H&m supply chain strategy case study

Running head: H&M BUSINESS POLICY AND STRATEGY 1

H&M BUSINESS POLICY AND STRATEGY 2

Table of Contents H&M business policy and strategy 2 H&M’s external environment analysis 3 Political 3 Economic 4 Socio-cultural 5 Technological 6 environmental 7 Legal 7 The general environment of the clothing retail industry 8 The demographic segment and strategy 8 The economic segment 9 The political segment and strategy 9 The sociocultural segment and strategy 10 Technological segment 11 Global segment and strategy 11 SWOT analysis of the H&M organization 12 Strengths 12 Weaknesses 13 Opportunities 13 Threats 14 The analysis of the five forces of the industry’s environment 14 Threats of new entrants 14 Bargaining power of suppliers 15 Bargaining power of buyers 15 Threats of substitute products 16 Intensity of rivalry from competitors 16 Conclusion 16 References 18

H&M business policy and strategy
H & M is the abbreviation for the Hennes & Mauritz AB organization in sweden that was founded in in 1947 by Erling Persson. The organization deals majorly with fast fashion clothes for children, teenagers, women as well as men. The company has operations in over 60 countries around the world. According to the orgaizations reports, by the end of 2015, the company had over 130,000 employees who operated in the organization’s 4500 outlets. It is important to note that the organization is the secondlargest global trailer in clothing (Botter, 2017). Other than its physical outlets, the organization supports online shopping through its online presence in over 30 countries.

The organization’s for a very long time has campaigned for equality and fairnesss and this has been seen in the organization’s employment strategy as well as the organization being stewards of inclusiveness and diversity. The organization campaigns for fair jobs for all. H&M is anorganization that is very big for bettering the eco system and this can be seen in the organization’s strategy on renewability. The organization looks at circular approaches on how products are made and used. The organization emphasizes the use of recycled, recyclable or other sustainably sourced materials; the company is big on a climate positive value chain (Shen, 2014). In addition, the organization emphasizes transparency in all its dealings while at the same time promoting and scaling innovation in the clothing sector.

H&M believes that sustainable fashion, as well as design, should be open and available to everyone (H&M, 2017. The vision of the organization is to lead change in the clothing industry through an emphasis on renewable clothing while at the same time being fair and promoting equality. The organization uses its operations as well as that of the industry in ensuring that they continue offering great fashion and design in a sustainable manner with future generations in mind.

H&M’s external environment analysis
Political
Just like most organizations, the analysis ofH&M political environment is key in ensuring that the organizations continue developing and developing according to the organization’s strategy. Political analysis is particlualrly important bearing in mind that the organization has a physical presence in over 60 nations as well as over online presence in over 30 nations of the world. A deep analysis of the organization’s political risk we notice that monitoring of political risk for the organization is important more so in countries that are politically unstable such as Egypt, Turkey and lebanon. For the above reasons, the organization has in place contigency plans that will deal with any eventuality that might result from the political unstability in the regions that they have franchises in.

Political analysis is important for the H&M and organization because any changes in the political environment in any of the countries that they operate in can either play a significant role in their development or play a significant role in their downfall. An example of a conitigency plan that the organization has had to take up in the politically unstable areas is taking up franchising partners. An analysis of the organization’s expansion startegy will clearly spell out that franchising was not part of the organization’s expansion startegy. Franchising has come as a result of the organization wanting to expand in the highly volatile areas while still securing its image and products.in addition, the organization is hard hit by import and export restrictions that make their operations difficult.

So far the organization’s strategy of having franchising partners in environments that they are unsure of is a good strategy, however, there is a need to have more contigency plans other than franchising. This is important bearing in mind, franchising can water down the brand's image. It is importannt for the organization to develop ways in which their products are not watered down due to political influences.

Economic
Suprisingly, the company seems to be fairing off rather well considering the negative effects of brexit. According to reports, the organization’s sales went up by close to more than 7% on local currencies basis. The comparison was done for the year 2017, the year after brexit and 2016, the year before brexit. It is important to note that the 7% growth in local currencies refelected a 10% growth when there was currency change to the swedish currency.

The over reliance on the dollars for most of the organization’s transactions is affecting the organization’s profitability. The organization uses the US dollar to pay most of its suppliers as much as it makes mosts of its sales in the European continent. Towards the end of 2017, there was a drmatic appreciation in the US dollar, coupled with slow sales that were unusall for the month of November saw the company’s profits fall abit; the profits were done by almost 3%. It is for the above reason that the company has been lagging behind Inditex, its biggest rival. A startegy that the organization can adopt to counter the effects of the dollars looks to other currencies that are stable not only at the moment but in the future such as the Swiss franc as well as the singapore dollar.

Socio-cultural
Through analysis of the socia-cultural factors that may affect the organizatio, it is apparent that socio cultural favors the development and the operations of the organization. the purchase of clothing apparell on sale by H&M is gretaly influenced by media and celebrities (Lloyd & Cheah, 2015). According to the analysis, trends indicate that consumers prefer to spend more on fashion and designer goods. CSR is a big thing more so for big corporations like H&M as their view by the public is of importance. CSR helps the organization to interact with the public and through this, the organization can sell their vision to consumers as well as potential consumers.

A good example of how the socio cultural factors affect the operations of the organization is of a recent case that happened earlier this year. H&M was accused of advocating racism after an advertisement gimick went wrong. Media personalities as well as celebrities went to the streets of america and campaigned against the organization. the campaign against H&M led to the sales of the company to drop and to prevent further damage on the organization’s brand, the organization had to give a press briefing as well as press report apologising for the advertisement. From the reactions of the public, it is clear that socio cultural affects the operations of the organization.

Bearing in mind the influence of media with special mention of social media, it is important that H&M pays special consideration to socio cultural factors (Nguyen, 2018). H&M ought to strategise on how to either use social culture to their advanatge or prevent the negative effects of social media on the operations of their organization.

Technological
Advancment in technology is affecting all the sectors of human life including the clothing industry. An analysis of the technological factor and how it affects the operations of H&M show how much technology affects the industry. Taking, for example, the use of online platforms to make sales has been exceptional for the organization. each and everyday the need of physical stores is getting done away with and in place, online stores are coming up. H&M has an online presence in over 30 nations and is currently working into expanding into other more countries of the world. I n addition, the giant clothing company launched its mobile application recently. The mobile application acts the same way as its online platform but with more mobility factors; consumers can locate physical stores of the organization near them through the use of the mobile application.

Other than the use of technology in the sale of their products, H&M continues using state of the art innovations in its supply chain. In order to ensure that the organization is in line with its vision of being ecofriendly, the organization has had to come up with innovative ways of recycling its raw materials as well as using renewable energy.

The organization is on the right track as far as its technological strategy is concerned. the organization keeps up with innovation changes so long as it betters their operations (Nenonen & Storbacka, 2018). For example, the organization currently uses social media and its website to advertise its products and services which is an upgrade from the media that they used to use about ten years ago; many years back the organization used mainly newspaper advertisements, television ads to market their products.

environmental
as previously mentioned, one of the visions of the H&M organization is to be circular and renewable by the year 2030. This means that the organization will rely on recycled materials for creation and production of their goods. The organization is very big on being environmentally friendly and for that reason are likely to advocate for strategies that seem to consider the environment. The organization’s strategy is good bearing in mind it hopes to secure the future of generations to come; the destruction of the environment directly implies that there will not be any operations for the organization. other than campaigning for circulation and renewability by 2030, the organization ought to launch campaigns focussed on educating their consumers on the importance of practicing sustainable maunfacturing or production as well as on ways to ensure that green living is a norm for them.

Legal
Copyrights are always an issue for major corporations and H&M has not been an exception to this. Over the years the organization has faced several law suits against them. One of the most famous law suits against H&M happened in 2015. The organization lost a patent dispute worth billions of pounds to a UK manufacturer for infringing on a technology. As much as the organizations had the funds to cover such disputes, they had to put in place a risk management system to prevent such a thing from happening again bearing in mind the dispute tarnished the brand’s good name. There is a need for the organization to set up tighter stringent risk management systems bearing in mind copyrights and patents are major issues for a major organization considering that the organization relies on third parties as well as on outsourcing to get their products or to get supplies or materials for their products.

The general environment of the clothing retail industry
The demographic segment and strategy
The biggest consumers of the clothing retail industry are women who are followed closely by children and at the bottom of the list are men. According to a research carried out, women surpass men in terms of clothing purchase in both quantity and in the demand for fashion apparel. In addition, young people aged between 16-30 years were more likely to purchase new clothes as compared to old people, 45years and above. There wasn’t a difference between urban dwellers and rural dwellers as far as gender demand is concerned, however, there is a difference in quantity purchased between urban areas and rural areas. The purchase of retail clothing is more in urban areas that in the rural areas; urban areas buy almost double the number of pieces that rural areas purchase.

Bearing in mind the demographics in the clothing retail industry, it would be prudent if H&M focused more on consumers in urban areas as well as focusing more on the female gender as compared to the male gender. In addition, H&M should focus more on young adults as much as there purchasing power is much limited compared to the aged. By having advertisement and marketing strategies that focus on women who are below 30 years, H&M is likely to make a kill as far as sales are concerned (Cortez, Van Anh & Vegafria, 2014).

The economic segment
As far as human needs are concerned, the number 1 priority for human beings is food, the second priority is quality shelter and the third on the priority list is clothing. The three commodities mentioned above are the basic needs of human beings. The basic needs mentioned above move economies of not only countries but also of the world. It is for the above reasons that the clothing retail industry is doing so well and not only in the developed nations but also in the developing nations of the world. The clothing industry, as well as other industries, have helped in the development of international trade as well as improved international relationships. For example, African countries have done away with some of their trade restrictions in the trade of clothing.

Fortunately, the founder of H&M identified the benefits of the clothing retail industry and ventured into it. H&M operates in over 60 countries around the world over several continents such as Africa, North America, South America, Australia, Europe and Asia. The recommended strategy for H&M is to increase their expansion in the above mentioned continents more so the African continent. The Africa continent has promise for economic growth in the clothing industry, the technology industry as well as the manufacturing industry. H&M should consider Africa as a viable market for their products.

The political segment and strategy
H&M uses a strategy in which they mainly transact or operate in nations that do not have too many restrictions in international trade. In order to deal with nations that are not politically stable, H&M has employed the use of franchise methods and through this, the organization has ensured that they not only customers from politically stable nations they as well have customers from politically unstable nations. Coming up with a specific strategy that beats all the political restrictions as well as all the demands of all the nations that H&M operates or wishes to operate in will be a tall order. It is recommended that different strategies should be applied to different nations.

The sociocultural segment and strategy
It is apparent that the H&M organization is heavily reliant on cultural and human interaction. Media and celebrities can greatly influence the operations of the organization not only in their home country but as well all over the world. The good thing is that the organization has identified that and put into place several strategies of ensuring that they are on the right side as far as cultural and human interaction is concerned. H&M is big on social media, in addition, its mission and vision emphasize on fairness and equality (Ahmed, 2017). Through social media as well as mainstream media, the organization has been launching campaigns geared at promoting equality and unity and this has helped them get many customers from a diverse background.

Their strategy is effective however looking at less cruel ways of getting animal fur, leather etc. such as through the use of synthetic fur can place the organization at a more advantageous position than they are at the moment. The current world can be said to be going vegan where they do not appreciate the use of cruel methods to obtain raw materials for the clothing industry. Failure to address or adapt the “vegan” demands can find the organization with much fewer clients than they would want.

Technological segment
The organization relies heavily on its supply chain management to ensure its products get to their customers on time. In order to ensure that the products get to their customers on time, the organization has had to employ the use of modern supply chain management techniques and methods. Over its duration of existence, the organization has had to adapt to new technological methods of operations in order to remain relevant and not to be outdated. The recommended technological strategy for H&M is to keep up with technology advancement and if possible to innovate better and efficient ways of marketing their goods as well as faster and efficient ways of moving their goods to the final consumer.

Global segment and strategy
H&M has presence only in a small fraction of the world’s population; it sells its products in only 60 countries in the whole world. Considering that clothing is a basic need for humans, the organization should try to have their products sell in almost all the countries of the world that are at peace or have some form of political stability even if it means cutting down on something. For example, the organization can lower the price of its products and push for mass movement of their product. This will ensure that they get the profit they want but only with a larger customer base.

SWOT analysis of the H&M organization
H&M just like any other organization has its strengths and its weaknesses. In addition, the organization has threats as well as opportunities if taken up can become an advantage or strength for the organization.

Strengths
The first strength of H&M has lies in its wide range of products that it offers. The organization offers apparels, shoes, accessories, cosmetics, a collection of vases, special candles and their holders amongst other things. Having a wide range of products to offer makes the organization appealing to many customers as it is like a one stop shop; customers can get many commodities from the organization. The second strength of the organization lies in its unique identity for all its brands. As an organization, H&M markets as well as sell its product through many good brands such as Monki, Weekday and COS (Nijmeijer, 2015). All the brands mentioned above have different target groups and this plays well to the diversity of the organization.

The third strength is that the organization has a good global presence. H&M has a presence in almost all the continents of the world. This ensures that the organization has a diverse market for its product and it does away with overreliance on a specific market. The fourth strength of H&M lies in its strong financial position. Ever since the company’s formation, the organization has been growing consistently and this has played a crucial role in increasing the confidence of investors and providing financial flexibility to the organization. An additional Strength of the organization is that it has embraced technology. Other than relying on its physical stores alone to sell its products, the organization has employed the use of online stores as well.

Weaknesses
One of the main weaknesses of the H&M organization lies in their over reliance on third party suppliers. The organization outsources product manufacturing of their goods and for that reason has limited control over the production process. Their overreliance and overdependence on third parties can at times affect their honoring of commitments to clients and this can damage their brand. The second thing weakness of the H&M is that it follows trends in the industry and this at times has placed them in compromising situations; being unable to stick to their core mission and vision. The last main weakness of the organization lies in its pricing. H&M is quite popular for offering to clothe at an affordable price and this at times has affected the quality of products they sell; they have sometimes produced substandard clothes. This has over the years been putting a strain on the organization’s brand name.

Opportunities
The first opportunity for the organization lies in its expansion strategy. Through the expansion of its target market globally, the organization stands to gain more clients as well as improve their profitability. The expansion can be done in emerging markets such as Africa and Asia where there is a demand for clothing apparel. The second opportunity lies in the use of ecommerce as a platform. Due to the advancement in technology, e-commerce is the way to go. As of the moment, the giant clothes retailer has an online store however it is not their primary mode of selling their products. The organization can benefit more from adopting e-commerce as their primary mode of selling their products (Andersson & Johansson, 2017). People in the world are more brand conscious than before and if the organization can capitalize on this lifestyle change they can rack in more profits than they are currently.

Threats
H&M has many competitors ranging from already established fashion organizations to small time companies that offer similar products at cheaper prices. The use of ecommerce has made it possible to have many more entrants into the fashion industry market and this has as well stiffened the competition for the giant retailer. Foreign exchange rates greatly affect the organization’s profit considering their reporting currency is Swedish Krona yet they mostly transact in the US and Europe where the Krona is hardly used. The fashion industry is a highly volatile industry where trends can change at any given time. All the trends might not favor the organization in terms of sales. The last main threat of the organization lies in the rising cost of labor which affects the profitability of the organization.

The analysis of the five forces of the industry’s environment
Threats of new entrants
The emergence of e-commerce has exposed the organization to new competition. Every single day there is a business setting up its online store and by so doing can eat into the market for H&M (Cao, 2018). other than ecommerce exposing the organization to new completion, the organization is always at risk of newly formed fashion companies more so from the US, Europe and Asia regions. H&M is always looking for strategies to counter such threats. A good strategy that can be effective for the organization is an emphasis on ecommerce as online stores provide an avenue for them to net in new clients.

Bargaining power of suppliers
The bargaining power of suppliers is the top force that affects the operations of the organization. H&M relies heavily on third party suppliers and manufactures for the production of the organization’s final product. At times the suppliers frustrate their operations buy demanding more for the goods supplied and also by failing to deliver on time and this affects the organization’s order commitment. A strategy that can be effective in countering the bargaining power of suppliers for H&M is reducing the overreliance on third parties by more than half.

Bargaining power of buyers
At the end of the day, the final consumers call the shots as far as profitability for the organization is concerned; if buyers do not buy the products offered by H&M then the profitability of the organization deeps. Due to the high numbers of competitors in the clothing industry power has been taken from the producers and transferred to the buyers. A good example of the influence of the bargaining power of buyers is H&M dropping their strategy of selling high end clothing and instead of adapting the selling of affordable clothing. In the above example, buyers made H&M change their strategies. For the fashion industry playing into the buyers’ demands and preference places the organization in a good position as far as sales and profitability are concerned.

Threats of substitute products
For the fashion industry there isn’t substitute products but instead, there is a brand substitution. Due to lifestyle change in the world, more and more people are going for brands that represent or appeal to them most and H&M is losing in this battle. The loss is stemming from the change of strategy to offer affordable products as opposed to offering high end products. High end customers are moving from buying H&M products and instead they are going for brands that offer lifestyle statements such as GAP and Dorothy Perkins (Mierzejewska, 2017). In order to counter this, H&M should adapt a strategy where they sell both high end products as well as affordable products.

The intensity of rivalry from competitors
H&M faces stiff competition from rivals from several areas. They face stiff competition from fashion organizations in the US such as Budgeteer Old navy and GAP. From the United Kingdom, the face competition from Dorothy Perkins, Topshop, Burton and Topman amongst others and from Spain they face competition from Zara, pull & bear amongst other fashion organizations (Hammoudeh, 2016). The competitors of the organization are always looking for ways to eat into the client base of the organization.

Conclusion
The H&M organization has in place strategies that seem to be giving them an added advantage over their competitors however with the emergence of the use of e-commerce the organization has been introduced to new intense competition. There is a need for the organization to focus on ecommerce and expansion into the emerging markets in order to remain relevant as well as secure their profitability. The H&M needs to expand into the Africa region and the Asia region more as the two continents offer new customers for the organization considering that the organization offers affordable products.in addition, the organization needs to reduce its overreliance on third party organizations as far as supplies and production are concerned as the failure of the third party organization risk destroying or damaging the brand of the organization.

References
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Andersson, M., & Johansson, O. (2017). Split Deliveries in Fashion E-commerce: Developing a Framework and Applying it at H&M Online. Department of Industrial Management and Logistics, Faculty of Engineering, Lund University.

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