Business Strategy Report: Comprehensive Analysis of Zara Company

This report provides a comprehensive analysis of Zara's corporate strategy, encompassing both external and internal factors. The external analysis utilizes the PESTEL framework to assess political, economic, social, technological, environmental, and legal factors impacting Zara, along with a 5-force model to evaluate industry attractiveness. A SWOT analysis highlights Zara's strengths, weaknesses, opportunities, and threats. The internal analysis delves into Zara's value chain, examining primary and secondary activities, and applies the VRIO framework to assess the company's resources and competitive advantages. The report aims to provide a detailed understanding of Zara's strategic positioning and performance within the clothing industry.

Applied corporate strategy

TABLE OF CONTENTS
Q1 External analysis........................................................................................................................3
Q2 Internal analysis.........................................................................................................................7
Q3 Evaluation................................................................................................................................11
REFERENCES..............................................................................................................................14

Q1 External analysis
Present report is based on Zara company which is a one of the most popular brand in the
clothing industry. Clothing industry has grown its market share by approx. 5.46%. it is a very
huge industry where fashion keeps on changing. To sustain in the market company need to
produce latest trending clothes as per the changing need and demand of the customers. Zara
started in 1975 and remained loyal with its core values i.e. clarity, beauty, sustainability and
functionality. The objective of the company is to attract customers by bringing fashion and
enhance the quality of service (Rugman and Verbeke, 2017). The strategy of the company is
customer based i.e. to make a long lasting relation with its customers and respond to their ever-
changing needs and respond to customer feedbacks and enact to the new trends. External
analysis will show PESTEL, 5 force and SWOT of Zara.
PESTEL: This analysis will show the opportunities and threats of the company.
 Political factor: This is the most important factors which affect all the companies
through change in the political policies. Political instability results in the change in the
economy. Zara faced problems due to change in political environment such as difficulty
in supply chain which affect the distribution channel of company. This is a big threat to
the firm. Company has overcome this problem by limiting supply chain to its
neighbouring countries.
 Economical factor: Due to change in the policies and procedures of the country, it
changes the rates of interest, inflation and foreign exchange. Fast growing economy of
Spain is in favour of Zara, company found an opportunity to increase its overall sales in
the clothing industry (Poplawska and et.al., 2015). There was high unemployment due to
high population, Zara identified the problem and provided employment to people at low
cost which reduces the price of a product and attracts customers.
 Social factor: These factors are one of the most essential element that need to be taken
care as a part of CSR activities. Company need to produce according to the social trend.
It is the responsibility of business to keep society happy. Company also need to take care
of cultures while making a product. Zara also research about the new market, cultures
before making a products. Firm has an opportunity to attract new customers by providing
them products and services according to their need.

 Technological factor: Technology is changing rapidly in terms of communication,
transport and other aspects (Cooper, 2017). Every part of business is affected by the
technology i.e. manufacturing, production and supply chain. Zara saw an opportunity and
adapted new technology to increase its profits. Company respond to the demand of
customer quickly and communicate with the supply chain. Technology has reduced the
work pressure thus company manages its inventory properly and provide good customer
service.
 Environmental factor: Environment is the the concern of every business in the market.
Zara has invested in the the environmental factors and ensures that the stores of the firm
will consume less water and energy as compared to other companies. Organisation also
produce its garments from recycled wool, organic cotton under the name “join life”.
 Legal factors: There are many laws which affect the business so company need to
follow. Every business need to be conducted ethically so that it sustains for longer period
(Eccles and Youmans, 2016). Big fashion companies like H&M, Zara need to protects its
products and designs by copyrights, so that it cannot be copied or misused by
competitors. Zara is focused on building positive brand image by doing business
ethically. Company has also invested in the trademarks and copyrights to protects it
intellectual property.
5 force model: This analysis will evaluate the attractiveness of industry.

 Bargaining power of buyers: Industry has a moderate pressure in-spite of change in the
economy. Clothing industry is continuously growing stronger and so is the competition.
Price of the products and services, high differentiation and low switching cost of buyers
are implications that competition is increasing. Customers of Zara is middle class and
upper class thus they have high purchasing power and more disposable income. Buyers
need more innovative and fashionable products (Porter's 5 force, 2019).
 Bargaining power of suppliers: Industry has low pressure because due to globalisation
of the trade, power of suppliers go down through competition from the producers at low
cost. Zara provide license contract to the suppliers through which supplier has power to
stick to the specific provisions which minimises the pressure (Li, Hsieh and Chang,
2016).
Illustration 1: 5 force
(source: Porter's 5 force, 2019.)

 Threat of new entrants: Industry faces high pressure of threat because clothing industry
has grown rapidly which attracts new competitors to enter in the markets. The strong
brand that exist in the industry are Zara, H&M and Gaps. Zara is a reputed brand and
with its supply strategy it makes difficult for new entrants to reach different geographical
locations.
 Threat of substitute products: Industry faces moderate pressure. Clothing has a vast
market and diversified into various social class demonstrating every company its personal
identity (Tasgit, Şentürk and Ergün, 2017). Duplicate fashion or copy of the original
brand can be a threat to the companies. The reason behind this issue is the products
available are too costly and poor quality. Zara produces and sell its products at lower cost
with high quality products. Its products are affordable and manufactured with the natural
material.
 Rivalry against existing competitors: Industry faces high pressure because there are
chances that small firms entering in the industry. From the past 5 years industry
performance is average. Zara has many rivals but still has loyal customers. There are high
chance that buyers will switch brands.
SWOT analysis:
 Strengths: Zara has a strong supply chain because company has give license contracts to
its suppliers so they cannot go anywhere (Rao and Tilt, 2016). Company has a good
knowledge of new technologies, innovation and use in attracting customer and provide
good customer service. One of the important strengths of Zara is that firm provides low
cost product with high quality.
 Weakness: Zara weakness is lack of presence in growing markets, inefficient marketing
strategies, gap of product range. Companies organisation structure is incompatible with
the current business model which limits the expansion of business.
 Opportunities: Zara need to invest in the marketing activities in order to attract huge
customer base. Company need to increase its online presence and focus on social media
marketing (Sari and et.al., 2018). Firm may also expand in new economies where the
economy is in favour of the company. Organisation need to expand its retail channel in
different corners of the world.

 Threats: Zara faces regulatory issues while expanding its business in the new markets.
Political instability and continuous change in the policies affects the brand. As company
provides low cost products, if the price of raw material increases there may be a threat to
Zara in offering low price products and services (Trigos and López, 2018).
Q2 Internal analysis
Value chain analysis:
It is a process where business model describes the activities need to be conducted in
producing a products and services. It is an activity which a company carries out to provide value
to customers. It is a visual analysis of business activities. It includes 2 activities i.e. support and
primary activities. Company need to take value chain analysis to give equal importance to the
activities (Value chain analysis, 2018).
Primary activities: It is involved in the production and sale of products to the potential
customers. It includes following activities (He and Balmer, 2017).
 Inbound logistics: In this step Zara develops a relation with suppliers to manufacture
and sell its products to target customers. Company faces problems in product
development, inbound logistics helps company to focus on every aspect i.e. raw material
Illustration 2: Value chain
(source: Value chain analysis, 2018.)

converted into finished goods. In this activity raw materials are distributed to start
production.
 Operations: The importance of operation in value chain is to analyse when raw material
come. Zara is in order to process the material into finished goods and than launch the
product. Operation activities include packing, assembling, testing and repair of
equipments. It is essential to analyse operation activity to improve productivity (Rugman
and Verbeke, 2017).
 Outbound logistics: It is the activity where products are delivered to the customers after
passing through different intermediator which includes material handling, scheduling,
warehousing and transporting to the final destination. Zara analyse this logistics to
identify the core competencies so that company gain a competitive advantage to grow
business.
 Marketing and sales: In this stage Zara will spot the benefits, features and
differentiation points offered as compared to the products of competitors. Only producing
low cost products with high quality is not sufficient, company need to invest in marketing
activities also e.g. channel selection, promotions, advertising and pricing strategies
(Poplawska and et.al., 2015).
 Services: It plays an important part in the whole value chain analysis. Company need to
take care of both the services i.e. pre-sales and post-sale services. Zara need to also
provide both the services which help company to gain loyal customers. Post-sale services
provided to customers give them value.
Secondary activities: It plays a major role in supporting, facilitating and coordinating the
primary activities.
 Firm infrastructure: It includes various activities like financing, planning, accounting,
handling legal matters etc. Effective management of infrastructure allow Zara to add
more value in the value chain process. Company need to control its infrastructural
activities to gain competitive advantage in markets (Cooper, 2017).
 Human resource management: It is the most important resource in whole value chain
management which helps company to run its business. Zara performs various HRM
activities like hiring, recruiting, selection and performance appraisal for professional

development. Effective HR practices in Zara reduces the pressure of competition.
Company benefits in hiring skilled employees so that objective is achieved.
 Technology development: Value chain depends on the technology. Technology has
changes the way of producing a product. Zara identified the importance and then
implemented new technologies to provide fast service to customers, product development
and market research (Eccles and Youmans, 2016).
 Procurement: It consider the process which includes production of products from raw
material to finished goods and purchasing inputs. Zara need to be careful in considering
all the procurement activities to achieve organisation goals.
VRIO framework:
It is a strategical analysis designed to aid company to protects its resources and
competitive advantage which makes company capable to innovate and produce for longer period
of time. It has 4 elements i.e. value, rarity, Inimitability, Organisation.
 Value: It uses human resource data to recruit and retain employees for longer period.
These resources are used as advantage which provide opportunities. They reduce the
consequence of danger. It may benefit company both externally and internally. It
considers technology, political, economical and social factors (Li, Hsieh and Chang,
2016).
 Rarity: This kind of resources are rare in the company which is a strength for the firm.
From the rare resources Zara gains a competitive advantage. It can also be a weakness
because if a resources is less than it can be finished or fully utilized.
 Inimitability: These resources are difficult to take because they cannot be copied. It is an
advantage for the company. It may be useful for identifying opportunities or avoid threats
in the market. Companies tries to substitute this resource if its less (Tasgit, Şentürk and
Ergün, 2017).
 Organisation: Once the resources pass all the three requirement than company needs to
distribute the resources in all the departments so that goal is achieved. All the department
of the Zara company need to utilize all the resources effectively and efficiently.
This model provides a clear image of the position of the company and evaluate the
performance of each department.

Value chain activities Value Rarity Inimitability Organisation
Primary activities
Inbound logistics
Operations
Outbound logistics
Marketing and sales
Services
Secondary activities
Firm infrastructure
Human resource management
Technology development
Procurement
Zara has 1 distinctive competency which is valued by the customers i.e. technological
development.
Technological development: Continuous change in the technological affects the way business is
run. In today's era, all the activities running in the business supports technology. This activity
supports the development of goods and services e.g. IT technology innovation and developments
of new products. These activity creates value to customers. It deals with the hardware,
equipments, software, technical knowledge to convert inputs into outputs. This activity benefits
Zara to produce fast at lower cost. It improves the efficiency of work (Rao and Tilt, 2016).
It is very beneficial for the company to increase the productivity by projecting the
inventory needs by production department and ensure correct production level. It also reduces
waste in the production of products. Zara also uses big data to collect the past data and analyse
them to understand to forecast the consumer behaviour, needs, wants and their preference. It is
beneficial for company to generate new leads, generate repeat sales, forecasting future sales,
improvement of supply chain.

Zara uses technology in providing customer service. For enhancement of its quality of
service, company implemented technologies to maintain a strong relation with the customers and
provide high quality service. Firm uses RFID (radio frequency identification technology) to track
locations and make demand quickly available. This technology has helped organisation to
manage its inventory properly (He and Balmer, 2017).
Technological activity supports VRIO framework as it provides value to customer by
satisfying the needs and wants of the customers as fast as possible. It is rare because every
company is not able to adopt the changes due to lack of funds. It is imitable means it cannot be
copied, companies need to develop the technologies. Organisation always support new strategies
to achieve its objective quickly.
Q3 Evaluation
Zara uses advance technological strategies which has helped company to gain a
competitive advantage. Advancement in the technology has helped firm in providing good
quality of customer service. The most important client in the clothing industry is customers.
Company need to satisfy the needs of the company in order to increase profitability. The main
objective of Zara is to attract new customers by providing them attractive fashion and improve
the quality of service given to the customers (Cooper, 2017). For improving customer service
company uses advance technology strategy which is beneficial for company to fulfil the needs of
the customers.
Company need to evaluate the suitability, acceptability and feasibility of the strategy by using
SAFe model.
 Suitability: This technology is suitable for the development of business and attract new
customers. Every customer expects that problem is solved as soon as possible, technology
helps company to responds to the problem of customers and satisfy them. It is suitable for
Zara to use new technologies because it helps business in expanding. Through using
technologies company has increased its profits from past 4 years i.e. 2018 profit was
€26145. this strategy is suitable because company has increases number of employees, it
encourages women and has 75% female in the company (Tasgit, Şentürk and Ergün,
2017). Organisation also engages with the customers through online platforms in
identifying their preference, purchasing trends and wants so that company may provide
products according to their needs. Zara has online platforms in 153 markets. Technology

has benefited company in innovating its products by identifying new trends in the market.
Company has combined their physical and online stores to engage customers with the
brands and increase interactions, company has developed its existing technologies and
implement new technology. Overall growth of the company is increased by 5% in 2018.
 Acceptability-it is strategy model that can measure and analysed the return and risk of
the stakeholders' reaction from a specified strategy returns can be measures based on the
benefits that the stakeholders expect from the strategy ,as it can be financial and non
financials depends totally on that stakeholders decide. Zara stakeholders calculate the
returns by methods such as cost benefits, analysis, real options analysis and also
profitability analysis, shareholder values. Effects of the acceptability of various
stakeholders (Cooper, 2017).
Investors- with the advanced technology new product came into existence and this leads
to the profit in the organisation, thus increase the profitability and ultimately leads to the profits
to the investors.
Employees- Advanced technology leads to the more incentives as business will enhance
through the help of advance technology and this leads to make the more incentive to the
employees and motivate them also it makes more loyal toward the Zara .
Managers-as managers needs more promotion and thus get the promotion with the help
of advanced technology .managers of Zara get the promotion time by day as they introduce many
technologies such as RFID technology and also makes them motivate to accept the new
technology so that they also get the promotion.
 Feasibility- feasibility portion of the SAF strategy model can genuinely make or break
any strategy which is chosen (Tasgit, Şentürk and Ergün, 2017). Financial feasibility
needs to be evaluate forecasting as well as analysing the cash flows which can also
perform the break even analysis and other financial tests. There are several other which
can be asked related to the strategy's feasibility such as manpower, materials,
management power and also equipment. Zara company asking by their own as they have
organisational structure as well as market necessity is to make a specified strategy work.
It is an easy way to remember that everything need to evaluate for feasibility is to use the
M-word model i.e. machinery, money, markets, materials ,management and also make-