Corporate Strategy: Opportunities and Threats for Zara

This report analyzes the corporate strategy of Zara, a fast fashion retailer, focusing on the opportunities and threats in the industry. It includes an external analysis to identify market potential and an internal analysis to assess the company's strengths and weaknesses. The report also discusses Zara's unique design, strong global presence, and lack of advertising as its strengths, and its generalized collection and low safety stock as weaknesses.

Applied
Corporate
Strategy

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1. External analysis to identify set of opportunities and threats.............................................1
2. Internal analysis..................................................................................................................4
3. Strategy Evaluation ...........................................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10

INTRODUCTION
Corporate strategy is the action which an organisation take with the motive of
accomplishing objectives as well as for gaining competitive advantages (Foucault and Frésard,
2019). In addition to this, corporate strategy estate a clear long term vision that has been set by
business firm and seek for creating corporate values and also for motivation of staff for applying
suitable action to gain customer satisfaction. In other words, corporate strategy is continuous
process which require constant efforts by company for engaging their investors in trusting
business with their money. It will assist company in increasing business equity.
This report is based on Zara which is part of retail industry and specialised in fast fashion
by including products like accessories, clothing, shoes, perfumes, beauty and many more. Zara
was founded in 1975 by Amancio Ortega nad Rosalia Mera. Its headquarter is located at Arteixo
Spain but they are serving at worldwide level. Respective assessment will conduct external
analysis for identifying opportunities as well as threats which are available in market for
company. In addition to this, internal analysis will also conduct through VRIO model for
analysing strength and weakness. Furthermore, strategic evaluation will also going to conduct by
implementing SAFe framework.
MAIN BODY
1. External analysis to identify set of opportunities and threats
External analysis simply means examining industry environment of an organisation
which include factors like competitive position, dynamic, competitive structure, history and
many more (Köhler and Zerfass, 2019). At macro scale external analysis involves global,
political, social, dynamic as well as technological factors. Primary purpose for conducting
external analysis is to identify the threats and opportunities which are available in segment and
derive profitability, growth as well as volatility of business.
PESTLE analysis.
 Political Factor: This is said to be one of the crucial factor of the external environment
which determines operations of an organisation. The political environment in United
Kingdom is stable enough which causes minimum disruption in the operations of
business and acts as an opportunity to expand their operations however Brexit have
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causes some uncertainties in the political environment which can act as a challenge for
businesses.
 Economic Factor: The economic factor takes into consideration turnover, productivity
and disposable income of target market (Palazon, El Ajjouri and Bolink, 2019). In
context of United Kingdom. GDP per capita income of citizens is believed to be one of
the highest in the Europe. The availability of fund is considered to convenient as well and
businesses does not face any challenge when it comes to raising funds for daily
operations. UK has been a popular destination when it comes to availing Foreign direct
investments from other nations.
 Social Factor: This factor focuses on changing trends and preferences of the people
residing in the UK. This country is known to be an ideal consumer market as there are
higher number of birth than death and also due to purchasing power of people. The
multicultural people poses an as opportunities for a business to launch their distinct
products and services.
 Technological Factor: Technology have become one of the crucial factor in external
environment which is to be considered by an organisation. UK have been one of the most
technically advanced nation and carries a strong technology based infrastructure.
Therefore it is an opportunity for a business to launch their products through online
platform of buying and selling. Zara can take advantage of online purchasing trends as
well as making availability of clothes not only on their stores (Dahl and Fløttum, 2019).
They also want their products on other E-Commerce stores which result in enhancement
in their sales. But on the contrary, frequent update in the technology will cost huge funds
to business. s
 Legal Factor: There are certain legislation which are to be conformed by a business such
as Employment Act 1996, laws relating to maternity, compensation and minimum wage.
The opportunity in this context is that conforming with all the laws raises goodwill of the
organisation but costs a business a lot more than actual market circumstances.
 Ecological Factor: It has become very important for businesses to look after the
environment in which they are operating (de Lima and et. al., 2020). A business is
obligated to support government and local authorities in their venture focusing on
environmental protection and preservation. This will directly contribute in enhancing the
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goodwill of the company but on the other hand participation in such events distracts a
business from its actual operations.
External analysis of Zara will going to conduct for identifying opportunities and threats
explanation of these are as follows :-
Opportunities – It is exploitable set of circumstances which have ensure results, explore
to risk as well as necessitate commitment related to resources (SWOT analysis of Zara – Zara
SWOT analysis, 2019). For an organisation opportunity is external factors which help company
in improving their performance, management structure, strategic growth and several other
aspects. Opportunities of Zara are as follows :-
 Online E-Commerce – For Zara it is an opportunity as respective company can take
advantage of online purchasing trends as well as making availability of clothes not only
on their stores (Dahl and Fløttum, 2019). They also want their products on other E-
Commerce stores which result in enhancement in their sales.
 Backing some flagship design – It is most common trait of top brands which means that
most of companies have some flagship design in their stores. In this Zara is lacking
behind as it is opportunity of respective company as there should be some designs which
sold by Zara only. This will result in creating great demand for company and more brand
identity.
 Growing market potential – Zara is existing company and it is becoming more popular
which result in growing market potential (Oppenheimer, 2019). Thus, rising earning
potential of consumers give impact on demand for symbol status.
 Market expansion – To Zara new market will provide new business as well as
profitability. Thus, it is essential for them to keep eyes on emerging market in which
power of spending is increasing and people can spend on premium brand such as Zara. So
that they can wear better as well as stylish products.
Threats – These are the phenomena which stop company in taking advantages. Threats of
Zara are as follows :-
 Low advertising – Zara don't do advertisement of their products which become threat for
them. Thus, it is essential for respective organisation to invest money in advertisement
activities also because it will help them in gaining competitive advantages and increasing
sales by attracting customer's.
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 Competition – In retail industry there are several competitors of Zara such as Vero
Moda, mango, Mango and many more which become threat of company (Cappa, Cetrini
and Oriani, 2019). This simply means that customer's have option to switch brand easily. Reach – It is important for Zara to increase its reach tremendously as it operates by their
own stores and don't shave shop in any type of stores or small display.
Industry analysis – For conducting industry analysis Porter's five force model is best tool
because it help in analysing each and every factor related to industry. Zara is fastest growing
company of retail sector at global level. It is specialised in fast fashion by including products like
accessories, clothing, shoes, perfumes, beauty and many more. Zara was founded in 1975 by
Amancio Ortega nad Rosalia Mera. Porter's five force model identify five competitive forces
which shape industry as well as assist in determining weakness and strength of company
(Espahbodi and et. al., 2019). Respective model frequently use by an organisation for
understanding level of competition within specific sector. Five forces are competition in
industry, threat of new entrants, bargaining Power of suppliers, bargaining power of buyer's and
threat of substitute products. It involve five factors explanation of these in relation of Zara are as
follows :-
 Competition in the industry – Business experiencing high level of competition due to
fast expansion in apparel industry because new companies are entering into business
every day. Thus, Zara is facing high level of competition through their major competitors
such as H&M, GAP and so on. Competition within this industry is high because
companies are looking forward to conduct their operation well in comparison of the
competitors (Ntene, Azasu and Owusu-Ansah, 2020). In addition to this, Zara has
invested for developing unique competitive advantages in relation of their competitors. It
will have positive impact on company by increasing their sales as well as operating
profit.
 Threat of new entrants into industry – Zara have low threats of new entrants because
already apparel market is high dominating through few chain of respective sector stores
which includes Zara, GAP, H&M and many more. This simply shows that, for new
organisation sustaining in competitive environment will be difficult as well as there is
requirement of much funds for establishing business in retail sector.
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 Bargaining Power of suppliers – Bargaining power of supplier is low because most of
the suppliers in retail industry are totally depended on Zara for their business purpose
(Waverman, 2019). In simple term, high dependence of suppliers on Zara may result in
low bargaining power. Production of respective retail company is not totally depended on
external suppliers because it get approx. 50% of their raw material through inditex's
group companies.
 Bargaining Power of customer's – Zara have moderate bargaining power of customer's
because high bargaining power may bought appropriate knowledge related to fashion and
their price. Moreover, for fashion lovers bargaining power is low because they are ready
to pay for the design which is meeting their expectations. In simple term it can be said
that, price and loyalty for brand will not impact on buying decision of customer's.
 Threat of substitute products – Zara have low threat of substitute products because in
apparel as well as clothing industry don't have any real substitute of products (Baena,
2019). Thus, company have to make sure that it will attract customer's who love apparels
by creating their own niche. By ensuring that fast and trendy fashion are developing at
affordable price niche has to been created. Because it will make difficult for customer's to
go out and look for substitute products. Moreover, it is essential for Zara to attract
fashion lovers who will not mind cost while purchasing clothes.
2. Internal analysis
Internal analysis is process of exploring cost position, competency as well as competitive
viability within market area. Conducting internal analysis provide assistance to company in
understanding their strength and weakness. In addition to this, data generated through internal
analysis is crucial for company because data gathered through this help business firm in
developing strategic planning for organisation long term sustainability and growth (Adlerand
Florida, 2019).
Strength – It include positive aspects of an organisation which reinforced position of
Zara and help them in becoming dominant company at worldwide level. Thus, strength include
factors which are stronger point for respective company by ensuring profitability of business,
popularity and expansion with long term (SWOT analysis of Zara – Zara SWOT analysis, 2019).
Strength of Zara are as follows :-
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 Unique design – It is major strength of Zara as they are offering unique design products.
Along with this, they comes in several varieties which involve party wear as well as
office wear for kids, men and women. Along with this, accessories are integral part of
Zara wear.
 Strong presence – Zara have its strong presence at worldwide level and they are
continuously focus on expanding their presence (Sako and Zylberberg, 2019). For
instance, in 2015 it was having approx. 2100 stores at global level with average sale of
more than 15.9 billion per annum. Thus, in 2016 it has expended further so for Zara their
strong presence at world wide level is also strength.
 Physical evidence of stores – Another strength of Zara is that it have good physical
evidence of stores. Respective company uses wide as well as deep store layout so that
customer's will get attract and like to walk around store and try their favourite designs.
 Design advantage – Zara always launch 1000 new design per annum at global level.
Customers who visit stores twice or thrice in a year for checking out new collection they
have to visit Zara every month to see new collection (Ioannou and Serafeim, 2019).
Although, design of respective company are elegant with trendy touch and loved by
customers.
Weakness – Along with above mention strength, Zara have some weakness also.
Explanation of these are as follows ;-
 Generalised Collection - Zara have generalise collection which simply means that they
are not specialised in anything and have everything for everyone. When company is
focusing on one things its customer's get shift towards their competitiors.
 Lack of advertising - For Zara lack of advertisement is their weakness because through
this an organisation can double their profit as well as turnover (Keyes, 2016). By using
advertisement practices Zara can pull their customer's because it will generate positive
word of mouth for company.
 Low safety Stock – Zara stores have fast moving stocks which rarely have safety buffer
behind it. At respective organisation low inventory is kept as strategy for keeping
customer's walking with stores for checking out latest items. But this also means that if
particular design get hit with customers it will not reach their potential customer due to
no safety stock or buffer for design.
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VRIO model – It is toll in strategic planning which utilise by an organisation for making
their business decision effective. VRIO model provide information with hope of providing
competitive advantages. In other words, it is internal analysis which use for identifying and
evaluating resources in company (Puranam and Vanneste, 2016). Here, VRIO stands for Value,
rarity, Imitability and organisation. VRIO analysis of Zara also mention each stage that these
resources can get improve for providing high competitive advantages. Moreover, resources
analyses will summarise that they are offering sustainable competitive advantages, unused
competitive advantages, temporary competitive advantage, competitive parity or competitive
disadvantage.
Resources Valuable Rareness Imitability Organization
Financial resources Yes Yes No Yes
Food products Yes No Yes
Employee's Yes No
Patents Yes Yes No Yes
Distribution network Yes No
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V - Value
 As per the VRIO analysis it has been identified that financial resources are valuable for
Zara because it provide assistance to them in investing within external opportunities
which rise in business environment. Along with this, it also help in combating external
threats.
 VRIO Analysis of Zara states that their food products are valuable because these are high
differentiated (Nithisathian and et. al., 2018). By high customer perceive value for these
products made. In addition to this, these are valued highly more than competition through
customer's because of differentiation in their products.
 For Zara their staff members are valuable because most of their employee's are highly
trained which result in gaining highly productive outputs. In addition to this, employees
of Zara are loyal and their retention level is high in company. All this result in creating
greater value for Zara end consumer products.
 Patents of respective organisation are valuable because it allow Zara to sell their products
without any competitive interference. Such things result in creating high revenue for
respective retail sector organisation (Hilbig, 2019). Patents also provide Zara with
licensing revenue when it licenses these patents out to other manufacturers.
 VRIO analysis of Zara shows that distribution network is valuable because it provide
assistance to company in reaching out more and more customer's. This result in
generating high revenue for Zara as well as also make sure that promotion activities
translate into sales because availability of product become easy.
R – Rare
 According to VRIO analysis it has been founded that financial resources are rare because
financial resources are not possessed by every company within industry.
 Local food products are not rare which identified through VRIO analysis because these
are easily available in market through other competitors (Brooks, Chen and Zeng,2018).
This simply means that local food product result in gaining competitive parity for Zara.
As this resource is valuable, Zara can still make utilisation of this resource.
 By VRIO analysis it has been identified that employees of Zara are not rare. These are
not highly trained as well as skilled (Manzi, 2016).
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 Patents of Zara comes under rare resources because these are not available easily and not
possessed by competitors.
 Distribution network of Zara is not rare because competitor of company is not investing
lot for making their network better in comparison of Zara.
I – Imitability
 Through VRIO analysis it has been identified that financial resources of Zara are costly
imitate.
 Local food product are not costly to imitate as well as these can gain by competitors if
significant amount invested within research and development (Vargas-Hernández and
Garcia, 2019).
 The patents of Zara are very difficult to imitate which identified through VRIO analysis.
This is because it is not legally allowed to imitate a patented product.
O – Organisation
 Zara organise financial resources for capturing values which has been identified through
VRIO analysis. For investing in right place financial resources are utilise as well as also
help in gaining sustained competitive advantages.
 Patent of Zara are well organised which simply means that company is utilising patents at
their full potential (Carreño Nin de Cardona, 2019). Respective company started selling
patented products before its expiry and it hepled Zara in gaining unused competitive
advantages.
TWOS analysis of Company
Internal Strength
1. Strong branding
2. Cost leadership by cost
efficiency
3. Multi channel strategy
by extending online
sales.
Internal Weaknesses
1. Pressure of cost
leadership to achieve
high quality standards.
2. Short lead time: less
colour variations, less
pattern cut, more size
zero.
3. Rapid growth effect a
lack in E-commerce.
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External opportunities
1. Global expansion in
key market
2. Expansion in E-
Commerce
3. Launching online
stores in Key market
4. Company image and
social engagement
SO Strategies
1. Extending online shop
channel in key market.
2. Providing customer
excitements at home
by using multi-
channel.
WO strategies
1. Providing friendly and
creative E-commerce
to excitement and
customer loyalty.
External Threats
1. Fluctuation in
exchange rate
2. Expansion strategy
regarding market entry
barriers
3. Changing in customer
demand
ST Strategies
1. Attracting new
customers, who rather
are shopping online ass
in local stores.
2. Focus on long term
success and customers
loyalty program.
WT Strategies
1. Reduce risk of losing
customers by focused
efforts to provide high
customer services and
more excitement than
competitors.
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Firm
Infrastructure
Zara is one of the world’s most successful fashion retail brands.
Zara now has 2,266 stores strategically located in leading cities across 96 countries.
Today, Inditex is the world’s largest fashion group
Human
Resources
Zara is paying much attention towards their employees as they are investing more in the
training as well as development session. So that, they will be able to serve people in bette
manner.
Technological
development
Zara is focusing on technological development as they invested within E-commerce also whic
help in increasing customer base. Because people will be able to purchase online.
Procurement Suppliers are the one who provide raw material to company for their production purpose.
Operations Marketing and
sales
Service
InboundLogistics
Manufacturing
conducted by
Zara internally as
well as they have
their own
Warehouse for
keeping raw
material as well
as finished
products.
Outbound
Logistics
Zara don’t invest
much in marketing
activities because
they have goodwill
within market
areas which don’t
require much
investment in
market. But at the
time of new
launching and so
on they use social
media tools.
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Power Matrix
High Interest Low
High
Key Players
Boss, senior executives, co-
workers. team members, customers
and so on.
Key Satisfied
Shareholders, suppliers, analysts,
key contributors and so on.
Key Informed
Seniors, co-workers, shareholders
and investors.
Key Effort
IT managers and so on.
Low
3. Strategy Evaluation
It is very important to evaluate a recent strategy chosen by the business to identify
whether it has been able to fulfil requirements of the business or not. The SAFe criteria is a well
known approach to evaluate the strategy which has been employed by the organisation (Puranam
and Vanneste, 2016). In context of Zara, Product development has been one of the recent
technology which has been employed. This has been one of the key strategy of the company to
deal with fast changing trends in fashion industry. Below is the brief evaluation on SAFe criteria.
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Suitability: The strategy of product development chosen by the business have been
successful in meeting the needs of the target market. This approach will be helpful in
capitalising on opportunities of developing some flagship design and market expansion throug
offering variety of the products.
Acceptability: The undertaken strategy have been helpful in meeting the requirements of
the target market. Product development strategy is successful in meeting the frequent changes
which happen in the fashion industry (Vargas-Hernández and Garcia, 2019. Although there is a
higher risk involved in the strategy as it not possible to opt for latest technology in short period
of time.
Feasibility: The strategy can be considered as practical when backed with appropriate
financial resources. People have to continuously update their skills and capabilities as the
business is frequently implementing new technologies and innovation relating to product
development. This product development strategy have been successful for this business in
gaining competitive advantage for the organisation in the past and is working properly in the
present circumstances.
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CONCLUSION
After going through entire discussion it has been summarised that, corporate strategy
have its wide influence on organisation which simply means that it create value which covers
both product portfolio as well as assumptions such as resources and organisational aspects.
Furthermore, for an business firm it is essential to conduct internal as well as external analysis
because it will help them in identifying strength, weakness, opportunity as well as threats. In
conducting internal analysis VRIO model will provide assistance to company. Moreover,
conducting both analysis is necessary because business environment is dynamic in nature as it
involve several factors which get change randomly and have major impact on working of
company.
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through<https://www.marketing91.com/swot-analysis-zara/>
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