Professional Documents
Culture Documents
TABLE OF CONTENTS
1
MANAGERIAL SUMMARY..................................................................................................2
INTRODUCTION....................................................................................................................3
BRIEF HISTORY..............................................................................................................3
3.B
BRIEF DESCRIPTION.....................................................................................................4
3.C
COMPETITIVE ADVANTAGE..................................................................................................5
ANALYSIS OF ORGANIZATIONAL STRUCTURE.....................................................9
3.E
STRATEGIC FOCUS......................................................................................................10
3.F
COMPANY MENTALITY..............................................................................................12
3.D
HEADQUARTER-SUBSIDIARY
RELATIONSHIPS
AND
SUBSIDIARY
ROLE
IDENTIFICATION.........................................................................................................................14
5
ANALYSIS
BASED
ON
SETTING.......................................................................................................................................18
7
AND RESOURCES)......................................................................................................................20
8
CONCLUSION......................................................................................................................21
APPENDIXES........................................................................................................................22
10
BIBLIOGRPAHY...................................................................................................................35
MANAGERIAL SUMMARY
Main purpose of this team project is to examine the Inditex Group, its resources and
INTRODUCTION
The overall purpose of this team project is to apply and integrate the discussed theoretical
over the world. Besides of global expansion, Inditex also thought of entering other segmentations
in the market, launching Kiddys Class in 1990 which becomes Pull&Bear after a year. Ortega
was always behind a veil, not revealing himself until 2001. By that time, Ortega was preparing
retirement and Inditex had to find a safe insurance for impact and that was IPO (Initial Public
Offering), which was very successful. Then at 2005, Ortega handpicked Pablo Isla Alvarez to be
next CEO of Inditex and one of the biggest innovations that Isla did was building online
commerce platform and by 2013, there are more than a hundred online stores of Inditex globally.
However Ortega did not fully retire but has relinquished the CEO title but still holds 59% share
of Inditex and still influences in product((Vincent et al, 2013). 1
3. Suppliers
Suppliers of Inditex can be one of the indications of the scope of global activities Inditex
has. Asia has the most suppliers by 739 suppliers in China and Southern East Asia. In Europe
there are 648 suppliers, 151 for non-EU countries and 497 for EU countries. Notably, America
has least number of suppliers by 82 while Africa has 124 suppliers. But numbers of suppliers
seem to be in inverse proportion with quality. America has the best proportion for A-rated
suppliers by 74%. (A-rated suppliers complies with the Code of Conduct) Then EU, Africa and
non-EU comes each by 60, 53 and 45 percent of A-rated suppliers. Asia has the least proportion
of A-rated suppliers by 27%. Even including B-rated suppliers, the ranking will not change
(Inditex Website, 2015).
4. Sales
Sales of Inditex have been growing since 2009, growing from11,048,000,000 Euros in
2009 to 16,724,000,000 Euros in 2013. Most sales in 2013 came from Europe (without Spain)
earning 46% of total sales. Meanwhile America has only 14% of proportion in sales. Spain, Asia
and the rest of the world have 20% of total sales each, 20%. According to the size of the area,
Spain would be most profitable market to Inditex(Inditex Website, 2015).
5. Workers
Inditex employs 110 000 professionals spread around the world from which 60% are
outside Spain (Inditex Spain Group report, 2013).
It takes 15 days to the company to design a piece of cloth and ship it to the stores. Inditex
produces 50% of their items that come mainly from Spain, Portugal and Morocco, creating a
short, flexible, and more responsive supply chain. This is why a good design of the value chain, a
high digitalization, a computerized inventory system, state-of-the-art production and warehousing
are vital for the firm (Inditex Website, 2015).
Both Zaras and Inditex business model is characterized by a high degree of vertical
integration and a JIT (Just In Time) inventory system, that means that the company carries out all
the phases of the process (design, manufacturing, logistics and sales). This is what makes them
reach a high degree of flexibility and a strong consumer orientation to respond in a fast way to
the needs of the market and change the production depending on the sales of each store in the
shortest period of time possible (Cuenca 2011). In the appendix II, we can find the value chain3.
Production of Inditex is highly centralized. A very interesting point about the
procurement is the production of grey products, which enables higher flexibility since they are
able to change the colour of the clothes just before selling depending on the trends of the market,
the colour that is being sold the most, etc. For the same reason of gaining flexibility and
supporting the JIT system, most important and most risky pieces are produced internally in small
batches, and the basics are outsourced. Their factories are highly automated, specialized
according to fabric, focused on prints and cutting and on finishing and control.
Distribution is one of the strongest strategic capabilities of Inditex. No matter the origin
of the production, it all goes to the logistics centers of each chain in Spain, from which it is
distributed to all the shops. Each store places an order twice a week and the time lapse between
the ordering and the arrival of the goods in the shop is, on average 24 hours for European stores
and a maximum of 48 hours for stores in the Americas and Asia (Inditex Spain Group report,
2013).
The distribution is made from these hubs. It is a fast process, in which clothes do not
stay more than 72 hours in the DC, since they are not warehouses but just a logistical tool to have
a quicker response towards the market (Rakovic 2015).
The production and distribution can be the key points of the added value of the company
and the core of the business model as well. These elements are vital for maintaining its distinctive
competence that is to produce and distribute at all times what the market demands. Its production
3 See appendix II
6
changes every 15 days, depending on the trend derived from sales of its stores. All departments
work with a common goal and logistics becomes the bridge between all areas, with coordination
from design to the point of total sales (Carramiana, 2014).
Finally, when getting to the sales or the sales point, we can say that Inditex really
innovated, at least compared to its most direct competitors in the role of the store.
The store is the key piece in the Inditex business model. As the meeting point with the
customer, it is the main source of information for the design teams and the centre around which
all the companys departments revolve. Today we can find Zara shops, for example, in the main
commercial arteries worldwide, and in shopping centers that fulfill the selective Inditex criteria,
always in places that guarantee visibility and accessibility(Inditex Spain Group report, 2013).
The stores are characterized by the followings: privileged locations, carefully designed
windows, not saturated layout, unique exterior and interior architecture and customer care. Each
store has a specific and different layout, based in the specific characteristics of the country, city,
or neighbourhood. They adapt the style of the store to the characteristics of the consumers in the
area, using it as main communication and information channel. For example, Zara store in Milan,
capital of fashion, is recognized for its outstanding architecture and beautiful scenery. In fact,
Zara adapts and changes its store according to the environment. Also, the merchandizing is done
by frequent product line changes and store outlook changes, which give the consumer a sense of
rareness and scarcity (Rakovic, 2015). That is their way of communicating to the consumer.
Indeed, while Gap, H&M, spend around 4 or 5% of their revenues on advertising, Inditex only
spends 0,3% (Vincent et al, 2013).
The fashion items found in most of Inditexs retail formats are highly imitative of
designer styles, which Inditex scouts on runways in Paris and Milan and in high-fashion
catalogs. Inditex does not employ well-known designers but instead draws from a team of 300 to
come up with products that mirror these trends in more affordable fabric (Vincent et al, 2013).
The company has trend spotters who are constantly analyzing trends, looking at what are
the most used clothes and most sold products. For the particular case of fashion, it becomes a
virtuous cycle, as it is creating trend at the same time. The company has only 1% of failed
creations compared to the industry average of 10% (Rakovic 2015). For example, H&M
produces all the clothes of the whole season and this does not allow them to make changes in
case of failure designs (EL PAIS, 2015). These are examples of how the client is the recipient of
7
the added value of Inditex but in turn is generating this value at the same time. Therefore, as it is
clearly stated in the website: In 40 years, the company has always had one goal: to listen
attentively to customers to offer proposals fashion they want (Inditex Website, 2015).
There is also added value in the design process. A key point is that the budget cost of each
product is determined prior to its release. Inditex is characterized by selling affordable fashion
and that is another value perceived by customers. They centralize the process where are not only
the designers involved, but also the pattern makers, buyers of raw materials, manufacturers,
logistics specialists and store, in order to have good designs with affordable prices as well. To
have good design clothes Inditex is based on the aforementioned shop spotters and Media
clippings. Also attends regular visits to fashion fair and shows (EL PAIS, 2015).
Besides, the distinctive thing about Inditex that leads to another competitive advantage is that it
has created new concepts for different segments in existing markets, enabling it to capture a
larger share.
Differences between each concept (Inditex Website, 2015):
ZARA: it targets both young (ZARA TRF) and more adult women (ZARA WOMAN) as
well as men and kids with an mix of urban, elegant and casual style.
Pull&Bear: It targets young men and women from teens to early 20s, and offers the most
own design, manufacture and logistic process, All the chains share the same business model, the
philosophy of how to do things and the groups corporate culture. (Inditex Spain Group report,
2013).
In order to have such a well-designed value chain that enables higher margins thanks to
the cut in advertising and the good design of the distribution and the centralization process, we
have listed the key resources that make this possible, in our groups opinion:
Human resources: The company policy to achieve a greater degree of local sensitivity is
recruiting local managers. It is natural that nationals of that country manage the company
in each country, in so far as they know best the market in which they operate, but the
company does not establish any barrier to career development based on nationality; rather,
on the contrary, the exchange of international experience is very valuable. At present, the
company is not implanted in any market in which they think they may not have local
company that is able to adapt to changes in demand. With a very hierarchical company this
flexibility is lost " (Carramiana 2014).
From a corporate level, the management team is separated into three major areas. The first
area is complied by one direction for each of the clothing concepts (Zara Massimo Dutti, Pull &
Bear, Bershka, Oysho, Zara-Home.); On the other hand we have the management for support
chains (international management, expansion, real estate, logistics, raw materials, plant and last,
the managers for corporate departments (administration and systems, human resources, fiscal,
finance and control, capital markets, communications, internet). In the organizational leadership
would be the president and CEO (Carramiana 2014). The main characteristic of this structure
from a group perspective is the high departmentalization and a low structure in terms of level of
hierarchies. The corporate structure leads to a greater efficiency.
However, if we take into account the business level, and go deeper in the brand
management and business units, the structure changes. The people in charge of stores respond
both to the boss of each brand and the boss of the management support chains forming
(Carramiana, 2014) a sort of global matrix management in which the store is the center of it, as
it is one of the cores of the value chain. This global matrix allows the flexibility and the speed in
terms of deliveries and supply to stores that we have already mentioned. This global matrix is key
to beat the competition with the fast fashion model. From an operational perspective, the group
assumes that the company is highly centralized since the operational methods to implement the
tactics come directly from the headquarters4.
section.Porters definition of strategy deals with the following question: How the company will
have a competitive advantage and sustain it over time (Porter, 2009).
Inditex's competitive advantage is "to produce and distribute at all times what the market
demands (Inditex Website, 2015). Its particular efficiency, flexible and fast system of logistic
and production is behind of "to produce and distribute at all times". On other hand, What
markets demands means well-design and trendy fashion with affordable prices. This system is
well linked with the essence of the fashion industry with regard to trend. Strategic focus in a
Porter understanding should deal with how Inditex can achieve and maintain this competitive
advantage. Also, we have to know how they can have fashionable and trendy clothing with
affordable prices and what they do in order to have that production and logistic system that
allows them to produce and distribute at all times. Here are some examples in order to answer
these questions.
The annual reports of Inditex (Inditexs Annual Report 2013) reflects that one of the
strategic commitments of the company is the continued opening of stores looking for growth. In
recent years, Inditex has kept pace of openings. But they are increasing the size of the surface of
new stores (EL PAIS, 2015). The question is how this fits into the strategy of the company.
Previously, trendy designs of Inditex were explained as competitive advantage. It has also
said that Inditex in order to get "what market demands have a system that is capable of deliver
clothing to a store within 48h and this system can also complete the process: design-productiondeliver in 15 days. This context of rapid production and changing trends leads the company to
make 40,000 product campaigns a year (EL PAIS, 2015). More campaigns means more product
and more product needs more space. The company has noticed that due to the advantages of its
value chain they may have multiple campaigns simultaneously, leading to more sales. So what to
do in order to have simultaneous campaigns? The company realized they need more space in their
stores. This will give them more square meters to implement different campaigns alongside in
time. This answers the question of why Inditex is opening new bigger stores and how this fits
with their strategy.
One key point in store designs is its big store forefront, in order to have an effective
communication of their products. The company needs glamour and spacious storefront. For doing
this, they should have bigger stores because bigger stores lead to more spacious storefront. More
spacious storefronts mean more effective product communication. This at the same time leads to
11
reducing marketing cost which allows them to have affordable prices (competitive advantage).
Now, the link is clear to see. This is another example of connection between their competitive
advantage and their specific business strategy dealing with having more spacious stores. There is
our OGSM model in the appendix IV5.
Regarding the worldwide knowledge and the relation with the subsidiaries, the Inditex
culture is very involved in building a sustainable knowhow both from suppliers and subsidiaries.
Amancio Ortega (Inditexs founder) believes in these values: individual talent, hard work,
personal responsibility and commitment to fellow faith in the possibilities of human beings.
These values permeate the functioning of the organization and they work as a common culture
within the company. The company has three training schools that teach this philosophy to
employees. Inditex brings together professionals from over 40 countries that share an
entrepreneurial culture for which there is no borders. There is also a committee of subsidiaries
that holds regular meetings with all managers of subsidiaries in order to exchange experiences
and know-how, and strengthen the culture of the company (Carramiana, 2014).
Although they have created tools for staff training and knowledge flow and they learn
from the experiences in certain geographical markets as will we see later, the stores and
subsidiaries do not take so much part in the design of clothes which is highly centralized and
reliant in European market. In other words, the stores and subsidiaries inform about the trends,
but do not highly contribute as center of excellence, for example. So some examples could match
with the third goal of the transnational type of company, but also to the multinational type.
The company balances the integration and the local responsiveness thanks to their
business model, which is their main competitive advantage. Also the organizational structure is a
true source of efficiency and flexibility at the same time, since they have centralized the
organizational departments (fiscal, financial, legal...) to save resources and they have one
headquarter per clothing concept. The tools that gear this structure are both the stores and the
logistic department.
Another idea to discuss about when trying to understand the company mentality is the
diversification of the group. As a corporate strategy, the group has just presence in the fashion
market, and in that sense, we could say it is not well diversified, even though Zara Home is more
unrelated, but still enjoying high synergies (Cuenca, 2011). The main diversification source for
the group is carried out at a business level through the development of eight different brands that
although belonging to the same industry, cover a wide variety of styles and ages of final
consumers. Besides, as seen in the international presence of the company Inditex has located its
stores in more than 88 different geographical markets and is still growing in terms of stores
opening and e-business platforms trying to geographically diversify (Spain still has a huge stake
13
in sales). The businesses being highly related is also a proof of the company not being so
transnational (Inditex Website, 2015).
In conclusion, the high degree of centralization of assets (mainly around the headquarter
in Spain) and value chain would be characteristics of global MNC companies even though the
high responsiveness and the large portfolio in terms of clothing concepts would be feature of
multinational type of company. The design of clothes and the lack of adaptation in terms of size
can be considered as a characteristic of an international type of company. In that mixed, could be
approaching the transnational type, but still remaining closer to the global though.
In the following sections of the paper we will address the issues of the headquarters and
subsidiaries relationship and the knowledge flows of the company and link it to their mentality.
in Spain and there is a headquarter for each brands of Inditex; Zara, Pull&Bear, Massimo Dutti,
Bershka, Stradivarius, Oysho, Zara Home, Uterqe and Tempe. They are all independent from
each other, indeed, each head office is equipped with its own unique design facilities and
logistics centers from which merchandise is shipped to the Group's stores worldwide twice
weekly (Inditex Website, 2015).The only information we can find on Inditexs website about
subsidiaries is a list of different countries so we can assume that in those countries there is a
group of local managers in charge of recruiting local staff and adapting the marketing to the
geographical area.
Some marketing issues (merchandising, window dressing, customer service, decor, etc.)
have been decentralized to the subsidiaries. Today the subsidiaries are responsible for
maintaining the identity of the chain and communicate it through the product, the store and
customer service. Each branch can vary the above commercial aspects while maintaining the
identity consistent over time. Conversely, for those elements that are vital to maintaining its
distinctive competence, the company establishes a strict control that limits the autonomy of local
managers (Carramiana, 2014).
Therefore, product and raw material policies are centralized at headquarters. Products and
campaigns are the responsibility of the design department based on the information received from
14
different countries and markets. As mentioned before, the price is determined by the headquarters
before launching the product and is usually homogeneous by geographical areas, depending on
the value of the currencies. Thus, for example, Scandinavian and British markets have a spread
upward from the rest of Europe (Carramiana, 2014).
We assume that the subsidiaries have an Implementer role. Zara headquarter has many
subsidiaries6 for example, Zara UK and Zara Germany. The headquarter subsequently charges
royalty fees for each subsidiaries. If a subsidiary is not profitable, it affects the performance of
the headquarters, as subsidiaries are seen as deliverers of MNC value-added (Rakovic 2015).
Indeed, subsidiaries are taking decisions about which clothes are going to be sold in the stores.
However, we think that all the subsidiaries will probably not have the same role because it will
depend on which market they are.
Linking this with their mentality, we could say that the control upon the subsidiaries is
high even though the stores and country managers have gained autonomy. The subsidiaries role
does not contribute that much to the main source of the competitive advantage of the group
(business model), even though it is very important to success in the store layout to gain local
responsiveness and communicate to the consumer, so we can say that the subsidiaries are gaining
autonomy, moving the mentality from a centralized and global type to a bit more decentralized
towards the transnational type.
ANALYSIS
OF INTRA-ORGANIZATIONAL
KNOWLEDGE- FLOW
just see what products have a good demand and then just produce more of it. According to the
John Gallaugher (2011), store managers and staff are using modern technology to gather and
analyse customer performance data, rather than make future plans based on hunches and
guesswork. Inditex is also targeting technology investments at the point in their value chain
where it will have most significant impact. Every spent dollar needs to have a payoff. Although
this information system works very good and this business model is pretty efficient (Flat World
Education Website, 2015). Information about sales is automatically sent to headquarters that
means that there is not real outflow of knowledge. Every piece of information goes through
headquarters. In that sense, outflow of knowledge from the local subsidiary or stores to the rest of
the corporation is basically very low.
However, we found out that there is also a committee of subsidiaries that holds regular
meetings with all managers of subsidiaries in order to exchange experiences and know-how, and
strengthen the culture of the company. Once a year there is a general meeting at which the
strategic plans for the entire company in a consensual set. Each subsidiary sends a business
proposal that reflects their intentions for the year in terms of new products, sales incentives,
window dressing, investment opportunities, and then the committee conducts a study of them and
determines which could be applicable to all subsidiaries and what would be country specific and
finally determine the strategic decisions. The committee subsidiaries also develop internal audit
function to check periodically that agreed at the meeting is being held. The auditors, who usually
belong to the design department of the headquarters must be able to work with professionals from
other cultures, learning from each contact not only to exercise control, but also to integrate,
coordinate and pass on what they learned over network in order to increase organizational
learning. We learn from each of the markets in which we operate and this learning facilitates our
growth. In the case of Mexico, the experience has been very important at all levels. Not only with
respect to subsequent expansion into other Latin American markets, but in general business
knowledge of another culture (Carramiana, 2014).
In any case, even though there is actually a knowledge outflow from local subsidiaries, it can
be argued that it does not have a continuous character on daily basis and that the subsidiaries do
not contribute in terms of high specialization, research or certain knowledge. We assume that
inflow of knowledge is higher that outflow, this knowledge flow is the one giving the
international character to the company.
16
Moreover, inflow of knowledge from the rest of the corporation to the local subsidiary or
stores is quite high. All new items are sent form distribution centre to the stores based on their
demand. Local subsidiaries do not participate in creating new items, but stores are able to order
the most appropriate items (Carramiana, 2014). This could be considered as an inflow of
knowledge to the local subsidiaries based on clothes design and production. Furthermore,
headquarters are having pretty strict controls of stores and employees. One of the most common
methods is false customer report (Carramiana, 2014). This all implicates that level of inflow
knowledge is much higher than the outflow. Moreover, Inditex has a specialized team of
technicians for educating sellers on proper distribution and display of products. It is very easy to
notice that Inditex is quite centralized in information sense and that most of the decisions are
actually made at headquarters.
Considering everything mentioned, one can conclude that Inditexs local subsidiary role is
likely an implementer. According to the Gupta and Govindarajan (1991) that means that local
subsidiary engages in little knowledge creation of its own and relies heavily on knowledge inflow
from headquarters. This is linked with the relationships analyzed in the previous
section.Information and logistics system is the same for all Inditex. Each brand stores are sending
all sales information to headquarters and headquarter designers is designing new products based
on customers demand.
On the Inditex group headquarters level it seems that there is not much cooperation and
knowledge transactions between brands. Each headquarter has a different location and their own
teams of designers. However, based on the fact that they have the same information and logistics
systems it is obvious that they do cooperate and share some experiences. It is hard to say if they
are local innovators because they are not local, but it is also hard to say that they are
integrated players because they do not share a lot of information.
retailer in the world, The Inditex Group is noted to have a unique business model that controls the
entire fashion process. Fast-Fashion as its called, Inditex has established itself by pioneering
shortened supply chain and centralized distribution in order to respond quicker to the fashion
17
trends. Having such a competitive advantage had certainly aided Inditex Groups growth over the
past years through its flagship brand, Zara, accounting about 66% of sales in 2012 also Inditex
experienced a surge in stores from 3,000 to 6,000 from 2007 to 2012. However, with the
underdeveloped brands compared to Zara such as Pull&Bear and Berksha and the overdependence on the European and domestic markets raises some important challenges towards
Inditexs increasing influence (Inditex Website, 2015).
Zara is responsible for 65% of global revenue for the Inditex Group and the other 7 brands
make up for the rest of the revenue. Relying so much on one brand leaves Inditex vulnerable to
consumer trends shifting away from fast fashion trends. Brands such as Massimo Dutti offers a
complete different product offering to the consumer and its expansion will lead to the company
broadening their portfolio and hedging against consumer trends (Vincent et al 2013).In order to
diversify their portfolio, this is an issue that regardless has to be addressed by Inditex.
Europe reported around 66% on Inditex sales and 25% of that came from the Spanish
domestic market, so with both Europe and the domestic market being in a recession such
dependence on one region leaves Inditex exposed to economic fluctuations (Vincent et al, 2013).
As a result of this, Inditex has sought to expand outwards towards Asia and the US. Given the
internal structure that Inditex has championed, the expansion towards other markets that the
company so desperately needs has already shown signs of stretch marks. With the shortened
supply chain and centralized distribution, Inditex faces different cultural preferences towards
fashion that are unlike those in Europe. After opening Zara in New York and Asia, Inditex has
struggled in America and has had marginal success in Asia. The European fashion of trendy cut
and slim fits does not fit the American classic, roomier fits (The Economist, 2012). Zara was
mentioned in many articles of Fat-Shaming the American consumer due to their unwillingness
of to resize their clothes for the American market (Lutz, 2012). Nonetheless in China, Zaras sizes
are fitting Chinese women but come at a higher price than its competitors. Due to the long
distance from Inditexs headquarters in La Corua, the prices in China are much higher than the
prices in Europe for Zaras products. Also, Zara was again mentioned in many articles for lacking
in quality compared to competitors (The Economist, 2012). By having centralized distribution, it
begs the question whether Inditexs business model can survive by expanding outwards to other
regions and still retaining their competitive advantage. It seems that Inditex requires an update of
18
their business model in order to become responsive to important markets that has made Inditex
such as success in Europe by keeping their finger on the fashion pulse of the region.
With inevitable expansion to different regions due to their over reliance on Zara and the
Spanish and European market, regionalization of Inditexs business model is certainly a long term
issue that the company faces. Inditex employs fashion scouts that track designer ideas that are
displayed on runway in Paris and Milan that then imitate their designer clothes in more affordable
fabric. The manufacturing all happens within close proximity of Inditexs headquarters. This
strategy has served well in European markets where they have developed a supply chain to
accompany it designed to keep costs at a minimum. While keeping to the status quo and
expanding to other regions, Inditex will find it difficult to offer the same product offering and
also keeping up to date with local fashion trends and designer outfits. Therefore, a long term
project that will require Inditex evolve their business model to fit the regions that they operate in
by establishing production facilities that functions as a central regional hub, fashion scouts that
attend regional fashion runway shows and creating fast and short supply chains. In order to
retaining Inditexs competitive advantage and expanding to other regions at the same time it
would only be logical that Inditex to address this problem sooner rather than later.
whilst also being overly dependent on Zara, the company can seek to minimize growth problems
by regionalizing their business model and diversifying their portfolio. Inditex, as documented, is
experiencing growing pains and it is impacting on their main brand Zaras image. In America,
European sizes just dont fit the American waistline while Zara is suffering from high prices and
poor quality clothes in Asia. By replicating their successful business model in Europe in regions
America and Asia, Inditex can recover from the troubles that have plagued their need to be more
present in other markets than Europe.
Managing a bank account of 3.8 billion euros in cash, Inditex has sufficient funds to fund a
long-term project of regionalizing their business model. This means to become more responsive
and cost-effective in the American and Asian market by establishing production facilities,
distribution centers that functions as a central regional hub, fashion scouts that attend regional
19
fashion runway shows and creating fast and short supply chains. Basically replicating their
successful methods of designing, producing, distribution and arrival to the shops in such swift
manner in Europe to American and Asian markets. As demonstrated, Inditex has shown great
responsiveness in the European market but has had suffered from cultural mistakes due to not
understanding the American and Asian fashion market. Therefore to become more effective in
those markets, Inditex will have to better comprehend regional consumer behaviour because in
the over-competitive market of fashion, yesterdays luxuries are todays necessaries (Prakash,
2010), highlighting the need to address consumer wants and preferences. Employing regional
fashion scouts are significant to become aware of the consumer behaviours in those markets in
order to gain back the competitive advantage Inditex enjoyed in Europe. Being too reliant on
European styles in other markets has proven not to work and being more observant of culture and
fashion will lead to regional consumers accepting Inditex. With Asias increasing influence in the
global market and the established American market, Inditex has to look in the long run to
establish a centralized distribution center in Asia and America responsible for both markets much
like Inditex has its headquarters in Arteixo, Spain. Every piece of garment be it procured from
Hong Kong, sewn near by in Spain or produced in Turkey, they all have to pass through the
centeralized distribution center in Spain that in turn sends the garment further on to all their
stores around the world. Multinational companies have to realize Asias growth potential due to
its high-growth markets (Guild, 2009), therefore Inditex should look to replicate its Arteixo
model in Asia and America by investing towards a distribution center like the one in Arteixo
(Butler, 2013). Inevitability this will reduce the distribution cost and subsequently increase the
profit margin while also retaining the competitive advantage of imitating regional designers
instead of only European ones.
Zara accounts for 66% of sales from the portfolio of brands that Inditex has, which leaves the
company vulnerable to swaying consumer demand. By diversifying Inditexs portfolio by
expanding Massimo Dutti brand, minimizes the risk and dependence on Inditex on the Zara
brand. Analyzing Inditexs portfolio shows that the segmentation of the brands is overlapping
each other that inevitably mean that these brands are competing against each other and overall
their portfolio targets a wide range of the population. For example, Pull&Bear, Stradivarius and
Bershka to the regular consumer seems all the same even though their stated segmentation
outlines different target groups. A solution to this is to differentiate the Massimo Dutti brand
20
more towards high end consumers through a trail product line which if successful can form the
basis of launching a new brand that caters to those consumers. Due to the economic crisis and the
widening gap between the rich and poor, Inditex can capitalize on this by marketing Massimo
Dutti for more luxury-seeking consumers. Through this, Inditex can accommodate for more
segments of the population and diversifying their portfolio because their dependence on Zara
might be a crippling stance.
Following is timeline for Asian and American market. The main point is having separate DC
and production facilities in each market. Plus, having market research and correct differences
from Europe to Asia and America.
CONCLUSION
Inditex has positioned itself as the worlds leading fashion company by developing a
revolutionary supply chain and distribution channels whilst remaining very customer centric.
Detailing the information flow through Inditex, placing the store and the fashion scouts at the
forefront of their information gathering to their short supply chains summarizes the value
adding activities which contribute to their competitive advantage. However as Inditex
realizes the need to diversify their portfolio and expanding presence in different markets, this
competitive advantage will become stretched if not threatened if the status quo remains.
Strengthening Inditexs position within the fashion world can be done through regionalizing
their business model and differentiating Massimo Dutti for consumers with a stronger
purchasing power. With this, Inditex can look in the future to reap the benefits of a strong
market share.
APPENDIXES
APPENDIX I : Inditexs history and main strategic movements
2013
Inditex rolls out its new brand images at its flagship stores. High-profile store
openings in cities such as Paris (Massimo Dutti at Rue de la Paix and Zara on the
21
its brands online, going live in new markets such as Canada and Russia.
Inditex opens its first stores in Armenia and the former yugoslav Republic of
Macedonia. The inauguration of the new eco-efficient store on London's Oxford
Street brings the Group's store count to 6,000. Inditex presents Zara's new image
at its Fifth Avenue store in New York. Massimo Dutti enters the US and Canadian
markets. The Group builds a cutting-edge logistics centre in Tordera (Catalonia,
2011
Spain).
Stores opened for the first time in Taiwan, Azerbaijan, Australia, South Africa and
Peru, bringing Inditex Group's commercial presence to five continents. Inditex
thus passed the 5,500-store mark, with shops in 82 markets. Building on its multichannel retail strategy, the company launched online stores for all of the Group's
brands and opened online Zara stores in the United States and Japan. At the
company's General Shareholders Meeting, Pablo Isla was appointed Inditex
2010
2009
2008
Tordera.
Launch of Uterqe, a retailer specialising in accessories and other fashion extras.
Inditex reaches the 4,000-store milestone with an opening in Tokyo. The number
of countries on its global store map rises to 73, following openings in Korea,
2007
hubs begin operating in Meco (Madrid) and Onzonilla (Len). Zara celebrates the
launch in Florence (Italy) of Zara shop number 1,000, while Bershka and Pull &
Bear each pass the 500-store mark. The Group opens establishments in four new
2006
2005
2004
Costa Rica.
The Group unveils store number 2,000 (in Hong Kong), expanding its global
footprint to 56 countries in Europe, the Americas, Asia and Africa. It celebrates the
launch of its first stores in Morocco, Estonia, Latvia, Romania, Hungary, Lithuania
2003
and Panama.
The first Zara Home outlets open, marking the launch of Inditex retailer No. 7.
The Group opens Zaras second distribution hub, Plataforma Europa, in Zaragoza,
Spain, to complement the distribution centre in Arteixo (A Corua, Spain). The
Group celebrates its first store openings in Slovenia, Slovakia, Russia and
2002
Malaysia.
Zara breaks ground on its new distribution hub in Zaragoza, Spain. The Group
opens its first outlets in Finland, Switzerland, El Salvador, the Dominican
2001
2000
1999
Group debuts in four new markets: Andorra, Austria, Denmark and Qatar.
Inditex acquires Stradivarius, the Group's fifth retailer. Stores open in several new
markets: the Netherlands, Germany, Poland, Saudi Arabia, Bahrain, Canada,
1998
1997
1995-
1996
1992/199
Malta in 1995, and its first Cyprus establishment opens the following year.
Inditex continues to disembark in new international markets: Mexico in 1992,
1991
Retailer Pull & Bear is founded, and Inditex buys 65% of the Massimo Dutti
1989-
Group.
The Group begins welcoming shoppers in the United States and France with stores
1990
1988
1986-
The Groups manufacturers devote their entire output to Zara. The Group lays the
1987
foundations for a distribution system that can meet the needs of its expected rapid
1985
pace of growth.
Inditex is founded as the holding company of the group of businesses operating at
1976-
the time.
Zaras approach to fashion is well received by the public, which prompts the
1984
1975
1963-
1974
clothing manufacturer. The business grows steadily over the decade until Ortega
owns several factories, which distribute their merchandise to other European
countries.
Source: Macarena Cuenca, Deusto Business School, 2011 ; Inditex website, 2015
24
25
26
27
28
Objectives
Goals
Strategies
Measures
29
30
31
Q1 2015 ~
Q1 2016
Establish produ
ct facilities and
centralized D
C
Market researc
h in Asia and A
merica market
Q3 2016
Promotions
Marketing
Q4 2016 ~
Q1 2017
Target: Increas
e in online purc
hase by 30% in
both markets
32
Q1 2015
Q4 2015
Q2-Q4 2016
Develop start-ups
for Massimo Dutti
Search for market,
market enter
strategy
Start producing
luxury goods as
Massimo Dutti
If the project
is successful
Expand Massimo
Dutti as luxury
brand
33
10 BIBLIOGRPAHY
Book
1
Gupta, A.K. and V. Govindarajan, 1991, Knowledge Flows and the Structure of Control
within Multinational Coporations,TheAcademy of Management Review, 16, 768-792.
Bartlett, C. A. and Ghoshal, S. (1986), Tap your subsidiaries for global reach, Harvard
Business Review, 64, 8794.
Website
1. John
Gallaugher
(2011),
Flat
World
Education
Website,
2015,
[Online],
http://catalog.flatworldknowledge.com/bookhub/9?e=gallaugher-ch01_s02
2. INDITEX website, 2015, [Online],
http://www.inditex.com/home;jsessionid=BQXCzlpET1yBp4PUkxCtcQy
3. El Pais, Delgado Cristina, Inditex apuestaporcrecer con menoscomerciosperoms metros
cuadrados,
March
19,
2015
[Online],
http://economia.elpais.com/economia/2015/03/19/actualidad/1426793205_781373.html
4. "Fashion Forward." The Economist. The Economist Newspaper, 24 Mar. 2012. Web. 06
Apr. 2015.
5. Butler, S. (2013, December 15). Inditex: Spain's fashion powerhouse you've probably
never heard of. Retrieved April 6, 2015, from
http://www.theguardian.com/fashion/2013/dec/15/inditex-spain-global-fashionpowerhouse
6. Guild, T. (2009, September 1). Think regionally, act locally: Four steps to reaching the
Asian consumer. Retrieved April 6, 2015, from
http://www.mckinsey.com/insights/marketing_sales/think_regionally_act_locally_four_st
eps_to_reaching_the_asian_consumer
7. Lutz, A. (2012, August 16). Why Zara Is Having Trouble Breaking Into The U.S. Market.
Retrieved April 6, 2015, from http://www.businessinsider.com/why-zara-is-havingtrouble-breaking-into-the-us-market-2012-8
Video
1
Porter, Michael.What is strategy? Online video clip. Youtube. Youtube 18 Mar. 2009,
34
Inditex strategy report, Vincent, Jessica., Kantor, Phillip., Geller, Daniel. 2013
35