What drove H&M to expand to China

From 1964, H&M started its first expansion of the Europe in Norway, and then continued developing the European market in the following 30 year, such as UK, Denmark, Switzerland, Germany and France. In recent years, H&M was not content to stay in the European market, it entered US’ market in 2000, and Canadian market in 2004. Comparing with the period which it expanded European market, H&M has improved its speed of expansion faster and more effective in Asia market. It opened the first East Asian store in Hong Kong in 2007 and then it landed other Asian countries quickly and successfully.According to Rolf Eriksen who is the CEO of H&M, “We are very proud to open our first store in East Asia, in Hong Kong. China is a strategic and exciting market with great fashion awareness and spending power. We therefore see a vast potential for expansion. We are convinced that we can offer our Hong Kong customers added value through fashion and quality at the best price.” (H&M, 2007a).

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Fashion has become essential elements in people’s daily lives. H&M is the top leader in the Fashion area. This paper evaluates what drive H&M to expand to China since 2007 and how the expansion leads H&M to change their strategy using PESTEL analysis and SWOT analysis. H&M is a new member to the Chinese Market; this paper will evaluate whether H&M enter Chinese market is a good choice and whether they have good strategy to deal with the new market. The first part is background and outline; second part is PESTEL analysis; third part is S.W.O.T analysis; then is the recommendations; final part is conclusion.

Pestel Analysis

Political

China has gone through many chances on the central marketing philosophy, Chinese government has changed many policies to attract foreign investment. In the past, FTC (Foreign Trade Corporation), which is a government organization for the particular goods to be exported, is the only way to export commodities to China in the directly method. After Chinese government canceled the closed distribution system and joined to WTO in 2001, many commodities could be exported to the Chinese market. That is a real free market to reflect what are the real market needs rather than the government control and provide goods which they decided for people. This movement made the living standards of most population in China has a great improved and people have more freedom of choice. Today, China stays at a stable political situation. Chinese Government always attach importance of foreign investment and welcomes foreign investment in China, it also has made unremitting efforts to improve the investment environment, protect the legitimate rights and interests of foreign investors. (China.com, 2004).

It is the good chance to enter the Chinese market, because H&M can use the preferential policies which given by Chinese government to make their profit maximization in China. Chinese government collects low tax on foreign enterprises and offer many preferential tax policies to encourage the investment by foreign enterprises. For example: The income tax on foreign enterprises is collected at the rate of 33 percent. If the foreign enterprises located in a special economic zone, it will be collected at the rate of 15 percent (China.com, 2004).

Economic

China has become one of the fastest-growing economies in the world since the Chinese economic reforms in 1979. From 1979 to 2007, the GDP of China keeps a stable increase at an average annual rate of 9%. Many economists predicted that if Chinese government continue and deepen the reforms of economic, especially on SOEs (state-owned enterprises) and state banking system which are poor efficiency, China will become the largest economic country in the world in the years to come (Wayne, 2007). Commerce still plays an important role in the Chinese economy. The total value of import and export has increased rapidly from $20.4 billion in 1978 to $2.173 trillion in 2007. Thereinto, exports grew to $1.217 trillion and imports rose to $0.956 trillion, engendering a $261 billion trade surplus. From 1979 to 2007 the average annual growth of export is 18.1%, while the average annual growth of export is 16.7% (Wayne, 2007). Nowadays, China has become the fourth-largest trading economy after the United States, Japan and Germany. China’s trade boom is largely as a result of large inflows of foreign investment which is accounted for over half of China’s trade.

The financial crisis which started at spring of 2007 is the biggest problem that H&M was facing. If H&M want to pass the financial crisis, enter the Chinese market is the best way because with continuing fast increase on Chinese economy, the potential of Chinese market is enormous. When the global economy grows slowly, particularly, some developed countries are still in a sluggish status such as the United States and Japan, in these market H&M have to use promotions and discounts to attract customers. While, Chinese government keep a strong rising momentum by the further opening up which creates a steady economic environment for foreign investment, H&M took this occasion into the Chinese market and changed their strategy. Through their marketing strategy still is “offer fashion and quality at the best price”, however, “the best price” has the different meaning in Chinese market and other markets. In other countries, the most of target consumers in H&M is lower class and middle lower class. Before the first H&M’s store open in Shanghai, there was a queue more than 500 people and most of them are office workers which belong to middle upper class in China. In addition, H&M has got a highest sales volume about $7000,000 a day in China during the financial crisis (Businessweek. 2007).

Social

China, which is the fourth largest country, has a large population of 1.4 billion people and will be the largest economy of the world in the future. If you stand in some metropolis such as Beijing, Shanghai and Hong Kong, you will find that it has not any difference from the city in the developed country. A large number of cars run on the road, people wearing Adidas shoes and Calvin Klein t-shirt are busy in the streets, eating KFC and drinking Coca Cola as a lunch. In the evening, people go to the bars where play the American music and serve German beer. These facts often made the foreign think that the foreign products and its influence will be easy to accept by Chinese. Actually, most of Chinese still keep their traditional customs and thinking methods. If the foreign enterprise wants to be accepted by Chinese market they should think twice and research the local culture.

Whether the company’s culture will be able to accept in the new environment which is not a biggest problem only for H&M, but also for many business. For this part, H&M should consider many problems, this is determining by the flexibility and the philosophy of the company. H&M should consider whether the culture of this new environment can accept its new culture. And it should consider different religions and different trendy, whether the product will attract customers. If H&M is not acceptable, they should change their strategy to enter Chinese market. However, Chinese market accepted H&M because Chinese are globalization and western day by day. The most important fact is H&M’ culture is consistent with Chinese consumer psychology. That is “Offer quality and fashion at the best price!” (Lisa, 2008).

Technology

Telecommunication has advanced since 1990. Today, China has a high subscriber rate of the media, such as TV and internet has been popular in every family.

Environmental

Environment is a main issue in China. Green trade barrier appear in China in the end of twentieth century. It causes terrible effects on the trade of import and export in China. However, Chinese government has begun to manage the environment pollution. When they learn advanced technology of Europe, the United States and other developed countries, they learn the development policy and environmental standards of foreign environmental industry, and they also learn advanced management methods and policies of foreign enterprises. On the environmental issues, Chinese government combined prevention with control, made strict environmental, increased investment of environmental technology and promoted the development of environmental technology and industry. By the end of 2005, the quality of environment has improved and total emissions of major pollutants have reduced 10% comparing with 2000.

In this aspect, H&M set an example for many Chinese enterprises. H&M promotes environmental awareness between their suppliers and employees. They adopted new technologies to use the resources as efficient as possible that could minimize waste. H&M respect the decisions which be made by nature. H&M adhere to use organic cotton which grow in the traditional environment without any chemical (H&M, 2007b).

Legal

H&M is a Swedish clothing company, which is familiar with Swedish laws and Europe Lows which have many differences with Chinese laws. After H&M entering Chinese market, they had to adapt to Chinese laws in order to get their license, then they sell in Chinese market. Chinese government will continue to confirm that whether H&M follows the Chinese laws. If they do not follow the Chinese laws their licenses will be taken away. That means H&M has to change a few differences from other country on their strategy and operation methods in China.

S.W.O.T Analysis

Strengths:

“Offer fashion and quality at the best price” is the main reason why H&M is so popular. It sells quality clothing with a low price. Through the prices of its items in Chinese market is not quite low for Chinese. However, it proves they still have space to lower their price to attract Chinese people.

Products’ production cycle. H&M can only take 12 weeks to obtain the items from the design state to the sell state. The average time for other retailers is about 6 months which is 2 times time of H&M. (Bruno,2007)

They ask many guest designers to design for their product to keep their brands fresh and enhance their brand image. Most of guest designer are famous designer, the rest are famous stars, such as Madonna, who designed a limited edition called “M by Madonna”. This limited series made the H&M’ sales increased 17% in March, 2007.

H&M has many successful experiences of overseas expansion. They expanded the Unite State, Canada and many other Europe countries. Through China is their first step into East Asia, there may be many different culture value, they still can learn from the successful experience.

Before H&M went into the Chinese market, they had the production base in the Shanghai and Hong Kong and they has had many year experience of cooperation with these supplies.

Weaknesses:

Overstocking of goods is troublesome problem for all retailers.

They has sell their products in a low price, if they could not sell their products as quickly as they can¼Œthat means there is not room for the new collection (EMCC, 2004).

They will foucs maybe too narrow.

Chinese culture could not accept western culture on some parts.

Opportunities:

Chinese Market Entry could diversify potential into relevant market segment.

Chinese Market could be a distribution channel for seeking new products.

H&M can promote brand level via entering Chinese market because their products are sold to middle upper class in China, they has increased their brand level in China; Then they can increase their brand level gradually around the world; Finally, their value that “Offer fashion and quality at the best price” will be achieved.

Threats:

From H&M’s old competitor such as ZARA and GAP. ZARA entered the Chinese market earlier than H&M. Zara is famous with its quick production cycles. It can only take 2 weeks for the design to a sell state. Even if H&M reduce 50% production time, they still cannot compete with ZARA. Since H &M has entered the Chinese Market, many of its old competitors all entered Chinese Market after H&M.

From the local brand. If we say H&M to some extent copied the top brand in the world, after it entered the Chinese Market, it will become the copied object.

Recommendation

H&M should continue innovating in making clothing which can make them be well known around the world.

H&M should improve their brand level. In some extent, “best price” always be seem low price. They should change their brand image in people’s mind to obtain the real best price.

Because China has get a high subscribers rate of internet, H&M should open the online shop in China. Now, H&M has opened 33 shops in China, most of these stores open in the core city of China, there are many people they have ability to consume H&M but they could not buy it because they live in different city, they need to ask friend or pay money to someone who live in the core city to buy the products. Why does H&M not set up their own online shop which is easy for all people to consume in H&M in China.

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Conclusion

Through above discussion, we can see from PESTEL analysis the extend factors has attraction to H&M to enter Chinese market and change their strategies in some extent. We get the result from S.W.O.T analysis, the strengthes of H&M enter Chinese market are over the weakness. H&M have chance to enhance their brand level in Chinese market, however, there are many threats or competitors H&M should be care. Overall, Chinese market entry is a good chance for H&M.

Reference

Bruno,Z. (2007). Critical Success Factors for International Fashion Retailers Entering Foreign Markets. FIBRES&TEXTILES in Eastern Europe October/December 2007, Vol.15.

Businessweek. (2007). Sweden’s H&M Lands in China. [online]. Available at: http://www.businessweek.com/globalbiz/content/may2007/gb20070508_735792.htm?chan=top+news_top+news+index_global+business.

China.com.(2004).What are the preferential policies offered to enterprises with foreign investment? [online]. Available at:

http://english.china.com/zh_cn/business/faq/11024764/20041015/11917364.html

EMCC. (2004) Industrial change in the textiles and leather sector: Hennes & Mauritz. European Foundation for the Improvement of Living and Working Conditions 2004.

H&M. (2007a). H&M OPENS FIRST STORE IN EAST ASIA. [online]. Available at:

http://www.hm.com/us/press/pressreleases/__prfinance.nhtml?pressreleaseid=263905

H&M. (2007b). H&M’s environmental objectives and sustainability policy. [online]. Available at:

http://www.hm.com/us/corporateresponsibility/environment__environment.nhtml

Lisa,B (2008) H&M’s Magnus Olsson: Swede success. [online]. Available at:

http://www.retail-week.com/hms-magnus-olsson-swede-success/1911483.article

Raphael,M. (2008) H&M and INDITEX’S global expansion strategy. THE RETAIL DIGEST.

Rupert, W.(2010) New Look aims to replicate H&M success abroad . [online]. Available at: