2014

Evaluation of the external

environmental influences affecting H&M

Matriculation number: 40180991

Word Count :
15/10/2014
 EVALUATION OF THE EXTERNAL ENVIRONMENTAL INFLUENCES AFFECTING H&M

Contents

Introduction..........................................................................................................................................2
Company Profile................................................................................................................................2
Company Aims and Commitments....................................................................................................2
Justification of the Organisation...........................................................................................................2
Structure and size of the Organisation.................................................................................................3
Success or Failure?................................................................................................................................4
PESTEL Analysis.....................................................................................................................................4
1. Political......................................................................................................................................4
2. Economic...................................................................................................................................4
3. Social.........................................................................................................................................5
4. Technology................................................................................................................................5
5. Legal..........................................................................................................................................6
6. Environment..............................................................................................................................6
Conclusion.............................................................................................................................................6
Bibliography..........................................................................................................................................7
References............................................................................................................................................7
Appendices............................................................................................................................................8
Appendix 1 – Macro-environment PESTEL analysis of H&M..............................................................8
Appendix 2 – HIP Incentive Program...............................................................................................10

Matric no: 40180991 Course Code: SOE09607

 EVALUATION OF THE EXTERNAL ENVIRONMENTAL INFLUENCES AFFECTING H&M

Introduction

Company Profile
H&M AB (Hennes & Mauritz) is a Swedish multinational retail-clothing company that can be found
across 54 countries. Initially started in 1947 in Vasteras by Erling Persson as a women’s only clothing
store, it was aptly named “Hennes”, Swedish for “hers”. In 1968 it was renamed Hennes & Mauritz
after acquiring a men’s retail company. The company has continued to grow and diversify over the
years, expanding its product portfolio to include woman’s wear, menswear, children’s wear,
footwear, accessories, cosmetics and home furnishings.

Company Aims and Commitments

H&M has a concise company statement comprised of 7 commitments:

The cornerstone of H&M’s continued success is staying true to its core values: a fundamental respect
for each individual member and their abilities to show initiative and creativity.

Justification of the Organisation

As a small business owner in the fashion world, it is extremely difficult to be economically, socially
and environmentally sustainable – and still make a profit, while not compromising quality. By
evaluating the environment that a larger fashion organisation operates within, certain assumptions
and conclusions can be drawn and perhaps applied to the smaller enterprises that will set down
ground rules that will encourage and sustain continued growth.

Matric no: 40180991 Course Code: SOE09607

 EVALUATION OF THE EXTERNAL ENVIRONMENTAL INFLUENCES AFFECTING H&M

Structure and size of the Organisation

H&M has a matrix organisation1 where the Managing Director appoints members of the executive
Management team as well as country managers. All companies within the H&M group follow this
matrix organisation so as to streamline routine and control systems thereby allowing internal and
external co-operation and movement between the companies.

H&M employs over 116 000 people in 3 300 stores

globally. Their corporate view towards their staff is a
Behavioural or Humanistic approach as advocated by
Follett, MP and Mayo, E. Each employee is viewed as
an individual, is treated with respect and integrity,
thereby forming an Inclusive workplace. Diversity
and equality is promoted while there is a zero
tolerance policy towards discrimination and
harassment. Equal opportunities are offered to all,
regardless of age, gender or ethnicity. Over 50% of
the Board members are women.

H&M backs up its behaviourist approach with the

HIP2 scheme, encouraging all to work as a team for
the greater good.

An “open door principle” is followed by all managers

where each employee has direct access to
management to discuss work related issues. All
employees have the right to trade unions and
collective bargaining. This policy is extended to It is clear from this diagram that there is
employees of suppliers as well. H&M uses its accountability at all levels of the
extensive buying power to influence the lives of organisation
these employees in a positive and ethical way.

By adopting a “Psychological contractual”3 approach to the relationship between employer and

employees, H&M has ensured that ethical human relations remains foremost in its company policies.

1
A matrix organisation in that the executive management team are responsible for the efficient work within their country of their
individual departments. The country managers are responsible for sales and profitability in their country and have overall responsibility
and accountability for all of the functions within their country
2
HIP H&M Incentive Program for all employees
3
Psychological contact refers to the fairness or balance between how the employee is treated by the employer and what the employee
puts into the job. As this is seen more as a philosophy than as a behavioural model, it remains dynamic and fluid.

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 EVALUATION OF THE EXTERNAL ENVIRONMENTAL INFLUENCES AFFECTING H&M

Success or Failure?

It appears inconceivable to hold true to H&M’s company commitments and at the same time
produce fast-fashion clothing at a reasonable cost to the public. While H&M is not the only fashion
retailer to produce cost effective clothing, it has emerged as the fore runner of a collective
consciousness of ethical and green trading while not compromising quality or share- holder profits.

By evaluating the
environment that H&M
operates within by means of
a PESTEL analysis and
comparing this to their
Conscious Actions,
Sustainability Report 2013
one is able to determine if
H&M lives up to its
commitments of “
affordable and attractive
sustainable fashion to as
many people as possible”
(H&M Conscious Actions
Sustainability Report 2013)

PESTEL Analysis

Please see Appendix 2 for the full PESTEL analysis.

The PESTEL analysis highlighted a number of key areas that affect H&M and the environment in
which it operates.

1. Political
H&M do not own any factories but work with suppliers, primarily in Asia and Europe.
Accordingly, H&M uses its immense buying power to influence its suppliers in the ethical and fair
treatment of its employees. They have adopted the UN Guiding Principles on Business and
Human Rights as well as working together with Civil Rights Defenders to support Human rights
and equality. Since 2008, 894 975 Indian and Bangladesh workers have been educated about
their rights. Mandatory training has begun on Code of Ethics for all employees. By the end of
2013, 60% had attended training.

H&M signed the Accord on Fire and Building Safety in Bangladesh even though as a company
they have not allowed multi party buildings in their production chain. In doing so they hope to
influence the entire industry.

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2. Economic
Consumer spending patterns have been greatly affected by the downward turn in the worldwide
economy, placing an increasing negative pressure on prices. However, the rise of disposable
“Fast-Fashion” has continued in its popularity. As production is outsourced, cheaper labour is
utilised in order to meet profit margins. This creates a direct tension for H&M’s Conscious
Actions commitments. As such, 3 121 audits were conducted in order to ensure that ethical and
sustainable standards are being met at all levels.

The cost of raw cotton is a continued concern as prices rise with demand. While H&M are
committed to sourcing organic sustainable suppliers, they have also built into their production
cycle recycled cotton as well as Cotton from the Better Cotton Initiative.

3. Social
As all manufacturing is outsourced, often to the poorest countries in the world, working
conditions and pay are always going to be a social factor. H&M has launched the FAIR LIVING
WAGE Map, working with suppliers to promote living wages for all employees as well as regular
wage revisions and increases. Workplace safety as well as basic living conditions are key areas of
concern. With education and basic human rights being highlighted by H&M, the company
strengthens local communities. To this end, H&M “chooses and rewards responsible partners”

H&M recognises the importance of its staff, which is reflected in its core values:

 We believe in people
 We are one team
 Straightforward and open minded
 Keep it simple
 Entrepreneurial spirit
 Constant improvement
 Cost-consciousness

In 2011 HIP – the H&M Incentive Programme was created whereby H&M recognises the daily
commitment and ongoing commitment of employees who have been with the company for 5
years or longer. They are then eligible to share in profit increase. The longer the employment
contract, the more they receive – See Appendix 2.

77% of H&M’s employees are women and as such their management and leadership structure
reflects this.

H&M has a wide and varied target market spanning 53 markets with differing cultural and ethical
values. Their advertising needs to take this into account as well as portray a healthy outlook in
their high-fashion images. Customer surveys are often utilised to garner public opinion and
feedback is acted upon. Recently there was customer concern with regards to the size of the
models used in the online marketing campaign. These images were removed immediately.

4. Technology
H&M has embraced and harnessed new technology with regards to its advertising and branding.
They are now using a multiplatform arena to approach and promote their fast-fashion, thereby
appealing to the younger generation. In order to create a more efficient customer experience,
pilot stores in New York have installed payment centres in changing rooms to avoid long queues.
While adding to the customer experience this allows H&M valuable feedback on customer retail

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behaviour. H&M are hoping to launch 8-10 new online markets in 2015 thereby cementing how
important the World Wide Web has become from an economic and technological viewpoint.

In an effort to reduce their impact on the environment H&M has introduced new technologies in
its production lines e.g.: 21% of shoes now use water soluble glues. Further technological
advances are needed in order to replace solvent based polyurethane with water-based
alternatives. The R&D departments are currently working towards this goal.

5. Legal
H&M is a Swedish public limited company, listed on NASDAQ OMX Stockholm. The company’s
corporate governance is based on external laws, regulations and recommendations – The
Swedish Code of Corporate Governance4 as well as internal rules – COSO framework issued by
the Committee of Sponsoring Organisations of the Tread way Commission. However, as all of
their manufacturing is outsourced company policies need to comply with these government’s
decrees.

6. Environment
Climate change is a global concern and has been addressed consistently by H&M. They are
working towards creating a “closed loop” in textiles whereby new clothing will be recycled from
old unwanted garments. The first garments were launched made with 20% recycled material
from collected garments. This will minimise textile wastage (to date 3 555 687 garments had
been recycled and donated to charity, equating to 3047 tonnes) but also have a significant
impact on the usage and allocation of natural resources. H&M have increased their in-store
electricity efficiency by 14% since 2007, while 18% of the electrical usage comes from renewable
sources i.e.: wind power. In 2013, 145 European households received energy supplied from
H&M’s solar panels.

Sustainable sources are being used by H&M. To date 15.8% of the cotton being utilised is from
sustainable resources. The goal is 100% by 2020. Organic leather, vegetable tanned and used
from organic meat suppliers in Sweden has been introduced and will phase out the existing
leather products. In 2013 the use of angora wool was permanently banned.

The company is continually revising its corporate strategy in order to minimise its environmental
impact.

Conclusion

4
Swedish Code of Corporate Governance - The Swedish Code of Corporate Governance is based on the principle of “comply or
explain”, which means that companies applying the Code may deviate from individual rules provided they give an explanation of the
deviation. Among other things, the Code means that the company’s Annual Report must be supplemented with a separate report on
corporate governance matters in which the company must state whether and how the Code was applied during the past financial year

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 EVALUATION OF THE EXTERNAL ENVIRONMENTAL INFLUENCES AFFECTING H&M

By evaluating H&M against its Sustainability Report 2013 it appears that, while there is always room
for continuous improvement, H&M is operating in an economically, socially and environmentally
responsible manner that will keep them as a forerunner in the fashion world.

The second report will highlight the impacts, challenges and opportunities of the Supply chain and
how H&M undertakes to address these issues, while remaining committed to their Sustainability
Policies.

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Bibliography

Business Balls. (2014).The Psychological Contract. Available:

http://www.businessballs.com/psychological-contracts-theory.htm. Last accessed 10 Oct 2014.

Godelnik, R. (2014). Can Fast Fashion really be sustainable?.Available:

http://www.triplepundit.com/2014/04/can-fast-fashion-really-sustainable/. Last accessed 4 Oct
2014.

Guy Colclough. (2013). New flagship H&M store relies on technology to provide a state-of-the-art
customer experience. Available: http://www.thisisnumero.com/2013/11/15/new-flagship-hm-store-
relies-on-technology-to-provide-a-state-of-the-art-customer-experience/. Last accessed 10 Oct 2014.

H&M. (2013). H&M Conscious Actions Sustainability Report 2013.  Available:

http://sustainability.hm.com/content/dam/hm/about/documents/en/CSR/reports/Conscious
%20Actions%20Sustainability%20Report%202013_en.pdf. Last accessed 23 September 2014.

H&M. (2014). Corporate Governance. Available: http://about.hm.com/en/About/Corporate-

Governance/General-information/About-Corporate-Governance.html. Last accessed 23 September
2014.

Siegle, L. (2012). Is H&M the new home of Ethical fashion?. Available:

http://www.theguardian.com/business/2012/apr/07/hennes-mauritz-h-and-m. Last accessed 4 Oct
2014.

Guardian, The. (2012). Is H&M the new home of ethical Fashion?.Available:

https://uk.lifestyle.yahoo.com/hm-new-home-ethical-fashion-153506565.html. Last accessed 10 Oct
2014.

References
Boddy, D with Paton, S (2011). Management an Introduction. Harlow: Pearson Education Ltd.

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Appendices

Appendix 1 – Macro-environment PESTEL analysis of H&M

 As it is a Swedish company, it must comply with Swedish legislations.

 Company subsidiaries in other countries therefore subject to that
countries laws, regulatory bodies and politics
 Relocation of manufacturing and outsourcing
 Restrictions on imports and exports
POLITICS
 Work with supplier factories to support freedom of association /
collective bargaining
 Manmade and natural disasters will influence the supply chain and the
sale of fashion items.
 Regulatory Bodies (e.g.: Health and safety) will influence business
decisions.
 adopted the UN Guiding Principles on Business and Human Rights as
well as working together with Civil Rights Defenders to support Human
rights and equality

 H & M holds substantial market share

 Increased sales by 18% (1/12/13-31/8/14)
 Strong expansion in 2014 with 375 new stores
 8-10 new online markets (new countries) by end 2015
ECONOMY  Increasing price of cotton will dictate and influence garment prices
 Accounting and banking practises to comply with and will be affected by
the country’s rules, regulations and financial organisations
 Currency fluctuations will affect supply and demand as well as put strain
on the supply chain in an economic pressure
 Taxation and interest rates
 Costs of manufacturing and labour have influenced decisions on suppliers

 Manufacturing occurs in some of the world’s poorest countries. H&M

works with suppliers to ensure living wage is paid as well as influencing
education and rights of workers
 Strengthens communities – 12 000 additional jobs created some in the
SOCIAL poorest countries. 3 500 000 garments donated to charitable causes,
193 000 people assisted with safe drinking water (gift card scheme)
 Improving and strengthening plight of women worldwide.
 Consumer opinion and attitudes – strong brand image
 Advertising and company’s public persona influences by trends and
fashion role models
 Ethical trading / strict “no gift” policy adhered to

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Utilising new media technology i.e.: www for increased sales

Increased usage of Print technology to produce fast fashion garments

H&M funds NGO FRANT water since 2011 enduring clean, safe drinking water as
TECHNOLOGY well as installation of “Any Time Water”

Mobile technology – dedicated website for smart phone & tablet users

Advanced mobile advertising campaign

Multi-channel marketing campaign – SMS linked with email marketing

Uses an Employee scheduling system that uses smart cards to log employees in/out

Adopted the UN Guiding Principles on Business and Human Rights

Supports human rights and equality by teaming up with Civil Rights Defenders

Mandatory training on Code of Ethics for all employees

LEGAL H&M applies the Swedish Code of Corporate Governance

Licencing, International Property Rights, patents

Compliance with ICC (International Chamber of Commerce) advertising guidelines

 Working with suppliers to reduce CO2 emissions

 Commitment to better, more efficient lighting in stores
 Concerned about climate change therefore committed to reduce, reuse
and recycle
 CONSCIOUS ACTION POLICY -Responsible water usage, sustainable cotton
ENVIROMENT
usage, updated chemical
 Clevercare symbol – advice on reducing energy resources by more
efficient care of garments i.e.: washing at 30 degrees
 Ongoing training of staff to reduce water usage – 2013 saw 340 million
fewer litres of water used in the denim production cycle
 Anti-cruelty to animals affects purchasing policies

Matric no: 40180991 Course Code: SOE09607

 EVALUATION OF THE EXTERNAL ENVIRONMENTAL INFLUENCES AFFECTING H&M

Appendix 2 – HIP Incentive Program

Matric no: 40180991 Course Code: SOE09607

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Matric no: 40180991 Course Code: SOE09607