Impact of Environmental Forces on Zara's Operations

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Analyzing the Business Environment
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To: Directors
Date: 14/06/19
From:
Executive Summary
The report is a summary on the factors that have an impact on the marketing operations of Zara.
There has been an identification and analysis of the rapid changes in the business, which affect
the company. The business, has given an account on the uses of the various stakeholder theories
in the market. This has further brought in a better understanding on the market and their use of
effectiveness in the company. The company Zara and its stakeholder, management as a concept
has been analysed for the course of the report. With rapid changes and improvement, the
company has been able to boost its efficiency and productivity.
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Table of Contents
Introduction (LO2).........................................................................................................................4
1. Illustrate and explain the impact of environmental forces on organizations at a micro and
macro level LO3..............................................................................................................................6
2. Assess the significance of impact of environmental forces at an organization, market sector or
industry level (LO4)........................................................................................................................8
3. Demonstrate an understanding of the requirements of a variety of stakeholders to a chosen
organization (LO5)..........................................................................................................................9
4. Measure and appraise the effectiveness of the responses of organizations to policy actions
taken by key stakeholders (LO6)...................................................................................................11
Conclusion.....................................................................................................................................13
Reference List................................................................................................................................14
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Introduction (LO2)
The report aims to analyze the business environment, subjected to the radical changes that occur
in the execution of business activities. The report will take into account the utilization of the
Spanish based retailer Zara in the United Kingdom. This is fast clothing and fashion accessories
retailer and a private limited company. The company makes 90% by the largest Inditex Group.
Therefore, the study will give an outlook on the nature of the environment and their operational
areas concerning their structure.
Demonstration on the nature of the environment and the operation of the organizations
Three vital sectors form the key operators in the business environment. These enterprise sectors
are mainly Public, private and social enterprises.
Public sector Enterprise: These enterprises are controlled by the government and provide
services to the individuals. The enterprises earn their funding from the citizens through taxes.
The examples of public sector enterprises are British defence forces in the United Kingdom
(Chan et al., 2018).
Private sector enterprises: The private sector enterprises are subjected to the independent
control of the entrepreneurs with the motive of earning profits. The example of private sector
organizations are McDonald’s in the United Kingdom.
Social sector enterprises: The social sector enterprises provide welfare services to the purpose of
the business and give in voluntarily (Joshi, 2018). They are not driven by the need to maximize
profits for shareholders and owners. The example of social sector enterprise is Bransley
Community Build.
Different structures in private sectors
There are different types of business structures, which are prevalent in the United Kingdom.
These will be enumerated briefly below:
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Pure (perfect) competition: This is a theoretical market structure, where all firms sell
homogenous products and cannot influence the market price of their product. The organizations
that are in perfect competition are agriculture-based markets and so on (Gautheir, 2018).
Monopolistic (Imperfect) competition: The monopoly markets usually set their marginal price
for their customers, as they are sole buyer and have no control over the price in the market.
Oligopoly: This market structure has a small number of firms that will not have influence on the
other marketers. It can be two or more firms, which operate in the business environment (Vives,
2018).
Monopoly: This market structure comprises of a single buyer with no close substitutes and does
no face any competition.
Laws of supply and demand
The laws of supply of demand state that quantity of a good-supplied rises with rise in market
price and falls with a decrease in market price (Fazzari et al ., 2018). Therefore, the company
Zara operates within the monopolistic competition market structure.
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1. Illustrate and explain the impact of environmental forces on organizations at a micro
and macro level LO3
Micro and Macro Levels within Zara
The micro and macro environmental forces play an integral role in the analysis of the business
organizations. These factors will be clearly enumerated below:
SWOT analysis of Zara
Strengths  Known for unique fresh designs
 Exhibits a strong market presence
 Brand exhibits a strong value
Weakness  No proper advertising
 The presence of generalized collection
Opportunities  The market can take advantage of
online e-commerce
 Has a potential in market growth
Threats  High competition due to low
advertising
 Zara does not have a better reach
among customers
Table 1: SWOT analysis of Zara
(Source: Created by Learner)
PESTLE analysis of Zara
Elements Factors Analysis
Political
 Brexit
 Government policies
for retailers
The Brexit and condition of
UK for the entire system can
affect the business operations
of Zara. Expansion policies in
the European Union are vital
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and imperative for business
(Barik and Kumar, 2018).
Economic  Fluctuation in
economy
 Difference in price
Zara faced a recession in the
year 2011. The company deals
with dollars and safe methods
of dealings. The customs and
tariffs by the UK government
also keeps a check on the
pricing policy of Zara (Ghebei
et al., 2018).
Social  Changes in trends and
consumer preferences
 Offers and discount
The changes in trends and
consumer preferences affect
the customers. The company
creates its product through the
initiation of the sizes of its
customers. Offers and
discounts are kept to attract
the business individuals.
Technological  Application launch for
easy access of
customers
 Interactive maps
The use of tactful logistics
application and online store
has an impact on the business
operations of Zara.
Environmental  Asian countries and
their fashion change
Fashion change in Asian
countries, are due to seasonal
changes, whereas Zara makes
sale of clothes for normal
weather (Gupta and Gentry,
2018)
Legal  Changes in litigation
 Issues during copyright
Zara follows the proper
following of litigation such as
Consumer protection law for
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the better understanding of the
customer.
Table 2: PESTLE analysis of Zara
Impact of environmental forces on Zara’s micro and macro level
The macro levels at Zara do have an explicit understanding on the macro and micro levels of the
company. As per the micro level, the examples are that, the strong presence and brand value
affects the company. The PESTLE factors such as the intervention in government and marketing
policies had an impact on the flexibility of the company. Therefore, this also states that the laws
and litigation affect the businesses. Therefore, as per the comprehension of the businesses, the
macro factors are impacted which relate to the functioning of the business.
2. Assess the significance of impact of environmental forces at an organization, market
sector or industry level (LO4)
It is important to take into account the use of the environmental forces, which affect Zara‘s
apparel industry, as per industry level. The Porter’s Five Forces Model will be enumerated to
provide the importance of the retail industry Zara.
The Porter’s Five Forces Model is an integral tool, which analyses the competition of the
business. The model is dedicated to the analysis of the business at the industry level, for
evaluation of the attractiveness and the profitability of the company (Meyer and Cohen 2018).
The industry is characterized by the utilization of the micro and macro environmental levels.
Therefore, to assess the significance of environmental factors, the model will be applied in the
context of Zara.
Implementation of Porter’s five Forces in Zara
Threat of new entrants: The entry of the new retail players are high because the apparel
industry, attractive owing to profit and uniqueness. The retaliation of the new players in apparel
industry can set price wars among customers that would be an added advantage for the new
industries. However, by setting high costs and business objectives, the companies or the new
players will be unable to enter the market.
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Threat of Substitutes: The threat of substitutes is usually high, as there are high competitors and
well-branded manufacturers, which have an impact on the functioning of the company. The
buyer’s propensity to switch to the different brands, are high, as there exists some segments of
customers that are can have changes in their tastes and preferences (Bishoff et al., 2018).
Buyer Power: The buying power of customers is high as the buyers are subjected to the
incidence of switching costs, and are not restricted by any means. The brand loyalties of the
customers are more likely to attract designer wear and apparel.
Purchasing power of suppliers: The purchasing powers of the suppliers are always high as the
international trade has an influence over supplier power in the global industry, which decreases
as per competition from the low wage manufacturers. The switching costs of the suppliers are not
very high for the retailers. This creates high expectation of the quality, which is imperative for
the companies.
Existence of rivalry: The degree of high rivalry and competition is high as the price is very
common among the apparel retailers of business. There is incidence of low switching costs
among the businesses.
Therefore, these are some of the vital aspects of the companies, interaction with the Zara’s
environmental forces. At the industry level, the company is judged based on its business
operations and other rudiments, which influence the business of the companies.
3. Demonstrate an understanding of the requirements of a variety of stakeholders to a
chosen organization (LO5)
The stakeholders are investors that implement actions and strategic decisions for the apparel
retailer Zara. It is vital to identify the stakeholders, as they are instrumental in influencing and
analyzing the expectations of a particular project. It is vital to measure the stakeholder analysis
process. This tool is used to identify the key stakeholders that are a part of the company and
prioritise them as per their power and interest. The key stakeholders of Zara are shareholders,
suppliers, clients, employees and society (Li and Skitmore, 2018). Therefore, the stakeholders
and their importance to the company will be plotted on a graph to identify the different types of
stakeholders and their contribution to growth in the company.
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Keep Satisfied
Employees, Society and shareholders
Monitor Closely
Society, Employees, clients
Manage Closely
Shareholders, employees
Keep Informed
Employees, , customers. Shareholders
Interest
Power
HIGH
LOW
Determination of the stakeholders and their mapping process
The stakeholders that hold value in the company Zara are determined as per their power and
interest with the operations of the company. These would be associated with the mapping
process, which is vital for the company. As Zara is a part of the Inditex group, that has 67.000
stakeholders , 1170 suppliers, in 95 countries with 95000 employees. There are both internal
and external stakeholders that are a part of the company and its business. The internal
stakeholders of Zara are shareholders, investors and clients. The external stakeholders are the
suppliers employees and the society.
Figure 1: Stakeholder mapping for Zara
(Source: Created by Learner)
Therefore, there are some of the issues, which should be taken into account for the suppliers that
make the use of monitoring and other processes that affect the company and its business. This is
imperative, as the companies are working towards keeping information on the importance of the
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issues, which measure the companies, initiatives to measure their policies. Therefore, as per the
stakeholder mapping and process, the business, is able to make the use of their important areas,
which bring in better resources, for the company. Therefore, the stakeholders of Zara are given
importance as they are able to bring in profits and productivity for the business. This further
provides a better understanding on the matter, which is related to the management of the
company.
The most important stakeholders are the shareholders, employees and the customers. They
have vast requirements, in the company, which bring in the changes in the company fashion and
help them to function in a smooth manner.
4. Measure and appraise the effectiveness of the responses of organizations to policy actions
taken by key stakeholders (LO6)
Specific Actions taken by Zara to meet stakeholder interest
The company Zara takes into account the usefulness of the stakeholders, who are a part of the
business. The stakeholders are given the primary importance, which lists them as an important
part of the business. Through the identification of the stakeholder and interest, the company is
able to set clear objectives, which are important for the business. Therefore, the key actions,
which are a part of the business, are annual meetings, social ethics committee, Agreement with
Global Union and so on (Adam, 2018). Therefore, to monitor the interest of the company, the
business makes the use of the profit and the annual turnover, which is suffered by the company.
Hence, these are done to monitor and evaluate the concerns of the shareholders and the clients at
different levels. That gives an account of the use of different tools and techniques, which are
done to increase the productivity and the profit of the market.
Measurement of these stakeholder interests
The stakeholder interests are measured through the organisational efficiency and improvement.
With the meetings, the customers are able to make an account of the needs and demand, which
arise in the market. This is useful, as the employees are also able to profits, with the growth and
the efficiency, which is witnessed in the market. The retail suppliers are able to boost the cost
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and the profit of the company, which is imperative as it brings about improvement in the
company.
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