Report on Internationalization Theory of ZARA

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ZARA CASE STUDY
TABLE OF CONTENTSINTRODUCTION...........................................................................................................................11. The internationalization theory of Zara..................................................................................12. The competitive strategy of three world market leaders........................................................23. What are the advantages and disadvantages of Zara multi-brand store strategy...................44. How successful is Zara in meeting the risk of cannibalization?............................................55. Advantages and disadvantages of joint venture with Tata in India........................................7CONCLUSION...............................................................................................................................8REFERENCE..................................................................................................................................9
INTRODUCTIONTo be successful business enterprise in international market it is necessary to adoptvarious strategies. The present report is based on the case study of ZARA which is Spanishclothing and accessories retailer (Knight, 2015). ZARA is a fashion retail chain of Inditex group,owned by a Spanish businessman. ZARA owns the other brands as well such as, Massimo Dutti,Pull & Bear, Oysho, Uterque, Straduvarius and Beshka etc. This report will help to understandthe internationalization theory of ZARA, evaluate the competitive strategy of the three worldmarket leaders which is essential for global retailing in the fashion world along with theadvantages and disadvantages of Zara's multi-brand store strategy. Also, this report evaluate thesuccess of Zara in meeting the risk of cannibalization as a consequence of multi brand strategywith the advantages and disadvantages of going into a joint venture in India.1. The internationalization theory of ZaraZara is fashion retail chain of Inditex group and owns multiple brands such as, MassimoDutti, Pull & Bear, Oysho etc. thereby, Zara have strong visibility in international market as well(Zara,2016). However, Zara has resisted the industry wide trend for outsourcing the fast fashionproduction in low cost countries. Zara is adopts internationalization theory based on Uppsalamodel which explains how the cited firm can step by step increase their activities and visibility inforeign markets (Chandra, Styles and Wilkinson, 2012). With regards to this model Zara andInditex group gain the experience form domestic market before they move in internationalmarket. According to this model Zara can start operating the business in the countries which isculturally and geographically close and move step by step to geographically and culturallydistant country. Thus, during the period of 1980, Zara was focused and expanded business withinthe domestic markets and opening stores in Spanish cities as well. With reference to Uppsalamodel Zara starts its international business operations by using traditional exports and mostdemanding operation mode such as, sales subsidiaries in target country and organizational level.However, in the next steps of internationalization, Zara expanded business in internationalmarkets with very minimum distance from Spain and further, the cited firm was adding one ortwo countries more to its market portfolio every year. Thereby, Uppsala theory can best representthe Zara's (Inditex) internationalization.Furthermore, the uppsala model states that first sales objective of Zara should be physicalproduct service, knowledge and business operating system. This model of internationalization1
also assumes that first expansion in the sales objective and market strategy concerns with theexpansion in the new foreign markets. Moreover, in 1990 Zara started operating business inFrance which is geographically connected country and a fashion capital as well as the openingpoint for business expansion in Europe. Later on Zara was opened in Maxico in 1992, which isgeographically long-distance but similar in culture to the home country Spain. The experienceincreased international environment is beneficial for Zara to make it determined and attentive ona fast international expansion, irrespective of culture and geographical closeness (Altuntas andTurker, 2015). In the early stages of globalization, the management of Zara followed a partialityorientation in which foreign stores were also a replica of the Spanish stores. However, due to thisapproach Zara also encountered unpredictable difficulties in few countries because of culturalvariations. Thereby, the uppsala model of internationalization specifies that level of commitmentcan decrease and discontinue the business in international market if performance and prospectsare not met sufficiently (Brush, Edelman and Manolova, 2015). With regards to this, Zaradecided to move towards the geocentric orientation by allowing the stores in international marketto adopt the local solutions instead of replicating the home market stores. Thus, with regards tothe case study of Zara it is analyzed that Uppsala model of international is the best representativetheory of Zara's internationalization.2. The competitive strategy of three world market leadersThe major global competitors of Zara in terms of market share are H&M and Gap Inc.Both the competitors of Zara are market leaders due to their strong competitive strategy in globalretailing. Gap Inc. is an American clothing and accessories retailer based in San Francisco. Gapalso owns five primary brands such as, the namesake Gap banner, Banana republic, Old navy,Piperlime and Athleta etc. which is similar to Zara in some ways. Zara is comparatively detectedas more fashionable brand than its competitors (Onetti and et.al., 2012). The prices of Zara is lessthan Gap but higher than H&M. This company is global fashion retail organization established in1947 in Sweden. At that time H&M sells women clothing but later on H&M also included itsinventory in selling man's clothing and expanded business in menswear as well. The majoritycustomers of H&M is from Turkey and Bangladesh. The competitive strategy of H&M can beidentified from its mission statement. The mission of H&M depicts that fashion and quality at thebest prices.Moreover, on the basis of analysing the given case it is assessed that thecompetitive strategy of Zara is to use its own store as the tool to promote its brand in the2
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