1.

Introduction and Company Background

Zara is the largest company in the fast retailing industry based on the turnover (Fast
Retailing, 2021), reached almost US$ 25 billion turnover in 2020. First established in
Spain in 1975, Zara grew from being merely an outlet for canceled orders of women’s
night wears and lingerie to a global leader in the fast fashion industry with presences
over 200 markets and operating in about 7,500 stores globally (Inditex, 2020). In this
report, we will illustrate how Zara presents a good ‘strategic fit’ for its business to be
sustainable in Hong Kong. We will justify with three main focusing on i.) how Zara’s
organization resources and capabilities suit Hong Kong, ii.) the strategies adapted by
Zara to tailor for the needs and requirements of Hong Kong and iii.) the
organizational resources and capabilities needed for the implementation of the
strategies.

2. Zara’s organizational resources and capabilities suited to Hong Kong

Operating environment in Hong Kong for the fast fashion industry is not easy due to
the extremely high rental of Hong Kong and strong competition from different
international brands such as Uniqlo and GU from Fast Retailing H&M and GAP etc..
As a result, in order to be “strategic fit” for its business in Hong Kong, Zara needs to
have organizational resources and capabilities that are valuable, rare, hard to imitate
and supported by the organization (Barney, 2002) to overcome the challenging
operating environment in Hong Kong.

One of the Zara’s organizational resources and capabilities is its experience in the
global market and thus its ability to adapt to the local environment, leveraging on its
past experiences of entering into many other local markets. Zara’s global presence in
over 200 markets with 7,500 stores are valuable, rare and hard to imitate. Through its
global development, Zara has thus shown high adaptability to different cultures with
high degree of localization and a balanced mix between local and global operations.
As a result, this experiences could help Zara to develop a competitive advantage in
Hong Kong by adapting to the local culture.

Furthermore, as a leader in the fast fashion industry, Zara has strong capabilities in its
distribution channels and supply chain that enable Zara to timely market its latest
clothes. This capability is perfectly suited to the Hong Kong as Hong Kong has
always been famous for being the international logistic centers, connecting Asia,
particularly China with the rest of the world (The Hong Kong International Airport,
2020). Therefore, Hong Kong’s geographical advantage together with Zara’s strong
supply chain network and distribution channels, it does not only facilitate Zara to
develop sustained competitive advantage in Hong Kong, but also enable Zara to
strengthen its distribution channel in Asia using Hong Kong as the regional
headquarter (Inditex, 2020). According to the MDS (2018), the global fashion
business journal, China became Zara’s largest supplier of Zara with 449 partners
located in China in 2018. This shows the strong proximity and strategic-fit for Zara in
Hong Kong.

Zara’s strategies have suited Hong Kong so well that even when Zara was badly hit
by the Covid-19 and closed 1,200 stores globally (Wall Street Journal, 2020), Hong
Kong was not impacted and there is no closure of stores in Hong Kong.
3. Strategies adapted to the needs and requirements of Hong Kong

In order to succeed locally in Hong Kong, Zara must adapt its strategies to needs and
requirements of Hong Kong in order to be a good ‘strategic fit’. Zara thus made 2
most appealing adaptions. Firstly, in order to adapt to the high rental cost, Zara
operates in Hong Kong only with 12 stores (Zara, 2021) to avoid over-expansion in
Hong Kong. This is comparable to the number of stores of H&M (12 stores) (H&M,
2021) and significantly lower than Uniqlo’s 29 stores in Hong Kong (Uniqlo, 2021).
In addition, these 12 stores of H&M are mostly located in central business district, the
high-end malls and most popular tourists attraction(e.g. 2 stores in Central, 2 stores in
Tsim Sha Tsui, including IFC and Element). Given Hong Kong’s small geographical
scale, it makes sense for Zara to focus its presences in the easy accessible areas with
the highest people flow.

Secondly, Zara also adapts to the requirements of Hong Kong by using a

differentiation strategy of offering more middle-end and smart causal products in
contrast with its other stores globally in order to differentiate from its competitors
(McKinsey, 2016). Hong Kong has always had one of the highest per capita income in
the world. According to the World Bank, Hong Kong ranked 12th in the capita GDP
(World Bank, 2021), demonstrating Hong Kong’s strong purchasing power. In
addition, Hong Kong has a large white-collar working population which requires
more smart casual clothes than casual clothes. Therefore, to adapt to this background,
Zara has chosen to offer higher-end and more smart causal clothes than its
competitors of H&M and Uniqlo. For example, the store in IFC only sells women’s
working clothes.

4. Organizational resources needed for implementation of the strategies

To implement the aforementioned strategies of focusing the opening of stores in

selective areas and offering differentiated products of higher-end and more smart-
casual products compared to its competitors, Zara needs the support of its
organizational resources and capabilities.

Firstly, it requires Zara’s strong organizational culture of working together and

extremely efficiency processes so that the stores are permanently in touch with the
team of designers to perceive customers’ changing tastes and quickly launch new
products that are timely to the market (Zara, 2020). Zara’s highly efficiency process
also helps to reduce lead and delivery time required to take the new products to the
markets. As a result, Zara can continue to launch successfully new products in Hong
Kong by correctly anticipating the customers’ taste. Furthermore, this quick time-to-
market strategy can only be enabled by Zara’s extensive supply chain that are based in
different locations globally. Therefore, Zara can flexibly increase the the production
capacity through its extensive suppliers to tailor for the change in demand.

Secondly, to develop this competitive advantage sustainably, Zara’s financial

resources are needed to ensure the implementation of strategies as none of the
strategies would work without sufficient working capital, especially on the opening of
new stores. Zara has one of the strongest balance sheet in the fast retail industry (Zara,
2020) with around Eur 15 billion equity and cash and cash equivalents of almost Eur
5 billion and annual turnover of almost Eur 4 billion before the pandemic to support
its business development in Hong Kong, allowing Zara to open stores in the most
expensive locations of the city.
Reference

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