INTRODUCTION

H&M is an apparel retailer which focusing on high fashion and low price strategy. They
pioneering fast fashion and quickly adopt new trend for their apparel. H&M had 2,206 stores in
43 countries and more emphasis on their customer. H&M increasing annual growth rate in 2011
and they focus and invest on their customer in order to strengthen the brand name and
sustainability in the long run. When Zara enter into apparel market, H&M was challenge by Zara
because the rapid expansion of Zara. Despite there are increasing competition in the fast fashion
business, but H&M have their long term perspective which is more focus on the best
combination of fashion and quality at the best price.

H&M VISION AND MISSION STATEMENT

Our vision is that all our operation are run in a way that is economically, socially and
environmentally sustainable.

Company is fulfilling the needs of both current and future generations.

The mission statement: Fashion and Quality at the best price in a sustainable way.

H&M promises always offer fashionable trend with affordable price for everyone.

CORPORATE SOCIAL RESPONSIBILITY AND ETHICS

H&M is the one company that practicing Corporate Social Responsibility (CSR) with
collaborative social initiative. Its means that the company is doing CSR as part in running the
business (Pearce, J.A & Robinson, R.B, 2013). Based on the case, H&M pays concentration on
CSR and practices several actions throughout its value chain as well as keep the brand name
away from the usual critique.

Used of sustainable materials

To be environment friendly, H&M are using natural resources responsibly. Cotton which the raw
material that use the most. To make cotton be more sustainable sources, the organic, better or
recycled cotton are used widely in making clothes of H&M. Although the organic cotton is
expensive sources, H&M willing to pay it because its grown without any chemical substances
and no contains genetically modified organisms (GMOs). Recycled cotton also uses by H&M in
order to prevent old cloths are going to waste. Besides, H&M clothes also make by conscious
materials such as recycled wool, organic leather, organic linen, organic hemp, recycled plastic,
and organic silk (H&M, 2015). Furthermore, H&M establish a strict policy in using animal
sources for fur clothing. The training and education are giving to raise the awareness of supplies
in protecting and respecting the life of animals all the time. It shows that H&M is practicing
ethical responsibility to provide safety product for environment and customers.

Working conditions

H&M are providing a fair and good working condition for their employees, either in outlets or
producing countries. The scrutiny in term of working condition and wages level are checking
regularly. The human rights of employees are protected from being threatened by local employer.
Thus, H&M are visiting those factories such as India and Bangladesh to educate workers about
their rights in workplace. Besides, a fair living wage is giving to them that at least cover the basic
needs and discretionary income of worker and its familys. The constant interview of workers are
conducting every year to know how their wages are calculated in order to prevent the violation of
worker right as to get fair wages. This is the one of example of ethical responsibilities by H&M.
Moreover, the UN Convention on the Rights of the Child and the International Labour
Organization states that child labour is unwelcome in the workplace. Therefore, H&M are
developing legal responsibilities by working with UNICEF to getting funding and support to
abolish child labour across the globe.

Be ethical

H&M also adopts ethical practices in their business environment. Fairness principle are
establishing in the workplace as 78% of H&M colleagues are women and 72% is managers
(H&M, 2014). This shows that the H&M employees have been treated fairly and no
discrimination against their gender. The equal promotions and rewards are providing to
everyone.
Besides, H&M provides their Code of Ethics in the workplace. The Code of Ethics states a
zero tolerance policy on bribery and corruption. Any gift or advantage is prohibited between
the business partner and H&M employees.
Next, harassment, victimization and inappropriate behavior are forbidden in a working
environment (H&M, 2015). H&M believes that all of employees and workers are entitled to
respectful treatment and comfortable situation in the workplace.

INTERNAL & EXTERNAL ENVIRONMENT ANALYSIS

For H&M companies, we use SWOT analysis and porter five forces analysis for internal
and external analysis.
(A) SWOT analysis
Strength
H&M is an apparel retailer which is focus on the low cost with high fashion in the
clothing industry. Their provide customer a high fashion design apparel with low price than
other competitor. This is one of the strength of H&M and formula of H&M to sustain in the
apparel market for long term. Compared to competitor, H&M are using their unique concept to
satisfy their customer by high fashion apparel with low price. This will help H&M gain their
market share because of their best price strategy.
Focus on customer also is one of the strength of H&M. H&M are more concern customer
needs and want in order to satisfy their customer. This will increase the customer satisfaction and
attract more customers to purchase their product. Customer was important for H&M because
they are important external stakeholder which will affect their sale and profit. They choose to
remain the price of the product even though purchasing cost is increasing. It is because H&M
want to create loyal customer and strengthen customer relationship to retain their customer.
H&M know their customer want high fashion design but they choose to purchase lower price
compared to high fashion with high price. This is the reason for H&M sustain in the market
because customer know H&M concern the needs and wants. H&M not only satisfy their
customer in their product, they also quick respond and answer to their H&M followers through
social media.
Due to H&M had 2,206 stores in different location, but each of store location will be
select carefully by H&M. This is the strength of H&M because they know how to choose a best
location for them to increase the sales and attract customer to purchase. They understand store is
a very important communication channel with their customer so that H&M will set a location at
city or shopping center which can give customer a best shopping experience. This is the location
strategy of H&M and other competitor may not concern or think about it.

Weakness
H&M are using outsourcing method for their production. Some of the competitor had

their own manufacturer and retailer but H&M do not have any manufacturing to produce the
product for their own. This will become a weakness for H&M because they only rely on
outsources product manufacturing. H&M have 700 independent suppliers for outsource product
manufacturing. Having a large amount of supplier, H&M not only hard to manage and had
limited control the quality and price for their supplier. H&M seek for low cost supplier to
produce in order to earn more profit. But if lack of control for those low cost supplier, they may
not meet the quality standard of the product H&M wants. This not only will affect the reputation
of the H&M and also reduce the customer confidence to H&M product.
Individual stores do not have back up stock also is one of the weaknesses of
H&M. It is because they need to replenish from the central warehouse when receive customer
order. But this has to depend on demand of the product because they want to save some shipping
cost. If there had less demand of the product, customer needs to wait the product. This not only
increase the time for waiting the product and also decrease the customer satisfaction for H&M.

Opportunity
With the advance technology, change in social pattern will be a great opportunity for

H&M. H&M have strong social media presence because they keep update on the regular basis
and allow H&M follower share their opinion and idea. This will be an opportunity for H&M in
online sales business. They manage well in social media and always post some feedback and
answer their customer question. This can create full awareness of the customer through social
media. When H&M operate online business such as Zalora, they not only can reduce the rent
cost and it also is an opportunity for them to attract more customers to purchase their product
online in the worldwide.
H&M focus on high fashion design with low price concept. They collaborate with 200 inhouse designers which collaboration with famous designers to produce high fashion apparel. This
will be the opportunity for H&M because they can attract other company want to corporate with
H&M. It is because other company may look for H&M potential in-house designer and also the

good image of H&M. Therefore, H&M will increase their market share and more chance for
enhance H&M development.
H&M had high level of awareness of their brand. This also is the opportunity for H&M
because they can attract more business people to collaborate and invest to their franchises due to
they had high brand value. This is the opportunity for H&M to expand their business so they can
increase their profit and get high attention of their customer.

Threat
Cotton price keep increasing also is a threat for H&M because they increase

production price but remain the price of the product. This will be a threat for H&M because
remain the product price but their profit will drop. When profit drop, the rate of sustainability for
H&M in the long run will reduce.
Besides that, H&M have their own franchises at different location. If their franchises not
manage well, it will become a threat for H&M. This not only will decrease their reputation and
also will lower their customer satisfaction. However, H&M do not have manufacturer, all the
product need to give shipping fee and tariff when export to the entire store was located in
different country. Exchange rate fluctuation also is a threat for H&M. It is because uncertainty of
shipping fee and tariff so sometimes the cost of shipping and tariff may high or low. When the
shipping fee and tariff high, they will earn less profit for the product. Thus, this will affect H&M
sales and increase the cost of the product at the same time.

(B) Porters 5 forces Analysis

(I)The Threat of New Entrants
In apparel industry, there has a strong entry threat. Entry barrier for this industry
become lower and lower. It does not require new competitors use a large capital to start-up
their business. Also, the plenty of supplier are very easy to get among this industry. By the
way, this will attract many individual to start up their business and become the potential
competitor for H&M. In fact, new entrants can easy start to do their business by provides
their design for manufacture to produce and sell it through the internet directly. There was
easy to manage by new entrants and also help them to save a lot of cost.
(II)

The Bargaining Power of Supplier

Fact on case, supplier has a weak bargaining power in this apparel. There are plenty
of suppliers for company to choose from in this industry. In addition, the switching cost is
low and do not make any issue for H&M to switch from one supplier to another. H&M is a
company that focus economic of scale and will give a large volume of product for
manufacture to produce it. Manufacturer needs this business for them to make their business
profit and manufacturer has not reason to refuse. Due to the increasing of globalization and
international trade, this will lead to increase the number of supplier globally and has more
option to outsource their production to foreign manufacture in low wage country.

(III)

The Bargaining Power of Buyer

In apparel industry, there are plenty of apparels retailers over the world. As
international trade liberalizes and franchise structure, buyer can easy to get different brand
of apparel from different country. Therefore, the bargaining power of buyer in apparel
industry are strong due to the buyers have many choice to buy their apparel. There are also
not a big differentiate between H&M and another competitor. All of them also follow the
latest trend of fashion. If buyers do not like the design of H&M, they will easy to swap to
another competitors brand. The swapping cost for buyer is also low and there is many
different brands apparel store for buyer to choose among the same area or near area.

(IV)

The Threat of Substitute

We can observe from the case that the threat of substitute is strong due to the good
substitute are readily available in apparel industry. H&M is focus on provide fashion but
reasonable price apparel for many segment. At the same time, Gap also can provide its
product with an extensive range at a moderate price. UNIQLO also provide the product with
high quality and reasonable price. That mean, H&Ms strong competitor also can provide
good quality of product with attractive price. In addition,, the swapping cost to substitute is
low.
(V)

The Intensity of competitive Rivalry

The intense rivalry is strong when it was occurs the industry that is numerous of
competitor such as apparel industry. Inside apparel industry, the product among H&M and
its competitors is lacks differentiation. So, this make the switching cost of buyer is low.
Furthermore, fact on case state that slow growth cause the reduction on the demand in
apparel industry intensifying competition.

LONG TERM OBJECTIVE

Long-term objectives can be defined as the performance goals of an organization, which

are normally attained over a period of five years plus (BusinessDictionary.com, n.d.). In order to
succeed in achieving long-term wealth, strategic planners usually create long-term objectives in
seven main areas, and they are: profitability, competitive position, employee relations, public
responsibility, productivity, employee development and technology leadership (Chin, 2013).
One of the H&Ms long-term objectives can be noticed from its profitability. H&Ms
primary business concept is to always offer fashion and quality at the best price (H&M, 2014).
According to the companys 2011 annual report; investments were stepped up in the year 2010 in
order to make the brand stronger and secure future expansion. The companys new CEO too has
the desire to maintain H&Ms astonishing annual growth rate of 20%. It is important for H&M to
have the ability to keep making an acceptable level of profits in order to make sure that the
company with be able to operate its business in the long term.
H&M owns its very own design and buying department that allows the creation of new
collections. Besides that, the company can also attain best price by hiring fewer middlemen. This
can reduce the amount of cost needed to pay the mediators. Bulk purchasing can help H&M to
achieve the best price. This is because buying in large quantities can reduce cost per unit and can
decrease the amount that has to be paid in the long run.
Having systematic distribution also plays a part in helping the company to achieve the
best price. In order to minimize poor buying decisions, and to maximize flexibility in approving
stores to restock as soon as possible during the season with the bestselling products, H&M
ensures to not make any order too early.
Purchasing managers are also being encouraged to try and explore new things. However,
when mistakes are made, it is important for them to not repeat the same mistake. This can be
covered in the employee development area, because by giving such chances can increase
productivity and reduce the turnover rate. When the turnover rate is low, it is also a sign that the
company had gained profit.
Lastly, H&M operates its business from rented store premises and does not own any
stores. In this way, it does not tie up capital and can pursue its business concept without facing

any challenges (Zavrnik, 2007). Unlike Zara, H&M does not own any factories. The companys
production is usually being outsourced to independent suppliers.

GENERIC AND GRAND STRATEGY

Business strategy is important direction for a company to tell them what should they do,
how would they perform and what they want their company look like. Many companies will
establish its own strategy in order can help them to achieve or the right direction toward its long
term goal and objective. Business strategy is classified into two categories which are grand
strategy and generic strategy.
Based on the fact of the case, H&Ms grand strategy is focus on fast fashion and price
significant below the competitor. By the way, it must use some generic strategy to support this
goals and what kind of generic strategy apply by H&M in order to achieve this strategy? Also,
what competitive generic strategies help to create at the same time?
H&M use cost-leadership strategy as a generic strategy in order to support its grand
strategy. H&M is so outstanding that they are able to maintain their low cost and price for at the
best interest of their consumer. In order to support its low cost strategy, H&M more focus on
economic of scale in its supply chain set-up compared to Zara. With the focus of economic of
scale, H&M focus on high-volume production and seeking for low wage manufacturer.
Furthermore, international trade liberalizes issue lead to increase the number of supplier globally.
This can help H&M seeking low price supplier and keep in the low inputs cost.
Another strategic that H&M adapted is speed-based strategy in order to fit with their
main objective and to gain competitive advantage. Which H&M excelled at was their quick
responds to the fast changing fashion trends by renewing its lines. H&M was well-known for its
wide product range and choices that align to current fashion trend. The latest fashion requirement
can be found easily in nearly every H&M outlets. The standardized and consistent operation of
H&M created a barrier for new competitors to enter into the market. In addition, H&M has a
good team of designer who can design apparel to fit the customer need and wants and also the
latest trend of fashion.

STRATEGIC ISSUES
Strategic issues are commonly known as potential problems that need a certain decision
or are currently waiting for some making clear of future events are (Ambler, n.d.). Besides that,
they have a huge impact on the track and direction of the business is actually heading (Ambler,
n.d.). Based on the internal and external environmental analysis, there are a few strategic issues
that can be identified.
First of all, it was mentioned that H&M does not have factories that enables the company
to produce latest product design as quick as possible. Every single production by the company is
normally being outsourced to suppliers, which is considered as an unresolved problem faced by
the company. Even though outsourcing can be cost-effective most of the time, but it can also
cause a serious threat to occur when there is an involvement of the hidden costs while signing a
contract across international boundaries (Flatword, n.d.).
Apart from that, H&Ms dependent on outsourcing will raise an issue in its products
quality, and the time between the starting and the finishing of a production process will also take
a very long time. There is a lack of customer focus as H&M focuses more on providing to the
needs of various organizations at one time. This situation may also cause H&M to lose focus on
its organizations tasks (Flatword, n.d).
Another strategic issue that can be drawn from the internal and external environmental
analysis is the rapid changing of the companys demographics. Technologies are getting more
advanced each day and people are moving along with the advancement. Nowadays, social
network plays an important role in peoples lives as well. Customers, especially teenagers, prefer
to shop online. With the help of social network, customers are able to receive the latest updates
regarding certain products in seconds.
In the case study given, it was said that H&M is planning to start online sales in the USA
and open its largest store in the world. Since social network is the key to connecting people in
this modern era, H&M will face a disadvantage of not setting up an online business. The
company will be losing the chance to reach out and connect with broader audience, and they can
consist of people from other countries and are in need of the companys services.

In order to gain more market share, H&M need to have a competitive advantage which
mean that company can create a value for customer that other competitor do not have. H&M in
this apparel industry is providing high fashion at prices significant lower than those competitors.
Based on ours observation, H&Ms competitors product and service is significant similar with
them, there are not competitive advantage for H&M.
Furthermore, H&M is using cost leadership strategy to lower their input cost. While the
risk of using this strategy occurs when company extremely focus on cost cutting, because it will
lead the company to loss other competitive advantage such as lose emphases on quality
management, reduce opportunities in doing innovation process for company product. Since,
H&M in an unpredicted fashion trend industry, if their do not put much afford in doing research
on the new customer and fashion trend. This will possible to let H&M loss the competition in the
market. Also, if H&M do not manage it product in good quality also will cause they loss their
customer, because the bargaining power of the buyer is strong.

STRATEGIC CHOICE AND RECOMMENDATION

According to the three issues that were identified, there are a few suitable business
strategies that can be implemented in order to solve them. In order to solve the issue of
outsourcing, H&M can implement the synergy approach to its business. The synergy approach is
a business concept where the value and performance of two companies merged together. It is also
mostly used in the context of mergers and acquisitions.
One of the reasons why this approach is suitable in this situation is because through the
combining of both companies, H&M will receive potential financial benefit. Not only that,
shareholders will also gain benefit if the share price increases after merging because of the
synergistic effect that is caused by the deal. The synergy approach can bring a lot of benefits to
the company such as the increment of revenues, combination of talent and technology and cost
reduction. Therefore, it is appropriate for H&M to implement the synergy approach with a
company that can produce products with good quality and lower cost.
The next recommendation that can be done by H&M is to actually set up an official
online shopping website that can ship their products internationally. With the help of the Internet,
H&M is only a click away from its customers who live all around the world. With a good
marketing team, H&M can provide its services to wider range of customers. Next, by setting up
an official website for the company, H&M will have a better corporate presence on the Internet
too. The companys image will increase especially when the products and services provided are
of good qualities. Lastly, by having online sales, costs such as the maintenance, repair and
operation fees can be reduced significantly too.
Lastly, H&M should differentiate their product to get customer attention. This can gain
their competitive advantage and become more unique when compared to other competitor. They
should have a good relationship management with their manufacturer. If can build mutual trust
between H&M and its manufacturers, this will help them in effective communication such as
fully delivery the massage of H&M to manufacturer. Having a good relationship with
manufacturer and effective communication, it can help H&M to get good quality of product from
its manufacturer. This also will help H&M build a long term relationship with manufacturer, and
manufacture will give provide discounts due to long-term contract such put priorities of H&M

project, finish the production in time or early. Afterward, H&M can control the cost and also its
quality of product. It also can build a competitive advantage by providing good quality of
product with lower price and customer can get their new stock faster.