Evaluation Of Zara Business Strategy Essay.

Strategic analysis

Discuss about the Evaluation of Zara Business Strategy.

Zara was started in 1975 at Alexandria, Spain by Rosalio Mera and Amancio Ortega (Ghemawat & Nueno, 2012, p. 1-35). It has succeeded in the selling of fashionable clothes and accessories (Gabrielli, et al. 2013, p. 206-224). The first store was opened at Coruna in Spain, and afterward, the company expanded to other parts of the world such as China, Greece, Belgium Sweden and others. Zara grew at a high pace and operates in about 85 countries with around 1763 stores Worldwide (Hansen, 2014). Its history begins from one of the largest textile designers and producers of fashions and clothing in Spain called the Inditex Group.  Zara’s products were lowly priced and targeted the women, men, and children (Hansen, 2014).

Therefore, this paper has explored different metrics regarding Zara. In particular, the study has critically evaluated Zara’s business strategy. The evaluation utilized various analytical tools such as the pestle, Porters’ five forces, SWOT, etc. Moreover, the report has justified the need for Zara opening new distribution store outside Spain and offered appropriate recommendations.

The flexibility and change like fashions and designs allow Zara to accurately provide products that match customers’ needs and align with their preferences. However, expanding to international does not mean a company has to make it a vision.  With the vision of giving customers exclusive of choice of fashions means a lot (Bruce & Daly, 2006, p. 329-344). The actualization of this vision can result in an increase in market share, increased production, and finally, the company can find the need of expanding to other countries like the case with Zara (Burghausen and Fan, 2002, p. 92-99). Perhaps, in future Zara can consider other strategies but going global is still early. It should concentrate on performing its operations internationally as to weigh the magnitude of competition as well as acclimatize with essential requirements to operate globally (Cheng, et al. 2008).

The competitor GAP’s has the vision of being most innovative hire solutions provider.  This vision propagates for being at the frontier and others follow concerning technological breakthrough, customers ‘satisfactions, market share, international operations and going global. For H$&M, the vision statement asserts the need to operate in a socially, economically, and environmentally sustainable business (Tang, 2014). It is therefore, unnecessary for a corporation to make it a vision to take its operations globally or internationally (Cachon & Swinney, 2011, p. 778-795).  Additionally, Zara current CEO has to lay new operational and administrative structures that can facilitate the administration of the new distribution center to be established outside Spain. The operations would have increased, and a modification of the current management systems will be required. It is this strategy that will act as a litmus paper to test if Zara is mature to go global. But for now, international expansion is still appropriate regarding the company size and financial capability (Hayes & Jones, 2006, p. 282-300). Indeed, global operations are quite expensive and will require a total revamping of the administrative system and the company will be necessary to hire experienced workers to serve various senior positions at the international level (Balmer and Gray, 2003). 

Environmental analysis

Zara, H&M, and GAP operate in 85, 44, and 41 countries respectively. Performance wise, H&M leads this list followed by Zara and GAP. The fierce of competition for market posed by these companies has imperatively uncover some weaknesses and perfect on strategy enactment. Firstly, Zara has learned the relevance of developing more brands through diversification. Secondly, Zara has learned the essentiality of opening distribution centers in other States besides Spain. Such strategy actually reduces shipment costs. The competition has also aided Zara understand the need for utilizing other forms of marketing that led to the adoption of online marketing strategies. Similarly, it is equally important that Zara consider employing marketing mix and promotional mix to enhance the reach to many customers.

The analysis primarily focuses on Zara business strategy. A successful organization indeed conducts an environmental assessment to identify opportunities, strengths and external factors that hinder smooth operations as it is observed in the case of Zara (David, 2013). The analysis will, therefore, reflect the competitive strategies applied by Zara to conduct its operation within Spain and other countries (Ireland, et al. 2008).

Strength

• It has an international outreach.
• Most of Zara’s stores are located at strategic points to enhance customers’ access.
• Zara has the control of supply chain and distribution of the clothes and accessories.
• The fast changing collection stimulates a fresh customers’ curiosity about Zara.
• Employee responsiveness and their direct communication with customers enhance customer loyalty.
• The famous brand image for exclusivity and fashionable products also makes customers to consider purchasing products in Zara stores.
• Zara has the ability to manufacture products at low costs which translates to pricing.
• The incorporation of technology in its process as well as specialists staff enhances the design of distinctive fashions.

Weakness

• The non uniformity in pricing is not a good strategy since some market areas are overcharged and others not.
• Most of its products are similar to the ones offered by competitors.
• Zara has failed to significantly invest in marketing strategies (RoyoVela, et al. 2011).

Opportunities

• Zara has the opportunities to expand to regions like America, Africa and Asia.
• The technology employed by the company can enhance the sales through online marketing.

Threats

• It faces stiff competition from rivals like GAP and H&M.
• It is affected by currency fluctuations in Europe.

Legal -Political factor

In Spain, the legal environment supports the development of industrial development (Lopez & Fan, 2009). Because Zara depend on the analysis of all environmental situations before undertaking expansion decision, the need for establishing other distribution stores have been affected by political factors due to unpredictable political environments. Also, political environment hampers the acquisition of strategic points to locate stores and ownership of some stores. However, the law in some countries restricted total foreign ownership, and Zara was forced to go for joint ventures and franchises (Persson, 2007).

Economic factor

Carrying operations only in Spain never subjected Zara to currency fluctuations. Spain economy is stable, and one can predict the market trends offering an excellent opportunity for companies to plan. The international operations are usually influenced by currency fluctuations.  In addition, the increased inflation in developing countries is a big challenge because it usually affects the profits (Sull and Turconi, 2008).

Social-cultural factor

Zara’s international operations are substantially influenced by cultural imperatives. Cultural hindrances have stifled Zara’s efforts of penetrating the America apparel market. These differences are majorly experienced in tastes and preferences. The inability of Zara to establish a strong supply chain strategy significantly affects its operations in America (Ton, et al. 2010).

Technological factors

Zara has totally embraced technology in its operations, sales points, and manufacturing processes (Mcafee, et al. 2007). And this factor immensely depended on technological developments in Spain. The technology has been utilized in breaking processes into simple tasks that were executed manually (Keller, 2012). The online marketing strategy that was adopted is just one of the fruits of technological embrasure by Zara (Bhardwaj & Fairhurst, 2010, p. 165-173).

SWOT analysis

Environmental factors

Zara has established environmental protection as part of corporate strategy. In the countries that it operates, it ensures that it releases fewer wastes, recycles wastes, use ecological fabrics and others.

• Zara has managed competition because of the ability to control its supply chain. It thus depicts that suppliers have less power.

Industry rivalry

• There is intensified rivalry among the firms for both local and international markets. But Zara has managed this competition and customers visit the stores more times than the competitors (Miller, 2013, p. 160-174).

Threats of substitutes

• There is high level of threats of substitutes because competitors usually copy the designs of Zara. The reduced lead time production assists Zara overcome the threats where the competitors take time to design similar product.

Barriers to entry

• Zara operates in markets where there are no barriers to entry. Zara has embraced differentiation and cost leadership strategy to overpower its competitors and new entrances in the markets (Mazaira, et al. 2003).

Bargaining powers of buyers

• The buyers in all the markets prefer fashionable and latest designs. Zara offers differentiated products and designs its clothes based on customers’ requirements (Michael, 2008, p. 86-104).

This matrix is used to give the management an insight about the market share of the product. Based on these four quarters, Zara’s market analysis is as follows:

Market penetration; Zara’s products are still penetrating to the furthest part of the countries it operates. The penetration efforts are boosted by the online marketing where customers staying away from the stores can view the products online and arrange for picking them from Zara’s stores.

Product development; apparently, the firm is always developing new products. New fashions are designed and developed within a short lead time giving Zara competitive edge against its rivals.

Market development; the firm is however still developing new markets for its product. The expanded regions of operations are just meant to increase the market share.

Market diversification; Zara has experienced significant market diversification. It provides varieties of products to customers which are sold to various markets.

This tool analyses the marketing position of an organization. It compares the effectiveness of the company products with those offered by competitors. Notably, Zara’s has positioned its product at position 2 “low price” and position 4, “differentiation.” As a cost leader, it receives fabric from suppliers at low cost. Services that require a substantial amount of money are outsourced (Ghemawat & Nueno, 2012). Consequently, its products are offered to customers at a reduced price when compared to its rivals. Additionally, its products are differentiated. Particularly, there is product and market differentiation where the main purpose is just for profit maximization through increased market share (Balmer and Gray, 2003).

This tool analyzes an organization based on five aspects. They include entrepreneurial, machine, professional, divisional and innovative organization. Zara has epitomized on a professional organization system (David, 2013). This system is characterized by a high level of professional with knowledgeable and competent workers. There is specialization and autonomy among the employees which is actually prevalent at Zara.

This tool gives a strategic option to a company that needs to manage pressures from international operations exerted by local responsiveness and global integration. Zara has however thwarted the effects of global and local forces through the following:

• Focusing on efficiency
• Has aimed at maximizing benefits
• Differentiated its products
• Promotes creativity and innovation.

Conclusion

In conclusion, the stability in Spain market and supportive legal environment is among the paramount factors that boosted Zara’s success. Also, effective operational plans, as well as the incorporation of technology in the process, played fundamental roles in the growth and expansion of Zara.  Zara however, still has to wait for some years to expand on production processes, open distribution stores outside Spain to consider going global. Expanding the manufacturing plant will enhance production of enough products to meet customer demands. Therefore, the management should focus on finding ways of enhancing access to more markets and lead to meeting customer needs through creativity, innovation, and sustainability.

PESTLE analysis

Apparently, Zara strategic plans have been instrumental in leading it to achieve all these successes it has up to date. But the CEO has to learn from competitors before thinking of going global. The current management should be modified and focus on locating distribution centers in other countries. Afterward, the management should consider applying marketing techniques to enhance penetration of the company products and brands to new markets. With the substantial resources in hand, Zara should consider opening branches in more countries where the markets are not concentrated.

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