Why and How Do Retailers Internationalize H&M - Literature review Example

Why and how do retailers internationalize H&M Introduction Hennes & Mauritz AB popularly known as H&M is a Swedish retail company operating in the sector of fashion retailing. The company operates through a network of around 550 stores spread along 12 European countries. It is found that the company on an annual basis sells around a total quantity of 300 million fashion garments and toiletries belonging to the private label. Moreover, it is found that the revenue accrued by H&M through the sales of cosmetics amounts to $3.15 billion. H&M is found to operate on a strategy of gaining the global market. The company is found to penetrate the foreign fashion market through price penetration strategies. The foreign trade practice of H&M, which includes exporting to foreign nations of its low priced and high quality outfits, contributes to around 80 percent of its total sales. Germany is found to have become a potential center of the Swedish retail firm H&M by encompassing a total of 150 stores. The retail outlets of H&M in Germany are found to contribute to around 30 percent of the total sales of the company. In this regard it is found that the Swedish fashion retail is endeavoring to explore the European fashion market of countries like France, Spain and Italy. Further, the company is also found to render focus on the fashion market of United States of America by targeting both the mature and the children customers. Operating in the fashion market of Europe the Swedish company encounters competition with fashion retailers like Zara and Benetton. (Hennes and Mauritz AB, n.d.) The Internationalization Process of Hennes and Mauritz Observation suggests that the process of internationalization practiced in Hennes and Mauritz happens to be a much quicker event, which takes into account some significant steps. It is found that the company renders its full potential in occupying the international base through its price and quality strategies. Hennes and Mauritz become able to render price completion in the market by selling at low prices through the network of middlemen. Further, the company is found to gather products in large volumes from the market getting the advantage of economies of scale. The Swedish Retail firm, Hennes and Mauritz is found to take measured steps before conducting its exploration of the international market. It is found that the company conducts a wide survey to understand the demographic, economic, and cultural and employment conditions of the foreign country. Further, the pattern of operation of the Swedish fashion retailer in the foreign country also is found to possess a certain degree of flexibility. It is found that the company spontaneously moves on to gather a vast amount of information pertaining to economic and financial matters of the external market. The information thus gathered serves as a guide to the firm’s operation in expanding its market base in the foreign country. To this end, it can be said that the Swedish fashion retail, H&M satisfies the commitments made in regards to catering to the increasing fashion needs of the foreign countries. (Zavrsnik, 2007. p.14) Literature Review The promotion of the concept of internationalization in retail has helped to take the retail industry to newer dimensions. To this end, Akehurst and Alexander (1995) states that the operations of the retail industry was observed to depend on a traditional approach based on the activities of the local market base. Akehurst and Alexander (1995) observe that prior to the period of 1990 the structure of retail operations in the case of developed economies was centered in small-scale sectors. However, Akehurst and Alexander (1995) states that the post 1990 period cited the growth of big retail houses, which helped the retail operations, gain an international foothold. Akehurst and Alexander (1995) further observe that through the process of internationalization the big players in the retail industry have been able to sustain their position. Akehurst and Alexander (1995) find that the retail firms, which failed to create sustainable impact in the process of internationalization by expanding their operations to foreign countries gradually, evaded out from the business sector. Thus, Akehurst and Alexander (1995) observe the cause of internationalization in the retail industry as a growing need rather than being a choice of luxury of the big firms. (Akehurst and Alexander, 1995.p.1). To this end, it is found that the Swedish fashion retailer, H&M earns success in being able to cover a wider foreign market through price and distribution strategies. (Zavrsnik, 2007, p.14) The internationalization of the retail sector in the developed economies are found to render considerable success to the retail firms provided they satisfy the necessities emanating from different parameters. To this end, Alexandru (2008) observes that in the modern age the retail enterprise are influenced by several economic changes affecting the position of the company in regards to the country and with other competitors. Alexandru (2008) further observes that owing to increased competition in the domestic sphere the retail firms made a foray to cover the unexplored international market. The liberalization of the market economy is also found to pave the way for the retail firms to enter the global market. In this regard, Alexandru (2008) observes that the functioning of global trade organizations like the World Trade Organization and the occurrence of agreements like the General Agreement on Tariffs and Trade helped the big firms to gain hold of the international market. Alexandru (2008) further states that the retail firms in order to gain success in the international market must address key technical, social and cultural issues to gain more customer loyalty. (Alexandru ,2008. pp. 1099-1102). H&M is also found to perform social, economic and cultural surveys in the newer region on a continuous basis to gain more flexibility in meeting changing demands of the growing population. (Zavrsnik, 2007, p.14) The success if the retail firms in the international market count on the motivational parameter of the staffs related to such enterprise. To this end, Cao and Dupius (2009) observe that the success of a retail firm in gaining customer attention in the foreign market depends on the level of skill and competencies showed by the staffs at the store level. Cao and Dupius (2009) observes in this regard that the staffs need to be properly trained and motivated by activities like aptly remunerating them to render their full expertise in satisfying customer needs. (Cao and Dupius, 2009. p.359). The Swedish firm H&M is also found to actively train their staff in regards to changing demographics involving culture and society. Further the firm’s wide coverage in the international sphere motivates the employees in working in a multinational environment. (Zavrsnik, 2007, p.14) The retail firms operating in a foreign environment face huge competition in regards to using the natural resource base and in satisfying the social and cultural needs of the new environment. To this end, Ekeledo and Jayachandran (2009) observe that the firms in order to develop their ‘core competence’ must make optimal utilization of the financial, personnel and natural resource base of the country. Further, Ekeledo and Jayachandran (2009) observe that the firm must be flexible enough to meet the demands of the changing economic and social structure in order to sustain itself in the newer environment. To this end, Ekeledo and Jayachandran (2009) states that the retail firms can enter into a foreign market through specific ‘entry modes’ like creating subsidiary units or through franchising and resorting to joint ventures with the existing firms. (Ekeledo and Jayachandran, 2009. pp. 157-159). In this regard it is found that the Swedish retail firm H&M made an entry to the foreign countries through fully governed subsidiary units. (Zavrsnik, 2007, p.14) It is observed that the process of internationalization holds good for the case of the bigger players in the retail industry. However, the retail firms pertaining to the small and medium sector fail to make a global stand. To this end, Hutchinson, Quin and Alexander (2005) observe that the small and medium industry base faces considerable obstacles in gaining access to a larger market through the creation of joint ventures or gaining licensing opportunities. Further, Hutchinson, Quin and Alexander (2005) observe that the small and medium enterprises function in a consolidated fashion in separate units and hence fail to gain a wider market. To this end, Hutchinson, Quin and Alexander (2005) state that to counter the financial and organizational weakness the small and medium industries must focus more on creating private brands to proliferate the international market. (Hutchinson, Quin and Alexander, 2005. pp. 161-163). The Swedish fashion retail H&M is found to earn the maximum revenue through the sale of private brands. (Zavrsnik, 2007, p.14) The case of the medium and small-scale industries ignites the demand for additional support in letting them sustain business practices in the foreign countries. To this end, Hutchinson, Flake and Reason (2009) observe that special support organizations have been built in countries like United Kingdom to render support to the retail industries. However, Hutchinson, Flake and Reason (2009) observe that a majority of retail firms fail to access such support services for lack of proper knowledge. (Hutchinson, Flake and Reason, 2009. pp. 378-379). Keeping in tune to the above discussion, Lowe and Wrigley (2009) observe that a firm to sustain its competitive position in the international market base must resort to gaining the right information from the external market. Lowe and Wrigley (2009) observes that retail firms like Tesco used huge amount of technical market research activities to accumulate huge amount of customer data. Lowe and Wrigley (2009) states that through the accumulation of data based on cultural and social variance the firm can rightly customize the products. (Lowe and Wrigley, 2009. pp. 341-342). Here, it is found that H&M conducts continuous marketing surveys to rightly address the changing the changing demands. (Zavrsnik, 2007, p.14) It is further observed that owing to mass scale internationalization of retail firms in the European countries the big players started encountering competition amongst them. In this regard, Dawson (2001) states that from the latter half of the 1980 period the retail industry has undergone major changes for the rapid growth of big retail firms compared to the growth of the industry as a whole. Dawson (2001) observes that the bigger firms carry out the rapid growth through creation of regional distribution centers and focusing on the creation of private brands. Moreover, Dawson (2001) also observes that the big retail houses also take care of the demand fluctuations in the foreign market to gain market leadership. (Dawson, 2001, p. 256) In this regard, it is found that H&M by maintaining large number of private labels and through better customer focus seeks to gain a dominant position in the foreign market. (Zavrsnik, 2007, p.14) The process of internationalization in the global retail market focuses on the need for product and brand specialization among the retail firms. To this end, Gereffi (1999), observes that owing to mass scale globalization the big players in the retail industry are focusing more on the creation of specialty outlets. Gereffi (1999) states that the modern retailers focus on earning revenue by selling a particular product category having multiple assortments. Moreover, Gereffi (1999) also observe that the big players in the retail sector focus more on the creation of brands to chalk out a distinct position for them in the foreign markets. (Gereffi, 1999.pp. 44,46) In regards to the above discussion it is found that the Swedish retail firm H&M has created a distinct image for itself as a garment retailer through specialty stores focusing on fashion apparels. Further, the retail firm also focused on the creation of own brands to capture the external market. (Zavrsnik, 2007, p.14) The process of internationalization in the retail industry demands that the international firms to be have distinctly to gain a sustainable impact on the economy of the foreign country. In this regard, Wrigley, Coe and Currah (2005) observe that in order to gain an edge in the international market the invading firms must have an eye on the social and cultural dynamics of the region. Wrigley, Coe and Currah (2005) state that population belonging to varying cultural and economic parameters have different tastes, which must be taken care of by the international firm. Moreover, Wrigley, Coe and Currah (2005) observe that the international retail firms must make significant investment to gather huge properties to better distribute their products. (Wrigley, Coe and Currah, 2005. pp. 440-441). H&M is observed to this end to rapidly open up stores in the international market by resorting to subsidiary practices where it renders huge investment. (Zavrsnik, 2007, p.14) Further observation made along the internationalization of retail firms shows that the firms follow different expansion policies for different regions of the world. To this end, Coupey (2006) observe that different retail firms operating in the international atmosphere took resort to different store expansion procedures. Coupey (2006) observes that some firms in order to gain wider market coverage took resort to franchising operations. Coupey (2006) further states that such choosing between the expansion avenues gains ground owing to behavioral and regulatory changes in the different geographical regions, information of which is accumulated through proper market surveys. (Coupey, 2006, p. 225) The Swedish retail firm H&M is also found to take resort to franchising operations in the Middle East owing to legislative reasons. (Zavrsnik, 2007, p.14) The issue of internationalization in regards to retail enterprises can also be viewed from the viewpoint of sector positioning practiced by the foreign retail firms. In this regard, Pederzoli (2006) observe that the retail firms going for internationalization lends a view to the structural and demand mechanism of particular regions. Pederzoli (2006) further observe that the retail firms often resort to specialized domains to create a separate market niche for itself. To this extent, Pederzoli (2006) states that the promotion of specialized stores led to the emergence of distinct formats in the fashion and apparel industry, which again is a bleak possibility for ‘hypermarkets’ trading in various products. (Pederzoli, 2006, p. 417) It is found that H&M has successfully created a global position for itself in the garment and fashion industry through rapid internationalization. (Zavrsnik, 2007, p.14) The internationalization of the retail industry also throws light on the global positioning of the ‘brand identity’ of the product of the retail firm. To this end, Burt and Sparks (2002) observe that the process if internationalization also helps to create a global image of brands for the products of retail companies operating in the sectors of ‘fashion’, ‘lifestyle’ and high quality apparels. Burt and Sparks (2002) further states that the firm operating in the international arena must endeavor to enhance the brand equity by making the store and staffs employed in it to bear the impact for the same. Such activities pursued by the retail enterprises as observed by Burt and Sparks (2002) would certainly help to create an international name for the company’s brands. (Burt and Sparks 2002. p. 202). The activity of H&M is found to bear the same tune as given in the discussion. It is found that the company mainly focuses on private branding and endeavors to penetrate the market through price reduction and use of middleman concept. (Zavrsnik, 2007. p.14) However, the internationalization of retail trade is found to face legal hurdles from many countries. In this regard, Mutebi (2007) observe that certain countries discourage the entry of foreign retail firms in that they feel that such entry would eventually disturb the domestic industrial atmosphere by seizing the opportunities from them. Further, Mutebi (2007) also observe that some countries opine that giving way to large retail firms also curbs the open spaces of the region. (Mutebi, 2007, p. 359) It is observed to this end that the expansion activities of H&M had been curbed by legislative regime in the Middle East countries for which they had to take resort to franchisee practices. (Zavrsnik, 2007, p.14) Conclusion The process of internationalization has helped the retail enterprises to come out of the regional barriers and to gain a greater market in the international arena. With the opening up of the market economy through pursuing liberalization policies the big retail players are endeavoring to create a global image for themselves. The main trend of internationalization can be found in the firms specializing in the areas of fashion and lifestyle. It is found that the Swedish retail firm H&M is using the effect of internationalization to help gain a global image of its private brands. The company is found to take resort to competitive pricing techniques and depends mainly on the creation of wholesome subsidiaries. However, such acts of the company are contested in countries like Middle East where they had to change to franchising patterns. However, the Swedish retail H&M is found to practice larger surveys of social, economic and technical factors of the newer region to make its operations more flexible. The company also advocates the opening up of a large number of stores in the new region to grab much consumer attention. Thus, owing to the above activities the Swedish retail firm H&M has earned considerable success in creating a global image for itself in the retail industry. References 1. “Hennes and Mauritz AB”, (n.d.). fundinguniverse.com. Retrieved on December 4, 2010 from: http://www.fundinguniverse.com/company-histories/Hennes-amp;-Mauritz-AB-Company-History.html 2. Zavrsnik, B. (2007). Critical Success Factors for International Fashion Retailers Entering Foreign Markets. Fibres and Textiles in Eastern Europe. Vol. 15 No.4. pp. 13-16. 3. Akehurst, G. & N. Alexander (1995). The Internationalization Process in Retailing. Services Industries Journal. Vol.15, No.4. pp. 1-14. 4. Alexandru, N. (2008). Tendencies of Internationalization in Retailing. Economic Science Series. Vol. 7, No.4. pp. 1099-1105. 5. Cao, L. & M. Dupius. (2009). Core Competencies, strategy and performance: the case of international retailers in China. The International Review of Retail, Distribution and Consumer Research. 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(2007). Regulatory Responses to Large-format Translational Retail in South-east Asian Countries. Urban Studies. Vol. 44. No. 2. pp. 357-379. Read More