Analysis of Competitive Environment of Zara with Porter's 5 Force Analysis

This document provides an analysis of the competitive environment of Zara using Porter's 5 force analysis. It discusses the threats of new entry, threats of substitute products, suppliers power, buyers power, and rivalry among players in the fashion industry. The document also explores Zara's value chain and its primary and secondary activities.

Report
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Table of Contents
INTRODUCTION...........................................................................................................................3
Analysis of competitive environment of Zara with Porter's 5 force analysis..............................4
Porter's value chain of Zara.........................................................................................................6
CONCLUSION................................................................................................................................9
REFLECTION ................................................................................................................................9
REFERENCES..............................................................................................................................11
APPENDIX....................................................................................................................................12
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INTRODUCTION
Zara is one of leading successful fashion retail brand, with its dramatically lunched new
product and services in global marketplace. The retailer has founded in 1975 in Spain, it always
inspires or motivate to create their strong business position in global world. it is responsible for
passion in fashion among potential customer, spread in different culture, adults and every age
groups. The fashion retailer always focused on the business growth and development so that they
have contributed to success but its strength which plays important role in global fashion
marketplace (Varelas and Georgopoulos, 2017). Zara retailer is mainly obsessed with its
potential consumer because they can define company, brand value, image, culture in right
manner. Zara offer the various type of clothing for children’s, men’s and women. There is also
sub-brand Zara TRF that provide many options. Zara was founded by Amancio and Rosalia mera
in 1975. The organization is also integrated with retailer and controlling overall supply chain,
manufacturing. Currently, it has 1,751 stores across worldwide (Singh, Srivastava and Awasthi,
2018). They become start their first stored with features low price so that many customers
attracted towards product and services (Duarte Amado, 2016). it has planned to establish
business in next 8 years, applied a strategic approach towards fashion and business models.
Therefore, it gradually generates or target Spanish clients. Afterwards, it has been successfully
leading business and opening many physical stores across countries.
It is incorporated firm that holding entire business which laid the foundation from other
distributors. These are capable for shifting towards latest market trends in quickly. In this way, it
has begun to create new design, distribution process and manufacturing that could minimize lead
time and also react towards new trends. The demand of consumer has rapidly changed because of
adopting new style, trends which become major opportunities for ZARA to quick adopt new
things and expanding business across the world. Zara has drive by investing large amount of
money in information technology and utilise group of people. For instances, it adopts the
individual designer for the critical elements.
Zara offers various type of products and services as per demand of consumer, which
reflect unique need of client on the basis of culture, physical, climate. Especially, organization
produce clothing item in wide range (Duarte Amado, 2016). The product has frequently
developed interaction between Zara local store manager and their creative team. It is likely to
supply the best fashion merchandise at right time in global world. it has set up modern
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technology which drive system and enable to increase production value in global marketplace.
Zara use the concept of make and buy approach, it helps for producing more fashionable and risk
item for purpose of testing. It can be outsourcing production with more standard with more
predictable manner. In other countries such as Asia, Morocoo and Turkey to minimize
production cost or price (Singh, Srivastava and Awasthi, 2018). Zara employees are trained
listen, watch and attentive to even small signals from their potential consumer. It is good sign for
adopting new trends which reshape brand image, reputation. Zara knows that its response in
quickly manner and likely for successfully supply right fashion.
Analysis of competitive environment of Zara with Porter's 5 force analysis
Zara is one of the most popular apparel retailers which is mainly specialized in fashion. It
provides qualitative clothing, shoe, accessories, beauty and perfumes and other. One of the main
reasons of its effectiveness and popularity is its qualitative products. But in the context of apparel
and fashion industry, it can be said that competition in increasing day by day. There are several
other popular fashion brands in the UK such as Arcadia Nike, Adidas, Primark who are
increasing competition for Zara. All these fashion brand have abilities to attract customers by
providing qualitative products to them. It is limiting sales of Zara. One of the main aim of Zara is
to take competitive advantages and being the market leader in fashion industry. For
accomplishing this goal, it is essential for it to analyse all those factors which are increasing
competition. For that it also requires to select the best model which can help it out in analysing
and understanding all those factors. With the help of Porter's 5 forces analysis model, it can
identify the main 5 factors which are increasing intensity of the competition (Duarte Amado,
2016). All 5 forces which can help this company in analysing the intensity of competition are:
Threats of new entry: In the context of new entry, it can be said that for new
businessmen they will require high investment in order to compete with high competitors. They
also will require getting skilled workforce. But certain people who have thought to enter this
industry who has potential growth. But one of the main factor which need to be maintained by
new entrants is creativity and uniqueness in products for which Zara is known for. They will also
find difficulties in getting skilled workforce as compare to Zara who can help them out in
producing unique clothing. They will also require paying high to workers. Only few people and
businessmen can enter in this industry because there is a huge competition already. By critical
analysis as some factors can be in the favour of nee entrants which can make easy entry but some
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are not in their favour. So, it can be said that risk for Zara in this force is low. Intensity of new
entrants force is comparatively medium only because of its cash flow.
Threats of Substitute: There are several other brands in this industry who are providing
same features and quality of products at affordable price. One of the main brand which is
competing to Zara is H&M. In the context of H&M who has same features and quality of
products as like Zara invest more in advertising and promotion which can help to H&M to take
advantage of economic crisis. So, it can be said that threats of substitute products for Zara is
high. In addition, it is also stated that people from all over world prefer to purchase clothing and
other products online from different stores rather retailers (JAYANTI, 2018). They have many
choice as well as bargaining power. So, all over it can be said that this force is also high which is
not beneficial for Zara. It can create several problems for it.
Suppliers power: In the context of suppliers in fashion industry, it is stated that as
compare to buyers, there are number of suppliers. It means that suppliers in this industry have
less control over prices and which makes this force weak and low. Products which suppliers
provide to this and other companies are standardized fairly and have low switching cost as well.
It is beneficial for all buyers in this industry including Zara to switch suppliers according to the
situation. It is also a reason which makes this force weak. Industry in which Zara operates have
huge customers which means profits which industry and Zara earn is directly tied to that of
suppliers. For this purpose of getting profit, suppliers have to provide qualitative products at
affordable and reasonable prices. So, overall it can be said that bargaining power of suppliers is
low which is beneficial for Zara.
Buyers power: It is already stated that suppliers in the fashion industry in which Zara
operates are a lot as compare to customers and suppliers do not have choice. But in the context of
buyers it can be said that they have negligible switching cost, so they do not face any problem to
choose store and make the buying decision. There are several other popular brands which also
provides qualitative products (Varelas and Georgopoulos, 2017). When customers have many
options to select from than it increases their bargaining power. They are price sensitive. For
being in the competition, popular brands and other fashion companies are trying to give
discounts and products at affordable prices. So, it can be said that bargaining power of customers
in this industry is high.
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Rivalry among players: There are several popular brands in the UK such as H&M,
Arcadia, Nike and others who are providing qualitative products and also have good image in the
eyes of customers. So, competition among existing players are so high as compare to others.
Justification: From the above forces analysis, it can be said that except, new entrants and
suppliers all factors have high force which is not good for Zara. It is putting pressure on it to
invest more in getting skilled workforce, providing discount to customers, invest in technology
and others. So, it can be suggested to this company that it should focus on promotional and
advertising as like H&M in order to be in the competition and taking competitive advantages
(Baburaj and Narayanan, 2016). It can also be said that company needs to motivate its customers
in order to retain them and make them able to not to switch shops as bargaining power of
customers is high comparatively. It also will have to capitalize on its strengths and taking
advantages of opportunities for becoming the market leader.
Porter's value chain of Zara
Porter's value chain model is considered an effective model which consists of several
functions and all these functions are being divided as per their importance. This model allows
companies to identify important functions of their company which can help them out in
accomplishing their goals (Koc and Bozdag, 2017).
With the help of this model, Zara can know the importance of activities as per their roles
in products and delivery process as well. This model has divided functions into 2 activities and
part such as: primary activities and secondary activities.
Operations, inbound and outbound logistic
Inbound logistics, outbound logistics and operations fall under primary activities. All
these activities are called primary activities because it can help company in accomplishing their
goals and increase productivity to the great extent. All these are discussed in a detailed manner.
Primary activities
Inbound logistic: Inbound logistic is one of the main and preliminary function in which
company receives goods, warehouse them as well as inventory control. It is all related to raw
materials. In the context of Zara, it is stated that Zara has a hybrid model since it has well
established relationship with suppliers around the world. This activity and improved relationship
has proven helpful for Zara as it gets qualitative products at best price and makes more profit.
Almost all suppliers are linked with its network and coordinate with its projections.
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Operations
After getting products or raw materials, warehousing and managing inventory, company
requires to convert them into a final and end products in order to deliver them to customers.
Operations include all those activities and functions by which, Zara and other companies can
convert raw materials into final products. In the context of Zara, it is stated that it propounds live
collections which can be designed, manufactured and delivered to customers in a quickly
manner. For completing this process and function, company requires designers who have
abilities to track market events (Singh, Srivastava and Awasthi, 2018). Zara makes an effective
use as well as advantage of cluster effects in La Coruna in order to manufacture varieties of
finished goods. It is also stated that its hybrid model also allows it to improve its production
methods.
Outbound logistic
It includes all those activities which helps company to distribute final products to
customers. Outbound means sold and deliver logistics or products outside the company or to
customers. In regard to Zara, it can be said that its satellite centre in Mexico and distribution
centre in La Coruna serves it as a hub of logistical operations. For making sure that inventory has
reached in a timely manner or not, it makes an effective use of mobile tracking system which has
high folding capacity and allow it's to see whether inventory moves with minimum delay or not.
So, it can be said that its strong connectivity allows it to track products and deliver them to
customers in a timely manner to maximize customers experience.
Marketing & sales
It is also considered primary activities because it helps companies out in promoting their
products and make people aware about features of products and services. It is stated that
company mainly focuses on word of mouth for promoting services. In this context, it believes
that by word of mouth and by meeting customers directly it can better make them understand
about its products (Jones and Wright, 2018).
Services
It includes those services in which companies try to maintain products and increase
customers' service. It includes repair, maintenance, refund, exchange etc. In the context of Zara,
it is stated that its shops are located at premier shopping streets. For promoting and increasing
customers' satisfaction, its employees wear clothes to work.
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Support activities of Zara
These activities are considered secondary and supportive activities which does not play
important role as like primary. But with its help they can better manage and accomplish goals.
All these activities include:
Firm infrastructure
It includes functions and support system which allow companies to maintain operation
such as: accounting,, administrative functions etc. in the context of Zara, it is stated that it
believes that manager can better play this function because one of the main function of a
manager is to manage operations. They have ability to understand human behaviour of customers
and coordinate activities worldwide.
Human resource
It plays an important role but still they are considered as secondary activities. Zara has
approximate 600 employees in which half of its employees are in Spain and rest are in others
countries in which it operates. Its all workforce are young which helps it out in developing new
ideas and bring creativity Singh, Srivastava and Awasthi, 2018)..
Technology development
Technology is playing an important role in apparel industry as it helps companies in making their
products innovative and qualitative. There are several tools which are being used by Zara in
order to maintain quality such as TQM and six sigma.
Justification of value adding activities
From the above discussed activities, it can be said that both primary and secondary
activities play an important role. Primary activities help companies including Zara to accomplish
its goals and make its able to take competitive advantages. Its all activities which comes under
primary activities are effective. One activity and area in which it lacks and need more
improvement is promotion, It is stated that Zara mainly focuses on word of mouth publicity and
promotion, But nowadays people prefer digital marketing because it saves their time and cost as
well. It can also be said that secondary activities also plays an important role. The main aim of
secondary activities is to help companies ti improve their primary activities and make them
better. For example: By making an effective use of technology Zara makes its products better. It
is stated that company use tracking system in order to make sure about the delivery time. So, it
can be said that technology activity helps primary activities. In addition, it is also stated that Zara
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has effective workforce and most of them are young which bring creativity and innovation in an
organization. So, it is one other example which shows that companies both primary and
secondary activities are effective and helps it out in accomplishing its goals.
CONCLUSION
From the above study it has been summarized about the business, analyse its internal and
external business environment. it assesses the role of information technology in retail business. it
helps for increasing overall business productivity and profitability in global world. In order to
gain competitive advantage (Singh, Srivastava and Awasthi, 2018).. Furthermore, it has
described about the competitive environment of Zara while applying Porter’s five forces analysis
and justification. Furthermore, it has analysed about inbound logistics, operations and outbound
logistics within retail industry. It also identified the fashion retailer that always focused on the
business growth and development so that they have contributed to success but its strength which
plays important role in global fashion marketplace. It can be identified the key value activities
which always support for business to enhance in global marketplace. it has reflecting that how
business could deploy information technology and improve the overall business operations or
functions.
REFLECTION
In my personal experience, Information technology is the fastest growing modern technique
which improve overall business capabilities in past decade. I have identified that retail business
with emphasis on IT application which always supports for increasing operational efficiency and
performance. Sometimes, I have found that retail business adopts new innovative idea in
operational activities because it helps for motivating or inspiring their potential employee
towards organizational goals Singh, Srivastava and Awasthi, 2018).. In past decade, I have found
that information technology plays major role in retail enterprise which encompasses the value to
develop new product and services. it becomes capable to increase popularity through strategic
policies and procedures. In my opinion, this is reason which can utilize IT system in business
operations, which can reduce price, costs and produce high quality of product across the world.
Sometimes, it also cutting down price as improve the better quality of service in clothing.
On the other hand, I have believed that IT application utilise time, money and resources
which are taken from initiation to different business activities. In this way, it is beneficial in term
of supply chain while forecasting accuracy. As per my opinion, Innovative idea always inspired
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the employee and adopting in business to improve overall capabilities. Therefore, I could
highlight the role information technology in competition and increase value chain. In additional,
I have understood that retail activities into technologically and economically, it performs to do
business. I have found that retailer create value and also measure through buyer that are willing
to pay for best quality of product and services (Singh, Srivastava and Awasthi, 2018).. I have
analysed that retailer made plans to establish business in future expansion so that they can apply
a strategic approach towards fashion and business models. Therefore, it gradually generates or
target Spanish clients, has been successfully leading business and opening many physical stores
across countries.
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REFERENCES
Books and journals
Baburaj, Y. and Narayanan, V.K., 2016. Five Forces Framework.
Duarte Amado, D.P., 2016. Estrategia empresarial: una visión teórica y análisis de las cinco
fuerzas competitivas desarrolladas en Zara.
JAYANTI, A.D., 2018. COVER PAGE Rice Miller’s Competitive Strategy Choice in Response
to Porter’s 5 Forces Analysis (Empirical Study at Johar Central Market in Karawang.
Jones, S. and Wright, C., 2018. Fashion or future: does creating shared value pay?. Accounting
& Finance. 58(4). pp.1111-1139.
Koc, T. and Bozdag, E., 2017. Measuring the degree of novelty of innovation based on Porter's
value chain approach. European Journal of Operational Research. 257(2). pp.559-567.
Singh, J., Srivastava, A. and Awasthi, M.K., 2018. Study of value chain of Indian textile
handicrafts: A case of Lucknow Chikankari. Prabandhan: Indian Journal of
Management. 11(5). pp.28-41.
Varelas, S. and Georgopoulos, N., 2017. Porter’s competitive forces in the modern globalized
hospitality sector–the case of a Greek tourism destination. J Tour Res. 18. pp.121-131.
Gürel, E. and Tat, M., 2017. SWOT analysis: a theoretical review. Journal of International Social
Research. 10(51).
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APPENDIX
SWOT analysis
In the context of Zara, it can be said that it is one of the main popular store which
provides a lesson to other businesses that how to keep customers' coming back. Competition is
raising in this industry and it is becoming difficult for Zara to increase sales and becoming the
market leader. For analysing internal factors which can have impacts on its performance in
critical manner, it makes an effective use of SWOT analysis model (Gürel and Tat, 2017).
Strengths, weaknesses, opportunities and threats of this company are:
Strength
 One of the main strength of Zara is it
has strong supply as well as retail
networks.
 It has strong financial stability which
makes it able to invest in advanced
technology and innovation.
 It uses different pricing strategies as per
the market situation.
Weaknesses
 Main weakness of Zara is it does not
have strong presence in fast growing
markets.
 It is less aggressive about sales and
marketing.
 It has generalized collection which
means it does not have specialized in
anything.
Opportunities
 It has great opportunity of artificial
intelligence for improving customers
experience.
 Online E-commerce is one of the main
opportunity for this.
 Strong image can give it opportunity of
market expansion.
Threats
 Lack of marketing activities and lack
focus on advertising can give it threats
of decreasing sales.
 Increasing and intense competition in
this fashion industry is one of the
biggest threat.
 Regulatory threats or some changes in
external environmental factors whose
control lance is not its hand are also
creating some problems.
 Rising cost of raw materials is also a
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threat which can increase overall cost
of the company.
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