There (Techcrunch, 2017) and furniture retailer Ikea

February 6, 2019 Philosophy

There has been a surge of global fashion brands, triggered majorly due to the intensive internationalisation processes interwoven with corporate strategy. Large corporations in every industry are increasingly deciding to expand overseas, searching for cheaper resources, scanning rivals, markets and opportunities on a global scale and spreading out common overhead costs. Recent examples to benefit from this include the technology giant Apple opening merchandising stores in Taiwan (Techcrunch, 2017) and furniture retailer Ikea entering India (https://www.nytimes.com/2018/08/07/business/ikea-first-india-store.html ).

This qualitative thesis examines the different factors influencing international expansion strategy for the multinational clothing retailer Zara and provides recommendations on formulation of future strategies. The report concentrates on the internationalisation patterns followed by undertaking an analysis of the company’s activities which has led it to expand operations since the past 30 years, including opening 183 stores in 2017 alone (https://www.bbc.co.uk/news/business-43398799 ). The dissertation is based on the following question: HOW DOES ZARA ENTER THE DIFFERENT MARKETS SUCCESSFULLY?

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The thesis will start by providing an overview of the company and the fashion industry. Discussion of Zara’s competitive advantage and competitors’ strategies will provide the reader with an insight into the world of fast fashion. Afterwards, different modes to select and enter countries, along with how the company adapts strategy to each different nation are analysed. The report is concluded with a suitable recommendation plan for the company.

1. Introduction

ABOUT ZARA

Headquartered in Arteixo in Spain, Zara remains the principal brand of one of the world’s largest retailers, Inditex group owned by Amancio Ortega, a pioneer in fast fashion. Daniel Piette, the fashion director of the top luxury brand according to Forbes (https://www.forbes.com/powerful-brands/list/#tab:rank_industry:Luxury ), LVMH described Zara as “possibly the most innovative and devastating retailer in the world” (http://edition.cnn.com/BUSINESS/programs/yourbusiness/stories2001/zara/ ). The parent company includes other brands like the playful styled Pull&Bear, naturally sophisticated Massimo Dutti, socially and musically themed Bershka, youthfully creative Stradivarius, femininely elegant Oysho, high quality leatherwear specialist Uterqüe and contemporarily aesthetical interior living styling provided by Zara Home.

Since its first store opening in 1975, Zara’s business philosophy is based on four core values. The company’s business format is functional as it boasts of a heavily intimate relationship with its customers. A continuous flow of information about demands and preferences from stores is delivered to the company’s in-house creative team, who respond and deliver instinctively on the changing trends in product design, imbibing beauty in the brand. As of 2017, the company has integrated the offline and the online store in 47 out of 96 countries, offering customers flexibility to interact with the brand at convenient time, place and way with quick delivery times with up to same day deliveries, representing speed. To stay in line with focus on sustainability, Zara introduced flagship eco stores with ‘Closing the loop’ projects like installation of clothing recycling boxes and free at home collection of used garments. (https://www.inditex.com/article?articleId=485160;title=Inditex+Group+revenue+increases+by+11.5%25+in+the+first+six+months )

According to a journal (https://www.sciencedirect.com/science/article/pii/S0024630109000533 ), concern over the activity systems is advantageous to managers. Decisions over whether activities critical to the business model design should be governed within the firm or not encourages systematic and holistic thinking. Zara’s competitive advantage lies in its ownership over the entire vertical integration chain, including product design, manufacturing and distribution, resulting in the company’s net sales from 2016 to increase by 8% to €16.6 billion (https://www.inditex.com/documents/10279/563475/2017+Inditex+Annual+Report.pdf/f5bebfa4-edd2-ed6d-248a-8afb85c731d0 ). A substantial proportion of the capital and value-added intensive production processes are integrated within the company, protecting knowledge and know-how, while the labour-intensive stages are outsourced to 1,824 suppliers spread around the world (https://www.inditex.com/our-commitment-to-people/our-suppliers ). Although some of these activities seem inefficient if viewed in isolation; but taken as a whole, Zara’s carefully designed system at each stage effectively cuts down the time to develop a new, high quality product and display it in stores to two weeks, compared to the average competitor’s six month wait time, making a big difference in the world of fast moving fashion retail. Zara’s global supply chain enables the company to be labelled as a fast fashion company. The company differentiates its production as it is mainly based in Spain and Northern Africa compared to other high street fashion chains like H&M whose clothes are made in China with rising labour costs. Using the fundamental supply chain and the company’s ability to ship products about 12 times faster than competition, Zara can ship a greater variety of styles with more frequency and can cancel products which do not perform well, reducing inventory excesses on a global scale. They currently possess the competence to deliver products to their European outlets within 24 hours and to their American and Asian channels within 40 hours. The retail giant provides stylish merchandises for diverse tastes just in time. Additionally, Zara commits to only 15-20% of its products six months in advance and about 50% before the start of the season, leaving them room to adjust, design and distribute up to 50% of their clothes right in the middle of a particular season.

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