Born Global Firm Case Study- ZARA

BY- GBE Group 9

Gagan Hasija(143070)
Ishieka Jain ( )
Shavik Baral (143097)
Shavika Srivastava (143098)
Sulagna Biswas (143109)
Sudhanshu Shekhar Dubey()
 Table of Contents

 ZARA: A company Review

 The company strategy of ZARA

 SWOT Analysis

 PESTEL Analysis

 Internationalization Process of ZARA

 Theories of Internationalization

 ZARA in India

 References


 ZARA: A short company overview

Zara was founded by Amancio Ortega Gaona in 1975 and is based in A Coruña, Spain. It
became the flagship of Inditex. Inditex is synonymous with Industria de Diseño Textil SA
manufactures and markets clothing for men, women and children. Its brands include Zara,
Bershka, Pull and Bear, Stradivarius, Massimo Dutti, Oysho and Zara Home. Zara's stores are
located on all continents, with around 2250 stores in 93 countries. The brand created its image
with the way they keep up with the changing fashion trends. The new designs can be placed in
stores within a week or two as a result of a fast fashion and European manufacturing concept.
This is Zara's competitive advantage bias against competitors such as H&M or Mango. It would
take up to six months for their new designs to be put on the market. Zara is the brand with the
highest brand equity.

The Company Strategy of Zara

 Responsive Supply Chain Strategy
One main edge or advantage of Zara is its ‘Vertical Integration’ that is, controlling each
manufacturing process from design to logistics itself. Zara does it so to have effective
communication within departments and to cater customer demands effectively and
efficiently.
Zara using this strategy makes products available within 15 days in collaboration with
their stylist and designers to the market ensuring stocks are stored as and when needed.
In addition to the fast product, this supply chain model can prevent possible product
errors and delivery delays. And Zara makes 40 percent of its own fabric and purchases
most of its dyes from its own subsidiary.

 Promotional Mix and Product Strategy

Zara believes in zero promoting and would rather spend on store development than to
publicize on TV and other typical promotional places. The main logic behind the exercise
is brisk turnaround of the store which is roughly four weeks, which renders publicizing a
superfluous cost. Zara focuses on its store and collection of fast fashion and concentrates
on displaying a vast number of plans every year. It is famous for being press shy and does
not engage in flashy campaigns, it focuses on its social media platforms to attain high
 engagements and target audience. Zara also teams up with local talent to provide the
latest fashion trend.
Zara has everything from formals to casuals and for men, females and kids, products like
jeans, trousers, tops, t-shirts, skirts, shoes, bags and other accessories. It is a complete
fashion outlet and believes in delivering high fashion clothing and accessories. It caters to
the high-end fashionista as well as with the masses.

 SWOT Analysis
 The Internationalization Process of ZARA

The internationalization of Zara is a classic example of the “stage model” by first targeting
geographically or culturally close markets and then moving on to other more faraway countries.
Zara believed that “national frontiers are no impediment to sharing a single fashion culture” and
thus benefited from the globalization of economies, the homogenization of consumption
patterns across different nations and the abolition of barriers to export sling with newer
advancements in technology

 Chronological and Geographical Sequence

Zara’s success and both is due to Organic growth and the right expansion, without
expanding throughout the globe and opening stores internationally it would have not been
this successful. This rapid expansion and internationalization helped them gain millions
of new customers which lead to the popularity and position it now holds in the world.
This process of internationalization was divided into two phases

1. Cautious Expansion Period (1989-1996)

2. Aggressive Expansion Period (1997-2011)

The first-ever Zara store opened in Spain in 1975 and over the following decade, it
continued to open stores all around Spain. In 1988 Portugal got its first-ever Zara store
and in the coming few years Zara expanded to France, Malta and Cyprus. During this
period only one or two stores were added each time to Zara’s Portfolio, this was the
Cautious Expansion period where selected geographies were targeted. Until 1998 Zara
was represented in ten foreign markets only.

The second Aggressive Expansion Period was started after 1988 and this is still going on,
after Zara experienced the international market and gained insight on the same in phase
one, it started to aggressively expand to more far away countries and in large store
numbers at once. During this rapid expansion period markets like Costa Rica, the
Philippines and later India were targeted eventually in 2010 after Zara entered India
considering it to be one of the most vital markets to target for its future. At the beginning
of 2010, Zara was present in 74 countries and with 1900 stores around the globe. Today
Zara is considered to be amongst one of the top-notch International Fashion Brands and
has been featured in various lists like Forbes and others.
 Role of Culture in The Internationalization Process
Zara does not focus on ‘culture’ as it can be seen from their store and online collection
that about 90% of their apparel line and other collections are similar worldwide. It can be
said that Zara doesn’t follow culture as a part of their apparel lines as it makes collections
which one can wear in any part of the world. In Zara's terms, they are ‘modern’. But to
keep that vibe and cultural touch Zara still makes about 10 % of the collection which the
store manager chooses from an expanded range of products options which is then
approved at the main headquarters of Zara keeping in mind the interest of the customer.
They are not manufacturing culture specific rather they are just making a collection from
a range of products. This collection is made with respect to what suits in which season
and the collection is live as soon as the season comes. Zara focuses on keeping up with
time and pace which makes them change their style and fashion as per the dynamic latest
trend along with providing quality and value for money products.
Zara proved that it is possible to go global without changing the culture and rather
making people love what you bring from your home country. Hence, it can be said that
Zara is least concerned about culture in their internationalization process.

 EPRG Scheme
According to the EPRG Framework, there are four management approaches that an
organization can take to get more involved in international business substantially. It
stands for Ethnocentric, Polycentric, Regiocentric and Geocentric. It is a framework or
model that was designed in 1969 by Perlmuter and Wind and Douglas. It is created to be
used in an internationalization process of businesses. In Ethnocentric approach the
company in a local country that wants to do business overseas does not put in much effort
to do research abroad about the host country’s market. Instead, most of the market
research is executed in the headquarters in the local country. With this approach, the
company seeks for markets abroad that share the same characteristics as the local market
so that the marketing strategy does not have to be adapted. In a polycentric approach, it is
the opposite of the ethnocentric approach. A company that utilizes this approach carefully
considers different markets abroad to identify host countries that could potentially offer
the most benefits. In a Regiocentric approach, businesses create and implement
internationalization strategies for specific regions. Companies that utilize this type of
approach use this for the area in which the local business is operated. In a geocentric
approach, a business strongly believes that it is possible to utilize one type of strategy for
all countries, regardless of the cultural differences. However, companies that use this
approach attempt to create products or offer services in a way that best suit national and
 international customers. They try to adapt according to the needs and wants of customers
in their specific countries.
It is safe to assume that Zara follows the geocentric approach of the EPRG Framework
due to its high mutual dependence and complexity. Zara has a highly vertical integrated
management system where the company itself owns every part of their
supply chain. A centralized decision-making process creates high mutual dependence -
subsidiaries operate with the permission of the parent company. Furthermore, Zara has
universal and local standards as performance and control indicators, for example the
standardized collection of clothes and accessories. Another factor that could prove Zara’s
approach to geocentric orientation is the intensity of communication and the flow of
information within the company. The manager collects, analyses and finally reports
feedback from customers and then requests new products based on their pattern of
shopping, which allow them to respond to changing customer demands instantly.
Geographical identification is important as well. The company is a world leading retailer
but still makes sure that their production is based in Spain, where their headquarters lie or
in countries nearby. They also make sure that the prices can be the lowest in the local
market. Zara’s management structure also follows a geocentric approach. The firm
follows this rule from its own experience that it is better to recruit employees locally to
gain better understanding of local market preferences.

 Market Entry Strategies

Entry to the international market has been carried out through three entry modes:
i) Own subsidiaries: This expensive strategy was adopted in South America and
Europe because there is high growth potential and low business risk in these countries.
ii) Joint ventures: If Zara does not know the market well, it prefers to use the joint
ventures approach to synergize with local companies.
iii) Franchise: This strategy is chosen for high-risk countries that are culturally distant or
have small markets with low sales forecasts such as Kuwait, Andorra, Saudi Arabia or
Malaysia. Zara's franchisees follow the same business model in terms of product, store
location, interior design, human resources, logistics etc.

After selecting a market entry strategy for a particular country, Zara follows a pattern of
expansion known in the company as “oil stain”. This involves opening an "insignia" store
aimed at consolidating its name in a new location, before establishing smaller stores of
different brands to achieve a certain density of points of sale that allows it to create
economies of scale and boost profit margins. It means that Zara opens its first stores in a
country to understand a market and then uses that knowledge as it expands to that market.
The most important thing for Zara to enter a new market is the existence of potential
customers: People sensible to the phenomenon of fashion.
 Theories for Internationalization of Zara

i) Knowledge Sharing
The sharing of knowledge and organization are two of the most critical aspects of the
performance of Zara. The fast-fashion retailer's backward and forward exchange of
information contributes to a contact line that is valuable to a multinational
organization and vital. Due to its manager's and pattern spotter's daily updates to
headquarters, Zara potentially profits most from reverse information sharing. As
reverse-flow information is more likely to contribute to efficient globalization, this
suits the knowledge flow model.
The reverse-knowledge configuration of Zara also allows for the sharing of both
explicit and implicit knowledge from the external partners, back to the home office
and then back to the foreign units. It is also possible to share specific information on
retail sales, consumer response to new merchandise and local patterns. This indicates
a strong combination of various forms of information about businesses and
transactions.
Using basic formats and operating modes, every Zara store is set up. Because of the
special information-sharing capabilities of the firm, operations excel. The analysis of
Zara's organization and the sharing of information establishes the existence in its
activities of an exchange of firm-specific and tacit-nature knowledge. This reflects the
internationalization concept of high-control entry-mode used by Zara with fully
owned branches in foreign markets. The retailer thus retains a competitive edge by
preserving important details, reducing the potential risk related to the new market.

ii) Resource-based view

Researched based theory is a theory primarily focused on foreign investments that
exploit resources. It also suggests that Zara has a resource-based structure that is
valuable, rare, imperfectly imitable, and not substitutable due to ownership-specific
advantages. Zara is able to control its production, distribution, and sales at each level
due to its vertical integration. Non-hierarchical and vertical integration has helped
create Zara pseudo-backwards integration. Zara also puts effort into hiring and
training local workers in its new stores that leads to job growth and relevant feedback
mechanisms. This helps Zara get access to valuable market information for future
marketing strategy and promotion. Zara is also able to turn the latest trend into a
saleable item due to its technology that transfers point-of-sale and store information
directly to the headquarters to be analyzed. This helps Zara keep its prices, promotion,
 product, and placement relevant and unique to the local market. All these have
resulted in a strong positive response from foreign markets making it very tough for
its competitors to imitate its high control strategy and resource-based advantage.

iii) Psychic distance

The psychic distance can be understood by measuring the degree to which one culture
is comfortable in dealing with another. The history of Zara’s internationalization is in
sync with the psychic distance model. After opening its first international store in
1988, Zara moved into several markets like France and Mexico. The psychic distance
model will predict that Zara would first expand into France because it is
geographically close, language is related, is a catholic country, and has a southern
European culture. Zara was also able to identify Mexico apart from having a culture
with a common language and religion, consumers there also looked for affordable
ways to adopt the fashion of developed countries. By the mid-1990s Zara started
expanding into psychically far-off markets such as Greece, Sweden, and Cyprus.
Leveraging its backward integration Zara was able to gain knowledge which in turn
helped them expand quickly to the rest of Europe, North and South America. Research
suggests that firms tend to gradually expand into distant countries as they gain
knowledge. Zara, however, seems to accelerate this process by entering into the
United States and South Korea due to knowledge gathering and sharing strategies,
implemented at each and every store across borders
 Zara in India

 Entry Strategy of Zara

Zara has primarily relied upon three different entry modes for its international expansion.
They are; joint ventures, subsidiaries, and franchising. In February 2009, the Indian
policy on Foreign direct investment (FDI) reported that Zara has joined forces with Tata
Group, India to form a joint enterprise. Tata’s subsidiary Trent Limited holds a share of
49%of this collaboration while Zara’s parent company Inditex holds a 51% share.
Currently, Zara has over 20 stores pan India and many have witnessed double-digit
growth in the year 2017. This was the same year when many retailers in the same market
maintained even a single-digit growth due to a drop in consumer spending. Demography
and culture had been Zara’s main concern while entering India. With1.2 billion
population, the target market is no doubt wide for Zara in India. The brand projected that
with rising disposable income will directly contribute towards an increase in the demand
for trendy and high-quality goods.

 Supply Chain of Zara in India

Zara is well known for delivering new clothes and products to its stores efficiently,
rapidly, and in small batches. In India, it has been observed that store managers order
twice a week and new garments usually arrive at the store right on schedule. According to
some estimates, Zara produces approximately 550 million items a year for its 1770 stores
operating in 87 countries. Zara utilizes its effective and efficient supply chain as its
competitive advantage.
i) Just in time production
a) Instead of producing a large batch, Zara prefers holding its production to allow
itself to be flexible with respect to amount, variety and the frequency of new
products that are to be launched.
b) 15-25% of the seasonal product, Zara produces them almost 6 months in
advance. Zara also designs and manufactures almost 50% of its garments in the
middle of the season.
c) To maintain its image as ‘fast fashion’, Zara reacts extensively to new trends. It
designs new styles and displays them in its stores when the trend is at its peak.
d) Zara also implements a continuous feedback mechanism in all its stores. The
data is collected by the store manager regarding the likeability of different
offerings and is instantly delivered to the designers of Zara.
 ii) Inventory Management
Zara implements an inventory optimization process in all its stores. It is a process
through which a brand can predict the quantity that needs to be delivered to every
single retail store. The brand avoids holding up stock and unpopular inventory in any
part of its supply chain. This creates an atmosphere of no fear of piled up stock that
needs to get rid of.
iii) Centralized logistics
Zara ensures order fulfillment to its stores by developing deep, predictable, and fast
pace products. Every staff associated from design to production, distribution, and
retail respects the timelines and performs operations effectively due to the flexible
centralization process. Zara can thank its cross-functional operations and vertically
integrated supply chain that empowers large scale production under a push regulator
that helps the brand to develop well-administered inventories, lower markdowns,
higher profitability, and value creation both in the short and long haul.

 Marketing Mix
i) Product
The capacity to adjust quickly to frequent changes is the main strength of the brand
Zara is. The company's development process is as a consequence, it offers total
authority, and does not outsource the goods produced by it. This brand's unique selling
proposition is It has been noticed that the new fashion is evolving and imitating
Trends. Furthermore, the newest fashionable apparels and items are made Accessible
for a maximum amount of time at all retailers for a period of Two-Four weeks.
The merchandise from the shop that is unsold is pulled on an instant basis out of the
show shelf and fresh goods are being prepared accordingly. For instance, Zara's stores
consist of many Westernized goods, and this is the big One downside of this brand in
India as it does not run through innovating and targeting urban markets by innovating
and Creation of models that incorporate local customs Modernism. Secondly, the
absence of seasonal fluctuations in the product portfolio is the big setback seen in
India's development of this brand.

ii) Price
Zara's key goal is to put the product at a reasonable price for its buyers. Zara claims
that customers find the prices of its goods to be very fair relative to other current
brand rivals who set higher prices for their deals, however, Zara has been found to
follow a premium pricing approach in India after examining the pricing dynamics of
the Zara brand. In India, the pricing. The Approach of the Zara brand is produced by
uplifting the organization's cost of growth and training.
iii) Promotion
It is observed that Zara's marketing campaign is the most exclusive and unique. "Zero
marketing investment" which allows the company to use promotional funds to launch
new stores across the globe. The brand's key advertising approach is to demonstrate its
attempts to quest for differential points and to achieve a strategic advantage in the
overall market.
Zara's unique approach is to ensure that its goods are recognizable, inexpensive and
unique to the customer. The organization makes specific attempts to encourage word
of mouth ads as Zara claims that it has a larger effect on the minds of customers. Zara
introduced its online portal in 2017 for Indian customers in India. Compared to its
main rival, H&M, to develop accessibility, recognition, improved customer loyalty
and first-mover benefits. Zara's goal population falls between the age of Groups who
remain in the area for 17 to 40 years. As the customer in this age group is known to be
one who is more averse to fashion.

iv) Place
Zara is indeed a vertically integrated company that develops, manufactures and
distributes the whole package on its own. Zara is able to achieve this strategy is an
incredibly effective way because of its global footprint and is steadily expanding its
base in India. Approximately 90 percent of shops are operated by Zara and the rest are
joint partnerships and franchises, which means that consumer experience stays the
same in all shops when visiting Zara outlets, or at either place. In metropolitan cities,
Zara's stores are clearly established in a mall that lets the brand achieve greater
visibility and brand awareness.
References