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INB 451 : International Marketing Individual Researh Paper By Wansiri Supsrisanjai Student ID : S00403396

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Table of ContentsExecutive Summary ............................................................................................................................................................ 1Company Profile ................................................................................................................................................................... 2Introduction ............................................................................................................................................................................ 2Country Analysis .................................................................................................................................................................. 3 Thailand’s economic growth .......................................................................................................................................... 3 Ease of doing business ....................................................................................................................................................... 3 Preferential trade agreements ....................................................................................................................................... 4 Market size ............................................................................................................................................................................... 4 The rise in middle class .................................................................................................................................................... 4Industry Analysis .................................................................................................................................................................. 6H&M Analysis ........................................................................................................................................................................ 8Recommendations ............................................................................................................................................................. 10Conclusions ........................................................................................................................................................................... 11Appendices ............................................................................................................................................................................ 12Bibliography ......................................................................................................................................................................... 16

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Executive SummaryThis report has analyzed the potential entry of H&M, the Swedish fashion brand, into the burgeoningThai 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 tothoroughly analyze the information.The research has shown that by just looking at the external environment, especially the economicenvironment, Thailand seems to be a very attractive market for H&M to pursue its expansion. Botheconomic indicators and consumer behaviour in Thailand who enjoy shopping for international brandsare positive signals. On the other hand, it cannot be ignored that H&M will face strong competition frominternational and local brands alike.Research into the internal strengths and weaknesses of H&M also looks very promising. Identifiedstrengths; its broad mix of product lines and appealing pricing strategy creates a unique advantage overits major rivals. However, H&M should develop a better understanding of factors that imposed stronginfluence on Thai fashions; climate and Asian fashion trends.After investigating all influential factors, Thailand represents attractive profitable endeavour for H&M topursue its business expansion. Page 1

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Company Profile Hennes & Mauritz AB (H&M), established in Västerås, Sweden in 1947 by Erling Persson, is aclothing company globally known for its fast fashion clothing; offering a wide range of products forwomen, 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 about76,000 people all working to the same philosophy ‚Fashion and quality at the best price‛ (H&M, 2010).IntroductionThe purpose of this report is to explore the possibility of the Swedish clothing company ‚H&M‛ futureexpansion to Thailand. The macro-environment will be analyzed with a focus on economic factors whileat micro-level, company’s capabilities, limitations, opportunities, and threat will further examine viainternal analysis. Finally recommendations will be proposed as if H&M should make a strategic moveinto Thai market. Page 2

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

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Preferential trade agreementsThailand 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 inThailand have access to all 10 ASEAN countries where newly growing markets with great businesspotentials located (Association of Southeast Asian Nations, 2003).Market sizeThailand’s population is currently approaching to 70 million (National Statistical OfficeThailand, 2010), let alone massive influx of international tourists. From 2007 - 2009, number ofinbound tourists in Thailand is over 14 million per annum (ThaiWebsites.com, 2010); boostingtourism 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 classIn the recent report on the emerging middle class of Asia by Asian Development Bank (ADB) (SeeAppendix 3), Thailand is categorized as what they called ‘Developing Asia’, where a huge expansionof middle class occurred; from 31% in 1990 to 82% in 2008 (ADB, 2010). See Figure 2.0. Source : Asian Development BankSince there is a rapid increase in a middle-class size, it leads to higher purchasing power andwillingness to spend more on international brands. However, Thailand is one of the most centralized Page 4

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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&Mfuture 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 stimulatedomestic consumption. Page 5

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Industry AnalysisThe primary determinant of a firms 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 useof 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

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 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 oneof the key players. Despite the low power of suppliers and the moderate power of buyer, H&M will face atough 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 inthe future. Page 7

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H&M AnalysisIn 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

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 South East Asian market expansion and distribution : Thailands 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 StrategiesAnother determinant of a firm’s profitability is its position within the industry. Therefore, the use ofMichael Porter’s Generic Strategies Model is an effective tool to determine type of competitive advantagethat H&M possesses. (See Figure 4.0) Source : QuickMBA.comH&M’s main competitive advantage is being a cost leader. The company captures its targeted marketwith very wide perspective by offering a vast range of product lines which reflect current demand andsuit all styles and requirements. At the same time, H&M also offers similar style and quality of productswith relatively lower price than its competitors by being cost-conscious at every stage of their operationsmentioned earlier in SWOT analysis. Page 9

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RecommendationsAfter examining external analysis with a focus on economic environment and internal analysis, H&Mshould carefully plan its company’s marketing mix in order to create major presence in Thai clothingmarket 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

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ConclusionsHaving analyzed both the external environment and the internal capabilities and limitations, H&Mshould 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 moreimportantly the emerging Thai middle class who should be one of the main target customers for H&Mfurther adding to the attractiveness of the Thai market. The constant rise in number of tourists is anotherpositive 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 forbusiness 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 intoaccount. This combined with growing local consumption and purchasing power of the middle class couldcertainly make Thailand even more attractive.In spite of all positive attributes of Thai market, H&M still need to make further research on otherfactors such as cultural factors and political factors that the firm has barely been look at. In order tostrengthen its position in a very competitive market, H&M will also need to use the right marketingstrategy and marketing mix to successfully cement their brand into customers’ mind. Page 11

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AppendicesAPPENDIX 1 - Thailand’s Macro Economic IndicatorsSource : http://www.adb.org/Documents/Fact_Sheets/THA.pdfSource : http://www.gfmag.com/gdp-data-country-reports/163-thailand-gdp-country-report.html Page 12

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APPENDIX 2 - Thailand’s Tourism InformationThailand’s Tourism Revenue (2006 – 2010)Source : http://www.euromonitor.com/factfile.aspx?country=THSheetsNumber of Tourist Arrivals in Thailand (2007 – 2010)Source : http://www.thaiwebsites.com/tourism.aspSheets Page 13

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APPENDIX 3 – The Rise of Asia’s Middle ClassSource : http://www.adb.org/Documents/Books/Key_Indicators/2010/pdf/KI2010-Special-Chapter.pdfSheets Page 14

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APPENDIX 4 – Shopping Malls in Thailand Page 15

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 Pratruangkrai, P., et al. (2010). AEC garment, textile hub status eyed. Available URL : http://www.nationmultimedia.com/home/2010/03/25/business/AEC-garment-textile- hub-status-eyed-30125537.html Viewed on 27.10.10 QuickMBA.com (2010). Porter’s Five Forces A Model for Industry Analysis. Available URL : http://www.quickmba.com/strategy/porter.shtml Viewed on 25.10.10 QuickMBA.com (2010). Porter’s Generic Stategies. Available URL : http://www.quickmba.com/strategy/generic.shtml Viewed on 30.10.10 Squidoo.com (2010).Western Clothing Sizes for Expat Women in Thailand. Available URL : http://www.squidoo.com/expatwomenbangkok Viewed on 29.10.10 Thailand Board of Investment (2010). Thailand’s advantage. Available URL : http://www.boi.go.th/english/why/thailand_advantages.asp Viewed on 27.10.10 ThaiWebsites.com (2010). Thailand: Tourist Arrivals from 1998 till 2010. Quarterly Data 2007- 2010. Available URL : http://www.thaiwebsites.com/tourism.asp Viewed on 27.10.10 VITALSIGN (2010). Thai government blames K-pop girl for rise in Dengue fever cases. Available URL : http://www.allkpop.com/2010/10/thai-government-blames-k-pop-girl-groups-for-rise-in- dengue-fever-cases Viewed on 29.10.10 Wattanasukchai, S. (2006).The brand-name Armada: Flagship stores are booming in Bangkok – and firing warnings across local designers’ bows. Available URL : http://www.nationmultimedia.com/2006/03/16/entertainment/entertainment_20002812.php Viewed on 23.10.10 Page 18