Case Study: H&M in fast fashion : continued success? by Patrick Regner & H. Emre Yildiz 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 Porter’s 5 Forces (P5F) models will be used to evaluate the external environment of H&M. These models will determine how challenging and attractive the environment is for H&M. 1. PESTEL PESTEL highlights 6 environmental forces namely political, economic, social, technological, ecological and legal (Johnson, et al. 2014). This model …show more content…
High Expected retaliation √ Costly to compete with incumbent as they have the economies of scale. Low Legislation or government action √ Liberalisation of international trade has resulted in the increase of number of suppliers. High Differentiation √ There is differentiation in style and concept of the apparel industry. High High threat of new 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. 2.2 THREAT OF SUBSTITUTE Factor H L Case evidence Effect (High/low) Price ratio/ performance √ Not found in case study. Low Extra-industry effects √ A substitute is still an effective substitute even if it is much more expensive. The lower the treat of substitute the more attractive the industry is. 2.3 POWER OF BUYERS Factor H L Case evidence Effect (High/low) Concentrated buyers √ Large customer base – 2206 H&M stores in 43 countries High Low switching cost √ Plenty of choices for the customer, they are price-sensitive and have the ability to look for bargains. High Buyer competition threat √ Customers do not have the ability to supply on their own. Low With high
‘Strategy is the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through it’
Thompson, Arthur A. , Gamble, John E. , & Strickland, A. J. (2006). Strategy: w
the difficulty of strategy execution and the tools managers can use to make strategy happen. As the title
When manipulating a business’s strategy, it is important to focus on the external factors in the environment. An external analysis is where a business conducts environmental scanning that present a company with the key external forces influencing the organization. The facets of external forces examined are the business environment, remote environment, or the competitive environment. A business environment is all of the external factors in the general environment that a firm cannot control, but can affect their strategy. The remote environment is the forces that affect most firms. Lastly, a competitive environment is the firm’s specific industry and its entirety. The external analysis is pertinent to a company called Dick’s Drive- In; without it, Dick’s would not be a thriving popular business today.
Three new potential strategies are tested by using the model of Johnson and Scholes, and one proper strategy will be retained to carry out an Action Plan.
Even though H&M follows a strategy which differs significantly from Inditex’s approach it is the closest competitor from the financial point of view. H&M differs from Zara because it outsources all of the production, it is more price oriented and spends more money on advertising. But both companies are based in Europe, are fashion forward at lower price retailers, and have a strong international expansion strategy. Exhibit 6 indicates that the financial results of Inditex and H&M seem to
Best Buy was founded under the philosophy of providing customers with a wide selection of
External environment refers to external aspects of the surroundings of business enterprise, which have influence on the functioning of business. The external environment can provide both facilitating and inhibiting influences on organizational performance. Key dimension of the external environment principally consists of a micro environment and a macro environment.
This categorizes environmental influences into six main types: political, economic, social, technological, environmental and legal.
2.3 THREAT OF SUBSTITUTES Substitutes do not entirely replace existing products but may introduce new technology or reduce the costs of producing the same product (Porter, 1980). Substitutes may limit the profits in an industry by keeping their prices down (Porter, 1980). The threat of substitution is quite high in this industry because consumers are able to substitute to other major retailers, convenience stores, niche product outlets, restaurants, bakeries, butchers and farmers (Coriolis Research, 2004). Supermarkets like Tesco and ASDA have a range of products and services that have close substitutes, effecting price elasticity of demand because the market is sensitive to price (IBISWorld). The demand for a particular brand or retailer will increase or decrease concurrent to the movement of price in comparison to its competition (IBISWorld). The UK supermarkets are always trying to increase the quality of products and services resulting in a constant need to differentiate products and services from competition to make them less price sensitive.
The threat of substitutes is low. Buyers are unlikely to substitute Corning’s product because few substitutes exist. Additionally, switching costs would also be high for business buyers to substitute Corning’s with another manufacturer’s
Alfred Chandler(1963) defines strategy as ‘ the determination of the long-run goals and objectives of an enterprise and the adoption of courses of action of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals’. And Michael porter(1996) sees it as ‘Competitive strategy is about being different. It means deliberately choosing different set of activities to deliver a unique mix of value’.
An analysis of the external environment includes the factors in a business’s external environment about a business's industry, competition, and political and social environments, and affects the firm’s strategy (Aaker, 2001).
The threat of substitutes: where it refers to substitute product as those that are available in other industry which can also fulfil the need and want of the consumers. It can affect competition in an industry by placing an invisible ceiling on prices which companies within the industry can charge, due to the fact that if the cost of substitute is low then the consumers will tend to purchase substitutes, therefore limiting the prices that a company can place on certain items to gain maximum profit. For example, lemonade can be substituted for a soft drink. Generally, competitive pressures arising from substitute products increase as the relative price of substitute products declines and as consumer 's switching costs decrease.
Johnson, Wittington, Scholes, Angwin and Regnér (2014, p. 3) defines strategy as ‘the long-term direction of an organisation’.