Managing Across Borders: ZARA's Global Expansion Strategy

This essay analyzes ZARA's global expansion approaches and strategies, focusing on their recent expansion into Asian markets. It includes PESTEL and SWOT analysis, approach to internationalization, market segmentation, targeting, positioning, and market entry strategy.

Running head: MANAGING ACROSS BORDERS
Managing Across Borders
Name of the Student:
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Author Note:

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Executive Summery
The purpose of this essay is to analyze the global expansion approaches, strategies and
processes that organizations adopt. In this regard, ZARA clothing brand has been chosen as a
case study. The organization produces fast fashion at a comparatively low price range. In
recent years, they have expanded into the markets of Asia. Asia is much different from the
western parts of the world when it comes to culture, language and business approach. The
Asian countries mostly believe in collectivist culture whereas the European countries follow
individualistic culture. These differences can cause disruption in the global expansion. The
PESTEL and SWOT analysis shows that the opportunities for ZARA were far higher than
their threats. This analysis helped them to analyze the risks related to internationalization.
The trans-national approach that the company adopted in their strategy was effective as it
enabled them create the base of their strategy. Porter’s generic strategy of cost leadership and
focus helps them in creating a loyal customer base. The segmentation, targeting and
positioning is used to determine the target market and consumers of the company prior to
expansion. The company used Foreign Direct Investment as their market entry strategy and
thus was able to enjoy certain autonomy. Finally, the challenges and problems related to
internationalization has been analyzed and their potential solution has been given in the
conclusion.

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Table of Contents
Introduction................................................................................................................................4
ZARA Company overview........................................................................................................5
Internationalization of ZARA....................................................................................................6
PESTEL analysis of ZARA...................................................................................................6
Political..............................................................................................................................6
Economic............................................................................................................................6
Social..................................................................................................................................7
Technology.........................................................................................................................7
Environment.......................................................................................................................7
Legal...................................................................................................................................8
SWOT analysis of ZARA......................................................................................................8
Approach to internationalization............................................................................................9
Segmentation, targeting and positioning..............................................................................10
Segmentation....................................................................................................................10
Targeting..........................................................................................................................10
Positioning........................................................................................................................10
Porter generic strategy..........................................................................................................11
Market entry strategy...........................................................................................................11
Barriers to internationalization.................................................................................................12
Minimizing the challenges.......................................................................................................13

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Conclusion................................................................................................................................14
References................................................................................................................................15

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Introduction
Internationalization is practiced by organizations that are looking for new market and
increase their customer base (Frasquet et al. 2018). Their target is to increase the profit
turnover and increase brand awareness among the global buyers. It has been seen that brands
that sell globally make significantly more revenue than the domestic companies do. It enables
them to gain new loyal consumers and they are able to gain competitive advantage against
their competitors. With increase in brand awareness and brand value, the organization
collects more revenue even in the domestic market. It also allows them to recruit people from
different culture and talent thus making the organization a truly diverse one (Götz and
Jankowska 2016). Through internationalization, the organizations establish strong connection
with the government and enjoy certain benefits. In order to manage internationalization
successfully, the organizations must create extensive strategies. They need to consider the
cultural and language barriers that the organization might face during expansion. ZARA is
one such brand that has recently expanded into the markets of Asian countries. Before they
expanded their business, they had to consider many aspects. ZARA has been a popular brand
in the western countries. Their main reason for expansion was the large population and the
subsequent consumer potential of the Asian countries (Grandys and Grandys 2016). After
their expansion into the market, they saw substantial growth in their sales. In the report, the
micro and macro environmental factors that are affecting ZARA and a SWOT analysis on the
basis of that has been done. Additionally, their approach to internationalization, market
segmentation, targeting, positioning, Porter strategy and market entry strategy has been
analyzed for ZARA. Finally, the challenges and problems faced by ZARA and the solutions
that followed has been stated.

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ZARA Company overview
ZARA was founded in the year 1975 in Spain. The first store was opened in A
Coruna. Now, it has over 1700 outlets in 78 countries all over the world. It is a fashion
apparel producer of Inditex Group. The company owner is Amancio Ortega. They have
flagship stores in premium locations. Earlier, the brand was limited to European and
American countries only. In the recent years, they have expanded their business over to the
Asian market. ZARA is the most widely sold brand of Inditex, contributing to more than 50%
of the company’s turnover (Saraswat 2018). In present times, ZARA is counted among the
leading fashion brands though does not produce couture or boutique dresses. Their clothing
apparels are mass-produced. The four basic values on which ZARA runs are beauty, clarity,
functionality and sustainability. The main concern of the organization has been to track the
changing needs and creating fashion that becomes trend.
The production speed of ZARA is extremely high. From conception to market, the
products take only four weeks to materialize. The retail stores give continuous feedback of
the customers and the organization is able to modify the products according to that. The
manufacturing of the organization is largely outsourced from Asian countries, thus making
these countries the prime ground for their product. As the factories are present locally, ZARA
can offer their products there at a reduced price. The greatest competitor of ZARA is H&M.
H&M produces high quality fashion though their producing time is slower than ZARA and
thus, enjoys lead in this matter (Rammal et al. 2014). H&M has more than 4000stores all over
the world and most of their products are manufactured from the Asian countries thus making
most of their products affordable. Though, because of the position in the Asian market, their
manufacturing and other activities get disrupted.

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Internationalization of ZARA
Internationalization is a complex process and needs extensive planning and testing
before anything is finalized. The very first step to understand the internationalization of any
firm is to analyze the condition of the organization, identify the strengths and weaknesses,
determining the opportunities and threats for the organization (Mo 2015). These conditions
canbebfound by a PESTEL Analysis that will explore the micro as well as the macro
environment of the organization.
PESTEL analysis of ZARA
While expanding a business to overseas, an organization has to conform with many
rules, change their strategy and redefine their customer base. They also must take the cultural
and political differences of the countries. The following factors are what had most impact on
ZARA's internationalization.
Political: the most important factor for any farm doing business in any country is the
political structure, beliefs and legislature. The organizations must follow these
political conditions. In many Asian countries the government and their economic
policy is not open towards foreign companies doing business in their country through
direct investment (KC 2017). In many cases, the brands are forced to collaborate with
the local brands in order to be able to enter the market. In Asian countries like, they
have a closed policy for foreign trade thus making it difficult for European brands to
penetrate the market. Due to this, the companies doing business activities in the Asian
countries often face disruption and challenges.
Economic: the economic activity of the world as well as the host country has impact
on industrialization. During market entry, if the host country’s economic condition is
in a declining state, the brand will suffer. Consumers who are already facing the

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problems of a weak economy will not be interested in spending much on costly
products. Moreover, brands like ZARA are affordable from European or American
perspective, while it is a luxury brand for the Asian countries. The economic situation
may worsen if the host country has high labor cost and raw material.
Social: while internationalizing any organization, the social aspect has the cost
chances of affecting the business. Business and society is closely related. They must
follow social trends, norms and practices. Companies also have corporate social
responsibility that they must follow. ZARA, being one of the leaders in the market
researches the social conditions of the new market. In Asian countries, the culture is
substantially different from the European countries. Culture is a large influence on the
buying and spending habit of people. Thus, while expanding their business to Asia,
they considered the cultural influences that the clothing line could have (Gomes
2017). However, due to westernization, high fashion that are en vogue are always in
demand and younger generations have a craze for ZARA products.
Technology: technology is an ever-changing aspect of present times. ZARA utilizes
the technologically advanced machineries and process in order to keep themselves
ahead. ZARA is a fast fashion brand and thus must invest significantly on the
technological aspect. They collaborate with other market leaders in order to integrate
the technology into their system. This is how they are able to produce new fashion
within a month, which his other competitors are unable to do.
Environment: sustainability practices are emerging as mandatory practices in
business firms. ZARA invests in sustainable manufacturing and distribution method.
In this regard, the company has to consider the environmental situations of the host
country. They must also reduce waste, power consumption, water consumption that

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are the main concern of fashion brands. They also manufacture green clothing line
where they create organic materials. They also maintain their company ethics
wherever they are.
Legal: the legislature of the country that a firm is operating has huge impact on the
business. In Asian expansion, the legislation of China is considerably different from
that of India and the Middle Eastern countries. ZARA focuses on creating ethical and
sustainable organizational practice (Sánchez 2015). Without complying with the local
and national legislature, the company might face penalty and lawsuit that will cause
disruption in the process.
SWOT analysis of ZARA
From the above discussion, the SWOT analysis of the company can be done.
Strengths Weaknesses
 Fast fashion
 Unique designs
 Brand shops and flagship stores
 Strong presence
 Sustainable practice
 Legal compliance
 Asian manufacture
 Brand image
 Medium price range
 Excellent and cheap supply chain
 Technologically advance
 Mass produced
 Minimal promotion
 Fast moving stock, thus low safety
 Social considerations
 Foreign countries changing economy
 Foreign countries’ changing political
conditions
 Change in legal requirements
opportunities Threats

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 Social media marketing
 Large population in India and China
 E-commerce facilitates online
shopping
 Flagship exclusive designs (Cortez et
al. 2014)
 Growing market of the developing
countries
 Market expands with
internationalization
 Low advertising and promotion
 Competitors
 Low reach
 Lack of product range for Asian
countries’ middle-income section.
Table 1: SWOT analysis of ZARA
Source: Created by the author
With the understanding of the above factors, the internationalization strategies,
processes and approaches that ZARA follows can be determines as follows:
Approach to internationalization
There are four approaches to internationalization. These are export strategy,
standardization strategy, trans-national strategy and multi-domestic strategy. Among these
strategies, ZARA followed the Trans-national strategy for their expansion into Asia. This
strategy is applicable when with expansion a significant price competitiveness will appear. In
Asian countries the largest income group is the middle-income group. They cannot afford as
much on clothing as the Europeans and American counterparts can. Thus, while expanding
their business to the Asian market, ZARA had to rethink their pricing strategy. Moreover, the
presence of competitors like H&M was another reason for which ZARA has taken this
strategy. H&M though slower in sopped than ZARA, produce clothes that are much cheaper

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and with high quality material. This makes it preferable choice for the fashion conscious
consumers of the Asian market. The product that they produce has a global approach which
means that they are produced keeping in mind the global trends. They also produce
depending on the country’s taste (Vu and Medina 2014). In Asian expansion, the organization
had to keep in mind the tastes of the large market that they were trying to tap. The main
clothing line is same, only minor modifications are done depending on the country that they
are operating.
Segmentation, targeting and positioning
Before entering a new market, the firm must determine the segmentation, targeting
and positioning in order to create maximum impact.
Segmentation: the key demographic segmentation that ZARA followed was
demographic segmentation. They selected their consumers depending on the sex, age
and psychographic consideration. The customers that are highly fashion conscious are
their focus. They blend ethnicity with fashion to appeal to all the consumers.
Targeting: In Asian countries, ZARA targets the middle to high-income group. The
teenagers up to middle 30’s that are fashion conscious are the main consumer
segment. These customers are not able to afford the designer or couture clothes and
thus are willing to buy their product to satisfy their fashion needs. They target the
prime locations of the metro cities and the malls for the product selling (Anwar 2017).
Positioning: the positioning strategy of ZARA is their idea of democratizing fashion.
Most fashion brands and boutiques are expensive and most low and middle-income
group cannot afford them. ZARA provides quality clothing, trendy designs and latest
fashion in lower cost. They only have brand shops to give the customers a premium

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experience. The high profile locations also ensure that they are able to attract the right
customers.
Porter generic strategy
There are three kinds of generic strategies as described by Porter. These are, Cost
Leadership, Differentiation and Focus. In case of ZARA, they use both Cost Leadership and
Focus strategy in a combination in order to attain their unique goals. Cost leadership includes
taking measures that will reduce the cost of production, labor and distribution. ZARA has an
efficient while cheap supply chain system that enables them to cut down production and
distribution cost (Zozi, J. and Janicic. n.d.). They ensure this by manufacturing in the
developing countries and sourcing their products directly. Thus, they are able to maintain a
competitive price in the similar competition. ZARA also has large capital investments, which
help them in becoming cost leaders in their own market niche. Their focus strategy includes
particular targeted segments of the consumers. The teens and the 20’s age group who live in
metro cities and are highly fashion conscious are their focus. This consumer segment is aware
of the brand presence and brand value and thus prefers to buy their products. In Asian market,
ZARA became popular through social media and western influences. This ensures that the
target market is aware of the brand value and the products that they offer. They also modify
products depending on the consumer taste in order to increase the loyalty of the niche
customers (Pilarczyk and Stefańska 2013).
Market entry strategy
ZARA uses Foreign Direct Investment (FDI) in order to expand to the Asian market.
It means that the organization do not have any collaboration or distributorship in the Asian
market. They manufacture their own product and sell them through their brand shop. The
kind of entry strategy that ZARA used is called Greenfield Strategy. In this strategy,

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companies construct their own facilities, factories or buy the facilities in order to run the
business in complete autonomy. They have full control over the products, the distribution and
pricing. The whole of the profit comes to them. Sometimes, companies might make
acquisitions in order to enter a new market. In case of ZARA, the Greenfield strategy has
been successful (Schlosberg 2013).
Barriers to internationalization
During the expansion of business, companies may face many challenges and
problems. They are:
 Cultural barrier is one of the main challenges. Asian countries have a completely
different culture as well as language. It is a potential problem in the initial stage.
 The local brands offer quality products in an affordable range. The low-income group
mostly prefers these products.
 Taxes and trade tariffs that one has to pay is problematic in a new market. The
organization must comply with the legal framework of the country and tax structures.
 Supply chain and logistics may be disrupted due to some circumstances. This might
affect the flow of product.
 Staff hiring could be challenging. They will have to recruit local workforce that need
to work with the standardizations and practices of the company.
 Due to culture and language barrier it could prove difficult to trust the people in
which they are conducting business (Hossain 2015).
 Maintaining quality in a multinational production system is a challenging prospect.
 Political disturbances and change in legislature will pose a challenge for the company.
 In recent years, the laws of India regarding trade has changed considerably. China too,
has changed certain policies that has affected their trade in the country.

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Minimizing the challenges
On the light of the above analysis, ZARA implemented several strategies in order to
minimize the challenges faced by them. These are:
 Quality check and quality standardization will ensure that the products that are
manufactures in different locations have same quality. Souring the raw materials from
same place might also help.
 Understanding the culture of the target nation and recruiting people that are
comfortable with both languages are necessary.
 Practicing responsible and ethical business will ensure that no penalty or lawsuit is
attracted.
 Sourcing the products locally will reduce cost and decrease the threat from the
competitors.
 The tax and trade laws should be studied at length so that it is easier to align the
business with the new country rules.
 Create multi-cultural teams and exercising emotional intelligence will create cohesion
among the workforce and they will be able to trust each other.
 Creating plans for the mitigation of threat from external factors will protect the
organization from sudden downfall due to disaster (Saraswat 2018).
 The organization continues its market research in order to gather data about the trends
and economy of the market. This allows them to be prepared should any economic
recession happens.
Conclusion
From the above discussion, it can be concluded that the organization ZARA has
conducted a detailed market analysis and created strategies based on that before entering the

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new market globally. Expansion of ZARA into the Asian countries proved to be a fruitful
venture. With their use of social media, they have been able to create a large customer base in
the Asian countries. They have always complied with state legislature, tax codes and trade
charges in order to establish a long-term relationship with the government. The trans-national
approach to internationalization helps them to adapt themselves while working in a new
territory. Their Greenfield investment strategy for market entry ensures that they are able to
control the production and the quality of the products that they offer to the market. These
strategies has culminated to the creation of strong brand image and popularity of the brand in
Asian countries in the recent times.

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References
Anwar, S.T., 2017. Zara vs. Uniqlo: Leadership strategies in the competitive textile and
apparel industry. Global Business and Organizational Excellence, 36(5), pp.26-35.
Cortez, M.A., Tu, N.T., Van Anh, D., Ng, B.Z. and Vegafria, E., 2014. Fast fashion
quadrangle: An analysis. Academy of Marketing Studies Journal, 18(1), p.1.
Frasquet, M., Dawson, J., Calderón, H. and Fayos, T., 2018. Integrating embeddedness with
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Gomes, D.M., 2017. Recruitment and selection process of H&M Bangladesh.
Götz, M. and Jankowska, B., 2016. Institutional factors fostering internationalisation. The
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Grandys, E. and Grandys, A., 2016. Internationalisation of Polish Clothing
Companies. Fibres & Textiles in Eastern Europe.
Grandys, E. and Grandys, A., 2016. Internationalisation of Polish Clothing
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Hossain, R., 2015. Foreign Direct Investment on Bangladeshi Garments and textiles Sector:
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KC, C., 2017. Problem of franchising in Nepal and possible solutions.
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.

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