ASSESSMENT ITEM 2:

STRATEGIC CAPABILITY
ANALYSIS

Subject Lecturer: Robert Godby

Subject Code: LB5113
Submitted by: Pema
Student ID number: 14337962
Introduction
This report demonstrates the competitive position of H&M by analyzing its competitive threats,
competitive resources and capabilities. VRIO framework and Porter’s value chain is employed to
take a deep dive into the company’s value chain and level of competitive advantage that
corresponds to its resources and capabilities. In the light of this, internationalization of H&M is
also studied. Lastly, taking into consideration the aforementioned analysis, the future of
competitiveness of H&M is illustrated as the report unfolds.

Synopsis of H&M’s strategy and competitive position

H&M Hennes & Mauritz AB Group which is commonly referred to as H&M Group is a Sweden
based multinational fast-fashion clothing company. It came a long way from 1947 to become the
current second largest clothing retailer in the world, and currently it has 4664 stores operating in
79 geographical markets with online sales in 58 markets. It recorded 224 billion SEK in net sales
during 2022 and it has virtually 150,000 employees (H&M Group, 2022). The success of H&M
is chiefly attributive to its unique fast fashion business model.

Essentially any company is exposed to myriad of competitive threats that influence its long-term
sustainability, and H&M is not an exception (Nejati, Bin, Shahbudin, & Amran, 2010). The real
competitive threats being confronted by H&M includes fast fashion competitors such as Zara,
Forever 21 and Uniqlo; upsurge in online retailers and e-commerce platform such as Amazon
which offers innumerable range of products, sustainability and ethical concerns, increased
operation cost and the global economic scenario. There are various companies in the fast fashion
industry which deals with similar products as that of H&M at awfully competitive prices with
firmly rooted supply chain capabilities which includes Zara, Uniqlo, Topshop and alike. Zara, the
largest clothing retailer emphasizes significantly on its product, design and location of its store
and responsiveness to needs and expectation of the market which is complemented by zero
advertising strategy (Inditex Group, 2022). These threats from major players are further
intensified by linear increase of counterfeit products that are linked with fashion industry (Turker
& Altuntas, Sustainable supply chain management in the fast fashion industry: An analysis of
corporate reports, 2014). In addition, in the light of rapid advancement in the field of ICT and
increased trends of digitization of processes, majority of the customers are innately inclined
towards online shopping experience and in fact the rise of e-commerce has substantially affected
conventional brick-and-mortar stores including H&M. Therefore, to overcome such threats, it is
necessary for H&M to establish firm online presence by providing seamless and customer centric
online shopping experience. Another competitive threat that has the potential to impact H&M’s
sustainability relates to tariff and restrictions in international trade which is innate to its supply
chain operations model and strategy.

In spite of the aforementioned competitive threats, H&M is also associated with numerous
resources and capabilities that render them competitive advantage in the market. This includes
the well-founded brand image evinced by its global presence and reputation for offering fashion
and quality at affordable price in a sustainable manner. In addition, H&M has a robust and
efficient supply chain management system that ensures the company to adapt efficiently to the
constantly changing fashion trends in a shortest possible period of time while also maintaining its
product at awfully affordable and competitive prices in the market. This is further
complemented by vibrant design, merchandising and marketing capabilities enabling them to
quickly determine the needs and expectation of the target demography and get it into the supply
chain at the right time. Moreover, one obvious resources and capabilities linked to H&M is the
extensive network of stores it has that are spread across the globe including provisions of online
stores to concur with the desires related to provision of exceptional online shopping experience
to the customers.

In the backdrop of the competitive threats, resources and capabilities that are linked to the
company, it can be claimed that the current resources and capabilities has helped H&M gain
competitive edge over the arch rivals in the global market, and it is evident that these will
provide in making this position defendable and sustainable in the long term. However, the ability
to defend and sustain the position is contingent upon several factors which include innovation
and differentiation that encompasses integration of technology, artificial intelligence, automation
and business analytics; implementation of sustainable and ethical practices which include
sustainable sourcing, reduction of waste; improving online presence, and chiefly on the ability of
H&M to adapt and align its business operations with the dynamic market conditions and
customer preferences (Boons, Motalvo, Quist, & Wagner, 2013).

Assessment of H&M’s resources and capabilities

Generally, tangible and intangible assets of the business form the resources of that company
while skills, competencies and processes that enable the business entity to efficiently use those
resources are referred to as capabilities. Resources associated with H&M includes but not limited
to:

1. Physical resources: H&M has over 5000 stores in 79 markets with online sales in 58
markets proving a substantial global presence and this is complemented by real estate and
infrastructures such as warehouses and logistic vehicles owned by the company which are
beneficial to enable effective operation of business (H&M Group, 2021).

2. Human resources: The success of H&M is greatly attributive to competent and diverse
workforce which includes over 150,000 employees who are responsible for fashion
designing, styling, supply chain managers, marketing personnel, customer care service
providers and store keepers out of the many. It also accounts stakeholders and
shareholders of the company (H&M Group, 2022).

3. Financial resources: H&M has the advantage accrued from its strong financial position
which are attributive to its financial resources which include revenue streams from its
mortar-and-brick stores, e-commerce platform, and franchise operations. It recorded 224
billion SEK in net sales during 2022. It also encompasses cash reserves which was
recorded as SEK 24.3 billion, and credit facilities (H&M Group, 2022).

4. Intangible assets – H&M have a wide range of intangible assets which includes the
brand name which has pervasive presence across the international market, the systems
that are integrated into the businesses operation and fueled by information technology,
AI, automation and business analytics. Into the bargain, customer relations, leased and
 similar rights and goodwill that are coupled with the company also can be subsumed
under intangible assets (H&M Group, 2021).
5. Tangible assets – This includes physical infrastructures and land, equipment and
machineries, stores and offices, supply chain which includes warehouses and
distribution centers. But in the case of H&M, the stores can’t be considered under
physical facilities owing to the fact that company do not own any of the stores and most
of the business operations such as manufacturing is contracted to external manufacturers
and suppliers (Ullah, 2021).

In similar line, the capabilities associated with H&M include the following:

1. Business model: H&M employs “cheap-and-chic” business approach that primarily

emphasizes on provision of trending fast fashion at reasonable prices and all business
operations are driven by customer-centric and continual improvement motive.
Empowering employees through high engagement in experimentation and decision-
making marks the business culture of H&M (Shen, 2014). It can be also noted that
H&M exercises centralized design activity wherein all operations are controlled
centrally. This business model is complemented by implementation of replication
strategy which is used by H&M to replicate the competitive business model across
various stores and levels of the company (Pieroni, Mclaoone, & Pigosso, 202).

2. Design and development of products and store: H&M has employed numerous team of
designers and stylist who are responsible for design of credible fashion trends and
design products that aligns perfectly with the changing needs of customers, thereby
enabling the company to remain relevant and maintain competitive advantage. The
design of store is critical for the success of businesses especially fashion industry,
particularly the location of store plays an important role. H&M stores are basically
designed to be visually appealing, easy to navigate and reflective of brand’s values.
Similarly, locations of H&M store are considered taking into account demographics,
foot traffic, presence of competitor brands, rent and operating cost, accessibility and the
impact of location on the brand image.
 3. Supply chain management: H&M’s market position is largely attributive to its efficient
supply chain which takes into consideration the strong relationship that the company has
with suppliers that are based particularly in Asia by virtue of most of its products being
sourced from there. Efficient supply chain management also accounts H&M’s
commitment for sustainability throughout its supply chain; and also, its global
distribution network which includes advanced logistics system to optimize
transportation of products along the supply chain (Turker & Altuntas, Sustainable
supply chain management in the fast fashion industry: An analysis of corporate reports,
2014).

4. Marketing strategy: To ensure global presence of the brand, H&M exercises a unique
marketing strategy which is a blend of traditional marketing channels and social media
avenues. To drive improved brand awareness and customer engagement, H&M
collaborates with renowned fashion designers and often feature celebrities and high-
profile social media influencers in the campaigns and advertisements.

Analysis of resources and capabilities by using VRIO framework

The VRIO framework is an effective tool which is employed to analyze a company’s resources
and capabilities and consequently evaluate their potential to ensure sustainable competitive
edge in the market. The framework takes into account four dimension of value, rarity,
imitability and organization. VRIO analysis of H&M’s resources and capabilities is illustrated
in the following framework:

Resources and Value Rare Imitability Organization Competitive

capabilities advantage

Tangible assets/ Yes No Yes Yes Competitive

physical parity
facilities
 Intangible assets Yes Yes No Yes Sustained
including brand competitive
identity advantage

Human Yes Yes Yes Yes Sustained

Resources competitive
advantage

Business model Yes Yes No Yes Sustained

competitive
advantage

Financial Yes Yes Yes Yes Sustained

resources competitive
advantage

Store operations Yes Yes Yes Yes Temporary

competitive
advantage

Design and Yes Yes No Yes Temporary

development of competitive
products and advantage
stores

Supply chain Yes No Yes Yes Competitive

management parity

Value: Valuable resources and capabilities include those resources and capabilities that have the
potential to generate opportunities and address or reduce competitive threats that are associated
with the company. In the case of H&M, this encompasses tangible assets, physical assets,
financial resources, human resources, intangible assets, sustainable supply chain management
and production, design and development of stores and products. Not to neglect the renowned
brand image of the company.
Rarity: This takes into account the resources and capabilities that are not prominent or at the
disposal of competitors. For H&M, the resources and capabilities in this segment includes the
intangible assets in the form of brand identity; sustainable and ethical production processes and
materials and the financial resources. In addition, H&M’s product development teams such as
designer and stylist also forms rare capabilities which assures design of unique and trendy fast
fashion products. Furthermore, the unique business model and design of stores are also rare
capabilities in the case of H&M.

Imitability: Studies confirm that resources and capabilities which are easy to emulate by
competitors are less likely to yield sustained competitive edge in the long run (Chatzoglou,
Chatzoudes, Sarigiannidis, & Theriou, 2018). While resources and capabilities related to
physical facilities, supply chain management, and marketing strategy can be imitated by
competitors; intangible assets such as brand image, business model, design of products and
stores are not easily imitable, thereby rendering competitive advantage.

Organization: As per VRIO framework, resources and capabilities that are well-organized and
established in consonance with the overall strategy and goals of the company have the potential
to result in sustained competitive advantage. H&M’s business model, design and development
of products and stores, supply chain management and sourcing, marketing and advertisement
are well aligned and suited with H&M’s strategy and goal of “cheap-and-chic”.

In concise, it can be concluded that H&M is in possession of diverse yet interrelated resources
and capabilities that forms the bed rock of H&M’s sustained competitive advantage and it calls
for H&M to maintain this sustained competitive advantage and also emphasize and improve on
those resources which produces competitive parity and temporary competitive advantage, in
order to further reinforce the sustained competitive advantage.

The value system and H&M international strategy

Porter’s value chain model is used to comprehensively understand the H&M’s value system
which takes a deep dive into primary activities: inbound logistics, operations, outbound logistics,
marketing and sales, and services; and similarly support activities includes dimensions relating to
infrastructure, human resource management, technology development and procurement (Koc &
Bozdag, 2017). The value chain of H&M are as follows:

Primary Activities:

In-bound logistics: H&M sources its materials from suppliers around the world with majority of
them concentrated in Asia. And the company maintains close relationship with suppliers to
ensure compliance to their sustainable and ethical sourcing standards.

Operations: H&M ensures that all their design operations are executed at its headquarters and
tried at tested at its “test store”. Meanwhile, majority of its production activities are outsourced
to companies in Asia and Europe to align with its goal of “cheap-and-chic” fast fashion.

Outbound logistics: H&M distributes wide range of products to its stores that are spread across
the globe using an advanced integrated logistics network. The products are distributed along its
supply chain via combination of all modes of transportation which include air, sea and land
transportation. All logistics and distribution functions are centrally regulated to ensure cost
efficiency.

Marketing and sales: To ensure global presence of the brand, H&M exercises a unique
marketing strategy which is a blend of traditional marketing channels and social media avenues.
And to drive improved brand awareness and customer engagement, H&M collaborates with
renowned fashion designers and often feature celebrities and high-profile social media
influencers in the campaigns, endorsements and advertisements.

Services: H&M renders its services from mortar-and-brick stores and through e-commerce
platforms such as website and mobile apps. After delivery of services, H&M renders post
purchase services in the form of returns, refunds and exchanges (H&M Group, 2022).

Support Activities:
Infrastructure: H&M has numerous physical resources in the form of over 5000 stores and its
headquarter office and test stores in Stockholm. It has a robust organogram with clear channels
for communication and decision making.

Technology and development: H&M employs technology to streamline its operations and
introduce cost efficiency in all its operations while enhancing customer experience on the flip
side. To ensure online presence, the company has made substantial investment in e-commerce
and technology which includes AI and machine learning.

Human resource management: H&M has a total employee strength of almost 150,000 and it
places intense focus on training and competency development of employees while also
encouraging team work and engagement of employees in business operations including decision
making processes.

Procurement: H&M procures its materials from suppliers and manufacturers which are mostly
populated in Asia and Europe and works closely with them to ensure the company’s ethical and
sustainability standards are fulfilled. To align its procurement with the business approach of
“cheap-and-chic”, it places importance on economies of scale to negotiate affordable pricing.

H&M has been triumphant in making its global presence by implementing a well-planned
internationalization strategy the key aspects of which include market research to understand
consumer preferences and trends in the subject market; joint ventures and franchise
partnerships; online presence; design and location of stores; brand image; and sustainability.
H&M has initiated joint ventures with local firms and entered into franchise agreements to
further expand its business operations in unexplored markets. Considering the internalization
strategy, the value chain, competitive resources and capabilities of H&M, and juxtaposing it
against the various levels of internationalization strategy which include international, global,
multi-domestic and transnational strategies; it can be concluded that H&M is implementing
global strategy to internationalize its operations (Castagna, et al., 2020). This can be
substantiated by its focus on “cheap-and-chic” business approach which is realized by
emphasizing on economies of scale to negotiate marginal pricing with suppliers, while
distributing its products across the world thus making its fast-fashion product quality and
affordable to the customers.

The future of H&M’s competitiveness

By virtue of the presence of wide array of competitive resources and capabilities, H&M has
successfully established its position in the global market. However, sustainability of this
position could be impeded by the competitive threats that are associated with the company, thus
putting is sustained competitive advantage at risk. Moreover, going forward, the
competitiveness of H&M will be contingent upon myriad of factors which governs its ability to
adapt and align its operations with the constantly changing needs of the consumers and the
dynamics of international market, its capability to stand out from the fierce market competition
that is set by its arch rivals such as Zara and Uniqlo; and not to neglect is persistence and
capacity to sustain its sustainable practices and efficient supply management system.

To further reinforce its competitiveness in the future, despite already having commitment
towards sustainability, as more people grow conscious and concerned on the impact of company
on environment, society and economy, it becomes opportune for H&M to place further
emphasis on sustainability and ethical practices. In addition, there is opportunity for H&M to
further expand its online presence by providing e-commerce services through increased
investment on e-commerce, integration of operations with technology and introduction of
automation by using AI and machine learning. Moreover, in the light of importance placed on
information in the current business world, H&M can capitalize on business analytics to gain
important business insights to further sustain competitive advantage in the market. Furthermore,
considering the risk or challenge that is innate to fast-fashion industry, it calls for H&M to
increase its investment in innovation and development of new products and services to retain
the old customers while also attracting new ones. Lastly, taking into consideration the VRIO
framework and Porter’s value chain, H&M should capitalize on improving the competitive
parity and temporary competitive advantages to push these resources and capabilities to
sustained competitive advantage.
Conclusion
H&M is a multinational clothing company that has gained expansive international presence
owing to wide array of resources and capabilities which includes its strong financial position,
unique business model, efficient and robust supply chain management out of the many.
However, its competitive advantage can be threatened by the competitive threats which include
fierce competition from arch rivals, and the innate challenges linked to fast-fashion industry.
Therefore, it is imperative for H&M to leverage its internalization strategy while also work to
further gain sustained competitive advantage.

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