The Challenges of Global Expansion and the Move to adopt International Financial Reporting standards

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H&M: The Challenges of Global Expansion and the Move to
adopt International Financial Reporting standards
Hennes & Mauritz AB (also known as H&M) , the Swedish MNE that is a trendsetter in the lat- est fashion
trends, has a stated goal “to give customers unbeatable value by offering fashion and quality at the best
price.” It doesn’t own any factories, but rather outsources production to independent suppliers,
primarily in Asia and Europe. H&M also rents space from international and local landlords rather than
owning its own stores.20
H&M is a major firm in the apparel retail market where fashion trends are critical and where goods move
quickly. In this industry, the key buyers are consumers, and the key suppliers are clothing manufacturers
and wholesalers, and designers are king and a fast, well-organized supply chain is essential. Depending
on the individual firm strategy, the apparel retail market doesn’t have to be capital intensive, but the
largest players in the industry are very international, both in retail footprint and suppliers. The biggest
companies in the industry are U.S.-based The Gap, H&M, and Spain-based Industria de Diseno Textil, S.A.
(Inditex), better known by its flagship brand, Zara. All three companies have different store brands: Gap,
Banana Republic, Old Navy, and Athleta for The Gap; H&M, COS (collection of style), Monki, Weekday,
and Cheap Monday for H&M; and Zara, Bershka, Pull and bear, Massimo Dutti, Stradivarius, Oysho, Zara
Home and Uterque for Inditex. Global Spread and Strategy Both of H&M’s competitors are very
international. H&M operates about 2,800 stores in 49 markets, whereas The Gap operates 3,100
company stores and over 300 franchise stores worldwide, and Inditex operates in a network of over
5,000 stores in 77 countries. Zara has the largest geographic spread within Inditex with stores in 74
countries. Hennes & Mauritz AB started as a single women’s wear store in Sweden in 1947. Today, H&M’s
business is much broader and currently includes the sales of clothing, accessories, footwear, cosmetics,
and home textiles. Although H&M is known as one of Sweden’s premier MNEs, it generates 21.5% of its
sales in Germany, 8.9% in the United States, and 7.4% in the United Kingdom, compared to only 5.8% of
total sales in Sweden. H&M and Zara have very different strategies. Zara delivers new products to its
stores twice a week. Because of its highly organized supply chain, Zara only takes 10–15 days to go from
design to the stores. Although it sources its apparel from around the world, it has adopted just-in-time
manufacturing from the auto industry and established 14 highly automated Spanish factories where
robots cut and dye fabrics creating the unfinished “gray goods” which are the foundation for their final
products. It then takes the gray goods and outsources them to a network of small shops in Portugal and
Spain to do the finish work. Store managers are constantly sending updated information on consumer
demand so that they can move to the next hot fashion. The rule at Zara is that if you see it in the store
and you like it, you’d better buy it because as soon as it is gone, you’ll never see it again. Veteran Zara
consumers keep track of when new shipments come in so they can buy the latest stuff. H&M is trendy,
but it outsources production to a network of 800 suppliers, 60 percent of which are in Asia. It offers a
main collection twice a year in the spring and the fall with several sub- collections that allow it to bring in
new trendy items. Longer lead time items are produced in Asia, whereas short lead time items are
manufactured in Europe. Currently the second largest apparel retailer behind Inditex, H&M has met its
target growth rate of 10–15% per year, with no plans of slowing its expansion. Despite its global presence, H&M is listed solely in the Stockholm stock exchange in Sweden and therefore uses the EU’s
accepted IFRS to present its financial statements in both English and Swedish. The financial statements
are reported in Swedish kronor, which also serve as its functional currency. Because the retail industry is
less capital intensive, most companies have no need to list in any foreign stock exchanges. Zara lists only

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