Q1 External analysis Present report is based on Zara company which is a one of the most popular brand in the clothing industry. Clothing industry has grown its market share by approx. 5.46%. it is a very huge industry where fashion keeps on changing. To sustain in the market company need to produce latest trending clothes as per the changing need and demand of the customers. Zara started in 1975 and remained loyal with its core values i.e. clarity, beauty, sustainability and functionality. The objective of the company is to attract customers by bringing fashion and enhance the quality of service(Rugman and Verbeke, 2017). The strategy of the company is customer based i.e. to make a long lasting relation with its customers and respond to their ever- changing needs and respond to customer feedbacks and enact to the new trends. External analysis will show PESTEL, 5 force and SWOT of Zara. PESTEL:This analysis will show the opportunities and threats of the company. Political factor:This is the most important factors which affect all the companies through change in the political policies. Political instability results in the change in the economy. Zara faced problems due to change in political environment such as difficulty in supply chain which affect the distribution channel of company. This is a big threat to thefirm.Companyhasovercomethisproblembylimitingsupplychaintoits neighbouring countries. Economical factor:Due to change in the policies and procedures of the country, it changes the rates of interest, inflation and foreign exchange. Fast growing economy of Spain is in favour of Zara, company found an opportunity to increase its overall sales in the clothing industry(Poplawska and et.al., 2015). There was high unemployment due to high population, Zara identified the problem and provided employment to people at low cost which reduces the price of a product and attracts customers. Social factor:These factors are one of the most essential element that need to be taken care as a part of CSR activities. Company need to produce according to the social trend. It is the responsibility of business to keep society happy. Company also need to take care of cultures while making a product. Zara also research about the new market, cultures before making a products. Firm has an opportunity to attract new customers by providing them products and services according to their need.
Technological factor:Technology is changing rapidly in terms of communication, transport and other aspects(Cooper, 2017). Every part of business is affected by the technology i.e. manufacturing, production and supply chain. Zara saw an opportunity and adapted new technology to increase its profits. Company respond to the demand of customer quickly and communicate with the supply chain. Technology has reduced the work pressure thus company manages its inventory properly and provide good customer service. Environmental factor:Environment is the the concern of every business in the market. Zara has invested in the the environmental factors and ensures that the stores of the firm will consume less water and energy as compared to other companies. Organisation also produce its garments from recycled wool, organic cotton under the name “join life”. Legal factors:There are many laws which affect the business so company need to follow. Every business need to be conducted ethically so that it sustains for longer period (Eccles and Youmans, 2016). Big fashion companies like H&M, Zara need to protects its productsanddesignsbycopyrights,sothatitcannotbecopiedormisusedby competitors. Zara is focused on building positive brand image by doing business ethically. Company has also invested in the trademarks and copyrights to protects it intellectual property. 5 force model:This analysis will evaluate the attractiveness of industry.
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Bargaining power of buyers:Industry has a moderate pressure in-spite of change in the economy. Clothing industry is continuously growing stronger and so is the competition. Price of the products and services, high differentiation and low switching cost of buyers are implications that competition is increasing. Customers of Zara is middle class and upper class thus they have high purchasing power and more disposable income. Buyers need more innovative and fashionable products (Porter's 5 force, 2019). Bargaining power of suppliers:Industry has low pressure because due to globalisation of the trade, power of suppliers go down through competition from the producers at low cost. Zara provide license contract to the suppliers through which supplier has power to stick to the specific provisions which minimises the pressure(Li, Hsieh and Chang, 2016). Illustration1: 5 force (source:Porter's 5 force,2019.)
Threat of new entrants:Industry faces high pressure of threat because clothing industry has grown rapidly which attracts new competitors to enter in the markets. The strong brand that exist in the industry are Zara, H&M and Gaps. Zara is a reputed brand and with its supply strategy it makes difficult for new entrants to reach different geographical locations. Threat of substitute products:Industry faces moderate pressure. Clothing has a vast market and diversified into various social class demonstrating every company its personal identity(Tasgit, Şentürk and Ergün, 2017). Duplicate fashion or copy of the original brand can be a threat to the companies. The reason behind this issue is the products available are too costly and poor quality. Zara produces and sell its products at lower cost with high quality products. Its products are affordable and manufactured with the natural material. Rivalry against existing competitors:Industry faces high pressure because there are chances that small firms entering in the industry. From the past 5 years industry performance is average. Zara has many rivals but still has loyal customers. There are high chance that buyers will switch brands. SWOT analysis: Strengths:Zara has a strong supply chain because company has give license contracts to its suppliers so they cannot go anywhere(Rao and Tilt, 2016). Company has a good knowledge of new technologies, innovation and use in attracting customer and provide good customer service. One of the important strengths of Zara is that firm provides low cost product with high quality. Weakness:Zara weakness is lack of presence in growing markets, inefficient marketing strategies, gap of product range. Companies organisation structure is incompatible with the current business model which limits the expansion of business. Opportunities:Zara need to invest in the marketing activities in order to attract huge customer base. Company need to increase its online presence and focus on social media marketing(Sari and et.al., 2018). Firm may also expand in new economies where the economy is in favour of the company. Organisation need to expand its retail channel in different corners of the world.
Threats:Zara faces regulatory issues while expanding its business in the new markets. Political instability and continuous change in the policies affects the brand. As company provides low cost products, if the price of raw material increases there may be a threat to Zara in offering low price products and services(Trigos and López, 2018). Q2 Internal analysis Value chain analysis: It is a process where business model describes the activities need to be conducted in producing a products and services. It is an activity which a company carries out to provide value to customers. It is a visual analysis of business activities. It includes 2 activities i.e. support and primary activities. Company need to take value chain analysis to give equal importance to the activities (Value chain analysis, 2018). Primary activities:It is involved in the production and sale of products to the potential customers. It includes following activities(He and Balmer, 2017). Inbound logistics:In this step Zara develops a relation with suppliers to manufacture andsellitsproductstotargetcustomers.Companyfacesproblemsinproduct development, inbound logistics helps company to focus on every aspect i.e. raw material Illustration2: Value chain (source:Value chain analysis,2018.)
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converted into finished goods. In this activity raw materials are distributed to start production. Operations:The importance of operation in value chain is to analyse when raw material come. Zara is in order to process the material into finished goods and than launch the product.Operationactivitiesincludepacking,assembling,testingandrepairof equipments. It is essential to analyse operation activity to improve productivity(Rugman and Verbeke, 2017). Outbound logistics:It is the activity where products are delivered to the customers after passing through different intermediator which includes material handling, scheduling, warehousing and transporting to the final destination. Zara analyse this logistics to identify the core competencies so that company gain a competitive advantage to grow business. Marketingandsales:InthisstageZarawillspotthebenefits,featuresand differentiation points offered as compared to the products of competitors. Only producing low cost products with high quality is not sufficient, company need to invest in marketing activities also e.g. channel selection, promotions, advertising and pricing strategies (Poplawska and et.al., 2015). Services:It plays an important part in the whole value chain analysis. Company need to take care of both the services i.e. pre-sales and post-sale services. Zara need to also provide both the services which help company to gain loyal customers. Post-sale services provided to customers give them value. Secondary activities:It plays a major role in supporting, facilitating and coordinating the primary activities. Firm infrastructure:It includes various activities like financing, planning, accounting, handling legal matters etc. Effective management of infrastructure allow Zara to add more value in the value chain process. Company need to control its infrastructural activities to gain competitive advantage in markets(Cooper, 2017). Human resource management:It is the most important resource in whole value chain management which helps company to run its business. Zara performs various HRM activities like hiring, recruiting, selection and performance appraisal for professional
development. Effective HR practices in Zara reduces the pressure of competition. Company benefits in hiring skilled employees so that objective is achieved. Technology development:Value chain depends on the technology. Technology has changes the way of producing a product. Zara identified the importance and then implemented new technologies to provide fast service to customers, product development and market research(Eccles and Youmans, 2016). Procurement:It consider the process which includes production of products from raw material to finished goods and purchasing inputs. Zara need to be careful in considering all the procurement activities to achieve organisation goals. VRIO framework: It is a strategical analysis designed to aid company to protects its resources and competitive advantage which makes company capable to innovate and produce for longer period of time. It has 4 elements i.e. value, rarity, Inimitability, Organisation. Value:It uses human resource data to recruit and retain employees for longer period. These resources are used as advantage which provide opportunities. They reduce the consequence of danger. It may benefit company both externally and internally. It considers technology, political, economical and social factors(Li, Hsieh and Chang, 2016). Rarity:This kind of resources are rare in the company which is a strength for the firm. From the rare resources Zara gains a competitive advantage. It can also be a weakness because if a resources is less than it can be finished or fully utilized. Inimitability:These resources are difficult to take because they cannot be copied. It is an advantage for the company. It may be useful for identifying opportunities or avoid threats in the market. Companies tries to substitute this resource if its less(Tasgit, Şentürk and Ergün, 2017). Organisation:Once the resources pass all the three requirement than company needs to distribute the resources in all the departments so that goal is achieved. All the department of the Zara company need to utilize all the resources effectively and efficiently. This model provides a clear image of the position of the company and evaluate the performance of each department.
Value chain activitiesValueRarityInimitabilityOrganisation Primary activities Inbound logistics Operations Outbound logistics Marketing and sales Services Secondary activities Firm infrastructure Human resource management Technology development Procurement Zara has 1 distinctive competency which is valued by the customers i.e. technological development. Technological development:Continuous change in the technological affects the way business is run. In today's era, all the activities running in the business supports technology. This activity supports the development of goods and services e.g. IT technology innovation and developments of new products. These activity creates value to customers. It deals with the hardware, equipments, software, technical knowledge to convert inputs into outputs. This activity benefits Zara to produce fast at lower cost. It improves the efficiency of work(Rao and Tilt, 2016). It is very beneficial for the company to increase the productivity by projecting the inventory needs by production department and ensure correct production level. It also reduces waste in the production of products. Zara also uses big data to collect the past data and analyse them to understand to forecast the consumer behaviour, needs, wants and their preference. It is beneficial for company to generate new leads, generate repeat sales, forecasting future sales, improvement of supply chain.
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Zara uses technology in providing customer service. For enhancement of its quality of service, company implemented technologies to maintain a strong relation with the customers and provide high quality service. Firm uses RFID (radio frequency identification technology) to track locations and make demand quickly available. This technology has helped organisation to manage its inventory properly(He and Balmer, 2017). Technological activity supports VRIO framework as it providesvalue to customer by satisfying the needs and wants of the customers as fast as possible. It is rare because every company is not able to adopt the changes due to lack of funds. It is imitable means it cannot be copied, companies need to develop the technologies. Organisation always support new strategies to achieve its objective quickly. Q3 Evaluation Zarausesadvancetechnologicalstrategieswhichhashelpedcompanytogaina competitive advantage. Advancement in the technology has helped firm in providing good quality of customer service. The most important client in the clothing industry is customers. Company need to satisfy the needs of the company in order to increase profitability. The main objective of Zara is to attract new customers by providing them attractive fashion and improve the quality of service given to the customers(Cooper, 2017). For improving customer service company uses advance technology strategy which is beneficial for company to fulfil the needs of the customers. Company need to evaluate the suitability, acceptability and feasibility of the strategy by using SAFe model. Suitability:This technology is suitable for the development of business and attract new customers. Every customer expects that problem is solved as soon as possible, technology helps company to responds to the problem of customers and satisfy them. It is suitable for Zara to use new technologies because it helps business in expanding. Through using technologies company has increased its profits from past 4 years i.e. 2018 profit was €26145. this strategy is suitable because company has increases number of employees, it encourages women and has 75% female in the company(Tasgit, Şentürk and Ergün, 2017).Organisationalsoengageswiththecustomersthroughonlineplatformsin identifying their preference, purchasing trends and wants so that company may provide products according to their needs. Zara has online platforms in 153 markets. Technology
has benefited company in innovating its products by identifying new trends in the market. Company has combined their physical and online stores to engage customers with the brands and increase interactions, company has developed its existing technologies and implement new technology. Overall growth of the company is increased by 5% in 2018. Acceptability-it is strategy model that can measure and analysed the return and risk of the stakeholders' reaction from a specified strategy returns can be measures based on the benefits that the stakeholders expect from the strategy ,as it can be financial and non financials depends totally on that stakeholders decide. Zara stakeholders calculate the returns by methods such as cost benefits, analysis, real options analysis and also profitabilityanalysis,shareholdervalues.Effectsoftheacceptabilityofvarious stakeholders(Cooper, 2017). Investors-with the advanced technology new product came into existence and this leads to the profit in the organisation, thus increase the profitability and ultimately leads to the profits to the investors. Employees-Advanced technology leads to the more incentives as business will enhance through the help of advance technology and this leads to make the more incentive to the employees and motivate them also it makes more loyal toward the Zara . Managers-as managers needs more promotion and thus get the promotion with the help of advanced technology .managers of Zara get the promotion time by day as they introduce many technologies such as RFID technology and also makes them motivate to accept the new technology so that they also get the promotion. Feasibility- feasibility portion of the SAFstrategy model can genuinely make or break any strategy which is chosen(Tasgit, Şentürk and Ergün, 2017). Financial feasibility needs to be evaluate forecasting as well as analysing the cash flows which can also perform the break even analysis and other financial tests. There are several other which canbeaskedrelatedtothestrategy'sfeasibilitysuchasmanpower,materials, management power and also equipment. Zara company asking by their own as they have organisational structure as well as market necessity is to make a specified strategy work. It is an easy way to remember that everything need to evaluate for feasibility is to use the M-word model i.e. machinery, money, markets, materials,management and also make-
up. If the options are not feasible than the because of practical or various other reasons then it has no added value for the further analysis option. Here it can be checked whether the option will be successful or not .the option of the feasibility is determined after the consequences from the external analysis that have been processed(Sari and et.al., 2018). Various factors which can determine the feasibility of the strategic options are: Right resources are present or not? Is there any legal barriers there any ethical option present? Right knowledge is available or not? Expectation is realistic or not?
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