Patagonia Strategic Management & Corporate Responsibility

Introduction

Patagonia is a subsidiary of Lost Arrow, a privately held firm established in 1973 by climbers and surfers. Patagonia is a purveyor of outdoor clothing and gear and manages its research, design manufacturing, and sale of its products. The firm is driven by developing essential products for outdoor activities rather than profit-motivated production. Patagonia has a competitive advantage due to unique technological innovation in the outdoor gear and wears market, making the firm a leader in the outdoor retail industry (Kirkpatrick et al., 2002). Patagonia prides itself due to its devotion to social and environmental industrial practices. It continues to launch new products in line with the firms mission to Build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis. According to MacKinnon (2015), conspicuous consumption and impulsive buying were not predicated on the typical form of bargain hunting; shoppers had begun to seek products that offered enduring value, such as fuel-efficient sources of energy in production end the Great Recession. The vice president of environmental affairs, Rick Ridgeway, stated this insight highlighted a change in the market where durable products were needed during the end of the recession and at any time.

The economic implications of fast fashion demand low capital and high labor demands, where the latter is a critical part of the production. Securing this production asset is expensive in developed countries. As a result, this production function was moved to developing countries where labor laws are more lenient and cheap (Yardley, 2013). The fast-fashion business model workers are among the lowest-paid employees, working in unsafe conditions, job discrimination, and long working hours (Shen, 2014). Fast fashion relies on cheap fabrics and the discussed business model to facilitate a high retail turnover, implying products have a shorter life cycle (Abdulgadir & Abdulgadir, 2007). Contrary to this industry proposition, Patagonia employs a contradicting proposition by considering its business models social and environmental impact by selling high-quality outdoor utility products (MacKinnon, 2015). Part of the proposition of Patagonias business model is protecting the interests of its customers, which is accomplished by the design of simplistic and efficient products.

Further, like other firms in fashion, it has to outsource production to different companies; before the integration of a company into its value chain, Patagonia conducts a deep audit of the prospective partners down to the farm level in four criteria: environmental impact, quality, social standards, and sourcing. This measure ensures that its suppliers uphold Patagonias social responsibility standards beyond partners value proposition to its supply chain (Corporate & Social Responsibility History - Patagonia, 2022). The product life cycle practices of Patagonia are based on the 4Rs: recycle, repair, reuse, and reduce limits unnecessary use of materials by offering high-quality products and use of low-impact materials, such as relying on organic cotton or recycled materials rather than high-pesticide conventional cotton (Kelley, 2015; Woodside & Fine, 2019). The value proposition of Patagonia has facilitated its differentiation from its competitors beyond price and quality but creating a strong reputation in the market that appeals to its core customers.

Patagonias Ethical Dilemma

A sustainable business strategy aims to positively impact society and the environment while simultaneously benefiting the stakeholders. The tipple bottom line is a business concept that argues that companies should be accountable for measuring their social and environmental impact and financial performance. The triple bottom line is a sustainability-based accounting that focuses on 3Ps profit, people, and the planet. This accounting framework considers a businesss social and ecological aspects that can be challenging to measure (Caniato et al., 2012). This approach goes beyond solely evaluating profitability or performance concerning the industrys bottom line. Patagonia employs the three foundations of the tipple bottom line in its value proposition and internal accounting. For example, the company offers 1% of its annual revenue to the environmental restoration programs. Beyond the financial contribution to environmental sustainability, Patagonia contributes to the management of the environmental conservation organization efforts by facilitating collaboration across environmental conservation agencies (Alkuwari, 2021). The tipple bottom line will be applied in this evaluation to establish the ethical dilemma of Patagonia in meeting the performance expectations of its shareholders based on the people, planet, and profit foundations of the model.

Profit

Patagonia has remained profitable despite its sustainable social and environmental business model proposition. By striving to remain sustainable in its production operations, Patagonia relies on 87% production from recycling and the use of 100% virgin cotton. For example, the company relies on recycled spandex, fishnets, polyester, nylon, and natural rubber as its materials (Michel et al., 2019). Unlike typical fashion companies informed by consumption cycles and data-driven production scales, Patagonia production is informed by their research and development that examines the most effective production costs and the environmental impact of their current production processes compared to their prospecive production measures.

For example, Patagonia uses wind-driven power in its California facilities, while the Ventura offices relied on solar photovoltaic panels, which collectively achieved 25% savings in electricity expenses. Another profitable business organization area is the Common Threads Initiative, which focuses on its products four Rs, reduce, recycle, repair, and reuse. This service was offered at free or minimal cost or free of charge and encouraged customers to minimize purchases, reuse and recycle purchased products (Choi, 2007). The consequence was increased profitability and a decline in the negative environmental effects. For example, in 2013, Patagonia generated $560 million from the sale of outdoor apparel (Kelly, 2005). Patagonia has become a leader in strategy and innovation and has been recognized among the most ethical companies globally with the alignment of its business and operational model.

Planet

Patagonias ethical and business model is predicated on environmentally friendly operations and initiatives to contribute to renewable energy sources, regenerative organic agriculture, and raw materials for fabricating and designing their products. These initiatives purpose is to create minimal negative impacts on the environment throughout the supply chain from extraction, transportation, and manufacturing of its products (Turker & Altuntas, 2014). The firm reorganized its supply chains using reused materials by 31%, reducing plant-based materials, such as cotton, by 16% and wool by 5% (patagonia.com, 2019). The fast fashion industry relies on greenhouse farming and environmental degrading pharmaceuticals to produce plant and animal materials. Due to the short lifecycle of products, the farming practices employed are high degrading to the soils. They are eventually deposited in water reservoirs destroying the ecosystems of such water catchment areas.

The use of organic cotton reduced carbon emissions by 45% compared to conventional cotton, which is equivalent to eliminating 4,300 metric tons of carbon emissions (Pongtratic, 2007). For example, Patagonia substituted their use of one of its cottons that it found that one of the cottons it was procuring caused irritations on human skin. Patagonia terminated the partnership with these suppliers and began sourcing organic cotton in 1994. Patagonia also found that dying nylons were toxic and switched its supply to Germany, where fewer and less toxic dyes were found. These measures have been a core part of The Footprint Chronicles that involves tracking Patagonias products environmental and social impact. For example, the company patterns with Verit, an international corporation specializing in nonprofit training, social auditing, and capacity-building organization, to train 75 of its employees on Patagonias code of conduct.

Further, instead of having a sustainability department, the firm dissolved the department and assigned the employees across different operations in the company that monitors the adherence within the sustainability industry (De Brito et al., 2008; Dossa, 2018). The firm also embraces transparency to keep the stakeholders, especially customers, informed about the companys carbon footprint (Sarkis, 2003). Such measures keep them informed and encourage customers to address the difficulties emerging from creating a common understanding. Promoting these resources makes it possible for the employees to meet these challenges.

Patagonias initiatives target equipping its stakeholders and employees with the critical skills required to achieve the mission and operate in line with its core values. The core values of Patagonia are building the best product, causing no unnecessary harm, not bound by convention, and using business to protect nature (Kelley, 2015). Its business model is predicated on selling and manufacturing high-quality outdoor products across its supply chain and directly on its website to the customers. This is accomplished through a circular economy model that is embraced by leveraging technology to accomplish sustainability (Elven, 2019). According to the Ellen McAurthur Foundation (2013), a circular economy is an industrial system that is restorative and regenerative by design and intention. This approach negates the end-of-life concept with the regenerative and restoration materials, migration to renewable energy, and eliminates the use of toxic pharmaceuticals.

People

Patagonias ethical accountability also considers its operations current and future impact on humanity. The measures are taken to ensure the organizations suitability practices consider human consequences. The firm is conscious of its workers working conditions and remuneration rates across its production and distribution operations. For example, after discovering that some brands relied on child labor to create a price advantage, the corporation has taken the initiative by working with the Fair Labor Association (FLA). This independent multi-stakeholder verification organization trained and verified the practices of labor conditions and...

…suppliers choice of better offers in the market. As such, Patagonia is in a unique position where the firm has a wide range of choices of suppliers who share the same standpoint (MacKinnon, 2015). For example, Patagonia also found that dying nylons were toxic and switched its supply to Germany, where fewer and less toxic dyes were found. Additionally, the comany has the choice to switch suppliers whenever they fall short of their quality and standard of material, environmental and social impact standards.

The threat of New Entrants

The threat of new entrants in the apparel and gear industry is relatively low. The challenges associated with entry into the market are mainly in creating brand awareness since the core players in the industry are well established and have been for a long time in the market. Leaders in the green segment established their reputation through sustainability strategies and innovation predicated on extensive research and development requiring substantial financial investment (Lofthouse & Prendeville, 2018). Beyond the finical requirements required to create such brand awareness, the leading brands took decades to build their reputation.

Rivalry among Competitors

Customers are continuously seeking the next better product to increase their comfort. As a result, to remain leading and competitive, companies are forced to innovate new products consistently and have new product designs in innovation. However, Patagonia does not subscribe to this business model since production and innovation are grounded on sustainability and delivery of quality durable products (Peloza, 2009). Further, the 4Rs of the firm differentiates it from its competitors and presents a value proposition that has created brand loyalty among its competitors (Stein, 2019). Despite the intense rivalry among competitors, the company has successfully differentiated itself from its competitors due to its business models economic and social accountability and value proposition.

The firms strategic position in the industry is a niche, and the competitors value proposition differs from Patagonias due to its business models economic and social value proposition. The core areas of strategic focus include collaborating widely to have a greater social and economic value proposition and impact, sharing best practices to solve some of the overarching industry concerns, and cultivating a new business segment (Husted & Allen, 2011; Kamm & Jonke, 2016). Through Patagonias Common Threads initiative, the firm increased its revenue with a modest growth of 2.8% between 2012 and 2017 (Zhou, 2019; Wren, 2022). Expanding the worn and wear segment to new markets internationally is likely to increase the organizations growth domestically and internationally. Further, leveraging the firms value chain and research and development, there is still room for tweaking the business model to create new revenue streams from certified independent gear repair facilities.

The Worn and Wear initiative extends the company value chain upward and downward by collaborating with other industry leaders. Expansion of this segment to serve all brands can also integrate the recycling of fibers from different brands where the products are irreparable. Collaborating with other companies in the green segment can lead to the generation of new revenue and leveraging of the companys competitive advantage to acquire more customers (Zhou, 2019; Zamora, 2016). For example, the acquisition or partnership of strategically aligned companies can help accomplish more by utilizing the companies resources and fiscal strength to propel the patterns or acquired companies to differentiated subsidiaries (Wren, 2022). Sharing best practices could help alleviate some of the pervasive challenges in the industry, being a purveyor of innovation for standards in regenerative organic agriculture.

The human management practices at Patagonia are predicated on the need to advance the wellness of humanity now and in the future. For example, the company offers its employees a minimal living wage, appropriate facilities for women, complies with and advocates for standard human rights, and advances the leadership opportunities for women (United Nations, 2015). Due to the high satisfaction of its employees, the company has a low employee turnover compared to its competitors. The social and economic propositions of the business are critical for the management of the challenges associated with the development of a common understanding

Conclusion

Despite the intense rivalry among competitors, Patagonia has successfully differentiated itself from its competitors due to its business models economic and social accountability and value proposition. Abiding in its core philosophy, mission, and values have resulted in its success, remaining competitive, and having a constructive social and environmental impact; upholding these business model components across its operations is critical since its value proposition and success has been predicated upon it. Exploring opportunities to develop competitive advantage through sharing best practices to solve some of the overarching industry concerns and cultivating a new business segment offers…