#98 Someone seems to get it right in China

H&MIn the past, H&M may not always have met analyst’s expectations, it may have taken some heat over the use of Photoshop in some ads, it has been criticized over unfair labor practices, but from this blog’s angle, the Swedish multinational seems to be doing things right in international markets. Considering high profile retail failures such as The Gap’s in Germany, Fresh & Easy’s in the U.S. or WalMart’s in Korea, H&M has been navigating foreign waters without major blunders so far. One of the markets where H&M is very active and expanding is China – a market in which many foreign entrants fail. While H&M did have some run-ins with authorities in China over product quality – excessive PH levels, weak crack resistance, and lower fiber content than claimed, it has all been very contained and hasn’t hurt them. In September 2013, after a year of rapid growth and expansion, H&M opened it’s 3,000th store globally in China where it currently has 170 stores. While this puts H&M behind Inditex’s Zara’s 400 plus stores in China, H&M has ambitious plans for future expansion in the Middle Kingdom. Analysts say that H&M is filling a mid-range gap between sports apparel and high-end luxury clothes in China. By bringing affordable clothes to the market they are catering to the needs of younger Chinese consumers who want Western style shopping experiences and clothes that provide some degree of status that an established global brand conveys.

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12 Responses to “#98 Someone seems to get it right in China”

  1. Philipp Töscher Says:

    Hi there,
    As already mentioned in the article a lot of companies struggled or failed when entering the chinese market.

    I would like to add some of my ideas concerning the success of H&M in the chinese market:

    According to Hofstede’s 5 dimension model China is a high power distance country which also means that people like to show status. As in the article mentioned H&M filled a gap between sports apparel and high end luxury clothes. Providing western clothes for an average price is a market niche and obviously this strategy works.

    Secondly in my point of view sales of H&M is limited in european countries because they already have a very high market share and the majority of european countries are individualistic. This means people do not like to be dressed like everybody else.
    In China, a very collectivistic country, this is different. They are used to school uniforms and unity. So probably that bears a great chance for H&M.

    In addition the uncertainty avoidance indicator is relatively low. A result of this is that customers are not that loyal and willing to try out new brands and products. That can be a great chance for companies but bears also a risk.

    I hope this short analysis was insightful.

    Kind regards,
    Philipp

  2. Katharina Simeth Says:

    Even though disposable income and fashion sense are still at an early stage in China, H&M has high potential in this market.
    The rising income of the Chinese workforce is leading to a heightened purchasing power, especially in the middle class. Right there H&M is filling the midrange gap.
    I can totally understand where the success on the Chinese market is coming from because the young Chinese costumers in particular, want to be able to dress in western brands and designs.
    If the high-street clothing lines are too expensive, mid-range brands such as H&M, Gap, Zara and Uniqlo are the perfect option. All of these brands I mentioned are currently growing fast on the Chinese market and more and more young Chinese like the western feeling they bring with them.
    I once visited an H&M store in Shanghai myself and I could see the total standardization. If I didn’t look at the price tags, I could think myself in a store in Austria as well.

  3. Eva-Maria Mayer Says:

    So, to begin with it is important to discuss the success of H&M in China under the perspective of Gert Hofstede´s cultural dimensions. For this purpose, I will discuss the success under the perspective of the PDI, IDV and MAS indexes in China.
    • PDI = 80
    • IDV = 20
    • MAS = 66

    Firstly, the PDI deals with the fact that all individuals in society are not equal. With 80, China belongs to the higher ranking of PD countries. Therefore, the Chinese culture accepts inequalities within the society, income levels and status. Furthermore, from the angle of marketing it should be considered that consumers want status and have an absolute need of distinction and differentiation. Consequently, a company like H&M has to understand, and obviously H&M understood it, that the market consists of more than a premium sector with high income and purchasing power. There are also segments with low income but these sectors have the same needs wants, wishes and values as the high or higher segments. In other words, H&M found a market niche between the mentioned sports apparel and high-end luxury clothes. Chinese consumers only spend around 1,150 yuan ($180) on clothes a year—a fifth of what Americans spend—but their appetite for new clothes is growing, according to market research firm Boston Consulting Group. And H&M satisfies especially the need of younger Chinese for affordable status clothes from western markets. In China exists a segment of consumers who can rarely afford luxury products but want more fashionable clothing than is available from sports brands or domestic retailers. “Fast fashion” stores like H&M have stepped in to meet this demand. H&M filled a long-standing gap in China between low-end, local brands and the foreign, luxury or sub-luxury brands like Coach or Doctoroff. The Versace for H&M line that launched last year, for example, gives some of the vaunted association of a sought-after luxury brand at a far lower price.

    Moreover, occupying prime retail space has been a cornerstone of H&M’s strategy. Therefore, H&M profits from its consumer desirousness and has an easy game with the Chinese landlords. Because, consumers like H&M and H&M attracts consumers wherever it is situated. For example, if H&M moves into a shopping mall, H&M attracts consumers to the mall. With the result that H&M´s image and reputation is used as an important bargaining chip with Chinese landlords. Finally, H&M profits from these circumstances of low market entry barriers for its business.

    Secondly, at a score of 20 China is a highly collectivist culture where people act in the interests of the group and not necessarily of themselves. Moreover, belonging is the highest need for society with the positive effect for H&M that when his clothing hype caught the Chinese people, the me-too consumer behaviour contributed and boosted H&M´s success. As for Chinese the group influences their purchase decision, H&M´s succeed to create an in-group trend. And this trend provoked a “domino effect” in the society. “Offer fashion and quality at the best price” is the main reason why H&M is so popular. It sells quality clothing with an affordable price.

    Thirdly, the score of 66 in masculinity indices that China is a masculine society that means it is success orientated and driven. The author of the book on Chinese consumerism “What Chinese Want”, Tom Doctoroff said that “the Chinese are the most brand-friendly people in the world.” They use brands as tools for success in society, as weapons of advancement in the battlefield of life.” Consequently the strategy of H&M´s niche targeting is clear. H&M attracts especially young Chinese that have just entered the workforce and as a result they have lower purchasing power but the same needs for status and prestige.

    Another reason for H&M´s success in the Chinese market is that H&M has adapted its products to the needs of the local market. For example, after market entry H&M did focus groups with Chinese consumers to examine the right size of consumers and also the right style preference. Therefore, H&M has revealed that selling green hat´s in China would be a no-go. As the phrase “wearing a green hat” is associated with cuckold. Moreover, the colour white would not be a bestseller in China because, this colour stands for the death.

    Taken together, finally H&M is so successful in the Chinese market because it has taken into account several cultural barriers and differences and has recognized the need for local adaptation in their products and marketing strategies.

  4. Lisa P. Says:

    Dear all,

    I want to start my comment with a statement from H&M’s website: „We are growing with quality, sustainability and high profitability. H&M offers a wide range of inspiring fashion for everyone, and is growing with new stores the world over. There is room for further expansion for the Group in all existing markets as well as in new countries.” (http://about.hm.com/en/About/facts-about-hm/about-hm/expansion-strategy.html)

    A McKinsey study from 2008 revealed the following facts: 63% of the Chinese consumers have a shortlist of preferred brands when planning to buy a product. Another point that should not be underestimated is that since 2008 Chinese consumers have become attentive when buying unfamiliar products. Therefore it is more and more difficult to launch new brands and establish these on the highly competitive market.

    Due to this fact, H&M is growing faster in China than it has in any other market in its 66-year history. H&M is in the top of mind of Chinese consumers as the brand has been built up carefully during the last years.

    China is rated very low on Hofstede’s individualism scale. Most of the decisions are made collectively which is a result of the strong tendency to form groups and to result in a strong society altogether. As already mentioned in the post above, H&M is focusing on young Chinese consumers as their target group. Especially this generation is western oriented, is willing to trade up and is taking emotional considerations more into account when making purchases. Therefore in my opinion H&M jumped on the bandwagon of starlets years ago, as the company started to cooperate with popular fashion designers and to develop special collections. As the collections are limited and, in terms of price, are a bit higher than the normal product range but still lower than the deluxe collections of the designers, this division is getting more and more important.

    Despite Chinas highly masculine culture H&M manages to address their target group in a target-group related way. In the advertisements the focus is laid on relationships (including family and friends) and quality of life. Apart from that the company understands to choose the right middle way between being an international brand and to deal with the local culture. In my own words I would say H&M has a “glocal” approach concerning the branding. Especially in a country like China the culture must not be underestimated. As far as I can see that is why H&M included the sustainability aspect in advertising to use the cultural solidarity as a second sales argument, right after the “brand” itself.

    Concerning sustainability the H&M China website posted the following promotion activities within the last month:

    • H&M customers contribute to clean water in Bangladesh
    • H&M Conscious Foundation supports typhoon “Haiyan” victims in the Philippines
    • H&M appointed in leaders group in new Greenpeace report
    • Update – fire and building safety in Bangladesh

    So in my opinion H&M’s current success is the result of years and years of work as well as a good cultural understanding and local knowledge. Do you agree?

    Sources:

    http://online.wsj.com/news/articles/SB10001424052702303342104579098522607802800
    http://www.fransgiele.be/freematerial/2009chineseconsumerbehaviour.pdf
    http://about.hm.com/en/news/newsroom.html

  5. Sabrina Prettenhofer Says:

    There are different kinds of reasons why H&M is successful in China:
    Firstly, H&M concentrates on its customers. As already mentioned H&M is filling a mid-range gap between sports apparel and high-end luxury clothes in China. With this product line they meet the needs of younger Chinese consumers, who can’t afford western brands as Channel or Lois Vuitton. To give them the possibility to gain some Western style shopping experiences, H&M has opened 170 stores in China. Moreover H&M sells some products, which are designed of Isabel Marant who is an internationally known French designer. Through these clothes people with low or middle incomes, especially the younger Chinese, get the chance to buy high quality products of a popular designer to a lower price and because of that to gain some feeling of status.
    Secondly, the fact that China is a high power distance country is also a big advantage for H&M. Chinese like to show their position. One way to do that is to use brands as a status symbol. H&M understands to use this information and communicates the brand as good as possible. They expose their target group that the best way to show their success, position or status, is through H&M products.
    Thirdly, tradition and collectivism are essential points for the Chinese. Both children and adults are educated to look first after the welfare of the group and then to satisfy their own needs. That is the reason, why the group influences the decisions regarding to clothes and trends. Because of the fact, that H&M respect the behaviors and needs of the people, the company has been accepted by the society and can also set new trends.
    Finally, H&M does as much standardization as possible and as much adaption as needed. That means that the company produces and sells all over the world nearly the same products in the same quality. But of course, they have to look for different kinds of cultural differences regarding to colors, symbols, slogans, humor, behavior roles and so on.
    For example, white stands for purity and joy in many countries, but in China it is a color of mourning. Or symbols of animals are also associated with various associations.
    As you can see, the whole package is the formula for success of H&M.
    Kind regards,
    Sabrina

  6. Tanja Lukas Says:

    As already mentioned China is a collectivism country.
    Young Chinese have to wear school uniforms, so it is clear that they are part of a group. This is a typical aspect of Chinese culture, collectivism. But because of for example the World Wide Web they can inform themselves about what is going on around the world and they also see that in western countries, people are individuals. They don’t have to wear school uniforms; they are able to wear what they want. Because of these more and more Chinese develop a need to be individual and to show their personality and fashion of H&M enables this.
    Because of H&M or Zara they can create their own style and they can wear young and modern fashion for an affordable price.

    In my point of view H&M considers all important aspects when entering a new market. So they know the culture, changes and needs and under consideration of these aspects they create a marketing strategy which is as much standardized as possible and adapted as needed.

  7. Magdalena Tuppinger Says:

    Concerning Hofstede’s dimensions H&M has great chances to continue to exist in the Chinese market.

    Firstly, the high power distance in China is an advantage for the apparel company, because people want to show prestige. One purpose of H&M is to sell luxury looking clothes for the middle class. So it’s the perfect opportunity for the middle class to “pretend” being part of the upper class.

    Secondly, I have to mention the collective attitude of the Chinese people. There is a strong feeling of belonging to each other and H&M can use it as positive factor, because they produce mass products. In China they don’t care wearing the same style or even the same clothes, whereas in individualistic countries people avoid to wear the same clothes as other do and want to create their own style. Concerning collectivism it would be the best for H&M to hire an opinion leader or a testimonial for their clothes, so that the remaining population orientates on this person and wants everything this person wears.

    Thirdly, China has less uncertainty avoidance. That means that consumers are not so loyal to brands. In a way that’s positive for H&M, because they are new on the market an people are curious. So now it’s their job to “catch” and bind them. This could happen, for example, by offering innovative and functional clothes. Those are factors on which less uncertainty avoidance countries look at among other things.

    At last, the masculinity index goes hand in hand with the high power distance. People, especially men, want to have a lot of money and also want to spend a lot of money for expensive looking things. So why not save some money for clothes which also look expensive and buy more of them instead? In men dominated countries success and work is very important and because of this, they want to show prestige too like in high power distance countries. This is again an advantage for the apparel company, because young men who also want to look like they are successful can afford H&M’s expensive looking clothes easily.

    To conclude, I think H&M could make it to a global player. Once they succeed in China, they won’t stop going into other countries too. Maybe with some intercultural differences, but basically with the same concept. It would be interesting to have the same basic collection in each country and additionally a special collection for each country with the specific wants and needs of the respective customers.

  8. Herbert Prirsch Says:

    i think all of you brought up very interesting points but i see kind of a conflict here between the fact that china is a high power distance country and the trend that the chinese people is seeking the possibility to be individualistic and more “western” than earlier generations were. the point is that h&m offers enormously individualistic fashion according to chinese standards and represents somehow the role of the pioneer in this sector. what confirms this is that when you compare the number of h&m shops in a country to the number of inhabitants you will find out that in austria one h&m shops covers about 120.000 people while in china one h&m shop covers approx. 11 million (!) people. so i think there is a lot of work left to do for h&m to find its position in the market.

    @Katharina Simeth: i can definitely approve your point that h&m stores look completely the same all around the world. A few months ago i visited an h&m shop in dubai and found myself again in the middle of winter jackets and woolen pullovers. i think that this selection of the product range is just not acceptable. no one can tell me that winter fashion can be sold like hot cakes in a country that is 95 % desert.

    but i think that there is a really big chance for h&m to benefit from their current position in the chinese market. for example with the support of campaigns like Lisa P. mentioned in the end of her post, h&m enables the chinese people to escape from the standard of following the one and only leader and show their commitment to things that matter to them like helping victims on the philippines or supporting a greenpeace campaign.

    when i think of hofstede’s model and its 5 factors i instantly connect it with politics. china’s leadership is known for its rigorous measures concerning globalization. just think of censorship on the internet. people are not used to have full access to daily news and what happens around the world. and i think this may also influence the acceptance of western brands in china. i can imagine that people are slightly overstrained with the huge range of different styles and fashion they might have never seen before….

    i am looking forword to some interesting answers.

    regards, h.

  9. Kathrin Friedl Says:

    H&M is one of the biggest daily-fashion companies in the world. This company offers their assortment off- and online and expend in the last year rapidly. (3000 stores)

    In my point of view, the entering in the Chinese market was a good business decision, because this country has developed positive in the last years (income, purchase power, working conditions, sociability, …) and China is ready for new different things.

    Many companies wanted to enter this market and hope for success shortly, because many forecasts say: “China is the future market”. However, many companies struggled or failed , when they wanted to enter this market. In my opinion, the reason for this is, that some companies do not consider the intercultural aspects in different countries. Moreover, H&M needed also time to know and to learn from the Chinese market. This market has a special culture and is totally different to other cultures. If you expend in a foreign country, it is important to include the five dimensions of Hofstede in your marketing decisions: Power Distance, Individualism, uncertainty avoidance, long term orientation and masculinity.

    Furthermore, H&M has different target groups, but the “main target group” are fashion-conscious women between 15-50 years. The style of the Swedish company is internationally successful and modern. The company analysis the Chinese market and see a gap between sports apparel and high end luxury clothes in this market. This is a result of good analytic working and “thinking global – doing local”. In my point of view, this aspect will fit nearly perfect to Hofstede dimension “Power distance”. The people like to show status and many of them can do this in their clothing style. In attention to this, H&M designs every year different collections with famous designers (Versace, …). These assortments are very important for the image of H&M (status) and also for the customers. (the identify with the brand H&M and the international fashion)

    Another point in this case, until now the collectivism is very high in China, but I think the influence of the mobility (internet), western industrial style, increasing incomes and living styles will increase the individualism in China. Of course, it will be a long process, but the market is ready for global brands and more individual styles. This development is also essential for the fashion sector (show your own style).

    Finally, I would recommend in the next years the Chinese Market will increase further in the fashion sector (off- and online). Further international fashion companies will enter the market. In addition to this, the success of these brands depends on the right market-entry-strategy and on the local marketing adoptions.

  10. Platzer J. Says:

    First of all, I would like to declare China as a country with a very high power distance, with a very high grade of collectivism and as a country with a very high masculin index.

    So it was a smart move from H&M to expand in this country, which is also worldwide known as the faster emerging and growing market.
    Although many companies failed to build up their business in this market, H&M did very well in their analysis and prework before launching their business in China.

    First of all, in my humble opinion, H&M somehow adopts their collection always with the help of famous designers or also well known stars. So this is a clever way to cover the power distance and masculin index found in China, because people their want to represent status. With the he help of this international collection and the quite moderate prices, which H&M offers, it is quite easy to obtain for the China population, also in fact that salaries are rising.

    Secondly, I want to mention that China is well known for its collectivism. I personally think here about uniforms in schools. So with the entrance of H&M in the chinese market, young people (especially young women as the major target group of the Swedish cloth company) can afford international fashion to be distuingished.

    All in all I would say, that H&M did a great job entering this market and furthermore they did a very good analysis in this market regarding people, culture, needs and adopted their market entry strategy especially for this special country.

  11. Matthias Dalkner Says:

    It would appear that H&M gets it right pretty much everywhere but how come? One of the reasons might its origin, which is Sweden. A country where power distance is relatively low and individualism is being fostered rather than collectivism. This enables companies like H&M to adjust to market needs and trends very quickly without be constraint by bureaucracy and set in stone procedures. Also the lower uncertainty avoidance compared to other countries is an indicator of acting more open minded and less afraid of taking chances, like the penetration of the Chinese market. Even though history has shown that this can be a very challenging enterprise, a global brand like H&M cannot deny this potential of the Chinese market. Especially when it comes to fashion and lifestyle most of the Asian countries look towards the Europe and the U.S., hence I dare to say that the fact China has a collectivistic society there is clear tendency to individualism when it comes to appearance. One simply has to visit a designer outlet centre somewhere in Europe or the States and typically there are hordes of Chinese people desperate to buy designer clothes, which are hard to get in China or usually just fakes. This actually works quite in favour of H&M because it simple makes no sense to produce fake H&M products due to the companies low price policy. On the other hand H&M clothes cannot be seen as prestige items or status symbols because the label is clearly not visual on the product. It would seem that China will show a greater increase in masculinity, similar to Japan and this is a demand H&M clearly cannot satisfy. At the end of the day we will soon see a similar picture as we see in the western world where clothes have to be either very expensive and supported by great labels or very cheap but still stylish. Everything in-between will disappear as it clearly would stuck in the middle.

  12. Corinna Hohensinger Says:

    China, a country where many foreign entrants fail but not H&M…
    What did H&M right?
    In my opinion there are different reasons for the success of H&M and I think the most important one is the fact that Chinese want Western style and also spending of money for clothes is increasing consistently. Further the company succeeded in filling a mid-range gap between sports apparel and high-end luxury clothes. So China was the right target market for H&M.
    On the one hand, H&M is a fast growing company and on the other hand H&M has a lot of experience with expansion due to the reason that the company opened up it`s 3.000th store globally. Here I see a high level of Corporate Readiness and additional H&M is very pro-active and in general in this mode companies are more likely to lead to success (e.g. Wood 1997).
    In the case of product readiness I was very surprised that H&M was in trouble regarding their product quality because China is famous for lower quality. So it would be really interesting to know if H&M is selling a different quality in China than for example in Europe. Also I think there was a need for H&M to adapt fitting of clothes for the Chinese market.
    So overall H&M did a great job.

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