Describe and evaluate the changing business environment of this company over the last ten years using appropriate theories, models and relevant examples.
The following report will be based on the H&M company as the case study on how the changes in the business environment of multinational companies. It will focus on the history of the company from the beginning to the present state of the company. This will cover the company expansion strategy and how well it has worked for them. Discuss the models and theories of the business environment while providing a detailed definition of the business environment in business. The report will help gather information on the effects of the business environment on growing companies and how such factors change the face of the company. The report will describe the theories that affect the business environment which include the SWOT analysis model, PESTLE analysis framework and the porters five forces effect on the competitive environment.
H&M Company was started in 1947 as a single women store which later evolved and started selling men and children’s clothing. It started its stores expansion in Norway before venturing outside Scandinavia to open a store in London UK. In the 1990s the expansion into Europe continues and in year 2000 they managed to open their first store in the United States New York. In a continuing expansion strategy H&M launched an online and catalogue sale. The company has in recent years expanded substantially. Today there are almost 2,700 stores spread across 48 markets. The H&M Company have their markets in Asia, Europe, Middle East& North Africa, North America and South America. Germany is H&Ms largest market, followed by the US, France and the UK. In some markets H&M is collaborating with franchise partners. H&M Company endeavors to engage in open dialogue with the stock market, the media, customers and other stakeholders. They do this by providing information on sales reports and the annual reports which are readily available in the website. They also post the ratings of their shares on the stock exchange for the customers to see.
The term business environment is generally used to describe the external environment of business. There are two types of business environments simultaneously external and internal environment. Internal environment includes primary activities and support activities while external environment represents micro environment and macro environment. Diagnosing a company’s key strengths and weaknesses requires the adoption of desegregated view of the firm. A firm gains competitive advantage by performing key internal factors more cheaply or better than its competitors. These basic categories of in internal environment can be grouped in two broad types. Primary activities are those involved in the physical creation of the firm’s products or service. Support activities provide inputs or infrastructure allowing primary activities taking place on an ongoing basis. The internal environment is considered to be controllable as the business can manage and control these factors easily. These factors can be modified or altered by the business from time to time thus is important for business to identify such factors.
The external environment is largely consisted of uncontrollable factors which influence a firm’s action and direction, organizational structure and internal processes. This environment can be divided into two interrelated categories this are micro environment and macro environment. The macro environment is composed of a set of factors which are generally beyond the control of the firm. The macro environment analysis are factors affecting the wider environment that have the power to alter: demand for products offered by the firm, the way in which products and services are distributed, the prices charged for them and the way in which organizations compete with each other in the industry. The pestle analysis can be grouped according to the following six headings political, economic, social/cultural, technological, legal and environmental. Some trends including globalization transcend these factors.
SWOT analysis has many benefits and is useful and logical in that many underestimate its value in planning. It is important to remember that SWOT analysis by itself is not inherently productive or unproductive rather the way that one uses the SWOT analysis will determine whether it yields benefits for firms. SWOT stands for strengths, weaknesses, opportunities and threats. Strengths and weaknesses represent the internal factors of the company, while opportunities and threats represent the external factors.
The five forces framework is undertaken from the perspective of an incumbent organization; this analysis is best used at the level of an organizations strategic business unit. The five forces framework is an analytical tool for assessing the competitive environment enabling the organization to determine the attractiveness or profit potential of a particular industry. These forces are
Bargaining power of buyers
Bargaining power of suppliers
Threat of substitute products or services
Intensity of rivalry among firms in an industry
Threat of new entries
This is the extent in which new competitions may decide to enter an industry and reduce the level of profits earned by the incumbent firm. The threat of entry will depend on the existence of barriers to entry and the reaction of existing competitors. If the barrier entry is high the threat of entry by new organizations will be low. The main barriers of entry include economies of scale, capital requirement, and product differentiation, access to distribution channels cost advantages independent of size and switching costs.
In every industry buyers can affect the industry through their ability to force down prices, bargain for higher quality or more services. The power of buyers will reflect the extent to which their purchase represents a sizeable portion of the organization sales.
Suppliers can exert bargaining power over participants in an industry by raising prices or reducing the quality of purchased goods and services. This creates a bigger whole in the chain of demand and supply which may cause a drop in revenue profits and also the decline in market demand.
This entails competition from products and services which meet similar needs. The existence of substitutes means that the consumer can switch to these substitutes in response to a price increase. In trying to determine a substitute product the organization will need to identify products which can perform the same function
A determinant of the competitive state of most industries and their overall profitability is competition among the organizations within the industry. When organizations in an industry exhibit a high degree of rivalry this causes industry profits to be reduced. Rivalry can increase when competitors in an industry see an opportunity to improve their market position.
The Pestle analysis of the competitive environment includes the following political, economical, social, technological, legal and environmental factors.
Political factors encompass actions by the local and national administrations and political parties, and by international bodies. Uncertainty makes it more difficult for managers to develop strategies, thus most organizations find life easier with a stable political system. Other political factors maybe of a more direct political intervention in the operation of the industries and markets. E.g.: use of subsidies. In this case H&M will require understanding of the different government regulations in the countries they will venture in.
Products and services are either purchased directly by consumers or are purchased by government departments that are funded by taxes and duties paid by consumers. Factors such as the rates of economic growth, unemployment and interest rates affect the spending power of consumers which impacts the nature of competition in an industry. In the case of H&M this factor contributes well in their market and thus the need to know and deliberate on customer demands before production.
Consumer purchasing power ultimately determines the magnitude of demand for all goods and services so consumer tastes ultimately determine where that demand is directed. A good environmental analysis would need to take all relevant trends into consideration including those that do not directly affect the market. This include; growing consumer assertiveness and intolerance of poor quality. This well levels with the consumer needs and changing trends in the fashion industry which H&M are required to adopt to satisfy the customers.
Many major transformations in the ways organizations and whole societies operate can be traced to technological change. Marketing technology has benefited from an improved understanding of consumer psychology and the availability of a more detailed survey on consumer habits. Manufactures have also benefited from the technological change by influencing manufacturing incorporated in the technology of logistics, function dealing with the storage and distribution inputs and finished products. H&M have embraced technology which responds well to the market where consumers are willingly embracing technology as a way to purchase items. By expanding the online and catalogue sale this clearly corresponds to the customer need.
Organizations are required to adjust their products and ways of operating to the different regulatory and legislative framework that govern each of the product areas and countries which are active. In some areas such as countries in the European Union organizations may be subject to both national and supra national laws. For example, in Germany firms have been forced by the country’s exacting legislation to develop technologies to reduce their own pollution. In compensation they have been able to develop global leadership position in the pollution control industry, beating off international competitors.
A number of factors that affect economic activities derive from the physical environment e.g. global warming, diseases, and the reaction to the development of genetically modified plants. Awareness of the effects of global warming has led to increased efforts to develop technological solutions to the problem which feeds through legislation. H&M is a fashion icon and uses the climate as their best selling commodity with the summer, spring and winter collections as part of their catalogue. Such environmental factors affect the production of the clothing line which is seasonal.
H&M Company has a well developed expansion strategy which includes expansion to be 10-15 percent per year. In order to be successful on this account H&M will require studying its business environment through the above theories and analysis so as to ascertain the success of the intended expansions into other country markets. Through this the company will be able to forecast their future plans without the worry of mishaps or unsuccessful launch of products in the market. Many businesses require studying their business environment and their competition to ensure smooth running of their products in the market. The sustainability of H&M shows their corporate responsibility and the respect of nature this corresponds well with the stakeholders who have a belief in the company.
H&M Company is still growing while expanding on the products produced in the market. With a well planned marketing strategy H&M is assured of good returns in all the seasons. It will require having good plans in the production team who will be required to enforce better work ethics and deliver good products to the market. The fashion industry is a dynamic type of business environment which requires constant monitoring to ensure that they are better than their competitors. While franchising may not be an option for H&M using this method of entering to new markets favors the outcome and helps the company to stay ahead of its competition.
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