Strategy undertaken by Zara to compete in global market
Strategy and goal identified
International business is emerging more and more everyday. Retail is in an era where internationalisation of the world’s leading retailers are entering both developed and developing markets. Internationalisation has changed the way retailers build their strategies for the future and are being forced to evaluate the impact globalisation could have on their businesses and brands locally and internationally. (“The internationalisation of retail”, 2018)
Throughout this report the strategies of one of the most successful companies in the world, Zara, will be explored on how they have developed their company and strategies globally. The strategies used are established and then assessed on how well they can applied to other firms in similar or different situations.
Zara is one of the most successful fashion retailer brands in the world operating under fashion retailer Inditex. Zara operates worldwide with 2200 stores located across 96 countries (“World’s Most Valuable Brands 2018”, 2018). By competing on the international stage, Zara are able to be present in a large variety of cultural affinities, perform globalisation resulting in economies of scale and to witness/perform new technological capabilities that they may not see in Spain. Zara has a very successful internalisation strategy in order to be present in so many different areas of the world.
Zara is set out to provide their customers with high end fashion at low prices, sustaining a competitive advantage by focusing on both cost leadership and differentiation strategy. Items you can find at Zara are similar to one you would find from designer brands, but at much more affordable costs (Danziger, 2018).
Zara uses the same baseline strategy across all global operating countries, although due to the large variety of cultures Zara is presenting themselves in. The implementation of the globally standardised marketing strategy is in order to keep the Zara brand consistent all over the world, this has allowed for successful internationalisation as customers know exactly what they are getting internationally.
Zara has a strong sense of diversification strategy in entering global markets, Zara is run in several industries with multiple product lines, serving multiple customer segments, and operating in multiple geographic markets. Diversification in business is a strategy that allows the business to no rely on just one revenue source.
Evaluate strategy using factual material
Strategy success, and how
In 2017, Zara added 51 stores and 38 Zara Home stores to give them net of 2,200 stores in 96 Countries around the world (“World’s Most Valuable Brands 2018”, 2018).
In the most recent study of Inditex, Zara was found to be responsible for 66% of Inditex sales (Kowsmann, 2017).
Zara has an incredible supply chain that gives them the ability to design and produce a new product within two weeks. All Zara stores are company owned which allows for vertical integration, where all designs, production and distribution is controlled and completed within the company and every store is aligned with all others. Vertical integration minimises internal transaction costs by managing a large amount go end-to-end capabilities within their value chain. Zara uses the supply chain and vertical integration efficiently to create competitive advantage by providing the market with relative designs and trends at an affordable cost. Due to the turnaround in products Zara holds a low inventory in stock, expecting product lines to sell out within 10-14 days (“World’s Most Valuable Brands 2018”, 2018). This creates differentiation due to the increasing number of available items and the low quantities of the item available. The costs saved on overspending in inventory costs provides proficient allowances for prices to be low, therefore create a cost leadership competitive advantage over other chains globally. The vertical integration that allows for the inventory turnover and low stock levels, works in favour of Zara in the way that the increasing number new styles encourages customers to go to the store more often to see the new stock and also it pushes customers to purchase an item they like when they see it as they will be worried they will not be able to get the product due to low stock levels (Hernandez JG ; OZ2, 2016).
Zara has been able to diversify into several industries with multiple product lines including clothing for women, men and children, accessories, shoes, cosmetic and fragrant and into a new industry with their home commodity. The diversification that Zara has, brings a wide range of customers to the stores, being present in multiple markets and two main industries.
The vertical integration has given Zara unique value and competitive advantage through their distribution and supply abilities. Zara headquarters gain adequate knowledge on where they are entering and if there is the ability to be able to carry out their baseline strategies. The market of entry is assessed on whether it is set for success and if they are able to penetrate the market efficiently.
Zara have successfully aligned their internationalisation and global strategy with what they want to achieve as a business. Zara want to be able to provide the markets they operate in with ‘fast fashion’ that is affordable and make the Zara experience all about the customer and their demands in the present time. By creating making use of their global strategies of Cost leadership, diversification and vertical integration around the globe, Zara are able to achieve their goals and center their customers within every strategy. Unaligned strategies can lead to failures and difficulties in internationalisation as business strategy and global strategy invariably depends on the other. The competitive advantage of the goods should be the center of the strategy, as that is going to be the factor of the demand for the good over others in the market (Hernandez JG ; OZ2, 2016). Zara is aware that by having low prices for their goods, they have got more chance of gaining competitive advantage in the market. Zara’s global strategy is derived to be able to go to market with the low prices.
Analyse strategy theoretically
Success from theoretical angle
Highlight key factors determining success
Present a model/framework to illustrate insights in the strategy
The main strategy that has allowed Zara to be present in so many different markets is the diversification that has been built into Zara. Looking at Ansoff matrix, there is a distinctive outline of where the diversification strategy lines up with the operations of Zara. Zara have grown by entering new markets and bringing new products to these markets so often that it is a continuous cycle of products going out and products going in to stores every 10-14 days (“World’s Most Valuable Brands 2018”, 2018). Zara have successfully diversified into new countries, gaining customer bases in so many different cultural affinities and markets. Their success in the 96 countries they have entered is granted upon their ability to create such a diverse product lines to supply to so many different buyers. Zara hold products for men, women, babies and children, this gives them a diverse range of groups that are able purchase goods from Zara. By having so many new products coming into store so often and being able to supply to so many different people, this promotes a sustainable growth for Zara in all markets. Zara have also successfully diversified into ‘Zara Home’, supplying to a whole new market and industry. Opening up to such a new market has taken the growth and diversification in Zara to a whole new level.
VIRO – VALUABLE, INIMITABLE, RARE, ORGANISED
The strategies that Zara hold can be assessed on the VIRO scale looking at how valuable, inimitable, rare and organised the competitive advantages Zara holds; Fast responsive and powerful designer team, Unique in-store inventory storage, Fast fashion brand image, and Time-compressed production process. Zara’s main competitor, H&M has a design team that are able to create a large range of goods for women, men and youth. This shows that H&M have a strong design team that can design a diverse range of fashion, like Zara. However H&M have not proven to have been able to design and produce goods as fast as Zara’s design team. Hence the strong competitive advantage the responsive design team are for Zara, being able to supply such a diverse range of goods so quickly. VIRO also shows that the vertical integration applied to Zara’s operations is not a strategy that can be easily imitated or organised and it is valuable and rare in the retail industry resulting in competitive advantage as inventory is adapted so rapidly to customer demands and it is fast-moving. The advantages to a Time-compressed production process is another consequence of vertical integration practices. The Fast-fashion brand image is valuable and rare to retail firms, the ability to produce such fast inventory and turn it over within 10-14 days is executed in all diverse markets and product lines. Due to this practice being so present around the world and continuously showing to end in an outcome of success, it is not a practice easily imitable or organised by other firms in the retail industry to the extent that Zara holds (Wang, Tan, Kao, Tao & Shen, 2018).
Describe the situation that the recommendations matter in
Propose how firms should strategise in situation
Many retail companies want to succeed internationally for the ability to grow and create a name for themselves on the global stage. Where firms are in a similar situation to the internationalisation that Zara have encountered, the firm is in need of generating brand loyalty and presence globally. Creating a baseline strategy for all global placements would be a good start, in forming a stable and consistent image and expectation in all operating countries (Hernandez JG & OZ2, 2016). Zara does this very well in ensuring that all stores look the same, are operated the same and have the same relative prices and quality. Firms can strategise in either cost leadership, differentiation or focus to allow them to gain competitive advantage over other firms in the market. Cost leadership is what works for Zara, they can provide high in demand goods at a low cost which penetrates a large customer base and loyalty as they know they are going to be able to find affordable items at Zara. Cost leadership may not always work for firms if they are unable to have such an efficient supply chain as Zara, which is where differentiation can become a strategy of use. Differentiation strategy is useful in the way that the customer base is gained from the unique attributes and values procured from the good. Customers feel as though they are better off purchasing the differentiated product over other products in the market. It is important to understand that differentiation strategy is to be used when the firm can ensure that there is a space in the market for the goods.
When wanting to create a global profile that is aligned all around the world, it is important to create a baseline strategy that is going to allow for sustainable growth. Zara have taken on the strategy of diversification and cost leadership to maintain their image and grow into further markets and industries.
In choosing a strategy it is important to look at the resources and capabilities of the firm and how the goals of the firm can be taken and expanded abroad. When looking at Zara, it is evident that their main focus is how to use resources and capabilities efficiently to maintain a good practices focussed on the customer. Zara follow an adaptable structure that they are able sustain in all operating countries to ensure that they have the ability to adapt to customer demands, customer requirements, and deliver these demands quickly and affordably (Danziger, 2018).
Zara has excelled in diversification of markets and products, through a single baseline strategy used around the globe. Though the strategies have results in such great success for Zara, this does not necessarily mean that the same strategies will be of benefit to any company’s process of internationalisation. Due to globalisation and the economy today, there are many factors to consider when crossing borders for operation. Diversification, cost leadership and vertical integration strategies through inventory and distribution have been of great use to Zara, the way that these strategies have been used by Zara can build a better understanding of how to tackle the global market for retail firms looking to grow and expand internationally. When diversifying into new markets and countries, other firms can take valuable following the way that Zara continues to remain such a good interrelationship between all stores, ensuring that every stores follows by the same brand image and reputation. Good management practices and consistency in stores is key to running successful stores around the world, especially when all stores are firm owned (Hernandez JG & OZ2, 2016).
Zara is an incredible brand that has successfully gone global, delivering customers with the latest trends at affordable prices. Zara uses vertical integration to grasp the advantages of such an efficient supply chain and inventory turnaround. The vertical integration that is applied to Zara’s operations allows for Zara to apply cost leadership strategy, to keep prices low to remain consistent in keeping their customers and attracting more. Due to Zara’s ability of being able to internationalise and be so present on the global stage, the brand has been able to diversify immensely into different countries, markets, customer bases and industries. The diversification that Zara holds in its brand is a key competency for the brand in creating such a sustainable success around the globe. The successes Zara has encountered are a conclusion of the international and product diversification that has continuously been applied to centre around the customer and the demands they have in different markets. Retail companies wanting to develop on to the global stage can take great learnings from the practices and strategies that Zara puts forward in every new market and product line established within the Zara brand. Zara holds sustainable competitive advantages in their operating markets as a result of their well developed and executed strategies that delivers great success in the firm and brand.
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World’s Most Valuable Brands 2018. (2018). Retrieved from https://www.forbes.com/companies/zara/#458cb8e27487
Kowsmann, P. (2017). Zara parent Inditex sales hit record; profit rises. Retrieved from https://www.marketwatch.com/story/zara-parent-inditex-sales-hit-record-profit-rises-2017-03-15
The internationalisation of retail. (2018). Retrieved from http://www.smollan.com/the-internationalisation-of-retail/
Hernandez JG, V., & OZ2, A. (2016). Methodology and Strategies for Companies in the Process of Internationalization. Journal Of Global Economics, 04(04). doi: 10.4172/2375-4389.1000224
Danziger, P. (2018). Why Zara Succeeds: It Focuses On Pulling People In, Not Pushing Product Out. Retrieved from https://www.forbes.com/sites/pamdanziger/2018/04/23/zaras-difference-pull-people-in-not-push-product-out/#7c19db4f23cb
Wang, X., Tan, T., Kao, H., Tao, Y., & Shen, F. (2018). ZARA Synopsis Pdf.