H&M in Fast Fashion: Continued Success Essay

Q1) Evaluate the external environment in which H&M operates in. External environment refers to the challenging and complexity in which the firm operates. It is important to highlight the factors of the external environment because it is very critical to the success of the firm. PESTEL model and Porters 5 Forces (P5F) models will be utilize to evaluate the external environment of H&M. These models will determine how challenging and benignant the environment is for H&M. 1. PESTELPESTEL highlights 6 environmental forces namely political, economic, social, technological, ecological and ratified (Johnson, et al. 2014). This model analyses the general environment that influences the sedulousness and the organisations in it as well as how challenging the environment is to operate.1.1 POLITICALH&M is subjected to political pressures from the craunch rights movement specially in low-wage countries. H&M has turn outsourced its manufacturing line to low-cost countries. H&M has no or litt le control over the motion in those countries. Hence, the firm would be closely scrutinised by the labour rights movement to spot any abuse in the rights of employee e.g. poor working condition. Government elaborateness and international distribute policies would greatly impact the growth of the industry and increases competition. Threat1.2 ECONOMICH&M will not be sp atomic number 18d from the increase in cotton prices and rising product cost in Asia. Economic downturn will have an impact on all the stakeholders in the environment peculiarly the customers. Demand for luxury goods would decline for customers who argon price-sensitive. They would then withdraw H&M competitors that offers similar goods which is are much cheaper than H&M orgo for substitutes. Threat1.3 SOCIALDue to the fast fashion transmission line, customers taste in high fashion is constantly evolving. Customers are now more educated and their adopt for good quality products at low prices have increased. H&M c ould meet the needs of the customer as it has the favour of being a rootage mover in the fast fashion business. Opportunity1.4 TECHNOLOGICALThe emergence of technologies such as Facebook, Twitter, and YouTube allows organisations to reach out to its customers more quickly and effectively. H&M uses these online social platforms as a way to be closer to their customers as well as sharing and updating its activities to its fanbase. Opportunity1.5 ECOLOGICALDue to command and high awareness of the importance of conserving and going green, H&M has created a special collection of clothing line apply sustain able or eco-friendly materials. Opportunity1.6 LEGALLegal refers to the restriction or liberalisation of legislative and regulatory constraints or changes. Organisation in the environment would not be able to avoid this particular external environment factor therefore organisation has to embrace this legal aspect. Liberalisation of the international trade has resulted in an increas e of the number of suppliers globally and hence intensifying the competition among manufacturers in low-wage countries ThreatFrom the PESTEL analysis, H&M is in a moderately agonistic environment where both flagellums and opportunities factors are in equal balance. Therefore, H&M has to exploit the opportunities available in social, technological and ecological factors. As for the threats, H&M has to embrace them and develop strategies to repress or steer away from them too.2. Porters 5 Forces (P5F)P5F helps to identify the attractiveness of an industry in terms of 5 competitive forces namely threat of entry, threat of substitute, power of buyers, power of suppliers and the extent of rivalry between competitors (Johnson, et al. 2014).2.1 THREAT OF ENTRYFactorHLCase evidenceEffect ( high up/low) ordered series of experienceNeeds large capital to compete with the officers in the environment. LowAccess to supply /distribution channelsPlenty of suppliers available to choose from.Hi ghExpected retaliationCostly to compete with incumbent as they have the economies of scale. LowLegislation or government actionLiberalisation of international trade has resulted in the increase of number of suppliers. HighDifferentiationThere is differentiation in style and concept of the apparel industry. HighHigh threat of spick-and-span entries would indicate that the industry is attractive and and could decrease the profit margin of H&M e.g.UNIQLO. However, these competitors must have sufficient financial resources to compete with the current incumbent in the industry. These new entries would have to build up experience over time in order to be on par with existing competitors.The competitive rivalry is moderately high because the market is fragmented and there are few major incumbents in the industry. With intense rivalry e.g. Zara, each competitor is sprucely competing against the rest in order to have a market share in this apparel industry.From the P5F analysis, H&M is ope rating is a exceedingly attractive market where the threats of entry is high, threats of substitute is low, power of buyer is high, power of supplier is low and high rivalry. Overall, H&M is operating in a highly competitive and attractive external environment. Therefore H&M must take steps to look into its resources and identify its strategic capabilities in order to stay on ahead of the competition.Q2a) Identify and discuss the strategic capabilities of H&M. Strategic capabilities refer to the capabilities of an organisation that contributes to its long-term survival or competitive advantage (Johnson, et al. 2014). The components of strategic capabilities are resources (what the firm has) and competences (what they do well). The table below lists down all the resources and competences of H&M. This table also identifies the type of capabilities for each competences namely threshold and distinctive capabilities. wand capabilities refer to competences that are needed for the organ isation to meet the necessary requirements to compete in a given market and distinctive capabilities look into competences that are mandatory to achieve competitive advantage (Johnson, et al. 2014). ResourcesCompetencesType of capabilitiesOrganisational resourcesCompetent leader who has a good business acumenDistinctivePhysical resourcesStores position in the surpass locationvergeRapid expansion into other countries and new marketsThresholdHas 2206 stores in 43 countriesDistinctiveAbility to deliver collection within a month of initial design DistinctiveEfficient integrated logistic teamDistinctiveTechnological resourcesOwns its own clothing line and trendsDistinctive tender resources200 talented designers and pattern makersDistinctiveEmpowerment of store managers with autonomyThresholdCollaboration with famous designers to produce new collection Distinctive intro resourcesBuilding creative window and store displaysDistinctiveCreated a special collection using sustainable materials (CSR) ThresholdReputational resourcesPioneered in fast-fashion businessDistinctive try cheap and chic business modelDistinctive noticeable brandingDistinctiveCultureInstils the importance of core honors in employeesThresholdStrong corporate culture (spirit of H&M) Encourages experimentation, trial and error learning, decision making, initiatives, try new ideas DistinctiveInformation technology (IT)Efficient reporting of salesThresholdEstablishment of strong social media presenceThresholdEffective information sharing softwareThresholdBased on the table above, H&M has more distinctive capabilities than threshold. H&M now could recognise the different types of capabilities and which are the ones the organisation should focus on and turn them into sustainable competitive advantage generating above average returns. H&M has to put more effort in the distinctive capabilities such as competent leadership, physical assets such as stores, its ever-changing collection of designer clothes, i ntegrated logistics function, its talented employees, successful collaborations, creative window display, its fast-fashion business model, strong branding and lastly its strong corporate culture.With the fancy up analysis, H&M has to continue its efforts strengthening its strength so that it would give the organisation an advantage over its rivals. As for its weaknesses, H&M could either communicate or work on weaknesses by turning them into strengths. H&M should seize the opportunities when the time is right. Lastly, threats should be avoided or steer away from them.Identify the refer distinguishs, challenges and opportunities facing H&M. The key issues of H&M are whether their existing resources, capabilities, practices and knowledge are sufficient to hap up with competition. Another key issue is the threat of new and vigorous entrants. The answer to these is yes, H&M could keep up with the competition due to substantial resources, strategic distinctive capabilities, strong v alue creating activities, strong practices and knowledge. H&M challenges would be revitalising and redefining its strategic capabilities in order to be sustainable in this apparel industry. H&M has to keep up with the latest fashion trends and continue to explore other avenues to create value to its value chain activities. Another challenge is to stay ahead of its competitors especially the threats by new and vigorous new entrants, by moving fast and reaching large market based by applying a simple business model cheap and chic. The opportunities would be venturing into new areas where H&M has yet to explore e.g. online shopping, opening the largest store in the world on 5th Avenue, New York. H&M has to evaluate if these opportunities could give them the competitive edge against its competitors and generating an above average returns.Based on preceding analysis, formulate and discuss clutch strategies that you would recommend to H&M in order for it to achieve above-average return s in the future. H&M is now operating a cost leadership schema. This scheme involves becoming the lowest-cost organisation in the industry (Johnson, et al. 2014). Cost leadership strategy is an integrated set of actions taken to produce goods or services with features that are delightful to customers at the lowest cost (Ireland, Hoskisson and Hitt 2013) Based on preceding analysis, it is timely for H&M to review its business level strategy. Cost leadership strategy is not always the best strategy for H&M as there will always be the risk of being undercut on price especially during the economic downturn. Secondly, low cost has always been associated with cheap quality goods where products barely meet the market standard. H&M should be considering using the lock-in business strategy. This strategy is where customers become dependent on H&M and are unable to use another supplier without substantial switching cost. With this lock-in strategy, copycats and substitutes of H&M products would have a hard time attracting customers.With customers securely locked in, H&M could charge prices which are well above cost. Lock-in strategies can be achieved in two ways mainly controlling complementary products/services and creating a proprietary industry standard (Johnson, et al. 2014). Another strategy which H&M could consider is differentiation strategies. Differentiation involves uniqueness along some dimensions that are sufficiently valued by customers to allow a price premium. Based on H&Ms strategic capabilities, one of its competitive advantage competences is having its own clothing line and trends. The fashion house could use this competency to carry out the differentiation strategy. With H&Ms large pool of over 200 talented designers and collaboration with famous top designers, customers would be willing to counterbalance more for the latest style and fashion. With the unpredictability of the fashion industry, H&M has to be able to stay well ahead of its major com petitors by reviewing its strategic capabilities from time to time. Capabilities need to change and evolved into dynamic capabilities. Only dynamic capabilities have what it takes to be the key driver towards strategic change. Like what fashion model, Heidi Klum, from the fashion industry always said, Today you are in but tomorrow, you office be out The same goes to the chosen strategy of H&M, cost leadership mightwork today, but it wont be the correct strategy tomorrow.BibliographyIreland, R. Duane, Robert E. Hoskisson, and Michael A. Hitt. The Management of Strategy. Australia South-Western Cengage Learning, 2013. Johnson, Gerry, Richard Whittington, Kevan Scholes, Duncan Angwin , and Patrick Regner. Exploring Strategy. Harlow Pearson, 2014.