Comparative Analysis Assignment: Business Case Evaluation Of VFC And H&M
Task: Introduce the topic, state the purpose of the essay and the key points (scope) to be covered.
Case company synopsis (100 words)
Briefly provide some background information which you deem essential and highly relevant to your analysis.
Body paragraphs (1300 words)
You decide how to allocate words per question listed below, I would suggest that questions (a) and (b) are descriptive in nature, answers are expected to be concise and straightforward. Remember to incorporate definitions of key concepts in your answer. (See criteria 2 in Marking Rubric). Questions (a) to (d) require critical thinking and analysis based on your research, hence allocate more words accordingly. In-text citation is very important in this part of the essay, as it corresponds to evaluation criteria 2 and 3 (which combined account 20% of your score for this assignment) and criteria 6.
- How are the business and governance structures of your chosen companies different/similar, and why might this be the case?
- What are the environmental factors that influence your chosen companies’ performance and/or decision-making?
- What are the top three risks your chosen companies face and how might this influence their decision making?
- Make 3 suggestions regarding how the companies might improve their business practices.
Conclusion (100 words)
Once again, be concise. Provide a summary of your key points in the essay (avoid using same sentences). Avoid introducing new topics (e.g., recently, the company is involved in a scandal etc.), but do highlight implications on the management of the company in the future on the basis of your analysis.
The present report on comparative analysis assignment has been prepared by undertaking the readings of several researchers and industry practitioners that have been establishing a clear connection between the decision making and performance of a business. This helps in developing recommendations for improving business practices. Based on the internal and external analysis, effective decisions could be taken to improve the business practices (Yu, To & Lee, 2012). In this paper of comparative analysis assignment, a comparative analysis has been conducted for companies Hennes & Mauritz (H&M) and Vanity Fair Corporation (VFC) which had been associated with the impact of business and governance structure, environmental factors, risks and recommendations on the decision making and performance of both the companies.
Case Company Synopsis
The two companies that had been selected to prepare this comparative analysis assignment are VFC and H&M. VFC is an American multinational apparel and footwear company founded in the year 1899 (VF Corporation, 2019). The organisation focuses upon offering wide range of apparels in three different categories such as Outdoor, Work and Active. Similarly, H&M also called Hennes and Mauritz AB is a Sweden based clothing retail company. The business of H&M is categorised under fast fashion sector as it is responsible for sales of clothes for all age groups such as men, women, teenager and children (H&M, 2019).
a) Business and Governance Structure
The business structure is considered to be the organisation of a company which represents the legal status of the company. The corporate governance signifies the system based on which the organisations are directed and controlled. Based on the business structure, H&M is a limited liability company in which the shareholders are legally responsible for the debts incurred by the company which is dependent on the nominal value of their shares (Olshanskiy, 2018). However, comparing the business structure of H&M with that of the VFC, it can be said that VFC is a corporation in which separate liabilities and obligations are incurred by the company operations which have been the responsibility of the owners of the company.
On the other hand, the governance structure of the H&M could be ascertained a multi-brand matrix structure which is comprised of the CEO, shareholders, board of directors, auditing committee, nomination committee, executive management team, auditors, brands, employee and employee organisations with effective communication and conductance of annual general meeting for the company scrutiny (H&M 2018). In case of the VF Corporation, the organisation is functional by the executive management and department leadership that includes the account manager, marketing manager, and other key executive leaders that ranges from the director to manager level. Both the organisations have a different governance structure as the point of contact of information and the flow of information is quite different (VF Corporation, 2011). Therefore, considering the overall analysis done in this section of comparative analysis assignment it can be said that the business and governance structure are different for H&M and VFC as each country has a unique set of business practices and governance rules. While all the governance rules across different countries has the aim to protect the stakeholders and shareholders, they do not necessarily follow the same governance and business model as it varies in terms of structure, spheres of influence and succession plans. In case of H&M, its governance rules are based on Sweden which stipulates that a company must have three decision making bodies that must include the shareholders, board of directors and CEO while in case of US-based VFC, it is the shareholders that elect the board of directors who in turn recruits the managers at the lower level management that runs the company.
b) Influence of Environmental Factors
The comparison and analysis of both the apparel companies such as VFC and H&M could be done by effectively analysing different environmental factors. One of the crucial environmental factors mentioned in the comparative analysis assignment responsible for impacting the decision making of both companies is political. The VFC in the US enjoys political stability by getting appropriate support from the government whereas H&M had been facing political instability in Sweden that negatively impacts on company’s performance to trade with North America (Milne, 2018). In terms of economic, it could be said that US economy is on the rise which in-turn provides an opportunity for VFC to enhance their business performance and decision-making by increasing their revenue and profit margin by selling high volume of apparels to local people. H&M, on the other hand, had also been able to increase their profit margin due to falling in the value of currencies due to Brexit. 10% increase of profit margin had been recorded when converted into Sweden money (Rigby, 2019).
The comparison of business performance and decision of VFC and H&M could also be done on the basis of social factor present in both USA and Sweden. It could be noted that the presence of high social class of people with different taste and preference in the US had made it easier for VFC to undertake the decision to offer products at premium as well as moderate prices to improve business performance (Jackson Gee, 2019). H&M, on the contrary, had been successfully able to offer wide range of apparel products in accordance with the changing demands of customers present in the Sweden market. On the technological front, it could be observed that VFC had undertaken the decision to utilise wide range of technologies to cater to enhance the experience of people through apps such as MTailor and Smart Apparels (Ollila, 2019). Similarly, H&M had also been using technologies related to AI and VR to develop their online and mobile app to help customers and improve business performance in the apparel industry (Nicasio, 2019). Furthermore, in terms of environmental analysis, it could be said here in the context of comparative analysis assignment that VFC undertook the decision to get involved in protecting the Amazon rain forest by barring the use of Brazilian leathers in the manufacturing of their apparels (Picheta, 2019). H&M on the other hand had been found to be involved in wide range of scandals such as stealing and using the work of Tori LaConsay without her permission and racism issues by not selecting Black African models in their photoshoot (Conteh, 2019). Finally, based on legal comparison of VFC, it was recognised as the most ethical companies third year in the row and took the decision to abide by ethical principles and guidelines to protect the environment whereas H&M had been accused of not providing a minimum salary to its garment workers worldwide which affected their business performance and image (Osbrone, 2018). Therefore, comparing the performance of both H&M and VFC in this segment of comparative analysis assignment, it could be stated that both the apparel firms are constantly improving their business process through taking correct decisions to overcome issues and risks in the future. H&M had been improving its ethical practices to contribute positively towards society.
c) What are the top three risks encountered by the companies selected to prepare this comparative analysis assignment?
Both companies, H&M and VFC have been facing challenges and risks which have been impacting their decisions and have been discussed below:
H&M has been facing challenges due to their inappropriate human resource strategy. In this regards, the company has been facing human resource risks which are attributed by the lack of leadership development, sufficient training of the employees and also the absence of risk management mechanism for the employees (Cheng, 2018). On the other hand, VFC has also been experiencing human resource risks in terms of relocation of the headquarters to the Denver area. In this regards, there is a risk of loss of key employees who have significant experience and expertise in the business (VFC, 2019). Hence, the study developed in the comparative analysis assignment signifies that both the companies have been facing human resource risk that has significantly influenced the human resource decisions in terms of effective human resource management.
H&M and VFC have been facing financial risks in terms of failure to sale their products in the markets. In this regards, H&M has failed to match the inventories and sales and as a result are left with stacks of unsold clothes which incurred a loss of $4.3 billion as of 2018 (Paton, 2018). On the other hand, VFC is also facing financial risks in terms of low revenue growth, declining profit margins, poor cash flow generation and inefficient working capital management (Valtsev, 2016). This has influenced both the companies’ decision to deal with the loss and formulation of financial strategy to overcome the risk.
Product risk had been faced by both VFC and H&M. It could be seen that VFC recalled around 2400 boy’s jackets in 2013 (Smith, 2013). It was seemed dangerous as boy’s neck could be strangled to death due to choking. In 2019, H&M recalled children pyjamas while failing to meet the quality and standards of Federal Flammability Standards (Thomas, 2019). The pyjamas posed the threat of posing the risk of burns to children.
d) Three suggestions
Three suggestions that could be made to improve business practices are:
Effective employee relations strategy must be implemented by both H&M and VFC in which an employee relations program is organised to build, strengthen and maintain the effective relationship between the employees and employer. This would help H&M to effectively manage employee productivity and also help VFC to convince employees to participate in the relocation process (Emmott, 2015).
Analyzing the findings obtained herein comparative analysis assignment, it is also suggested that both H&M and VFC must undertake a comprehensive financial risk management strategy to ensure that the cash flow generation is reformed for VFC and that the inventory challenge is overcome through different channels of sourcing and refunding (Aven, 2016).
The management of VFC and H&M should both look to pretest their apparels before launching it to be used by its customers (Erat & Kavadias, 2008). The fashion apparel companies should choose their suppliers wisely by tracking their previous records and scandals. Moreover, fashion companies such as VFC and H&M targeting children and teenagers for their products should carefully select the use of correct chemicals and dyes in accurate proportion to ensure that manufactured products are skin-friendly in nature.
In conclusion, it can be said that the comparison of H&M and VFC done in this comparative analysis assignment have revealed that both the companies have different business structure and governance structure. On the other hand, the impact of the environmental factors has been crucial on the decision making and performance of the companies. However, three risks such as product risk, human resource risks and financial risks have been faced by both H&M and VFC for which three suggestions have been made.
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