Summary of Case Study
This case study talks about H&M, a clothing retailer which is based in Sweden. H&M is believed to be the second largest clothing retailer in the world. It faces stiff competition from firms such as Uniqlo, Gap, Zara, and Top shop. All the garments are designed in Stockholm, sent for production in various offices and finally to the manufacturers. H&M designs both fast fashion and staple items. As such, it sourcing strategy is split into two that is, sourcing strategy for fashion lines that turn around very fast and sourcing strategy for items that are not very urgent. The sourcing strategy applied by any firm significantly depends on labour costs.
Lastly, the author talks about the dilemmas experienced by H&M in the late 2004. H&M thought that it could shift most exports to Asian suppliers from Romania after the phasing out of the MFA. This was despite the fact that Romania was of great importance to H&M as it provided skills that were used in the production of goods needed for a fast turnaround fashion. H&M decided to maintain Europe and primarily Romania as its manufacturing base for fast fashions.
Question 1.1
I think free trade should not be allowed to take its natural course. On the other hand, OPT and other similar agreements should not be restricted. This is because free trade has both positive and negative effects on various parties such as firms, countries, and consumers at large. Accordingly, adverse effects of free trade such as dumping mainly affect consumers. Allowing the importation of apparels from cost effective suppliers will obviously be a reprieve for manufacturers. Nonetheless, they may take advantage of consumers by not adjusting prices and thus making huge profits. Additionally, free trade can lead to dumping of apparels of poor qualities.
Question 1.2: Advantages and Disadvantages of OPT Contracts to Romania
The advantages of OPT contracts to Romania included increased exports and reduced unemployment in the country. Romania is one of the poorest countries in Europe. As such, they benefitted from the OPT contracts which led to increased orders from Western Europe. This led to increased production from Western Europe and mainly from Romania.
Question 1.3
The Romanian government can help keep jobs in Romania by not only retaining the existing investors in the country, but also attracting new investors into the country. Attracting new investors into the country is referred to as foreign direct investment. The Romanian government should try as much as it can to attract foreign direct investment into the country as this will not only increase job opportunities for its citizens, but also improve its economic status. There are various steps that could be taken in order to attract foreign direct investment. Firstly, the government should introduce incentives and subsidies that will in turn reduce the cost of manufacturing and production in Romania. Incentives could be in the form of low taxes and tax holidays. Secondly, the government should ensure political stability, peace and security within Romania. These form essential factors that are considered by foreigners in making decisions to invest in other countries.
Question 1.4
In order to compete with its Spanish rival, Zara, H&M should minimize its costs of production. This will ensure it competes favourably with Zara that also sources fast fashion from Europe. Maintaining low costs of production will enhance healthy competition as both Zara and H&M sources from Europe. Low costs can be realized through reduced costs of labour, minimizing wastes and maintaining motivated employees who can produce quality goods that would in turn attract more people.
H&M should open production offices in China. This will help it to counter the flood of low cost apparels from China. Chinese offers cheap labour that will lead to the production of more goods by H&M. As such, this will enable H&M to meet the consumer needs and price its apparels just like other firms from China.
H&M faces stiff competition from both existing and new firms. Therefore, it should acquire a competitive edge in order to ensure future survival and success. This can be obtained through the production of quality goods that will in turn attract more buyers. Additionally, H&M can also ensure future success and survival by minimizing its expenditure. This, as explained above can be achieved through shifting of production to cost efficient suppliers. Further, future survival can be realized through the maintenance of highly motivated employees. Motivated employees will ensure quality and timely production of goods.
References
Czinkota, M. R., & Ronkainen, I. A. (2011). Global Marketing (Illustrated ed.). London: Routledge.
