dutti

Price/Quality

Medium price and quality,


broad market segmentation:
Banana Republic, Zara,
Theory, Comptoir des
Cotonniers, Collection Of
Style, & Other stories

Medium price and


quality, narrow market
segmentation: Oysho,
Athleta, Kiddys Class,
Princess Tam.Tam

Low

Low price and quality, broad market


segmentation: H&M, Gap, G.U., Pull
and Bear, UNIQLO, Monki, Cheap
Monday, Weekday, Stradivarius,
Bershka

Broad

Narrow
Market Segmentation

30 | P a g .

Appendix E. Individual Competitors Analysis


Competitor: Inditex (Zara)
Objectives: Gaining more market share by opening up

Predictions:

new stores.

Since the firm witnessed a remarkable growth of

Strategy: Differentiation strategy. The firm focuses on

13% of its revenue in 2011 compared with the

fast fashion market, providing items that follow new

previous year, it is likely that the company will keep

trends at an affordable price.

pursuing the same strategy with only a few

Assumptions: The firm bases its strategy on the

adjustments. Probably Inditex will decide to place

assumption that the targeted segments demand

more emphasis on the online direct sales.

innovative style and that they are willing to shop several


times in a short period.
Resources and Capabilities: Ability to launch new items
every week because of an in-house design and a tightly
controlled factory. Focus on design and fashion.

Competitor: Gap
Objectives: Maintain the market share in spite of

Predictions:

economic crisis in western countries.

In order to maintain its market share, the company could

Strategy: Differentiation strategy. The firm

decide either to explore new target markets or to invest

provides medium quality items and strong brand

more in advertisement.

image at affordable prices.


Assumptions: The firm bases its strategy on the
assumption that customers are willing to spend
slightly more for a well-known brand.
Resources and Capabilities: The brands that
belong to the firm have a good reputation and
operate in different segments of the market. The
supply network can count on a high number of
vendors.

31 | P a g .

Competitor: UNIQLO
Objectives: Gaining market share outside Asia.

Predictions:

Strategy: Best-cost strategy. The firm has several brands

In spite of an increase of just 0.6% of its revenue

for different segments of the market. It provides unique

from 2010 to 2011, the firm has potential of

products to differentiate itself from competitors.

growth. For example, it can decide to expand into

Assumptions: The firm bases its strategy on the

new markets outside Asia by opening up new

assumption that the buyers needs and preferences are

stores in Europe and America.

for more basic clothes; focus on quality rather than


fashion
Resources and Capabilities: The firm can minimise the
store-operation costs (personnel cost, rent). Moreover, it
can quickly adjust the production according to the last
sales environment. The company gets the products from
partner factories.

32 | P a g .

Appendix F. Customer Analysis and Segmentation


The segmentation analysis focuses on demographic elements such as sex, age and socioeconomic (M. McDonald and I. Dunbar, 1995).

Low-Cost
(H&M, Zara, G.U.)

Young Women

Young Men

Teenagers

Mid-Market

Specialist

Luxury

(Banana Republic, Old

(Oysho, Athleta, Princess

(Louis Vuitton, Chanel,

Navy)

Tam.Tam)

Armani)

They look for fashion

They look for fashion

They look for distinctive

They look for fashion

clothes at the lowest

and basic clothes. Focus

styles of garments and

clothes and brand image.

price. Focus on quantity

on quality and

clothes

They are willing to spend

rather than quality

efficiency rather than

more to have luxury

quantity

items

They look for fashion

They look for good

They look for sport

They look for fashion

clothes at the lowest

quality clothes. Focus

clothes and garments,

clothes and brand image.

price. Focus on quantity

on quality and brand

they are willing to spend

They are willing to spend

rather than quality

image rather than

more for high performing

more to have luxury

quantity

items

items

They look for fashion

They look for distinctive

clothes at the lowest

style of garments and

price. Focus on quantity

clothes

rather than quality

Families

They look for basic

They look for the best

They can shop for the

clothes at the lowest

price for medium-high

kids in specialised stores.

price. Focus on quantity

quality

They are willing to spend

rather than quality

more

33 | P a g .

Appendix G. Key Success Factors (KSF) Analysis


Analysis of Demand

Analysis of Competition

Some customers look for fashion

Competition is based on style of

clothes

products and brand reputation

Key Success Factors

Speed of response to

Some customers are willing to pay

Costs vary significantly in

more for brands with high

accordance with the value chain.

Style of the products

reputation and high quality

Need to keep the costs low

Reputation of the brand

Quality of materials

Low cost manufacture

Some customers look for the lowest

changes in fashion

priced items

Appendix H. Industry DNA


Market size

2,018.8 bn in 2011 (global textiles, apparel and luxury)

Market growth rate

3.7% for 2007-2011 (slow growth rate)

Ease of entry/exit barriers

Entry is easy but at a global level the competition is high

Cost and importance of product

Important product (no substitutes); different prices for different


targets

Rapid/slow technological change

Slow technological change in production, rapid change in


materials

Capital requirements

Low for independent retail stores, high for big firms

The extent of vertical integration

Some firms manufacture and retail

Existence of economies of scale

Yes (purchasing, advertising, logistics)

Existence of product innovation

Innovation follows trend in fashion and development of new


materials

34 | P a g .

Appendix I. Historical Analysis


From the history of the firm it can be seen how H&M has been the first to recognise the
opportunity in the new segment of the fast fashion (first move advantage). During the years
the company had a strategy of developing its capabilities, especially in the efficiency of the
value chain, and it always followed its mission statement of fashion and quality at the best
price by collaborating with famous designer. Most of the values belonging to the first shop
are still basic principles in the company, such as opening shops in very central locations,
decentralisation of decision-making and tacit skills rather than formal rules. In the recent
years H&M can rely on high social media presence and high brand awareness due to its
advertising campaigns that employ celebrities.

1947 The first H&M shop is established in Sweden by Erling Persson


1980 New CEO Stefan Persson
1990 Aggressive international expansion starts (Eastern Europe, Middle East, Asia,
and Russia)
2005 Collection designed by Stella McCartney. Presence in more than 20 countries,
more than 1000 stores
2006 Collection designed by avant-garde designers Viktor & Rolf
2007 Collections designed by Madonna, Roberto Cavalli and Kyle Minogue
2009 H&M is the global leader in the fast fashion industry (CEO: Karl-Johan
Persson). Collection designed by Sonia Rykiel
2010 H&M opens 218 stores (including the one on the Champs-lyses in Paris).
Launch of the iPhone app (the most downloaded application in almost all H&Ms
markets)
2011 H&M opens 230 stores (including 35 in China). Collection designed by Versace.
It works with 747 suppliers, of which 150 considered long-term strategic partners
2012 Collection designed by Marni. H&M has 2,500 stores
2013 Plan to open 300 new stores, open new luxury-label format of stores (& Other
Stories), open the largest store in New York on the 5th Avenue, and develop online
sales in the USA. Plan to enter new markets (including Chile, Mexico, Bulgaria,
Latvia, Indonesia and Thailand)

35 | P a g .

Appendix J. Resources Analysis


Tangible

H&M can rely on remarkable financial results: the gearing ratio of 3.01% shows financial

Financial

strength, while the company operates with a massive cash flow of 2,799.654

Resources

The company does not own any stores or factories, therefore the physical resources are

Physical

limited to 50 production offices around the world and one centralised design office in
Stockholm

Intangible

Technology

Resources

Reputation

st

H&M was ranked 21 among the top 100 most valuable global brands. This shows that the
brand reputation and awareness is very high.
H&Ms human resources have personality and attitude more than formal qualifications: they

Human Resources

are self-driven, ready for taking responsibility and make decision and capable of leading

Appendix K. RIAS and Core Competences Analysis

Reputation

Companys reputation of quality and fashion at a low price

The company has never been involved in cases of suppliers that do not respect human rights
in low wages regions

Designers reputation

Innovation

Creative talent in designing clothes without copying

Architecture

Long term relationship with a wide network of suppliers

Good relationship with employees and other stakeholders

Strategic assets

Stores in central locations

Strong social media presence

Advertisement campaigns with celebrities

Core Competences
-

Use of the IT to share information with the management

Research &

Employment of famous designers

Development

Use of customer surveys, dialogue sessions and focus groups

Find inspiration in the internet and street fashion along with the catwalks

Economies of scale in the production (standardisation)

Flexibility of costs

Speed of response to new fashion trends

Product design

Capability to add the brands specific features to the products

Marketing

Employment of celebrities for advertisement

Avoidance to raise the price in spite of the raise of the costs

Stores in central locations

Efficient speed of order and distribution related to the type of product

Management
information

Operations

Sales and distribution

36 | P a g .

37 | P a g .

Appendix L. VRIN Analysis for Sustainability


Resources &
Capabilities

Valuable?

Rare?

Imitable?

Exploited?

Competitive
implications
The firm can enter new

Brand name

yes

yes

no

mostly yes

markets and/or new


segments

Brand reputation

yes

yes

no

mostly yes

The company could focus


more on its history and value
H&M can obtain a better

Network of suppliers and

yes

no

yes

mostly yes

famous designers

relationship with suppliers


and begin collaborations with
exclusive fashion designer

Location of the stores

yes

yes

yes

yes

Optimise location

Maintain the presence, begin


Social media presence

yes

no

yes

mostly yes

collaboration with fashion


bloggers

Appendix M. Strategic Flexibility and Competitor Positioning Analysis

H&M

Inditex

Target Market

Product

Place

Promotion

Price

- teenagers
- young men
- young women
- children
- young men
- young women
- children

Distinctive fashion
at medium-low
quality

- leased stores
- online sales
- catalogue
- franchise
- stores
- internet

- campaign with
celebrities
- social media
- iPhone app
The company has a
policy of zero
advertising

H&M has the


lowest price, &
Other Stories has
the higher
Pull and Bear has
the lowest price,
Massimo Dutti
has the higher

- stores
- direct sales

Brand building

Banana Republic
has the highest
price, Gap has the
lowest

- stores
- online sales

Brand building

G.U. has the


lowest price,
Comptoir des
Cotonniers has
the higher

Gap

- young men
- young women
- family

UNIQLO

- men
- women

- casual clothing
- high-quality
garments
- international
fashion
- casual clothing
- fashionable
- value-priced
- womens sports
apparel
- fashionable basic
clothes
- natural
authenticity and
femininity

38 | P a g .

Appendix N. Value Chain Analysis (Including Cost/Value Drivers)

Firm Infrastructure
-

Informal, non-hierarchical management style

Matrix country/function
Human Resource Management

Limited attention to titles and work description

Internal promotion and job rotation


Procurement

Independent suppliers, avoidance of middlemen

Inbound Logistics

Operations

Outbound Logistics

Marketing and Sales

- Avoidance of placing

- Famous designers

- Daily shipments

- Celebrities for advertisement

orders too early

- Centralised design

- Minimised store-

- Stores are rented, not bought

- IT systems provide

- 50 production offices

keeping of merchandise

- Every store is unique although

information on

around the world

- Central warehouse

centrally guided

demand and supply

- Turnaround speed of 20

- Completely new interior

days

programme every 2-3 years

Key value adding

Key cost drivers

Value chain strategy

activities

Sustainability of cost
advantage

Procurement
- vertical linkages

- reducing costs by procuring the

- flexibility in cost structure and value

clothes from independent

chain is improved (variable costs

suppliers rather than own

rather than fixed costs)

factories
- optimise input costs by hiring

- improvement of the brand

- input costs

famous designer that can assure

reputation

- location

high return of investment

- better use of management

- reduce location costs by

resources

Design

centralising the design office


- reduce location costs by having

Warehouse
- location

- low but cost flexibility

only a central warehouse for


several shops
- low employees wages

- low but cost flexibility in human

- input costs

- reduce location costs by

resources

- location

renting the shops rather than

- variable costs rather than fixed

buy them

costs

Sales

39 | P a g .

Appendix O. Stakeholders Analysis


The company has two kinds of shareholders: the Persson family, which own 70% of voting rights, and
the minor shareholders that have less power.
It can be assumed that the media has fairly high interest in H&M because it is one of the biggest
companies in the fashion industry, sector usually exploit by the media.

High

Keep Satisfied

Key Players

Groups of pressure

Customers

Government

Managers

Major shareholders

POWER

Minimal Effort

Keep Informed

Minority groups

Media

Community

Suppliers

Minor shareholders

Low

Low

INTEREST

High

40 | P a g .

Appendix P. Culture Analysis

TASK CULTURE
-

Power rests with the team, expert opinion is


valued, teamwork success
Matrix structure, results over methods
Flexible and sensitive to change
Can respond rapidly since each group ideally
contains all the decision-making powers required

The top level of the organization is based on the


task culture: there is more bureaucracy and some
functions are centralised. The organization has a
country/function matrix in which a single manager
is responsible in each area.

PERSONAL CULTURE
-

Power rests with individual scattered across the


organization
Control mechanisms, management hierarchies,
are impossible except by mutual consent
Individuals are difficult to manage or control
May not be influenced by group norms or
relationships with colleagues
Difficult to implement decisions without
individual consent

The lowest levels of the organization are based on


the personal culture. Especially in the stores, the
organization is flat with lack of job descriptions and
assigned tasks.

41 | P a g .

Appendix Q. Business Ethics and CSR Analysis

Ethical issues

Suppliers
working conditions
wage levels
resources waste
pollution
Logistics:
fuel waste
pollution
Community
loss of jobs because the production is in other countries

Organizations ethical stance

Harmony strategy: the company cannot directly operate to benefit


the population in the countries in which its suppliers produce, but
it can invest in human rights and environmental-friendly strategies
in order to gain popularity in the society

Key ethical issues

working conditions
pollution (suppliers and logistics)
fuel waste

Estimate cost

Low cost/costless strategies:


ask suppliers to sign contracts that state the standard of
working conditions and the commitment in reducing
pollution
design collections of clothes produced by using organic
materials
choose suppliers that are closer to the stores in order to
reduce pollution and fuel waste

Estimate cost/benefit

MBV: help to contrast the buyer power because of increased


differentiation
RBV: help to develop key core competences (improved value
chain, better brand image)
OBV: gain the approval by shareholders, because a differentiation
strategy could bring more profit to the company
The costs would be low because the strategies only involve to sign
contracts and to switch from some suppliers to other, while the
resolution of the ethical issues could benefit the company.

42 | P a g .

Appendix R. Strategic Issues


The following table will list all the strategic issues identified and, if some of them could be
considered as similar, how they have been consolidated.

Risk that shareholders do not agree with the companys strategies and are not satisfied with the little power
they have
Opportunity to be proactive with some groups of pressure
Possibility of more investments because of high revenues
Possibility that solving some key ethical issues (wage levels, pollution and fuel waste) benefits the company
-

Need to low the cost in order to overcome the rising production costs in Asia, the crisis of Euro
and the rising price of the cotton

Opportunity of lowing the costs through the internet (direct online sales, less expensive online
campaign)

Unexploited

Possibility of vertical integration

opportunities to

Possibility to change the value chain in order to low the costs further

improve the

Opportunity to overcome the distribution channel catalogue because of cost and the

cost/value advantage

increasing use of the internet


-

Possibility to increase the number of franchises stores

Need to neutralize the rivalry due to the high diversity of competitors

It is important to overcome the competitors superiority in brand image (Gap), low price
(UNIQLO) and fashion (Inditex)

Risk of tough competition with UNIQLO because the company will probably expand in the
western countries and it has the same target market

Risk that competitors gain advantages in segment markets before H&Ms entry

Opportunity of differentiate the product by using new materials

Possibility of innovation in materials for clothes

Possibility to gain more profit by adapting the products further, according to the taste of each
country

Need to improve the quality of materials

Possibility to improve the distinctive design of the products in order to further differentiate

Need to improve the


brands reputation

Opportunity to
develop the offer of
products

H&M from competitors


-

Possibility to adapt the products according to the taste of the host market

Possibility that having more suppliers as long-term strategic partner could bring some benefits

Opportunity

(financial and social)

leverage

Possibility to strength the relationship with the network of suppliers and designers

Possibility to expand the social media presence by beginning collaborations with fashion

and

to
resources

capabilities

43 | P a g .

to

bloggers
-

Unexplored segments of the markets due to change in demography and societal concern

Opportunity to expand in other strategic groups (narrow market segmentation)

Opportunity for the segment market of family (low cost)

Opportunity for the segment market of teenagers (specialist)

Possibility to exploit the brand name further by entering new markets

Possibility to enter more markets

Risk of high turnover in the human resource because of non-conventional system without job
descriptions and titles

Risk that the human resource system without job titles and description causes lack of
responsibility and high turnover

Risk that the culture based on a flat organization system would not be accepted in non-

grow

Risk that the culture


of the organization is
not long appropriate

Scandinavian countries (high turnover and lack of responsibility)

44 | P a g .