Corporate Strategy Report: Analyzing ZARA's Business Performance

This report provides a comprehensive analysis of ZARA's corporate strategy, focusing on its external and internal environments. The analysis begins with an introduction to corporate strategy and its significance, followed by an examination of ZARA's business using PESTLE analysis to assess the impact of political, economic, social, technological, legal, and environmental factors. The report then utilizes Porter's Five Forces model to evaluate the competitive intensity within the fashion industry and ZARA's position. Furthermore, VRIO analysis is employed to assess ZARA's internal resources and capabilities, determining their potential for sustainable competitive advantage. The report also briefly touches on the SAF criteria. The report concludes with a summary of findings and recommendations. The analysis aims to provide a clear understanding of ZARA's strategic position, challenges, and opportunities in the global fashion market.

Corporate Strategy

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
External Analysis........................................................................................................................1
VRIO Analysis............................................................................................................................4
SAF Criteria................................................................................................................................5
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................8

INTRODUCTION
Corporate Strategy can be defined as the strategy prepared by an organisation in order to
achieve the goals and objectives of the company along with achieving competitive advantage
(corporate strategy, 2019). It also provides the company with pre defined long term vision which
companies set in order to create company's value and motivating the workforce in order to
provide customers with the best satisfaction with their products and services. In order to
complete this assignment, the company chosen is ZARA. This company was established in the
year 1975 and is headquartered in Artexio, Spain. It provides various products to their customers
such as clothing for men, women and kids and it also provides jewellery items to their female
customers (Hickman and Silva, 2018). The assignment will be completed on the basis of
information provided in the case study and on the very basis, PESTLE Analysis, PORTER's Five
Forces Model, VRIO Analysis and SAF Criteria will be done to know about the current position,
opportunities and threats to the company.
MAIN BODY
External Analysis
The External Analysis of ZARA will be done by making use of PESTLE Analysis. This
Analysis is done in order to know about the impact of macro environmental factors on the
working of a company. The discussion of PESTLE Analysis provided as under:
Political Factors: These are the factors whose impact is determined on the basis of intervention
of government in the working of an organisation. It includes government policies, political
stability or instability in overseas markets, tax policy, labour law, environmental law, trade
restrictions and many more. For example, in Europe free trade agreements can prove to be an
opportunity for ZARA as there are no trader barriers so the company can make possible the
successful running of their business. In countries like Bahamas and Gabon, trading is not easy
instead they charge heavy duty and high tariffs which is threat for ZARA.
Economical Factors: These are the factors which impacts upon the working of an organisation
due to changes in economic growth, interest rates, exchange rates, inflation, deflation, disposable
income of consumers and many more which impacts not only on the working but also on the
income of that country. For example, in Spain itself the company is having opportunity to
increase its income. It is because of high level of unemployment and high population in the
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country which lowered down the cost of labour. So ZARA can produce goods at low production
costs and can export them to other countries for sale so as to cover the high production cost
countries. On the other hand, Brexit has created a threat for the company as the following
incident created a situation of inflation in the country due to which along with the prices the cost
of production also increased which has become a threat for ZARA (Hardy, 2018).
Social Factors: These are the factors which involves the shared faith, beliefs and attitudes of the
people living in a society. It includes population growth, age distribution, health consciousness
and many more. For example, it is an opportunity for the company to invest amount in social
work so as to take the attention of customers towards the products of ZARA Company. In
addition to this, the company can create a positive image of it in the minds of people by
providing them employment in their company. As the company will help in reducing the
unemployment for the country which will create a positive impact on it. On the other hand there
is also a threat for the same
Technological Factors: These are the factors which impacts upon the working of an
organisation due to change in the technology. The technological changes can be related to way of
producing goods and services, ways of distributing goods and services or changes in ways of
interacting with target markets (Brooks, Chen and Zeng, 2018). For example, any favourable
change in the technology for ZARA will create an opportunity for the company and likewise any
unfavourable and negative change in the technology will impact negatively on the working of
ZARA and will be threat to the company.
Legal Factors: When some special laws, rules and regulations are made by the government of a
country than those factors are covered under the Legal Factors of PESTLE Analysis. It includes
health and safety, equal opportunity to work, advertising standards, consumer rights and laws
and many more included under this factor (Widya Yudha, Tjahjono and Kolios, 2018). For
example, the company must copyright their new launched products so that they cannot be copied
and sold other companies at lower prices. The following condition is considered as both an
opportunity and threat to ZARA because Copyrighting the product will save it from copied and
hence the company will make benefit out of this opportunity to the fullest and if it is not done
than the company will not be able to make the full use of this opportunity and it will turn into a
threat for ZARA.
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Environmental Factors: These are the factors which impacts upon the working of an
organisation due to the effect it is creating on environment (Zahari and Romli, 2018). The factors
which are included under this factors are increasing scarcity of raw materials, pollution targets,
doing the business in an ethical and sustainable way. For example, it is an opportunity for the
company to adopt those technologies in their working which are eco friendly in nature and
prevent the environment from being polluted and harmed. On the other hand, the non adoption of
eco friendly working practises by the company will create a bad image of the company which
will increase government intervention and reduce the customer base of the company. This is a
threat for ZARA Company.
Porter Five Forces Model:
The following analysis is used in order to determine the intensity of competition in an
industry and the profitability level by making use of five forces. The impact of these five forces
on ZARA is described as under:
Rivalry Intensity: The number of companies operating in this industry is more which has
increased the level of competition in this industry (Steffen and Boßelmann, 2018). The
competition is all about capturing the market share so that the companies can increase their
number of customers and generate more income which will help in the growth and development
of the company. The competitors of ZARA are H&M, Benton and the Gap. The company is
facing very intense competition with the Local, International and European markets. However,
ZARA is continuously replying to the changing environment of market because of their
strategies whose main focus is on the market needs and demands. Proper and timely analysing
the market helped the company a lot in maintaining and increasing the customer base of the
company. Overall it can be said that this force is moderate in case of ZARA.
Bargaining Power of Suppliers: ZARA Company is a part of Inditex. Due to this reason the
company is having bargaining power over its suppliers. As the company is operating at large
scale and have good reputation so most of the suppliers wants to work with this company.
Further the raw material required in order to produce the goods are not rare and are easily
available. In addition to this, due to the expansion of the business, the company is now working
on some independent suppliers in some countries. So the overall bargaining power of suppliers is
low.
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Bargaining Power of Buyers: The company is operating at a large scale and is also having a huge
customer base. The market area of this company is also scattered. Customers are provided with
best quality products by the company which is designed according to the needs and demands of
the customers and also by doing proper market analysis (Pezzutto and et. al., 2018). So the
bargaining power of buyers is also declared as low because it is not possible for them to acquire
high quality products at lower prices. Another reason for low bargaining power is because the
purchasing quantity of buyers is also very low which reduces their power to bargain.
Threat of Substitutes: Substitutes can be defined as the the products which can be used in place
of others. This power is treated as moderate because not at all places the availability of
substitutes is possible. ZARA is having global presence but not other companies are having
global presence. However a few of them does possess this condition also. Some companies are
operating only at local level and their products are only purchased by lower class people. But the
company before establishing its market do proper research of the market which provides the
company with the decision to start the business or not. This statement clears that company is
operating only in those countries where the substitutes will not create much effect on the
working of ZARA.
Threat of New Entrants: This force is determined by knowing about the barriers on the entry of
new firms in the industry. On the very basis, this force is considered as medium to low. It is so
because in order to start the business the initial investment needed is very high (Chatzoglou and
et. al., 2018). Along with this are many entry barriers in order to enter in this industry which
differs from country to country. High initial investment is required in order to cover the creation
costs, advertisement costs, production costs and distribution costs. Due to these reasons this
power is said as medium to low.
VRIO Analysis
The following is a tool which is used to analyse the firm's internal resources and
capabilities to state whether they can provide the company with competitive advantage or not.
The following tool will be applied to ZARA in order to know about the internal resources and
capabilities of ZARA which is explained as under:
Value: The first point of this tool will focus on the value which the resources of a company is
providing (Pandita and Ray, 2018). The valuable resources of the company are the technology
which it is using in producing their goods, financial resources, human resources and the quality
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of products. These are valuable as they creates and increases the perceived customer value. As
technology will help in developing the product, financial resources will ensure smooth working,
human resources will provide efficiency in work and quality will give stand to the products in the
market.
Rare: Getting talented human resources and innovation in technology are very rare to get
because getting talented employees needs high salaries, technical advancement also consumes
time. On the other side, financial resources and quality of products are not much rare as
compared to those two resources. These two resources are based on other resources as
technological advancement and human resources are the most important asset and method of
income generation for every company.
Imitable: In this point, it is checked that which resource of the company can be easily copied by
others and which cannot be. So the human resources cannot be copied by other companies,
technology can also be prevented from being copied by doing copyright of it, financial resources
can be easily acquired depending upon the financial condition of another one and the last is
quality which cannot be copied if something new is brought up in the market with the product.
Organised to Capture Value: It is clear from the performance of the company in the market
and also from its presence about the value capturing point. All the four resources which are
technology, human resources, financial resources and quality all are capable enough to capture
value for the company. As the technology provides the company with a separate identity and
place in the market, autonomy in decisions are also contributing towards the success of ZARA,
as with the help of financial resources, smooth running of the business was ensured.
Overall it can be said as that ZARA can achieve sustainable competitive advantage.
SAF Criteria
The company has implemented a strategy of recycling clothes by installing the cloth
recycling containers in stores. The following strategy adopted by ZARA will be judged with the
help of SAF Criteria which will help in knowing about the usefulness and effectiveness of the
strategy which are discussed as under:
Suitability: This is one of the most important factor in the SAF strategy Model, in this factor the
suitability of the implemented strategy will be judged (Carpitella and et. al., 2018). So the
following strategy is environmental friendly, expectation suitability and capability suitability. As
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the business wants to grow and develop by taking into consideration the environment also so this
strategy will be helpful for the company to adopt.
Acceptability: It is also another important aspect of SAF Model which makes sure that the
strategy implemented is providing sufficient return to the stakeholders, the risk attached with
strategy and the reaction of stakeholders (Mosalam and et. al., 2018). The following strategy of
installing recycling containers is beneficial as it will lower down the cost of production of the
company and high quality goods can be easily provided to the customers. Along with the
financial benefit, this strategy will provide the company with non financial benefits which is the
increase in goodwill and reputation of the company in the market SO it is clear that the
implementation of this strategy will be beneficial for the company and will provide sufficient
returns as expected. The stakeholders of the company will also react positively as environmental
friendly steps taken by a company are appreciated by the people and society and will result in
increase in the product awareness of the company. This will directly impact in a positive way on
the profitability of ZARA.
Feasibility: Under this aspect of SAF Model the financial feasibility about the implementation of
this strategy will be judged. It will include the amount of finance needed to implement the
following strategy in the business. So for the implementation of this strategy the company is
having resources in sufficient amount and also the skilled employees of the company can make
the implementation of this strategy successful. The following project will not require much
financial amount in order to be implemented by ZARA, machinery and equipment will also be
needed as this process cannot be completed without installing the recycling containers which will
complete this process of recycling the clothes (White, and Ringelberg, 2018). The company with
this strategy can also capture market share of medium and low class people also. It is so because
the company can provide the recycled products to their other medium and low class customers
who cannot afford high price products. In this way, the company can enter into new markets and
can increase its customer base.
CONCLUSION
From the above report it can be concluded that corporate strategy is an important aspect
and they must be prepared well so as to reduce errors ad increase the efficiency. Further it is also
concluded that PESTLE and Porter's Analysis is also important to do in order to deal with the
external macro environmental factors which are effecting the business. Moreover it also
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concluded that VRIO Analysis and Safe Criteria has its own importance which provides the
company with their internal position and also gives them grounds for improvement.
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REFERENCES
Books and Journals
Brooks, C., Chen, Z. and Zeng, Y., 2018. Institutional cross-ownership and corporate strategy:
The case of mergers and acquisitions. Journal of Corporate Finance. 48. pp.187-216.
Carpitella, S. and et. al., 2018. A combined multi-criteria approach to support FMECA analyses:
A real-world case. Reliability Engineering & System Safety. 169. pp.394-402.
Chatzoglou, P. and et. al., 2018. The role of firm-specific factors in the strategy-performance
relationship: Revisiting the resource-based view of the firm and the VRIO framework.
Management Research Review. 41(1). 46-73.
Hardy, J., 2018. 15 Cultural Embeddedness, Corporate Strategy and Foreign Investment in
Poland: A Tale of Two Firms. Knowledge, Industry and Environment: Institutions and
Innovation in Territorial Perspective: Institutions and Innovation in Territorial
Perspective.
Hickman, C. R. and Silva, M. A., 2018. Creating excellence: Managing corporate culture,
strategy, and change in the new age. Routledge.
Mosalam, K. M. and et. al., 2018. Performance-based engineering and multi-criteria decision
analysis for sustainable and resilient building design. Structural Safety. 74. pp.1-13.
Pandita, D. and Ray, S., 2018. Talent management and employee engagement–a meta-analysis
of their impact on talent retention. Industrial and Commercial Training. 50(4). pp.185-
199.
Pezzutto, S. and et. al., 2018. Forecasting Electricity Market Price for End Users in EU28 until
2020—Main Factors of Influence. Energies. 11(6). p.1460.
Steffen, B. and Boßelmann, S., 2018, November. GOLD: global organization alignment and
decision-towards the hierarchical integration of heterogeneous business models. In
International Symposium on Leveraging Applications of Formal Methods (pp. 504-527).
Springer, Cham.
White, D. C. and Ringelberg, D. B., 2018. Utility of the signature lipid biomarker analysis in
determining the in situ viable biomass, community structure, and nutritional/physiologic
status of deep subsurface microbiota. In Microbiology of the Terrestrial Deep
Subsurface (pp. 119-136). CRC Press.
Widya Yudha, S., Tjahjono, B. and Kolios, A., 2018. A PESTLE policy mapping and
stakeholder analysis of Indonesia’s fossil fuel energy industry. Energies. 11(5). p.1272.
Zahari, A. R. and Romli, F. I., 2018. Analysis of suborbital flight operation using PESTLE.
Journal of Atmospheric and Solar-Terrestrial Physics.
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