Merger, Acquisition And International Startegies
Since the 1980s, global competition has become such important factor in the development of the world and national economies that it does not only decisively influence strategic planning and management of the largest transnational corporations, but also of companies that have traditionally focused on the national market. Businesses are forced to look for effective methods of development, improvement in competitiveness, as well as an increase in profitability and costs. Nowadays, one of such techniques is the strategy of mergers and acquisitions. The latter are integral processes of modern market relations, to which the majority of even the most successful companies resort. One of such firms is H&M acquiring another company and operating internationally. On the other hand, New York & Company (NY&C) does not have a history of mergers and acquisitions and operates nationally, but which is recommended to merge with or acquire Nordstrom. Thus, it is necessary to evaluates the acquisition and international strategies of H&M and make recommendations for NY&C to acquire Nordstrom in order to understand what is more beneficial for the companies, namely to merge or acquire or not, as well as to operate internationally or within one country.
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The Evaluation of H&Ms Acquisition
H&M, Inc. acquired 60 percent of Fabric Scandinavien AB with its brands Weekday, Monki and Cheap Monday in 2008, and the rest 40 percent in 2010 (H&M, 2008). The acquisition had particular goals and strategies set. First of all, when acquiring Fabric Scandinavien AB, H&M pursued the strategy of expansion and international growth. It saw the growth potential of the acquired company on the international market and the ability of accelerated growth due to its impressive development for a long time (H&M, 2008). Therefore, the Cheap Monday brand had been already sold through more than one thousand retail stores worldwide, while Weekday had been available in six retail stores in four Swedish cities, planning to open the first store in Denmark. The Monki brand had been offered in twelve retail stores being present in seven countries together with Weekday (H&M, 2008). According to H&Ms CEO, the management of the company was sure that H&M could accelerate that development and make it more efficient due to its significant experience and knowledge in such things as production, brand establishment, and access to sourcing and logistics (H&M, 2008). Additionally, the firm followed its brand formula and strategy of operating in several formats (H&M, 2017). Thus, the acquisition of Fabric Scandinavien AB would allow H&M to expand its format routes with such developed brands as Cheap Monday, Weekday and Monki. Besides, it was also one of the ways to grow by adding new product lines and targeting new customers looking for other quality and price segments.
Finally, H&M also pursued financial goals. With the acquisition of Fabric Scandinavien AB, the turnover of the company was planned to increase to near 45.84 million dollars in the financial period from 2007 to 2008 from the existing 28.65 million dollars in 2006-2007, and profitability continued to grow from the operating result of 7.68 million dollars (H&M, 2008). It could be stated that the acquisition of Fabric Scandinavien AB was a wise decision made by H&M. The company opened 214 new stores, including Weekday and Monki, after the acquisition during the financial year starting from 1 December 2007 to 30 November 2008 (Fashion Network, 2008). Therefore, the total number of stores accounted for 1738 in 2008 in such markets as Spain, Germany, France, United States, and Italy, being 200 stores more in comparison to the previous year (Fashion Network, 2008). Besides, the number of Weekday, Monki and Cheap Monday stores increased from 20 to 66 during one year (Fashion Network, 2008). Moreover, the company had already 4351 stores in 64 markets in 2016, being near 2800 stores more than in 2007. It is even 5 percent more than its target of an increase in the number by 10-15% each year (H&M, 2017).
Additionally, the H&Ms net profit increased by 13.6 percent in the second quarter of 2008 in comparison to the first quarter due to strong sales that rose by 8 percent as a result of new brands added (Fashion Network, 2008). Besides, annual sales increased by 12.3% during the first two quarters in comparison to the same period in the previous year (Fashion Network, 2008). Generally, sales of H&M (2017), excluding VAT, rose from SEK 78.4 billion in 2007 to SEK 192.3 billion in 2016. Therefore, H&M has achieved all goals established for the acquisition of Fabric Scandinavien AB, being a wise choice.
A Profitable Candidate for New York & Company to Acquire or Merge
New York & Company (NY&C) has never been involved in any mergers and acquisitions, though it can be a beneficial decision for it. Its merchandise assortment consists of various casual and formal clothing and accessories for women (New York & Company, Inc., 2017a). However, it is a very limited assortment in comparison to other famous apparel companies. Besides, New York & Company operates only within the United States. Moreover, it faced negative financial results in the 2016 fiscal year (New York & Company, Inc., 2017b). For example, its store sales decreased by 0.4 percent, the GAAP operating loss was 9.2 million dollars, and the non-GAAP operating loss amounted to 3 million dollars (New York & Company, Inc., 2017a). Therefore, it is recommended for NY&C to merge with or acquire Nordstrom.
Nordstrom is one of the leading apparel companies with an extensive network of retail stores across America. It has been operating for more than a century on the market since the first store appeared in Seattle in 1901 (Nordstrom, Inc., 2017). Therefore, it has much experience and knowledge in making business. Besides, with the establishment of the first store, Nordstrom first sold only shoes. So, it has been selling these products for more than a century (Nordstrom, Inc., 2017). This category lacks in NY&Cs assortment. Additionally, since the 1960s, the company has expanded its range to selling womens clothing. Then it was replenished with mens and womens clothing, accessories and household goods (Nordstrom, Inc., 2017). So, the assortment of the store is diverse and focused on customers with different levels of income. Among the goods sold, Nordstrom, Inc. (2017) has several brands, namely Trunk Club and Jeffrey of the first line and Nordstrom and Nordstrom Rack at democratic prices. Therefore, a product-extension merger will allow targeting new customers looking for another quality and price segments, as well as other assortment categories, such as shoes. Besides, Nordstroms products are also American-made, and the merger will help it to preserve and increase the number of customers.
Additionally, Nordstrom, Inc. (2017) has 349 retail stores as of 2016. In comparison, it had 260 stores in 2012. So, the company is expanding fast, and it can help to accelerate the development of NY&C. Besides, in addition to being present in 40 states in the USA, Nordstrom, Inc. (2017) has five stores in Canada and one in Puerto-Rico as of 2016. Therefore, its acquisition will contribute to the expansion of NY&C internationally. So, it is also a geographic extension merger.
Finally, the acquisition of Nordstrom can provide financial benefits for NY&C.
Figure 1. Nordstroms net sales (in million dollars). This figure shows that Nordstroms net sales have been increasing; in 2016, they accounted for near 14.5 billion dollars, what is almost three billion dollars more than in 2012 (Nordstrom, Inc., 2017).
Figure 2. Nordstroms cash flow from operations (in million dollars). The figure illustrates that its cash flow from operations has grown, accounting for 1.65 billion dollars (Nordstrom, Inc., 2017).
Thus, the acquisition of Nordstrom can help to increase the declining rates of NY&C.
Analysis of H&Ms International Strategies
Being an international company, H&M has well developed international business and corporate-level strategies that work very well. They are carefully formulated in order to achieve goals and objectives of the company on the international level. Both strategies support and complement each, and it makes them more efficient.
First of all, an international business-level strategy is a decision that the company makes in order to create, maintain and use its competitive advantages on the international level. It can be either competitive or cooperative. The international business strategy of H&M (2017) is competitive. The company uses a very aggressive approach and does not cooperate with any rivals; it only seeks to acquire or merge with companies that can provide possible benefits. Besides, in all international markets, H&M offers low prices that make it hard to compete with. In this regard, the company also saves cost by launching production in Asia and cooperating with cheap suppliers (H&M, 2017). Additionally, it uses differentiation as competitive advantage internationally. Thus, in all its markets, H&M provides special limited collections designed by famous people, such as Roberto Cavalli, Madonna, Karl Lagerfeld, and others, and it allows it to be different and competitive (H&M, 2017). Its different brands also contribute to this.
An international corporate-level strategy is a decision on what and how to do on the international market. Here, the strategy of H&M (2017) is global growth. The growth strategy means that the company opens new stores every week and has a rapid market coverage. It also supports the firms objective to increase the number of new stores by 10-15 percent each year (H&M, 2017). As it has been already mentioned, H&M has already 4351 stores in 64 markets, and an increase in this number is near 20 percent each year. Thus, the company opens one store almost every day. It wants to expand its operations to every corner of the globe. Additionally, the global strategy means that H&M (2017) offers standardized products across country markets with competitiveness being dictated by the home office, as well as emphasizes the importance of economies of scale, strategic and operating decisions in the home country, but responds to local market opportunities less.
These strategies are well developed and formulated, though there is a place for improvement. Thus, it is recommended for H&M to make its international business-level and corporate-level strategies more consistent with each other and in accordance with the goals of the company in order to have efficient operations globally. In this regard, it has also a very different approach of offering products of high quality at low prices (H&M, 2017). However, the company cooperates with cheap suppliers that negatively influence the quality of products. Additionally, it is recommended to use the institutional philosophy of the international business-level strategy that involves supplementing the industry-based and resource-based views with relevant societal differences instead of using only the resource-based philosophy and determining the strategy on the basis of H&Ms specific differences. It will allow considering both companys resources and conditions of industries and markets where it operates.
Strategies Recommended to New York & Company
Taking into account negative financial indicators of New York & Company in the 2016 fiscal year, it is recommended to adopt one business-level strategy and one corporate-level strategy for improvement. The first one aims to make the firm gain competitive advantage. There exist three competitive strategies within the business framework: cost leadership, differentiation, and focus. Currently, NY&C uses the focus competitive strategy at the business level. It means that the company concentrates its competitive forces on a specific regional market, product line and a buyer group. Thus, NY&C operates solely within the United States concentrating on specific customers, offers only clothing and accessories with a specific product line, and focuses only on the middle-class American people who value American-made things, comprising its buyer group (New York & Company, Inc., 2017a). Such strategy does not allow targeting a wide range of customers and to maintain high profits. Thus, on the business level, NY&C is recommended to switch its focus from the competitive strategy to the cost leadership one. The cost leadership strategy means that the company has a competitive advantage due to its low total costs. The reason for the recommendation is that NY&C operates in the price-sensitive industry and does not have such unique features as Chanel or Prada to establish high prices. Besides, its costs are growing all the time (New York & Company, Inc., 2017a). In this regard, NY&C can search for more favorable suppliers or to launch own production. Besides, this also involves the acquisition of Nordstrom as economies of scale contribute to lower production costs.
The corporate-level strategy relates to the vision, mission and the scope of an organization helping it to gain corporate advantage. There exist three investment strategies on the corporate level: growth, stability, and retrenchment. Currently, NY&C uses the stability approach. It means that the company wants to preserve its position, current growth and profits because it does not want indicators to continue to fall negatively influencing its position on the market (New York & Company, Inc., 2017a). Besides, the business also does not want to expend internationally preserving stability. Thus, on the corporate level, NY&C is recommended to switch from the stability approach to the growth one. The latter means that the company strongly wishes to grow and increase its market share, geographical presence, profits, and the business in general. In this regard, NY&C should first of all begin operating internationally. Here, the merger with Nordstrom will be beneficial because it is already present internationally and has a strong focus on development. Besides, international expansion will allow increasing the customer segment and therefore raise profits.
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The H&Ms acquisition of Fabric Scandinavien AB was a very wise choice since it pursued the strategy of expansion and international growth, operating through several operational formats, as well as pursuing financial goals. The latter have been achieved recently by opening thousands of new stores and increasing profits significantly. However, the H&Ms international business-level competitive strategy and international corporate-level growth approach are not in accordance with its goals. Thus, it is recommended to change this in order to have an efficient global strategy, as well as to use the institutional philosophy. On the other hand, due to negative financial results of NY&C, it is proposed to merge with or acquire Nordstrom. It is present internationally and has additional assortment categories and positive financial indicators. It will allow NY&C to expand and to be more profitable. Additionally, the company is recommended to use the cost leadership competitive approach within the business-level strategy and growth within the corporate-level one. It will allow increasing net profits and developing further. Finally, it can be concluded that the business that has merged with or acquired another firm and operates internationally, in this case H&M, is more profitable and successful than the one that does not have a history of mergers and acquisitions and operates solely within one country, in this case NY&C.