Zara Case Study: An International Corporate Level Strategy
Question
Task: Your task is to write a Zara case study on the international business model followed by the company.
Answer
Introduction to Zara Case Study
ZARA is a Spanish clothing retailer founded in the year 1975 and the brainchild of Inditex group. It currently own over 1700 retail outlets in 78 countries. ZARA has accounted for over 65% of the total revenue earned by Inditex group. ZARA had reached net sales of around €8088 million in the year 2010 only. This was an increase of 14% percent over the previous year sale figure. With the recent emergence in the trend to wear branded clothes and global fashion advancement ZARA has been found to have made a huge impact on the market to make high end clothes in short period of time for their customer base. Though considering ZARA to be a luxury clothing brand, the fascination of the people to own a piece of their clothing is still a much sought after dream.
This essay is based on the case study named “ZARA: Staying Fast and Fresh” which details the history and business model of ZARA. The essay discusses about the international business model followed by ZARA and their competitive advantage over the other brands in retails business. The following sections will be used to discuss about their local growth in retail shops, regional expansion for their stores as well as globalisation of the product to more countries.
International Corporate Level Strategy: Discussion and Analysis
Since the major profit ZARA was able to accumulate was due to their international expanse this section will be used to discuss about the various patterns and trends they had used to gain this popularity. The patterns and trends in international business model helps in identifying the business activity being conducted internationally. There has been an initial investment in the international market in order to get them settled into the business. Though ZARA was already famous locally the international investment was necessary in order to start their expansion. Cross border mergers with different countries was the next step in organising their business. The investment into the global market helped the products to get a more liberalised on a global scale. There was a massive spike in the sales after their first step towards globalisation.
ZARA then used the process of arranging regional trading. This helped them to import and export to and from different regional trading blocs. This helped ZARA in their growth of insiderisation which helped in smoother exports to other countries of the bloc. This reduced the trade fare for the clothes and in return ZARA was able to sell their clothes the retail price they have been selling in their local retail shops. After their growth in one bloc ZARA was able to communicate and make arrangements for trading with other regional bloc on the international market. With their globalisation complete ZARA now faced the issue of global insecurity. ZARA then found out that it would be beneficial for them to manufacture their clothing brand locally around their international retail outlets rather than importing the goods directly from their warehouse. This helped them to make arrangements for cheaper alternative to manual labour which in turn boosted the production and saved their cost of production. This prompted them to gain more profit than the previous method of importing.
The major trends which the current global market is facing are large population growth, emerging newer markets, more learned customer base, and the increase in their retail collection. It has been seen that the rise in population and the advancement of technology has leaded to the development of more retail outlets of ZARA. ZARA has also taken care of catering to a specific age group more than the others. This would help them in determining the best form of sales and promotion in order to grow their customer database. Weekly expansion of their fashion statement has made the rich people who are able to easily buy the clothes from ZARA.
The most unique feature that ZARA holds is their unique selling point in the global market. They have the feature of providing with up-to-date clothing and accessories at an affordable rate.
This proves that they are able to provide fast solutions, agile development of clothes and innovative ideas for the designs. The internationalization of their clothing brand has been designed based on three basic theories of motivation to survive, market selection of clothes and entry options based on market. The motivation helped ZARA to survive not only in their local retail market but also expand to the global market. The entry into the European markets sparked their development in the global retail market. The process of market selection for ZARA has prompted the gradual increase in the global markets. They first made a trail store in Portugal which made them follow a cautious expansion process. Gradually within the next 4 to 5 years ZARA was able to setup numerous international markets around the world. Later stages of globalisation of their market forced ZARA to adopt a more local centric market base rather than following their home market strategy. They understood that not every product will be as appealing to the customer as it may seem in their home retail stores. The market entry strategy of ZARA has been divided based on regional acceptance of the clothing brand. The low acceptance has been made into joint ventures whereas the high acceptance zones are standalone. Making small forecasting of sales based on competitor data ZARA makes their market entry into the selected international market. After the selection of the market entry strategy ZARA selects a strategic area for opening their store and collect the response. Based on this they try to select another location for their store.
Apart from this the product life cycle is also important factor in the process of development of the international market. The gradual rotation of the products rather than keeping a stagnant stock has been found to be more beneficial for ZARA. New designs and better quality of the products has always been the top priority of ZARA. Provision of sale has been found to be seldom active in their stores apart from holiday based sales.
According to the Network Theory of Internalisation, there are four important elements that help a company to internationalise and grow beyond its existing service region. These elements are discussed as follows.
Market Knowledge: Market knowledge refers to the amount of the knowledge that an organisation has regarding the current situation of the market and the probable opportunities that exist in the market. Any organisation with the ambition of sustainable and continuous growth must have sufficient market knowledge in order to exploit the opportunities that are available to them. If an organisation lacks the same, it is required to deploy a specific team of market experts or focus groups who can study the existing market, performance of similar other organisations, market opportunities and predicted demand in the near future and compile a report based on the same. This report can act as the knowledge bank for the company which can then develop appropriate strategies regarding the future moves of the organisation. ZARA showed appropriate use of market knowledge as they exploited every opportunity available to them to capture various international markets based on their target customers. ZARA has set an example of how to properly use market knowledge in order to grow beyond the current limits and enter international markets.
Market Commitment: Market commitment is another important aspect of internationalisation. It states that it is not sufficient for the organisation to just gain a license and open a new store in a new country for internationalisation. Rather, it is essential to commit to the market in which the company is entering so that it ensures the company has a clear vision and target customer category for their business. With randomly open stores in a new country without any vision or target customers, the business is bound to fail and the internationalisation process will halt completely. It is important to properly analyse the type of market the company is entering and identify the requirements of the target customer segment. Based on this analysis, the company must develop a long term vision and commit to the market where it wants to enter. Without the commitment, there are no long term assurances for the company to operate in the country and it will fail entirely. ZARA showed commendable moves in showing market commitment while entering different international markets. The company identified the customer segments accurately and committed to the different markets in spite of initial risks of financial losses due to lack of sales. The company relied upon its brand value as well as product quality to commit in the markets for long term and has already started reaping the rewards from them.
Commitment Decisions: This particular aspect is connected to the previous aspect i.e. market commitment. Market commitment does not only mean commitment to the market, it also includes commitment towards customers, vendors, suppliers, distributors and other parties. When expanding over international limits, the company needs to commit relationship with one or more of these parties in order to ensure flow of products from their manufacturing units to the customers through the supply chain. Whether the supply chain will be long or short will depend on the commitment decisions taken by the company based on the conditions of the country. For instance, some countries’ markets require small supply chain and can involve only a few parties whereas some others require large supply chains involving multiple parties starting from the manufacturer and ending with the owner. The company needs to identify these aspects carefully and take commitment decisions accordingly. ZARA initially made mistakes regarding relationship commitments and hence, faced roadblock in its initial days of internationalisation. However with time, the company learned its mistakes and took appropriate commitment decisions that suit their business operations and they earned success in the international markets.
Current Activities: While the previous aspects are to be considered before the start of international expansion, this particular aspect focuses on the requirements to be fulfilled by the company once the international expansion process has started. The current activities include continuous learning about the dynamic market, creating own brand value and space in the market and trust building with different parties associated including suppliers, vendors, distributors, customers and others. Without these activities, even if the initial expansion is successful, the company is bound to fail in the long run. However, ZARA has been successful in multiple countries globally that signifies that the company ensures the current activities are followed in its internal and external operations.
Initial planning, market evaluation, expansion strategies and others that are thedriving forces of the company’s international venture are not sufficient for its long term survival if the company does not develop competitive advantage in the market. ZARA knew this before its international expansion and understood that it must create a competitive advantage that will help them thrive in any international market. For this purpose, the company identified the target customer segment early from a chosen nation and analysed various aspects like quality of products sold at that target range, pricing strategies of other companies, popular designs and others. Based on the study, the company kept faith on the brand value, quality of products and the designs created by their employees and entered the market with pricing and other operational strategies that immediately gave them competitive advantage.
Conclusion
Overall, the analysis speaks about various strategies and theories that govern international expansion of business organisations and how ZARA company has been able to implement them in the right manner to become a global brand from a small Spanish clothing line. As analysed from the study, ZARA started out its operations in Spain and with constant growth and successful implementation of business planning and strategies, it started spreading over multiple countries in Europe and beyond. Currently, ZARA is one of the world’s largest clothing brands with 2270 stores operating all around the world. The main driving force behind this global success of ZARA is the successful implementation of internalisation plan as well as exploitation of opportunities in the global economy trends and various international markets.
