H&M The Possibility in Thailand

INB 451 : International Marketing

Individual Researh Paper

By

Wansiri Supsrisanjai

Student ID : S00403396

Table of Contents

Executive Summary ............................................................................................................................................................ 1

Company Profile ................................................................................................................................................................... 2

Introduction ............................................................................................................................................................................ 2

Country Analysis .................................................................................................................................................................. 3

Thailand’s economic growth .......................................................................................................................................... 3

Ease of doing business ....................................................................................................................................................... 3

Preferential trade agreements ....................................................................................................................................... 4

Market size ............................................................................................................................................................................... 4

The rise in middle class .................................................................................................................................................... 4

Industry Analysis .................................................................................................................................................................. 6

H&M Analysis ........................................................................................................................................................................ 8

Recommendations ............................................................................................................................................................. 10

Conclusions ........................................................................................................................................................................... 11

Appendices ............................................................................................................................................................................ 12

Bibliography ......................................................................................................................................................................... 16

Executive Summary

This report has analyzed the potential entry of H&M, the Swedish fashion brand, into the burgeoning
Thai market. The focus of this report was on the economic environment of Thailand.

To obtain the information, extensive research was made and several models were utilized in order to
thoroughly analyze the information.

The research has shown that by just looking at the external environment, especially the economic
environment, Thailand seems to be a very attractive market for H&M to pursue its expansion. Both
economic indicators and consumer behaviour in Thailand who enjoy shopping for international brands
are positive signals. On the other hand, it cannot be ignored that H&M will face strong competition from
international and local brands alike.

Research into the internal strengths and weaknesses of H&M also looks very promising. Identified
strengths; its broad mix of product lines and appealing pricing strategy creates a unique advantage over
its major rivals. However, H&M should develop a better understanding of factors that imposed strong
influence on Thai fashions; climate and Asian fashion trends.

After investigating all influential factors, Thailand represents attractive profitable endeavour for H&M to
pursue its business expansion.

Page 1

Company Profile

Hennes & Mauritz AB (H&M), established in Västerås, Sweden in 1947 by Erling Persson, is a
clothing company globally known for its fast fashion clothing; offering a wide range of products for
women, men, teenagers, and children. It also sells own-brand cosmetics, accessories and footwear.

Currently, H&M operates 2,000 stores spreading over 37 countries worldwide and employs about
76,000 people all working to the same philosophy ‚Fashion and quality at the best price‛ (H&M, 2010).

Introduction

The purpose of this report is to explore the possibility of the Swedish clothing company ‚H&M‛ future
expansion to Thailand. The macro-environment will be analyzed with a focus on economic factors while
at micro-level, company’s capabilities, limitations, opportunities, and threat will further examine via
internal analysis. Finally recommendations will be proposed as if H&M should make a strategic move
into Thai market.

Page 2

Country Analysis

In analyzing the macro-environment, PEST Analysis is a useful framework for identifying the factors that
are likely to affect a company and its business operation. This report will limit its focus on economic
environment in order to have a closer look at Thailand’s market potentials and possibilities for H&M’s
future expansion.

Thailand’s economic growth

As illustrated in Figure 1.0, during 2005 – 2007, Thailand’s economic expansion moderated,
averaging at 4.5% - 5.0%. By the year 2008, GDP fell to below 3% and even further declined in 2009
as a result of global economic downturn and persistent political turmoil (ADB, 2010). However, at
the beginning of 2010, the Thai economy has recovered strongly as a global financial crisis
continued recovering that adversely affected the export volume of goods and services. The 2010
projection is around 5.5%. (See Appendix 1)

Source : Asian Development Bank and Global Finance Magazine

Ease of doing business

Thailand ranks 12th out of 183 countries for ease of doing business in 2010 by World Bank
(International Finance Corporation, 2010). Numerous government incentives are enacted to
attract Foreign Direct Investment (FDI), especially in sectors that are considered to be the key of
country’s developmental objectives. One of them is fashion. Together with permissive regulations,
abundant of natural resources and a skilled and cost-effective workforce, Thailand would be one
of the ideal locations for foreign investors (Pratruangkrai, et al., 2010).

Page 3

Preferential trade agreements

Thailand is one of the founding members of ASEAN which its commitment is to enhance intra-
ASEAN economic cooperation through ASEAN Free Trade Area (AFTA). Goods produced in
Thailand have access to all 10 ASEAN countries where newly growing markets with great business
potentials located (Association of Southeast Asian Nations, 2003).

Market size

Thailand’s population is currently approaching to 70 million (National Statistical Office
Thailand, 2010), let alone massive influx of international tourists. From 2007 - 2009, number of
inbound tourists in Thailand is over 14 million per annum (ThaiWebsites.com, 2010); boosting
tourism revenue from well over 16 US$ billion to almost 19 US$ billion within 3 years
(Euromonitor International, 2010). (See Appendix 2)

The rise in middle class

In the recent report on the emerging middle class of Asia by Asian Development Bank (ADB) (See
Appendix 3), Thailand is categorized as what they called ‘Developing Asia’, where a huge expansion
of middle class occurred; from 31% in 1990 to 82% in 2008 (ADB, 2010). See Figure 2.0.

Source : Asian Development Bank

Since there is a rapid increase in a middle-class size, it leads to higher purchasing power and
willingness to spend more on international brands. However, Thailand is one of the most centralized

Page 4

countries in terms of wealth. The middle and upper class are highly concentrated in certain regions
(i.e. Bangkok (the capital), Chiang Mai, Phuket, etc.) (Orientpacific.com, 2010).

According to the country’s lifestyle survey, Over 90% of Thai consumers are likely to spend most of
their disposable income on clothing and fashion items (Polkuamdee, 2010). Also, strolling in a
nice air-conditioned department store is one of the preferred choices for people who live in such a
hot and humid country. Especially in Bangkok, shopping is a big part of family weekends or even
after long hours of work (Wattanasukchai, 2006).

After looking closely into economic environment, Thailand represents a unique opportunity for H&M
future expansion. The sharp rise in GDP indicates a positive signal for the country’s future growth.
Together with the emergence of middle class and the surge of tourist arrivals, it also helps stimulate
domestic consumption.

Page 5

Industry Analysis
The primary determinant of a firm's profitability is the attractiveness of the industry in which it operates.
To gain a profound understanding of forces and competitiveness of Thailand’s clothing industry, the use
of analytical model; Michael Porter’s Five Forces, will be implemented. (See Figure 3.0)

Source : QuickMBA.com

 Threat of new entrants – Moderate

The barrier of market entry can be classified as moderate. Capital required to enter the Thai
market is relatively low and numerous government supports for foreign investors who are
interested to operate a business in fashion industry will also make it easier for new entrants
(Thailand Board of Investment, 2010). However, brand loyalty could make it more difficult or
discourage potential new entrants

 Threat of substitutes – High

In clothing industry, there are no other direct substitutes. In this matter, it can be assumed that
unbranded or fake-branded products are the replacement. There are numbers of those kinds of
products available in various local wholesale and retail markets (i.e. Suan Lum Night Bazaar, MBK,
Pratunam, etc.) Despite a low price, product quality is also degraded (1Designer-Clothing.com,
2007).

Page 6

 Power of buyers – Moderate

Buyers are fragmented and no individual buyer has any particular influence on either products
or price. Thus the power of individual customers is quite weak. However, the products are quite
standardized and if the customer’s perception of price and quality is not justified, buyers could
easily switch to other brands. This caused an increase of the power of the buyer.

 Power of suppliers – Low

H&M buys in its products from over 700 independent suppliers which none of those located in
Thailand yet (H&M, 2010). Though H&M outsourced some of its suppliers to Thai market, there
are so many of garment factories in Thailand available that the switching cost to new suppliers is
quite low (Pratruangkrai, et al., 2010). This leads to lower power of the suppliers.

 Degree of rivalry – High

There are numbers of competitors in Thai clothing industry. One of H&M’s main competitors;
ZARA has entered the market long enough to build lasting relationships with customers. With its
strong brand identity and short product shelf-life, ZARA attracts customers to check out new lines
at their store more frequent (Changsorn, 2010). Apart from international brands, Thai fashion
brands by young designers are also important competitors as they have a better grasp of local
tastes.

By examining all forces in Thailand’s clothing industry, it can be concluded that H&M could become one
of the key players. Despite the low power of suppliers and the moderate power of buyer, H&M will face a
tough competition not only from established international brands but also from the locals. Furthermore,
a moderate entry barrier to the Thai Fashion industry could make the market even more competitive in
the future.

Page 7

H&M Analysis
In order to optimize a company’s performance, it is important to investigate internal capabilities;
Strengths (S) and Weaknesses (W), as along with external factors; Opportunities (O), and Threats (T)
(Kotler and Armstrong, 2010)

Strengths

 Fashion and quality at the best price : This is a firm business concept of H&M. They assure
the best price by having few middlemen, buying large volume, having efficient distribution, and
being cost-conscious at every stage. Also, H&M in-house designers examine and interpret
current/upcoming trends in order to create fashion lines that are accessible to all (H&M, 2010).

 One-stop shopping : H&M offers a vast range of products that allow customers to address
their own personality and style. Concepts are varied from basics, street fashions, high fashions, to
specialties (i.e. maternity, children, or even for plus-sized women.) This ensures that all customers
will find a right piece for all requirements and occasions.

 Strong distribution network : With 2,000 flagship stores and 16 production offices operating
worldwide, H&M has built a firm coverage of logistics and distribution network (H&M, 2010).

Weaknesses

 Lack of experience and understanding of Thai fashion : Western style is not the only player
in Thai fashion. In the past couple of years, Asian fashion trend from Japan and Korea has also
imposed a strong influence. H&M should take these 2 Asian trend-setters into account when it
comes to designing clothes for Thais (VITALSIGN, 2010).

 Unfamiliar with regional climate and body size : Type and size of clothing should be
precisely considered according to climate and figure. Thailand is a tropical country with high
humidity and Thais tend to have a smaller build compared to Westerners (Squidoo.com, 2010).

 Easily replicable products : Most H&M items are non-sophisticated and fairly easy to
manufacture.

Opportunities

 Access to new suppliers : Normally, H&M does not own any production factories instead,
outsourcing to external suppliers, mainly in Asia and Europe (H&M, 2010). Expansion to Thai
market would be an advantage to get accessed to new cost-effective suppliers.

Page 8

 South East Asian market expansion and distribution : Thailand's strategic location has
presented the country with a unique opportunity to expand to other emerging markets (i.e. ASEAN,
China, etc.) through preferential trade agreements (i.e. AFTA)

Threats

 Competition from international and local brands : Main competitors; both international (i.e.
GAP, ZARA) and domestic brand have long been established in the market and gained positive
response from Thai consumers. Also domestic brands have a better understanding of demands in
Thai market.

 Piracy : Fake-branded products are available in both retail and wholesale local market. With
relatively lower quality but tremendous drop in price, it is sometimes appealing to consumers who
have price set as their priority (1Designer-Clothing.com, 2007).

Porter’s Generic Strategies

Another determinant of a firm’s profitability is its position within the industry. Therefore, the use of
Michael Porter’s Generic Strategies Model is an effective tool to determine type of competitive advantage
that H&M possesses. (See Figure 4.0)

Source : QuickMBA.com

H&M’s main competitive advantage is being a cost leader. The company captures its targeted market
with very wide perspective by offering a vast range of product lines which reflect current demand and
suit all styles and requirements. At the same time, H&M also offers similar style and quality of products
with relatively lower price than its competitors by being cost-conscious at every stage of their operations
mentioned earlier in SWOT analysis.

Page 9

Recommendations
After examining external analysis with a focus on economic environment and internal analysis, H&M
should carefully plan its company’s marketing mix in order to create major presence in Thai clothing
market as followings;

 Product

Wide variety choices of products should be maintained. However, mix of product range is
needed to be adjusted; considering Thailand’s tropical climate (lightweight, light-coloured clothes),
body size, and trend.

 Price

As Thailand’s clothing industry is very competitive, H&M should alter the price accordingly to
Thailand’s economic condition and keep the price level of the merchandises at comparatively lower
price than its international competitors in order to create competitiveness.

 Place

‘To always be located in a best business location’ is a firm principle of H&M (H&M, 2010). In
Thailand, especially Bangkok, there are a tremendous number of huge, modern, multi-storey
department stores located in easy-to-navigate, shopping locations available for H&M to open up its
flagship stores (Asia Web Direct, 2010). Also, acquiring a large store in other major touristic and
populated cities (i.e. Chiang Mai, Phuket, Pattaya) is another good option for its business expansion.
(See Appendix 4)

 Promotion

H&M brand is widely recognized among Thais who have exposure to western countries.
However, ‚pull‛ selling strategies (i.e. advertisement, consumer promotion) is necessary in order to
increase brand awareness and build up customer’s demand over other competitors.

Page 10

Conclusions
Having analyzed both the external environment and the internal capabilities and limitations, H&M
should pursue its expansion to the Thai market due to following reasons.

Most economic factors suggest a rather bright future for the Thai economy. GDP growth and more
importantly the emerging Thai middle class who should be one of the main target customers for H&M
further adding to the attractiveness of the Thai market. The constant rise in number of tourists is another
positive factor, as a part of Thailand experience is to shop in the big shopping malls.

Apart from the economic factors, Thailand’s strategic location represents a unique opportunity for
business expansion into other newly emerging markets (i.e. ASEAN, China). Consumer buying behaviour
(i.e. likeliness to spend most of their income on fashion good) is a factor that H&M should take into
account. This combined with growing local consumption and purchasing power of the middle class could
certainly make Thailand even more attractive.

In spite of all positive attributes of Thai market, H&M still need to make further research on other
factors such as cultural factors and political factors that the firm has barely been look at. In order to
strengthen its position in a very competitive market, H&M will also need to use the right marketing
strategy and marketing mix to successfully cement their brand into customers’ mind.

Page 11

Appendices

APPENDIX 1 - Thailand’s Macro Economic Indicators

Source : http://www.adb.org/Documents/Fact_Sheets/THA.pdf

Source : http://www.gfmag.com/gdp-data-country-reports/163-thailand-gdp-country-report.html

Page 12

APPENDIX 2 - Thailand’s Tourism Information

Thailand’s Tourism Revenue (2006 – 2010)

Source : http://www.euromonitor.com/factfile.aspx?country=TH

Sheets

Number of Tourist Arrivals in Thailand (2007 – 2010)

Source : http://www.thaiwebsites.com/tourism.asp

Sheets

Page 13

APPENDIX 3 – The Rise of Asia’s Middle Class

Source : http://www.adb.org/Documents/Books/Key_Indicators/2010/pdf/KI2010-Special-Chapter.pdf

Sheets

Page 14

APPENDIX 4 – Shopping Malls in Thailand

Page 15

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(13th ed.) p. 77 – 78

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Page 16

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Page 17

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