Zara market entry analysis

SUMMARY

INTRODUCTION        3

SWOT        4

ZARA’S STRATEGY ANALYSIS        5

Pull strategy        5

Vertical integration        5

Competitive strategy        6

Reduce costs        6

Product differentiation        6

Market segmentation        7

INTERNATIONALIZATION OF THE BRAND        7

Strategic expansion        8

Legal form abroad        9

CONCLUSION        10

INTRODUCTION

Nowadays, the world knows difficult times in managing a company due to the fast globalization: numerous companies are obliged to reduce personnel, to diminish the turnover or even to close the business. Nevertheless, some companies survive or even succeed in this environment due to a good management, best practices, the quality of the products, the manufacturing processes, the customer approach, the way of communicating… they manage to maintain an economically healthy position in the market. It is the case of Zara, a brand of the group Inditex that keeps growing since its creation in 1975.

The Group Inditex S.A is the major textile Spanish group and one of the biggest in the world. It counts more than 6.000 shops distributed in more than 80 countries in 5 continents, using nearby 120.000 persons.

The first Zara shop was settled in Corunna, place in which the Group initiated its activity and where the head offices of the company are located. It became quickly one of the companies that employs the most Spanish people, creating jobs principally in Galicia.

Zara relies on a business model based on innovation, creativity and flexibility, being able to adapt very quickly following the current trends and foresee the next ones. At the same time, the company cares about the quality of the products. Thanks to the inclusion of different business concepts, Zara manages to reach more markets, more consumers, leading to reduce the exhibition to consumers’ habits and demand fluctuations.  

Another principal characteristic of Zara business model is its high level of integration, being the leading company in the design, manufacture, logistics and distribution through its proper shops. This level of integration provides to the company a better capacity to react in so important aspects such as delivery times of products or introduction of new collections.

Definitively, Zara is a model for textile companies on which we could realize an analysis in numerous aspects, but here we will focus on the process of internalization of the company. We will emphasize the differents aspects as relevant as the business model used in the international phases, the strategies followed and the key success factors that determine the decisions of expansion of the company.

SWOT

ZARA’S STRATEGY ANALYSIS

Pull strategy

Zara uses a pull strategy that consists of attracting its potential clients towards the company, offering quality contents that could turn out to be interesting to the target. To be successful in this pull strategy, Zara has to exploit with rapidity the information about sales while reducing to the minimum the time for designing, producting the products and the supply to offer the client what he asks in the less possible time and before competitors.

Clients are the determinant and most important factor in Zara business model. Zara's success has been from the beginning the capacity and the skills to interpret and to incorporate the continuous changes of trends and tastes for its clients into more rapidity than its competitors. Observation of the clients’ behavior is a useful tool that Zara uses a lot. The company studies the products that are less sold in what store and also the rate of return on some products. Thus, designers can analyze these data entered previously by managers in store and they are able to identify the best-sellers and the products that need improvement, then adapting the products to satisfy the demand. Clients are at the heart of Zara strategy, its aim is to satisfy and retain them.

To carry out this extremely quick response, the company needs to have a very flexible structure. It is able to be very flexible thanks to a vertical integration strategy.

Vertical integration

Vertical integration is defined as a company that buys and controls businesses along its supply chain. It can be the integration of suppliers, in order to have control on manufacturing processes.

The vertical integration can be backward or forward:

• Backward Vertical Integration: it means a manufacturer owns businesses that supply inputs to the business manufacturing process. It allows to ensure a better accomplishment and control of the activities of the supplier, but also to save time thanks to processes put together to fit the needs of the company.
• Forward Vertical Integration: it means a manufacturer owns businesses in order to get closer to the ultimate consumer in the supply chain. This way, it allows the company to make more money by selling directly to the consumer instead of selling to a retailer.

Zara's business model is characterized by a high degree of vertical integration where all the fashion process phases are put together: design, manufacturing, logistics and distribution in its own shops. The company has a flexible structure and a strong customer-orientation. Among other advantages, the vertical integration allowed Zara to take advantage of economies of scale, to eliminate costs of transaction, to reinforce the strategy of differentiation and to increase the global power of the company.

Zara bet for the last generation technologies applied in all the levels - management, design, confection, logistics and commercialization - that has allowed to vertically integrate businesses it was working with.

The Spanish multinational has carried out forward and backward vertical strategies:

• Zara's backward vertical integration: Zara's production is carried out in its own factories (purchased suppliers) or in external subcontracted workshops. The latter must fulfill a series of requirements as for example, not relate to other companies out of the group Inditex. That is to say, the company incorporates its suppliers as its own.
• Zara's forward vertical integration: The distribution and Zara's sales are done in its own shops (purchased distributors). There are no intermediaries so that the company is able to reach at maximum the final consumer.

Competitive strategy

In order to compete in this highly competitive environment, Zara uses several offensive or defensive strategies to position itself. Its competitive advantages are about costs reduced, product differenciation and market segmentation or focalisation.