Managing Across Borders Report 2022

MANAGING ACROSS
BORDERS

1
Executive Summary
Zara is expanding at much faster rate in different parts of the world and this expansion over
the borders is impacted by several environmental factors that are having impact on the
operations of the company. This report is going to address the internal and external
environment of Zara. It was found that the political and legal environment might create
challenges for the policies that are made by the firm. Social and technological factors will be
going to boost the operations of Zara if they are able to make sure that they incorporate
innovation in their business process. Economic and environmental factors might create
challenges for the sustainability of the firm. The industry specific factors suggest that
bargaining power of people is on the higher side while that of suppliers is on the lower side.
Competition has become cut-throat and the threat of substitution is on the higher side. It was
also found that this company has huge strength in term of brand name, variety, and supply
chain etc. while weaknesses include Net Contribution percentage and profitability ratio are
below the industry average and higher attrition rate. This report also provides details about
the ways in which joint-ventures along with merger and acquisitions have been used by the
firm to boost their internationalisation process. This company’s major focus is on the
reducing the cost of operations at the same time enhancing the focus on differentiation
strategy. Increasing competition, rising labour cost, new foreign investments, trade war,
piracy, fluctuation in currency prices and technology enhancement are some of the challenges
faced by Zara. Globalisation has facilitated this company and at the same time strategies
related to offshoring and outsourcing will have impact on the support activities of the firm.

2
Contents
Introduction...........................................................................................................................................1
Background...........................................................................................................................................1
External environment analysis...............................................................................................................1
PESTLE analysis...............................................................................................................................2
Porter’s five force analysis................................................................................................................3
Internal analysis.....................................................................................................................................4
SWOT analysis..................................................................................................................................4
Strategy to internationalisation..............................................................................................................5
Entry mode strategies........................................................................................................................5
Generic strategies..............................................................................................................................6
Any challenges and problems............................................................................................................6
Globalisation.........................................................................................................................................7
Outsourcing and offshoring...................................................................................................................8
Pros....................................................................................................................................................8
Cons...................................................................................................................................................8
Conclusion.............................................................................................................................................9
References...........................................................................................................................................10

3
Introduction
Multi-national firms are looking for new markets not only for selling their products but also
for doing production in these countries. These new countries provide them with new
resources and help them in lowering down their cost of operations. Every company has their
own set of strategies for making expansion into the new markets (Crofton and Dopico, 2012).
The approach to internationalisation is chosen according to the requirements of the company
and the dynamics of the industry. With the increment in the cross border relationships
between different industries, it has become easier for the management to expand over cross-
borders. There are several challenges faced by the companies in these approaches to
internationalisation. The smoothness in the internationalisation approach will ensure the way
in which company will make its strategies. Zara is a Spanish apparel retailer and specialises
in fast fashion. Their product range includes clothing, accessories, swimwear, perfumes,
beauty, and shoes. It is the biggest firm in the group Inditex. Zara being an international firm
need to choose the best approach to internationalisation especially while expanding their
business into other countries. This report is going to critique about strategies and policies
used in the process of internationalisation approach of Zara. It also addresses the challenges
and problem the company might face while expanding into the Asian market.
Background
Zara entered into China in the year 2006. This fast fashion brand started selling its product
through its own site Zara.cn in the year 2012. They are also selling their products with the
help of Tmall. With its major focus on the bigger markets such as China, they have made
strategies in such a manner so that they are able to grow in the Chinese market with a rate of
60% every year between 2007 and 2012. In China it has more than 500 stores (Hansen,
2012). However in the past two or three years they have faced a stiff competition from the
brands such as H&M and Uniqlo. In the first three quarters of 2016, this firm has reported a
rise in sales by 16% with a profit up with 20% to reach to €2.02bn.
External environment analysis
For the success, it is critical for the firms to understand the external environment they are in
and according to it they need to design their strategies.

4
PESTLE analysis
 Political: China is a politically strong nation where policies are made very firmly
which allows companies to make policies that supports the industries. China has good
relations with many countries but in the time of the trade war, companies will face
challenges in the management of business (Lloyd and Luk, 2010). Zara might also
face in their expansion in the semi-urban region from the corruption that exists within
the society. Zara will have to immediately think about something that could help them
in the time of trade war.
 Economic: The economic condition of the world is not so good and most of the firms
have chosen cost-cutting strategies so as to ensure higher profits. The reasonable
pricing of Zara could help them in managing their economic growth in spite of their
overall economic slowdown in different parts of the world. In today’s global
economic environment, it has become essential for the management to make sure that
they have whole new set of investors that can help them in their new projects within
China (Mo, 2015). These new investors need to be from China only as the European
economy is performing badly and so is the Spanish economy.
 Social: Society of China has transformed tremendously. The society is adopting
western culture at much faster rate and this is happening in spite of the fact that
Chinese culture is very much different from that of China. This change in the society
is a great opportunity for the companies that are doing business in China
(Rosenbloom, Haefner and Lee, 2012). China has elevated a huge population out of
poverty line; these are the fresh target segments for the companies. With large
numbers of youngsters in China this can be an excellent target market for the
company.
 Technology: China is an advanced technological society but still the challenges that
Zara is facing while doing their business in China is the fact that in China Google
cannot be used as well as other major social media platforms are also not working
there. Global strategies have to be implemented within China with different internet
platforms. Chinese government has also become strict over the areas like ethical use
of technology (Dahan and Peltekoglu, 2011). While doing marketing, companies will
have to ensure that they follow all the regulatory norms within China related to
privacy and ethics. The fast fashion by the company can only be achieved when there
is strong technology support.

5
 Legal: The legalities in China have become strict in the areas like anti-dumping laws.
This company will have to ensure that they follow all the norms and regulations in the
country so as to avoid any kind of legal compliances. However, the legal
infrastructure within China does not act as a barrier for the apparel industry
(Pennemann, 2013).
 Environment: The environment related laws has to be strict within China and this will
promote the companies like Zara to make sure that they are doing environment
friendly business. Since the concerns for cities like Beijing has increased hence the
policies over the use of packaging materials have also changed (Clara Banchieri, et al.
2012). Zara will have to work towards packaging and waste management systems.
This external environment has implications on the business of the firms. Political
environment will have impact on the way an organisation will deal with changing policies
especially when it comes to management of skills and other type of resources. Economic
environment will have implications on the new projects of the organisation which is critical
for gaining competitive advantage over the rivals. The major impact will be on innovation
projects. Technology is also advancing hence it will have implications on the privacy related
concerns which needs to be dealt appropriately to ensure that they do not face challenges
related to ethics. Legal environment will have implications on the policies and regulations of
the company. Environment related concerns will have impact on the manufacturing process
of the company and on the overall product cycle.
Porter’s five force analysis
In order to understand the environment of the industry, there can be use of porter’s five force
analysis.
 Bargaining power of suppliers: There are large numbers of suppliers available with
the company from different parts of the world. In the time of global recession when
the Textile industry is facing global challenges, suppliers are forced to sell their
products at lower cost. This is having impact on the bargaining power of suppliers and
it is on the lower side.
 Bargaining power of customers: In the time of technology based business, customers
have so many options with them. With just one click customer can compare the
products from all the companies and make their purchase decisions (Liu, et al. 2011).

6
This enhances their overall bargaining power. Since competition is getting fierce and
fierce hence their bargaining power will remain on the higher side.
 Competition: Zara is facing tough competition from the rivals such as H&M and
Uniqlo. Apart from this there are many small and big firms working in China. Both
national and international level companies are making the market to be cut-throat.
However the major competition is from the companies that are similar products.
There are many local firms that is doing piracy of the products sold within China by
Zara.
 Threat of substitute products: There are many substitute products available in the
market of China that can have negative impact on the operations of the firm. With lots
of innovation going on in different markets, the threat of substitution is going to
enhance in the coming future (Chen, Chen and Lin, 2013).
 Threat of new entrants: With governments support, it is expected that more firms are
going into the industry which is already facing a lot of competition. With external and
internal investors available in the market, it is easier for the new firms with little
knowledge of the market to reduce the threat of new entrants to be on the lower side
(Xiang, 2011).
Internal analysis
It is critical for every organisation to understand the internal environment within the
organisation. For internal analysis the tool that can be used is SWOT analysis
SWOT analysis
Strength
 Zara has a strong supply chain network that allows them to manage fast and reliable
distribution to all their stores.
 Strong brand name in most of the markets as well as in China and it will help the
company to make expansions into new areas at a much faster rate (Wang, 2018).
 This company has strong dealer’s community which not only promotes their product
but also helps in training the sales team.
 They are having highly skilled workforce through successful training and learning
programs.

7
 Innovation has been the base of success for the company however most of the
innovations is done on the design and quality.
Weakness
 The products that are sold by the company can be easily copied by others and hence
new competitors can easily take market share from them.
 Net Contribution percentage and profitability ratio are below the industry average.
 This firm has higher attrition rate and they have to spend higher amount of money on
the training and development (Matherly and Richards, 2013).
 Not a good product demand forecasting and hence a higher inventory cost is faced by
the firm.
Opportunities
 With the use of advanced technologies, company can reduce the cost of transportation
which will eventually reduce the product prices without affecting profitability.
 It has opportunities in the emerging world especially in the south-east Asian countries
and other countries of Africa where there are lots of middle class people coming up
(Dishman, 2012).
 This company also has larger opportunity on the online platforms. With the help of
data analytics they can easily expand their sales margins as they can reach to larger
consumer set with higher numbers of options.
Threats
 Liability laws are changing and hence it might have to face more liability claims in
different countries.
 People are choosing online mediums for making a purchase hence their store business
might face a set-up which is major source of revenue for the company.
 Global poor economic performance might reduce the sales of the company as people
love to buy products that are available at lower cost (Trehan and Mehta, 2014).
 Increasing cost of operations due to increment in pay level and other things is putting
pressure on the profit margins of the company.

8
Strategy to internationalisation
Different companies adopt different methodologies and strategies for their
internationalisation. Zara with the help of its fast supply chain is able to work as per the
requirements in the market. They create new line of products and modify the existing ones on
the basis of the information they have gathered through feedbacks (Viardot, 2014). It is
remarkable at the speed with which company makes and delivers new products to the stores.
This country has majorly three main entry mode to enter into any market i.e. Joint venture,
Franchising agreements and wholly owned subsidiary.
Entry mode strategies
Zara entered into China with the help of entry mode of wholly owned subsidiary. In spite of
the fact that it is one of the most expensive modes of entry but seeking the opportunities that
they have in China, it was one of the best strategies to enter into the market. Zara considers
China as a most effective market and have concentrated hard on its Shanghai flagship store. It
is due to its wholly owned subsidiary, they are able to make such fast expansion within China
as they are not dependent on any partners for making their decisions related to expansion
within the country (Rao, 2014). In spite of the fact that world’s economy is not showing so
much growth, it is expected that the Chinese consumers will enhance their spending on
clothing in the coming future. Since China is facilitating the companies with the help of its
policies. Due to this Zara brings more direct investments within the country so as to open
more stores in different cities of China.
Generic strategies
 Cost leadership: In the premium segment or in the branded segment, this company has
used cost leadership strategy so as to attract more numbers of customers to its
business. This strategy is attained by them by reducing the cost of operations. They
have done this by selecting raw materials from the nations where it is available at
lower cost and setting up its production units in China itself. It is also critical that
company uses that material which can reduce the overall cost of the products.
 Differentiation: Zara changes its collection in the shelves in every 15 days. This is
also possible because the company keeps on innovating their products on continuous
basis. It helps the company in attracting people regularly to their stores. Every product
that company sells provides a very different kind of value to the customers (Ting,
2015). Zara is known for setting trends in the market hence they need to invest a huge
amount of money on the activities related to the research and innovation. Zara

9
launches a different set of clothing lines for different seasons and try to make it
different from their competitors.
 Focus strategy: In the Chinese market there are people from different backgrounds,
gender and social class. This company concentrates on the particular niche market.
For different segments in the society, this company designs very different kinds of
collection. This helps them in giving them leadership in that market segment.
Differentiation focus is the major thing on which this firm needs to work-on. This is
because it is the only thing that can give them competitive advantage over the rivals.
With development of new products they will be able to capture new markets.
Any challenges and problems
There are many challenges and problems faced by Zara in China. These challenges include:
 Increasing competition: The competition in the industry within China has gone to
higher side. This has forced the company to improve their operations in such a
manner that they will be able to gain competitive advantage over the rivals. The local
companies of China are itself giving competition to Zara and especially the ones that
add local touch to their products (Liu, et al. 2011).
 Rising labour cost: In spite of the fact that when comparing with European market,
China has lower labour cost but still in the recent years, the labour cost within the
nation is increasing day by day. This increasing labour cost is having impact on the
product prices (Marco, 2016). The training cost have also gone up which is again an
additional cost to the operations of the firm.
 New foreign investments: There is increasing investments within China. The brand
such as GAP, Mango and Esprit’s has made new investments within the sector. This is
going to further enhance the competition within the market.
 Trade war: The trade war between China and United States has pushed world’s
economy under constraints. These constraints have reduced the purchasing power of
the people and at the same time U.S. has imposed higher tariffs on China (Dahan and
Peltekoglu, 2011). It is due to the trade war new investments are not coming as fast as
it was coming before. This reduces even the people’s will to make regular purchases
and they limit their expenses. This will have negative impact on the operations of the
firm.
 Piracy: It is seen that in the Chinese market, there are many small companies that
copies the design of Zara and makes it available in the local market for lesser cost. It

10
is not easier for the companies to deal with the piracy and neither it is possible for the
government to stop but it is making huge loss to the bigger firms like Zara (Sun,
2014).
 Fluctuation in currency prices: Since there is huge fluctuation in the values of the
currencies compared with Dollar. This change in the currency is having impact on the
business operations of Zara china as there is very small margin of profit available with
Zara on each product and due to this change in the currency value company might not
be able to achieve desired profits.
 Technology enhancement: The technology enhancement in the industry is very fast.
Both the company and its customers are using it as a medium for enhancing the
smoothness in their operations. But this has become a challenge for the company as
customers have got empowered and they compare most products offered by different
companies and they make their purchasing decision accordingly.
Globalisation
This company has smartly chosen its globalisation strategy. In order to understand ‘why’ they
have gone for globalisation is that there were certain push factors and certain facilitators that
motivated them for choosing globalisation. The push factors are saturation in the Spanish
market and maturity of the home market. The facilitator that will promote globalisation by
the company includes having international status, faster learning process used by the
company as well as their ability to spread cost and risk. In order to answer how it can be
stated that with the help of Joint ventures, franchising and wholly owned subsidiary, they
have expanded in almost every part of the world. In the domestic market, they are using trail
expansion (Mo, 2015). In United States, Portugal, Cyprus, France, Sweden and Portugal, they
have chosen cautious international expansion. In Argentina, Great Britain, Iceland, Ireland,
Russia, Italy, Japan, Canada, Latvia, Panama, Monaco, The Philippines, Hong Kong and
UAE, they have chosen aggressive international expansion.
Outsourcing and offshoring
This company does believe in outsourcing and offshoring of the products. This enables them
to maintain the quality of their products. It also helps them in managing their privacy and
intellectual property (Schniederjans, Schniederjans and Schniederjans, 2015). The
outsourcing and offshoring has several advantages and disadvantages. This is the major

11
reason why this company only outsource those activities that are not major such as store
cleaning and other smaller support activities.
Pros
 It helps the company in focusing on major things rather than focusing on the
supporting activities.
 It allows the company to reduce the overall costs of operations which is because the
company that is outsourced some activities have resources available at lower cost.
Cons
 Company might compromise with the quality that they offer to their customers as the
outsourced company might not manage the quality up to the standards that company
can itself do.
 It also keeps the essential data of the company at stake as the employees of the
outsourced company might not have go the same training as what is required to
maintain the privacy of the company.
Conclusion
From the above based report, it can be concluded that Zara made its expansion within China
in the year 2006. The external environment of the company is healthy but the economic
challenges are becoming bigger for Zara as people are restraining from doing higher
expenditure. The increasing competition is another major challenge faced by the company. In
terms of internal analysis it can be said that strength of the company lies in its workforce,
brand name, fast supply chain etc. Company’s weakness lies in higher attrition rate, wrong
forecasting etc. It has opportunities in the online market and they face threats from increasing
cost of operations, poor economic performance etc. In China they have chosen the entry
mode strategy as wholly owned subsidiary. Increasing competition, Rising labour cost, New
foreign investments, Trade war, Piracy, Fluctuation in currency prices and Technology
enhancement are some of the challenges faced by the company. In terms of generic strategies,
they are using cost leadership strategies, continuously innovates their products and focus on
niche market so as to ensure higher sales.

12
References
Chen, Y.J., Chen, P.C. and Lin, K.T., (2013) Global brands perceptions: the apparel industry
in China. The Journal of International Management Studies, 8(1), pp.134-143.
Clara Banchieri, L., Campa-Planas, F., Cascón, R., Belen Guercio, M., Hernández-Lara, A.B.
and Victoria Sánchez-Rebull, M., (2012) Spanish business investment in China from the
perspective of the consulting firm Garrigues. Measuring Business Excellence, 16(2), pp.35-
40.
Crofton, S.O. and Dopico, L.G., (2012) Zara-Inditex and the growth of fast fashion. Essays in
Economic & Business History, 25.
Dahan, G.S. and Peltekoglu, F.B., (2011) The effects of Zara to the SMEs of an emerging
market. Journal of Global Fashion Marketing, 2(1), pp.1-10.
Dishman, L., (2012) The Strategic Retail Genius Behind Zara. Forbes, 23, p.2012.
Hansen, S., (2012) How Zara grew into the world’s largest fashion retailer. The New York
Times, 9.
Liu, L.J., Qiao, N., Li, X.P. and Feng, M., (2011) The Analysis of Fashion Buyers’
Development in Clothing Industry of China. In Advanced Materials Research (Vol. 331, pp.
735-739). Trans Tech Publications.
Lloyd, A.E. and Luk, S.T., (2010) The devil wears Prada or Zara: A revelation into customer
perceived value of luxury and mass fashion brands. Journal of Global Fashion
Marketing, 1(3), pp.129-141.
Marco, S.D. (2016) How Zara is Tackling India and China. [Online] Available at:
https://www.translatemedia.com/translation-blog/zara-tackling-india-china/. [Accessed on
31st August 2019]
Matherly, L. and Richards, C., (2013) ZARA: Chic and Fast Fashion. Journal of Strategic
Management Education, 9(2).
Mo, Z., (2015) Internationalization process of fast fashion retailers: evidence of H&M and
Zara. International Journal of Business and Management, 10(3), p.217.

13
Pennemann, K., (2013) Retail internationalization in emerging countries: The positioning of
global retail brands in China. Springer Science & Business Media.
Rao, K.G., (2014) Successful International Expansion of a Fashion Retailer: A Case Study of
Zara. BS Publications, p.245.
Rosenbloom, A., Haefner, J. and Lee, J.W., (2012) Global brands in the context of China:
Insights into Chinese consumer decision making. International Journal of China
Marketing, 3(1), pp.20-43.
Schniederjans, M.J., Schniederjans, A.M. and Schniederjans, D.G., (2015) Outsourcing and
insourcing in an international context. Routledge.
Sun, R. (2014) Big challenges and opportunities. [Online] Available at:
http://www.chinadaily.com.cn/bizchina/2014-02/24/content_17301054.htm. [Accessed on
31st August 2019]
Ting, S.Z., (2015) On China clothing retail industry under opportunity and pressure. Special
Zone Economy, (6), p.24.
Trehan, G. and Mehta, D., (2014) CHANGING THE FASHION WORLD A ZARA CASE
STUDY. Sansmaran Research Journal, 4(2), pp.39-54.
Viardot, E., (2014) Always Trust the Customer: How Zara has Revolutionized the Fashion
Industry and Become a Worldwide Leader. In Cases on Consumer-Centric Marketing
Management (pp. 68-94). IGI Global.
Wang, Y., (2018) An Exploratory Study of Brand Strategy in Fast Fashion Brand--Using
Zara as an Example. In 3rd International Conference on Contemporary Education, Social
Sciences and Humanities (ICCESSH 2018). Atlantis Press.
Xiang, L.I.N., (2011) Depth Analysis Based on ZARA Instant Supply Chain Model and GAP
Model Comparison. Logistics Sci-Tech, 3.