Zara Case Study: Internationalization, Strategy, and Risks Analysis

This case study analyzes Zara, a fashion retail chain under the Inditex group. It explores the best internationalization theory for Zara, identifying the Uppsala model as key. The study evaluates the competitive strategies of Zara, H&M, and Gap Inc., highlighting Zara's advantages in production speed and profitability. It examines the benefits and drawbacks of Zara's multi-brand store strategy, including brands like Massimo Dutti and Pull and Bear. Furthermore, the assignment assesses Zara's success in managing the risk of cannibalization and discusses the pros and cons of a joint venture with Tata in India. The report concludes with an overview of Zara's position in the global fashion market and its future prospects, emphasizing its focus on consumer demand, fast fashion, and international expansion through multi-brand strategies and strategic partnerships.

Zara case study
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
MAIN BODY...................................................................................................................................4
Q1. The best theory that representative of Zara's internationalization........................................4
Q2. Evaluation of the competitive strategy of the three world market leaders...........................5
Q3. The advantages and disadvantages of Zara's (Inditex) multi brand store strategy...............7
Q4. Extent to which Zara has been successful in meeting the risk of cannibalization ...............8
Q5. The advantages and disadvantages of going into a joint venture with Tata in India..........10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12
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INTRODUCTION
Zara is a fashion retail chain which offers clothing and accessories for female. The
organization is based in Artexio, Galicia. It is a part of Inditex group. This fashion retail store is
accessible for everyone, as they offer good quality products at low prices which are affordable
for everyone. Zara’s mission is to be internationally sustainable firm of Inditex Company
(Ghauri and Cateora, 2014). Zara gives rise to fast growing fashion by processing its product of
six month in just two weeks. It unitedly focuses on production, distribution as well as selling its
fashion product at their own store and this becomes complete prototype business for fashion and
retail industry.
The present report is based on a case study of Zara. In this it research about ,the best
theory that represents the internationalisation model adopted by Zara and the competitive
strategy in the three world market leaders in fashion retail chain and these strategy will help
Zara in the global retailing fashion world. This assignment also includes the strategy adopted by
parent company I.e Inditex advantages and disadvantages occurred by adopting these tactics.
Lastly, it includes how successful Zara has been meeting the risk of cannibalisation and there
merits, demerits.
MAIN BODY
Q1. The best theory that representative of Zara's internationalization
As per the case study, the best theory that represents Zara's internationalisation is Uppsala
model. This help Zara in reaching the international market by adopting this model. This model
explains about how companies can be internationalised in the foreign market so that they can
increased their activities. The features of this model in that, firstly it helps in gaining experience
from the domestic market so that we can stand out in this competitive market and then go in
the foreign market to challenged competitive international brands. In this model, they follow
steps so that they can be internationally recognised (Bell and Cooper 2015). The firm firtly target
the geographically those countries which are near and also culturally near to them and slowly it
captures the market at far distant countries. The firm can start its business in traditional manner
and gradually uses the intensive method according to the needs and wants of the consumer in the
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marketplace. The following strategy can be adopted by Zara to be competitive in the
internationalisation market these are as explained below:
Prices are decided not on the basis of cost incurred in the process of production but on the
basis of the consumer demand and supply in the market. Zara adopted the strategy that it will
know his consumer wants and preference and then the will be designed and supplied at the
retailer store. If the fashion accessories are not sold within one week then the product will be
removed from the store and replaced by new ones (Hånell and et. al., 2014). The basis of the
trend will be identified according to the taste of consumer and then price gets decided. Keeping
all these views in mind the zara plan about its product. If the consumer once get satisfied and the
product sold in the market and through those product profit earned will be used for the
expansion of the business in overseas and other places from where the raw materials are
received.
Another strategy executed by Zara is to go on an international level and get recognised in
the overseas market. In this respect, company advertise their fashion accessories and clothing
with the help of opening multi stores chain around various nations (Carroll, 2014). So that they
can execute new trend, fashion demand according to the need and taste and preferences of
different user. So that they can increase their goodwill and capture the attention of the consumer.
Last but not the least, Zara is looking forward to accomplish its production in a flexible
manner so that it cut and fold its strategies according to the scenario. The Zara fashion clothing
company open its stores in a joint venture in the foreign market so that they can be international
recognised to reach at greater heights. As joint venture with the existing and reputed firm can
increase the value of the company that help in been internationally recognised in the market.
Q2. Evaluation of the competitive strategy of the three world market leaders
Competitive advantage is a business concept which describes characteristics and traits
which allows an organisation to perform well against its rivals. Whereas, competitive strategies
are the method in which the business enterprise achieve a competitive advantage in the market
(Hudzik, 2014.). The three main competitor of world market leaders are: Zara, H&M and Gap
Inc. Zara competitive strategy is to produce its product within two week ,.Zara offer latest
fashion to the consumer at reasonable prices which can be purchase by all ages in the market.
The company also produced new products time to time to be competitive in the foreign market.
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The goods which are not purchased or opted less by consumer are replaced with new fashion
trends within one week of time. The company helps in offering new and attractive product to the
consumer according to the taste and preferences of the target market. (Basu, 2014.). Whereas
Gap Inc. is an American clothing and accessories retailer based in San Francisco, California.
Despite its publicly traded status, the founder remains deeply involved in Gap Inc.'s business and
the senior management positions are filled by the family members which shows the company is
fully autocratic. The other competitor is Hennes & Mauritz which later abbreviated as H&M is
Sweden brand and deals in selling of women's as well as men's clothing. The company is
expanding its business by outsourcing and producing more products to the international market.
H&M describes it mission as 'fashion and quality at the best price'.
The three main global retailing i.e. Zara, Gap Inc. and H&M can be competitive to each
other in term of comparison that are as follows:
The net sales of the three competitors are compared then it is found that H&M has the
more sales as compared to others brand. If the sales of H&M is highest then in net profits Zara i
shaving much more profits among these three brands. Sales performance plays an important role
in the organisation to rise their sales as well as the profitability and in this context , Zara's sales
has risen from 10% as compared to previous three years. Whereas, H&M sales has increased by
only 1.5% and Gap Inc decline by 1%. Human resources are the key factors of any organisation
which builds the brand value as well as run the business operations effectively and efficiently. In
comparison of human resources , Zara leads the position by attaining a large number of the
employees as compared to other two companies (Moderandi Inc., 2013.). Zara is the brand of
Inditex Company which have more than 1830 stores of Zara out of 5500 stores whereas, Gap
Inc. has 3100 stores and H&M has 2206 stores globally (Mellahi and et. al., 2010).
The future winner with regard to global retailing in the fashion world
Opening retail outlets and stores are the main purpose of the organization to reach to the
international markets as well as to their customers. Promotional activities are important aspect of
the marketing which attract large number of customers as well as increase their profitability.
Zara is spending less on the promotional activities because the store itself is the main
promotional tool for the organisation whereas, Gap Inc. and H&M are spending more on the
advertising of their brands to attract large target markets. Hence, by comparing these three global
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retailing stores, it can be conclude that Zara is the leading the position among the competitors i.e.
Gap Inc. and H&M. Therefore, this clothing company will be the future winner with regard to
global retailing in the fashion world by its net profits, growth in sales, internal sales, global reach
etc. These aspects plays an important role in the company which strengthens the brand as well as
improves the sales performance.
Q3. The advantages and disadvantages of Zara's (Inditex) multi brand store strategy
Multi brand store strategy defined as the development and marketing of two or more
products and services by the same company under different brand names (Multi Brand Strategy.
2016). Zara has also introduced a multi brand store strategy through brand acquisitions such as
Massimo Dutti for quality and conventional fashion, Pull and bear for casual and everyday
clothes. Berksha for innovative and modern clothing, Stradivarius for trendy, Oysho for lingerie
etc. which allowed Inditex to aim different segments of target markets (Trotter, 2009). The
company manufactured their products more effectively within the domestic market as compared
to the international markets.
Advantages of multi brand store strategy for Zara:
 The company has ability to attract a large number of customers and fulfill their needs and
requirements effectively. By this, the organization increases it market share and leaves
less space for their competitors.
 The firm also generates economies of scale through various promotional activities such as
advertising, social media etc. and the store itself is a promotional tool. Economies of
scale is generates through good sales performance and productivity capacity.
 The manager of the company are bound towards the brand to operate the store efficiently
as internal competition is generated at a high degree.
 The company has high brand value which reduces the additional investments on
promotional activities such as advertising etc. Because the new products are easily
adopted by their loyal buyers which represents the consumers' trust and knowledge about
the new product (Felix, 2014).
 The company is offering various producs to different segments of the market by giving
good quality at reasonable prices that attracts a large number of customers to improve its
sales performances and to rise the profits of the Zara.
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 The multi brand store strategy of Zara also increases the opportunities to expand their
business globally which can leads to source of additional revenue for the business
enterprise.
Disadvantages of multi brand store strategy for Zara:
 The company has to invest high cost for maintaining several brands which could be one
of the major limitation of Zara because it can cause less investment in the improving of
the sales performance and the productivity capacity ..
 Another disadvantages can be risk of cannibalization which reduces the sales as well as
market share of the existing products by introducing new product. Because of this, the
company can't expand its business and its market share due to capturing of the old market
share (Strebinger, 2014).
 When there are multi brands which are owned by a parent company then it is a hard for
the company to manage different brands. In Zara, it is the same problem, it is difficult for
the company to manage many brands under Inditex.
 High expectations from new products is disadvantageous for Zara because customers
expect greater standard of quality from new products. The negative feedback of the new
products may damage the goodwill of other brands of the company.
 When the company is maintaining several brands simultaneously then there is a
possibility of deficiency in brand focus as well as clarity on certain brands.
 Other disadvantages may include brand equity dilution which may decreases the
effectiveness of the brand name because customers are seeing same variety name
everywhere and it may not be consider it in the same faith.
Q4. Extent to which Zara has been successful in meeting the risk of cannibalization
Risk cannibalization refers to the propensity of reducing sales and market share of the
existing product when the organization introduces a new competitive good in the market. In this
situation, the new product doesn't acquires new market rather than its captures the current market
of the company which does not increases its market share (Gruda, 2013). Zara Inditex experience
this situation when the company enters the multi brand store strategy and lately, the company
successfully met the risk of cannibalization through the following ways and they are as follows:
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 Inditex has built a brand portfolio through brand acquisitions and owns many brands
stores in which some are Pull & Bear, Massimo Dutti, Berksha etc. Zara has tackled this
problem by offering different brand products by differentiating by their brands though it
categorized under same apparel products (Sharma and Gassenheimer, 2009).
 The company is providing new products of different brands to all the segments of the
target market which helps the firm to attract a large number of customers and to rise its
profitability. Some brands includes Zara – women, men and children (ages 0-45), Pull &
Bear – women and men (ages 13-23) etc.
 The organization also focuses on the store presentation and its retail image in the target
market. For the store display, Zara is locating its retail outlets and stores far away from
each other so that it can reduces the risk of cannibalization. Whereas, the brand image
and the trust of the loyal customer also plays a vital role in avoiding cannibalization risk.
 Use of the latest and advanced technology is another factor which has been used by the
Zara to overcome the risk of cannibalization. One of the example can be, company's
business model which is different from the competitors which differentiates its new
products from other existing products.
 Zara operates eight brands and these brands are for different customers from different
income level, age according to their needs and wants. The company has the strategy to
identify its customers' needs and requirements and modify its products according to the
tastes and preferences of the target group (Boone and Kurtz, 2015). By differentiating
products and services, Zara has faced the risk of cannibalization well.
 Zara has adopted another strategy in which it is promoting the product rather than the
branding even though they have several varieties. By targeting, segmenting and
positioning different products of target markets, the company have addressed the risk of
cannibalization successfully.
Hence, it is proved that Zara has overcome the risk of losing its customers and gained a
competitive advantage by overcoming the risk of cannibalization. The multi branding strategy
also led this clothing company to create change through innovation in their new products and use
the differentiation policy into keeping a constant supply (Boone and Kurtz, 2014). For any
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organization, it is not a good situation in that new product takes away the sales of the existing
products but in case of Zara, the company has encourages cannibalization as a growth strategy.
Q5. The advantages and disadvantages of going into a joint venture with Tata in India
Joint venture is when two or more companies come together to carry out the business
operations by providing resources and expertise. It also share the profit and loss in the ratio
according to the proportion of the investment or by an agreed percentage (Jancenelle, 2015).
According to the Indian policy on Foreign Direct Investment (FDI), in which foreign company
can set up its businesses through joint venturing only. So according to this policy, Zara teamed
up with the Tata Group, India to form a joint enterprise in which Inditex has share of 51% of this
collaboration while Tata holds 49%.
Advantages of going into a joint venture with Tata:
 The company can increase its sales as well as income in business market and can also
leads to growth potential because in India, there is a growing demand for clothing which
are sold with foreign labels (Hassan and Craft, 2012).
 It can be easy market penetration for Zara because Tata Group is well established brand
in India which may help the company to expand their business in the Indian market.
 Tata Group is a foreign collaborator of Zara which may help the organization to access
new market globally or in other countries in which Tata is already connected with.
 By joint venturing with Tata, Zara can enjoy various advantages such as improved
technology, its capital as well as company's expertise.
 Other advantages which can available from Tata are ability to share the cost and risk with
the partner and to diversify its products among customers (Stewart and Maughan, 2011).
Disadvantages of going into a joint venture with Tata:
 The major disadvantage of joint venture with Tata is difference in culture and style of the
business which may lead to unlimited growth for the company because it will not fulfill
the needs and requirements of the customers.
 The cultural differences may play a major role in poor co-operation within both
companies i.e. Tata and Zara in which problems may arises in operating as well as
continuing with the business.
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 The other disadvantage can be the strict rules and regulations of the Indian government
that imposes it on overseas investments which may harm the relationship between the
two companies (Campbell, 2009).
 There will be a risk of losing trades secrets to the Indian apparel industry. India is
manufacturer and exporter of apparels to other countries which may also leads to tough
competition between these two organizations.
CONCLUSION
Zara is leading global retailing brand in fashion world which is expanding its business
internationally and also rising profitability. The best theory which represents Zara's
internationalisation is Uppsala which helps the company in reaching the international market.
Zara also emerged as a winner among the world market leaders in regard to the competitive
strategy which is following by the company to achieving the objectives. The company uses two
strategies to improve its sales performance that is multi branding store strategy and joint venture
with Tata Group. The company overcome with the situation by the risk of cannibalization
through its multi brand strategy. Zara has proved their strategies that any company can
overcome the risk of losing its customers and can gain competitive advantage by achieving their
business objectives through its net profits, growth in sales, internal sales, global reach etc.
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