Zara's Business Strategy: Macro and Micro Environmental Analysis

This report provides a comprehensive analysis of Zara's business strategy. It begins with an introduction to business strategy and the retail industry, specifically focusing on Zara. The report then delves into the macro environment using PESTEL analysis, examining political, economic, social, technological, environmental, and legal factors impacting Zara's operations. Following this, an internal analysis is conducted using SWOT analysis to identify the company's strengths, weaknesses, opportunities, and threats. The report further evaluates the competitive forces within the market sector using Porter's Five Forces model, assessing the bargaining power of suppliers and buyers, and the threats of new entrants and substitutes. Finally, the report interprets and devises strategic planning for Zara, drawing on various theories, concepts, and models. The report concludes with a summary of the findings and a list of references.

Business Strategy

Table of Contents
INTRODUCTION...........................................................................................................................3
TASK 1............................................................................................................................................3
P1 Applying appropriate frameworks analyse the impact and influence of the macro
environment on a given organisation and its strategies..........................................................3
TASK 2............................................................................................................................................5
P2 Analyse the internal environment and capabilities of a given organisation using appropriate
frameworks.............................................................................................................................5
TASK 3............................................................................................................................................7
P3 Applying Porter’s Five Forces model evaluate the competitive forces of a given market
sector for an organisation.......................................................................................................7
TASK 4............................................................................................................................................9
P4 Applying a range of theories, concepts and models, interpret and devise strategic planning
for a given organisation..........................................................................................................9
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
.......................................................................................................................................................12

INTRODUCTION
Business strategy is defining as action or set of decision which is made by a company in
order to achieve its goals and objectives (Al-Mubaraki and Busler, 2013). There are different
types of business strategy such as product differentiation, price skimming and many more. This
report is based on Zara organisation which belongs to retail industry. Its headquarter is located in
Arteixo, Spain and was founded by Amancio Ortega and Rosalia Mera in the year 1975. The
company deals in the products and services related to clothing. Along with this, it also serves its
goods and services at global level. This report is going to explain about external environment
with the help of PESTEL analysis. Along with this, in order to conduct internal as well as
external environment effectively, company make effective use of SWOT and PESTEL analysis
so that they can formulate their strategies according to it. Along with this, in order to know about
market position of the company, respective organisation must use porters five force model.
TASK 1
P1 Applying appropriate frameworks analyse the impact and influence of the macro environment
on a given organisation and its strategies.
PESTEL Analysis
PESTEL analysis is an acronym for Political, Economic, Social, Technological,
Environmental and Legal. A PESTEL analysis refers to the framework used by the marketing
departments to analyse and supervise the macro environmental factors or external factors that
can affect the working of an organisation (An Example PEST Analysis of The UK, 2019). It
guides management in decision making process and changing the threats and weaknesses into
strengths and opportunities. To understand factors which are affecting working procedure of
international fashion brand Zara, PESTEL analysis is performed which is as follows:
 Political: Political stability is a strength of UK, Brexit has created uncertainties and
political debates which will create confusion but its changes in opportunity for the
country. If the political policies of UK are safe and harmonious, the firms operating are
healthier.
Threats: Political factors can break off the supply chain and raise many difficulties for an
enterprise. Threats for UK industries are created by hidden corruption and uncertainty of Brexit.

Opportunities: It is beneficial for Zara to limit its boundaries for supply chain to own country
and neighbouring nations. The UK government announced reductions in corporation tax which is
taken to 17% from 19%.
 Economic: The UK is the 5th largest economy in the world by nominal GDP but
recession had put the economy in trouble. The inflation rates rose in November 2017 by
3.1% (PESTEL analysis of UK, 2017). It has a high GDP, diverse economy with few
issues. These factors have huge influences on company and its success activities.
Threats: In context to Zara, when British faced high inflation rates and high standard of living
with less purchasing power. Slow recovery from 2008/2009 economic recession.
Opportunities: Zara can adapt low pricing strategy which helps it in high inflation period to
maintain its profitability ratio in that conditions of UK where inflation rates are high.
 Social: The activities happening in social environment greatly affects the actions of
business. According to data the expected population to reach 74 million by 2039. In 2016,
18% of people were 65 above while 2.4% above 84.
Threats: Due to majority of older aged people preferences given by Zara to young peoples
reduced in comparison to older ones.
Opportunities: Zara is operating its business in various countries with different cultures. There
are lot of opportunities for Zara to cater needs of older population.
 Technological: Technology sector is major contributor to UK economy. It focus on up
gradation of new ways to produce, distribute or communicating with target markets
(Charter, 2017). In marketplace there are various activities adopted by the business
enterprises to be innovative and creative but UK is falling behind in technological
development in compare to USA and other countries.
Threats: It is difficult for Zara to maintain reputation with existing and old technologies in UK.
Zara can also face bad phase In UK due to outdated technologies compare to other places.
Opportunities: In context to Zara, it can adopt online existence and production strategies which
has unlimited opportunities to do business in UK.
 Environmental: The environmental factors can affect business activities and their ability
to function smoothly. The UK government focus on development of European
environmental standards with EU policy making. It focus on the promotion of sustainable
development initiatives set up under an EU target .

Threats: The number of customers can be cut-off, if Zara is not focusing on environmental
initiatives taken by the UK government.
Opportunities: In context to Zara, it can adopt sustainability concept which is trending in UK in
concern to business globally (Cheng, 2013). The EU sustainable development strategies provide
management structure to ecological and social development.
 Legal: This involves laws made by the government for the functioning of an organisation
in the environment. The EU labour law defines, 48 hours as maximum working hours in
seven days, with 11 hours of rest in each 24 hours. A number of changes are taken place
in British labour law such as minimum wages, maternity and paternity benefits.
Threats: Legal formalities of a country are applicable for all if Zara not fulfil the formalities of
UK, it can affect its reputation and costs also.
Opportunities: Zara is an international brand, for effective brand image in the UK it has to be
aware and fulfil all legal laws under the Employment Act 2002.
TASK 2
P2 Analyse the internal environment and capabilities of a given organisation using appropriate
frameworks.
In an organisation various activities are performed to attain desired objectives effectively and
smoothly. For smooth working of business enterprise it is important for the company to examine
internal environment with the help of SWOT analysis (SWOT analysis of Zara – Zara SWOT
analysis, 2019). It is because through this they will its strength and weakness from which they
able to formulate opportunities and threat of the organisation. In respect of Zara, firm has
conducted it internal analysis with the help of SWOT so that they can perform their functions
and operations in effective manner. SWOT analysis of respective organisation is described as
follows:
SWOT analysis:
Strength Weaknesses
 Brand image: Zara has a strong brand
image because it serve its goods and
services to their potential customers at
international level. The brand of Zara
 Imitator,not a creator:As Zara is not a
creator but a imitator due to which
there are possibilities they their
designers may copy design of others.

has 53 rank as per Forbes which creates
positive images in the mind of
customers.
 Strong presence:As Zara serve their
products at international level, it has
more than 2100 stores globally
(Dranove and et.al., 2016). This helps
them to reach wide range of customers.
Through this they are able to determine
taste and preferences of consumers.
 Strong supply chain:Zara has a strong
supply chain as it serve its goods and
services globally. Respective company
deliver their products as per customer
requirement to its store which are
situated at different location.
 Unique designs: As Zara has its own
manufacturing, it make sure to provide
unique designs to its customers. This
helps them to retain their customers for
long time period.
This may create a negative impact on
the company.
 Generalised collection: Zara does not
focus on specific product due to which
there is a possibility that their customer
will shift to another brand. This may
affect its customer base.
 Less safety stock:Zara does not keep
safety stock because there are times
when they are times when they want a
particular design and the store does not
keep it. Due to this, it may lose its
potential customers.
 Limited market share: In
marketplace, there are large number of
competitors due to which respective
company can lead to limited market
share.
Opportunities Threats
 Market expansion: Zara can expand
its market by launching store at that
location where they are not operating.
This is so because through it they able
to enhance their customers base. Such
as respective company can expand their
market in more locations of Asia.
 Traditional collection: It is major
 Advertisement: Zara lacks in
advertisement of its products and
services which gives opportunity to
other competitors to grow as well as
expand their business at competitive
market place (Hamel and Prahalad,
2017).
 Competition: As Zara has its substitute

opportunity for respective company to
come up with new range of products
i.e. traditional wear. This is so because
through it they able to attract customers
who prefer more traditional wear which
will enhance their numbers of
customers.
 Reduce price: It is consider as
opportunity for ZARA that they can
reduce their products price (Hillary,
2017). This is so because if they offer
high fashionable products at affordable
price they able to attract more
customers which increase their sales as
well as provide market growth.
competitors such as H&M, Gap and
many more which build competition
and threat for the respective company.
 Fake imitations: At marketplace, there
are false assumptions of Zara which
may affect its business as well its brand
image.
 Lack in collaboration:As Zara do not
collaboration with international
designers due to which they are able to
produce innovative as well as different
designs for its customers.
TASK 3
P3 Applying Porter’s Five Forces model evaluate the competitive forces of a given market sector
for an organisation.
Porters Five Force Model
This model states about the market position of a business at competitive market place
(Quirke, 2017). Respective model includes five elements i.e. bargaining power of suppliers and
buyers as well as threats of new entrants and substitutes. These elements of respective model is
explained as follows:
Bargaining Power of Suppliers
It is define as the powers of suppliers who have control over the price of products of
organisation. If the bargaining power of suppliers is strong then they sell low quality products at
higher price to their customers (Rong and et.al., 2013). This lead to low profits of a company. In
respect of Zara, it has a large number of buyers which reduces the power of suppliers over their

products which makes their bargaining power weak. This lead them to attract new customers and
provide them products as per their requirement.
Bargaining Power of Buyers
It is refereed to the ability of customers to affect the price as well as quality of product of
a firm. In case if the bargaining power of buyers is high, then there are chances that customers
will products in bulk at low price. Along with this, they have an opportunity to switch to another
industry where they can get the same product at lower price. In context of Zara, bargaining
power of buyers is low. It is because respective company provide such quality and innovative
product to their customers that they cannot get substitute of it. This implies that power of buyers
in respect of Zara is low.
Threat of New Entrants
This is one of those threat which create threat for the existing industry at competitive
market place. Due to the new entrant in the industry, there will be negative effect on their sales
as well as profits. In respect of Zara, it is very difficult to new entrants to accomplish economies
of scale in which respective company operates. Due to this, Zara gets the opportunity of cost
advantage through which it is able to tackle threat of new entrants effectively.
Threat of Substitute
It means that when the company has substitute of it who sell the similar products at lower
price to customers (Scheer, 2012). Due to this, power of suppliers gets reduce as well as existing
industry customer base get weaken. In respect of Zara, company has its close substitutes which is
H&M and Gap which sell similar products as Zara at affordable price. Due to this, sales and
profitability ratio of respective organisation gets affected.
Competitive Rivalry
Every business has its competitors at market place who affects operation of an
organisation. These competitors affect the attractiveness of market by providing similar products
and services to consumers (Sircar and et.al., 2015). In reference of Zara, it has few competitors
which do not affect much of its sales. Along with this, respective organisation has large market
share which weakens the power of competitors. In addition to this, in which Zara operates its
business, it consist of high fixed cost as well as it also produces differentiated products from its
rivals due to which it gives less opportunity to customers to switch their brand.

TASK 4
P4 Applying a range of theories, concepts and models, interpret and devise strategic planning for
a given organisation.
In order to make effective strategic planning, Zara has adopted Ansoff Matrix and Porters
generic method which is explained as follows:
Ansoff Matrix Model
This model refereed to the marketing planning of an organisation in order to determine
their product as well as market growth strategy (ZARA GENERIC AND INTENSIVE GROWTH
STRATEGIES, 2019). This model consist of four elements i.e. market penetration, market
development, product development and diversification. Ansoff Matrix model mainly focus on
whether product as well as market are new or existing. This model was adopted by Zara
company in order their marketing planning effective and better. It is described as follows:
Market Penetration
It is the first stage of Ansoff model which states that an organisation is more focused to
enhance their existing product in existing market which will help them to increase their market
share. The main motive of the company to adopt this strategy is that it has less risk involved in it.
Market Penetration will help Zara company to influence their existing customers to buy more
products from them. This will aid respective company to increase their sales as well as
profitability ratio.
Market Development
In the second stage of respective model, company launch their existing product at new
marketplace. In context of Zara, company has expanded its business in 93 countries with more
than 2200 stores at international level. Respective organisation has its large market in Spain with
436 countries.
Product Development
The third stage of Ansoff Model states that in this strategy firm focuses on launching
their new product and services in the existing market (Holland and Weathers, 2013). In terms of
Zara, product development helps the company to grow their customer base as well as brand
image. Along with this, by introducing new product, respective organisation will be able to
acquire new customers as well as retain existing customers.
Diversification

In the last stage of respective model, organisation focus on producing their new goods in
the new marketplace. In regards of Zara, company should be aware about the strategy before
applying it because it is one the riskiest strategy. But with the help of diversification, company
will be able to gain higher returns on their products.
Porters Generic Model
This model is used by the business to make strategic planning in order to gain
competitive advantage so that they sustain in the market for long duration. This model is
categorised in four components i.e. cost leadership strategy, differentiation strategy, cost focus
and differentiation focus strategy. These components are explained as below:
Cost leadership
It is the first strategy of porter generic model which is every business adopt in order to
gain competitive advantage. In this strategy, to take the cost advantage company keep their
product price lower so that they can generate more sales. In respect of Zara, in order to attain
cost leadership strategy company produce similar products of those goods which they sale at
high price. Along with this, they produce these similar products of latest design but with low cost
material. Through this, they lower their selling prices and achieve this strategy.
Differentiation
This is one of the effective strategy which every business use in order to make their
goods unique and different (Van Grembergen, 2012). With the help of this, strategy, company
gets an opportunity to gain competitive advantage and enhance its position at marketplace. In
terms of Zara, as company has its own manufacturing, they adopt this strategy so that they able
to produce there products as per latest design and fashion which satisfy their customer needs.
Cost Focus
The third element of porters generic model is about cost focus strategy. In context of
Zara, company use this strategy when they target the those market where they offer their
products at lower price. With the help of this, they will attain cost advantage by targeting specific
market.
Differentiation Focus
This strategy states about is to target niche market by providing them goods and services
which are different from other products (von den Eichen, Freiling and Matzler, 2015). In regards

of Zara, the motive to company to target specific segment is to create strong brand image so that
they can improve their position at marketplace and beat their rivals.
CONCLUSION
Hence, it can be concluded that, organisation has effectively made use of PESTEL
analysis due to which they were able to modify their strategies which do not affect their
operation and function of business. Along with this, in order to analyse, company made use of
SWOT analysis through which they were able to determine its strength and weakness as well as
its opportunities and threats. Therefore, in order to maintain position at marketplace and gain
competitive advantage through which they will able to give tough competition to its
competitors.

REFERENCES
Books and journals
Al-Mubaraki, H.M. and Busler, M., 2013. Business incubation as an economic development
strategy: A literature review. International Journal of Management. 30(1). pp.362-373.
Charter, M., 2017. Greener marketing: A responsible approach to business. Routledge.
Cheng, J.L., 2013. Linking Six Sigma to business strategy: an empirical study in
Taiwan. Measuring Business Excellence. 17(1). pp.22-32.
Dranove, D.S. and et.al., 2016. Economics of Strategy.
Hamel, G. and Prahalad, C.K., 2017. Do you really have a global strategy?. In International
Business (pp. 285-294). Routledge.
Hillary, R., 2017. Small and medium-sized enterprises and the environment: business
imperatives. Routledge.
Mohapatra, S., 2013. E-commerce Strategy. In E-Commerce Strategy (pp. 155-171). Springer,
Boston, MA.
Mohelska, H. and Sokolova, M., 2016. Smart, connected products change a company’s business
strategy orientation. Applied economics. 48(47). pp.4502-4509.'
Quinlan, C. and et.al., 2019. Business research methods. South Western Cengage.
Quirke, B., 2017. Making the connections: using internal communication to turn strategy into
action. Routledge.
Rong, K. and et.al., 2013. Linking business ecosystem lifecycle with platform strategy: a triple
view of technology, application and organisation. International journal of technology
management. 62(1). pp.75-94.
Scheer, A.W., 2012. ARIS—business process modeling. Springer Science & Business Media.
Sircar, S. and et.al., 2015. Assessment of business strategy: implication for Indian banks. Journal
of Strategy and Management.
Holland, J. and Weathers, J., 2013. Aligning a company's people strategy with its business
strategy and brand strategy. Journal of Brand Strategy. 2(3). pp.245-258.
Van Grembergen, W. ed., 2012. Business strategy and applications in enterprise IT governance.
IGI Global.
von den Eichen, S.F., Freiling, J. and Matzler, K., 2015. Why business model innovations
fail. Journal of Business Strategy.
Online
ZARA GENERIC AND INTENSIVE GROWTH STRATEGIES. 2019. [Online]. Available
through:<https://notesmatic.com/2017/08/zara-generic-and-intensive-growth-strategies/>.
An Example PEST Analysis of The UK. 2019. [Online]. Available
through:<https://pestleanalysis.com/pest-analysis-of-the-uk/>.
PESTEL analysis of UK. 2017. [Online]. Available
through:<https://www.howandwhat.net/pestel-analysis-uk/>.
SWOT analysis of Zara – Zara SWOT analysis. 2019. [Online]. Available
through:<https://www.marketing91.com/swot-analysis-zara/>.