Introduction to Business

MGT0006

Assignment name: Summative 1- Individual Case Study Report

(PESTLE)
Company name: H&M
Submission date: 5th April 2024, 4:30 pm Dubai time
Wordcount: 1412

Submitted to:
Mahnoush Gharedash

Student name: Xander Desimpel

Student Misis: M01002697

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Introduction:

H&M, the giant was established by Erling Persson on May 25 1947. With, over 5,000
stores across than 74 countries it has solidified its position as one of the leading and
trendiest fashion retailers globally. Since entering the UAE market in 2006 H&M has
expanded to nine locations offering clothing for women, men, teenagers and
children. This paper aims to delve into H&Ms operations in the UAE by examining the
social technological, legal and environmental aspects through a comprehensive
PESTLE analysis.

Political Factors:

The UAE is a federation comprising seven emirates with governments under the
umbrella of a federal government. Known for its landscape and business friendly
environment that encourages foreign investment with favorable regulations. Despite
some challenges like government control leading to delays and complexities in
business operations for companies, like H&M.
The UAE government introduced a foreign direct investment law in 2019 granting
investors the opportunity to fully own their companies, in specific economic zones
(Udemba, 2021). This means H&M can operate in the UAE without needing a
partner. The countrys ambition to transform into a knowledge based economy and
global business hub stems from UAE Vision 2021. As per this vision the government
has been promoting oil sectors, innovation, technology and entrepreneurship. These
initiatives have significantly facilitated H&Ms expansion in the UAE. Boosted the
countrys economy. However it is widely known that the UAE is a tax nation.
Nevertheless for the time since 2018 it implemented a 5% Value Added Tax (VAT)
which could impact H&Ms pricing strategy and profitability (Gopakumar et al., 2022).
The UAE boasts import/export regulations and fosters a business environment. This
environment has enabled H&M to import goods from countries to diversify its
product range and cater better to consumer preferences in the market of the UAE.

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 Source - (Udemba, 2021)

Economic Factors:

The strong purchasing power of UAE customers coupled with its growing economy
makes it an attractive market, for H&M.
The recent drop, in oil prices and the impact of COVID 19 have significantly
contributed to the decrease in consumer spending and retail sales. With malls closing
down and a decline in tourist visits retail sales in the UAE saw a 13.2% decline in
2020 affecting H&Ms sales in the country. In 2022 inflation levels in the UAE rose
slightly to 4.83% from the years 4.84%. Looking ahead to 2024 inflation is forecasted
to decrease to 2.1% from 2.6% aligning with trends towards inflation rates (Statista,
2022). These changes will impact H&Ms production costs and pricing strategy.

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 Source - (Statista, 2024)

One key consideration is that due to the pegging of the US dollar to the UAE dirham
H&M must closely monitor foreign exchange rate fluctuations (Nagraj, 2023). The
UAE economy is heavily influenced by oil prices since a significant portion of its
revenue comes from oil exports. The drop in oil prices due to COVID 19 had an
impact on consumer spending. Subsequently on the overall economy of the UAE
throughout 2020 affecting various retail companies including H&M.

The country, particularly its major cities, like Dubai and Abu Dhabi boasts a high
standard of living.
The spending habits of customers, on luxury products such as those offered by H&M
could potentially be influenced.

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 Source - (Statista, 2022)

Social Factors:

The United Arab Emirates (UAE) boasts a population with than 80% being
expatriates. The sociocultural landscape in the country is remarkable due to the
blending of nationalities. Emiratis have been embracing influences while expats in
the UAE have been increasingly adopting fashion trends in recent years. This trend
expands the target market for brands like H&M and other international companies.
It's worth noting that the median age of 34 in the UAE may not fully represent its
population due to the number of expatriates. Within this demographic fashion
ownership is prominent leading to a market share for H&Ms clothing offerings
(Alsharji, Jabeen and Ahmad 2019). Despite this openness to styles the UAE remains
conservative in its values; thus companies must align with religious norms. H&M
faced backlash for promoting revealing attire through models that contradicted the
countrys principles. As a result it is crucial for organizations, like H&M to tailor their
marketing and advertising strategies to resonate with approaches (Alsharji et al.,
2019).

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Technological Factors:

With an economy driven by knowledge and robust government funding the UAE
stands at a vantage point to lead global technology adoption.
High internet usage is widespread, in the UAE with over 90% of the population
connected, benefiting from infrastructure and tech based services. This situation
enables H&M to leverage technology for enhancing its operations and customer
experience. The company caters to tech customers in the region who prefer
shopping, mobile apps and self service kiosks. These strategies have led to growth in
customer numbers and sales locally. However stringent cybersecurity regulations in
the UAE pose a challenge for H&M due to the countrys data protection laws that
align with GDPR requirements. Compliance with these laws is crucial for avoiding
issues.

Environmental Factors:

Regarding aspects the UAE experiences weather conditions marked by scorching

summers and mild winters typical of Gulf nations. This climate preference has driven
demand for comfortable clothing, in the region. H&M responded by introducing a
range of climate appropriate apparel tailored to suit UAEs conditions. Additionally
there is a target set in place aiming to reduce carbon emissions by 40% before 2030
as part of initiatives.
Numerous governmental initiatives are currently underway, in the UAE to promote
sustainability and reduce carbon footprint in the nation. Since ratifying the Paris
Agreement in 2018 which aimed at combating climate change various businesses
have begun implementing sustainable practices to lessen their environmental
impact, including H&M. H&Ms recycling initiative enables customers to exchange
unwanted clothing items for discounts.

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 Source - (GULF BUSINESS, 2023)

Legal Factors:

In the UAE civil law encompasses a combination of federal regulations. The country
has established a framework that protects the rights of both consumers and
businesses. According to the UAE Commercial Companies Law it is mandatory for
companies to register and adhere to all business regulations within the country
including obtaining a trade license. Additionally foreign companies operating in the
UAE must comply with labor laws concerning aspects such as wages, working hours,
health standards and safety regulations. Therefore H&M must follow labor laws
diligently to prevent disputes regarding alleged violations based on these guidelines
(Kamøy, 2020).

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Conclusion:

To sum up the United Arab Emirates offers an environment for companies, like H&M
to prosper. The company has the chance to expand due, to the landscape, favorable
business laws and booming economy. It's crucial for H&M to follow the regions
regulations while adjusting its products and processes accordingly. By tapping into
the UAEs emphasis on technology and sustainability sales performance can be
improved. Strengthening H&Ms position, in the market is important.

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