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Essay: Zara analysis: entrepreneurship in a global context

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  • Zara analysis: entrepreneurship in a global context
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Executive summary

Introduction: a renowned Spanish retail industry owned by the sixth wealthiest man in the world.

International strategy: The brand has used different strategies in marketing and entry in each market based on cultural and geographical conditions and factors.

Swot analysis: the industry is known for its quick supply chain and reactions to the customers demand. There is also some weakness due to procuring a huge quantity of clothing items which will be complex to control and contains innovation.

Conclusion: the venture so far has been successful since their sales is increasing year by year. It has also given a good reputation to the country to be known as global leader in fast fashion.

Introduction:

From a delivery boy to the sixth wealthiest in the world. Zara is a well-known brand and a leading brand in the parent company Inditex in Spain. Inditex owns eight trademark such as (Zara, Pull&Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterqüe). With having their products sold online in 202 markets. In the meantime, they have 7,000 physical stores within 96 markets. Zara was founded in 1975 by Amancio Ortega, in Coruña, north-west Spain, Ortega was raised in an extremely poor family, when he was very young he left his school. By the time he was 14, he embraced a career in a clothing store as a delivery boy and as a helper in a sewing store. By dealing with customers directly, he realized their tastes. After that, he started his own business by making luxury clothes to a focused group of well-off customers. He later expanded his business and enticed a wider range of customers by offering low-priced clothes. He was also interested in using more advanced tools for his production that led him to use them effort for his first venture in dressing gown. Consequently, Confecciones Goa launched in 1963(Ortega’s first company in which he later integrated into Inditex). Zara now is the leading brand and main source of revenue for the Inditex. The name of the brand is the Ortega’s favorite name in which it was Zorba and then changed it to Zara. In the following section the company’s international strategy will be discussed.

1. International strategy:

Zara is the flagship brand of the parent company of Inditex, it launched its first store in Coruña, north-west Spain. In 1980s, they operated their business across Spain with roughly 100,000 residents (Ghemawat and Nueno, 2003). After that, they took on international operation and their first store was opened in Oporto, Portugal in 1988. They parent company operated in 202 markets with 7,490 inditex store across the world, 10 logistic centers and maximum delivery time is 48 hours, having 50,000 new fashion designs a year and it takes three weeks for the products to be on the shelves. While the number of Zara stores in Europe are 1,342 which is their biggest market, in America there are 346 and Asia 57 stores. Whereas their majority stores are in home by 411 Zara stores. Moreover, their online platform is operating in 106 countries now. By 2020 they are expecting to launch an online platform in all the markets around the world. This leads us to the next section on their international strategy. Which the following areas will be discussed.

1. Motivations.
2. Market selection
3. Entry strategy
4. Marketing strategy

1.1 Motivations: Internationalizing purposes for retail business has been categorized into push and pull factors by (Treadgold and Davies, 1988; Alexander, 1995). Firstly, push factors promote industries to seek international chances while pull factors are about favorability of markets in other countries (Alexander, 1995). The factor behind Zara’s internationalization was due to lack of market growth in the home market. Despite the slow growth of the market there were shifts in the customers demand to use their money to go on vacations and spend it on education not on garments. Secondly, the main pull factors were globalization and when Spain joined the EU in 1986. Zara’s belief is that “national frontiers are no impediment to sharing a single fashion culture” as well as the removing barriers on the external goods and advances in the technology. Another factor for the internalization of firms was developed by McGoldrick (1995) was facilitators or enabling factor. When Zara operated first in the three strategic fashion locations such as New York in 1989, Milan 2000 and Paris 1990, that was associated with high living standard and dignity of these cities (Castellano, 2002). The United states warned Zara to find out about the other US fashion rivals in the USA such as Gap and considering the customers taste in preferring big fashion shops. America’s operation was thought to involve large-scale of losses, that case was verified with experience by (Martinez, 1997). In the 1998 report Ortega spoke out and said

“International expansion is the objective that cannot be delayed and will allow us to enrich our culture and vision of the mark”.

Finally, operating internationally results in more spending and losses. McGoldrick (1995) demonstrates another factor which was called inhibitors: this one focuses on the industry and the climate which prohibits international expansion. It will be mentioned later, the initial stage of international expansion was already determined by psychic distance and cultural distance, potential threats and not having market knowledge. In addition, crises in management and having a different season in the south equator prevented the firm in operating in some countries such as Italy and Latin America. Lastly, lack of growth in economy and differences in the natural features of the earth have impeded the international expansion of the company in Asia and Africa.

1.2 Market selection

Zara’s international expansion appears to pursue the typical “stage model” (Johanson and Wiedersheim-Paul, 1975; Bilkey and Tesar, 1977; Cavusgil, 1980) because their initial step was to expand regionally not globally. From this, Zara learnt its lessons in these stages. Such stages will be explained thoroughly.

1.2.1 Reluctance and trial: Around 1975 and 1988, Zara’s main operation were in the local market. The lack of market growth in home was the result of going international to a nearby country which started in Oporto in 1988 in Portugal. This was because it had a favorable market by being geographically and culturally close. The Portugal operations encouraged them to change their business model to adapt to a contemporary market (Bonache and Cervin ̃o, 1996; Fabrega, 2004).

1.2.2 Cautious expansion: Between (1989-1996) their plan was to operate in psychic proximity and neighboring country in a city which is called “fashion capital” in Paris, France in 1990. That became a good approach in 1994 to expand to other European countries such as Sweden and Belgium, Bonache and Cervin ̃o, 1996). Since Mexico was close to Spain in terms of culture geographically far though, but this helped the expansion to Latin American markets. Then operations started in Greece in 1993, in 1995 in Cyprus followed by Malta in 1996 consecutively. The peculiarity was New York city’s branch in 1989 geographically distant and a rival location, but that was a careful consideration from Zara so that they would raise their firms consciousness and establish a global reputation since New York was a fashion capital (Bonache and Cervin ̃o,1996; Martinez, 1997).

1.2.3 Aggressive expansion: the knowledge Zara acquired in international expansion encouraged them to quickly expand their operations further at an international level. Without focusing only on the neighboring markets. So, this step led to opening a store in Israel in 1997. A year after that in 1998 the brand started the operations in 8 countries, asserting their existence around the world. Firstly, it started in the Middle east included Kuwait, Lebanon and UAE. This was followed by Argentina and Venezuela together, Great Britain, Turkey and Japan in the same year. A year later in 1999, a number of other countries about nine were added (Germany, The Netherlands, Poland, Canada, Chile, Brazil, Uruguay, Saudi Arabia and Bahrain). In the period between 2000 and 2003 they strengthened position, and their focus was in the European countries since the number of countries in the European union increased in 2004. In 2005, their market portfolio was to operate in Costa Rica, Monaco, Philippines and Indonesia. In 2006 their expansion was in 59 countries having 853 branches with the intention to open more stores in France, Italy, Germany and Great Britain as well as the Asia as the hub for global activity (Fabrega, 2004). More stores after that

1.2 Entry strategy:

Zara possesses most of the stores in Spain, operations abroad were undertaken in three modes of entry.

1.3.1 Greenfield: Zara has implemented wholly owned subsidiaries in the majority of the European and American countries since this one was proposed to have great success and fewer risks involved for the firm. Although this mode of entry is very costly and a firm faces a major threat has when it withdraws in a market (Flavian and Polo, 2000).

1.3.2 Joint venture: this entry mode is undertaken jointly with a local partner in which the skills and production facility of the domestic enterprise is integrated with the foreign firm’s know-how in host country. This mode of entry is used in countries where it is not easy for foreign firms to possess real estate to establish retail distribution channels or there are some sort of barriers which require forming alliance with a domestic firm (Camun ̃as, 2003). Zara’s approach in Germany was to adopt a joint venture with Otto Versand they took advantage from their previous strategy, this also helped them to gain knowledge about one of the region’s most competitive market. In Italy they also adopted a joint venture with Gruppo Percassi which was a successful enterprise in a real estate sector, in 2001. The work with Bitit in a fashion industry along with the experience in the real estate sector pushed Zara to execute a contract with this firm in helping with entry to the Japan market in 1998 (Castro, 2003). The contract in both Japan and Germany was a fifty-fifty. The Inditex investment in Zara in Italy was worth 51 %. Although, they increased their ownership in Germany to 78, in Italy 80 % where they have the full ownership in Japan with 100%.

1.3.3 Franchising: this strategy was adopted in countries that involve high level of uncertainty due to having a totally different culture and a poor market, with the expectation of low customer demand on clothes such as Saudi Arabia, Kuwait, Andorra and Malaysia (Flavian and Polo, 2000). Zara owned almost 90 % of its branches because they had overcome the administrative problems in Italy, Japan and Germany.
When a decision is taken for any country, Zara implements a model in which the company regarded it as “oil sten” (Castellano, 2002): when Zara opens its flagship store in a country in an strategic location they tend to gain knowledge about that country. Therefore, the knowledge gained by Zara helps it in the following stage for further expansion in that particular market (Blanco and Salgado, 2004).

1.4 Marketing strategy:

At the beginning, Zara administration was implementing ethnocentric orientation in which “subsidiary companies had to be a replication of the Spanish stores” (Bonache and Cervin ̃o, 1996; Alexander and Myers, 2000). Although this method faced challenges in a number of markets by being in culturally different locations. As a result, they decided to follow ‘geocentric orientation’ which encouraged Zara to implement domestic solutions in a number of areas and not replicate the headquarter. The brand was offering similar product in the international market. Flavian and Polo, 2000). Although, there were some modifications in the clothes due to some differences in consumer size in some Asian markets (Monllor, 2001), rules enacted that clothes should be in the market for all different ages in Buenos Aires (La Opinion de La Corun ̃ a, 2006), Arab cultures were not allowing selling certain garments, having different season in the south equator (Euromonitor, 2002). The data collected, helped Zara to design clothes that fit everyone around the world in the Zara stores (Bonache and Cervin ̃o, 1996). Hence, their new approach called “promotion strategy” which was the same in domestic and international market. For example, the opening ceremony for a new store were done in the same wayin all their markets. They also depend on the store for adopting the promotion strategy. For example, Zaras’ garments were offered at a lower cost in Spain compared to other markets (D’Andrea and Arnold, 2003). This was because foreign markets resulting in higher cost in the value chain to the international market and since foreign markets adopt market-oriented strategy (Ghemawat and Nueno, 2003). A strategic location for a store is important both in the local and foreign market. The majority of Zara stores are located in the high streets. That idea comes from the investigation that the location gives the brand a unique chance by offering a lower price compared to other rivals by having their presence in the same area and that will make a considerable gain to them (Bonache and Cervin ̃o, 1996). The stores layout in which they are being used in the home store first and then will be used in the foreign stores, the designs are decorated by qualified decorators. Therefore, the brand adopts a unique system in areas such as “location, window display, interior design, store layout, store display rotation, customer service, information systems and logistics”. Whereas in some areas they have some modifications based on the customer tastes or culturally acceptable way (Fabrega, 2004).

After the place is determined, the second step is to hire employees to their shops. First of all, the company assigned a home manager to simulate the administration form that is employed in Spain (Fabrega, 2004). The problems occurred in Mexico and France (Bonache and Cervin ̃o, 1996) helped Zara to adjust hiring staff members domestically in order to help them comprehend the domestic stores preferences (Martinez, 1997). The brand does all it can to transfer the expertise so as to receive a unique firm’s experience and sense. Zara’s headquarter have power over the all its branches so that it would retain the brand name ‘Zara’ around the world (Bonache and Cervin ̃o, 1996). In 2018, Inditex (the parent company) share of retaling was 1.4% and the brand share of Zara retaling was 1.3% , while the company shares of apparel and footwear Specialist Retailers is 12.4 % in Spain.

In the following section SWOT – strengthens, weaknesses, and opportunities and threats of Zara will be analysed.

1. SWOT analysis:

2.1 Strengths:

Zara is the biggest retail industry; its supply chain is one of its powerful tool in the international market that encourages them to launch a new product to the stores quickly. Having a broad range of operations around the world with 2,259 stores around the globe which makes the brand well-known globally. Additionally, this would be recognized that launching new products within two weeks will give the brand a competitive edge that consumers regularly visit the store and buy the garments quickly because they will be on the shelves for 2 weeks and then they will be withdrawn and replaced it with items. Having a positive reputation in the global market increase their sales. Their major suppliers are in Europe and the 60 % of OCS facilities are in Spain

Compare to other retailing industry which takes about a 6 six months for the new prodcts to be launched. Moreover, the company has a good financial ability and it growing year by year. According to Inditex (parent company) annual report, their sales is increasing year by year for example in 2010 (12,527), 2011 (13,793) 2012 (15,946) 2013(16,724), 2014 (18,117). Therefore, this ensures that the company will make a huge profit. The owner is the world’s sixth richest. A good distribution channel which helps them to easily enter any markets. Having experienced employees since they are being trained through investing too much at training programs which promotes them to be highly qualified and encourage them to be willing to obtain more. Successful outcome in their overseas operations, by operating in a great number of markets they have gained experience and leveraged them. That is to say, the international market has given them new source of income and expand the threats they encounter in their chain of operations. The brand has got a successful supply chain and a a big global presence that can provide between 2,000 to 4,000 ypes of clothes in their shops (Parietti, 2015). The parent company has many social programmes, For example, there is a program called ‘FOR&FROM’ programmes which gives physically disabled people a job in their shops. They also invest 21% of their profit in social programmes around the world and 55 % in Europe.

2.2 Weakness: since the industry is operating broadly at an international level, they need to manufacture clothes at a large scale. Which inhibits them produce new designs. Furthermore, as new rivals seem to appear within the organization, the customers are seeking cost effective products, a simple increase in the price would discourage the customers and to shift to another competitor which offers a lower price (Kumar and Linguri, 2005). Sometimes, they face obdurate problems with different stores they have by being unable to cope with various cultures.

Their online platforms can be very risky due to cyber-attack. Producing and selling a cheaper product in countries such as China, India and Africa. As Zara is known for its fast fashion due to its supply chain, the other competitors may build the same and beat Zara. Not operating in Africa which is an emerging market and their economy is booming can be one of their weak point to not leverage in this active market.

2.3 Opportunities: they seem to move forward and expand their operations in the emerging economy

2.4 Threat:

During 2008’s financial crises the company’s sales declined. Moreover, online shopping is risky and challenging because competitors can emulate their strategy, and can be a major threat since competitors especially emerging economies thought to be fast and sustainable where they can copy fast fashion.

3.Conclusion and success:

Spain is known for its creative business model by having “fast-fashion” which has led them to be regarded as a global leader. This reputation of the country comes from the leading retail industries such as Inditex as they were capable of adjusting to the market and the shifts in customers demand very quickly. The victory of corresponding fashion stems from the consumers, since they are used to visiting Zara store on a regular basis. The customers are supposed to search for the brand with a quick fashion trend so that they will buy the trendiest items that are trendy during the season. Hence, even the brands that are not luxury want to adopt the same business model as Inditex. Zara is considered to be one of the most successful clothing brands. At the very beginning of 1975 when they established the company in Spain, they introduced themselves as a “fast fashion”. The triumph of Zara is that they are placing the consumers at the centre of their concern which is what has made them a favorable brand around the world now. They consider the customer as a very powerful character in the success of the company. Their company’s culture has been made obvious early in their mission. Their segment is for men, women and children, shoes and accessories. They also have sub-brand Zara TRF for younger ladies which is often more fashionable.

References:

1. Essays, UK. (November 2018). Entry Mode Of Zara Into The Indian And Chinese Market. Retrieved from https://www.ukessays.com/essays/business/entry-mode-of-zara-into-the-indian-and-chinese-market-business-essay.php?vref=1
2. Lopez, C., & Fan, Y. (2009). Internationalisation of the spanish fashion brand zara. Journal of Fashion Marketing and Management: An International Journal, 13(2), 279-296. doi:10.1108/13612020910957770
3. Inditex S.A. : Retailing – company profile, SWOT & financial analysis. (2016). (). Basingstoke: Progressive Digital Media.
4. Anwar, S. T. (2017). Zara vs. uniqlo: Leadership strategies in the competitive textile and apparel industry: ANWAR. Global Business and Organizational Excellence, 36(5), 26-35. doi:10.1002/joe.21805

Zara’s business model

http://www.portal.euromonitor.com.libaccess.hud.ac.uk/portal/StatisticsEvolution/index
http://www.portal.euromonitor.com.libaccess.hud.ac.uk/portal/StatisticsEvolution/index
https://www.britannica.com/biography/Amancio-Ortega
http://www.portal.euromonitor.com.libaccess.hud.ac.uk/portal/analysis/related
https://www.businessinsider.com/r-zara-launches-online-sales-in-106-new-countries-2018-11?r=US&IR=T

3.4.2019

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