External Analysis and Strategic Options for Growth: A Case Study of Zara

The assignment content discusses the external factors that impact Zara's business globally, including technology, environmental, and legal factors. Porter's five forces model is used to analyze the industry, identifying threats and opportunities for Zara. The analysis suggests that Zara has an opportunity to adopt new technology and grow successfully in the market, but also faces a threat from new competition. Additionally, the assignment discusses different strategic options for growth, including Ansoff matrix, which helps the company make decisions about expanding its business in a particular country or not.

Zara Case Report 1
Zara Case Report

Table of Contents
Introduction................................................................................................................................3
Overview of Zara.......................................................................................................................4
Part 1- External analysis.............................................................................................................6
Pestle analysis.........................................................................................................................6
Porter’s five forces model.......................................................................................................8
Part V.......................................................................................................................................10
Identification and evaluation of main strategic options for growth......................................10
Ansoff Matrix...................................................................................................................11
References................................................................................................................................12

Introduction
The purpose of the assignment is to undertake a strategic appraisal of the company. For this
report, Zara is selected to evaluate, generate, as well as the selection of strategic options for
the firms to develop and growth. It also evaluates external environment that is Pestle analysis
of Zara. There also be identification of Porter’s five forces of Zara. Resources and
competencies are also identified in the organization. It also determines the issues and
challenges faced by Zara. The major strategic options like Ansoff matrix is to be applied. At
last recommendation and conclusion is given in order to improve the health of the company.

Overview of Zara
Zara is the retail company of Spanish that is based in Arteixo. It was founded in the year
1975 with the number of locations i.e. 10,000 stores. It is one of the largest apparel retail. In
the year 2017, it is managing 20 clothing collection. It serves the area all across the world. Its
core product is the clothing of kids, ladies, and men. Zara major mission and vision is to
provide the customer's variety of fashion choice by providing the clothes according to the
new trend. Moreover, it values customers by keeping the customers on priority. It
understands the needs and values of customers and fulfilling their demand accordingly. In
addition, a geographic market of Zara plays an essential role as it is the Spanish company its
product may not be famous thus it has expanded its business in Europe such as Italy, France,
Spain, and Greece. Its geographic location includes such as country, continent, state, city or
rural wherever the customer group is available. In terms of Zara market segments, it includes
four segment such as demographic, psychographic, behvaiour and geographical. In terms of
demographic of Zara it concentrates on customer characteristics. Here, it targets 15-45 years
age ladies as well as kids of 3-4 years. Psychographic includes the group lifestyle of
customers. here, it targets the customers who are interested in the fashion trends. In terms of
geographic stores of Zara are in traffic areas as well as crowdie area.

Part 1- External analysis
External analysis of the model that is helpful in identifying the macro-environmental analysis
of the company. This includes external things that may affect the business. It consists of five
elements such as Political, economic, social, technological, environmental and legal. Zara’s
pestle analysis is described as given below:
Pestle analysis
Political
Political factors impact Zara positively or negatively. The major political factor that may
impact the retail industry is the country’s financial regulations. It has been determined all the
government of each and every country does not have the same outlook for the business.
Moreover, there are many countries who do not allow foreign direct investment. There are
different countries where entry is difficult for companies who want to expand their business
there. This is one of the major political factors that impacts Zara. On the other hand,
disruption politically results in the market disruption and it has affected brands. Thus, this
difficulty is being solved by Zara by limiting its operations of a supply chain in its
neighboring country as well as the home country.
Economic

The economic factor also affects the business in all the countries. This is the critical factor in
the business. Zara has taken into consideration the strategy of providing the clothes at
affordable prices so, in this situation, if there is a decrease in the economic activity the
customers may switch away from luxury brands but they will not move away from Zara. Due
to the economic recession, the brands are also affected (Vorobyova, 2017).
Social
This factor also affects the business to a great extent as from the society the business cannot
stand divorced. There are different companies who are investing in the social activity in order
to gain attention of the public towards their brand. Zara is also following these aspects as
without doing proper research it does not enter into other countries market (Kaltsogianni et
al., 2014). Without proper research of the market can be risky for the business. Zara provides
the product according to the particular country culture.
Technology
This factor impacts the business globally. Due to the change in technology, all the business
apply technology in order to grow its business internally as well as externally. Zara is called
as the disruptive in the fashion industry as it is quite active in applying the technologies in
gaining the profit to a great extent.

Environmental
Environmental factor also impacts the business to a great extent. Zara has made an
investment in sustainability as its stores less water as well as energy as compare to other
stores of different brands. It is also responsible for removing all the kinds of hazards waste in
terms of supply chain system.
Legal
This factor also impacts the business to a great extent. In all the countries there are different
laws and regulations by which the new business is affected. Zara major focus is on
sustainability and ethics in regard to its business and supply chain (Seo and Buchanan-Oliver,
2015). Moreover, it also focuses on developing a positive image in front of customers
wherever it expands its business. It follows all the laws and regulations according to the
country.
Porter’s five forces model
It is the model where industry analysis is done in order to find out the actual position in the
market. It is described as given below:
Competition in the industry

While doing business in the market there are different competitors who compete. In terms of
Zara H&M, Benetton and Gap are the biggest competitors. Thus, the supply chain of Zara is
most effective as compare to other competitors supply chain. Moreover, there are different
retailers who spend months to launch the latest collection (Ünay and Zehir, 2012). Thus, in
terms of Zara, it responds to the changing fashion needs and new clothing is launched in two
weeks.
New entrants
Fashion industry is the fastest growing industry where people search for the goods which are
economical. The reasonable prices are offered to the customers by Zara and it helps in
addressing the economic good problem. It provides good quality products and services. Thus,
due to an increase in the rate of Euro may increasing the price of the product and this may be
disadvantage for Zara as it will lose economical brand image. Even though it is one of the
fastest-growing industry and the customers are attracted due to the standard style (Adamkasi,
2017).
Supplier’s power

It has strong bargaining supplier power as moving to the other supplier may be very high for
the customers. It is tending to establish a stable relationship with one of the suppliers who
had the proper knowledge in terms of safety and quality of clothes. (Sandberg, 2013)
Buyer’s power
In terms of Zara, it spends 0-0.3% on advertising. The major advertising in Zara is through
word of mouth. It invests in research and development department to gain knowledge in
terms of needs and wants of the customers (Utami and Lantu, 2014).
Threat of Substitute
There is a threat of competition in the industry. In terms of Zara, H&M can compete in regard
to affordability and quality. Thus, H&M spends a lot in advertising as compare to Zara.
On the basis of the above external analysis, different opportunities and threats have been
identified in terms of Zara. In terms of Pestle analysis, Zara is gaining opportunity in terms of
adopting new technology. With the help of adoption of new technology, Zara would be able
to grow successfully in the market. In contrast to this, threat includes a new competition that
is a threat for Zara hence, its supply chain is more effective as compare to the competitors.
These were the major threats and opportunities that were analyzed in terms of Zara.

Part V
Identification and evaluation of main strategic options for growth
A strategic option can be termed as the alternative option in order to respond to the external
situation which is faced by the organization. There are different strategic options like Ansoff
matrix, TOWS matrix, and SAF. From these options best one will be selected for Zara so that
it can continue its growth. It is described as below:
Ansoff Matrix
Ansoff matrix is the strategic option that helps the company to make the decisions in a better
way. With the help of this matrix, the company can decide whether to expand it’s business in
a particular country or not. It comprises of four strategies which include such as market
penetration, market extension, product development, and diversification. It is described as
given below:
Market Penetration
Market penetration is where a company offers existing products in existing markets. In terms
of Zara, it has motivated its present customers to buy more. The new products are introduced
by Zara every week. This helps the company to keep the customers retain. It is successful as
it has half of its factories in Europe where the wages are higher as compared to other

countries like Asia and Africa. Thus, in order to remain successful it should maintain its stock
inventory turnover. Zara has its own design centers that attracts maximum number of
customers.

References
Adamkasi (2017) Porter’s five forces model of Zara [Online]. Available at:
https://www.porteranalysis.com/porter-five-forces-model-of-zara/ (Accessed: 13th August,
2019)
Seo, Y. and Buchanan-Oliver, M. (2015) Luxury branding: the industry, trends, and future
conceptualisations. Asia Pacific Journal of Marketing and Logistics, 27(1), pp.82-98.
Kaltsogianni, M., Tsitsis, C., Priniotakis, G. and Tseles, D. (2014) Cooperation between
University and Industry. Good practices in European countries-the case of Greece. In the
Proceedings of International Scientific conference eRA09, ΤΕΙ of Piraeus.
Vorobyova, M.K. (2017) FACTORS DETERMINING EFFECTIVENESS IN MALAYSIAN
SMALL & MEDIUM ENTERPRISES BY IMPLEMENTING GLOBALIZATION
STRATEGY. PEOPLE: International Journal of Social Sciences, 3(2).
Ünay, F.G. and Zehir, C. (2012) Innovation intelligence and entrepreneurship in the fashion
industry. Procedia-Social and Behavioral Sciences, 41, pp.315-321.
Utami, R.M. and Lantu, D.C. (2014) Development competitiveness model for small-medium
enterprises among the creative industry in bandung. Procedia-Social and Behavioral
Sciences, 115, pp.305-323.

Sandberg, E. (2013) Understanding logistics-based competition in retail–a business model
approach. International Journal of Retail & Distribution Management, 41(3), pp.176-188.